Matthew Jacobs
(805) 601-7504 www.jacobslawfi rm.com matt@jacobslawfirm.com 5743 Corsa Ave., Ste. 208, Westlake Village, CA 91362
June 24, 2025
John M. Funk
City Attorney
City of Downey
c/o Kerry Dienelt
[email protected]
Billy Brace
Investec Management Corporation
200 E. Carrillo Street, Suite 200
Santa Barbara, CA 93101
[email protected]
Via Email and Certified Mail
Re: Prelitigation Demand
Dollar Tree Stores, Inc. v. City of Downey and Downey Landing SPE, LLC Dear Mr. Funk and Mr. Brace:
This firm is litigation counsel to Dollar Tree Stores, Inc. (“Dollar Tree”), which currently operates more than 9,000 Dollar Tree stores throughout the United States and Canada as a subsidiary of the publicly traded Fortunate 500 company Dollar Tree, Inc. Dollar Tree was founded on the belief that quality products at an affordable price should be accessible to all, and for more than 30 years, it has been dedicated to creating value for its customers, associates, shareholders and communities across America. One of those communities is Downey, where Dollar Tree proudly operates three stores.
Around six weeks ago, Dollar Tree publicly announced plans to open a fourth store in Downey, in the old Party City Corporation (“Party City”) location at Downey Landing Shopping Center (the “Shopping Center”). Unfortunately, instead of welcoming this news, the City of Downey (the “City”) and the Shopping Center’s owner Downey Landing SPE, LLC (“Downey Landing” and together with the City, “Defendants”) undertook coordinated efforts to prevent Dollar Tree’s occupancy.
Defendants’ actions not only deprive Downey residents of convenient access to high- quality and affordable products (and threaten dozens of jobs), but as detailed in Section II of this letter, they also violate a binding federal court order, provisions of the United States and California Constitutions, California common law, and Dollar Tree’s rights under the lease agreement it assumed from Party City.
Dollar Tree has attempted to resolve this matter amicably, consistent with its values and what it believes to be the best interests of both the company and the community. But to date, these efforts have not been reciprocated. Accordingly, Dollar Tree has retained this firm to investigate and, if necessary, pursue claims against the Defendants related to their efforts to prevent Dollar Tree from opening at the Shopping Center.
John M. Funk and Billy Brace
June 24, 2025
Dollar Tree is hopeful that the parties will be able to resolve this matter without the need for litigation, and it looks forward to productive discussions toward that end. But if Defendants reject Dollar Tree’s invitation to engage in good faith and persist in their misconduct, Dollar Tree will not hesitate to vigorously pursue its claims in court.
You may contact my office within 10 business days of the date of this letter to schedule a settlement conference, or you may contact Dollar Tree personnel directly1 within that same period to discuss resolution. If good faith discussions have not begun during that period, Dollar Tree may seek judicial intervention—through the filing of an adversary proceeding in In re Party City Holdco Inc., Case No. 24-90621 (S.D. Tex. Dec. 21, 2024) and/or the filing of a standalone action in United States District Court for the Central District of California.
I. Background
The relevant facts are well known to you. On October 28, 2005, Downey Landing2 entered into a lease agreement (together with subsequent renewals, the “Lease”) with Party City to lease approximately 10,000 square feet of retail space (the “Premises”) within the Shopping Center. The Lease incorporated by reference a Ground Lease executed between the City and Downey Landing on August 10, 2004. See Lease Art. 47.
Pursuant to the Lease, Party City operated at the Shopping Center for nearly two decades, until December 20, 2024, when it announced the immediate closure of its store at the Shopping Center. See Downey Patriot, Party City at Downey Landing to close as company goes out of business (Dec. 20, 2024). The next day, December 21, 2024, Party City’s parent company and affiliated entities (together, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Action”) in United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). See generally In re Party City Holdco Inc., Case No. 24-90621 (S.D. Tex. Dec. 21, 2024).
Shortly after Debtors commenced the Bankruptcy Action, Dollar Tree and the Debtors entered into a Designation Rights Agreement, which assigned various Party City lease agreements—including the Lease at the Shopping Center—to Dollar Tree. See id. Dkt. 818, Ex.
B. As further detailed in Section II.A.1 below, Downey Landing received timely notice of the Designation Rights Agreement and proposed Lease assignment, but failed to appear in the Bankruptcy Action, let alone assert objections to either the Designation Rights Agreement or the proposed order approving assignment of the Lease. On April 24, 2025, the Bankruptcy Court
1 California Rule of Professional Conduct 4.2 prohibits direct communications between attorneys and represented parties. In the interest of promoting efficient resolution of this matter, Dollar Tree waives Rule 4.2 until further notice.
