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U.S. Home Corp. v. West Pleasant - CPGT

March 6, 2009


On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-4163-07.

Per curiam.


Argued February 3, 2009

Before Judges Gilroy and Chambers.

This is an action under the New Jersey Arbitration Act of 2003 (Act), N.J.S.A. 2A:23B-1 to -32. Defendant Four G's Land, LLC, appeals from the April 2, 2008 order of the Law Division that affirmed the arbitration panel's (the panel) award determining Four G's and co-defendant West Pleasant - CPGT, Inc., jointly and severally liable to plaintiff, U.S. Home Corporation, d/b/a Lennar Homes, for the return of a $1,510,000 real property contract deposit.*fn1 We affirm.

Plaintiff, West and Four G's entered into a real estate contract that contained an arbitration clause. On November 9, 2006, defendants filed a demand for arbitration before the American Arbitration Association (AAA) alleging a breach of contract. Plaintiff counterclaimed.

On December 5, 2007, the panel issued its award, finding that plaintiff had properly terminated the contract, and determining defendants jointly and severally liable for the return of plaintiff's deposit in the amount of $1,510,000. On December 17, 2007, plaintiff filed an action in the Law Division to confirm the award. On January 16, 2008, the trial court entered an order to show cause (OTSC), returnable on February 8, 2008. Four G's opposed the action and sought to vacate or modify the award. On March 14, 2008, the court continued the hearing. On April 2, 2008, the court entered an order confirming the award and denying Four G's application to modify or vacate the award.


Four G's is the owner of a parcel of land in Jackson Township designated on the tax map as Lots 4.02 and 5.01 in Block 84.01. West is the owner of adjoining Lots 3 and 4.01 in Block 84.01. The four lots, collectively, are referred to as "the property."

On August 9, 2005, defendants entered into a contract (the agreement) with plaintiff for plaintiff to purchase the property. Pursuant to the agreement, defendants were obligated to obtain "approval of a subdivision plan to develop the property [into] 42 building lots . . . together with open space improvements." Accordingly, plaintiff's performance under the agreement was conditioned on defendants "obtaining preliminary and final major subdivision approval for the [p]roject together with all other required regulatory permits and approvals required for the development of the [p]roject . . . ."

The purchase price for the property was $8,400,000; the contract deposit was $1,510,000. Plaintiff paid $10,000 of the deposit to defendants' attorney to hold in escrow, pending closing of title. Plaintiff paid the balance of the deposit, $1,500,000, to defendants, collectively, as the "seller" in two installments of $750,000 each. Unlike the initial $10,000 deposit, there was no requirement that the remaining $1,500,000 be held in escrow. Regarding the deposit monies, the agreement did not address the allocation or sharing of the funds between defendants.

In consideration for the first payment of $750,000, defendants agreed to deliver to plaintiff a mortgage in recordable form on Lot Nos. 2, 3, and 4.01 in Block 84.01 owned by West. A copy of the proposed note and mortgage were attached to the contract. On September 12, 2005, West executed and delivered the note and mortgage. The checks, encompassing the $1,500,000 portion of the deposit, were payable to West or its representative. Four G's did not directly receive any of the deposit funds.

Paragraph 40 of the agreement contained an arbitration clause:

Any controversy or claim arising from or relating to this contract or the breach thereof shall be settled by arbitration administered by the [AAA] under its Arbitration Rules for the Real Estate Industry and judgment on the award rendered by the panel of three (3) arbitrator(s) may be entered in any court having jurisdiction thereof.

(d) The award rendered by the arbitrators consisting of a panel of three arbitrators shall be final and judgment may be entered upon it, in accordance with applicable law in any court having jurisdiction thereof.

On August 9, 2006, defendants notified plaintiff that it had breached the agreement by failing to post performance guarantees required by the governmental agencies having jurisdiction over the subdivision and site plan application. Defendants gave plaintiff thirty days to cure the stated breach, advising plaintiff that, in the event the breach was not cured within the allotted time, defendants were going to terminate the agreement and forfeit plaintiff's deposit as "agreed upon liquidated damages."

On August 25, 2006, plaintiff responded to defendants that it was not in breach of the agreement:

As detailed below, the [a]greement specifically provides that "Purchaser's continued performance of the [a]greement . . . is expressly subject to and contingent upon Seller obtaining the Development Approvals" needed for development of a 42 lot[] residential subdivision, including an effective Freshwater Wetlands Letter of Interpretation ("LOI"). Because Seller has not satisfied the Development Approval contingency, [plaintiff] is not required to perform and, hence, cannot be in default under the [a]greement for any failure to perform.

As to the LOI, plaintiff stated:

[The Department of Environmental Protection ("DEP")] issued an LOI for the site on May 1, 2001. That LOI classified some of the wetlands as intermediate resource value (requiring a 50 foot buffer or transition area) and other of the wetlands as ordinary resource value (requiring no buffer or transition area). . . . That LOI would have permitted development of the 42 lot project specified in the Agreement and as approved by the Planning Board.

However, the 2001 LOI has expired, and on April 11, 2006[,] DEP reissued an LOI for the site. The reissued LOI reclassified some of the wetlands from intermediate resource value to exceptional resource value, thus increasing the required buffers for the reclassified wetlands from 50 feet to 150 feet. . . . These buffers would result in the loss of approximately 9 to 10 building lots and would require redesign of a stormwater basin and realignment of a road. . . . Hence, the reissued LOI failed to satisfy the requirement of the Agreement for Development Approvals that authorize development of the 42 lot residential subdivision.

In June 2006, after defendants engaged in discussions with the DEP, the DEP provided an amended LOI, and then provided a second amended LOI on July 26, 2006. The second amended LOI provided that development would be permitted "'in those areas not considered absolutely essential for the maintenance of the wetlands habitat.'" However, because it did not specify what areas the DEP deemed non-essential, plaintiff found the amended LOI "ineffective to satisfy the Development Approval contingency." On August 25, 2006, plaintiff terminated the agreement and demanded the return of its deposit monies.

On November 3, 2006, defendants filed a demand for arbitration with the AAA. On November 28, 2006, plaintiff filed a counterclaim. On May 7, 2007, the panel issued a scheduling and procedure order setting forth the dates by which the parties were to exchange documents, and the dates for the hearing. The documents were to be exchanged by June 22, 2007, and the hearing was scheduled for September 11, 12, 19, and 20, 2007.

On May 30, 2007, George Glory, the managing member of Four G's, suffered a stroke, rendering him temporarily unable to speak. On June 21, 2007, counsel for defendants advised plaintiff of Glory's condition and requested that the discovery deadlines be extended and the hearing dates adjourned. On July 11, 2007, the parties agreed to extend the document exchange date to August 3, 2007, with defendants serving their expert ...

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