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LOUIS SCHLESINGER CO. v. KRESGE FOUND.

March 10, 1970

LOUIS SCHLESINGER COMPANY, a corporation of New Jersey, Plaintiff,
v.
The KRESGE FOUNDATION, a Michigan corporation, and Kresge Department Store, Inc., a Delaware corporation, Defendants


Wortendyke, District Judge.


The opinion of the court was delivered by: WORTENDYKE

This case was the subject of cross-motions for summary judgment upon which the United States District Court for the District of New Jersey, granted the defendant's motion and denied plaintiff's motion. Louis Schlesinger Company v. Kresge Foundation, 260 F. Supp. 763 (N.J.D.C. 1966). Plaintiff, Louis Schlesinger Company, appealed and the United States Court of Appeals, Third Circuit, reversed and remanded. Louis Schlesinger Company v. Kresge Foundation, 388 F.2d 208 (3 Cir. 1968). Pursuant to the remand, the case proceeded to trial on September 29 and 30 and October 1 and 2, 1969. By special leave of Court on the application of the plaintiff, a posttrial deposition was taken in Detroit, Michigan, on October 14, 1969 and the transcript submitted to the Court in lieu of the appearance in Court and oral testimony of the deponent.

 Plaintiff, Louis Schlesinger Company, is referred to herein as plaintiff or broker, and defendant, The Kresge Foundation, as defendant or Kresge. References to the transcripts of testimony taken during the trial are by volume and page.

 The Third Circuit Court of Appeals, in the course of its Opinion, made the following observations:

 
"What seems to be a question of law as to the right of a broker to additional compensation on the renewal or extension of the lease for which he was the procuring agent is a matter which is not free from difficulty. It is brought to the courts most frequently where the subsequent conduct of the owner and tenant is molded in a form which does not on its face establish liability for additional commission. It is evident in such cases that the interest of the parties to the lease lies in avoiding the obligation to pay additional commission and from this arises at once the factual question whether what is otherwise described by the owner and lessee is in reality a transaction which falls within the language of the real estate broker's contract with the owner. Here the circumstances which surrounded the making of the new lease which terminated the original lease must be considered in making the factual determination whether the new lease fell within rule (e) of the Detroit Real Estate Board. The determination of this question requires consideration of the intention of the parties as derived from their conduct, and the inferences which are to be drawn from their intention."
 
"This question is entangled in the precise details of the broker's activities and where they occurred, and therefore the factual circumstances will lend their coloration to the legal question which may require decision."

 The above-quoted observations of the Circuit Court bring into focus the following factual issues:

 
1. Why did the parties incorporate the Detroit Real Estate Board rates and rules in their Commission Agreement?
 
2. Did the new lease arrangement between Kresge and Western Electric by reason of which broker claimed an additional commission represent a bona fide renegotiation of the landlord-tenant relationship so that it did not fall within the terms of Kresge's Commission Agreement with broker?
 
3. Did broker engage in significant activities in Michigan, which, by reason of the fact that broker was not licensed in Michigan, were illegal?

 FINDINGS OF FACT

 Facts Establishing The Intent Of The Commission Agreement

 Plaintiff's claim is founded upon a Commission Agreement dated December 12, 1956 [P-9]. It incorporates by reference the rates and rules of the Detroit (Michigan) Real Estate Board [P-13].

 Broker brought Western Electric Company to the attention of Kresge by a telephone call from Newark to Detroit on December 14, 1955 [Vol. I p. 12] which was confirmed by letter of the same date [P-1]. The telephone call to Kresge was made on the initiative of Mr. Katz, Vice President of broker. He had not been asked by Kresge to find a tenant [Vol. I p. 17]. Instead, Mr. Katz had determined that Western Electric (whom he described in his testimony as "my customer") needed office space in downtown Newark and acting upon rumor, instituted the approach to Kresge [Vol. I p. 18]. Throughout 1956, Mr. Katz made inquiries on behalf of Western Electric for space other than the Kresge building in Newark [Vol. I pp. 64-65]. Mr. Katz testified that from December, 1955 through July 26, 1956 all that was done by broker with respect to the Kresge-Western Electric matter was "phone calls back and forth" [Vol. I p. 67]. Actually, Mr. Katz had a record of only one telephone call during this period which was on July 19, 1956 [Vol. I p. 69] and in any event, testified that such conversations as did take place "* * * were just general inquiries as to what was happening." [Vol. I p. 70]. On August 8, 1956 Mr. Katz wrote to Kresge outlining more exactly the requirement of his customer, Western Electric [Vol. I p. 18 and P-4]. Kresge's reply of August 10, 1956 [P-5] advised "* * * that any present negotiations with the Western Electric Company would be fruitless." On August 21, 1956 Mr. Katz called on Mr. Guerrieri, the manager of the Kresge Department Store in Newark [Vol. I pp. 70-71] who, however, expressed his feeling that he was not interested in the idea of making space for Western Electric in the store [Vol. I p. 71]. In fact, the impression left on Mr. Katz was that he had been "thrown out" [Vol. I p. 73].