2 For simplicity, the defined terms “City,” “Downey Landing,” “Dollar Tree,” “Party City” include their agents, employees, attorneys and any predecessors in interest.
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June 24, 2025
entered a final and binding order approving the Designation Rights Agreement and the assignment of the Lease to Dollar Tree (the “Assignment Order”). See id. Dkt. No. 1240.
In accordance with the terms of the Assignment Order, the Designation Rights Agreement, and the Lease, Dollar Tree proceeded with its plans to open for business at the Shopping Center. Among other things, it submitted applications (and fees) for tenant improvement permits, which the City initially accepted for review. Local media reported the imminent opening. See, e.g., The Downey Patriot, Dollar Tree to open at former Party City location in Downey Landing (May 1, 2025).
Then, to Dollar Tree’s surprise and disappointment, it began receiving pushback—first from Downey Landing and then from the City. On April 29, 2025, for example—five days after the Bankruptcy Court issued the Assignment Order—Downey Landing informed Dollar Tree of four putative “occupancy issues” that, according to Downey Landing, “need[ed] to be worked out if Dollar Tree is to operate at Downey Landing.” See April 29, 2025, Email from Billy Brace to Mike Zoob. Of course, the time to “work[] out” any such issues was during the Bankruptcy Court objection period. Downey Landing’s failure to raise these supposed “occupancy issues” with the Bankruptcy Court resulted in their waiver, rendering Downey Landing legally powerless to prevent Dollar Tree from opening its store.
Presumably aware that it had waived its right to object to the Lease assignment, Downey Landing framed the putative “occupancy issues” as an exercise not of Downey Landing’s authority, but of the City’s. Downey Landing specifically advised Dollar Tree that, “The existing Party City premises are on a ground lease with the City of Downey. Will need to coordinate the assignment in accordance with the procedures established by the City ground lease.” Id.
There is little doubt that Downey Landing coordinated with the City before informing Dollar Tree of the putative “occupancy issues.” Indeed, Downing Landing purported to speak for the City itself in its April 29, 2025 email, representing to Dollar Tree that “the City did not receive notice of the proposed assignment.” Moreover, Dollar Tree’s subsequent communications with both Downey Landing and the City indicate that—even if Downey Landing failed to notify the City of the proposed assignment before the end of the Bankruptcy Court objection period—it discussed the matter with the City after that window had firmly closed.3 About two weeks after Downey Landing vicariously and informally asserted the City’s basis for opposing the Lease assignment, the City formally communicated that same position to Dollar Tree. In an 11-sentence letter dated May 13, 2025 (the “Letter” or “May 13 Letter”), the City Attorney informed Dollar Tree that the City would bar Dollar Tree from opening its store at
3 As detailed in Sections II and III below, in the event of litigation, Dollar Tree intends to seek discovery of all communications between the City and Downey Landing related to this matter, in part, to determine the nature, scope, and substance of Defendants’ coordination in preventing Dollar Tree’s occupancy at the Shopping Center.
John M. Funk and Billy Brace
June 24, 2025
the Shopping Center because Section 5.1.2(b) of the Ground Lease limits Shopping Center occupancy to “First Quality Use” subtenants, and, in the City’s unexplained, unsubstantiated, and unsupportable view, “Dollar Tree does not qualify as a First Quality Use.” In tacit recognition of the weakness of its Section 5.1.2(b) argument (further described in Section II.A.2 below), the City created a backstop to prevent Dollar Tree’s occupancy using its municipal authority. Specifically, on May 28, 2025—roughly two weeks after sending the May 13 Letter—the City Council adopted Ordinance No. 25-1528 (the “Ordinance”), which established a “45-day moratorium on the approval, commencement, establishment, relocation, or expansion, of single price overstock/discount stores [“SPODS”] within city limits.” While the Ordinance was apparently crafted to give the appearance that it applied to SPODS generally, as explained further in Section II.B below, evidence indicates that the true (and unlawful) motive behind the Ordinance was to prevent Dollar Tree from opening its store at the Shopping Center.
Defendants’ actions since late April have led to an absurd and intolerable situation: Dollar Tree is presently paying rent to Downey Landing pursuant to the terms of the Lease, while being prevented from using the Premises. If this situation is not promptly remedied, Dollar Tree will have no choice but to vindicate its rights in court, including through the assertion of the claims summarized below.
II. Claims Against the City and Downey Landing
A. Violation of the Bankruptcy Court Assignment Order
Defendants’ efforts to bar Dollar Tree’s occupancy at the Shopping Center constitute violations of the Bankruptcy Court’s Assignment Order. See Bankruptcy Action, ECF 1240. If litigation becomes necessary, Dollar tree will seek a declaratory judgment—and temporary and permanent injunctive relief—enjoining Defendants from continuing to interfere with its right to occupy the Premises.
