March 24, 2009
RIAD DEVELOPMENT COMPANY, LLC, ABDEL-REHIM A. RIAD, NAGDA K. RIAD, ABIR RIAD CATOVIC AND AMIRA RIAD, PLAINTIFFS-RESPONDENTS,
BENJAMIN RINGEL, ARMSTRONG SUTTON PLAZA, AND ARMSTRONG CAPITAL, LLC, DEFENDANTS-APPELLANTS.
On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-541-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 11, 2009
Before Judges Parrillo, Lihotz and Messano.
Defendants Benjamin Ringel and Armstrong Capital, LLC appeal from final orders of the Law Division granting summary judgment in favor of plaintiffs Riad Development Company, LLC, Abdel-Rehim A. Riad, Nagda K. Riad, Abir Riad Catovic, and Amira Riad (collectively, Riad), and entering judgment against defendants in the amount of $900,000, plus interest at 18% annually, and attorneys' fees and costs of $104,073.86. We affirm.
The relevant facts are largely undisputed. In 2003, Riad Development, wholly owned by Abdel-Rehim A. Riad, entered into an agreement with Armstrong Sutton Plaza, LLC,*fn1 principally owned by Benjamin Ringel, an attorney, for the sale of Riad's shopping mall, named Sutton Plaza Shopping Center, in Mount Olive. Initially, the agreed upon price was $21.5 million, as stated in the contract of sale dated June 20, 2003. As closing approached, however, Ringel was short the funds by $1 million, and as a result, renegotiated a new purchase price of $20.5 million. In connection with the reduced price, Armstrong Capital, LLC, also principally owned by Ringel, made contractual promises -- the so-called "Split-Dollar Agreements" -- to pay monies to Riad Development for use by the Riad family to fund the premiums on a life insurance policy.
The "Split-Dollar Agreements," which are the center of the present dispute, are comprised of four documents: the Letter Agreement, the Private Split Dollar Agreement (PSDA), the Collateral Assignment Split-Dollar Life Insurance Agreement (Collateral Agreement), and the Unconditional Guaranty (Guaranty) (collectively, the Split-Dollar Agreements). Among them, the PSDA is the principal agreement setting forth the general obligations of the parties. Pursuant to Article 1 of the PSDA, the Riad family established the Riad Family Irrevocable Life Insurance Trust (Trust) to purchase a "second-to-die" split-dollar life insurance policy from Massachusetts Mutual Insurance Company (Mass Mutual) on the lives of AbdelRehim A. Riad and his wife, Nagda K. Riad, with a guaranteed death benefit of $3.5 million. Articles 3 and 10 of the PSDA set forth Armstrong Capital's obligation as the "Principal Payor" to advance $100,000 to the Trustees, daughters Abir Riad Catovic and Amira Riad, thirty days before the due date of the annual premium, and to maintain the policy "by paying all premiums as they come due" for a period of 10 years, thus totaling $1 million in premium payments.
The agreement was structured in such a way that Armstrong Capital would have an absolute right to repayment of the $1 million in premiums but only upon the happening of certain conditions. Under Article 4, Armstrong Capital was only entitled to repayment "[i]f the Policy matures as a death benefit claim while this Agreement remains in force" or "the Trustees or their successors . . . surrender the Policy," but only so long as any repayment was made in accordance with Article 7. Article 7 provides that defendants are not entitled to repayment unless the death benefits paid while the PSDA remains in force, including the return of all premiums paid, exceeds $3.5 million.*fn2 The agreement was to remain in force, pursuant to Article 8, entitled "Termination of Agreement," until "the death of the second-to-die of the Insureds (or, if earlier, a surrender of the Policy under the second sentence of Article 4 of this Agreement) and the full payment to the Principal Payor of the Payor's Premiums payable hereunder."
In the event that Article 4's repayment provision went into effect, Article 5 provided for the creation of a Collateral Assignment Agreement, in which Armstrong Capital was assigned an interest in the death benefits equal to its paid premiums. Indeed, should no death benefits actually become payable under the Policy, for any reason other than surrender, Article 7 terminated Armstrong Capital's right to repayment. Repayment would not include interest, as the deal was structured as a $100,000 per year below-market no-interest loan from Armstrong Capital to Riad Development, with imputed interest to the Riads for federal income tax purposes.
Article 10 of the PSDA set forth the conditions of default, which would occur if Armstrong Capital failed (1) to pay the premiums when due; (2) to pay its debts; (3) to maintain its existence as a Delaware limited liability company in good standing; and (4) to perform its obligations under the Letter Agreement. Upon default, by operation of the acceleration and forfeiture clauses in Article 10, $1 million would become immediately payable to plaintiffs, at 18% interest, and defendants' right to repayment would terminate:
1. the full amount of all premiums due under the Policy shall immediately be and become due and payable . . . and shall bear interest at the rate of eighteen percent (18%) per year from the date of acceleration until paid; and
2. this Agreement shall terminate and the Principal Payor shall forfeit all rights in and to repayment of all or any portion of the Payor's Premium paid to the Trustees as of the date of such declaration buy the Trustees, and all rights of the Principal Payor under the collateral assignment shall terminate and become null and void.
