May 15, 2009
YALE ENTERPRISES, L.L.C. T/A RE-MAX SUBURBAN, A NEW JERSEY LIMITED LIABILITY COMPANY, PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
FRANCK AND SARKIS EUKSUZIAN, INDIVIDUALLY, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS/ CROSS-APPELLANTS,
FRANK GRUNGO,*FN1 THIRD-PARTY DEFENDANT.
On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-1885-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted January 12, 2009
Before Judges Reisner, Sapp-Peterson and Alvarez.
Plaintiff, Yale Enterprises, L.L.C., t/a Re-Max Suburban, a real estate agency, was a tenant in a building owned by defendants, Franck and Sarkis Euksuzian (the "Euksuzians"). On September 26, 2007, the court, following a jury trial, entered judgment awarding plaintiff damages against defendants. The damages were to be applied as a set-off against outstanding rent owed to defendants, as well as counsel fees. Plaintiff appeals the trial court rulings that (1) barred plaintiff from producing evidence of lost income, (2) denied plaintiff's request to charge the jury on fraud and to submit a jury question related to fraud on the verdict sheet, and (3) awarded only a portion of the counsel fees and costs sought. Defendants cross-appeal, challenging the court's ruling permitting the question of rent abatement to be presented to the jury and denying their motion to dismiss plaintiff's claim of economic duress. We reject the claims asserted in both the appeal and cross-appeal.
In July 2002, plaintiff entered into a lease agreement to rent commercial space, located at 338 Stokes Road in Medford, from defendants, to commence on October 1, 2002. The lease agreement provided that defendants would perform certain interior renovations prior to occupancy. The premises were not ready for occupancy on October 1. Thereafter, a series of amendments followed, moving the occupancy date back. On June 18, 2003, plaintiff executed an "amendment" to the parties' original lease, extending the commencement date to July 1, 2004. On August 8, 2003, it entered into a month-to-month lease with its existing landlord at 418 Stokes Road. A December 5, 2003 amendment to the agreement required that defendants obtain a certificate of occupancy (CO) before plaintiff took possession of the premises, which, under the amendment, was to be on or before July 2, 2004. By that date, however, defendants had not secured the CO. A July 27, 2004 addendum provided that the commencement date would be amended to January 1, 2005, and pursuant to a subsequent addendum dated February 28, 2005, plaintiff did not commence its occupancy of the premises until March 1, 2005. At the time plaintiff took possession, defendants had not acquired a CO.
Under the terms of the lease, for the first three years of occupancy, plaintiff agreed to pay $60,000 in annual rent, payable in twelve monthly installments of $5000 on the first day of each month commencing the first month of occupancy. For the fourth and fifth years of the lease, plaintiff agreed to pay $80,000 in annual rent, payable at the rate of $6667 per month.
In addition, plaintiff also agreed to be responsible for all of the real estate taxes. Although plaintiff took occupancy of the property on March 1, 2005, it did not commence making the requisite rent payments or tax payments because defendant had not yet obtained a CO or made the necessary improvements.
On March 2, the Medford Township Construction Code Official issued a Notice of Violation and Order to Terminate to defendant pursuant to N.J.A.C. 5:23-2.23(b).*fn2 Six days later a Notice of Unsafe Structure was issued to defendant. On March 14, 2005, plaintiff's principal, third-party defendant, Frank Grungo, received a Notice and Order of Penalty charging him with failure to comply with the order to vacate the premises. N.J.A.C. 5:23-2.31(b)iii. Grungo appealed the citation to the Burlington County Construction Board of Appeals, which upheld the Notice of Penalty and $2000 weekly penalty for continued non-compliance.
Plaintiff then filed a Complaint in Lieu of Prerogative Writs in the Law Division.*fn3
Defendants then commenced an action in the Law Division, Special Civil Part, for summary dispossession against plaintiff based upon plaintiff's non-payment of rent. Grungo filed a motion seeking to transfer the Special Civil Part matter to the Law Division, which the court granted. On July 5, 2005, plaintiff filed a complaint alleging breach of contract, breach of the duty of good faith and fair dealing, anticipatory breach, negligence, and equitable fraud. Defendants subsequently filed their answer denying the allegations, asserting a counterclaim alleging that plaintiff breached the terms of the lease agreement, breached the covenant of good faith and fair dealing, and asserting a claim of guaranty against plaintiff and Grungo based upon their contention that plaintiff and Grungo "had personally guaranteed the payment obligations as set forth in the Lease and other agreements."
In May 2007, the court entered an order directing plaintiff to deposit $136,172 into Superior Court, which the parties agreed represented past due rent and taxes.