1. Downey Landing Has Waived Its Right to Object to Dollar Tree’s Occupancy of the Premises
Downey Landing is barred from claiming that the Lease (including any provisions of the Ground Lease it incorporates) prohibits Dollar Tree from occupying the Premises because Downey Landing received notice of the proposed Assignment Order and the Designation Rights Agreement and failed to timely object to either.4 By failing to raise any objections to the
4 The applicable Bankruptcy Court Orders include the (1) January 20, 2025, Procedures Order (ECF 287), which authorized procedures for the assumption and assignment of Party City leases, including the Lease; (2) the February 28, 2025, Sale Order, ECF 818, which approved the Designation Rights Agreement between Party City and Dollar Tree, and determined anti-assignment provisions of the Lease to be unenforceable; (3) the March 18, 2025, Assignment Notice (ECF XX), which notified interested parties—including Downey Landing—of the their right to object; (4) the April 24, 2025,
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June 24, 2025
proposed assignment in the Bankruptcy Action, Downey Landing has waived those objections. It would be absurd indeed if Downey Landing’s failure to timely object to the proposed assignment in Bankruptcy Action—whether intentional or negligent—empowered it to repudiate the Lease assignment after entry of the Bankruptcy Court’s Assignment Order.
2. The City’s Arguments that the Ground Lease Prohibits Dollar Tree’s Occupancy Are Meritless
By barring Dollar Tree’s occupancy at the Shopping Center, the City has effectively vetoed the Bankruptcy Court’s Assignment Order, invalidated the Court-approved Designation Rights Agreement, and abrogated Dollar Tree’s rights under the Lease. The City’s conduct is inconsistent with both the Bankruptcy Court’s orders deeming unenforceable the Lease’s anti- assignment provisions and bankruptcy principles more generally. See, e.g., Assignment Order ¶ 8 (citing 11 U.S.C. § 365(f)(1) (“the trustee may assign an executory contract or unexpired lease . . . notwithstanding a provision in an executory contract or unexpired lease, or in applicable law, that prohibits, restricts, or conditions the assignment of such contract or lease”)). But Dollar Tree need not rely on the Bankruptcy Code alone to secure its rights under the Lease because, for the reasons set forth below, the City’s actions violate the terms of the Ground Lease itself. a. Dollar Tree Is a “First Quality Use” Subtenant
The City’s refusal to permit Dollar Tree’s occupancy violates Section 5.1.2(b) of the Ground Lease because Dollar Tree is indisputably a “First Quality Use” subtenant. Section
5.1.2(b) of the Ground Lease—titled “Quality Standards”—provides in full that:
Tenant [i.e., Downey Landing] covenants and agrees that each Subtenant (defined below), each Occupant (defined below) and all uses in the Leased Premises shall be consistent with the standards of a first-quality power retail center (“First Quality Uses”). Tenant shall obtain the approval of the Landlord [i.e., the City] of each Occupant and Subtenant as a First Quality Use (which approval shall not be unreasonably withheld). Each tenant described in Exhibit ‘I’ attached hereto shall automatically qualify as a First Quality Use (without the need for Landlord’s approval).
Notwithstanding any provision of this Lease to the contrary, the approval of Landlord of each new Occupant and Subtenant as a
Certificate of No Objection (ECF 1236), confirming the absence of any objections concerning the proposed assignment; and (5) the April 24, 2025, Assignment Order (ECF 1240), which approved the assignment of the Lease from Party City to Dollar Tree.
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June 24, 2025
First Quality Use under this Section 5.1.2(b) shall only apply to the first time subleases of the Retail Center.
Ground Lease § 5.1.2(b).
Exhibit I, in turn, sets forth “Examples of Uses that are First Quality Uses,” (emphasis added), which list includes approximately 120 retailers, including Ross, Petco, Party America, Pizza Hut, Cost Plus, T-Mobile, and Marshalls, among many others.
Dollar Tree is a multinational company and a subsidiary of a Fortune 500 company (Dollar Tree, Inc.), which has been publicly traded on NASDAQ for over 30 years. Dollar Tree operates over 9,000 retail stores throughout the United States and Canada, supported by sophisticated international supply sourcing and more than 15 U.S.-based distribution centers (many of which exceed one million square feet). See, e.g., Dollar Tree 10-K (March 26, 2025).
In short, no fact-finder could reasonably conclude that Dollar Tree is not a “First Quality Use”—from a financial, commercial, operational, aesthetic, or any other conceivable standpoint—especially when Dollar Tree is compared to the roughly 120 “examples” of “First Quality Use” retailers identified in Exhibit I. Nor could any reasonable fact-finder conclude that Dollar Tree is not a “First Quality Use” subtenant relative to the existing Shopping Center subtenants, which include Massage Envy, DSW, Staples, and Old Navy.