Also upon default, the "Principal Payor" was obligated to pay all "costs and expenses of collection, investigation, defense and documentation thereof, including reasonable attorneys' fees" incurred by the Riads in enforcing the agreement.
Ringel was personally not a party to the Split-Dollar Agreements except for the Guaranty. The Guaranty was entered into between Ringel, the Riad family and Riad Development, and provided that Ringel agreed to personally "secure the obligations of Armstrong under the PSDA." In that vein, however, the PSDA, which was entered into between Riad Development and Armstrong Capital, provided that "[t]his Agreement and the documents referred to herein constitute the entire agreement between the parties," and "any other agreements . . . are hereby superseded and revoked." The Guaranty is not referred to in the PSDA. The PSDA does, however, refer to both the Collateral Agreement and the Letter Agreement. The Letter Agreement, which was entered into between Armstrong Capital and Riad Development, provides in paragraph 4 that "Benjamin Ringel shall guaranty Armstrong's obligations under this Agreement." Aside from the Guaranty, the PSDA itself does not have its own guaranty clause within the four corners of the document.
Faced with another shortfall of funds, Armstrong Capital further agreed, as set forth in Sections 3 and 5 of the Letter Agreement, that in connection with further reducing the purchase price of the shopping mall by $250,000, it would increase the death benefits of the Riad policy by $500,000 to $4 million within sixty days of closing and would pay the first two years of premiums up front at closing. Thereafter, the parties proceeded to close the sale of the shopping mall. Each of the four split-dollar documents signed by both parties, save the undated Collateral Agreement, was executed on October 27, 2003, the day the sale closed.
Pursuant to its obligation, Armstrong Capital provided Riad Development with two checks for $100,000, each to be advanced to the Trustees for payment to Mass Mutual for the first two years of the Riad insurance policy, years 2003 and 2004. One of those checks bounced, and on January 23, 2004, defendants were notified of their breach through plaintiffs' lawyer. When Armstrong Capital continued to be in default, on March 24, 2004, plaintiff Abdel-Rehim Riad sent a letter to Ringel directly, requesting immediate payment. When Ringel failed to send payment, the parties met on April 1, 2004, at which time Riad told Ringel that he was in breach of the Split-Dollar Agreements for failing to pay the first two years premiums up front as provided in the Letter Agreement, and demanded accelerated payments of the insurance premiums pursuant to Article 10 (the remedies provision) of the PSDA. Defendants never paid the accelerated payments and never paid the 2004 premium by the November 7, 2004 due date. Plaintiffs claim that defendants also never delivered "an acceptable $4,000,000 second-to-die life insurance policy within sixty days after closing under the Letter Agreement" that defendants promised to do in exchange for reducing the price by $250,000.*fn3 To date, defendants have only paid the 2003 premium, and plaintiffs have made the remaining payments in order to maintain the policy.
As a result of defendants' default, plaintiffs sued for breach of contract. In their answer, defendants admitted to that portion of plaintiffs' complaint which states: "Although he promised and contracted to guarantee the obligations of Armstrong Capital . . . Mr. Ringel has not paid Armstrong Capital's obligations." Because defendants essentially did not dispute liability, plaintiffs moved for summary judgment following discovery. Defendants cross-moved for summary judgment, arguing that the acceleration and forfeiture clauses of the parties' agreement were unconscionable and therefore unenforceable. Finding defendants' contractual breach undisputed, and the liquidated damages clause valid as between sophisticated, counseled businessmen who set "a reasonable estimate at the time of contracting of the true damage to be suffered by the Riads in the event that Armstrong Capital or Ringel defaulted on their contractual obligations[,]" the motion judge granted summary judgment in favor of plaintiffs. The judge concluded that defendants not only breached their contractual obligations, but as well the implied covenant of good faith and fair dealing. A subsequent order awarded plaintiffs damages in the amount of $900,000, plus interest at 18% annually, and attorneys fees and costs of $104,073.86.
On appeal, defendants raise the following issues:
I. THE TRIAL COURT ERRED BECAUSE BENJAMIN RINGEL HAS NO CONTRACTUAL RESPONSIBILITY TO GUARANTY ARMSTRONG CAPITAL'S OBLIGATIONS UNDER THE SPLIT DOLLAR DOCUMENTS.
