KINGS SUPER MARKETS, INC. v. STOP & SHOP SUPERMARKET COMPANY, LLC

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2790-05T22790-05T2

KINGS SUPER MARKETS, INC.,

Plaintiff-Appellant,

v.

STOP & SHOP SUPERMARKET

COMPANY, LLC,

Defendant-Respondent.

_________________________________________

 

Argued May 10, 2006 - Decided May 26, 2006

Before Judges Conley, Weissbard and Sapp-Peterson.

On appeal from the Superior Court of New Jersey, Chancery Division, General Equity Part, Essex County, C-228-05.

David L. Harris argued the cause for appellant (Lowenstein Sandler, attorneys; Mr. Harris and Steven M. Ziolkowski, of counsel and on the brief).

James J. Shrager argued the cause for respondent (Norris McLaughlin & Marcus, attorneys; Mr. Shrager, of counsel; Theodore J. Korth, on the brief).

PER CURIAM

Kings Super Markets, Inc. (Kings) appeals a summary judgment granted Stop & Shop Supermarket Company (Stop & Shop) and declaring that equitable principles could not protect Kings from its failure to timely exercise its option to renew a sublease with Stop & Shop. As a result of that failure, under the express terms of the parties' commercial contract, the sublease will terminate on May 31, 2006. We affirm.

Kings is a corporation engaged in the business of owning and operating supermarkets, presently operating more than twenty supermarkets in the northeastern New Jersey/New York area. The subject premises is located in West Caldwell which Kings occupies under a sublease with Stop & Shop. Stop & Shop, itself, leases the property from its owner in what the sublease documents refer to as the Overlease. Kings' right to renew its sublease with Stop & Shop is set forth in Section 2.4, which provides:

Extension. Section 3.1 of the Overlease provides that the Overlease is automatically extended for four (4) successive periods of five (5) years each unless Landlord, as tenant thereunder [Stop & Shop], gives contrary written notice as therein set forth ("Landlord's cancellation right"). In the event Tenant desires to extend the term of this lease, Tenant [Kings] shall give Landlord [Stop & Shop] notice in writing, not less than three (3) months prior to the last date for the exercise by Landlord of the applicable cancellation right contained in the Overlease, that Tenant desires Landlord not to exercise said right of cancellation (that is, permit the next extension period of the Overlease to come into effect). Such notice is referred to hereinafter as "Tenant's Extension Notice". If Tenant shall not so notify Landlord, then this lease shall expire as of the expiration of the then current term or then currentextension period and shall not be extended, notwithstanding that the Overlease may be extended or further extended.

[Emphasis added.]

The sublease between Kings and Stop & Shop started on August 22, 1981. It was automatically extended for two additional five-year terms pursuant to a First Amendment. The second renewal expires on May 31, 2006. The Overlease automatically extended on November 30, 2004. Accordingly, pursuant to section 2.5 of the sublease, Kings' written notice for a third extension was due by August 31, 2004. Written notice was not sent until May 26, 2005, nine months late. By letter dated May 31, 2005, Stop & Shop notified Kings that it had to vacate the premises by May 31, 2006.

This litigation ensued. As grounds for relief, Kings argued that it had invested approximately $6 million in renovations to the West Caldwell store; that it has been an important fixture in the West Caldwell community for almost twenty-five years; that Stop & Shop knew prior to August 2005 that Kings wanted to extend its sublease and did nothing to ensure compliance with the notice provisions, and that Stop & Shop did not suffer prejudice as a result of Kings' failure to extend, as the Overlease was renewed and it had taken no actions to take over Kings' leased premises.

Of these assertions, the allegation that Stop & Shop timely knew that Kings would exercise the option might be a stumbling block for Stop & Shop. In support of this claim, Kings relied upon a conversation shortly before that deadline between Kings' real estate agent and Stop & Shop's real estate agent. Accepting the evidence as to this, as we must in the context of summary judgment, the gist of the conversation was that Stop & Shop's agent was inquiring about the West Caldwell location and its availability. The Kings' agent responded "Kings does well in this location, and I doubt they would have any intent in giving up the lease." Even accepting this as true, it hardly rises to a statement that it was going to renew the lease. Moreover, Kings does not dispute that the agent, at the time, had no authority to so represent.