 Undaunted by the lack of encouragement from Kresge, Mr. Katz flew to Detroit, Michigan, on October 9, 1956 and went to the Kresge offices there [Vol. I p. 73]. This was his first personal contact with the Kresge people. He was the one who was handling the matter for broker [Vol. I pp. 73-74]. On this visit, he outlined the requirements of Western Electric, advised Kresge that he thought he could definitely produce a deal on two floors, that Western Electric was interested in a five year lease with five one-year options, suggested the square foot rental and discussed the use to which the space would be put [Vol. I pp. 73-75].

 About a week later, Mr. Katz again traveled to Detroit, Michigan, this time in the company of Mr. Marion [Vol. I p. 78], of Western Electric [Vol. I p. 28]. The meeting with the Kresge people on this occasion lasted several hours [Vol. I p. 80]. Mr. Katz introduced Mr. Marion as a representative of Western Electric, stated his purpose for being there, advised that he was there to try to reach a meeting of the minds and again advised Kresge that Western Electric was interested in space at $3.00 a square foot, but Kresge wanted $4.00 a square foot and was interested in a 10 year lease [Vol. I p. 81]. Following the meeting, Mr. Katz and Mr. Marion stayed overnight in Detroit [Vol. I p. 83]. After further discussion of the negotiations, Mr. Katz telephoned Kresge again in further efforts to close the gap on the rental figure before returning to New Jersey [Vol. I pp. 83-86]. From at least November 8, 1956 onward, Mr. Katz stayed completely out of the negotiations [Vol. I p. 86].

 Under date of February 15, 1957, Kresge, as lessor, and Western Electric Company (hereinafter Western Electric), as lessee, entered into a Lease Agreement (hereinafter the 1957 Lease) for the eighth and ninth floors of the building at 715 Broad Street, Newark, New Jersey [P-10]. The term of the 1957 Lease was "* * * a period of ten (10) years commencing on the date of delivery * * *" of the first portion of the demised premises [P-10 Par. 1]. The 1957 Lease set forth a staggered schedule of delivery of the demised premises and provided that prior to complete possession by the lessee, rent would be paid on a square foot basis for the space delivered [P- 10 Pars. 1 and 2]. The 1957 Lease was terminable at the option of the lessee at the end of the sixth year of the original term or at the end of each subsequent year of the original term subject to the payment, as rent, of amounts determined by the time of termination, but in any event less than the full rent for the balance of the 10 year term [P-10 Par. 11a].

 It is apparent from the foregoing that broker volunteered its services to Kresge, without any request by Kresge, and solely to accommodate broker's customer, Western Electric. It is also apparent that the precise amount of rental to be paid under the 1957 Lease was not determinable in advance. Accordingly, it is not surprising that the commission to be paid to broker became the subject of negotiation before the signing of the 1957 Lease.

 Broker commenced negotiations for the Commission Agreement while in Detroit on the 9th and 15th of October, 1956 [Vol. I p. 87]. These negotiations eventually resulted in a letter agreement [P-9] dated December 12, 1956 [Vol. I p. 87] (referred to herein as the Commission Agreement). Under date of March 13, 1957, broker submitted a statement to Kresge "In accordance with Agreement dated December 12, 1956" [Vol. I p. 188 and D-7]. Under date of April 12, 1957, Kresge remitted the sum of $81,552.27 to broker "* * * in full payment for your services rendered in connection with the [1957 Lease] * * *" [P-11]. Broker accepted said payment and took no exception to P-11, Kresge's cover letter [Vol. I pp. 189-190].

 The present dispute arose out of broker's contention that a further commission was due under the Commission Agreement, not in respect of the initial lease transaction, but because of a subsequent transaction between Kresge (or its grantee), as lessor, and Western Electric, as lessee, involving the eighth and ninth floors of the Kresge building which floors were the subject of the 1957 Lease and, in addition, the fifth, sixth, and seventh floors in the same building.

 1. In 1956, before the 1957 Lease was signed, broker first sought a commission based on the Newark rates [Vol. I pp. 137-139] which would have produced a commission on the 10 year lease of about $172,000 as against about $81,000 under the Detroit rates [Vol. I p. 152]. Kresge rejected this [D-16].

 2. At a meeting in Newark on December 11, 1956, Mr. Howard Baldwin of Kresge proposed that the Detroit rates be used [Vol. I p. 144] which he believed produced a figure of $65,000 [Vol. I pp. 105 and 112]. After Mr. Baldwin left broker's office, broker, by checking a booklet complete as to the Detroit rates, discovered that they produced a figure of $81,000 [Vol. I pp. 112-114]. Without advising Mr. Baldwin of the discrepancy between this figure and $65,000 [Vol. I p. 114], broker telephoned Mr. Baldwin in Newark advising him that broker would accept its commission in accordance with the rates and rules of the Detroit Board [Vol. I p. 108]. Thereupon, broker prepared the first version [P-8] of the letter agreement which was hand-carried to Mr. Baldwin the next morning [Vol. I p. 114]. On December 13, after having returned to Detroit, Mr. Baldwin discovered the error and the differential between $65,000 and $81,000 and informed broker of it by telephone [Vol. I p. 115]. However, the Commission Agreement was finally signed and prepared by broker with a slight revision made by broker at the suggestion of Mr. Baldwin [Vol. I p. 181]. The revision was discussed on December 28 [Vol. I p. 181], and incorporated into P-9 which was forwarded to Michigan by broker [Vol. I p. 121 and P-14], and then returned, after having been signed by Kresge, under cover of letter dated December 31, 1956 [Vol. I p. 90 and P-15].

