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Radioshack Corp. v. Saker Enterprises

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


September 9, 2008

RADIOSHACK CORPORATION, FORMERLY KNOWN AS TANDY CORPORATION, PLAINTIFF-APPELLANT,
v.
SAKER ENTERPRISES, A NEW JERSEY PARTNERSHIP, DEFENDANT-RESPONDENT.

On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-3059-03.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 14, 2008

Before Judges Lisa, Sapp-Peterson and Newman.

Plaintiff appeals from the October 13, 2005 order granting summary judgment in favor of defendant, Saker Enterprises (Saker), the landlord from whom it leased space, the January 6, 2006 order denying plaintiff's motion for reconsideration of that decision, and the March 21, 2007 order stipulating damages.*fn1 At issue, is a clause in the lease that gave plaintiff the right to lower its rental payment if the landlord leased space to another tenant whose primary enterprise is the sale of electronic equipment and components. The trial court, in granting summary judgment, concluded that the lease of space to the other tenant did not trigger the product exclusivity clause in the lease because the tenant primarily sold wireless service rather than electronic equipment and components. We now reverse.

Plaintiff is a retailer engaged in "the retail sale of consumer electronics, including personal computers . . . [,] a broad assortment of electronic parts and accessories, audio/video equipment, . . . cellular and conventional telephones as well as specialized products such as scanners, electronic toys and hard to find batteries." Plaintiff has been selling cellular phones, accessories, and service since the mid- 1990s. Additionally, plaintiff's marketing includes offering discounts to consumers who enter into bundling agreements, specifically agreements that bundle the purchase of cellular phones with a service agreement.

On April 4, 1995, plaintiff and defendant entered into a five-year lease agreement. Under the terms of the agreement, plaintiff (then known as Tandy Corporation) leased retail space in a shopping center located at 3585 Route 9 in Freehold for $30,000 per year, plus an additional amount computed as a percentage of plaintiff's gross sales at the location. On May 25, 2000, the parties executed a lease extension for three additional years, with plaintiff given the right to unilaterally renew the lease for two additional periods of three years, subject to certain changes in rent.

The lease provision at issue here provides:

26. PRODUCT EXCLUSIVITY: If, after the execution date of this Lease, Landlord leases, rents or otherwise conveys any space within the Shopping Center to any tenant whose primary use involves the sale of electronic equipment and components, excluding tenants existing as of the execution date of this Lease, Tenant shall have the option to (a) pay Landlord, three percent (3%) of Tenant's Gross Sales, monthly, in arrears, in lieu of Tenant's obligation to pay Fixed Minimum Rent, Percentage Rent and all additional charges as set forth in this Lease or (b) terminate this Lease and each party's obligations hereunder upon the giving of six (6) months' prior written notice thereof. [(emphasis added).]

On June 9, 2000, less than one month after plaintiff signed its lease extension, defendant entered into an agreement with Not Just Cellular, Inc., to lease retail space at the shopping center. Not Just Cellular is now known as Elephant Wireless. It is undisputed that Elephant Wireless' business consists solely of the activation of cellular service and the sale of cellular handsets and related accessories. Elephant Wireless is an authorized agent of Cingular Wireless,*fn2 which is currently known as "Wireless from AT&T."*fn3

On July 31, 2002, plaintiff notified defendant that because Elephant Wireless sold Cingular's electronic equipment and components, it was exercising its right under the exclusivity provision to pay three percent of its gross sales, monthly, in lieu of its rent obligation, pursuant to the lease. On May 29, 2003, defendant filed a tenancy action for possession against plaintiff in the Law Division, Special Civil Part, Landlord/Tenant Section. Defendant alleged that plaintiff was in default for failing to pay rent. On July 2, 2003, upon consent of both parties, the action was removed to the Law Division, with plaintiff posting the disputed rent and having seven days to file a new complaint.

On July 9, 2003, plaintiff filed a one-count complaint in the Law Division. Specifically, plaintiff sought declaratory relief that (1) it had properly invoked the product exclusivity clause in the lease, (2) it was entitled to pay three percent of gross sales in lieu of the rent as set forth in the agreement, and (3) it was entitled to counsel fees and costs.

Both parties subsequently moved for summary judgment. Plaintiff argued that the undisputed evidence would show that Elephant Wireless sold electronic equipment and components at the Cingular Store and, consequently, that summary judgment should be entered in it favor, "reducing the rent to [three percent] of gross sales and awarding counsel fees and expenses." Defendant argued that renting to Elephant Wireless did not violate the exclusivity clause because "a majority of its revenues [were] from the activation of cell phone accounts." Defendant further argued that even if plaintiff prevailed, damages would still have to be proven.

