(CN) – Heinz must face claims that it refused to remedy over $1 million worth of anchovy “malodor” that continues to permeate nearly every corner of a warehouse it used to make steak sauces, a federal judge ruled.
Fairlawn Industrial Properties LLC says it leased industrial and warehouse space to H.J. Heinz Co. L.P. and Lea & Perrins Inc. for manufacturing steak sauces and marinades in Fair Lawn, N.J. in December 2006.
About seven years later, however, Heinz allegedly sent Fairlawn a letter stating that it planned to terminate the lease, effective Feb. 3, 2014.
Fairlawn claims it demanded that Heinz leave the premises in good rentable condition, except for ordinary wear and tear, as the lease required.
Yet while the parties jointly inspected the building, commercial building consultants found interior and exterior structural damage and a “terrible odor,” Fairlawn says.
Indeed, an industrial hygienist allegedly said the “malodor, best described as ‘fishy,'” was caused by the steak sauces and marinades – particularly the anchovies used as ingredients.
The hygienist recommended remediating the entire space to remove the stench permeating the concrete flooring, drywall, ceiling tiles and HVAC ducts, according to Fairlawn.
The consultants also noted damage to the building’s mechanical, electrical, and plumbing systems, and blamed it on Heinz, Fairlawn claims.
The expected remediation costs top $1 million, and the premises are currently unfit for occupancy by a commercial tenant, according to Fairlawn.
But Heinz has refused to remedy the damages, despite Fairlawn’s requests and the lease’s requirement that Heinz “make all non-structural repairs,” Fairlawn claims.
Though the sauce maker had said in February 2014 that it would vacate the premises as of Oct. 31, it did not surrender the building until a month later, on Nov. 30, 2014.
When it did, Fairlawn says, Heinz left a steel support structure on the roof and a water filtration shed and subterranean tank in the yard, in violation of lease provisions.
Heinz quit paying rent as of Dec. 31, 2014, and Fairlawn sued the firm on March 13, 2015.
The complaint alleges breach of contract and guaranty, bad faith, common law fraud, and lost rent and diminution in value.
Heinz moved to dismiss the bad faith and fraud claims for failure to state a claim.
But U.S. District Judge William Walls partially denied the motion Aug. 4.
“Heinz misrepresented its intention to remediate the damage it caused,” Walls wrote. “The misrepresentation was material because it related to Heinz’s obligations under the lease and the future rentability of the premises. Heinz knew this representation to be false, and intended Fairlawn to rely on it, so Fairlawn would extend the termination date. Fairlawn allowed Heinz to stay. Fairlawn was damaged because, absent this extension, Heinz would have had to pay Fairlawn twice the rent as a holdover tenant.”
The economic loss doctrine does not bar the fraud claim, the unpublished ruling states.
“Although Heinz was obligated to remediate any damage, it was Heinz’s alleged knowingly false ‘reaffirmations’ of its obligations as its lease was about to expire that induced Fairlawn to extend the termination date,” Walls wrote.
But the judge dismissed the bad faith claim, finding that “Fairlawn does not seek to read additional terms into the lease, expose a pretext for Heinz’s termination of the lease, or remedy Heinz’s unfair exercise of discretion. Fairlawn merely seeks to enforce the contract. Heinz’s use of the premises to make sauce was no surprise to Fairlawn.”
The Kraft Heinz Co. reportedly netted over $4.5 billion in revenue from April to June this year, and sales totaled $10.9 billion in 2014.
Courthouse News is awaiting comment from the parties.
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