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Ellison v. Schenck

March 16, 1995


On appeal from the Superior Court of New Jersey, Law Division, Passaic County.

Approved for Publication March 16, 1995.

Before Judges Dreier and Braithwaite. The opinion of the court was delivered by Braithwaite, J.s.c. (temporarily assigned).

The opinion of the court was delivered by: Braithwaite

BRAITHWAITE, J.S.C. (temporarily assigned).

Plaintiffs appeal from an order for summary judgment dismissing their complaint for legal malpractice against the defendant law firm, on the ground that it is barred by the statute of limitations, N.J.S.A. 2A:14-1. We affirm.

This malpractice action arises out of two ground leases of unused cemetery land executed in 1964 and 1965 between plaintiffs' predecessor, Carl B. Ellison, and the Evergreen Cemetery, a cemetery association. Plaintiff, Barrie B. Ellison is the son of Carl B. Ellison, now deceased. Plaintiffs Louis Friedman and Cheryl Friedman along with Barrie B. Ellison are the partners of plaintiff partnership, Friedell Associates, successor in interest and subsequent assignee of Carl B. Ellison. This case is related to Ellison V. Evergreen Cemetery, 266 N.J. Super. 74, 628 A.2d 793 (App. Div. 1993). Inasmuch as many of the facts are described in our earlier opinion, we will only recite those necessary for a resolution of this matter.

In 1964 and 1965, Carl B. Ellison leased large tracts of unused cemetery land for development purposes. At that time, Ellison was represented by defendant who also represented Evergreen. In fact, a partner of defendant was a member of the cemetery's board of trustees. Both ground leases run until January 1, 2009, and have provisions permitting the decennial redetermination of the annual rental beginning on January 1, 1979, in "an amount equal to a fair return on the appraised value of the land (excluding all buildings and improvements)." Disputes concerning the redetermination of rent are to be decided by arbitration. The leases also allow plaintiffs to sublet the lands with the consent of Evergreen and permit the construction of building and other improvements which upon completion become the property of Evergreen.

In 1967, in accordance with the lease, plaintiffs entered into a twenty year sublease with Downs Motors, Inc., an automobile dealership. The sublease provided for the construction of the dealership building with an annual rental of $17,500 plus ten percent of the construction cost estimated at $544,000. The Downs sublease had a rental redetermination provision for any renewal period. However, the rent was only to be decreased. Any renewal rental would be equal to seventy-five percent of the annual rent paid during the initial twenty year term. Defendant represented plaintiffs in negotiating and executing the Downs sublease.

Under the 1979 decennial redetermination, Ellison's annual rental to Evergreen was increased twofold. However, the new rental was still less than the rent received from Downs. Although Ellison still made a profit from the Downs sublease, the arrangement was less profitable. The 1989 decennial ground lease determination was a different story. Again the base rent was increased, but now the new rental exceeded the rent to be received from Downs. "On August 18, 1992, the arbitrators set the fair rental value for the ten year period beginning January 1, 1989 at $182,880 per year, with 7% percent interest on arrears since that date." Ellison v. Evergreen, supra, 266 N.J. Super. at 78, n.2. As a result of the 1989 redetermination, Ellison's arrangement with Downs was unprofitable.

In January 1992, plaintiffs commenced a declaratory judgment action against Evergreen to invalidate the ground leases asserting that they were not aware that Evergreen was without legal authority to enter into the leases until December 1991, when plaintiffs were advised by their new attorneys (Stern and Greenberg). *fn1 In addition, the complaint sought reformation of the leases along with damages. The damages sought were inter alia reimbursement of all costs and expenses for construction and maintenance of buildings and improvements constructed pursuant to the ground leases and sublease.

The defendant herein was not named as a party in the 1992 action. However, in the suit, plaintiffs alleged that in reliance upon defendant's advice they believed there were no legal impediments to Evergreen's leasing the property and in reliance thereon consummated the leases and developed the property at considerable expense. Plaintiffs further asserted that they believed that defendant's joint representation during the lease transactions and the fact that one of defendant's partners served as a member of Evergreen's board of trustees may have contributed to their lack of knowledge that Evergreen lacked the legal capacity to consummate the lease transactions.

In July 1993, we affirmed the trial court's grant of summary judgment dismissing plaintiffs' 1992 complaint against Evergreen. Ellison v. Evergreen, supra. We did not decide whether the statutory scheme in effect when the ground leases were executed in the 1960's "made a lease of unused cemetery land void as an ultra vires act." Id. at 82. Instead we simply held that plaintiffs were estopped from challenging the validity of the ground leases with Evergreen based upon its alleged lack of statutory authority to enter into the 1964, 1965 and 1968 leases. Id. at 83-84.

We reasoned as follows:

The 1971 adoption of the Title 8A revision of the cemetery laws expressly permitted such leases to be made. . . . At the very least this statutory amendment permitted ratification of any previous ultra vires act. For some nineteen years [after 1971] the parties, through their conduct, may be deemed to have ratified their ongoing lease relationship. Even though plaintiffs [Ellison] claim that they were unaware until December 1991 of the asserted lack of [statutory] authority they attribute to Evergreen to lease, they should have known that which was readily knowable [after 1971] from available statutory law. . . . Indeed, they did not raise the issue on at least two prior occasions involving litigation of these leases [1979 and 1989] after adoption of the 1971 revision and the 1973 amendments to the cemetery statute. ...

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