Tenants Say Segerstroms Shortchanged Village Mall

By MARY ANN GALANTE

Dec. 4, 1988 12 AM PT

Times Staff Writer

On the surface, it seemed like any other landlord-tenant dispute.

The owner of South Coast Plaza Village, the Segerstrom family, was seeking about $80,000 in back rent, interest and legal costs from a former tenant, a beauty center called Fate’s Reprieve.

But last week, on the eve of trial, the case was settled. And the three owners of Fate’s Reprieve didn’t pay the Segerstroms a dime, sources close to the case said.

Instead, the Segerstroms agreed to pay their former tenants at least $10,000, the sources said. In exchange, the tenants agreed to drop any claims against the Village, including their participation in a lawsuit filed 2 years ago by 11 former Village merchants.

In the suit, expected to go to trial in 1990, the merchants allege that their businesses were run into the ground because the Village management made false promises, defrauded them, mismanaged the center and failed to promote the center adequately.

Each of the participants claims to have lost significant amounts of money because the Village’s popularity plunged. Some merchants claim to have lost as much as $400,000.

Other Lawsuits

The case against Fate’s Reprieve was not unique. In October, another Segerstrom suit for back rent was settled. The legal action had sought roughly $30,000 from Paula Hodges, owner of Woof & Warp, one of the first shops in the 15-year-old center.

In that settlement, the Segerstroms and Hodges agreed that neither owed anything to the other. Like the Fate’s Reprieve owners, Hodges also agreed to drop her claims against the Village, including her participation in the tenant lawsuit.

The Segerstroms have filed three other suits for back rent that are pending against former tenants of the Village. At least two of the merchants are participants in the larger suit filed against the center’s management.

The legal battles are evidence of a longstanding grievance among past and current tenants at the struggling specialty center.

Former tenants contend that South Coast Plaza Village has been neglected for years as it played second fiddle to highly successful South Coast Plaza, just across Sunflower Avenue.

The tenants maintain that Village management allowed a steady loss of tenants over the past several years, then misled remaining store owners about plans to bolster business at the center.

“It was damage control,” said Robert E. Scott, the Orange attorney who represents former tenants in the group lawsuit.

“The big guy was cutting his losses at the little guy’s expense. . . . They made statements to keep tenants in the Village when they could have moved out” and recouped their losses, he said.

Developer Henry T. Segerstrom could not be reached for comment.

But according to the attorney for the Segerstrom family, the center has suffered as much from the shortcomings of its former tenants as it has from any other factors that might have contributed to its decline.

“Why would the ownership not want to promote its own shopping center?” asked attorney Jon Anderson of Costa Mesa. “Why would it intentionally not want its tenants to succeed?”

The Village, Anderson added, “has adequately promoted the center. . . . I’ve never seen (the tenants) identify anything that remotely resembles fraud or any breach of any obligation under the lease.”

At times, the claims are so conflicting that they seem to involve two different shopping centers. Scott, for instance, claims that the Village is now 62% vacant. Anderson counters that it is 68% full and by February will be 75% occupied.

Whoever is right, there is no doubt that the 14-acre Village has had trouble holding onto its tenants in recent years. Today, Village directories list a total of 25 tenants--a fraction of the number present a few years ago.

And some tenants--notably an art gallery, a private design college and the American Institute of Architects--are hardly the sort that attract hordes of shoppers.

The deserted walkways led one disheartened merchant, Wayne Hiland, to put up a banner proclaiming “South Ghost Village” just days before he was forced to close his Hiland’s Tobacco Locker about a year ago.

Situated between Bristol and Bear streets, the Village had an unusual concept when it opened in 1973. With brickwork for walkways, it featured greenery and trees interspersed among clusters of small shops, outdoor cafes and restaurants.

But from the start, the Village had to contend with neighboring South Coast Plaza, where business is brisk both day and night. The enormously successful mega-mall seemed to siphon shoppers away from its less popular sister center instead of bringing in business.

Faced with a scarcity of customers, Village merchants first fought back in 1976. Current and former tenants filed 20 civil complaints alleging fraud and seeking a total of $35 million.

District Attorney’s Suit

Orange County’s district attorney also sued, claiming that the Village’s failure to fulfill promises to tenants was false advertising and an unfair business practice.

