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Law Offices of Fedderly v. Skoda

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 15, 2009

LAW OFFICES OF DONALD P. FEDDERLY, PLAINTIFF-APPELLANT,
v.
MARC M. SKODA & FRANK S. EVANS, A GENERAL PARTNERSHIP, DEFENDANT-RESPONDENT.

On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-456-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued February 10, 2009

Before Judges Parker, Yannotti and LeWinn.

Plaintiff Law Offices of Donald P. Fedderly appeals from an order granting defendants' motion for summary judgment and denying his cross-motion for summary judgment.

This action arises out of a commercial lease agreement entered into by the parties in November 1994. Plaintiff is a lawyer who requested that the defendants-landlords advise him when additional space became available in the building. The lease agreement included a right of first refusal for such space.

Over plaintiff's twelve-year tenancy, space became available but defendants never offered plaintiff a right of first refusal, nor did plaintiff pursue defendants for additional space during the tenancy. Plaintiff exercised all of his renewal options, the last of which expired on November 30, 1999. Thereafter, the lease was changed in writing to a year-to-year lease with the "exact terms and conditions of the old lease" applicable to the one-year extensions. The final lease extension expired on November 30, 2003 and defendants advised plaintiff that they intended to lease plaintiff's space to Wachovia Insurance Agency (Wachovia). Plaintiff then agreed to a month-to-month tenancy and defendants agreed not to raise plaintiff's rent during the month-to-month tenancy.

On January 30, 2006, defendants sought to have plaintiff sign a "notice of termination/mutual release/notice to vacate" by May 1, 2006. Plaintiff declined to sign the notice. On April 10, 2006, however, plaintiff notified defendants that defendants' failure to extend the right of first refusal for available space "estopped defendants from compelling plaintiff to vacate."

On April 13, 2006, defendants sent plaintiff five invoices for additional rent due, totaling $4,020.06. These invoices were for increases in real estate taxes from 2000 to 2005. On April 20, 2006, defendants sent additional invoices totaling $6,127.56, for increases in utilities, maintenance and other building costs.

Plaintiff then filed suit in Morris County, Chancery Division, General Equity Part, seeking to enjoin the May 1 notice to vacate. On May 11, 2006, the Chancery Division denied plaintiff's request for injunctive relief and found that the right of first refusal expired when he became a month-to-month tenant. Defendants counterclaimed, seeking possession of plaintiff's leased space, enhanced rent pursuant to N.J.S.A. 2A:42-6, additional rent and counsel fees. The parties entered a consent order on June 13, 2006, whereby plaintiff agreed to vacate the space by June 30, 2006. On February 13, 2007, the matter was transferred to the Law Division and ultimately referred to arbitration on the damages claims in June 2007.

The arbitrator rejected defendants' claim for additional rent, counsel fees and costs. Defendants were awarded a total of $3,500 as double rent for the months of May and June 2006 and $700 in legal fees.

Defendants moved for trial de novo and the parties cross-moved for summary judgment. The Law Division entered the order granting defendants' motion for summary judgment on April 16, 2008, and awarded defendants $3,500 plus interest in double rent, $11,068.96 plus interest in additional rent and $32,908 in counsel fees and costs. The court appended a statement of reasons in which it stated:

The court can find no reason why Mr. Fedderly could have logically had a good faith belief that paragraph 39*fn1 of the lease entitled him to legally holdover lease assuming arguendo that the plaintiff did still have the right of first refusal, the right to expand is not equivalent to a right to holdover [sic].

The court further noted with respect to additional rent, that paragraph 30, which set forth the bases for additional rent, is not ambiguous and "the [l]andlord's failure to exercise any right under the lease is not to be deemed to be a waiver or relinquishment of any rights and that those rights are cumulative and may be exercised in full force. That the defendants did not make a claim for these additional rents until plaintiff brought suit is of no moment."