Section 5.1.2(b) makes clear that the City’s “approval shall not be unreasonably withheld” (emphasis added)—and the City’s withholding of approval for Dollar Tree (which, incidentally, currently operates three other stores in Downey) cannot be characterized as anything but “unreasonable.”
In the highly unlikely event that the City lacked information necessary to determine whether Dollar Tree qualified as a “High Quality Use” subtenant—or, in the similarly unlikely event that it had genuine questions about Dollar Tree’s financial or commercial suitability for the Shopping Center—it could have asked Dollar Tree for information to aid its assessment. But it did not do so, for a reason that is as obvious as it is impermissible: the City’s putative conclusion that Dollar Tree is not a “First Quality Use” subtenant is nothing more than pretext designed to obscure the true reasons for its opposition to Dollar Tree’s subtenancy. b. Section 5.1.1 and Exhibit H to the Ground Lease Confirm that Dollar Tree Is a “First Quality Use” Subtenant
The City’s May 13 Letter to Dollar Tree referenced Section 5.1.2(b) and attached Exhibit I. But curiously (and for reasons that discovery may well illuminate), the City failed to reference the immediately preceding provision (Section 5.1.1) and intentionally withheld from Dollar Tree the other lease exhibits, including Exhibit H. Indeed, the City later admitted that the exclusion of these other exhibits from its May 13 Letter was “not an oversight” because the City did not
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consider them “relevant.” See May 15, 2025, Email from Kerry Dienelt to Todd Littler (copying John Funk).
The City’s decision to withhold from Dollar Tree nearly 200 pages of exhibits from the very document it relies on to bar Dollar Tree’s occupancy is, to put it mildly, peculiar.5 A closer read of the withheld materials suggests that the City omitted them not because they were irrelevant (as the City represented)—but rather because their relevance undermined the City’s position that Dollar Tree is not a “First Quality Use” subtenant.
Section 5.1.1 of the Ground Lease states that:
Tenant [i.e., Downey Landing] agrees . . . . that Tenant shall (a) use the Lease Premises as a retail shopping center and then only for the uses expressly described on Exhibit “H” attached hereto (collectively, the “Qualifying Use(s)”) and (b) neither use nor permit the use of the Leased Premises for any other use without the prior written consent of the Landlord, which consent Landlord may grant or withhold it its sole and absolute discretion.
Ground Lease § 5.1.1.
Exhibit H, in turn, contains a single sentence stating that “Qualifying Uses” are those “uses expressly permitted under the Downey Landing Specific Plan, No. SP-01-01, except for dry cleaners.”
Dollar Tree is obviously not a dry cleaner. And even a cursory review of the Downey Landing Amended Specific Plan (the “Specific Plan,” attached hereto as Exhibit A)—which the City also conveniently failed to provide Dollar Tree, even after Dollar Tree requested the complete Ground Lease—leaves no doubt that Dollar Tree is a “Qualifying Use.” Appendix A to the Specific Plan lists numerous “Permitted and Conditional Uses” for the Shopping Center. Ex. A at 108-110. Naturally, “General Retail or Department Store” is included as a permitted use. Also included as permitted uses are “Curio or Novelty Shop[s],” “Awning Sales,” “Tobacco Shop[s],” “Hang Glider Sales and Service,” “Lawn Mower and Garden Power Tool Sales and Rental,” and “Tailor[s],” among many others. Indeed, the Appendix includes even “Fortune Telling” as a conditional use. It would be impossible for the City to establish that Dollar Tree is not a “Qualifying” or “Permitted Use” in light of the permitted (and conditional) uses set
5 Notably, the Ground Lease expressly entitles the City to receive “a true and complete copy of each . . . Sublease (and all agreements related thereto) entered into by Tenant and the Subtenant in question.” Ground Lease § 18.1.2 (emphasis added). Thus, ironically, if the tables were turned—and a subtenant provided the City with a copy of a sublease missing exhibits and other materials incorporated by reference (like the incomplete copy of the Ground Lease the City provided Dollar Tree)—the City could allege breach of the Ground Lease on that basis.
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forth in the Specific Plan. Moreover, and as discovery will almost certainly confirm, it would be similarly impossible for the City to establish that the subtenants presently (and historically) occupying the Shopping Center qualify as “Qualifying Uses” if Dollar Tree does not. c. The “Major Subtenant” Definition in the Ground Lease Further Confirms that Dollar Tree is a “First Quality Use” Subtenant Section 18.2 of the Ground Lease, which entitles “Major Subtenants” to heightened “nondisturbance protections,” further confirms that Dollar Tree is a “First Quality Use” subtenant and that the City’s finding to the contrary is unsupportable. Section 18.2.2(a) defines “Major Subtenants” as “nationally or regionally recognized retail or restaurant chains having not less than ten (10) locations in California,” provided that they occupy at least 10,000 square feet in the Shopping Center. See Ground Lease § 18.2.2(a). Dollar Tree easily satisfies these criteria.
