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Sussex Commons Outlets, L.L.C. v. Chelsea Property Group

September 23, 2010


On appeal from Superior Court of New Jersey, Law Division, Sussex County, Docket No. L-554-03.

Per curiam.



Argued April 13, 2010

Before Judges Fuentes, Gilroy and Simonelli.

The dispute in this case involves an outlet shopping center, which plaintiff Sussex Commons Outlets, LLC seeks to develop in the Ross Corner section of Frankford Township in Sussex County to be known as Sussex Commons Lifestyle Outlets (Sussex Commons). Plaintiff filed a complaint against defendants Chelsea Property Group, Inc. and CPG Partners, L.P. (collectively "defendant") claiming tortious interference with prospective business advantage, unfair competition, and prima facie tort stemming from defendant's alleged attempts to impede the development of Sussex Commons. Plaintiff appeals from the February 25, 2004 Law Division order granting defendant's Rule 4:6-2(e) motion to dismiss the unfair competition claim, and from the February 25, 2008 order granting defendant's summary judgment motion, dismissing plaintiff's tortious interference claim.*fn1 We affirm.



Defendant is engaged in the outlet shopping center industry. It owns and operates outlet malls, including two at issue here: Woodbury Common Premium Outlets, located in Central Valley, New York (Woodbury Common), and The Crossings Premium Outlets, located in Tannersville, Pennsylvania (The Crossings). The terms "Premium Outlets Center" and "Premium Outlets" are defendant's trademarks.

Outlet shopping malls consist of retail shopping space and supporting facilities specifically planned and designed to accommodate manufacturer-operated outlet retail stores that sell primarily first-quality, brand-name and designer goods at significant discounts from regular department and specialty store prices. Although a typical regional shopping mall has a five- to fifteen-mile trade area, an outlet mall's trade area extends much further.

Woodbury Common is one of the largest, most successful and productive outlet malls in the United States. It is the "crown jewel" of the outlet industry and a highly desirable location for retailers. It has over two hundred tenants representing nearly every significant outlet retailer in the country. It serves much of the New York market, and its market trade area is greater than sixty miles from its location. The Crossings is one of the "top ten" outlet malls in the United States and contains approximately one hundred outlet stores. It is accessible by Interstate 80, and its market trade area includes New York.

Defendant considered the Ross Corner location as posing a threat of competition to Woodbury Common and The Crossings. When a developer expressed an interest in developing an outlet center at that location in 1998, defendant responded by entering into a lease with a tenant at Woodbury Common that would require the tenant to compensate defendant if the tenant leased an outlet store at Ross Corner; however, the development never occurred.

In early 2003, plaintiff announced its plan to develop Sussex Commons at Ross Corner. Plaintiff's marketing materials announced that Sussex Commons "will combine the welcoming feel of a colonially-inspired village with an upscale shopping experience. It will include 328,000 square feet of outlets, over 90 premium brand retailers, restaurants and eateries, and five out parcels." (Emphasis added.)

Plaintiff's marketing material also announced its intent to draw shoppers to Sussex Commons from the New York and Pennsylvania market trade areas encompassed by Woodbury Common and The Crossings. For example, one marketing document stated, "Within 50 miles of [Ross Corner] is a population of almost 13 million potential shoppers. According to the most recent Gallup Study of the Outlet Industry approximately 63% of Outlet Shoppers travel up to one hour, well within the commute of this population of 13 million people." Google maps in the record reveal that Ross Corner is 44.2 driving miles from Woodbury Common and 45.2 driving miles from The Crossings. Another marketing document identified Sussex Commons' market trade area as including Orange County, New York, where Woodbury Common is located, and Warren County, New Jersey, and Pike County, Pennsylvania, which are immediately adjacent to The Crossings. Plaintiff's leasing material stated that Ross Corner is a "quick trip for the New York City shopper (55 minutes)." Plaintiff's expert conceded that Woodbury Common's market trade area extended "40-something miles."

Plaintiff's marketing material also announced its intent to market Sussex Commons as an alternative to Woodbury Common and The Crossings. For example, a map in plaintiff's marketing material shows Ross Corner as being located midway between Woodbury Common to the east and The Crossings to the west and depicts Woodbury Common and The Crossings as within the fifty-mile radius from which Sussex Commons would draw shoppers. Another document states that "Outlet customers must travel either East to Woodbury Common and pay New York Sales Tax or West to The Crossings."

Defendant viewed Sussex Commons as a competitive threat to its percentage market share and did not want the outlet center built. Thus, in order to protect its business interests, defendant negotiated a radius clause or a site-specific clause in leases with certain tenants at Woodbury Common and/or The Crossings. For example, plaintiff's lease with Phillips-Van Heusen Corporation (Van Heusen) contains a radius clause providing that Van Heusen will not own or operate an outlet store within a thirty-five mile radius of The Crossings. Plaintiff's lease with Jones New York contains a site-specific clause providing that, in lieu of a specific radius, Jones New York would not own or operate an outlet store in Sussex Commons.*fn2

Some leases contained forty-five- or sixty-mile radius clauses.

A radius clause, which is commonly used in leases in the outlet center industry, protects the landlord's market trade area from competition, the landlord's interest in percentage rent, and the exclusivity of the landlord's tenant mix. The inclusion of a radius restriction in a lease, and its scope, are generally the result of negotiations between the landlord and tenant.

Because rent amounts in shopping center leases typically include a percentage of the retailer's sales at that location, shopping center owners often seek to maximize rent payments by negotiating a radius clause. Plaintiff was well-aware of the use of radius clauses in outlet center leases. In fact, its lease proposals to prospective tenants at Sussex Commons contained a twenty-five-mile radius clause, and its principals had involvement with radius clauses extending as far as sixty miles.

The radius clauses defendant negotiated with tenants at Woodbury Common and The Crossings do not prevent those tenants from owning or operating an outlet store within the stated radius or at Sussex Commons. Rather, the clauses provide for an "added sales remedy," which increases the tenant's rent in accordance with a formula based on sales at the new outlet store. The purpose of the clause is to compensate defendant for anticipated lost sales if the tenant opens an outlet store within the radius or at the specific site. In conjunction with the radius clause, ...

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