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Marlboro Inn, LLC v. Marlboro Loft Partners

August 4, 2008


On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-8613-04.

Per curiam.


Submitted April 9, 2008

Before Judges Parker and Lyons.

This case concerns the payment of legal fees to enforce an indemnification and hold harmless provision in a contract. The trial court awarded legal fees and costs incurred by plaintiff/indemnitee Marlboro Inn, LLC (Seller) to resolve the underlying claim against it, but did not award Seller its attorneys' fees incurred in enforcing the indemnification provisions of the contract against defendant/indemnitor Lafayette Square Construction Co., LLC (Purchaser).*fn2 The trial court also denied Seller's application for fees regarding its enforcement of the indemnity provisions of the contract under the frivolous claims statute, N.J.S.A. 2A:15-59.1, and rule, Rule 1:4-8. Because we find that the contract did not contain a provision awarding legal fees to plaintiff in connection with the enforcement of the contract itself, that shifting fees is generally disfavored under the law, and that plaintiff failed to comply with N.J.S.A. 2A:15-59.1 and Rule 1:4-8, we affirm the decision of the trial court.

The following facts and procedural history are relevant to our consideration of the issues advanced on appeal. Plaintiffs Alexander Calder, III and Nancy Calder are the owners of plaintiff Seller, Marlboro Inn, LLC. The Calders, through Marlboro Inn, LLC, owned and operated an inn in Montclair known as the "Marlboro Inn." In May 2003, Seller entered into a contract (Contract) to sell its real estate and assets to Purchaser, Lafayette Square Construction Co., LLC. The Contract provided that:

Commencing as of and after the Closing, [Purchaser] agrees to assume, pay all rental and other charges and otherwise perform under that certain Lease Agreement for the Merlin Magix telephone system, between Seller and Avaya Financial Services, dated March 27, 2002 (the "Lease"), and hereby indemnifies and holds Seller and its members, agents, directors, officers, employees, successors and assigns harmless from and against any and all claims, causes of action, damages, liabilities, demands, suits, obligations to Avaya Financial Services, together with all losses, penalties, costs and expenses relating to any of the foregoing (including but not limited to court costs and reasonable attorneys' fees) arising out of the Lease.

For unknown reasons, after June 2004, Purchaser stopped making payments due under the Lease. Avaya Financial Services (Avaya) demanded that the Calders, as guarantors of the Lease, directly pay the balance due or else face adverse credit reports and an action to collect the money due Avaya. Seller's attorney communicated with Purchaser's attorney, reminding him of the indemnification and hold harmless agreement contained in the Contract. Based on these communications, Seller's attorney concluded that Purchaser had no intention of paying Avaya, and, thus, Seller had no alternative but to enter into settlement discussions with Avaya. Seller's attorney advised Purchaser, through his attorney, that Seller expected to be reimbursed those sums it paid to settle the Avaya claim, together with attorneys' fees and costs incurred pursuant thereto.

Avaya initially claimed that it was owed $34,000. Seller's attorney entered into settlement negotiations, and eventually Avaya agreed to accept $21,000. Purchaser, however, only agreed to pay $20,000 and would not pay any of the attorneys' fees or costs incurred by Seller in negotiating Avaya's claim.

Seller paid Avaya and commenced a lawsuit against Purchaser to collect the $21,000 it paid to Avaya, the legal fees and costs incurred by its attorney in the resolution of the Avaya claim under the Lease, and the legal fees and costs incurred by Seller to enforce the indemnity and hold harmless provisions of the Contract between Seller and Purchaser. Purchaser waited until the day of trial to pay Seller the $21,000, maintaining up to then that it would only pay $20,000. Seller was awarded attorneys' fees and costs for dealing with and resolving the Avaya claim at a later hearing after the parties were afforded discovery concerning the fees billed by Seller's attorney. Seller then moved for attorneys' fees and costs against Purchaser under the frivolous claims statute, N.J.S.A. 2A:15-59.1, and Rule 1:4-8 because the Purchaser intentionally "delayed the conclusion of this sorry ordeal by forcing this litigation to be brought and to continue until the day of trial, never having any defense to this matter, in fact or in law."

On February 17, 2006, the court heard motions regarding Seller's demand for attorneys' fees. The trial court found that once a claim and demand was made by Avaya under the Lease, the indemnification provision of the Contract was triggered. That provision, held the trial court, clearly provided for reasonable attorneys' fees to the Seller, regardless of the merits of Avaya's claim. Therefore, the court ordered Purchaser to pay Seller's attorneys' fees "for their efforts to resolve the payment to Avaya." To determine the reasonableness of the requested fees, the trial court ordered Seller's attorney to be deposed. Furthermore, the trial court noted that because there was no provision in the Contract that would entitle Seller to its legal fees for enforcing its rights under the Contract, the trial court could not and would not award Seller attorneys' fees for enforcing the indemnity and hold harmless provisions of the Contract.

The trial court issued a subsequent written opinion on March 26, 2007. It found that claims made under N.J.S.A. 2A:15-59.1 "require[] strict adherence to the procedures set forth in Rule 1:4-8." Because Seller did not provide Purchaser with the written notice and demand required by the rule, the motion was denied.

Subsequent to the trial court's decision, the Supreme Court addressed the frivolous claims statute in Toll Brothers, Inc. v. Township of West Windsor, 190 N.J. 61 (2007). Seller, therefore, moved for reconsideration in light of Toll Brothers. In the order granting reconsideration dated February 27, 2006, the trial court also clarified the record by entering an order awarding Seller $3085 in attorneys' fees and costs it incurred resolving the underlying Avaya claim.

The trial court heard arguments and issued another written opinion dated June 26, 2007. The trial court interpreted Toll Brothers to require courts "to consider the moving party's attempts to fully comply with the notice requirements of Rule 1:4-8 and make an assessment of the reasons for noncompliance." The trial court then found that Seller did not comply with the notice and demand requirements of the rule because Seller concluded that it "would have been meaningless and ignored since [Purchaser's principal] testified at his deposition that he would not pay the attorneys' fees and costs [Seller] incurred in resolving the Avaya claim." The trial court concluded that this explanation "of what made timely ...

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