During the discovery period, defendants served upon plaintiff document requests and propounded interrogatories. The discovery sought included a request for "all documents that concern any of the damages claimed by the responding party" and to specifically itemize and quantify the "(1) business interruption damages[,] (2) loss of profits[,] and (3) loss of income to which plaintiff refers in the Complaint." Plaintiff provided one document entitled "Analysis of Lost Revenue" that was unaccompanied by any supporting documentation. With respect to defendants' specific request for gross and net income, employee composition, gross commissions, agent or brokerage agreements, and real estate transactions for the period 1998 through 2005, plaintiff objected to the question as being "overbroad, burdensome and irrelevant."
The court conducted a case management conference on November 13, 2006. Following the conference, the court entered an order dated November 16, directing that "[t]here shall be no expert reports nor expert witnesses in this case[.]"
One week prior to trial, defendants filed a motion in limine seeking to bar the introduction of any evidence related to lost revenues or profits occasioned by the delay in the opening of plaintiff's office. The court ruled that it would permit testimony that plaintiff's sales associates "went elsewhere because [the office] wasn't open[,]" but plaintiff would be precluded from presenting testimony, including expert testimony and reports, that "so many dollars in profit[s]" were lost "because of [the agent's] failure to join [plaintiff,]" as plaintiff had failed to "provide the defendant[s] with an opportunity to review the business records and make a determination as to what the impact of any of this lost income stream would be to that business."
At trial, once plaintiff concluded the presentation of its case, defendants moved to dismiss plaintiff's claims of economic duress surrounding the occupancy extensions to which plaintiff agreed in the three addenda to the lease. Defendants argued that on the breach of contract claim, plaintiff had "no viable damage item" to present to the jury because "we have 1, 2, 3 signed extensions each without any indication that rights were being reserved or any discussion of I'm going to come back at you, I'm signing this now but I'm coming back at you later." The court, affording every favorable inference to plaintiff, denied the motion.
Upon the completion of the testimonial stage of the trial, the court conducted a charge conference.*fn4 During the conference, the court denied plaintiff's application to amend the pleadings to reflect a claim for equitable fraud. Additionally, the court, over defendants' objection, permitted the issue of rent abatement and a specific jury instruction on rent abatement to be submitted to the jury. After concluding its deliberations, the eight deliberating jurors returned their verdict, unanimously finding that plaintiff proved its claim of breach of contract and that defendants' material breach caused damages to plaintiff in the form of: (1) fines and penalties paid to Medford Township for occupancy prior to the issuance of the CO; (2) unreimbursed costs expended by plaintiff for improvements to the leased premises; and (3) excess rent paid by plaintiff to its former landlord at 418 Stokes Road through February 28, 2005. The jury unanimously awarded plaintiff: (1) $16,000 for the breach of contract causing plaintiff to pay fines and penalties to Medford Township; (2) $25,000 for unreimbursed costs expended for improvements over and above the $33,000 in expenditures defendants acknowledged plaintiff had expended; and (3) $40,000 for excess rent plaintiff incurred at its previous 418 Stokes Road location. The jury also unanimously found that 338 Stokes Road was uninhabitable for five months and that the rent plaintiff owed to defendants for that period should be abated by fifty percent. Finally, the jury unanimously found that plaintiff should not be required to pay any late charges required by the terms of the lease agreement.
Prior to the entry of final judgment, both parties moved for counsel fees. The court denied defendants' counsel fee application, but awarded $41,281.60 in counsel fees to plaintiff. The court entered final judgment, with both sides consenting to the form of the judgment. The present appeal followed.
Plaintiff raises the following points for our consideration:
THE PLAINTIFF/APPELLANT, YALE[,] SHOULD HAVE BEEN PERMITTED THE OPPORTUNITY TO PRESENT EVIDENCE OF LOST INCOME AND/OR REVENUE TO THE JURY ON THE ISSUE OF DAMAGES.
THE JURY SHOULD HAVE BEEN CHARGED ON THE ISSUE OF FRAUD AND BEEN PRESENTED WITH THE APPROPRIATE JURY VERDICT SHEET QUESTIONS.
PURSUANT TO THE FEE SHIFTING PROVISIONS OF THE LEASE AGREEMENT[,] YALE WAS ENTITLED TO THE AWARD OF COUNSEL FEES AND COSTS IN THE AMOUNT OF $81,776.76.
Defendants, in their cross-appeal, raise the following points:
THE TRIAL COURT COMMITTED REVERSIBLE ERROR IN ALLOWING THE ISSUE OF RENT ABATEMENT TO GO TO THE JURY.
THE TRIAL COURT COMMITTED REVERSIBLE ERROR IN FAILING TO DISMISS PLAINTIFF'S CLAIM OF ECONOMIC DURESS IN SIGNING AGREEMENTS EXTENDING COMMENCEMENT DATE OF THE LEASE.
