July 31, 2009
ADVANCE RESIDENTIAL COMMUNITIES, L.L.C., PLAINTIFF-RESPONDENT,
CLARK I. HAMILTON AND CHASE PARTNERS, L.L.C., DEFENDANTS-APPELLANTS, AND ARC CHASE PARTNERS, L.L.C., ARC MORRIS PLAINS, L.L.C. AND ARC UNION, L.L.C., DEFENDANTS.
CLARK I. HAMILTON AND CHASE PARTNERS, L.L.C., THIRD-PARTY PLAINTIFFS,
ADVANCE REALTY GROUP, L.L.C., GREGORY SENKEVITCH, PETER COCOZIELLO, ARG AT MADISON II, L.L.C., ARC HACKENSACK, L.L.C., ADVANCE AT BRANCHBURG II, L.L.C., ADVANCE REALTY DEVELOPMENT, L.L.C., ARC HARRISON, L.L.C., ARC HARRISON II, L.L.C., ADVANCE AT HARRISON, L.L.C. AND ARC CHASE PARTNERS STAMFORD, L.L.C., THIRD-PARTY DEFENDANTS.
On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. C-92-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 10, 2009
Before Judges Skillman, Grall and Ashrafi.
This appeal is from orders enforcing a settlement agreement resolving litigation between real estate developers concerning their numerous joint ventures. The developers, collectively the parties, are plaintiff Advance Residential Communities, L.L.C. (ARC) and its affiliate Advance Realty Group, L.L.C. (ARG) and defendants Chase Partners, L.L.C. (Chase) and its owner and principal Clark I. Hamilton.*fn1 The disputes that led to the initial litigation are not at issue.
Chase and Hamilton appeal from orders entered on May 23 and June 16, 2008. The first directs Hamilton to execute a contract of purchase and sale for property in Union, New Jersey. The Union property is held by ARC and Chase through ARC Union, L.L.C. (Union, L.L.C.), and the contract contemplates a sale by Union, L.L.C. to Avalon Bay Communities, Inc. (Avalon). The second directs amendment of the purchase and sale contract to reference an option to buy granted to Chase by ARC in the settlement agreement.
Chase and Hamilton contend that the trial court's orders are based on an erroneous interpretation of the parties' settlement agreement. We agree.
Since the notice of appeal was filed circumstances have changed. On July 7, 2008, the trial court appointed an attorney to execute the contract of purchase and sale on behalf of Hamilton pursuant to Rule 4:59-2(a). Although Avalon terminated that agreement on August 28, 2008, the parties' disagreements continued. Post-appeal motion practice that is immaterial to the issues raised on this appeal but material to a motion pending before this court is discussed in part IV of this opinion.
This appeal presents a preliminary question of justiciablity. Avalon's termination of the contract of purchase and sale precludes enforcement of the orders and renders them technically moot. Nonetheless, because the orders are based on the trial court's interpretation of the parties' respective obligations under the settlement agreement, this appeal from the trial court's determination presents a controversy cognizable under the Declaratory Judgment Act. N.J.S.A. 2A:16-53; see Twp. of Montclair v. County of Essex, 288 N.J. Super. 568, 571 n.1 (App. Div. 1996) (concluding that a technically moot order premised on the county's authority to issue an estimated tax bill presented a controversy under the Declaratory Judgment Act).
The pertinent facts are not in dispute. The Union property is an 11.5 acre parcel, formerly owned by Red Devil, Inc., and acquired as one of the parties' joint ventures by Union, L.L.C. Hamilton is the managing member of Union, L.L.C., but ownership is divided - twenty-five percent to Chase and seventy-five percent to ARC. Union, L.L.C. acquired the property for a total cost of $7,200,000 in November 2006, the same month in which the settlement agreement was reached. At the time of the settlement, Baker Residential had a pending offer "to be the contract purchaser of the Union Property" at a purchase price of $14,250,000, and Avalon also had expressed its interest in purchasing the property.
Transfer of title to the Union property is one component of an integrated settlement agreement that addresses the parties' numerous joint ventures. Under the terms of the settlement agreement, Chase and ARC will divide the net proceeds from a sale of the Union property in accordance with their respective shares, and, in exchange for assignments and withdrawals involving their other joint ventures, ARC will pay Chase an additional forty percent of the net from its seventy-five percent share. In the end, the settlement agreement contemplates Chase's receipt of sixty-five percent of the net proceeds from a sale of the Union property.