It is not only a regionally or nationally recognized retailer, but an internationally recognized retailer, with over 9,000 stores in the United States and Canada. Dollar Tree currently operates approximately hundreds of stores throughout California—substantially more than the 10-store “Major Subtenant” requirement. Dollar Tree’s qualification as a “Major Subtenant” for purposes of the Ground Lease’s nondisturbance provisions is wholly incompatible with the City’s claim that it is not also a “First Quality Use” subtenant.
d. Dollar Tree Is Not Subject to the City’s Approval Under Section
5.1.2(b)
The City’s peculiar interpretation of “relevance” is not only reflected in the Exhibits it chose to withhold from Dollar Tree or the provisions it decided to ignore in its May 13 Letter; it also extends to the language within Section 5.1.2(b) itself that the City disregards. While the City’s May 13 Letter quotes the first sentence of Section 5.1.2(b)—i.e., that “all uses in the Lease Premises shall be consistent with the standards of a first quality power retail center”—it notably avoids mentioning the fourth and final sentence of Section 5.1.2(b), which provides that “the approval of the Landlord of each new Occupant and Subtenant as a First Quality Use under this Section 5.1.2(b) shall only apply to the first time subleases of the Retail Center.” (Emphasis added.)
Dollar Tree’s right to occupy the former Party City premises does not flow from a “first time sublease,” but rather from Dollar Tree’s assumption of the pre-existing Lease that Party City assigned to Dollar Tree pursuant to the Designation Rights Agreement and in accordance with the Bankruptcy Court’s Assignment Order. Thus, by its plain terms, Section 5.1.2(b) does not apply to the Lease, and Dollar Tree’s occupancy of the Premises is not subject to the City’s pre- approval pursuant Section 5.1.2(b).
Other provisions of the Ground Lease support the conclusion that Lease assignments, like the one from Party City to Dollar Tree, are not “first time subleases” requiring the City’s pre- approval. For example, Section 18.1.2 of the Ground Lease requires Downey Landing to deliver
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copies of subleases to the City 10 days after their execution, and Section 18.1.3 requires Downey Landing to deliver the City a “schedule of all Subleases setting forth the names of all Subtenants” “[o]n or before December 31 of each year”—a timeline inconsistent with the pre- approval process for assigned subleases that the City’s Section 5.1.2(b) argument assumes. e. Anticipated Discovery Concerning the City’s Application of Ground Lease Sections 5.1.1, 5.1.2(b), 18.1.2, 18.1.2 and 18.2.2 Viewed as a whole, Defendants’ efforts to bar Dollar Tree’s occupancy raise the troubling prospect that ulterior motives—separate and apart from Defendants’ transparently pretextual “concerns” about Dollar Tree’s ability to satisfy “First Quality Use” criteria—underlie their opposition to Dollar Tree’s tenancy.
Accordingly, in the event of litigation, Dollar Tree intends to seek discovery of all documents and communications potentially relevant to establishing that the City and Downey Landing’s treatment of Dollar Tree is inconsistent with its treatment of other current and past Shopping Center subtenants. To that end, Dollar Tree notifies Defendants that they must immediately preserve all documents and communications concerning:
• The City’s and Downey Landing’s compliance with Section 5.1.2(b), including related to (1) Downey Landing’s prior requests for approval for new occupants and subtenants not listed on Exhibit I (the “Non-Exhibit I Entities”); (2) the City’s consideration of those requests; (3) the City’s determinations in response to those requests; (4) the City’s actions, if any, in response to Downey Landing’s failure to make such requests; (5) the identities of any Non-Exhibit I Entities deemed “First Quality Uses,” and the reasons therefor; (6) the identities of any Non-Exhibit I Entities deemed not to be “First Quality Uses,” and the reasons therefor; (7) communications between Defendants and Non- Exhibit I Occupants concerning their qualification as “First Quality Use” subtenants; (8) instances involving reconsideration of “First Quality Use” determinations by the City; and (9) consideration offered or exchanged in relation to any reconsideration of “First Quality Use” determinations by the City.