Plaintiff argues that the jury should have been presented with evidence of lost income and/or revenue and that the court erred in barring this evidence from being presented to the jury. Defendants contend that because plaintiff entered into a consent judgment, it has waived its right to appeal the court's ruling on lost income and/or revenue. We disagree.
The post-verdict negotiations between the parties addressed the final numbers as they related to offsets for unpaid rent, taxes and fines. While the parties reached an agreement on the mathematical calculations for the various set-offs there was no settlement reached by the parties on all issues. The consent judgment merely represented an agreement to the form of the order.
Nonetheless, the court properly excluded the proffered testimony on lost profits. Plaintiff failed to provide the discovery sought on this issue despite very specific document requests and interrogatories seeking information on lost income and revenue. Additionally, the November 16, 2006 case management order made very clear that there would be no experts or expert reports submitted.
Further, defendants' proffer of three fact witnesses to testify that they would have come to work for plaintiff had the premises been ready earlier, was properly rejected by the court in view of plaintiff's previous failure, despite discovery requests, "to provide the defendant[s] with an opportunity to review the business records and make a determination as to what the impact of any of this lost income stream would be to that business." Defendants' request for "all documents that concern any of the damages claimed by the responding party" would, of necessity, include the documents establishing the gross commissions these three proposed fact witnesses earned. The court inquired of plaintiff's counsel whether any such documentation had been provided, to which plaintiff's counsel conceded that the only document proffered in this regard was the "Analysis of Lost Profits" purportedly prepared by plaintiff's unnamed accountant based upon information provided by plaintiff.
The decision to admit or exclude evidence during a trial is committed to the sound discretion of the trial judge and will not be disturbed on appeal absent a showing of a mistaken exercise of that discretion. Verdicchio v. Ricca, 179 N.J. 1, 34 (2004); Green v. N.J. Mfrs. Ins. Co., 160 N.J. 480, 492 (1999); State v. Simon Family Enters., L.L.C., 367 N.J. Super. 242, 257 (App. Div. 2004). We find no palpable abuse of the trial judge's discretion when it excluded evidence of lost income and/or revenue. Green, supra, 160 N.J. at 492.
Plaintiff next urges that the jury should have been charged on the issue of fraud, with the verdict sheet properly reflecting that claim. We disagree.
Plaintiff's complaint pled equitable fraud, but at the conclusion of the trial, plaintiff sought to amend the pleadings to allege legal fraud. The court precluded such an amendment, finding that to amend the complaint to plead common law fraud would be unfair at that point in the trial:
The Court ultimately finds that to change the clear and specific language of Count 5[,] equitable fraud, would be inappropriate, and essentially would leave the defendants' hands strung in a position where they could not [defend] themselves against a claim, which was not specifically pled, as required by the rule, as required by the case law, and as the Court feels is in a sense of fair dealing.
It is well beyond the [pale] of liberal interpretation to create a cause of action that is not pled in the complaint and has not been otherwise brought forth to the defendants. There are separate and distinct counts[,] being fraud and equitable fraud, and the court finds, in the interest of justice, that to allow this complaint to be amended in the midst of trial, would be inappropriate and unjust and certainly would create a - - or would violate any good sense of fair dealing.
Rule 4:9-2 permits the amendment of a cause of action to conform to the evidence adduced at trial. The decision to permit such an amendment is committed to the court's broad discretion and is required to be liberally exercised. Kernan v. One Washington Park, 154 N.J. 437, 457 (1998). Where, however, there is objection to the amendment as "beyond the issues as framed," as defendant argued here, the court's broad discretion must be exercised with consideration of whether the opposing party had the opportunity to defend against the claim. See Rivera v. Gerner, 89 N.J. 526, 536-37 (1982).
As the court observed, plaintiff's claim of fraud, whether legal or equitable, was not pled with specificity. Rule 4:5-8 requires that where fraud is alleged, the "particulars of the wrong, with dates and items if necessary, shall be stated insofar as practicable[.]" In the complaint, plaintiff alleged that defendants failed to perform their duties under the lease agreement. The trial judge found that this blanket statement in the pleadings did not satisfy the specificity requirements for pleading legal fraud, defined as consisting of "a presently existing or past fact, made with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance by that party to his detriment." Bonnco Petrol, Inc. v. Epstein, 115 N.J. 599, 609 (1989) (quoting Jewish Ctr. of Sussex Co. v. Whale, 86 N.J. 619, 624-25 (1981) (citations omitted)). We conclude that based upon the generalized allegations in the complaint, the court did not abuse its discretion in denying plaintiff's application to submit the fraud claim to the jury.
Finally, plaintiff claims that it was entitled to an award of the full $81,776.61 in counsel fees sought rather than the $41,281.60 the court awarded. We reject this contention in its entirety.