It is from that April 16, 2008 order that plaintiff appeals and argues:

POINT ONE

THE CHANCERY DIVISION ERRED IN HOLDING THAT PLAINTIFF'S RIGHT OF FIRST REFUSAL WAS EXTINGUISHED WHEN PLAINTIFF BECAME A MONTH-TO-MONTH TENANT; THE 1947 E&A CASE IS NOT GOOD LAW ACCORDING TO THE CONNECTICUT SUPREME COURT AND OTHER JURISDICTIONS, AND SHOULD BE OVERTURNED IN NEW JERSEY AND IS OTHERWISE DISTINGUISHABLE

POINT TWO

THE LAW DIVISION ERRED IN DENYING PLAINTIFF'S MOTION TO FILE AN AMENDED PLEADING (WITH AN ADDITIONAL COUNT REGARDING DEFENDANTS' VIOLATION OF THE PARTIES' CONSENT ORDER)

POINT THREE

THE TRIAL COURT MISUNDERSTOOD PLAINTIFF'S "RIGHT OF FIRST REFUSAL" CLAIM, AND IMPROPERLY PENALIZED PLAINTIFF FOR HAVING ASSERTED THE CLAIM

POINT FOUR

THE TRIAL COURT ERRED IN AWARDING DEFENDANTS $11,068.96 FOR THE RETROACTIVE "ADDITIONAL RENT" CHARGES WHICH DEFENDANT SERVED EN MASSE ON PLAINTIFF AT THE END OF THE LEASE

POINT FIVE

THE TRIAL COURT'S AWARD OF NEARLY NEARLY [SIC] $33,000.00 FOR FEES AND COSTS WAS EXCESSIVE AND NOT IN ACCORD WITH THE PARTIES' LEASE

POINT SIX

PLAINTIFF BROUGHT ITS ACTION IN GOOD FAITH; IT WAS THUS UNFAIR TO PENALIZE PLAINTIFF WITH "DOUBLE RENT" FOR THE FINAL TWO MONTHS DURING WHICH PLAINTIFF ASSERTED ITS LEGAL CLAIMS

Plaintiff first argues that the Chancery Division erred because his right of first refusal should have survived the lease's transition from a yearly to month-to-month tenancy. Plaintiff contends (1) the Chancery Division erred in applying Andreula v. Slovak Gymnastic Union, 140 N.J. Eq. 171 (E. & A. 1947); and (2) that, "[e]ven if Andreula is not overturned" it is distinguishable because this case involves a right of first refusal and not an option to purchase.

In Andreula, the Court held that "[a]n option to purchase contained in a written lease cannot be exercised after the expiration of the written lease by a tenant holding over since it is a collateral contract, independent of the lease." 140 N.J. Eq. at 174 (emphasis added). The Court further noted that it is "the duty of one seeking to enforce an option to . . . tender full performance before expiration of the lease, and that the failure to do so . . . was a bar to the remedy of specific performance." Ibid. (citing Schaefer v. Thompson, 237 N.Y. 55 (1923)). The question then is whether a holdover month-to-month tenant, can enforce his right to first refusal after the written lease expired on December 1, 2003. In our view, he cannot.

A right of first refusal is not an option contract because it is not an offer and does not create a power of acceptance. 3 Corbin on Contracts §11.3 (Perillo ed. 1996). Rather, a right of first refusal creates "a contractual right to 'preempt' another." Ibid. A right of first refusal is also subject to an agreed upon precedent. Ibid. When the condition precedent is satisfied, the right of first refusal is "triggered" and "ripens" into an option. Ibid. That option "can be exercised like any other option contract." Ibid.

A lessor must notify the lessee right-holder of the lessor's "receipt of a third-party offer and of the decision to accept it." Ibid. "Failure to do so entitles the [lessee] [right-]holder to legal and equitable remedies (as in the case of an option contract) such as damages or specific performance." Ibid.