• The City and Downey Landing’s compliance with Section 5.1.1, including related to (1) Downey Landing’s request for “prior written consent” from the City concerning “Qualifying Uses”; (2) the City’s consideration of those requests; (3) the City’s determinations in response to those requests; (4) the City’s actions, if any, in response to Downey Landing’s failure to make such requests; (5) the identities of any Non-Exhibit I Entities deemed “Qualifying Uses,” and the reasons therefor; (6) the identities of any Non-Exhibit I Entities deemed not “Qualifying Uses,” and the reasons therefor; (7) communications between Defendants and Non-Exhibit I Entities concerning their classification as a “Qualifying Use”; (8) instances involving reconsideration of “Qualifying Use” determinations by the City; and (9) consideration offered or exchanged in relation to any reconsideration of “Qualifying Use” determinations by the City.
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• The City’s consideration of Dollar Tree’s satisfaction of any “First Quality Use,” “Qualifying Use” or similar provision in connection with the three Dollar Tree stores currently operating in Downey.
• All documents and communications concerning the City treatment of assignments of subtenant leases, including information sufficient to establish whether the City treated such lease assignments as “first time subleases”—and the assignees as a “new Occupant[s] or Subtenant[s]”—under Section 5.1.2(b) of the Ground Lease. • All documents and communications concerning the City’s “First Quality Use” assessments of subtenants who qualify as “Major Subtenants” under Section 18.2.2 of the Ground Lease.
• All documents and communications concerning Downey Landing’s provision and the City’s receipt of (1) copies of subleases pursuant to Section 18.1.2 of the Ground Lease and (2) lists of subleases and subtenants pursuant to Section 18.1.3 of the Grond Lease— including materials sufficient to establish when such copies and lists were provided/received and whether those copies and lists were provided/received in relation to the City’s consideration (if any) of each subtenant’s status as a “First Quality Use” subtenant.
B. Violation of the Equal Protection Clauses Under the United States and California Constitutions
As noted above, on May 28, 2025, the City Council approved Ordinance 25-1528 establishing a “45-day moratorium on the approval, commencement, establishment, relocation, or expansion, of single price overstock/discount stores [“SPODS”] within city limits.” This Ordinance was not enacted in a vacuum. It was passed roughly (1) five weeks after the Bankruptcy Court’s issuance of the April 24 Assignment Order approving the Designation Rights Agreement and authorizing Dollar Tree’s assumption of the Lease from Party City; (2) four weeks after Downey Landing’s April 29 email vicariously raising “occupancy issues” that “need[ed] to be worked out if Dollar Tree is to operate at Downey Landing”; and (3) two weeks after the City’s May 13 Letter barring Dollar Tree from occupying the Premises (ostensibly) pursuant to Ground Lease Section 5.1.2(b).
The suspicious timing of the Ordinance’s enactment—especially in light of the weakness of the City’s Section 5.1.2(b) argument—leads to the inescapable and troubling conclusion that considerations other than “public safety, health, and welfare,” see Gov. Code § 65858, led to the Ordinance’s passage. To put a finer point on it, there is ample evidence to establish (certainly for purposes of defeating any motion to dismiss) that the true purpose of the Ordinance was to prevent a single private company (i.e., Dollar Tree), from operating at a particular store at a specific location (i.e., the Premises).
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In addition to the timing of the Ordinance, its terms also suggest specific targeting of Dollar Tree. The Ordinance’s ninth preambular clause acknowledges that there are only “eight (8) SPODS in the City.” Moreover, the moratorium imposed by the Ordinance does not prohibit the operation of existing SPODS (nor could it lawfully do so), but rather prohibits only the “approval, commencement, establishment, modification, relocation, or expansion of” SPODS.
Discovery will almost certainly reveal that the fewer than the eight SPODS currently operating in the City will be materially impacted by the Ordinance. Indeed, subject to discovery concerning any recently submitted permits by SPODS, it is likely that the only store adversely impacted by the moratorium is Dollar’s Tree’s store at the Shopping Center.
The definition of SPODS set forth in the Ordinance—i.e., SPODS are “generally defined as a retail store that sells individual items generally obtained through outlet, close-out, discontinued, liquidation, or overstock, primarily at a single discount price or in the low and very low price ranges (e.g., $10.00 or less)”—is also highly problematic. The use of the qualifier “generally” and the absence of defined terms gives the City broad discretion to apply the Ordinance as a weapon against businesses it disfavors, while exempting favored businesses.
Indeed, the City effectively concedes the fluidity of the SPODS definition in the Ordinance itself, by including a cart-before-the-horse acknowledgment that it “intends to study . . . how [SPODS] should be defined” after enacting the Ordinance.
For these reasons, among others, if litigation results, Dollar Tree intends to assert claims against the City for violating the Equal Protection Clauses of the United States and California Constitutions. The Supreme Court has “recognized successful equal protection claims brought by a ‘class of one,’ where”—as here—“the plaintiff alleges that [it] has been intentionally treated differently from others similarly situated and that there is no rational basis for the difference in treatment.” Vill. of Willowbrook v. Olech, 528 U.S. 562, 564 (2000).