Pending the sale of the Union property, paragraph 1(a)(iii) of the settlement agreement designates Hamilton the "sole manager of Union, LLC." Pursuant to that paragraph, Hamilton has "full and complete authority to act for, manage, control and bind the company and its business, affairs and the Union Property." Hamilton's absolute authority is limited to the extent that specific actions designated in the settlement agreement require "the express written consent" of ARC and ARG. One of the actions that requires agreement is the "[s]elling of any Union, LLC's assets with the exception of the sale of Union, LLC's assets in relation to the offer from Baker Residential or Avalon Bay Communities or the exercise of the Chase option as set forth in paragraph 1(a)(v) and (vi)."
Paragraphs 1(a)(v) and (vi) provide:
v. Union LLC has received an offer from Baker Residential to be the contract purchaser of the Union Property. The parties shall use their commercial best efforts to contract and close on the contract for sale of the Union Property to Baker Residential, with a purchase price of $14,250,000.00. When executed by Union LLC, the contract with Baker Residential shall be pledged to Wells Fargo Bank. ARC and ARG hereby expressly authorize Hamilton, as sole manager of Union LLC, to execute all documents requested by Wells Fargo Bank to effectuate the pledge and/or assignment. The "Union Closing" means the closing of the sale of the Union Property not limited to a sale to Baker residential.
vi. (a) If the Baker Residential contract is not executed or if it is executed and then terminated, Chase and ARC shall use their commercial best efforts to negotiate a purchase and sales contract with Avalon Bay Communities ("Avalon") pursuant to an offer received by Union LLC from Avalon in November 2006. If, by March 16, 2007, a purchase and sale contract is not executed between Union LLC and Baker Residential or Avalon, or a purchase and sales contract is executed but not closed, then ARG shall extend the Wells Fargo Loan for an additional (60) day extension period pursuant to the terms of that loan.
(b) If by March 16, 2007 the Union Property is not under contract to either Baker Residential or Avalon, then Chase and ARC shall retain Holliday, Fenoglio and Fowler ("HFF") to market and solicit offers from third-parties to acquire the Union Property. HFF shall present all written offers to Chase and ARC for the approval of both parties. Chase and ARC are obligated to approve any cash offer from a qualified buyer equal to or greater than $14,000,000. If, by May 15, 2007, Chase and ARC approve of a written offer procured by HFF, then the parties shall use their commercial best efforts to negotiate a purchase and sales contract with such offeror and ARG shall use its best commercial best efforts to extend the Wells Fargo loan for an additional ninety (90) day extension period to effectuate a closing of such purchase and sales contract.
(c) If, by May 15, 2007, there is no executed contract for the sale of the Union property, then Plaintiffs shall use their commercial best efforts to extend the Wells Fargo Loan for an additional (90) day extension period until August 13, 2007, and Chase shall have the option (the "Chase Option"), in its sole discretion, to purchase the Union Property or ARC's interest in Union LLC for a purchase price equal to $8,200,000, plus the accrued interest under the Promissory Notes. The Chase Option shall be exercisable at any time on or after May 15, 2007, and continue until sale or other disposition of the Union Property and, once exercised, close within thirty (30) days after it is exercised.
However, after May 15, 2007, Chase and ARC are obligated to approve any cash offer from a qualified buyer equal to or greater than $13,500,000, which is received prior to the exercise of the Chase Option.
The Union property was not sold by May 15, 2007, but on October 17, 2007, Avalon offered to purchase it for $14,500,000. The contract of purchase and sale accompanying Avalon's offer gave Avalon a forty-five-day due diligence period and a ten- month period to seek rezoning of the property. Hamilton objected to the contingency periods and refused to sign the contract on the ground that the offer was little more than an option to purchase and not a qualifying cash offer.
On March 10, 2008, ARG objected to Hamilton's refusal to execute the contract as "an act of bad faith and blatant disregard for the terms of the [settlement a]greement." On April 22, 2008, ARG notified Hamilton that he would be in breach of the settlement agreement if he did not sign by noon of the following day. Hamilton did not comply, and ARC moved to enforce.