According to the legal actions, the Village represented itself as a center that would have, among other things, a 110-foot tower housing a wine-tasting cellar and a marketplace with a “farmers market” ambiance. Those proposed outlets never materialized.

The tenants also complained that the Village grossly exaggerated the number of patrons they could expect and the profits they would realize.

Those lawsuits and the related action by the district attorney’s office eventually were settled, with the Village promising to step up promotional efforts, add a professional consultant to help merchants, and pay some legal costs, including $20,000 to Orange County.

Despite the revolving door, the Village developed a following. Many shoppers were drawn by the Mercantile Building, a collection of about 30 specialty tenants housed in a large wooden structure--something like an exhibit hall--with glass-enclosed elevators and bright orange and yellow banisters.

In 1984, former tenants contend, Village management told them that the building was being emptied so “better quality” tenants could be brought in.

In their effort to fill the Mercantile Building with a few large tenants, company executives began ushering out many smaller merchants, letting some leases expire and buying out others.

“South Coast Village . . . promised tenants that in order to make up for the loss of traffic, (the) Village would rent the Mercantile Building to a ‘major retailer’ so as to create a ‘draw’ for shoppers to come to the Village,” said court papers filed by the Fate’s Reprieve owners.

Rumors of Deal

Rumors abounded for years that the Village was on the verge of signing a new retailer for the building--perhaps Macy’s or Bloomingdale’s--that would revitalize the center. According to former tenants, Village management encouraged the rumors and led them to believe that a major deal was being negotiated to fill the building.

“If you believed what they had been saying, the Village had the brightest future in the world,” said Julio Sanchez, owner of the Village Pet Center, another former tenant. “It was like the donkey with the carrot. For years, they kept us hanging on and gave these glowing promises. . . . But after awhile, the words lost their effect.”

It was the gradual evacuation of the Mercantile Building in the early 1980s that marked the decline of the Village, said Scott and other former tenants.

Moreover, court papers filed by the Fate’s Reprieve owners maintain that the Village “intentionally turned away several viable retailer lessee prospects who wanted to lease space in the Village and Mercantile Building.”

Merchant complaints came to a head in July, 1986, when Village management told tenants they had decided “not to decide” how to revitalize the center, said Nolan Luke, one of the owners of Fate’s Reprieve.

“After all the expressions of how they were going to fill the Mercantile Building . . . it was a shock,” Luke said. “We couldn’t put wheels on our business. We were in too deep at that point to do that.”

“We had been relying on those illusions,” added Tamara Reichenshammer, co-owner of Etcetera Jewelry Designers, another former tenant. “We went through our credit lines. . . . I sold most of my own jewelry . . . just to hang on.”

Today, the Mercantile Building looks almost deserted as it stands largely empty and in disrepair.

The Segerstroms’ lawyer, Anderson, denies that the tenants were misled and maintains that the Village has tried its best.

Management “has been searching high and low to find uses for (the building) that would be compatible with the center,” the lawyer said. “They would have been tickled pink to have Macy’s in there. . . . So far, they haven’t succeeded.”

Rent Concessions

Moreover, Anderson pointed out, many tenants were given rent concessions or allowed to stay without paying any rent to help them stay afloat.

Even after the tenants filed their combined lawsuit 2 years ago, the Segerstroms twice offered to give former tenants “a chance to walk away and not pay a penny in back rent” as long as they dropped their claims in the case, Anderson said.

But former tenants today view the offers of free or reduced rent as efforts to keep them in business so the Village wouldn’t become even emptier.

There were other actions too--subtler things--that irked former tenants and helped convince them that the Village’s owners had scant interest in their success.

Some recalled how Village management put up signs telling customers to “visit South Coast Plaza” across the street.

“We asked for signs at South Coast Plaza, telling people there to visit the Village, clamoring for them to at least mention us,” Luke recalled. “Management refused. Their attitude was they just didn’t have to answer our questions.”

In February, 1985, Jim Henwood, general manager of both South Coast Plaza and South Coast Village, described the Village in an interview as “a restaurant service center, and we’ll continue to market it as such.” His comments angered some retailers, who reasoned that hungry diners did little to help their businesses.

