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Marlboro Inn, LLC v. Marlboro Loft Partners

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 4, 2008

MARLBORO INN, LLC, ALEXANDER CALDER, III AND NANCY CALDER, PLAINTIFFS-APPELLANTS/CROSS-RESPONDENTS,
v.
MARLBORO LOFT PARTNERS, LLC,*FN1 DEFENDANT-RESPONDENT/CROSS-APPELLANT.

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

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

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 compliance impracticable is insufficient to show that it was impracticable to require strict adherence to the requirements of Rule 1:4-8(b)" and denied the motion for reconsideration.

Seller now raises the following issues on appeal for our consideration:

POINT I

PLAINTIFFS ARE NOT HELD HARMLESS WITHOUT PAYMENT OF THEIR LEGAL FEES.

POINT II

DEFENDANTS' DEFENSE WAS FRIVOLOUS AND WARRANTS A FEE AWARD TO PLAINTIFFS.

By way of cross-appeal, Purchaser argues that the trial court erred in awarding attorneys' fees and costs to Seller regarding its defense and settlement of the Avaya claim against it without a plenary hearing and without a determination as to the reasonableness or necessity of the fees.

Seller first posits that, unless its legal fees incurred in the enforcement of the underlying indemnity clause are paid, it is not "held harmless." Alexander Calder, member/manager of Seller, states in an affidavit submitted to the trial court that it was his understanding that [the defense and indemnification] provision was intended to and in fact cover[] all "losses," "costs," and "expenses" incurred by [Seller] related to the [Purchaser's] obligations to assume, pay, and perform under the Avaya lease, and all costs which [Seller] faced should it fail to do so including the fees and costs involved in managing Avaya's claim, and in enforcing the obligation to hold [Seller] harmless and collect all of the monies spent to settle the Avaya problem and the fees incurred to do so.

Seller argues that the broad language of the Contract, particularly the phrase "arising out of," provides authority for the court to award attorneys fees related to the Seller's efforts to enforce the Purchaser's contractual obligation to hold Seller harmless with respect to the Lease. Seller disagrees with the trial court's finding that, while the Seller was entitled to attorneys' fees based on the contractual language regarding the underlying claim by Avaya against Seller, Seller cannot recover fees to enforce the Contract. The fees and costs to enforce its Contract with Purchaser, Seller argues, "owe its existence to a situation between the parties 'arising out of' the Avaya lease."

Rule 4:42-9 states that "[n]o fee for legal services shall be allowed in the taxed costs or otherwise," except as set forth in the rule. None of the Rule 4:42-9 exceptions apply here. Counsel fees may be allowed, however, where the parties have agreed thereto in advance in a contract. Satellite Gateway Commc'ns, Inc. v. Musi Dining Car Co., 110 N.J. 280, 286 (1988).

In order to resolve Seller's claim for fees for enforcement of the Contract, we must "discern and implement the common intention of the parties" as reflected in the Contract. Pacifico v. Pacifico, 190 N.J. 258, 266 (2007). "In interpreting a contract, [i]t is not the real intent but the intent expressed or apparent in the writing that controls." Flanigan v. Munson, 175 N.J. 597, 606 (2003) (quoting Garfinkel v. Morristown Obstetrics and Gynecology Assocs., 168 N.J. 124, 135 (2001)). "Generally, we determine a written agreement's validity by considering the intentions of the parties as reflected in the four corners of the written instrument." Leodori v. Cigna Corp., 175 N.J. 293, 302, cert. denied, 540 U.S. 938, 124 S.Ct. 74, 157 L.Ed. 2d 250 (2003). "[I]t is not the function of the court to make a better contract for the parties, or to supply terms that have not been agreed upon." Graziano v. Grant, 326 N.J. Super. 328, 342 (App. Div. 1999). Furthermore, "indemnification agreements warrant strict construction." Mantilla v. Nc Mall Assocs., 167 N.J. 262, 269 (2001).

The pertinent language of the Contract reads: Purchaser 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, suit, 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.

