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Kalogeras v. 239 Broad Avenue


January 20, 2009


On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, C-318-05.

Per curiam.


Argued December 16, 2008

Before Judges Parker, Yannotti and LeWinn.

Defendants 239 Broad Avenue, L.L.C. (Broad), 12 Brinkerhoff, L.L.C. (Brinkerhoff), Golden Eagle Diner, Inc. (Golden Eagle), and Golden G, Inc. (Golden G) appeal from a judgment entered by the Chancery Division on March 9, 2007. Plaintiff Nicholas Kalogeras and intervenors Myinho Hahn (Hahn) and Golden Eagle Management, L.L.C. (GEM) cross-appeal from the judgment. For the reasons that follow, we reverse the judgment and dismiss the cross-appeals as moot.


We briefly summarize the relevant facts. In 1976, plaintiff and his brother Konstantinos "Gus" Kalogeras (Gus) purchased the Golden Eagle diner in Palisades Park, New Jersey. Golden Eagle owned the diner and its liquor license. Plaintiff and Gus also acquired an adjoining lot located at 12 Brinkerhoff Avenue and used it as a parking lot. They transferred ownership of the realty to Broad and Brinkerhoff, entities that they owned jointly.

In 2002, the relationship between the brothers deteriorated and Gus decided to purchase plaintiff's interests in the diner and the property. They agreed that the assets had a value of about $4 million. Gus agreed to pay plaintiff one-half of the amount remaining after deductions for the mortgage and business debts. To finance part of the purchase price, plaintiff agreed to accept a note in the amount of $950,000, which Gus would repay in equal, monthly installments over ten years, at an interest rate of 8 per cent per annum.

Plaintiff and Gus were represented by counsel in the negotiations for the buyout. Anthony G. Rathe represented Gus and Socrates Lambrinides represented plaintiff. Rathe and Lambrinides drafted two agreements, one for the sale of the real property and one for the sale of Golden Eagle.

Plaintiff was apparently concerned that Gus would purchase his interests and then sell the business and property for a higher profit. Plaintiff and Gus agreed that if Gus sold the business within two years after he purchased plaintiff's interests, Gus would pay plaintiff one-half of any sales proceeds over $4 million.

On October 18, 2002, Lambrinides sent Rathe a letter summarizing the terms that had been agreed upon by plaintiff and Gus. The letter contained the following provision:

So long as your client is obligated on the Note, my client shall have a right of first refusal to purchase the above named entities.

Rathe signed the letter, agreeing to all of the stated terms. Plaintiff and Gus signed the agreements on October 24, 2002.

The parties closed on the transaction in November 2002. After the closing, Gus transferred an ownership interest in Broad and Brinkerhoff to his son, Stellios. In December 2002, Gus formed Golden G and transferred the business to the entity, but not the liquor license.

Between 2003 and 2005, a commercial real estate broker presented Gus with various offers to purchase the diner and real property at amounts ranging from $5 million to $6.1 million. In July 2005, the broker presented Gus with an offer from Byung Kim (Kim) to purchase the diner, the liquor license and the real property for $6.5 million.

Gus's accountant advised him to divide the sale proceeds into a payment of $5.8 million, with an additional $700,000 in the form of a promissory note. The broker prepared a contract that reflected a purchase price of $5.8 million; however, at Gus's direction, the broker revised the document to show the additional $700,000. Kim signed the offer and Gus took it to Rathe for his review. Rathe prepared the promissory note in the amount of $700,000, which Kim executed on July 5, 2005.

Rathe informed Gus that, under the buyout agreement, plaintiff had a right of first refusal that would have to be included in the Kim contract. Rathe apparently did not inform Gus that the right of first refusal would expire when Gus fully paid the note he had issued to plaintiff. Although Gus had regularly made payments on the note, money remained due on the note.