Last week, Henwood declined to comment on the Village. He said the center’s dispute with tenants “is not something that deserves to be discussed in the newspaper.”

The situation became even worse after the closure in June, 1987, of Upstart Crow & Co., a popular coffeehouse and bookstore that had become a main draw at the Village.

Two months later, the owners of Fate’s Reprieve left the Village. The shop was at least 8 months behind in paying rent.

Luke, one of the three owners, said they began thinking about leaving in mid-1986. Foot traffic in the Village had been dropping, he said. Sales had plunged from about $116,000 in 1985 to $110,000 in 1986. From January through August, 1987, “we did around $49,000,” he recalled. “It was dismal. . . . We didn’t have a chance.”

The reason Fate’s Reprieve didn’t leave in late 1986, according to Luke, was that Village management agreed to forgive some overdue rent and drop the rental rate from more than $2,600 to $1,000 per month after Jan. 1, 1987.

Instead, “we kept getting bills for the original rent with the original past-due amount,” Luke said. “We were starting to get desperate.”

Business Moved

Eventually, he said, Fate’s Reprieve couldn’t hang on any longer and moved. By that time, its partners had lost a total of more than $390,000, Luke said.

The Segerstroms’ lawyer, Anderson, characterized the Fate’s Reprieve lawsuit and the other suits for back rent as “simple collection cases. . . . All we’re trying to do is collect the rent due under the leases.”

But he acknowledged that Village management had offered to reduce Fate’s Reprieve’s rent. In exchange, Anderson said, the store owners were to drop their participation in the main lawsuit by former tenants. The offer was not accepted, he said.

Moreover, the Segerstroms offered at least three times to forgive or reduce the Fate’s Reprieve overdue rent if the owners gave up any claims against the Village.

Anderson conceded that the Village’s performance has been disappointing. But its setbacks could partly reflect economic trends, he said, or the possibility that the Village concept is no longer the novelty it once was.

“And some of it could be a self-defeating prophecy,” he said. “When all the tenants get together and talk about how much of a failure the Village is . . . it may have contributed to the problem.”

Anderson said the Village’s owners have no plans for the 14-acre site other than to keep it going as a retail shopping center and to increase occupancy, “which we’ve been trying to do for years and which we’re doing now.”

Not surprisingly, the merchants’ attorney, Scott, sees the Village situation differently.

“They should have been honest,” Scott said. “They should have said, ‘We’re not going to fill the Mercantile Building, or we can’t fill it.’ A lot of people hung on because they believed the representations.”

That was where the Fate’s Reprieve lawsuit stood last week, only a few days before trial was scheduled to start last Tuesday.

The beauty center’s lawyer, Scott, was planning a 3-week trial that would involve 31 witnesses--including Henry Segerstrom and his wife, Renee. Scott had hoped to break legal ground by arguing that South Coast Village had become so empty, so devoid of retailers, that it was no longer a “shopping center” as required under the Fate’s Reprieve lease.

Anderson, the Segerstroms’ attorney, was planning a simple case limited to the question of whether Fate’s Reprieve owed back rent. He expected to bring in three people to testify over 2 days at most.

But a few days before the jury was to be selected, Superior Court Judge Betty Lou Lamoreaux made several rulings that severely damaged Fate’s Reprieve’s case. Among other things, she decided to limit the issues to the rent dispute and restrict the number of witnesses to six. Shortly after, Scott’s office told the Segerstroms that Fate’s Reprieve wanted to settle. The terms of the settlement are confidential, and attorneys and participants in the case would not discuss the agreement.

But according to Anderson, the case was settled because “the other side started to see what was happening. . . . I’m sure (the judge’s rulings) sobered them up a bit concerning what they would be permitted to get away with during trial.”

But Luke, who used to own Fate’s Reprieve, has another explanation:

“It comes down to weariness and tiredness,” he said. “We just want to get on with our lives.”

DEPARTED MERCHANTS

Over the past several years, many merchants have vacated South Coast Plaza Village. Some of them are: Restaurants

The Good Earth Annex

Upstart Crow & Co.

Belgian Waffle Inn Specialty Shops

Etcetera Jewelry Designers

Great Beginnings

Hiland’s Tobacco Locker

La Belle Maison

Sweet Sensations