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DRUTMAN REALTY CO. L.P. v. JINDO CORP.

November 2, 1994

DRUTMAN REALTY COMPANY LIMITED PARTNERSHIP, Plaintiff,
v.
JINDO CORPORATION and JINDO VENTURES CORPORATION, Defendants.



The opinion of the court was delivered by: SHIRLEY WOHL KRAM

 SHIRLEY WOHL KRAM, U.S.D.J.

 In this dispute involving a commercial lease agreement, plaintiff Drutman Realty Company Limited Partnership ("Drutman Realty") moves, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for an order granting it summary judgment. Defendants Jindo Corporation and Jindo Ventures Corporation (collectively, "Jindo") oppose the motion and cross-move, pursuant to Rule 56 of the Federal Rules of Civil Procedure, for an order granting them summary judgment dismissing the complaint and awarding relief on their First through Fifth Counterclaims. For the reasons set forth below, both motions are denied.

 BACKGROUND1

 I. The Lease

 Drutman Realty owns a 21,000-square-foot retail store located in Paramus, New Jersey (the "retail premises"). *fn2" In August 1983, Drutman Realty's predecessor-in-interest, Drutman Enterprises, Inc., entered into a written lease agreement with F.S. Paramus Corp. ("F.S. Paramus") which provided for a ten-year leasing period followed by option periods extending for an additional thirty years (the "Lease"). See Lease, annexed to the Affidavit of Ralph Drutman, sworn to on Jan. 18, 1994 (the "Drutman Aff.") as Exh. "4," at 67.

 In the 1980s, F.S. Paramus was in the retail fur sales business, operating a chain of stores called The Fur Vault. At the time the Lease was executed, the retail premises consisted of empty retail space. F.S. Paramus immediately decided to improve the retail premises in order to create a more favorable atmosphere for selling furs. Accordingly, F.S. Paramus spent over $ 1 million in renovations before opening The Fur Vault store. *fn3" According to defendants, the renovations consisted of trade fixtures and property to which ownership was never forfeited. Drutman Realty contends, however, that the renovations were not trade fixtures, but rather were leasehold improvements that now belong to Drutman Realty as the owner of the retail premises.

 II. Meridian's Acquisition and the Jindo Guaranty

 On May 25, 1990, Meridian Fashions Corp. ("Meridian") acquired F.S. Paramus and certain assets of The Fur Vault (the "acquisition"). As part of the acquisition, F.S. Paramus assigned to Meridian the Lease, which contained a remaining lease term of approximately forty-three months, as well as option periods totaling an additional thirty years. *fn4" See Assignment and Assumption of Lease, annexed to the Drutman Aff. as Exh. "5." That same day, Jindo entered into a written guaranty with Drutman Realty in which Jindo agreed to guarantee Meridian's payments to Drutman pursuant to the Lease (the "Guaranty"). See Guaranty, annexed to the Drutman Aff. as Exh. "6."

 In determining a fair price for the acquisition, Meridian hired the accounting firm of Coopers & Lybrand to analyze the fair market value of the retail premises, including the renovations. Coopers & Lybrand concluded that the renovations had a fair market value of $ 4,105,300. See letter from Coopers & Lybrand to Y.W. Lee of 1/27/92, annexed to the Affidavit of William Weinberg, sworn to on Feb. 23, 1994 (the "Weinberg Aff.") as Exh. "A."

 III. The Lease Default

 Shortly after the acquisition, The Fur Vault began to experience financial difficulties due to the declining economy and changing attitudes toward the fur industry. In 1991 and 1992, after losing millions of dollars in the retail fur sales business, Meridian decided to close thirty-five of its approximately forty Fur Vault stores. In February 1992, Meridian closed The Fur Vault at the location owned by Drutman Realty, retaining possession of the key to the retail premises. Thereafter, Meridian continued to pay rent as well as other monthly charges pursuant to the Lease, including sewer rent, real estate taxes and insurance premiums. In October 1992, however, Meridian defaulted on the rent and ceased to make any other payments required by the Lease.

 On November 10, 1992, Drutman Realty sent to Meridian a Notice of Termination of the Lease stating that the Lease would terminate on November 27, 1992. See letter from Drutman Realty to Meridian of 11/10/92, annexed to the Weinberg Aff. as Exh. "B." In response, on November 17, 1992, Meridian sent a letter to Drutman Realty requesting that the parties agree on a pay-out schedule for the remainder of the Lease. See letter from Meridian to Drutman Realty of 11/17/92, annexed to the Weinberg Aff. as Exh. "C." Drutman Realty did not respond to this letter.

