Dillard's Slapped With Countersuit From Texas Mall

In response to a lawsuit alleging neglect, a Texas mall has countersued Dillard's Inc. (DDS) claiming it was subject to a smear campaign by the retailer which is vying to get out of a lease.

The legal sparring comes at a time when many mall landlords and their tenants wrangle over rent concessions and lease terms as a brutal recession forces massive store closures and retailer bankruptcies.

In late March, Dillard's asked the U.S. District Court, Western District of Texas, Austin Division, to void a lease in Highland Mall, which is owned by Simon Property Group (SPG) and bankrupt General Growth Properties (GGWPQ).

The retailer claimed in the court filing that Highland Mall was allowed to deteriorate with high vacancies and a poor tenant mix which impacted its business. Dillard's also said the mall was slack on maintenance, including not repairing store damage caused by a leaky roof.

Highland Mall denied the claims and also sought damages from Dillard's for harming its reputation and turning away new tenants.

"These statements harmed and continue to harm Highland's economic interests, including, its reputation in the industry," said the complaint filed this week. "Dillard's statements were made with malice in an effort to prevent Highland from placing potential tenants in Highland Mall."

A Dillard's spokeswoman declined to comment.

"We do not comment on pending litigation," said Lesley Cheers, a spokeswoman for General Growth, which manages the property.

Although similar lawsuits have been filed before, they're uncommon outside of bankruptcy proceedings. But, analysts anticipate more to come with many cash-strapped mall landlords having less to spend on maintenance while working harder to attract and retain desirable tenants.

Some analysts say Dillard's lawsuit could sour the company's relationship with its landlords.

"To step out and sue is a major issue," said Rich Moore, an analyst at RBC Capital Markets, adding that Dillard's has many deals with Simon Property and General Growth.

"You may win one (battle). But, what does it do to your next negotiation," Moore said.

-By A.D. Pruitt, Dow Jones Newswires, 201-938-2269; [e-mail]

(Karen Talley contributed to this report)