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Pathmark Stores, Inc. v. JSM at Somerville

June 24, 2008

PATHMARK STORES, INC., PLAINTIFF-APPELLANT,
v.
JSM AT SOMERVILLE, LLC, DEFENDANT-RESPONDENT.



On appeal from the Superior Court of New Jersey, Chancery Division, Somerset County, Docket No. C-12034-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 7, 2008

Before Judges Lisa, Lihotz and King.

Pathmark Stores, Inc. (Pathmark) has filed two appeals from final judgments in two separate trial court actions arising out of redevelopment plans affecting its store in the Landmark Shopping Center in the Borough of Somerville (Somerville). This opinion disposes of the appeal from the Chancery Division action Pathmark brought against JSM at Somerville, LLC (JSM). In a separate opinion, issued on this date, we also dispose of Pathmark's other appeal, Borough of Somerville v. Pathmark Store, Inc., No. A-5578-06T2 (App. Div. ____________, 2008), from the Law Division action brought by Somerville against Pathmark to condemn Pathmark's lease.

Pathmark's lease began in 1977 and, with renewal options, runs through 2018. In May 2002, JSM purchased the shopping center for the purpose of redevelopment. In 2003, the Somerville Planning Board (Board) passed a resolution stating that the location is an "area in need of redevelopment," and the Somerville Borough Council (Council) adopted a similar resolution and designated JSM as the redeveloper.

After hearings in February 2004, the Council adopted a redevelopment plan for the West Main Street area where the shopping center is located. In April 2005, the Board approved JSM's site plan, which provides for the demolition of the entire shopping center except the Pathmark store, and the creation of new buildings and parking structures, with a mixture of retail, office, and residential uses.

This course of events gave rise to three separate lawsuits. On May 13, 2005, Pathmark sued JSM in this Chancery Division action seeking an injunction to prevent JSM from acting as redeveloper, and raising claims that JSM breached Pathmark's lease, the implied covenant of good faith and fair dealing, and the covenant of quiet enjoyment contained in the lease. On June 2, 2005, Pathmark filed a complaint in lieu of prerogative writs seeking to overturn approval of the site plan. On February 13, 2007, Somerville filed a condemnation action, seeking to condemn Pathmark's lease.

In the condemnation case, Judge Ciccone upheld Somerville's right to condemn and issued a judgment appointing condemnation commissioners. As stated, Pathmark's appeal of that decision, now docketed as A-5578-06T2, is disposed of in a separate opinion issued today.

In the action in lieu of prerogative writs, Judge Kumpf first dismissed all claims challenging the adoption or validity of the redevelopment plan, and later dismissed the remaining claims that addressed parking issues. Pathmark has not filed an appeal in that case.

Pathmark's three-count complaint in this case alleged that:

(1) JSM's actions constituted a breach of the lease; (2) JSM's actions constituted a breach of the implied covenant of good faith and fair dealing; and (3) proceeding with the development would cause substantial interference to the permanent detriment of Pathmark's business, constituting a breach of the covenant of quiet enjoyment contained in the lease. Pathmark sought to enjoin JSM temporarily, preliminarily, and permanently from proceeding with its development plans, violating the lease, or interfering with Pathmark's business including access of Pathmark's customers. Pathmark requested compensatory damages, interest, counsel fees, costs of suit, and any other relief deemed just and equitable.

After JSM answered, Judge Coyle entered a consent order on September 22, 2006 temporarily restraining JSM from demolishing or attempting to demolish any portion of the shopping center. On October 20, 2006, the judge entered an order to continue the consent order until either party applied for a return date in the event of a change in circumstances.

In November 2006, Pathmark and JSM cross-moved for summary judgment. After oral argument on February 9, 2007, Judge Coyle issued a written opinion granting JSM's motion in part, and denying Pathmark's cross-motion. He determined there were genuine issues of material fact: (1) whether JSM violated article 44 of the lease; (2) whether JSM engaged in activities that interfered with Pathmark's beneficial enjoyment of the premises breaching the covenant of quiet enjoyment; and (3) whether JSM caused the shopping center to be a "virtual ghost town" and whether that has had a substantial impact on Pathmark's ability to generate a profit. In addition, Judge Coyle found a factual issue as to whether JSM crossed the line of mere planning and had taken steps that destroyed Pathmark's legitimate expectations under the lease.