 On December 11, 1992, Drutman Realty sought a Judgment of Possession against Meridian in New Jersey state court. On December 18, 1992, the Judgment of Possession was issued and Drutman Realty entered the retail premises with the county sheriff, thereby locking out Meridian. According to defendants, Drutman Realty had promised to allow Meridian to remain in possession of the retail premises until December 31, 1992.

 On January 4, 1993, Meridian informed Drutman Realty that it intended to remove its trade fixtures and property from the retail premises. See letter from Meridian to Drutman of 1/4/93, annexed to the Weinberg Aff. as Exh. "F." In its letter, Meridian stated that it was entitled to repossess its trade fixtures and property pursuant to Section 4.03 of the Lease ("Lease Section 4.03"), which provides:

 
It is understood and agreed that if Lessee abandons the premises or moves out upon the expiration of this lease or after default in payment of rent or in violation of any provisions of this lease, it is dispossessed and a final order is entered, and after any of the said events, fails to remove any of its trade fixtures or property from the demised premises at the end of thirty (30) days therefrom, at the option of the Lessor, the fixtures and the property shall be deemed abandoned by Lessee and shall become the property of the Lessor.

 Lease, annexed to the Drutman Aff. as Exh. "4," at 8. In response, Drutman Realty notified Meridian that it would not allow any re-entry upon the retail premises. See letter from Drutman Realty to Meridian of 1/8/93, annexed to the Weinberg Aff. as Exh. "G." Thereafter, Drutman Realty paid an independent contractor to remove all of the renovations installed by F.S. Paramus.

 IV. The Search for a New Tenant

 Beginning in late 1991, at about the time the decision was made to close The Fur Vault at the location owned by Drutman Realty, Meridian retained several real estate brokers to find an assignee or subtenant for the remainder of the Lease. Specifically, Meridian hired Sharon Satlin-Shahar ("Satlin-Shahar") of Okada International Corporation to negotiate with several prospective subtenants. Satlin-Shahar engaged in substantial negotiations with The Container Store and Leewards Creative Crafts ("Leewards") and contacted at least fifteen other retailers, including Annie Sez, Coconuts, Pathmark Drugs, Rockbottom and Burlington Coat Factory. See letter from Satlin-Shahar to Drutman of 12/22/92, annexed to the Weinberg Aff. as Exh. "H."

 Meridian also held discussions with several other real estate brokers, including Evergreen Agency, E. Grodberg & Son, Gabriel Realty, Fogarty/Baily & Associates, Wilson-Comp Associates and Michael Antkies Real Estate. In December 1991, Michael Antkies ("Antkies") of Michael Antkies Real Estate notified Meridian that The Discovery Zone, a retail chain of children's entertainment centers, had expressed interest in assuming the Lease. *fn5" See letter from Antkies to Meridian, annexed to the Weinberg Aff. as Exh. "K." Drutman Realty and The Discovery Zone were unable to come to terms, however, as Drutman Realty sought a rental rate of approximately twenty dollars per square foot rather than a continuation of the $ 12.65 per square foot rate paid by Meridian pursuant to the Lease.

 According to Michael Evans ("Evans", Drutman Realty's real estate broker, Ralph Drutman "was serious about wanting to net twenty" dollars after commission. See deposition of Michael L. Evans, taken on Dec. 1, 1993, annexed to the Weinberg Aff. as Exh. "T," ("Evans Dep.") at 41. This required a rental price of approximately twenty-two dollars per square foot. Id. Evans described this price as "a little bit aggressive, but not out of what I call the gray area." Id. at 29. Several other retailers, including A&E Stores and Steven Cohn Furs, expressed an interest in the retail premises but were unable to reach an agreement with Drutman Realty because the asking price was too high. Id. at 43-44, 57-59.

 Jindo claims that Drutman Realty's failure to reach an agreement with any of the prospective tenants constitutes a failure to mitigate damages which should offset any potential recovery. According to Drutman Realty, however, the Lease expressly relieves it of any duty to mitigate damages. Specifically, Drutman Realty relies upon Section 14.04(b) of the Lease ("Lease Section 14.04(b)"), which states:

 
In case of any default, re-entry, expiration or dispossess [sic] by summary proceedings or otherwise Lessee shall be liable for each of the following and such remedies of Lessor are not mutually exclusive, (b) Lessor may relet the premises or any part of parts thereof (but Lessor is not obligated to relet), either in the name of the Lessor or otherwise.

 Lease, annexed to the Drutman Aff. as Exh. "4," at 33. Specifically, Drutman Realty argues that the phrase "but Lessor is not obligated to relet" expressly relieves it of any duty to mitigate damages by ...


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