Given the admittedly high hurdle that “rational basis” scrutiny presents for Equal Protection plaintiffs—and that additional evidence supportive of Dollar Tree’s Equal Protection claims is most likely to be in Defendants’ possession—Dollar Tree advises Defendants that it intends to aggressively pursue this evidence in discovery, including by seeking:
• All written communications between the City and Downey Landing, from the earlier of the date (1) either party first became aware that Party City was considering filing for bankruptcy or closing its Shopping Center store, or (2) the commencement of the Bankruptcy Action on December 21, 2024.
• All documents, data, and other materials, for that same time period, reflecting the existence and/or substance of oral communications between the City and Downey Landing.
• All documents and communications between and among City personnel, including all communications between City personnel and the City Council (including Counsel staff)
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related to Dollar Tree, Downey Landing, and the Ordinance, including any recommendations made by City staff to the City Counsel, the dates of those recommendations, and the identities of the individuals who made them; • All documents and communications relating to the City’s consideration of the putative impact of SPODS, including those related to:
o The City’s purported “inten[t] to study the issues associated with SPODS,” including whether the City considered or initiated any such study prior to April 24, 2025;
o Whether the City conducted, commissioned, or reviewed any “research” related to SPODS before passage of the Ordinance, especially in light of the Ordinance’s directive that “City staff research[] appropriate regulations” during the moratorium.
o The City’s definition of SPODS, including the identities of the eight SPODS referenced in the Ordinance and the City’s process for determining which SPODS satisfied this definition;
o The City’s putative “concern that the proliferation of SPODS can have profound effect on the health and quality of life of the surrounding neighborhoods”; o The City’s putative finding that “SPODS inhibit the upgrading of commercial areas in the City”;
o The City’s putative finding that “absent clear regulation, the proliferation of SPODS in the City poses a current and immediate threat to the public health, safety, and welfare because such development will prompt a downward shift in the economic and esthetic value of commercial areas and thus impair the economic development and other goals of the City”; and
o The City’s putative finding that the “approval, commencement, establishment, relocation, or expansion of additional SPODS would result in this threat to public health, safety, and welfare”
• The City consideration (if any) of the impact of the Ordinance (including any extensions of the Ordinance), including impacts on (1) the City’s tax revenues, (2) employment and/or job losses, (3) access to items sold by SPODS, including on residents who rely on public transportation.
At present, Dollar Tree does not anticipate naming any individual City personnel in its initial pleadings. But to the to the extent discovery reveals that recommendations in support of the Ordinance from City staff members were motivated, in whole or in part, by anything other
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than “public health, safety and welfare,” see Gov. Code § 65835, Dollar Tree will not hesitate to amend its pleadings to assert claims for due process violations against those individuals under to 42 U.S.C. § 1983.
C. Common Law Claims: (1) Breach of Contract and Constructive Eviction Against Downey Landing; (2) Tortious Interference and Intentional Interference with Prospective Economic Advantage Against the City As noted above, evidence indicates that Downey Landing and the City coordinated their opposition to Dollar Tree’s occupancy at the Shopping Center. Indeed, Dollar Tree first learned of the City’s objections to Dollar Tree’s occupancy not from the City, but from Downey Landing—and there is little doubt that Defendants have communicated about this matter in the weeks since.
Downey Landing’s role in Defendants’ (presently successful) efforts to prevent Dollar Tree’s occupancy constitutes a material breach of the Lease, which subjects Downey Landing to claims for breach of contract constructive eviction. Available remedies include rescission of the Lease (though only at Dollar Tree’s election) and/or damages, including restitution of all rents paid by Dollar Tree, and consequential damages, including lost business income. While the lack of privity between the City and Dollar Tree may preclude the assertion of identical breach of contract claims against the City, Dollar Tree intends to assert claims against the City for tortious interference with contract and intentional interference with prospective economic advantage— which effectively renders the City’s liability on its anticipated common law claims coextensive with Downey Landing’s.
As noted above, if litigation results, Dollar Tree will seek discovery of all documents and communications between the City and Downey Landing from the date either party first became aware that Party City was considering filing for bankruptcy (or closing its Shopping Center store), or the commencement of the Bankruptcy Action, whichever is earlier. Because these materials are likely to be substantially more supportive of Dollar Tree’s claims than Defendants’ defenses (if any), Dollar Tree will aggressively litigate any efforts improperly withhold such discovery—and will not hesitate to seek appropriate court orders to prevent and remedy discovery violations. Nor will it hesitate to immediately seek sanctions in response to any suggestion that the City or Downey Landing has spoliated of evidence, whether willfully or inadvertently.