Here, we find no error in the Chancery Division extending Andreula to plaintiff's right of first refusal. Under Andreula, an option to purchase does not survive expiration of the written lease. 140 N.J. Eq. at 174. Similarly, a right of first refusal, which ripens into an option contract, does not survive expiration of a written lease because (1) a right of first refusal is a collateral agreement, independent of the lease and concerns only additional space and not the leased space; and (2) plaintiff's right of refusal only applied if plaintiff wished to increase his leasehold during the written lease term. There is nothing in the record to suggest that plaintiff ever sought to increase his leasehold or that defendants breached their duty. Plaintiff's counsel acknowledged that defendants informed plaintiff in writing about additional space, but counsel could not recall whether plaintiff ever made a written demand for additional space. Accordingly, plaintiff is not entitled to any damages or specific performance on the right of first refusal. 3 Corbin on Contracts §11.3 (Perillo ed. 1996).

Plaintiff next argues that the Law Division erred in denying his motion to amend the complaint and his motion for reconsideration. Plaintiff maintains that he should have been permitted to amend his complaint because defendants violated the parties' June 13, 2006 consent order. Plaintiff does not provide any legal or factual support for this argument, however.

Under Rule 4:9-1, "a party may amend a pleading only by written consent of the adverse party or by leave of court which shall be freely given in the interest of justice." (Emphasis added.) "Nevertheless, amendment remains a matter addressed to the court's sound discretion." Pressler, Current N.J. Court Rules, comment 2.2.1. on R. 4:9-1 (2009) (citing Kernan v. One Washington Park, 154 N.J. 437, 457 (1998)). "The denial of a motion to amend is also suitable when made on the eve of trial." Id. at comment 2.2.2 on R. 4:9-1 (2009) (citing Morales v. Academy of Aquatic Sc., 302 N.J. Super. 50, 56 (App. Div. 1997)). A decision to deny a motion for amendment to a complaint is addressed to the sound discretion of the court and will be reversed on appeal only if an "abuse" or "mistaken exercise" of that discretion is shown. Fusco v. Bd. of Educ. of City of Newark, 349 N.J. Super. 455, 462 (App. Div. 2002).

Plaintiff moved to amend his complaint on August 22, 2007, more than a year after the alleged damages occurred. He failed to allege any specific loss or damages and made the motion within three months of the scheduled trial date. Under these circumstances, we find no abuse of discretion in the Law Division's denial of the motion to amend. Plaintiff's motion for reconsideration was properly denied. R. 4:49-2.

Plaintiff further argues that the trial court erred in awarding defendants $11,068.96 in additional rent charges for two reasons: (1) the trial court misunderstood his right of first refusal claim and improperly penalized him for asserting it; and (2) defendants' additional rent charges violated the "spirit and letter of the parties' lease."

Plaintiff maintains that the lease did not intend "to provide an opportunity for [defendants] to single out a particular tenant and suddenly charge it with years of retroactive 'additional rent' charges." Rather, plaintiff argues that the lease "clearly anticipated that any such 'additional rent' would be assessed as it became due, with written notice and appropriate documentation."

The question with respect to the additional rent charges is whether defendants were required to bill plaintiff when it incurred the charges. Plaintiff argues that the lease "clearly indicates" that additional rent was to be charged when it became due. Defendants, however, maintain that its claim for six years retroactive additional rent is permissible under paragraphs 23 and 30.

Paragraph 23 provides:

The various rights, remedies, options and elections of the Landlord, expressed herein, are cumulative, and the failure of the Landlord to enforce strict performance by the Tenant of the conditions and covenants of this lease or to exercise any election or option or to resort or have resources to any remedy herein conferred or the acceptance by the Landlord of any installment of rent after any breach by the Tenant, in any one or more instances, shall not be construed or deemed to be a waiver or a relinquishment for the future by the Landlord of any such conditions and covenants, options, elections or remedies, but the same shall continue in full force and effect.

Paragraph 30 provides:

Additional Rent - The Tenant understands that the rent as outlined in Paragraph 1 includes base rent, real estate taxes, electric, external maintenance and the interior common area expenses incurred by the Landlord for the base year of this Lease.

