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Let the Crier Beware

A recent decision by the U. S. Court of Appeals for the Third Circuit (New Jersey) expanded the potential liability of parties who attempt to oppose or delay competing real estate developments.

In this case, Hanover 3201 Realty, LLC v. Village Supermarkets, Inc., D. C. Civ. No. 2-14-cv01327, decided on November 12, 2015, Village Supermarkets, the owner of several New Jersey Shop-Rite supermarkets, sought to oppose and delay development of a nearby property as a competing Wegman’s supermarket by filing numerous administrative and court challenges to the developer’s permit applications. The Court decided that a cause of action existed by Hanover Realty against Village Supermarkets on antitrust grounds, even though Hanover Realty was a developer, not a grocer, and thus not a direct competitor of Village Supermarkets. In its decision, the Court also found that Village Supermarkets’ actions constituted sham litigation and therefore were not protected by the so-called Noerr-Pennington doctrine, which provides immunity from liability for those who petition the government for redress of grievances.

In this case, Hanover Realty entered into a lease and site development agreement with Wegman’s to construct a supermarket in July 2012, contingent on receiving all permits needed for the development. Village Supermarkets opposed the permitting process throughout, by (1) attempting to vacate a New Jersey environmental department permit on technical grounds; (2) asserting that the site could be a suitable habitat for Indiana bats (the developer conducted a survey, and no protected bats were found) and filing a complaint with the U. S. Fish and Wildlife Service, even though the onsite wetlands were not federally regulated; (3) arguing to the NJ Department of Transportation that the developer was required to build an overpass over a nearby highway before proceeding; and (4) filing an action to nullify certain development approvals after raising no objections during the year-long approval process.

Hanover Realty sued Village Supermarkets in federal court, on the grounds that the numerous administrative objections and state court actions constituted a pattern of anticompetitive shams designed to delay the project for as long as possible, so that Wegman’s would terminate its lease or that the project would run up such high costs that Hanover Realty would be forced to abandon it, thus keeping Wegman’s out of the market.

A lower court dismissed Hanover’s suit on the grounds that Hanover was not in the supermarket business, was not a direct competitor of Village Supermarkets, and therefore did not suffer any type of antitrust injuries or damages. Hanover appealed this decision to the Court of Appeals, which reversed the lower court’s decision in part and found that Hanover Realty’s injuries were “inextricably intertwined” with Village Supermarkets’ attempts to monopolize the market via its unfounded challenges of Hanover’s plans to construct a Wegman’s supermarket, with an intent to interfere with a prospective competitor and restrain trade. Phrases such as “objectively baseless,” “no merits,” and “bad faith” were used in the decision.

Village Supermarkets argued that it was insulated from liability by the Noerr-Pennington doctrine, which takes its name from a pair of U. S. Supreme Court cases that provided broad immunity from liability for those who petition the government for redress of grievances. The Court of Appeals quoted the Noerr case, which recognized that this protection is not absolute and that it does not cover “sham” actions taken primarily to interfere with business relationships of a competitor. The series of proceedings engaged in by Village Supermarkets was viewed by the Court as a method of attempting to delay or kill the competing Wegman’s project.

The case has been sent back to the lower district court for a decision on the merits as to the issues, so it has not been fully adjudicated. But it certainly provides warning to potential opponents and protection to developers against sham-type claims and abuse of the regulatory or entitlement process aimed to thwart competition. Let the Criers Beware!