D. Unjust Enrichment Against Downey Landing Based on Frustration of Purpose
For the reasons set forth above, (1) the City does not have the authority to prevent Dollar Tree’s operation at the Shopping Center, either pursuant to the Ground Lease or under the pretextual Ordinance; and (2) the City and Downey Landing’s coordinated efforts to prevent Dollar Tree’s occupancy subject them, variously, to liability for breach of contract, constructive
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eviction, tortious interference with contract, and intentional inference with prospective economic advantage. But even in the (extremely unlikely) event that the City and Downey Landing were to successfully defend themselves against all of these claims at summary judgment or trial, Downey Landing would still, at the very minimum, be liable to Dollar Tree on a claim for unjust enrichment based on the doctrine of frustration of purpose. And the damages stemming from this liability—including pre-judgment interest—will, of course, increase based on any future rent payments Dollar Tree makes while prevented from occupying the Premises.
Frustration of purpose occurs in situations, like this one, when “after a contract is made, a party’s principal purpose is substantially frustrated . . . by the occurrence of an event, the non- occurrence of which was a basic assumption on which the contract was made.” See Restatement (Second) of Contracts § 265. Here, Dollar Tree fully complied (and continues to comply) with the terms of the Lease, including timely payment of rent to Downey Landing. Moreover, Downey Landing has accepted and retained those payments, despite failing to raise any objections to the Assignment Order and Designation Rights Agreement, while fully aware that Dollar Tree has been barred from occupying the Premises. Dollar Tree has quite obviously been denied the benefit of the bargain under the Lease. Under these circumstances, the purpose of the Lease has been frustrated, and Downey Landing must return the release payments by which it has been unjustly enriched.
Finally, any attempt by Downey Landing to argue that Dollar Tree remains bound to perform under the Lease would be barred by the equitable doctrine of unclean hands, which prevents a party from benefiting from its own misconduct. Here, the City and Downey Landing claim that assignment of the Lease is subject to the City’s approval as ground lessor. But Downey Landing has refused to seek approval from the City, and no such approval has been granted. Meanwhile, Downey Landing has continued to accept and retain rent payments pursuant to the Lease. As a matter of logic and law, Downey Landing may not accept or retain payments pursuant to the Lease, which it has helped render illusory by coordinating with the City to prevent Dollar Tree’s occupancy.
III. Preservation Demand
This letter constitutes a formal demand that the City and Downey Landing preserve all evidence potentially related to the anticipated litigation, including all the claims and categories of evidence described in this letter. In addition, and because Dollar Tree’s claims involve allegations of willful misconduct, Dollar Tree will seek to discover—and Defendants must therefore preserve—all documents and communications related to any whistleblower allegations involving misconduct by anyone affiliated with the City or Downey Landing, irrespective of whether those allegations were ultimately substantiated.
Please further note that your preservation obligations extend to: (1) all agents, employees, contractors, attorneys, third-parties, and other individuals affiliated with Defendants (which individuals must be notified of and acknowledge that they understand their preservation
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obligations); (2) all digital devices used by such individuals that may contain relevant information, regardless of whether they are considered “personal” or “work” devices; (3) all sources of electronically stored information potentially containing relevant materials, including “personal” email accounts if used for work-related purposes; and (4) all materials you consider privileged (subject to subsequent withholding based on a privilege log).
For the avoidance of doubt, the words “include,” “include(s)” and “including” in this letter should be interpreted to mean “includes but is not limited to.” Moreover, and especially given the City’s unreliable prior assessments of “relevance” (with respect to the Ground Lease exhibits, for example), you may not decline to preserve any evidence described in this letter based on your unilateral assessment of relevance.
As noted above, spoliation of potentially relevant evidence—whether inadvertent or intentional—may result in severe evidentiary, monetary, or terminating sanctions. Lastly, you are advised that intentional destruction is a crime under California Penal Code § 135.
IV. Conclusion
The Lease entitles Dollar Tree to immediately occupy the Premises, and Dollar Tree believes that a resolution allowing it to operate in the Shopping Center (either in the old Party City location other suitable premises) is in the best interests of both the company and the community. Dollar Tree looks forward to engaging with the City and Downey Landing to determine whether pre-litigation resolution is possible, and it hopes that the City and Downey will reciprocate this good faith approach. But as noted above, if discussions toward resolution have not begun within 10 business days of the date of this later, Dollar Tree intends to vindicate its rights in court.
This letter is subject to Federal Rule of Evidence 408, California Rules of Evidence 1152 and 1154, and all comparable state analogs. Dollar Tree reserves all rights and waives none.
Respectfully,
Matthew Jacobs
Enc: Downey Landing Amended Specific Plan