Reported / Citable
Background
STORE Master Funding XXIX leased 24 Houston-area commercial properties to Triangle Capital Properties in 2016, and Royal Texas guaranteed Triangle’s obligations. Triangle and Royal operated Church’s Chicken franchises at the properties through agreements with Cajun Global, which terminated those franchise agreements in March 2022. The defendants stopped paying rent in December 2022, and STORE took possession in March 2023 before suing for past and future rent and other damages.
During discovery, the defendants sought information and documents concerning STORE’s efforts to mitigate its damages, including leasing activity, listings, brokers, and related communications. STORE disclosed advertising efforts but did not disclose negotiations for a replacement lease. Two days after discovery closed, STORE executed a replacement lease for all 24 properties with Church’s Houston Holdings. STORE first disclosed excerpts of that lease by attaching them to its later summary-judgment motion.
The Court’s Holding
Magistrate Judge Dena Hanovice Palermo granted the defendants’ Rule 56(d) motion to continue and deferred consideration of STORE’s summary-judgment motion until supplemental discovery is completed. The defendants adequately identified focused discovery concerning the replacement lease, negotiations and communications with the new tenant, mitigation materials, and possible connections between Church’s and Cajun.
The requested discovery could create a material fact issue on the defendants’ mitigation defense. Under Texas law, a commercial landlord must use objectively reasonable efforts to fill abandoned premises, and the reasonableness of those efforts is ordinarily a fact question. The court rejected STORE’s position that replacement-lease negotiations were legally irrelevant, particularly because STORE relied on the replacement lease as evidence of mitigation in its summary-judgment motion.
The court also found the defendants diligent. Their requests for information concerning all mitigation efforts encompassed lease offers and negotiations, and STORE’s responses did not fully disclose that information. Because STORE failed to timely disclose material relevant to mitigation, a limited continuance was appropriate. The defendants’ alternative requests for a new scheduling order and discovery extension were moot.
Key Takeaways
- A Rule 56(d) continuance is warranted when targeted additional discovery may materially affect a summary-judgment defense and the nonmovant pursued discovery diligently.
- For commercial leases, replacement-tenant negotiations can bear on whether a landlord made objectively reasonable mitigation efforts.
- A party cannot withhold relevant mitigation information in discovery and then rely on a later-disclosed replacement lease to support summary judgment.
Why It Matters
The order underscores that mitigation discovery in commercial-lease disputes reaches beyond advertisements and completed transactions. Communications, offers, and negotiations with potential replacement tenants may be central to testing the reasonableness and timing of a landlord’s efforts.
It also illustrates the procedural risk of late disclosure: when a movant first produces material mitigation evidence with a summary-judgment motion, the court may defer the motion to permit a meaningful response on the merits.