Antitrust Complaint Against Mall Giant

SOUTH BEND, Ind. (CN) - Simon Property Group, the largest public real estate company in the nation and a major force in shopping malls, uses threats, bullying and other "anti-competitive tactics" against its own tenants to stop them from leasing space from competitors, the owner of a single small mall says in a federal antitrust complaint.

Simon owns or has interest in 382 properties containing 245 million square feet of leasable area, and owns 335 malls in the United States, Gumwood HP Shopping Partners says in its 19-page complaint. Simon's properties include The Mills, Premium Outlet Centers, and other regional malls.

Gumwood's one mall, Heritage Square, in Mishawaka, Ind., has 179,353 square feet of leasable space, with 230,000 square feet expected when it's done. Simon's University Park Mall in Mishawaka is far larger: 923,000 square feet.

Gumwood says Simon doesn't play fair, and bullies its own tenants.

"Simon has a pattern of abusing its significant state, regional and national market power to induce its retail tenants into complying with Simon's wishes," according to the complaint. "Upon information and belief, the types of anti-competitive tactics that Simon commonly employs include threats, explicit or implied, to do the following: (1) refusing to renew existing leases or making renewals conditioned upon the tenant not opening stores in a competing development in another market; (2) requiring a tenant to relocate a store (as well as bear the cost of relocation) without giving it an opportunity to renew an existing lease as a means of preventing the tenant from opening a store in a competing center; and (3) increasing rates or otherwise making the terms of renewals less favorable in retaliation if a tenant opens a store in a competing center."

Gumwood claims Simon killed a lease deal for key tenant Ann Taylor Loft to move into Heritage Square.

"Securing several of these key tenants is important to attract other potential tenants and they generally insist on a provision in their lease that requires the presence of certain co-tenants or types of co-tenants," Gumwood says.

Ann Taylor Retail signed with Gumwood in 2006 and construction of Heritage Square began, according to the complaint. The shopping center was appraised at $46.3 million.

Gumwood says that Simon found out about the deal and pressured Ann Taylor executives to cancel its Heritage Square lease.

"Until 2008, Gumwood and Ann Taylor continued negotiations with Ann Taylor concerning opening the Loft store in Heritage Square. Meanwhile, Simon continued to exert pressure on Ann Taylor not to open a store at Heritage Square and to open a store at University Park," the complaint states.

Eventually, a newspaper article announced that Ann Taylor would open its store at Simon's University Park.

"Although key Ann Taylor executives believed that the Heritage Square Deal was the right deal to do, they ultimately did not open at Heritage Square as a result of the pressure and anti-competitive tactics employed by Simon," Gumwood claims.

"Simon's anti-competitive tactics were successful because of Simon's leverage over Ann Taylor arising from the substantial number of leases that Ann Taylor had with Simon, including but not limited to those in Indiana."

Gumwood's complaint names 11 malls that Simon owns in Indiana. It claims Simon uses its market power to squash competition - and has meddled with other developers' retail deals.

"One former Simon employee reported that there was a big meeting of various Simon executives (including but not limited to President and Chief Operating Officer Richard Sokolov, Senior Executive Vice President Gary Lewis, and Executive Vice President Viki Hanor) concerning Mishawaka in which they discussed their intent to kill the Heritage Square deal. This former Simon employee also indicated that Simon's tactics regarding Mishawaka is like what happens all over the country," the complaint states. (Parentheses in complaint.)

Gumwood claims Simon also pressured clothing stores Coldwater Creek, Lane Bryant and Eddie Bauer to back out of their Heritage Square leases. Coldwater Creek stayed with Gumwood and Eddie Bauer negotiated a reduced rent based on the loss of Ann Taylor.

Gumwood seeks compensatory and treble damages for monopolization and restraint of trade. It is represented by Henry Price with Price Waicukauski of Indianapolis.

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