Based on the text of that agreement, the trial court ordered Hamilton to execute the Avalon contract. In the trial court's view, subparagraph (c) governed and required Hamilton to accept Avalon's offer of $14,500,000 and execute the contract of purchase and sale regardless of its non-price terms because the offer was made after May 15, 2007 and was "greater than $13,500,000." The court's determination rests on the appearance of references to contract negotiations in all provisions addressing offers received prior to May 15, 2007, the absence of a reference to contract negotiations in subparagraph (c), and Chase's option, exercise of which allows Chase to avoid an undesirable contract.
Our review of a trial court's interpretation of a contract is de novo. Kas Oriental Rugs, Inc. v. Ellman, 394 N.J. Super. 278, 285 (App. Div.), certif. denied, 192 N.J. 74 (2007). A settlement agreement is a contract, Pascarella v. Bruck, 190 N.J. Super. 118, 124 (App. Div.), certif. denied, 94 N.J. 600 (1983), and must be construed with reference to the entire agreement, not "selective reference to [its] individual clauses." In re Fairfield Gen. Corp., 75 N.J. 398, 413 (1978); see Grow Co. v. Chokshi, 403 N.J. Super. 443, 464 (App. Div. 2008). "The polestar . . . is the intention of the parties to the contract as revealed by the language used, taken as an entirety." Conway v. 287 Corporate Ctr. Assocs., 187 N.J. 259, 269 (2006) (internal quotations omitted). A court's role is to "discern and implement the common intention of the parties" considering "what is written in the context of the circumstances at the time of drafting" and "apply[ing] a rational meaning." McMahon v. City of Newark, 195 N.J. 526, 546 (2008) (internal quotations omitted).
Considered in accordance with those well-established principles of interpretation, this settlement agreement cannot be read to require Hamilton to accept a contract of purchase and sale regardless of its terms. Subparagraph (c) obligates Chase and ARC to approve a cash offer equal to or greater than $13,500,000 presented after May 15, 2007. Subparagraph (c) reduces the "price" of the offer Chase and ARC are "obligated to approve" prior to that date pursuant to subparagraph (b). The option given to Chase is, at most, an alternative to Chase's obligation to accept a qualifying offer. There is no indication that the parties intended to permit ARC or ARG to compel Chase either to accept a contract with disadvantageous conditions or contingencies or to exercise an option, which is granted for use in Chase's "sole discretion."
While subparagraph (c) does not state the parties' mutual obligation to "use their commercial best efforts to negotiate a purchase and sales contract" upon receipt of an offer they are obligated to approve, the omission does not warrant an inference that these sophisticated real estate developers intended to bind themselves to sell regardless of contingencies or closing date. That intention is so contrary to the apparent objective of these developers - a prompt sale that would allow them to terminate their multiple joint ventures - that it would be unreasonable to impute that intention based on their failure to restate the obvious need for a contract of purchase and sale that would be performed. Generally, our courts imply contract terms omitted as "too obvious to need expression" but necessary given the transaction and contractual relationship. Palisades Props., Inc. v. Brunetti, 44 N.J. 117, 130 (1965); see Kas Oriental Rugs, supra, 394 N.J. Super. at 285.
The trial court's interpretation is also mistaken because it fails to account for the broad authority granted to Hamilton, as the manager of Union, L.L.C., in paragraph 1(a)(iii) of the settlement agreement. With respect to the sale of the Union property, he has "full and complete authority to act for" Union, L.L.C. with "the express written consent of ARC and ARG." And, there is an exception to his obligation to obtain written consent that applies "in relation to the offer from Baker Residential or Avalon Bay Communities or the exercise of the Chase Option set forth in paragraph 1(a)(v) and (vi)." The implication of an obligation to execute a contract of purchase and sale without regard to contract terms would be inconsistent with this broad grant of authority.
We do not suggest that any party to this settlement agreement, including Hamilton in the exercise of the broad authority granted to him, may perform in bad faith. "Every party to a contract, including one with an option provision, is bound by a duty of good faith and fair dealing in both the performance and enforcement of the contract." Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 224 (2005).
We turn to address a motion that is pending before us involving ARC's post-appeal effort to secure appointment of a "receiver/custodian" for Union, L.L.C.