The base year for purposes of this Lease shall be the calendar year 1994.

In addition to the foregoing rent reserved, the Tenant shall contract and pay for the janitorial services utilized by it for cleaning the interior of its own offices during the course of its business.

Tenant agrees that it is its obligation to pay, as additional rent, its proportionate share of any increases over the base year cost of the following items and services for the building complex known as Northwest Professional Building which include but are not limited to:

a) the municipal assessments imposed against the premises (real estate taxes, water and sanitary sewer charges, etc.),

b) the cost of property maintenance (elevator and sprinkler maintenance, heating and cooling equipment maintenance, snow removal and landscaping);

c) the cost of fire, liability, boiler or any other insurance coverage considered necessary and prudent by the Landlord to protect the building and the interest of the Landlord

d) the energy charges for the heating of the entire building and electric for the entire building and parking lot;

e) the garbage disposal (dumpster) available to tenants of the building; and

f) the janitorial services for the common areas of the building

Not included in the operating costs are any management fees, accounting fees, real estate brokerage commissions or legal fees incurred by the Landlord or capital improvement expenditures for the property. Such additional charges imposed on the property or incurred by the Landlord shall become additional rent hereunder whether or not the same be designated as such. Landlord shall notify tenant of such additional rent, in writing, and Tenants share shall be due and payable on demand or together with the next succeeding installment of the rent reserved. Landlord shall have the same remedies for failure to pay such additional rent as for the nonpayment of rent reserved. Additional rent shall also include any rent tax which is now or may be chargeable against the demised premises.

In requesting payment of such additional rent, the Landlord shall supply to the Tenant documentation pertaining to such charges including the base year costs and the calculations as to Tenant's share.

Tenant's proportionate share is .026%

The Law Division found that paragraph 30 was unambiguous and that paragraph 23 made these rights cumulative, allowing defendants to exercise them in full. The court concluded that "defendants fully complied with the requirements necessary to assess and bill plaintiff for 'additional' rent," and the fact that defendants did not bring claims for additional rent until plaintiff filed suit was of "no moment."

Defendants charged plaintiff additional rent on January 12, 2000, for increases in real estate taxes during 1999. Defendants did not, however, bill plaintiff for additional rent for the years 2000 through 2005 until April 2006. The Law Division ordered plaintiff to pay defendants $11,068.96 in additional rent, plus interest in the amount of $1,123.94, and post-judgment interest in the amount of $2.45 per day from 2000.

After carefully reviewing the record, however, we are convinced that defendants waived their entitlement to additional rent from 2000 to 2004 because they did not bill plaintiff for those charges when they were incurred. The April 2006 billing is warranted for the 2005-2006 additional rent, because it was billed within a reasonable time of defendants' incurring those charges. Consequently, the correct amount of additional rent is $3,620.83, plus pre- and post-judgment interest,*fn2 representing additional rent for 2005-2006.

Plaintiff further contends that it was unfair to penalize him with double rent in the amount of $3,500, plus pre- and post-judgment interest because he brought his action in good faith. He again argues that the trial court misunderstood his argument and that Andreula is not applicable to this case. Plaintiff does not provide any legal or factual support for his argument, however, and as we have previously indicated, the court correctly extended Andreula to the right of first refusal.

A tenant who willfully holds over may be subject to the "double rent" penalty pursuant to N.J.S.A. 2A:42-6, which provides:

When a tenant for any term or any other person coming into possession of any real estate by, from or under, or by collusion with such tenant, willfully holds over any such real estate after the determination of such term and after demand made and notice in writing for delivering the possession thereof, given by his landlord or lessor, or by the person to whom the remainder or reversion of such real estate shall belong, the person so holding over shall, for and during the time he so holds over or keeps the person entitled out of possession of such real estate pay to the person so kept out of possession, his executors, administrators or assigns, at the rate of double the yearly value of the real estate so detained, for so long a time as the same is detained. Such amount shall be recoverable by an action in any court of competent jurisdiction.