In an oral decision, the motion judge granted summary judgment in favor of defendant and ordered plaintiff to pay $150,994.20 in outstanding rent within forty-five days of the date of the order and to pay future rent without deductions. The court denied each party's demand for counsel fees. On January 6, 2006, the court entered an order denying plaintiff's motion for reconsideration, but vacated the amount of damages it previously awarded as being "improvidently entered[.]" Additionally, the order provided that "the issue of damages may be resolved by stipulation of the parties, as well as by way of motion upon certification and, if necessary, a hearing before [the court] on a date to be scheduled[.]" On August 30, 2006, plaintiff filed a motion to compel damages-related discovery. The parties entered into a consent order on October 13, 2006 to resolve the outstanding discovery issue. On March 31, 2007, the parties entered into a stipulation on the issue of damages, without waiving any appeal rights. Thereafter, the ensuing appeal followed. The trial court entered a consent order staying enforcement of its judgment subject to plaintiff posting the requisite bond.

On appeal plaintiff contends (1) the judge erred by failing to grant summary judgment in favor of plaintiff; (2) summary judgment was inappropriate and this case should be remanded for a plenary hearing; and (3) plaintiff is entitled to an award of reasonable attorneys' fees and costs upon becoming the prevailing party in this appeal. Because we agree the trial court erred in denying plaintiff's summary judgment motion, we need not address plaintiff's alternative argument that the matter should be remanded for a plenary hearing. We therefore limit our discussion to the first and third contentions raised by plaintiff.

This court reviews a grant of summary judgment de novo using the same standard that is applied in the trial court under Rule 4:46-2(c). Turner v. Wong, 363 N.J. Super. 186, 198-99 (App. Div. 2003). That standard is "'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 533 (1995) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512, 91 L.Ed. 2d 202, 214 (1986)). If there is a genuine issue as to any material fact, then summary judgment must be denied. R. 4:46-2(c).

I.

In denying summary judgment, the trial judge stated:

The dispute in this matter essentially turns on a definition of . . . what constitutes primary use. In its moving papers Radio Shack indicates its Cellular Wireless derives 55 percent of its revenues from the activation of cell phone accounts and only 45 percent from the sale of the actual electronics. Although, again in terms of, -- this Court questions [whether] any other cell phones could be considered a form of electronics because as [plaintiff's counsel] indicated, cell phones do a lot more than just, -- you know, you can just do a lot more than just make calls. You can take pictures, and the computers. So it does move a little further than the old fashioned phone.

According to the Merriam Webster Dictionary definition, primary is as follows[:] Of first rank, importance or value; principal; basic; fundamental; relating to or constituting the principal quills of a bird's wing; -- I don't know why I read that. It's basically relating to or constituting the strongest of the degrees. Primary then really, when you deal with it in that first sense, means of first rank or importance or value.

Again, just looking at the straight percentages as set forth in the brief, Cingular has 55 percent of its revenue from the sale of the wireless counts [sic] and not the actual, -- and I will call them for this purpose, the electronics or the phones. I'm assuming also Cingular sells a lot of the products that go along with the phones and all of the attachments and all of the other paraphernalia that go along with the sale of phones.

Based on my review of the papers, I find that within the plain meaning of the terms, that Saker is not in violation of the lease agreement based on the fact that I believe that the primary business of Cingular is the sale of the phone service and not the electronics, per se. And again, although electronics for the purposes of this decision, you would include cell phones. There's a question in the Court's mind as to whether or not, when you were in contemplation of the lease back in 1995, again, even Radio Shack itself did not include cell phones within their definition of electronics.

I think when an individual comes into a cell phone store, you're getting the service. The phone is ancillary, and that's what you make the calls with, but that's really, you know, even the sales people themselves pick out a phone, we'll sell you the service. That's what they're interested in, and I think that's . . . the purpose of when you go into a store, a cell phone store, that's really what you're doing. You're picking a plan; you're buying the service.

They really, I'm sure, -- because I'm sure they really are not interested in what phone you get. The most of the income, it would seem to me, would be derived from the sale of the service and the minutes.

So based on all of that, I believe that the primary and the principal . . . business of the Cingular store is the sale of a service and not electronics.

In denying reconsideration, the court stated:

I understand the argument that Ms. Wong makes with regard to bundling in the sense of having wireless service and then throwing in the phones included therein. However, the Court feels that its initial decision that, again, Cingular's primary business is a sale of the wireless service. It is not the sale of telephones. And then the question becomes whether the phones themselves are considered as electronic equipment similar to other things that Radio Shack sells.

Radio Shack sells a lot of other items other than telephones. . . . So and you have the percentages, and the percentages can change over time, but the idea as to what the primary business is with regard to what they're trying to sell. Are they trying to just sell phones whether they be preprogrammed phones or anything like that. And that's really not what Cingular is there. They're going to make the money by selling the service, and the phones are included.

