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MAGNALEASING, INC. v. STATEN ISLAND MALL

June 30, 1976

MAGNALEASING, INC., Plaintiff, against STATEN ISLAND MALL, BLACKFRIARS REALTY CORP. and TOTTENHAM REALTY CORP., Defendants.


The opinion of the court was delivered by: MACMAHON

MEMORANDUM

MacMAHON, District Judge.

 This action seeks damages and rescission of a lease agreement between plaintiff and defendant Staten Island Mall ("Mall"). Plaintiff alleges that it was induced to sign the lease by the fraudulent misrepresentations of defendants' agent, Feist & Feist. The case was tried to the court on March 22, 23 and 24, 1976.

 Magnaleasing, a wholly-owned subsidiary of the Magnavox Company, is engaged in leasing real estate for its parent and its parent's independent retailers. Defendant Mall is a joint venture between defendants Blackfriars Realty Corp. and Tottenham Realty Corp. Feist & Feist was the developer of the Mall and now acts as its managing and leasing agent.

 Magnaleasing negotiated with Feist & Feist during the fall of 1972 for the leasing of a store in the Mall and eventually signed a fifteen-year lease on April 26, 1973. Plaintiff claims that during the negotiations and to induce plaintiff to enter into the lease, Feist & Feist made material misrepresentations regarding the amount of space already leased to others and false estimates as to what the common area charges and tax rent would be. Defendants assert that the representations were true, and that, regardless of their veracity, plaintiff was not justified in relying on them. Defendants further contend that, even if plaintiff establishes fraud, relief is barred by laches.

 Negotiations over space in the Mall were conducted by George Kirtland of Feist & Feist and John Kelly of Magnaleasing. John Kelly received two Mall brochures from Kirtland in November 1972 which represented that 50% of the space had already been leased. *fn1" Kirtland met with John Kelly; Dale Kelly, a Magnavox zone manager; and Darryl Laxon, a Magnavox regional sales manager, on December 4, 1972. Both John and Dale Kelly testified that Kirtland said the Mall was practically all leased, with only one or two spaces left of the size needed for a Magnavox store. Dale Kelly testified that Kirtland told him the Mall was 90% leased. Two floor plans representing the first and second levels of the Mall were then discussed. Leased locations were designated by a black dot or the names of future tenants. Over 60% of the available space was so designated. Kirtland also explained that more stores had signed leases since the plans had been printed. Those names were supplied by Kirtland, and John Kelly wrote them in the appropriate spaces.

 There is no doubt that the representations regarding occupancy levels were representations of material facts made to induce plaintiff to rent space. The number of other stores in the Mall is important because it affects the amount of customer traffic and the amount of common costs each tenant will have to bear. Moreover, the volume and pace of demand for space evidence the general enthusiasm of other merchants, and the level of acceptance bears on the Mall's eventual success. The representations were made in the context of a sales pitch by the leasing agents. It is clear that Feist & Feist knew that the rate of leasing was an important factor in a tenant's decision of whether or not to rent space in the Mall, and Feist & Feist made those representations hoping Magnavox would rely on them. Dale Kelly testified that without those representations he would not have recommended that the lease be signed.

 Feist & Feist's statements as to occupancy levels were false at the time they were made. A leasing report, prepared by Feist & Feist, dated September 14, 1972, shows that only 19% of the space was leased, but an August brochure states that 50% of the space was already rented.

 Plaintiff also introduced a schedule listing all the leases signed by the Mall, the date on which they were signed, and computing the percentage of rented space every month. When Feist & Feist was representing, at the beginning of November, that the Mall was over 50% leased, the fact was that it was less than 32%. When Kirtland told the representatives of Magnavox, on December 4, that the Mall was almost all rented and that commitments from tenants exceeded the 60% shown on a floor plan of the shopping area, the Mall was still only 32% leased.

 Finally, Feist & Feist, as defendants' agent responsible for leasing and managing the shopping area, was aware of the actual rate at which the Mall was being leased. John Feist, vice-president of the company and in charge of the Mall's development, testified that every three weeks a leasing committee met and that a leasing report was prepared and circulated.

 Defendants assert that their figures were accurate because they included leases which had been agreed upon but had not yet been signed. The September 1972 leasing report indicated that an additional 44.68% of the available space in the Mall was thus "tied up." Defendants contend that consummation of these agreements was a mere formality and, therefore, their representation that the Mall was 50% leased was not false.

 The contention that eventual signature on these agreements was merely ceremonial is belied by the fact that it was not until over one year later that leases totalling the additional 44.68% were actually signed, and, in any event, the statements made were inaccurate whatever the state of negotiations.

 Defendants next argue that, even if some of the representations were false, plaintiff was not justified in relying on them because only 24.2% of the space on the floor plan of the shopping center is marked by black dots designating space already leased. The contention ignores the testimony of both Kellys that Kirtland told them that spaces fitted with the printed name of a merchant (but perhaps without a black dot) were also rented, and that in order to make the plan current John Kelly should write in the names of tenants who had signed since the plan was prepared. In light of this uncontradicted testimony, defendants' claim is totally without merit.

 We find that defendants, through their agent, knowingly made material false representations regarding the volume and rate of leasing in order to ...


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