 Despite some testimony by Mr. Katz [Vol. I pp. 138, 139 and 143] and by Mr. Schlesinger [Vol. I p. 171] to the effect that the question of commissions on renewals beyond the 10 year term and on the taking of additional space was discussed in the negotiations which concluded on December 28, 1956 and resulted in the Commission Agreement [P-9], there are several memoranda which Mr. Katz prepared contemporaneously with the negotiations and in none of them is there any reference to any discussions whatever respecting commissions on renewals or on the taking of additional space [D-2, D-6 and diary entry of December 11, 1956, Vol. I p. 105]. The same is true with respect to contemporaneous memoranda prepared by Mr. Schlesinger [D-3, D-4 and D-5 and Vol. I pp. 107, 109, 110, 112, 115-117, and 124-125]. This is particularly significant in light of Mr. Katz' testimony that he was very careful to record telephone conversations in his dealings with Kresge because it involved a commission without a clear-cut authorization [Vol. I pp. 59, 102-103]. Mr. Schlesinger was also a careful memorandum writer and recorded "everything" [Vol. I p. 185]. Not only are the contemporaneous memoranda of Messrs. Katz and Schlesinger devoid of references to any commission payments on renewals or extensions of lease, but Mr. Katz himself testified on redirect examination as follows:

 
"Q. Did the discussion that you and Mr. Schlesinger had with Mr. Baldwin primarily concern then the concept, either the concept of commissions on renewals, taking of additional space or extensions or, on the other hand, the amount of the commission that would be paid on the February 15, 1957 lease?
 
A. The discussion involved only the commission that was to be paid on the original part of the lease. That was the only concentration that was made by Mr. Baldwin was trying to reduce [sic] -
 
THE COURT: Just a minute. When you say original part of the lease, what do you mean?
 
THE WITNESS: The original, the aggregate rental of the original term of the lease of ten years, that's right, your Honor. There was a discussion, an effort on Mr. Baldwin's part to reduce our just commission, and he was concerned with reducing the initial payment to me." [Vol. I pp. 143-144]

 Mr. Schlesinger's testimony likewise conveys the impression that Mr. Baldwin's concern was with the rate and amount of commission to be paid on the original lease [Vol. I pp. 170-171].

 3. The telephone message on December 11, 1956 from broker to Mr. Baldwin advising that broker would accept its commission in accordance with the Detroit Real Estate Board's rates and rules [Vol. I p. 108] was made following reference to the rates, but broker did not receive a complete copy of the rules and regulations until two days later [Vol. I p. 113]. There is no testimony establishing that broker knew on December 11, 1956 of the possible effect of Detroit Rule (e). [See item 8 below].

 4. Some of the testimony of Messrs. Katz and Schlesinger could be interpreted to mean that Kresge tacitly accepted an agreement requiring payment of further commissions on renewals or on the taking of additional space [Vol. I pp. 138-140], but this is inconsistent with the remittance of more than $81,000 by Kresge "* * * in full payment for your services rendered in connection with the [1957 Lease] * * *" [P-11]. As stated above, broker took no exception to the remittance so made [Vol. I pp. 180-190].

 5. A contemporaneous letter prepared by Mr. Howard Baldwin on December 7, 1956 to Sebastian S. Kresge, a trustee of The Kresge Foundation [D-16], is also irreconcilable with the position that Kresge could incur any further commission obligation to broker beyond that incurred at the time the 1957 Lease was executed.

 6. The only record of discussion of commission on the exercise of an option of any kind had to do with the option under the 1957 Lease to cancel at the end of six years [Vol. I pp. 289 and 290 and Gregory notes (D-28)]. Further, Mr. Gregory testified as follows:

 
"Q. Do you recall ever having discussed with Mr. Baldwin in the year 1956 or prior thereto whether or not there would be any commission liability to the Louis Schlesinger Company on the Western Electric lease in the event of any extension or renewals thereof?
 
A. I understood the commission paid at that time was the whole, everything.
 
MR. GREENBAUM: Please read my question to Mr. Gregory.
 
"(The Reporter reads back the pending question.)
 
A. I understood there would not be any further liability or any further claim for commission.
 
A. Yes.
 
Q. Now, I would like to know what those discussions were. This is in the year 1956, not later, but '56 or prior thereto. I would like to know what discussions there were ...

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