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C&J Colonial Realty, Inc. v. Poughkeepsie Savings Bank

December 4, 2002

C&J COLONIAL REALTY, INC., A NEW JERSEY CORPORATION, AND JOHN E. LONG, PLAINTIFFS/RESPONDENTS- CROSS-APPELLANTS,
v.
POUGHKEEPSIE SAVINGS BANK, FSB, A NEW YORK CHARTERED BANK AUTHORIZED TO DO BUSINESS IN NEW JERSEY, RIVERDALE TIMBER RIDGE, INC., A NEW JERSEY CORPORATION, AND ROCK CREEK CROSSING, L.L.C., A NEW JERSEY LIMITED LIABILITY COMPANY, DEFENDANTS/APPELLANTS, AND MELVIN HERZBERG, KENNETH L. HERZBERG, ROBERT W. BURKETT, AND HUGH H. SHULL, JR., DEFENDANTS/CROSS- RESPONDENTS.



On appeal from Superior Court of New Jersey, Law Division, Morris County, L-330-97.

Before Judges Stern, Collester and Alley.

The opinion of the court was delivered by: Collester, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued October 8, 2002

Defendants Poughkeepsie Savings Bank (the Bank), its subsidiary, Riverdale Timber Ridge, Inc. (Timber Ridge), and Rock Creek Center Crossing, L.L.C. (Rock Creek), appeal from an amended judgment entered following a bench trial against the Bank, its successors and assigns, and Rock Creek in the amount of $135,000 to plaintiffs, C&J Colonial Realty and John Long (together"plaintiff"), as a five percent commission on the closing of the sale by the defendant bank to defendant purchasers Rock Creek.

Defendants argue plaintiff's action was barred by the statute of frauds. Moreover, they claim that even assuming compliance with the statute, plaintiff did not satisfy the requirement for a commission of producing a purchaser for a net sale price of $3,000,000 and that the only parties introduced to the property by the plaintiff were not part of the ultimate purchasing entity. They further contend that in any event the five percent commission awarded by the trial judge was inconsistent with both the proofs and the statute of frauds.

Plaintiff cross-appeals. He argues that the trial judge erred in awarding a commission of less than ten percent, in denying entry of judgment against defendants who were individual investors in the project, from the denial of his claim for punitive damages and from the denial of prejudgment interest.

The facts adduced at trial included the following. As the result of foreclosure proceedings, in 1991 the Bank, through its subsidiary Timber Ridge, became the half-owner of an abandoned and partially completed condominium development on a forty-four acre parcel located along the I-287 corridor in Riverdale, New Jersey. The remaining fifty percent of the property was owned by the Resolution Trust Company (RTC). The land contained two"pods" of boarded up townhouses, another boarded up building, and a large hole in the ground where construction had begun on a retention basin.

In May 1995, plaintiff Long became aware of the status of the property and called Sten Sandlund, the contact person for the property at the Bank, to advise that he was a real estate broker and a minor developer of property. Sandlund told Long that no real estate signs had been placed on the property as yet because the Bank did not own it free and clear and thereby could not convey title. Long acknowledged that Sandlund also told him the Bank was not going to list the property with a broker because the property had already elicited substantial unsolicited interest from developers and the Bank had been successful in selling properties directly. Additionally, the Bank was contemplating whether to develop the property.

Long told Sandlund that he wanted to introduce the property to some people he worked with on an ongoing basis"to see if we have the capability financially or otherwise to buy it from you." Sandlund said that would be fine but that the bank would"not take a dime less than three million dollars." Long understood that figure to be"an absolute bottom" after payment of commission and that, even if a purchaser was produced, the bank would not enter into any arrangements unless the buyer could show the financial ability to pay at least one-third of the price, $1,000,000, in cash up front.

Sandlund invited Long to send him a letter with his business card requesting the sales information package for the property. According to Long, when he asked if he could visit the site, Sandlund said"sure, be my guest."

On June 2, 1995, Long faxed Sandlund a handwritten note that said:

As we discussed yesterday would you please send me [illegible] information packaged on Timber Ridge Town homes Project.

Please send to: C&J Colonial Realty c/o John Long 34 Aspen Road Ringwood, N.J. 07456

I may be a principal in a group to buy the project but failing that I will offer it out at 3 million plus my commission to preserve the bank's net figures desired. Thank you.

Long never received the sales package. He also admitted that when he wrote the June 2, 1995, letter he was unsure what he would charge for a commission because he was more interested in becoming a principal in purchasing and developing the property and was not sure it was worth $3,000,000.