Rathe prepared the agreement that provided for the sale of the diner business, the liquor license and the real property to Kim for $5.8 million. In the sales agreement, the sellers were identified as Broad, Brinkerhoff and Golden Eagle Diner. Section 22(j) of the agreement stated:

It has been disclosed to Buyer that a predecessor co-owner of the within property which was sold to Seller herein contains a provision for the Right of First Refusal which must [be] submitted to said predecessor for review. It is understood that the within contract is subject to said option, and if so exercised by predecessor, this contract shall be canceled, and all deposits held shall be returned to Buyer.

In addition, section 4(a)(iv) of the agreement provided as follows:

Seller represents that it is the sole owner and holder of . . . License #024533027001 with full right and capability to sell and transfer same to Buyer and that no other person or business has any claim, right, title or interest and will assist Buyer in its Application for a Liquor License Transfer to Buyer, except that Buyer shall be responsible for all costs and expenses incurred for the transfer.

Because of the right of first refusal, Rathe discussed the sales agreement with Lambrinides. Lambrinides told Rathe that he wanted to see the full contract. Rathe sent Lambrinides the sales agreement and wrote on the cover sheet, "The enclosed copy of original is forwarded to you with full understanding that same shall be restricted for your review as well as your client, without further publication." Lambrinides showed the agreement to Sukjin Henry Cho, Hahn's attorney.

Lambrinides and Cho began to negotiate the assignment of plaintiff's right of first refusal to Hahn and GEM. Plaintiff and Hahn executed the assignment, which is dated August 26, 2005. On that same day, plaintiff sought to exercise the right of first refusal.

Gus decided to cancel his agreement with Kim. He retained a new attorney, who acknowledged plaintiff's right of first refusal and said that the contract price was $5.8 million. Gus' attorney stated, however, that Gus was no longer interested in selling the diner and the property because he believed that they were undervalued.

On September 2, 2005, plaintiff filed a complaint naming Broad, Brinkerhoff and Golden Eagle as defendants. Plaintiff demanded a judgment requiring defendants to specifically perform under the terms of his right of first refusal. Plaintiff also sought compensatory and punitive damages, as well as attorneys' fees and costs.

On October 20, 2005, defendants filed an answer, defenses and various counterclaims. Defendants asserted that plaintiff never had a valid right of first refusal and, if he did, the right was not assignable. Defendants also claimed that, in the year prior to the buyout, plaintiff failed to perform his duties as partner in the diner. Defendants sought compensatory damages "in excess of $250,000." Defendants further alleged that plaintiff breached an agreement with them because he had purchased the Nutley diner on his own. Defendants demanded a fifty-percent ownership interest in the Nutley diner.

In April 2006, Hahn and GEM intervened in the action. The intervenors sought: specific performance of plaintiff's right of first refusal; an order compelling defendants to close title in accordance with the agreement; an injunction barring defendant from selling, transferring or otherwise encumbering the business and the properties; and compensatory damages, interest, attorneys' fees and costs due if plaintiff acts in any manner that "detrimentally [a]ffect[s]" their rights under the assignment.


The matter was tried on various dates between August 2006 and February 2007. On March 9, 2007, the trial court placed its decision on the record. The court found that Gus did not know about the right of first refusal when Rathe agreed to that term and first learned about the right in or about July 2005. The court found, however, that Gus had ratified plaintiff's right of first refusal when he signed the sales agreement with Kim, which included the provision recognizing plaintiff's right.

The court further determined that plaintiff validly assigned the right of first refusal to Hahn. In addition, the court found that the agreement to sell the diner, the liquor license and the real estate was enforceable, and the purchase price was $6.5 million. The court stated that the agreement to sell the liquor license was contingent upon approval of the Division of Alcoholic Beverage Control (ABC) because the license had been "addressed" and "referenced" in the contract.