A. THE UNAMBIGUOUS LANGUAGE OF THE GUARANTY DOES NOT IMPOSE ANY SUBSTANTIVE OBLIGATIONS ON BENJAMIN RINGEL.
B. BENJAMIN RINGEL CANNOT BE HELD LIABLE FOR ANY OBLIGATIONS UNDER THE LETTER AGREEMENT, THE PSDA, OR THE COLLATERAL ASSIGNMENT AGREEMENT.
C. THE PAROL EVIDENCE MILITATES AGAINST A FINDINGS THAT BENJAMIN RINGEL MANIFESTED ANY INTENT TO BE BOUND FOR THE OBLIGATIONS OF ARMSTRONG CAPITAL.
II. THE TRIAL COURT ERRED IN HOLDING THAT THE DAMAGES PROVISION OF THE PSDA IS ENFORCEABLE AS A MATTER OF LAW.
A. THE TRIAL COURT APPLIED THE WRONG LEGAL STANDARD.
B. EACH OF THE LIQUIDATED DAMAGES PROVISIONS OF THE PSDA AND THE STIPULATED DAMAGES PROVISIONS AS A WHOLE ARE UNENFORCEABLE AND THEREFORE CONSTITUTES AN UNENFORCEABLE PENALTY.
C. THE TOTALITY OF THE REMEDIES UNDER THE PDSA [SIC] CONSTITUTES AN UNREASONABLE, UNENFORCEABLE PENALTY.
III. THE TRIAL COURT ERRED IN REFUSING TO VACATE THE DOCKETED JUDGMENT AGAINST BENJAMIN RINGEL AND ARMSTRONG SUTTON.
We find no merit to any of these contentions.
Defendant Ringel's argument against personal liability is two-fold: that the Guaranty is revoked by the PSDA's own terms, and that in any event, the unambiguous language of the Guaranty guarantees the obligations of Armstrong Sutton, not Armstrong Capital. These arguments fail both procedurally and substantively.
In the first place, defendant failed to raise these issues in the trial court, either in his answer, counterclaims or opposition to plaintiffs' summary judgment motion, and is therefore precluded from raising them now. "Appellate courts rightly decline to consider questions or issues not presented to the trial court when an opportunity to do so was available unless the questions so raised on appeal go to the jurisdiction of the trial court or concern matters of great public interest." Solondz v. Kornmehl, 317 N.J. Super. 16, 22 (App. Div. 1998); see also Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973). Here, the issue of Ringel's personal liability on the Guaranty implicates neither a jurisdictional concern nor the public interest, and could have been properly presented below. As such, we need not consider the issue on appeal.
Even if so considered, defendant's argument fails substantively. It is undisputed that Armstrong Capital breached the agreement and indeed Ringel acknowledged that entity's liability and even admitted personally guaranteeing Armstrong Capital's obligations in his answer to plaintiffs' complaint.
Nonetheless, defendant now claims that the following language of Article 15 of the PSDA revokes the Guaranty: "[t]his Agreement and the documents referred to herein constitute the entire agreement between the parties . . . and any other agreements or understandings of any nature with respect to such matters are superceded and revoked." We disagree.
When interpreting a contract, the court's goal is to ascertain the "intention of the parties . . . as revealed [not only] by the language used," Driscoll Const. Co. v. State, 371 N.J. Super. 304, 313 (App. Div. 2004), but also "the surrounding circumstances and the relationships of the parties at the time it was entered into." Graziano v. Grant, 326 N.J. Super. 328, 342 (App. Div. 1999). In doing so, the paramount concern is to "enforce the contract as written and not make a better contract for either party." Ibid. "Even when the contract on its face is free from ambiguity, evidence of the situation of the parties and the surrounding circumstances is admissible in aid of interpretation." Great Atl. & Pac. Tea Co. v. Checchio, 335 N.J. Super. 495, 501 (App. Div. 2000).
Measured by this standard, it is clear that the Split-Dollar Agreements must be read as an integrated whole. While admittedly, the PSDA does not specifically refer to the Guaranty, the PSDA, in Articles 12 and 15, expressly permits modification and amendment by a writing signed by all the parties. In our view, the Guaranty squarely falls within this provision, as paragraph 1 of the Guaranty modifies liability under the PSDA to include Ringel personally, and paragraph 2 modifies the right of the Riads to change the terms of the PSDA.*fn4
Indeed, the fact that the Guaranty and the PSDA were executed on the same day, October 27, 2003, lends further support to the view that the PSDA was not intended to revoke the Guaranty, but that the Guaranty was intended to supplement the PSDA.