Long visited the property with his builders, but they were either uninterested or unable to meet the Bank's requirement of $1,000,000 cash up front. Nonetheless, Long testified that his examination of the property confirmed his opinion that the existing portions of the project were well built and would be able to absorb a ten percent commission at the $3,000,000 price. Long therefore resolved to show the property to potential buyers. He contacted various developers from the yellow pages and placed advertisements in newspapers. He required all of his potential purchasers who viewed the property to sign a"notice of showing" or verification of property inspection which stated that Long had the seller's authorization to offer the property and that the seller would pay the commission. At no point did Long send copies of these notices to the Bank.

From June 10 to July 14, 1995, Long unsuccessfully attempted to reach Sandlund, who did not return his calls. As a result, Long decided to write Joseph Tockarshewsky, the Bank's chairman, president, and chief executive officer. In a handwritten letter to Tockarshewsky dated July 14, 1995, Long stated:

As of this date my office has shown the bank's property known as Timber Ridge in Riverdale, N.J. to Catton Homes of Manalapan, NJ, Mr. Robert Fecso, Division Land Manager, Haseko Realty Inc. of New York and New Jersey, Mr. Allan Leeds, Director of Marketing of Avalon Properties, Inc., Princeton N.J. and Mr. Jeffrey Albert, Acquisitions Director.

I had quoted a purchase price of $3.5 million for the project, inclusive of a commission to our office of $300,000 netting to the bank $3.2 million as we had discussed earlier.

These gentleman may contact you directly to discuss the project, request the information package on the project or attest to their financial ability to purchase the project [illegible] my office would like the information package as well [illegible] to serve as an introduction to these potential buyers and as a [illegible] of showing the property to them by my office. Please copy me with any [illegible] that my [sic] transpire between you and them. Thank you for your cooperation.

Long explained that he sent the letter because he had concluded:"I better let him know now my role is going to be that as a full-fledged broker in this deal and I wanted to alert him that what my activities consisted of was that I was now going to quote this price, namely three-point-five million dollars and I was going to go for the 10 percent commission..." He added that he also sent the letter both to satisfy the statute of frauds and to determine if the bank was"really going to work with me or not."

Also in mid-July 1995, Long purchased $100 worth of the Bank's stock for the stated purpose of creating an ownership interest and because he had detected a little animosity from Mr. Sandlund toward brokers in general, and I got the implication, at least my sensitivities led me to believe that this guy was going to be trouble, even if I sold the property for them, so I decided to become a shareholder in case they did anything wrong from a shareholder's point of view maybe I could sue the butt off them. On July 27, 1995, Tockarshewsky responded to Long's letter as follows:

Thank you for your July 14, 1995 letter concerning the subject property which I gave to Gus Costaldo, Senior Vice President, Special Assets Group. Both Gus and Sten Sandlund are responsible for managing and marketing this asset. In that regard you have not been given authorization by anyone at PSB either verbally or in writing to show this property to a prospective purchaser. Any sale is subject to the approval of the Board of Directors of Riverdale Timber Ridge, Inc., its participant, in their sole and absolute discretion. This letter does not constitute a listing of the property with you or your company. If you would like to arrange a meeting with any of the developers you mentioned in your letter under these terms, please call Gus or Sten at (914)431-6347 or 431-6004 respectively. Long concluded from Tockarshewsky's letter that he"didn't kn[o]w what he was talking about" and that Sandlund was the guy in charge.

Long testified that before he received Tockarshewsky's letter, he had arranged to show the property to Milton and Kenny Herzberg on July 27, 1995. Milton Herzberg was in his seventies, and Kenny, his son, was in his mid-forties. They responded to Long's newspaper advertisements for the property and signed a notice of showing by Colonial Realty indicating they had visited Timber Ridge and another property with Long. The notice stated:

While it is expected that the sellers of these properties will pay any sales commission due C&J on a sale that takes place to us, the undersigned agrees to assist and protect C&J's right to that commission by signing this notice of showing.

The undersigned also agrees not to disclose or discuss these properties with others, especially other real estate offices without C&J's approval since it might interfere with or confuse C&J's claim to a commission jointly with such other offices.

The undersigned further agrees that if they form or use any other subsidiary or entity to purchase, lease or trade for the property it will be as if the undersigned in fact obtained the property and they agree to inform the sellers of the properties of that fact throughout their negotiations with the sellers if they act independent of C&J Colonial Realty Inc. for whatever reason.

The undersigned has been informed that C&J will claim a ten percent (10%) commission on a sale of either property and that C&J will be specified as the procuring broker in these transactions. C&J will be updated and copied on all negotiations and correspondence with the sellers who may actually prefer direct dealings with principals and in this regard C&J has no objections.

Long provided the Herzbergs with Sandlund's name and telephone number, and informed them of the Bank's financial requirements. Sandlund met with Milton Herzberg who described himself as a"syndicator" who raised investment capital, and presented himself as someone with development expertise and substantial capital. He claimed to have taken over a failed townhouse project in Old Tappan and brought it to a successful completion.