In granting the motion, the judge said:

[T]he general principle that has been annunciated by our Supreme Court is, "Courts generally should not tinker with a finely drawn and precise contract entered into by experienced business people that regulates their financial affairs. Equitable relief is not available merely because enforcement of the contract causes hardship to one of the parties." Brunswick Hills Racquet Club, Inc. vs. Route 18 Shopping Center Associates, 182 N.J. 210[,] 223 [(2005)].

Further the Court said, "[a] court cannot abrogate the terms of a contract unless there is a settled equitable principle, such as fraud, mistake, or accident, allowing for such intervention," at page 224.

Another general rule is that in an option contract time is of the essence. [Socony-Vacuum Oil Co., Inc. v. Pabian], 32 N.J. Super. [390,] 394 [(Ch. Div. 1954)].

Before discussing the equitable arguments that Kings makes to discern whether or not they call for a departure from these general rules, an analysis of the relevant case law is necessary.

In Brick Plaza, Inc. v. Humble Oil and Refining Company, 218 N.J. Super. 101 [(App. Div. 1987)], under the terms of a lease the tenant had the option to purchase a vacant piece of property if he provided timely notice to the landlord. However, the tenant provided notice six months late and that was roughly four months before the termination of the lease.

The tenant argued that it was an honest mistake and that because he had invested $70,000 in reconstructing a building that principles of equity should allow him to renew even if the notice was not timely.

The Court ruled for the landlord and quoted the reasoning of the Supreme Court in Dunkin['] Donuts of America v. Middletown Donut Corp., 100 N.J. 166[, 182 (1985)].

"We focus first on the contention that strict adherence to contractual remedies in the circumstances before us will impose a forfeiture on the franchisee. Although it is true that equity abhors a forfeiture, equity's jurisdiction in relieving against the forfeiture is to be exercised with caution lest it be extended to the point of ignoring legal rights. Thus if . . . parties choose to contract for a forfeiture, a court of equity will not interfere with that contract term in the absence of fraud, accident, surprise, or improper practice." [(Citations omitted).]

Moreover, the Brick Plaza court continued to say, "to recognize . . . neglect as excusable and now order the Chancery Division to balance the equities would introduce intolerable uncertainty," at page 105.

Now when the aforementioned Brunswick Hills Racquet Club case the New Jersey Supreme Court recently discussed whether a breach of good faith by a commercial landlord was enough to hold that a commercial tenant should be allowed to convert to a 99 year lease at the end of its 25 year lease, despite the fact that it didn't meet the terms as set forth in the contract for that type of conversion.

In that case the tenant had notified the landlord of its wish to renew well in advance of the date set forth in the contract. However, the tenant failed to make a timely deposit of $150,000 that was required to accompany the notice under the terms of the contract.

The tenant argued that the reason the deposit was not timely made was because of the landlord's systematic evasion of the tenant's attorney, because the landlord did not wish to honor the option.

The Court ruled for the tenant despite the fact that the terms of the contract had not been met and it did so because of the substantial evidence of the landlord's bad faith in dodging the tenant's attorney. It said, "Unlike the landlord in Brick Plaza, defendant here knew of plaintiff's intent to exercise the option and yet engaged in subterfuge and foot-dragging thus delaying plaintiff's efforts to close timely on the option. Those are not trivial distinction," at page 228.

At the same time the Court stated as follows, "[the Supreme Court of New Jersey is] not eager to impose a set of morals on the marketplace. Ordinarily, we are content to let experienced, commercial parties fend for themselves and do not seek to 'introduce intolerable uncertainty into a carefully structured contractual relationship' by balancing equities." [at page 230.]

Plaintiff relies on Sosanie v. Pernetti Holding Corp., 115 N.J. Super. 409 [(Ch. Div. 1971)], where the Chancery Court ruled that a slight delay in providing notice of a renewal option would not prevent a tenant from renewing the lease.