And that's clear by the fact that if you go into a, -- the Court will take judicial notice if you go into any cellular store whether it's Cingular or Verizon. You can't just go in [and] buy a phone, a cheap phone off the street, so to speak, without getting the service. If you try to do that, the price of the phone goes from somewhere in the low 100's to $300 or $400. That's not what they're there to do. They're not there to advertise to sell a phone or a prepaid phone service or anything like that.

They want to sell, -- I mean, they do sell other things. They sell headsets and accessories to [go] along with it, but that is a small percentage of their business.

They are there making the money on the service contracts themselves for the phone service.

The motion judge concluded that the primary business of Cingular is the sale of phone service. He explained: "[W]hether it's considered bundling or not, the phones are included. But again, it's the service they're selling[,] not necessarily electronic equipment and components."

It is well-settled that when the terms of the contract are clear, the court must enforce them as written. County of Morris v. Fauver, 153 N.J. 80, 103 (1998) (citing Koshliek v. Bd. of Chosen Freeholders of Passaic County, 144 N.J. Super. 336, 344 (Law Div. 1976)). "A contracting party is bound by the apparent intention he or she outwardly manifests to the other party. It is immaterial that he or she has a different, secret intention from that outwardly manifested." Hagrish v. Olson, 254 N.J. Super. 133, 138 (App. Div. 1992) (citing Loom Realty Corp. v. Broad St. Nat. Bank of Trenton, 74 N.J. Super. 71, 82 (App. Div. 1962)).

We agree that the term "primary use" is not ambiguous and find no error in the motion judge's reference to the clear definition of the term as set forth in Merriam Webster's Dictionary to mean "[o]f first rank, importance or value[.]" However, we disagree with the judge's interpretation of the product exclusivity clause language: "involves the sale of electronic equipment and components."

The precise issue raised in this appeal has not been addressed in any reported decision in New Jersey, but has been raised in at least two unpublished opinions in other jurisdictions. Although these decisions have no precedential significance, Glukowsky v. Equity One, Inc. 360 N.J. Super. 1, 28 (App. Div.), cert. granted, 177 N.J. 575 (2003), we reference them, noting that each case involved a similar exclusivity clause.

In Woodbury Village Shopping Center Limited Partnership v. RadioShack Corp., No. 02-3736 (Minn. Dist. Ct. May 7, 2004), appeals dismissed, Nos. A05-466, A05-491, A05-492 (Minn. Ct. App. Apr. 13, 2005), the landlord entered into a lease agreement with a retailer that generated ninety-three percent of its revenue from the sale of wireless services and seven percent from the sale of wireless components while at the same time it was under a lease agreement with a RadioShack retail store that contained a similar exclusivity provision. Accepting that ninety-three percent of the other tenant's sales involved wireless services, the judge found that it was undisputed that "a phone is sold every time a rate plan is sold," and concluded that the primary use of the tenant's space involved the sale of electronic equipment and components triggering the RadioShack's option to pay reduced rent. Id. at 12.

In Cascade Crossing II, LLC v. RadioShack Corp., No. 1:01-cv-3084-GET (N.D. Ga. Aug. 15, 2003) (Pra1-Pra17), rev'd on other grounds, 131 F. App'x 191 (11th Cir. 2005), the court, in interpreting a similar product exclusivity clause, found that the landlord violated the exclusivity clause in another RadioShack lease. The landlord entered an agreement with another tenant, BellSouth, primarily engaged in the "sale of electronic goods as described by the lease agreement at issue." Id. at 9.

We agree with plaintiff that the court's ruling did not properly consider the broad inclusiveness of the phrase "involves the sale of electronic equipment." Plaintiffs presented certifications in support of summary judgment that explained that wireless service contracts are bundled with the sale of wireless telephones. Defendant did not dispute these contentions, and during oral argument before this court, defense counsel conceded that wireless service contracts are indeed bundled. As such, the conclusion is inescapable that the primary use of Elephant Wireless' store is for the sale of telephones and wireless service, which fall within the ambit of the "sale of electronic equipment and components."

II.

Plaintiff urges that in the event of a reversal, it is entitled to an award of reasonable attorneys' fees and costs as a prevailing party. The lease the parties executed provides: "If either party hereto shall bring legal action against the other party, the prevailing party shall be entitled to reimbursement from the other party for all reasonable expenses thus incurred including reasonable attorneys' fees." We agree that under the clear terms of the lease agreement, plaintiff is a prevailing party and is entitled to recover reasonable attorneys' fees and costs. On remand, the trial court shall entertain the application for fees and costs both for trial and appeal as directed by the court. R. 2:11-4.

Finally, in view of our reversal, the amount payable under the lease from July 11, 1997 through December 2006, under the March 21, 2007 stipulation, is subject to further review. Because neither party specifically addressed this issue, we decline to do so as well.

Reversed and remanded for the entry of an order of judgment in favor of plaintiff and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.


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