Regarding Pathmark's cross-motion for a permanent injunction, Judge Coyle denied summary judgment, finding genuine issues of material fact of whether JSM breached either the implied covenant of good faith and fair dealing or the express covenant of quiet enjoyment.

After seven days of trial, on May 2, 2007, Judge Coyle determined that although there had been actual notice of Somerville's planned redevelopment of the shopping center, JSM breached articles 44 and 25 of the lease. However, he found that JSM did not violate the implied covenant of good faith and fair dealing. He granted an injunction prohibiting JSM from implementing the redevelopment plan further, but noted that if Somerville filed a declaration of taking, JSM could move to vacate the injunction and he would be inclined to lift it. In all other respects, the judge dismissed the complaint and all claims for damages with prejudice. He stated that the issue whether Pathmark is entitled to money damages for the value of the remainder of its lease would be determined in the condemnation case that was then pending.

On June 28, 2007, Pathmark filed a timely notice of appeal. On September 28, 2007, in the condemnation action, Judge Ciccone entered an order granting Somerville immediate and exclusive possession of the Pathmark store, free of all right, title, interest and liens of all tenants. We were advised at oral argument that Pathmark has vacated the premises.

Pathmark argues on appeal that Judge Coyle erred in determining: (1) that JSM did not breach the implied covenant of good faith and fair dealing; and (2) that Pathmark did not prove that it lost the ability to assign the lease as a result of improper actions by JSM. We reject these arguments and affirm.

I.

This is the factual background underlying the dispute. On July 7, 1977, Supermarkets General Corporation (Pathmark's predecessor) entered into a lease with Landmark at Somerville for a store in the shopping center, which is located on Main Street. There were originally 700 parking spaces in the lot, but with the construction of a McDonald's and the enlargement of the Pathmark store, that number decreased to about 599. The lease has been amended six times. It was in effect when these events occurred and contained options to renew until 2018.

The first tenants took occupancy in the shopping center in November 1978. In 1990, the Pathmark store was enlarged with an additional 7500 square feet at a cost of approximately $2.2 million. In addition, there were renovations in 1994 that cost Pathmark $600,000, and more renovations in 2003-04 that cost approximately $1.7 million.

The Pathmark store presently has a total of approximately 57,500 square feet. The shopping center covered about thirteen acres of area with about 140,000 square feet of retail space. It was laid out in a horseshoe shape, with most of the stores fronting a large parking field in the middle of the horseshoe. Bernard Navatto, Jr., a Board member since 1989 and chairperson of the Board since 1995, stated that Somerville officials recognized in 1989 that the shopping center's configuration was not appropriate for a Main Street setting. It was designed as a suburban shopping center with access for cars, and it was not pedestrian friendly. The large setback with single-story buildings was an inefficient use of space. Brian Gallagher, mayor of Somerville, noted that the shopping center "turned its back on downtown [and] you can't gain access to it from Main Street."

Somerville officials and local businesses prepared a "Downtown Vision Plan" that Somerville adopted as part of its master plan. The Vision Plan called for the development of two mixed-use development sites on each end of Main Street and redevelopment of the shopping center in two phases. A Somerset County study recommended that the shopping center be intensely developed as a mixed-use development.

On May 8, 2002, JSM purchased the shopping center for the purpose of redevelopment. JSM thus became Pathmark's landlord. We set forth relevant portions of the lease.

Article 34(A) of Pathmark's lease, addressing eminent domain, states:

In the event of a taking for any public or quasi-public use by any lawful power or authority by exercise of the right of condemnation or of eminent domain or by agreement between Landlord and those having the authority to exercise such right (hereinafter called Taking) of the whole of the Tenant's Building, then (1) this Lease and the term hereof shall cease and expire as of the date of vesting of title or transfer of possession, whichever occurs earlier, as a result of the Taking, and (2) any ...


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