The court entered a judgment dated March 9, 2007, which granted plaintiff and the intervenors specific performance of the right of first refusal. Among other things, the judgment required defendants to transfer all right, title and interest in Broad, Brinkerhoff, Golden Eagle and Golden G to Hahn for $6.5 million and required Gus to cooperate with Hahn in the transfer of the diner's liquor license "to an entity to be established" by Hahn.*fn1 The court further ordered that the transfer of all right, title and interest take place on or before December 10, 2007. On June 8, 2007, the court stayed its judgment pending appeal.

In their appeal, defendants argue that: 1) the trial court erred by granting specific performance of the sales agreement because it was not conditioned upon ABC approval of the transfer of the liquor license; 2) the court erred by finding that Gus had ratified the right of first refusal; 3) plaintiff and Hahn were not entitled to equitable relief because they had "unclean hands;" 4) the court should have equitably estopped plaintiff and Hahn from enforcing the right of first refusal; 5) the court erred by enforcing the assignment of the right of first refusal because the assignment was the result of a breach by Lambrinides of the confidentiality agreement; 6) the court erroneously applied the rule regarding the imposition of a loss between two innocent parties; 7) the court erred by granting specific performance to plaintiff and Hahn because the right of first refusal did not apply to the sales agreement, the right was not assignable, the right was unenforceable because of a merger clause, and enforcement would be harsh and oppressive to Gus; 8) the trial court did not have jurisdiction over Golden G, Gus or Stellios; and 9) if judgment is affirmed, the closing date should be nine months from the date of decision.

In his cross-appeal, plaintiff argues that: 1) specific performance of the right of first refusal should have been granted at a price of $5.8 million and 2) the trial court should have declared plaintiff's assignment to Hahn void for lack of consideration and mutual assent. In their cross-appeal, intervenors also argue that the trial court should have found that the sales price was $5.8 million.


We first consider defendants' contention that the trial court erred by finding that the sales agreement was conditioned upon ABC approval of the transfer of the liquor license and therefore could be specifically enforced.

The Alcoholic Beverage Control Law, N.J.S.A. 33:1-1 to -97 (ABCL), requires a license for the sale of alcoholic beverages for consumption on or off the licensed premises. N.J.S.A. 33:1-12. The ABCL generally provides that a license to sell liquor is not property that can be sold or transferred except with the approval of the director of the ABC or other issuing authority.

N.J.S.A. 33:1-26. The "application for transfer [must] be signed and sworn to by the person to whom the transfer of license is sought and shall bear the consent in writing of the licensee to the transfer[.]" Ibid. Moreover, "the director or other issuing authority, as the case may be, may transfer any license issued by him or it respectively to the applicant for transfer by endorsing the license." Ibid.

In Route 73 Bowling Ctr., Inc. v. Aristone, 192 N.J. Super. 80 (App. Div. 1983), we considered "the rights possessed by a holder of a contract to purchase a liquor license and the remedies, if any, available to such claimant upon the breach of the agreement to transfer the license." Id. at 82. In that case, the defendant operated a tavern on the premises of a bowling alley pursuant to a lease with the owner of the property. Ibid. "The lease was for an indefinite period, with the landlord retaining the right to terminate if it sold the bowling alley[.]" Ibid.

The lease further provided that the landlord or its nominee could purchase the liquor license and the tavern's furnishing in the event the lease was terminated. Ibid. Under the agreement, the tenant granted the owner the right of first refusal in the event the tenant wished to sell the tavern. Ibid. When the owner sold the property to the plaintiff, the tenant refused to transfer the liquor license. The plaintiff commenced an action seeking specific performance of the agreement to transfer the license. Id. at 82-83.

In Route 73 Bowling Center, we reaffirmed the "settled" principle "that specific performance may not be granted for a contract of sale of a liquor license." Id. at 83 (citing Iavicoli v. DiMarco, 142 N.J. Eq. 699, 700-01 (E. & A. 1948); Packard-Bamberger & Co., Inc. v. Bor. Council of Oakland, 87 N.J. Super. 92, 96-97 (App. Div. 1965)). We noted that the principle was based on the rationale that the ABC "should have unfettered discretion as to whether to approve or deny a transfer without having to consider possessory rights of a third party." Ibid. We said that a "third party should [not] be permitted to have control of the licensed premises and a right to the possession of the license in the future was and is seen to give rise to such shadow control." Id. at 83-84.

