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Jonas v. Prutaub Joint Venture

Decided: November 27, 1989.


Pressler, Long and Landau. The opinion of the court was delivered by Pressler, P.J.A.D.


Plaintiffs Stephanie Jonas, Barbara Stream and The Elder Family Trust appeal from a summary judgment*fn1 dismissing their complaint against defendant Prutaub Joint Venture, a New Jersey general partnership, and the owner of the Short Hills Mall, a shopping center in Essex County in which plaintiffs, by their corporations and under a lease with Prutaub, conduct a retail business as a Scandia Down franchisee. The issue raised by this appeal is whether defendant committed a business tort against plaintiffs by refusing to consent to an assignment as defined by the lease. The trial judge concluded that as a matter of law, based on the undisputed facts of record, defendant acted within its contractual rights in refusing to accept the new store operator proffered by plaintiffs. We agree, although for somewhat different reasons.

Plaintiffs are the sole stockholders of E & R Land and Livestock Company, a Nevada corporation, which, as noted, is a franchisee of Scandia Down Corporation, a manufacturer and distributor of down comforters, pillows and related items. Scandia Down has a number of franchised retail operations throughout the country and many in other malls owned by defendant or its principals. In November 1984 E & R entered into a lease with Prutaub for a small shop in which it agreed to operate a Scandia Down retail franchise. The lease included an express prohibition of assignment or subletting, fixed the rent in substantial measure on the amount of E & R's gross sales, and provided that sale or transfer of a majority of the tenant's

corporate stock would, in effect, constitute an assignment or sublet. Among the purposes of the assignment/sublet bar, as explained by the lease, is the following:

Landlord has entered into this Lease with Tenant in order to obtain for the benefit of the entire regional retail development the unique attraction of Tenant's trade name set forth in Section 16.01 and the unique merchandising mix and product line associated with Tenant's business as described in Section 7.01, and the foregoing prohibition on assignment or subletting or the like is expressly agreed to by Tenant as an inducement to Landlord to Lease to Tenant.

Following its execution of the lease but before the date of actual occupancy, E & R, with the written consent of Prutaub, assigned the lease to its wholly owned subsidiary ESS-DEE, Inc., whose lease obligations it and plaintiff Stream guaranteed.

Two years later, plaintiffs entered into negotiations for the sale of the corporate stock of E & R to Franchise Systems (USA), Inc., a close corporation of which one Ibrahim K. Houri was president. The sale contemplated the turnover to Franchise Systems of the Short Hills Mall store as well as a Scandia Down shop operated by E & R in New York City. E & R and Franchise Systems ultimately entered into a contract for the sale of the stock for $750,000 contingent upon defendant's approval of assignment of the Short Hills Mall lease.

Included in the record on the motion is the correspondence between the parties' attorneys respecting plaintiffs' request for defendant's consent as well as explanatory affidavits. Defendant's initial letter denying plaintiffs' request for its consent relied first on the assignment/sublet prohibition of the lease, but also asserted the following:

Irrespective of this absolute right to withhold consent, Prutaub believes there are legitimate reasons for refusing to approve the assignments at this time. In particular, the sales by the current tenant are extremely high, when compared to the sales level for other Scandia Down stores. The landlord believes that these high sales are likely caused by the special expertise and abilities of the existing ownership and management. In this regard, the landlord has not been provided with any information concerning the skill or experience of the proposed new ownership and management or any information which would indicate that new management would be in a position to continue the extremely high sales performance.

In this regard, a supporting affidavit by defendant's manager of lease administration asserts, without dispute or contradiction, that

Scandia Down franchises are located in Taubman operated malls across the country. The gross sales per square foot of the store in Short Hills are greater than the gross sales per square foot of all other Scandia Down franchises in Taubman operated ...

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