While there was conflicting testimony as to whether the Herzbergs were accompanied on their first site visit by Hugh Shull, there is no dispute that Shull visited the site with the Herzbergs in July or August." Shull was a retired corporate counsel who acted as the financial manager for a group of real estate investors headed by Wilton Hawkins, and also included John Arwood and Tom Peacock. These investors were close friends as well as business partners. They had completed a real estate development project in Clifton, New Jersey in 1994, and subsequently became involved in a project in North Carolina. The group's general contractor for both projects was Robert Burkett. These men, plus various others who had participated in the North Carolina project, were referred to generally throughout the trial as"the North Carolina group."

One of Hawkins' closest friends was a man named Carter Bacot, the long-time chairman of the Bank of New York, who also was friendly with Shull. Bacot's daughter was married to Milton Herzberg's other son. At the wedding of one of Bacot's daughters, Herzberg met Hawkins and told him about the Timber Ridge property. Hawkins called Shull and Burkett, who was still in North Carolina, and asked them to contact Herzberg because Herzberg had some land and needed a builder. Neither Shull nor Burkett ever heard of Herzberg before Hawkins' call. During subsequent telephone conversations with Burkett, Herzberg represented himself as the principal developer of a number of projects in New York and New Jersey and was interested in the Timber Ridge property. Burkett testified that he already was aware of the Timber Ridge project because he had seen it when the group was investigating other distressed RTC-owned properties.

Shull met with Herzberg at Shull's New York apartment prior to visiting the site. Herzberg told Shull what he had told Sandlund, namely, that he was a real estate developer who had been a principal in a townhouse project in Old Tappan that had been successful. He added that the project was selling out, and he and Kenny were looking for other investment opportunities. Shull drove out to the site with Milton and Kenny. He could not recall whether Long was present during this visit. Shull reported to Hawkins that he did not feel qualified to properly assess its potential. Hawkins told him to have Burkett look at the site.

On August 5 or 7, 1995, Burkett flew up from North Carolina and visited the site with Shull, the Herzbergs, and Alex Zepponi, a civil engineer who came with the Herzbergs. Long was present at this meeting and was introduced to Burkett and Shull as the broker. However, Long had no information on the property with the exception of an old site plan. When Burkett told Long that he had seen the property a year and a half earlier with a realtor from Coldwell Banker, Long claimed to be the exclusive broker with a listing from the Bank and the Bank was paying his ten percent commission. Burkett said he asked to see the listing agreement because he thought it unusual for a bank to pay such a high commission and give an exclusive listing to a one-person brokerage company. He never received any such listing from Long.

During the site visit, Burkett and Zepponi saw that certain visible elements of the project's infrastructure were"stubbed" or false. When they pried up manhole covers, they discovered the holes underneath were only three feet deep. At one point, Burkett leaned against a fire hydrant, and it fell over.

After the site visit, Burkett, Shull, the Herzbergs and Zepponi went to Zepponi's office, where Burkett telephoned Sandlund. Sandlund met them that afternoon and provided a complete information package, including engineering reports. He told the group that the project was not for sale as yet because the Bank and RTC still were negotiating over which one would buy out the other. Sandlund told them the price was $3 million but did not mention a requirement for $1 million up front. When Burkett asked Sandlund about Long's claim that he was the exclusive broker for the property, Sandlund responded that Long"wasn't really involved" and that the Bank did not have any agreement with him.

Sandlund had been under the impression from the Bank's engineering report that the infrastructure on the property had been completed. However, at a meeting the following day with Burkett and the Bank's engineer, they discovered a number of buried fifty- five-gallon drums that were full of dirt and smelled of fuel oil. They met with the chief of police, obtained plans from the township engineer, and made an appointment to see the township attorney the following month. Long was not present at any of these meetings.

Sandlund was impressed with Burkett's enthusiasm for the project as well as his representations of his ability to work a heavy rock site because the mountainous and rocky topography and the water which had collected in the holes from previous blasting presented"tremendous physical challenges" to development. Sandlund believed the Bank had found"the right guy" for the physical part of the site. He also agreed after inspecting the property with Burkett, that the $3 million price was not feasible.

On August 7, 1995, Fred Schlesinger, the attorney for Timber Ridge, wrote to Long, with a copy to Sandlund:

This firm represents the above company, which is co-owner of certain property in the Borough of Riverdale. Notwithstanding your letter to Mr. Tockarshewsky of July 14, 1995, and without authority you have represented to certain potential purchasers that you have authority to show this property. You have no listing agreement. Without such a listing, the owners are not obligated to pay you commission, no matter how many telephone calls or letters your [sic] may sent to my client alleging that such a listing exists.

If you wish to negotiate a listing agreement with my client, please send it to me and I will present it to them ...


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