Here, the trial court found that Gus' agreement to transfer the liquor license to Kim was conditioned upon ABC approval. However, the record does not support that finding. As noted previously, the sales agreement merely states that the seller "represents that it is the sole owner and holder of" the license, has the "full right and capability to sell and transfer" the same; and will "assist" the buyer in its application for transfer of the license.

There is no provision in the agreement which states that transfer of the license is conditioned upon ABC approval. The agreement sets forth conditions for closing on the transaction but approval by the ABC of the transfer of the liquor license is not one of those conditions. Section 3 of the agreement also allocates $200,000 of the purchase price to the liquor license but the agreement does not state that the purchase price would be reduced by that amount in the event that the license is not transferred.

Thus, the sellers had an absolute contractual obligation to transfer the liquor license that was not conditioned upon ABC approval. Moreover, the purchaser had an absolute obligation to pay the full purchase price, including the $200,000 allocated for the license. Under our decision in Route 73 Bowling Center, the sales agreement could not be specifically enforced.

Plaintiff and intervenors argue, however, that the agreement implicitly recognizes that the transfer of the license is subject to ABC approval because the seller must cooperate with the buyer in the application for transfer of the license. In support of this argument, plaintiff and intervenors rely upon our decision in Darrah Food Services, Inc. v. Lambertville House, Inc., 202 N.J. Super. 447, 452 (App. Div.), certif. denied, 102 N.J. 329 (1985).

In Darrah Food Services, the plaintiff leased and managed a restaurant and tavern and had an option to purchase the premises. Id. at 449. The defendants owned the liquor license. Ibid. Litigation ensued over the exercise of the purchase option. Ibid. The case was settled with the defendants agreeing to sell the premises to the plaintiff and use their best efforts to have the liquor license transferred to plaintiff. Ibid. The agreement expressly provided that if the plaintiffs could not get financing or if they were unable to obtain ABC approval for transfer of the license, the settlement would be void and the litigation reinstated. Id. at 450. The plaintiffs obtained the necessary financing and the trial court ordered the defendants "to consummate the sale" and "commence and complete the liquor license transfer process[.]" Id. at 450-51.

The defendants argued in Darrah Food Services that the trial court erred by ordering specific performance of the agreement to transfer the license. Id. at 452. We rejected that contention, noting that the situation presented was different from that in Route 73 Bowling Center because in the earlier case the obligation to transfer the license "was absolute[,]" and in Darrah Food Services, "the transfer was conditioned upon approval of the local ABC Board[.]" Ibid.

We stated that the power to determine who should have the privilege of a liquor license rests solely with the ABC. Ibid. The ABC's "discretion should not be impinged upon by [an] order of a court[.]" Ibid. We noted, however, that the court had not ordered specific performance of a contract to transfer a liquor license. Ibid. Rather, the court had merely compelled the "defendants to continue the liquor license transfer process which they voluntarily initiated by entering into the settlement agreement." Id. at 453.

In our view, plaintiff's and intervenors' reliance upon Darrah Food Services is misplaced. There, the agreement was expressly conditioned upon ABC approval of the transfer of the liquor license. In this matter, there is no comparable provision in the agreement. Moreover, here the trial court did not simply order the sellers to assist in the transfer application process. The court ordered specific performance of the sales agreement, including the provision for the transfer of the liquor license. Darrah Food Services makes clear that a court may not grant such relief.

Accordingly, the trial court's judgment enforcing the sales agreement and the right of first refusal cannot stand. We therefore reverse that judgment in its entirety. We note that, although the parties had asserted various damage claims in this case, the trial court noted that no evidence had been presented in support of those claims. Therefore, our decision concludes this litigation.


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