The [c]ourt noted that plaintiff's business success was, "dependant not only on the goodwill and reputation developed over the years by plaintiff but also upon its location." [at 412.] The business in question was a single, freestanding luncheonette at one location and would probably be commonly referred to as a classic mom-and-pop store and the [c]ourt under those circumstances found that substantial harm would be done to tenants if they were forced to relocate. The [c]ourt found that such, "special circumstances exist as permit it to enforce the exercise of the renewal option even though said option was not exercised precisely according to governing terms," at page 416.

It is a fair statement that this was truly equitable resolution based upon the specific facts presented. However, even Sosanie at page 413 says, "[t]he only other theory urged is that defendant sat back and surreptitiously waited until the notice deadline had passed whereupon he pounced upon the unsuspecting plaintiff and administered the coup de grace with a notice to vacate. This theory seemingly implies that a lessor has the affirmative duty of reminding a forgetful lessee that the lessee's time to exercise an option to renew is running out. Such argument is without merit."

In this case the Court is dealing with two large, well known, sophisticated companies. Although other lease contracts between them only require nine months notice for renewal, with this contract the parties bargained for notice to be given at least 21 months before the termination of the lease.

Kings urge that it effectively complied, or constructively complied because Stop & Shop had knowledge and notice that they wanted to renew this lease and stay there.

However, this - this argument is not borne out by the proofs that have been presented to the Court.

As I understand it, both companies have used outside, independent consultants who among other things look into available real estate opportunities for their clients and Kings alleges that their independent consultant, Mr. Peter Pincard had verbally told Stop & Shop's consultant, a Mr. Hugh Kelly, that Kings wished to renew.

I don't find that there is enough here to demonstrate constructive notice to Stop & Shop so as to supplant the language of the contract. It instead appears that the two men had a somewhat casual conversation regarding the profitability and availability of the West Caldwell location.

A look at the transcript of Mr. Pincard's deposition is revealing. He was questioned about this conversation with Mr. Kelly in May, June or July of 2004.

Q "Why did he - meaning Kelly, call you?

A He called me inquiring about the West Caldwell Kings location."

And this is at page 39 of the transcript.

Q "What did he say to you and what did you say to him as best as you can recall?

A Okay. To the best of my knowledge the conversation was, as you know we do work for Stop - which is Stop & Shop. They have targeted West Caldwell as a market they'd like to be in. I've been asked to inquire with you as to Kings' - you know, how does Kings do in this location and would Kings be interested in giving up the location."

Q "What did you tell him?

At page 40.

A I said Kings does well in this location and I doubt they would have any interest in giving up the lease."

Q "Did you consult with anybody from Kings before giving that answer?

A No."

At the bottom of that page.

Q "Right. This is a conversation between two colleagues exchanging information as best they knew it?

A Yes."

On page 41.

Q "You are not authorized to extend the terms or to renew the lease on behalf of Kings, correct?

A Absolutely not."

The Court concludes that from that testimony as well as Mr. Kelly's, I mean neither of these men had the power to bind the party they purported to speak on behalf of, nor does either remember definitively every word-for-word of what was said during those conversations. But Mr. Pincard surely disclaimed giving any notice of exercising an option, what he said was rather innocuous, it does seem to be a personal opinion and was not even given after consulting with anybody from the company.

The testimony of Mr. Pincard has to be considered credible, he used to work for the plaintiff and still apparently consults for them and so his testimony can actually be considered as going to his own business interest. I mean if he wanted to say that he said something more definitive or explicit, he certainly could've said that, but he didn't, and I - I believe that he was very candid in the way he described the conversation.

Now with respect to Kings' argument that it has invested approximately $6 million in renovations of the West Caldwell store, it appears that this fact alone does not make it inequitable to enforce the terms they agreed to. While it does with some indication that Kings had longstanding intentions for that location, it doesn't provide them with an excuse to ignore the terms of a contract it bargained for. [T]he maxim has long been recognized that equity aids the "vigilant, not those who sleep on their rights." Stout vs. [Ex'rs of Seabrook], [30] N.J. Eq., 187, 190-191 [(N.J. Ch. 1878)]. The same reasoning basically applies to the other pleas for equitable relief.

