Good news for new / upstart businesses embroiled in litigation seeking lost profits as part of their damages. New Jersey has joined the ranks of the majority of states recognizing that there should not exist a "per se ban on claims by new businesses for lost profits damages . . .."
It has been the standard in New Jersey to bar claims for lost profits where same were remote, uncertain, or speculative. However, the Supreme Court has recently held that whenever a new or upstart business pursues a claim for damages of lost profits, such claims require a "fact-sensitive analysis of the evidence [to] decide whether plaintiffs can prove lost profits damages with reasonable certainty." In applying its new rule the Court explained: "if the trial court determines that plaintiffs' lost profits evidence is sufficient to establish their claim for damages with reasonable certainty despite plaintiffs' inexperience in developing [its new business], it should deny defendants' motions to bar the evidence and for summary judgment. If the court does not view plaintiffs' proofs to meet that test, it should grant defendants' motions and dismiss the complaints."
(Larry Schwartz v. Nicolas Menas, Esq. A-54/55-20)
In a split bench (4-3), the NJ Supreme Court has established that an aggrieved property owner need to show a diminution of property value prior to being entitled to restoration damages when a neighbor illicitly cuts down generic foliage (trees, shrubs or bamboo) on another's property. This game changer of a case flies in the face of property rights.
At issue in this case was a lot of bamboo. As one may know, bamboo is not easily contained once planted. It easily spreads and does not adhere to drawn property lines. In this case, Neighbor planted bamboo years ago which ultimately spread across his property and onto that of Next-door Neighbor's. Neighbor did not claim this bamboo held a "peculiar value" to him but rather referred to this bamboo as a "fence" used for privacy. One day Next-door Neighbor's landscapers came and removed all the bamboo from both properties. Neighbor sued seeking damages to replace the torn down bamboo.
The Supreme Court held that although a trespass occurred and foliage was undisputedly removed, without showing the property's value had been diminished, Neighbor was out of luck in seeking restoration damages. The Majority suggests that Neighbor should have shown either the bamboo was near and dear to him or that the value of his property was reduced by the removal. This holding seems very wrong when viewed through the lens of property rights and the dissent took this position. The evidence here established Next-door Neighbor's landscapers removed all of the bamboo from Neighbor's property without permission. Damages should be the cost to replace what was removed regardless of a personal attachment and regardless if the property value was diminished. (Kornbleuth v. Westover)
In a recent unpublished decision from the Appellate Division, the court found that a real estate broker had waived the right to receive quarterly commission payments in advance since the realtor failed to enforce that contractual provision for 11 years. The commission agreement at issue was for the lease of a commercial property and stated that the realtor would be paid a 6% commission on the rent, "in four equal installments per year, in advance..." While such payments were originally made in advance on a quarterly basis, at some point the owner switched to making monthly payments instead. In ruling for the owner the trial court found that the realtor accepted, "monthly payments continuously for eleven years, thereby constituting a waiver of the quarterly payment schedule set forth in the agreement." Such finding was upheld by the Appellate Division. This case underscores the importance that parties to a contract not sit on their rights and enforce contractual provisions in a timely manner when they are not being followed. (Barry H. Gertsman & Company v. 5218 Atlantic Avenue Associates LLC, et. al.)
A recent unpublished decision from the Appellate Division found there to be no enforceable contract between a buyer and seller of real estate where, despite a term sheet and letter of intent, no formal contract was signed. The case involved the sale of commercial property in Millstone, New Jersey. The parties exchanged a term sheet and letter of intent for the buyer to purchase the property, and the attorneys proceeded to draft and modify a formal contract for the sale. Despite the buyer signing the negotiated contract, the seller never executed it and decided not to move forward with the transaction. Consequently, the buyer filed suit and sought a court order directing that the sale go through.
