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Karl''s Sales and Service Inc. v. Gimbel Brothers Inc.

Decided: July 16, 1991.

KARL'S SALES AND SERVICE, INC. AND KARL'S APPLIANCE, INC., NEW JERSEY CORPORATIONS, PLAINTIFFS-RESPONDENTS AND CROSS-APPELLANTS,
v.
GIMBEL BROTHERS, INC., DEFENDANT-APPELLANT AND CROSS-RESPONDENT, AND BATUS, INC. AND BATUS RETAIL INC., DEFENDANTS AND CROSS-RESPONDENTS



On appeal from the Superior Court of New Jersey, Law Division, Essex County.

Judges Michels, Brody and D'Annunzio. The opinion of the court was delivered by Michels, P.J.A.D.

Michels

Defendant Gimbel Brothers, Inc. (Gimbel) appeals from a final judgment of the Law Division entered following a bench trial that awarded plaintiff Karl's Sales and Service, Inc. damages in the amount of $850,000 based on a claim of breach of contract. Karl's Sales and Service, Inc. plaintiff and Karl's

Appliance, Inc. (which we shall hereinafter collectively refer to as "Karl's") cross-appeal from that part of the judgment that dismissed all other claims against Gimbel and all claims against defendants Batus, Inc. and Batus Retail Inc. based on the theories of violation of both the New Jersey Franchise Practice Act and the New Jersey Consumer Fraud Act, interference with both contractual relations and prospective economic advantage and equitable fraud.

The facts giving rise to this appeal are adequately recounted in the trial court's written opinion of October 18, 1989 and need not be fully repeated here. Briefly, by way of background, Karl's is a closely held family business that operated major appliance departments in six of Gimbel's department stores pursuant to six separate license agreements. The six Gimbel stores covered by the agreements were located in Paramus, New Jersey, on Lexington Avenue and on Broadway, in New York City and in Westchester, Garden City and Valley Stream, New York. In June of 1985, Karl's opened its appliance department in the Gimbel Paramus store and later that year opened in the remaining five Gimbel stores. In January 1986, BAT Industries, P.L.C. of Great Britain, the parent company of all defendants, (not a party in this action) publicly announced that Gimbel was for sale. After the announcement, BAT Industries, P.L.C. of Great Britain, attempted to market Gimbel as a going concern, but ultimately in June 1986, decided to close all Gimbel stores and sell the assets. On June 17, 1986, Gimbel sent Karl's a notification of cancellation of the license agreement with respect to each of the six stores. Gimbel relied on a clause that is contained in each licensing agreement for canceling these agreements. The clause relied upon was within paragraph 30 and provided for the termination of the license without liability to either party upon the closing of the store to which the license agreement pertains "if Gimbels shall discontinue or dispose of the business now conducted by it in the Store."

On June 20, 1986, Karl's instituted this action by a complaint and order to show cause. After amended and supplemental complaints were filed, the matter was bifurcated for trial. At the conclusion of the trial on liability, the trial court held that although Gimbel made its decision to discontinue its entire business and to close each of its stores for legitimate business reasons and that there was nothing inherently unreasonable in Gimbel's desire, as clearly expressed in the licensing agreements, to close a store for any legitimate business reason without incurring liability to one or more of its licensees, the licensing agreements did not give Gimbel the right to go out of business entirely without liability to Karl's. The trial court thereupon held that Gimbel wrongfully terminated Karl's licenses under the six agreements. The trial court, however, dismissed all other claims asserted by Karl's against Gimbel and the two Batus defendants. Following the trial on damages, the trial court awarded to Karl's damages against Gimbel of $850,000 for anticipated loss of profits. This appeal and cross-appeal followed.

I.

Gimbel's Appeal

The thrust of Gimbel's challenge to the judgment is that the language contained in paragraph 30 of the licensing agreements is clear and unambiguous and permits Gimbel to both discontinue its business in one store while operating its remaining stores as well as to discontinue its business entirely without incurring any liability to Karl's. Gimbel contends, therefore, that the trial court erred in finding that paragraph 30 was ambiguous and that the agreement carried an implied covenant that Gimbel would fulfill its contractual obligation for the entire five year period. We agree and reverse.

Paragraph 30 of the licensing agreements provides:

30. Destruction of Space. In the event of a fire or any other casualty of any kind whatsoever which may result in the substantial destruction of any

Space then occupied by Licensee or if Gimbels shall discontinue or dispose of the business now conducted by it in the Store, the License shall terminate, and notwithstanding the provision of paragraph 33 hereof, neither party shall be liable to the other for any loss or damage resulting therefrom. If the Space shall be partially destroyed by fire or any other casualty without interrupting materially the regular business operations of Licensee in the Space, Gimbels shall, with reasonable dispatch, proceed with the repair of the Space, Licensee shall reinstall fixtures, furniture and equipment in the Space of the kind and character originally installed therein and this Agreement shall continue in full force and effect and, notwithstanding the provisions of Paragraph 33 hereof, neither party shall be liable ...


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