[N.J.S.A. 2A:42-6.]

A holdover tenant can avoid the double rent penalty only if his reason for holding over is "honest" and "bona-fide." Ancona Printing Co. v. Welsbach Co., 92 N.J.L. 204, 207 (E. & A. 1918). "'A tenant cannot relieve himself by the mere statement that he believed he had a right to hold the premises. He must furnish reasons sufficient to induce a jury or court hearing the case to believe he had a right to remain in possession.'" Ibid. (citing 16 R.C.L. 1171, § 692). The Law Division's findings on this point are supported by substantial credible evidence and relevant law. R. 2:11-3(e)(1)(A).

Finally, plaintiff argues that the trial court erred in awarding nearly $33,000 in legal fees and costs. "'[F]ee determinations by trial courts will be disturbed only on the rarest of occasions and then only because of a clear abuse of discretion.'" Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 443-44 (2001) (quoting Rendine v. Pantzer, 141 N.J. 292, 317 (1995)). Each party is generally required to pay its own attorneys' fees under the "American Rule." Kellam Assocs., Inc. v. Angel Props., LLC, 357 N.J. Super. 132, 138 (App. Div. 2003) (citing Rendine, supra, 141 N.J. at 322).

Rule 4:42-9(a) provides for several exceptions to this rule, however. "While a contractually-based claim . . . does not fall within any of the designated exceptions, the rule does not preclude a party from agreeing by contract to pay attorneys' fees." Kellam, supra, 357 N.J. Super. at 138 (citing Community Realty Management, Inc. v. Harris, 155 N.J. 212, 234 (1998); Satellite Gateway Comm. v. Musi Dining Car Co., 110 N.J. 280, 286 (1988)). "Because of the general policy disfavoring fee-shifting arrangements, however, contractual provisions establishing such arrangements are strictly construed." Ibid. (citing McGuire v. City of Jersey City, 125 N.J. 310, 326-27 (1991)). Here, the lease expressly provided for plaintiff to pay defendants' legal fees in the event of a breach.

"In determining the reasonableness of a counsel fee award, the threshold issue 'is whether the party seeking the fee prevailed in the litigation.'" Packard-Bamberger, supra, 167 N.J. at 444 (quoting N. Bergen Rex Transp. v. Trailer Leasing Co., 158 N.J. 561, 570 (1999)). The New Jersey Supreme Court established a two-prong test to determine whether the party seeking fees was a prevailing party. Ibid.

Under the first prong, the litigant seeking fees must establish that the "'lawsuit was causally related to securing the relief obtained; a fee award is justified if [the party's] efforts are a "necessary and important" factor in obtaining the relief.'" Ibid. (citing N. Bergen Rex Transp., supra, 158 N.J. at 570)(quoting Singer v. State, 95 N.J. 487, 494, cert. denied, 469 U.S. 832, 105 S.Ct. 121, 83 L.Ed. 2d 64 (1984)). The party seeking fees under the first prong, therefore, must "demonstrate a factual nexus between the pleading and the relief ultimately recovered." Ibid. (citing N. Bergen Rex Transp., supra, 158 N.J. at 570).

Under the second prong, the party seeking fees is required to prove that "'the relief granted has some basis in law.'" Ibid. (quoting N. Bergen Rex. Transp., supra, 158 N.J. at 571). "The party seeking fees need not obtain all relief sought, but there must be a resolution of some dispute that affected the defendant's behavior towards the prevailing plaintiff." Ibid. (citing N. Bergen Rex. Transp., supra, 158 N.J. at 571).

We are satisfied that defendants met both prongs of the Packard-Bamberger test and that the Law Division properly found that defendants were entitled to legal fees under paragraph 28 of the lease.

Accordingly, we affirm the order of April 16, 2008, except to modify the amounts due and owing under paragraph 2 of the order. We remand for amendment of the April 16, 2008 order in accordance with this opinion.

Affirmed as modified; remanded for amendment of the order.


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