The Buyer argued that while the language of the LOI stated that terms of the LOI would be enforceable upon a mutually-agreed upon contract. it did not specify that the contract had to be signed. Therefore, based upon the signed LOI and the negotiated contract terms, there was an valid agreement to be enforced by the court. However, both the trial judge and Appellate Division disagreed, finding that the evidence as a whole demonstrated an intent that a final agreement was contingent upon the parties executing a formal written contract. Since this didn't happen, the Buyer's case was dismissed. (501 Jersey Ave LLC v. XXXIII Associates/Riverside Center, LLC)
In an interesting unpublished Law Division case, tenants argued that a landlord violated the City of Newark's rent control ordinance because it was trying to evict them for failure to pay "additional rents" (such as late fees and legal fees for collection of past-due rents) which would increase the total rent above the cap set forth in the ordinance. The Judge agreed with the tenant’s argument that the landlord could not insist on the additional rent as part of a summary dispossess (eviction) action, which is an important factor in this case as the only remedy sought in the case was to evict the tenants for failure to pay rents. The Court wrote that its holding only applies in a summary dispossess action and that the landlord could file suit pursuant to contract law in the law division seeking a monetary remedy. The unpublished nature of this decision means that it is not binding upon other courts, but it will be interesting to see if the Court's clarifying dicta holds up in an action to recover the additional rent because if the lease violates the law per the rent control ordinance, then it would follow that the portion of the contract that is in violation of the law would be unenforceable. (Opex Realty Management LLC v. Taylor
In an unpublished decision, the Appellate Division found that a commercial tenant could be evicted where although there were some minor issues with the building, such issues did not rise to the level of uninhabitability. First, the court confirmed that the case of Marini v. Ireland, 56 N.J. 130 (1970) is applicable both to residential and commercial tenancies. After doing so, the court referenced Berzito v. Gambino, 63 N.J. 460 (1973) which established the factors to consider when determining if a landlord breached the warranty of habitability. Specifically, those factors are as follows: 1. Has there been a violation of any applicable housing code or building or sanitary regulations? 2. Is the nature of the deficiency or defect such as to affect a vital facility? 3. What is its potential or actual effect upon safety and sanitation? 4. For what length of time has it persisted? 5. What is the age of the structure? 6. What is the amount of the rent? 7. Can the tenant be said to have waived the defect or be estopped to complain? and 8. Was the tenant in any way responsible for the defective condition? Based upon these factors, the appellate court determined that there was no breach of the warranty of habitability. Although the record did demonstrate that there were some roof leaks as well as some vegetable oil smells and leaks from the adjacent unit in the building, the evidence in the record demonstrated that such issues were mere inconveniences and did not rise to the level of uninhabitability. Consequently, the tenant was not entitled to an abatement and the matter was remanded so that a judgment of possession could be issued for the Landlord. (Linwood Avenue Development, LLC v. Advanced Professional Plumbing, Heating & Cooling, LLC)
In an unpublished opinion, the New Jersey Appellate Division upheld a trial court's order of specific performance in a commercial real estate transaction involving a car wash. During the due diligence period, the buyer of the car wash discovered some soil contamination and the parties entered into an amendment to the contract providing that the seller would remediate the known contamination as well as, "any additional contamination that may be discovered." When seller's contractor discovered that the ground water was contaminated in addition to the soil, seller sought to void the rider for lack of consideration. However, both the trial and appellate courts disagreed, finding that the buyer had a right to cancel the contract based upon the discovery of the initial contamination and that, "[a]n agreement to refrain from exercising a legal right is a form of consideration." Likewise, the court rejected seller's argument that it only had a duty to address the soil contamination under the terms of the amendment since no such limitation was explicitly stated therein. Consequently, the Appellate Division enforced the trial judge's order of specific performance. (Miguel A. Hector v. Super Car Wash Limited Liability Company, et. al.)
In New Jersey, the Uniform Fraudulent Transfer Act ("UFTA") is codified at N.J.S.A. 25:2-20 to -33 and provides protection to creditors of companies that sell off their assets without providing adequate security for the company's creditors. In a March 8th unpublished opinion of the Appellate Division, the court agreed with the trial judge that a fraudulent transfer occurred when the proceeds of the sale of a Dunkin' Donuts were distributed to the owners of the company without providing adequate security to satisfy a lease guaranty that the company remained obligated on.