The attorneys' fees and costs which the trial court did award to Seller arose out of the Lease. They involved the negotiations and subsequent settlement of the Avaya claim against Seller under the Lease, and hence arose out of the Lease. See E. A. Williams, Inc. v. Russo Dev. Corp., 82 N.J. 160, 173 (1980) (Sullivan, J. concurring). However, the attorneys' fees and costs to compel Purchaser to honor its obligation under the Contract arose not out of the Lease, but from Purchaser's breach of its obligation under its Contract with Seller.

While we note that it is not unusual for parties to contractually provide for fee shifting in connection with the enforcement of a contractual requirement or obligation, such a provision is noticeably absent in this Contract, and the language used does not provide for an award of fees for breach of the Contract, but only for fees arising from actions arising from the Lease with Avaya. Since "[w]e may not rewrite a contract or grant a better deal than that for which the party expressly bargained," Denike v. Cupo, 394 N.J. Super. 357, 386 (App. Div.), certif. denied, 192 N.J. 598 (2007), we do not read into the contract the commonly used clause that provides for attorneys' fees and costs for the party who prevails in the enforcement of an indemnity provision.

Because the conduct here did not fit within one of the expressly stated exceptions in Rule 4:24-9 and was not contemplated by the language of the Contract, we find no compelling reason supported by law to shift fees in "'derogation of the usual policy applied by New Jersey courts.'" In re Niles Trust, 176 N.J. 282, 293 (2003) (quoting McGuire v. City of Jersey City, 125 N.J. 310, 326 (1991)).

The Legislature has made provisions for shifting of attorneys' fees and costs in other situations, such as in those cases involving a frivolous lawsuit. N.J.S.A. 2A:15-59.1. Accordingly, Seller further argues that Purchaser's defense in the underlying action was frivolous and warrants a fee award to Seller. Seller argues that the Purchaser's conduct was, in fact, frivolous, and Purchaser's refusal to pay attorneys' fees, unless ordered by the court, required an award of attorneys' fees. The situation was aggravated, argues the Seller, by the fact that the Purchaser was "owned by, managed by, and acted through a practicing New Jersey attorney," who was charged with knowledge of Rule 1:4-8(f).

In its written opinion, the trial court found that Seller did not comply with the safe harbor provision of Rule 1:4-8. The trial court found that Seller believed that the demand would be meaningless and ignored because the Purchaser's principal stated that he would not pay the attorneys fees and costs. Citing Toll Brothers, Inc. v. Township of West Windsor, 190 N.J. 61 (2007), the trial court held that the law "does not permit wholesale non-compliance just because the moving party believes that any notice and demand would be meaningless and ignored by the offending party." We agree.

Toll Brothers requires a court to "make an assessment about the practicability of compliance [with Rule 1:4-8]." Id. at 5-6. Here, the trial court satisfied that requirement and made an assessment, finding that the Seller had no legitimate reason which would excuse compliance with the rule by merely asserting that such compliance would be futile. The trial court correctly found that Seller did not satisfy this threshold test, obviating the need to explicitly find whether or not Purchaser's actions were, in fact, frivolous. We find that the trial court correctly applied the law and, as such, affirm. See Sager v. O.A. Peterson Constr. Co., 182 N.J. 156, 164 (2004).

In its cross-appeal, the Purchaser contends that the trial court erred in awarding pre-litigation attorneys' fees and costs without a plenary hearing and without a determination as to the reasonableness or necessity of the fees. There was no obligation for the court to conduct a plenary hearing on these legal fees. The Supreme Court has held "to the commonsense position that a plenary hearing should be conducted only when the certifications of counsel raise material factual disputes that can be resolved solely by the taking of testimony." Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 24 (2004). The trial court's exercise of its discretion not to take testimony after reviewing the parties' submissions was well-supported by the record. See ibid. Therefore, we find that it was not an abuse of the trial court's discretion. Accordingly, this point is without sufficient merit to warrant further discussion. R. 2:11-3(e)(1)(E).

Affirmed.


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