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

A-3714-07T1 (N.J. Super. App. Div. 2010) (Unpublished)

DEVELOPERS; COMPETITION — Shopping center operators can negotiate leases with their own tenants even if doing so would have the effect of diminishing the potential value of another developer’s proposed shopping center so long as the incentives offered to those existing tenants is neither illegal nor fraudulent.

A developer sought to develop an outlet shopping center in Northern New Jersey. It sued the owner of two competitive outlet shopping centers, one in New York and one in Pennsylvania, claiming tortuous interference with prospective business advantage and unfair competition. The developer claimed that the competing owner had attempted to impede the development of the proposed outlet shopping center.

The New York shopping center had over two hundred tenants representing nearly every significant outlet retailer in the country. Its market trade radius was greater than sixty miles. The Pennsylvania shopping center had approximately one hundred stores, and had a market trade area that included parts of New York. Each competing shopping center considered the developer’s project as posing a competitive threat to its operations.

The developer announced that its proposed shopping center would have over 90 premium brand retailers, and that it intended to draw shoppers from the same market trade areas encompassed by the other two centers. Its marketing material also indicated that its location would be an alternative to the other two centers. The owner of the other two centers, in order to protect its business interests, negotiated radius clauses or site-specific clauses in leases with certain of its tenants at both the New York and Pennsylvania centers. The radius clauses did not prevent tenants from owning or operating a store at the New Jersey center; rather, the clauses increased a tenant’s rent in accordance with a formula based on sales at the new outlet center. The purpose of the clause was to compensate the existing landlord for anticipated lost sales if its tenant opened an outlet store within the radius or at the proposed shopping center. The developer was familiar with radius clauses, as its own lease proposals to prospective tenants contained a twenty-five mile radius clause.

The owner of the two existing outlet centers hired a lobbyist who chiefly obtained information on the new outlet center’s progress in development. There was no evidence the lobbyist tried to influence governmental officials with respect to the proposed center’s construction approvals.

The lower court dismissed the complaint by summary judgment, finding that the developer wished to compete and wanted a part of the market share held by the two competitive outlets. The competitors did not want to give up the market share. It also found reduced rent incentives and radius clauses were neither illegal nor fraudulent. Rather, the competing outlet centers had the right to prevent the developer from completing its project or luring retail customers away. The prospective tenants had to determine which leases made best economic sense to them.

The developer appealed, but the Appellate Division affirmed, holding that there was no question that the new outlet center would compete with its neighboring centers, as it sought to tap the given market share by housing over 90 premium brand retailers, and by soliciting such retailers at the two neighboring centers. Since there was proof of unfair competition, the developer’s unfair competition claim could not stand. Similarly, the Court concluded there was no proof of tortious interference with a prospective business advantage, as such proof would require a showing of a fraudulent, dishonest means, apart from action taken in the spirit of competition. The evidence showed radius clauses were common in the outlet mall industry. It also held that a competitor may legally target a rival company by aggressively pursuing increased market share by lower rent incentives. Lastly, the Court found that a commercial entity could lobby to influence government decision making even if premised on the intent to eliminate competition.

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