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Pukar International Inc., Sultan Mehra and Karni Mehra v. Hallmark Retail

July 14, 2011

PUKAR INTERNATIONAL INC., SULTAN MEHRA AND KARNI MEHRA, PLAINTIFFS-APPELLANTS,
v.
HALLMARK RETAIL, INC., DEFENDANT-RESPONDENT, AND WOODBRIDGE CENTER PROPERTY, LLC, DEFENDANT.



On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-2087-10.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 11, 2011

Before Judges R. B. Coleman and Lihotz.

Plaintiff Pukar International, Inc. (Pukar), appeals from an April 30, 2010 Law Division order dismissing its complaint without prejudice, after concluding the Account Agreement with defendant Hallmark Retail, Inc. (Hallmark) required all disputes to be presented before an arbitral forum. On appeal, Pukar challenges the dismissal of the legal action accompanied by an order directing the dispute to arbitration. We have considered the arguments presented on appeal in light of the record and applicable law. We affirm.

To answer the question of where the parties' dispute must be resolved, we briefly outline the history between the parties leading up to this dispute, which includes separate but related litigation. We rely on the limited factual record of the Law Division together with the parties' submissions. Our opinion does not address the merits of either party's position on the disputed substantive issues.

Pukar, a New Jersey corporation, was incorporated in 1983 for the purposes of owning and operating a Hallmark Gold Crown card and gift store located in the Woodbridge Center Mall. Sultan Mehra and his wife, Karni Mehra, are the officers and shareholders of Pukar and were named as plaintiffs in the complaint. At the business's inception, Pukar executed an agreement licensing it to use Hallmark's name and products and leased the premises directly from defendant Woodbridge Center Property, LLC. (WCP). In 2007, the parties entered into multiple agreements modifying the initial arrangement. First, on October 10, 2007, Hallmark's parent company, Hallmark Marketing Corporation (HMC) and Pukar executed a Leadership Agreement, detailing the rights and responsibilities associated with operating a Gold Crown Hallmark Store. Second, on November 6, 2007, Hallmark directly leased new premises from WCP pursuant to the terms of a long-term lease (master lease), which described renovations and modifications to be made to the new physical space. Third, on November 15, 2007, Hallmark entered into a sublease agreement with Pukar for the same premises incorporating the same basic terms and conditions stated in the master lease. Fourth, on August 13, 2008, Pukar executed a Hallmark Account Agreement (Account Agreement) with HMC licensing the use of Hallmark's trademarks and setting forth the rights and responsibilities of the parties in selling Hallmark products in the Woodbridge Center Mall store. Fifth, on August 22, 2008, Pukar applied for credit with Gold Crown Manager's Acceptance Corp., seeking financing to renovate the newly assigned space, purchase inventory and operate the store. Personal guarantees were executed by Pukar's owners.

The renovated store in a new mall location opened on November 22, 2008. Gross sales and revenue in the new store did not meet the projections previously discussed by the parties. Beginning in October 2009, Pukar defaulted on its obligation under the sublease.

On January 10, 2010, Hallmark filed a summary dispossess action against Pukar (Docket No. LT-1635-10). On March 3, 2010, the court granted Pukar's motion to remove the matter from Landlord-Tenant court to the Law Division (Docket No. L-1979-10).

While this matter was pending, Pukar initiated a separate Law Division action (Docket No. L-2087-10), filing a six count complaint on March 19, 2010, alleging breach of the covenant of good faith and fair dealing, violation of the Franchise Practices Act, N.J.S.A. 56:10-1 to -15, misrepresentation, breach of contract, negligence, and unjust enrichment. It is not clear whether this Law Division action was consolidated with the transferred landlord-tenant action.*fn1

In lieu of an answer, Hallmark moved to dismiss the complaint, principally asserting the arbitration clause in the parties' Account Agreement precluded disposition by the court.

Pukar opposed Hallmark's motion, stating the Account Agreement did not govern the parties' disputes. Pukar also suggested damages resulting from claims in its complaint offset any outstanding rental obligation and the sublease did not contain an arbitration clause. Therefore, Pukar argues the arbitration clause in the Account Agreement was inapplicable.

By order dated April 30, 2010, Judge Diane Pincus adopted the reasoning expressed in Hallmark's submission and granted the motion stating, "Case is to be arbitrated as per [the] Account Agreement." This appeal followed.

In our review of the order granting Hallmark's motion to compel arbitration, we must determine whether a valid agreement requires the parties to arbitrate their disputes and what claims, if any, are subject to arbitration. This issue requires the ...


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