Subsequent to filing the notice of appeal, defendants Chase and Hamilton moved to enforce the settlement agreement by compelling release of funds held in escrow, and ARC filed a cross-motion to appoint a receiver/custodian for Union, L.L.C. On joint application of the parties, we temporarily remanded to permit consideration of those motions. The trial court granted defendants' motion on October 23, 2008, and thereafter conducted an evidentiary hearing on plaintiff's motion to appoint a receiver/custodian. By order of November 20, 2008 the trial court appointed a special fiscal agent rather than a custodian/receiver, but out of concern for exceeding the scope of our remand, the court declined to designate and install the agent.
On November 25, 2008, plaintiff moved before this court for a second remand with direction to the trial court to designate and install the fiscal agent. We reserved decision on that motion pending this decision.*fn2
The order of November 20 appoints a "fiscal agent" to "act as an intermediary to facilitate communication and cooperation between the parties pursuant to the Settlement Agreement." Otherwise, "the relationships between and among the parties as set forth in the Settlement Agreement and other relevant agreements remain in place and . . . Clark Hamilton continues, as set forth in the Settlement Agreement, as the managing member of ARC Union, LLC."
The order further specifies that the fiscal agent has the authority to: "review . . . expenditures[,] disbursements [and] governmental reviews"; "allocate financial responsibility for expenditures (past - future)"; and "report lack of cooperation and need of interim oversight."
In support of its application for a second remand, ARC argues that the order remanding for consideration of its motion was sufficiently broad to give the trial court jurisdiction to designate and install the fiscal agent the court appointed. In opposing ARC's motion, defendants do not contest that assertion or the adequacy of the grounds established for appointment of a fiscal agent, which is the subject of a separate appeal. Defendants only object to ARC's characterization of the scope of the agent's authority under the order and to a remand authorizing designation without affording defendants an opportunity to suggest possible fiscal agents.
We agree with the parties that the trial court had jurisdiction to designate and install a fiscal agent under the terms of our order directing consideration of ARC's cross-motion for appointment of a receiver/custodian. Nonetheless, the parties' apparent disagreement about the scope of the fiscal agent's authority warrants our consideration and modification of the trial court's order stating the agent's authority.
This court has recognized that judges of the Chancery Division have authority to appoint fiscal agents. "Whether by designation of an attorney-in-fact, fiscal agent, or by other equitable appointment, the court of chancery is not powerless to devise practical means of rendering justice in the face of problems created by a litigant" or litigants. Julius v. Julius, 320 N.J. Super. 297, 310 (App. Div.), certif. denied, 161 N.J. 332 (1999). But the appointment must be limited both in duration and in the scope of the authority given the agent. See Kassover v. Kassover, 312 N.J. Super. 96, 101 (App. Div. 1998); Roach v. Margulies, 42 N.J. Super. 243, 246 (App. Div. 1956).
In this case, the error is in the scope and nature of the authority granted to the fiscal agent - specifically, the authority to "allocate financial responsibility for expenditures (past - future)" and "report lack of cooperation and need of interim oversight," presumably to the trial court rather than the parties. Our prior decisions have approved appointment of a fiscal agent "with circumscribed powers." Roach, supra, 42 N.J. Super. at 246. The grants of authority we have deemed appropriate do not include decision making or advising the court of a need for additional oversight. See generally Maragliano v. Maragliano, 321 N.J. Super. 78, 82 (App. Div. 1999) (discussing limitations on delegation of judicial authority). Rather, we have recognized that a fiscal agent may perform non-adjudicative functions such as checking business records and disbursements and bringing questionable behavior to the attention of the parties who may then opt to apply to the court for relief. Roach, supra, 42 N.J. Super. at 245. Thus, while courts are available to resolve disputes that arise under a settlement agreement, courts do not appoint and empower a fiscal agent to manage businesses in light of evolving circumstances that the parties are unable or unwilling to address. See Kassover, supra, 312 N.J. Super. at 101.
For the foregoing reasons, we grant plaintiff's motion and remand for designation and installation of the fiscal agent and for amendment of the order stating the agent's authority in conformity with this decision. Because the issue is not raised by the parties on this motion, we express no opinion on the merits of the trial court's determination that the appointment of a fiscal agent is appropriate.
The orders of May 23 and June 16, 2008 are reversed and remanded, and ARC's motion for remand is granted with direction to designate and install a fiscal agent and amend the order stating the scope of the agent's authority in conformity with this opinion.