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PSI Summit Hospital, Inc. v. Corporate Park Associates

May 30, 2008

PSI SUMMIT HOSPITAL, INC., PLAINTIFF-RESPONDENT,
v.
CORPORATE PARK ASSOCIATES, DEFENDANT-APPELLANT.
CORPORATE PARK ASSOCIATES, A NEW JERSEY LIMITED PARTNERSHIP, PLAINTIFF-APPELLANT,
v.
PSI SUMMIT HOSPITAL, INC., A NEW JERSEY CORPORATION, AND PSYCHIATRIC SOLUTIONS, INC., A DELAWARE CORPORATION, DEFENDANTS-RESPONDENTS.



On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket Nos. L-7649-04 and L-8087-04.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 5, 2007

Before Judges Payne, Sapp-Peterson and Messano.

In this commercial lease litigation, appellant, Corporate Park Associates (CPA), appeals from a motion judge's order granting partial summary judgment against CPA on claims against respondent, PSI Summit Hospital and its parent, Psychiatric Solutions, Inc. (together, PSI), for breach of a lease agreement, from a judgment against CPA on remaining claims following a bench trial, and from a pre-trial order quashing subpoenas issued to attorneys for PSI's predecessor in interest, Summit Health, L.L.C. (Summit), to obtain testimony on the intent of a contractual term.

On appeal, CPA raises the following legal arguments:

POINT I

PSI BREACHED THE LEASE AGREEMENT WITH CORPORATE PARK ASSOCIATES BY: (a) FAILING TO DILIGENTLY PURSUE THE CERTIFICATE OF NEED, AND (b) TERMINATING IN BAD FAITH.

A. The trial court's multiple factual and legal errors require this Court to appraise the record independently.

B. PSI had an obligation to pursue the approvals with due diligence that required that it do more than simply go through the motions of filing an application.

C. PSI's conduct violated the implied covenant of good faith and fair dealing.

D. PSI did not waive its right to contest PSI's lack of good faith and diligence prior to August 1, 2004.

POINT II

GENUINE ISSUES OF MATERIAL FACT EXISTED AS TO WHETHER THE ZONING CONTINGENCY RIDER APPLIED TO THE OBTAINING OF APPROVAL FOR RELOCATION OF THE CERTIFICATE OF NEED, AND CPA SHOULD HAVE BEEN PERMITTED TO CONDUCT DISCOVERY AS TO THESE ISSUES, . . . INCLUDING DISCOVERY FROM THE TENANT'S ATTORNEYS.

A. The court below erroneously granted partial summary judgment.

B. Discovery should have been allowed as to the intent and meaning of the Zoning Contingency Rider.

Following our review of the record and the parties' legal arguments, we affirm.

I.

For a number of years, Summit operated a psychiatric hospital on grounds in Summit, New Jersey that it leased from Fair Oaks Properties, L.L.C. pursuant to a lease agreement that expired on September 30, 2004. On July 25, 2003, DPMW Associates, L.L.C. (DPMW) purchased the Fair Oaks property with the intent to convert it into townhouses. Because the construction could not commence immediately, DPMW agreed with Summit to extend its lease to March 31, 2005. Nonetheless, it was evident to Summit that it would be necessary to find a new location for its operations. It did so, finding a vacant corporate property in a business development owned by CPA and located at One Corporate Place South in Piscataway.

In March 2004, extensive negotiations between CPA and Summit occurred over the terms of a lease of the property. Because of concerns that not all of the uses of the property that Summit intended were permitted by Piscataway's zoning ordinance, and that a variance might therefore be necessary, among the issues negotiated at the time was a rider, denominated a "Zoning Contingency Rider." As initially drafted by attorneys for Summit, Burton L. Eichler and Jeffrey H. Itzkowitz of the firm of WolfBlock Brach Eichler, the rider provided that the lease was contingent upon Summit obtaining the necessary building permit, together with all requisite approvals from the municipality and all other governmental entities applicable to the obtaining of the necessary building permit, on or before August 1, 2004, permitting the Tenant to construct, renovate and build upon the premises for Tenant's intended use which use includes a psychiatric hospital, including related office and administrative uses, including alcohol and drug treatment center, in conjunction with Tenant's development of the within parcel. The "building permit and approvals" referred to herein (the "Approvals") shall only be deemed to have been obtained following the expiration of all appeal periods relating to the Approvals . . . .

However the contract, as executed following further negotiations, did not limit the approvals to those necessary to obtain a building permit. Instead, it contained a broader provision making the lease contingent upon the Tenant "obtaining all necessary site plan approvals, together with all requisite final, non-appealable approvals from the municipality and all other governmental entities applicable evidencing that Tenant may utilize the premises for its intended use, on or before August 1, 2004, permitting the Tenant to construct, renovate and build upon the premises for Tenant's intended use which is as a psychiatric hospital . . . ." In the event that the approvals could not be obtained before August 1, Summit, as tenant, effectively, retained the right to terminate the lease and receive a full refund of any good faith monies paid. If, prior to August 1, Summit demonstrated that it was "diligently pursuing all Approvals and has made all applications on a timely basis," it was entitled to a three-month extension on the approval period to October 31, 2004. A unilateral right of termination by Summit existed if the approvals were "not obtained on or before . . . October 31, 2004."

In likely exchange for the foregoing, CPA negotiated a third paragraph to the rider that provided, in revisions circulated on March 17 and March 23, if the approvals were not obtained by June 1, 2004, CPA was entitled to a Tenant Improvement Allowance (TIA Deposit) of $103,000 per month until the foregoing contingency was met or waived, or the lease was canceled. If the lease were cancelled, the TIA Deposits would be released to ...


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