What is more, the PSDA incorporates the Letter Agreement, which contains an express provision that Ringel will personally guaranty the obligations under the Letter Agreement that echo, in many respects, the obligations in the PSDA. Yet while the Letter Agreement provides for the obligations, the PSDA provides for the remedies upon breach (as well as restating the obligations). If, as defendant suggests, the documents are read without reference to each other, Ringel would remain personally obligated to pay the annual premiums as provided in the Letter Agreement, but not personally liable to pay liquidated damages upon his breach of that obligation, clearly an incongruous result obviously not intended by the parties.
Moreover, the Letter Agreement repeatedly and explicitly states in paragraph 2 that the PSDA "shall control and govern the rights and obligations of the parties with respect to the Policy." In other words, the Letter Agreement is not a complete agreement but only plainly contemplated to operate in conjunction with the PSDA to effect this entire Split-Dollar Agreement between the parties. Therefore, it is entirely reasonable that Ringel's guarantee of Armstrong's obligations under the Letter Agreement extends to Armstrong's obligations under the PSDA.
Defendant also claims that even if the Guaranty is not revoked by the PSDA, it nonetheless provides that he guarantees only Armstrong Sutton's obligations under the PSDA and not Armstrong Capital's. His argument arises from the Guaranty's use of the term "Armstrong" without subsequent reference to "Sutton" or "Capital." This argument is specious. Armstrong Sutton has absolutely no obligations under the PSDA, as defendant himself admits. Therefore, it is quite evident that when referencing the PSDA obligations in the Guaranty, the term "Armstrong" referred to Armstrong Capital.
Thus, viewing the surrounding circumstances, including the Guaranty as a document within the family of four split-dollar documents struck on the very same day, and in light of defendant's own admission in his answer to plaintiffs' complaint that he personally guaranteed the obligations of Armstrong Capital, it was clearly the intent of the parties that Ringel guarantee Armstrong Capital's obligations under the PSDA. Accordingly, summary judgment as to defendant Ringel's breach and liability was properly entered.
We also reject defendants' argument that the liquidated damages provision is unenforceable. The trial court, finding the Split-Dollar Agreements were entered into "in connection" with the reduction in purchase price, held that the clause within, calling for the acceleration and forfeiture of $1 million, is reasonably related to the anticipated or actual costs incurred by plaintiffs. We agree with this conclusion.
The enforceability of damages provisions is a question of law decided by the court. Wasserman's, Inc. v. Twp. of Middletown, 137 N.J. 238, 248 (1994). The single test of validity for a liquidated damages clause is whether the clause is reasonable under the totality of the circumstances, assessed either at the moment of contract formation or at the time when the breach occurred. Metlife Capital Fin. Corp. v. Washington Ave. Assocs. L.P., 159 N.J. 484, 495 (1999); Wasserman's, supra, 137 N.J. at 251. Several factors inform that determination, including, but not limited to, the intent of the parties, the bargaining power of the parties, the difficulty in assessing actual damages, and the actual damages sustained. Metlife, supra, 159 N.J. at 495. For the court to find that a liquidated damages clause is an unenforceable penalty, the amount stipulated must be grossly disproportionate to the possible or actual loss suffered. Wasserman's, supra, 137 N.J. at 251; Westmount Country Club v. Kameny, 82 N.J. Super. 200, 206 (App. Div. 1964). Absent such a showing, a court will presume the liquidated damages clause is reasonable when, as here, it resulted from negotiations by sophisticated commercial parties who were represented by competent counsel. Metlife, supra, 159 N.J. at 496.
Defendants' entire argument against enforceability is premised on the notion that they undertook to loan $1 million to plaintiffs over ten years at no interest and without consideration, and therefore the acceleration and forfeiture penalty of $1 million is grossly disproportionate to the damages suffered by plaintiffs, namely the difference between the market rate of interest on such a loan and the contract rate of zero.*fn5
We find no support for this position in the record. Indeed, the motion judge found it dispositive that defendants entered into the Split-Dollar Agreements "in connection" with the reduction in purchase price. And our review of the record admits of no other conclusion but that the Split-Dollar Agreements were entered into as consideration for reducing the purchase price of the shopping mall. As such, defendants' default under the PSDA directly resulted in plaintiffs themselves having to fund the $900,0000 in premiums remaining on their life insurance policy. Because plaintiffs had reduced the purchase price of the shopping mall by the actual cost of funding such a policy, the $1 million liquidated damages amount stipulated in the contract reflects plaintiffs' reasonably anticipated or actual damages. See Wasserman's, supra, 137 N.J. at 251. Moreover, the liquidated damages amount and the default interest rate were negotiated between two sophisticated businessmen, represented by competent counsel in an arms-length transaction, and is therefore presumed valid. See Metlife, supra, 159 N.J. at 496. Under the circumstances, enforcement of the liquidated damages clause is neither unconscionable nor inequitable.
We find defendants' remaining arguments to be without merit, not warranting discussion in a written opinion. R. 2:11-3(e)(1)(E).