Under the terms of the lease agreement between the parties, counsel fees may be recovered under the following circumstances: "Should any action, proceeding, or lawsuit be brought by either party against the other in order to enforce any of the provisions hereof, the successful party shall be entitled to collect the cost of attorney's fees as fixed by the court in said action or proceeding." The court found that plaintiff was only partially successful and declined to award counsel fees for services performed prior to trial counsel's substitution into the case in October 2006. The court concluded that the net amount of billings for the services performed going forward from October 2006 was $51,602 and determined that plaintiff was entitled to an award of eighty percent of those fees.
In our view, since the lease agreement clearly provided that the amount of counsel fees to be awarded would be "fixed by the court," the agreement contemplated that the appropriate amount would be committed to the court's sound discretion. An award of counsel fees is only disturbed upon a clear abuse of discretion. Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 444 (2001) (citing Rendine v. Pantzer, 141 N.J. 292, 317 (1995)). We discern no such abuse on this record.
In their cross-appeal, defendants contend the court committed reversible error in permitting the issue of rent abatement to go to the jury and in failing to dismiss plaintiff's claim of economic duress in signing the addenda that extended the three occupancy dates. We disagree.
The litigation between the parties originally commenced with a summary dispossession action in the Special Civil Part for non-payment of rent. Such actions are summary in nature with no discovery exchanged between the parties in order to "enable the landlord to obtain speedy recovery of the premises." Fargo Realty, Inc. v. Harris, 173 N.J. Super. 262, 267 (App. Div. 1980). What typically occurs in summary proceedings is that "the tenant will submit proofs relating to the condition of the premises during the period in which the tenant withheld rent and the trial judge will calculate the abatement accordingly." C.F. Seabrook Co. v. Beck, 174 N.J. Super. 577, 589 (App. Div. 1980). This approach "fits within the definition of a recoupment in that the habitability defense grows out of the identical transaction which furnished the landlord's cause of action." Ibid.
Thus, the critical inquiry here is not whether the habitability defense was asserted as an affirmative defense but whether it arose out the identical transaction and whether the landlord had notice of the complained defect in order to be afforded the opportunity to correct the condition if correction is warranted. "Without some notice a landlord can neither attempt to repair the defects nor rebut the tenant's evidence regarding habitability." Id. at 592.
There is no dispute that the habitability of the premises arose out of the same transaction. Nor is there any dispute that defendants had notice of plaintiff's claims. Defendants were fully aware that no CO had been issued, certain agreed upon improvements had not been completed, and that plaintiff undertook to make these improvements. Because the summary dispossession action had been transferred to the Law Division for disposition together with plaintiff's claims, we find no error in the court submitting the issue of abatement to the jury without a specifically pled affirmative defense of habitability. Id. at 593 (holding as a "prerequisite to asserting a habitability defense the landlord must either know of the defective conditions or have been notified of it by the tenant").
Finally, defendants contend the court erred in denying their motion to dismiss plaintiff's claim of economic duress at the end of the presentation of plaintiff's case. The court, viewing the evidence most favorably towards plaintiff, found that there was sufficient evidence in the record from which the jury could conclude that defendant knew that timely occupancy "was an essential fact toward making this deal complete," and that defendants' actions left plaintiff with "no alternative but to act as [it] did."
Dismissal of plaintiff's claim of economic duress at the end of the presentation of its case was only warranted if the trial judge was convinced, after affording plaintiff all favorable inferences, that no rational jury could conclude from the evidence that the elements of economic duress were not present. See Pitts v. Newark Bd. of Educ., 337 N.J. Super. 331, 340 (App. Div. 2001). In Woodside Homes, Inc. v. Morristown, 26 N.J. 529, 544 (1958), the Court stated that the elements of economic duress require "an assent by one party to an improper or wrongful demand by another under circumstances in which the former has little choice but to accede to the demand, i.e., 'to do what he otherwise would not have done.'" Ibid. (quoting S.P. Dunham & Co., v. Kudra, 44 N.J. Super. 565, 570 (App. Div. 1957)). Here, plaintiff presented proofs that after defendants failed to make the premises available in accordance with the terms of the original lease, it remained as a holdover tenant in its then leased premises, later became a month-to-month tenant, but was eventually evicted. Plaintiff claimed that it had no other alternative but to commence occupancy of the premises.
Our standard of review of a trial court's denial of a motion for dismissal made at the close of plaintiff's proofs requires that we accept as true all evidence supporting plaintiff's claims and accord them all legitimate inferences which could be reasonably deduced from that evidence. Dolson v. Anastasia, 55 N.J. 2, 5-7 (1969). We thereafter determine whether the evidence thus construed could sustain a judgment in plaintiff's favor. Ibid. If reasonable minds could have differed as to the outcome, the motion was properly denied. Id. at 5. Applying that legal standard here, defendants' arguments have no merit.