The company that owned the Dunkin' Donuts location was called ARCP, LLC and they sold the location to a new entity in 2010. As part of the sale, the commercial lease was assigned to the buyer but ARCP remained as a guarantor on the lease. Despite the fact that ARCP remained as a guarantor on a lease that had multiple years remaining, ARCP disbursed all of the proceeds from the sale by paying off any debts due at the time and then disbursing the remaining $326,793.19 to the members of ARCP, leaving ARCP insolvent. Eventually, the buyer defaulted on the lease and declared bankruptcy, resulting in the landlord enforcing the lease guaranty of ARCP as there were significant monies owed. The Appellate Division agreed with the trial court that the transaction demonstrated the "badges of fraud" that a court uses to determine whether or not a fraudulent transfer had occurred. Although there was no lease default at the time of the sale of the location, the lease guaranty was a contingent liability that should have been accounted for prior to the disbursements to the members. Accordingly the individual members were found liable for the $291,464.94 judgment obtained by the landlord. (Main Land Sussex Company, LLC v. Priti Shetty, et. al.)
On Friday, the Appellate Division issued an unpublished decision that concluded a seven-year legal battle over whether or not a contract existed for the purchase of a $45,000,000 apartment building. The case emanated from a 2011 negotiation and bidding process where the defendant owner accepted the plaintiff’s offer to purchase the property for forty-five million dollars, but never signed a written contract. Defendant’s basis for not signing was that it desired to avoid an extremely large capital gains tax obligation and therefore insisted that it first secure a suitable 1031 exchange property before signing the contract. After months without signature, plaintiff initiated litigation arguing that a valid, enforceable contract existed.
The plaintiff alleged claims of breach of contract, breach of the implied covenant of good-faith and fair-dealing, promissory estoppel and fraud. After five years of litigation in the trial court, all of the claims were dismissed and a two-year appeal process followed. On February 14, 2019, the Appellate Division affirmed the trial court’s dismissal of all claims.
While the court acknowledged that in certain circumstances the Statute of Frauds permits enforcement of an oral agreement for the sale of real property, it found that such was not the case in these particular circumstances. Despite there being what the trial court described as an “avalanche of correspondence”, the court nevertheless found that there was no legally-enforceable contract in the absence of the defendant’s signature. The court referenced that throughout months of communications regarding the formal written contract, there were frequent statements that the communications were, "not contractually binding on the parties," were, "only an expression of the basic terms and conditions to be incorporated into a formal written agreement, " that, "the parties shall not be contractually bound unless and until they execute a form of contract which contract shall be in form and content satisfactory to each party and its counsel in their sole discretion," and that "[n]either party may rely on this letter as creating any legal obligation of any kind." This decision should serve as a reminder to purchasers of real property that any due diligence or other actions taken prior to a seller signing a contract are done so at their own risk. Until the there is a fully-executed contract, there will likely be no legally-enforceable contract except in limited circumstances. (SDK Troy Towers, LLC v. Troy Towers, Inc.)
In the past few years, all New Jersey counties have begun to accept documents concerning real property that need to be recorded (such as deeds, mortgages, etc.) electronically, and some counties have imposed a "convenience fee" to electronically record such documents. On February 11, 2019 the Appellate Division outlawed these fees by striking down Essex County's $3 charge. Noting that the "clear object" of the relevant statute was to, "establish a uniform schedule of fees to be charged by all county registers or clerks," the court held that no law permitted the charging of such fees, and the counties lacked the legal authority to institute their own fees for the e-recording documents. Consequently, counties will not longer be permitted to charge these fees absent further appeal to the Supreme Court or action by the State Legislature. (New Jersey Land Title Association v. Dana Rone, County Register of the County of Essex)
Peter J. Vazquez, Jr.