While Kings has certainly been in West Caldwell for a long time, since 1981, and no doubt has amassed considerable good will, it cannot be said that its success depends on reputation, good will and location like the small luncheonette that was the subject of Sosanie v. Pernetti Holding Corporation. That case had truly exceptional facts and I do not believe it should be broadened in light of the more recent Supreme Court decision in Brunswick Hills.

It does appear also from the testimony that it can be said that to some extent Stop & Shop has relied on Kings' inaction because they have not re-let the Walgreen's space and they do apparently have some intention of trying to get into the market there in West Caldwell. It appears as though it would like to move one of their stores into that space, that combined space.

So now I turn to the only other available argument, which is whether or not Stop & Shop engaged in sufficiently bad faith tact - tactics such that this Court should let it renew on equitable grounds such as in Brunswick Hills.

That case said, "an allegation of bad faith or unfair dealing should not be permitted to be advanced in the abstract and absent an improper motive," at page 231 [(Citations omitted).].

Here the only evidence of bad faith that Kings points to is that Stop & Shop arguably wants more money to which it would otherwise not be entitled and that it is using this as leverage to renegotiate its sublease.

Although I don't find that in any of the transcripts, I think that may be advocacy on its part, but it - it's a logical conclusion in the business world. It's not off the wall as they say and they say that there's evidence of this because they have proven that Stop & Shop knew in the fall of 2004 that Kings had missed the deadline, but they stayed silent.

We have to remember the Supreme Court's admonition in Brunswick Hills as follows, "[i]n concluding that defendant violated the covenant [of bad faith], we do not establish a new duty for commercial landlords to act as calendar clerks for their tenants. That was a quote from page 230, and it basically echoes much more recently what the [c]ourt said in Sosanie back in 1971 that a lessor does not have any affirmative duty of reminding a forgetful lessee that it's time to exercise an option to renew is running out.

It - it is clear that the Supreme Court did not intend to establish a moral code or to make large business competitors behave as if they were in Mr. Rogers Neighborhood, thus it is immaterial that Stop & Shop would not remind Kings and did not set forth its position until after the belated notice of renewal.

So in conclusion because Kings missed its deadline as set forth in the terms of the contract, and I find that they're not - not a so-called special circumstances here to remove it of its obligation under that contract and because Kings effectively slept on its rights, I am granting the motion for summary judgment and I will sign an order accordingly.

On appeal, Kings argues:

POINT I: THE CHANCERY DIVISION MISAPPLIED THE SUMMARY JUDGMENT STANDARD BY IMPROPERLY DRAWING NUMEROUS INFERENCES OF FACT IN FAVOR OF THE MOVING PARTY, STOP & SHOP.

POINT II: THE CHANCERY DIVISION MISAPPLIED THE SUBSTANTIVE LAW TO FACTS IT HAD IMPROPERLY CONSTRUED IN STOP & SHOP'S FAVOR.

A. THE CHANCERY DIVISION FAILED TO DRAW INFERENCES IN KINGS' FAVOR REGARDING THE IMMATERIALITY OF KINGS' LATE NOTICE.

B. THE CHANCERY DIVISION COMMITTED REVERSIBLE ERROR BY DISMISSING THE IMPORTANCE OF KINGS' LOCATION.

C. THE CHANCERY DIVISION FOUND THAT STOP & SHOP SUFFERED PREJUDICE, IN DIRECT CONTRAST TO ITS OWN TESTIMONY.

D. THE CHANCERY DIVISION'S ERRONEOUS FINDINGS OF FACT LED IT TO RELY ON DISTINGUISHABLE CASE LAW AND MISAPPLY THE RELEVANT CASE LAW.

