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Holobeam, Inc. v. Tandy Corporation

A-4619-08T2 (N.J. Super. App. Div. 2010) (Unpublished)

LEASES; ASSIGNMENTS — If the settlement made between a landlord and a defaulting assignee-tenant is reasonable, then the assignee-tenant’s assignor will be liable for the remaining rent damages following default by the assignee.

A landlord entered into a fifteen-year lease. The tenant then assigned its lease and vacated the premises, but pursuant to its lease remained liable. Then, the assignee experienced financial difficulties and vacated the property. The assignee’s business was acquired by a liquidation company. The landlord sued the tenant and the assignee for breach of the lease. The tenant sued its assignee for contribution under the Joint Tortfeasors Contribution Act.

The landlord and the assignee entered into a settlement agreement for $436,100.30 and executed an Assignment of Claim. It assigned its claim to the liquidator. The Assignment of Claim listed the landlord’s claim at $1,274,401.80, but reserved the landlord’s right to list the claim at $2,061,514.30 in any bankruptcy filing. It also preserved the landlord’s right to pursue any claims it had against the original tenant. The original tenant sued its assignee for indemnification for any claims the landlord had against it under the lease. The original tenant then settled with the landlord for $1,100,000. The assignee requested a hearing before the lower court judge to assess the reasonableness of the settlement. It contended that the landlord had assigned $1,274,401.80 of its claim to the liquidator, and therefore the landlord’s maximum recovery from the tenant should be approximately $800,000, which was the difference between the original amount owed and the assignment amount. On that basis, the assignee claimed that the $1,100,000 settlement between the landlord and tenant was unreasonable and it should not be required to indemnify its assignor, the original tenant, for that amount.

The landlord contended that the assignee prepared the Assignment of Claim as a means for the landlord to quickly reclaim some of its losses since the assignee was prepared to file for bankruptcy. It claimed that it was forced to participate in the settlement agreement or risk waiting years to recoup its losses as part of a bankruptcy case. The landlord also argued that it never agreed that its claim was for $1,274,401.80, but that its claim was for $2,061,514.30. It denied that the claim of $1,274,401.80 was ever assigned to the liquidator.

The lower court concluded that the Assignment of Claim was a contract of adhesion because the landlord was forced to accept it or risk never receiving payment from the assignee. It calculated the damages owed by the original tenant to the landlord to be the original claim of $2,061,514.30, less the $436,100.30 the landlord already had received from the assignee. The lower court found that because the landlord’s claim against the tenant was $1,580,433.80, the $1,100,000 settlement was reasonable.

The assignee appealed, but the Appellate Division affirmed. In doing so, the Court found that the landlord had two independent claims: (1) a debtor/creditor claim against the assignee that was assigned to the liquidator in the Assignment of Claim; and (2) a contractual claim against the tenant pursuant to the lease. The Assignment of Claim did not limit the landlord’s right to recover its damages from the tenant. Therefore, the amount listed in the Assignment of Claim was immaterial and did not limit the amount of the landlord’s recovery against the tenant. The only factor was the amount actually paid by the assignee to the landlord. The Court agreed that the amount originally owed to the landlord was $2,061,514.30. After receiving $436,100.30 from the assignee, the landlord was still owed $1,580,433.80 by the tenant under the lease. Therefore, the $1,100,000 settlement between the landlord and tenant was reasonable. The Court also held that the assignee was obligated to indemnify the tenant for the settlement amount.

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