We have considered these contentions in light of the motion record, the applicable law and the motion judge's thorough analysis thereof. We are convinced all of the contentions are of insufficient merit to warrant further opinion. R. 2:11-3(e)(1)(E). We add the following comments.

Kings relies substantially upon a 1971 Chancery Division decision, Sosanie v. Pernetti Holding Corp., 115 N.J. Super. 409, 415 (Ch. Div. 1971). There, the tenant plaintiffs had a "neighborhood" stationery-luncheonette business which they had operated in the subject leased premises since 1955. It was agreed that, even if relocated a few blocks away, the business would not survive. In 1966, they entered into a written lease with the owner which was to terminate on May 31, 1971, unless they exercised a five-year renewal option, in writing, by December 1, 1970. They exercised the option only a month late, but the landlord refused to honor it. In requiring the landlord to honor the option, the Chancery Judge relied upon a 1948 New York Superior Court decision, Application of Topp, 81 N.Y.S.2d 344 (N.Y. Sup. 1948), for the proposition that "'[a] court of equity will . . . grant relief to a tenant who has failed to give the required notice if his delay has not been so great as to constitute laches, and the failure to give due notice was attributable to an honest mistake where the tenant has a valuable interest in the property and the delay has caused no injury to the lessor.'" Id. at 415-16 (quoting Application of Topp, supra, 81 N.Y.S. 2d at 346).

But, under present New Jersey law, disregard of contractual terms, such as those before us, under the guise of equitable principles, is not quite so easy. As our Supreme Court has remarked:

Courts generally should not tinker with a finely drawn and precise contract entered into by experienced business people that regulates their financial affairs. Equitable relief is not available merely because enforcement of the contract causes hardship to one of the parties. Dunkin' Donuts of America, Inc. v. Middletown Donut Corp., 100 N.J. 166, 183-84 (1985). A court cannot "abrogate the terms of a contract" unless there is a settled equitable principle, such as fraud, mistake, or accident, allowing for such intervention.

[Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assoc., 182 N.J. 210, 223-24 (2005) (quoting Dunkin' Donuts of Am., Inc. v. Middletown Donut Corp., supra, 100 N.J. at 183.]

There, for instance, the defendant's inexcusable breach of its covenant of good faith and fair dealing, led the Court to require defendant to specifically perform on plaintiff's lease option, despite plaintiff's untimely exercise. Here is how that conduct was articulated by the Court:

In concluding that defendant violated the covenant, we do not establish a new duty for commercial landlords to act as calendar clerks for their tenants. We do not propose that attorneys must keep watch over and protect their adversaries from the mishaps and missteps that occur routinely in the practice of law. The breach of the covenant of good faith and fair dealing in this case was not a landlord's failure to cure a tenant's lapse. Instead, the breach was a demonstrable course of conduct, a series of evasions and delays, that lulled plaintiff into believing it had exercised the lease option properly.

[Id. at 230-31.]

Those are not the circumstances here. Neither is this a case in which "fraud, mistake, or accident" would warrant intervention. Cf. Gillman v. Bally Mfg. Corp., 286 N.J. Super. 523, 528-29 (App. Div.), certif. denied, 144 N.J. 174 (1996); Brick Plaza, Inc. v. Humble Oil & Ref. Co., 218 N.J. Super. 101, 104-05 (App. Div. 1987). To the extent Kings asserts that its failure to timely exercise the option is excusable as an "honest mistake" and that loss of its investment in the premises over the years would amount to forfeiture which the Judiciary's equitable powers should not countenance, we rejected similar contentions in Brick Plaza v. Humble Oil & Ref. Co., supra, 218 N.J. Super. 101. Further, the fact that Stop & Shop, nonetheless, did renew its Overlease is not material as section 2.4 expressly states that the failure to exercise the option terminates the lease "notwithstanding that the overlease may be extended or further extended." The circumstances here provide us with no legal basis for disregarding the terms of the parties' negotiated agreement.

 
Affirmed for the reasons set forth by Judge Harriet Farber Klein in her January 19, 2006, oral decision.

(continued)

(continued)

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A-2790-05T2

May 26, 2006