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K. Hovnanian Companies Northeast, Inc. v. County of Essex


August 6, 2009


On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-36-08.

Per curiam.


Argued April 28, 2009

Before Judges Wefing, Yannotti and LeWinn.

K. Hovnanian Companies Northeast, Inc., (Hovnanian) appeals, pursuant to leave granted, from the October 10, 2008 order of the Law Division granting partial summary judgment to the County of Essex (County) dismissing Hovnanian's claims against the County and discharging its notice of lis pendens on certain property in the County. For the reasons that follow, we reverse.

This matter arises from the sale and redevelopment of certain County properties, located in Verona, Caldwell, North Caldwell and Cedar Grove, known as the Hilltop Parcels. In 1995, the County contracted with the Essex County Improvement Authority (ECIA) to manage the redevelopment of the Hilltop Parcels. Pursuant to a resolution passed by the Essex County Board of Chosen Freeholders (Board), the ECIA was empowered to create a master plan for the area, solicit requests for proposals (RFPs) and convey the parcels to the winning bidders. Hovnanian responded to the ECIA's RFP and won the bid to purchase and redevelop Parcels 1 through 5 of the Hilltop Parcels. On March 20, 2002, Hovnanian and the ECIA entered into an agreement of sale for the five parcels; on December 14, 2004, Hovnanian and the ECIA executed an "[a]mended and [r]estated [a]greement of [s]ale" that also encompassed Parcels 1 through 5. Although Hovnanian was awarded the contract, the agreement required further action by the Board before any particular parcel would be transferred. Thereafter, the Board passed resolutions for the conveyance of Parcels 1 through 5. The County then conveyed Parcels 1 through 4 to the ECIA which, in turn, sold those four parcels to Hovnanian. The County never conveyed Parcel 5 to the ECIA, however, and that parcel was never conveyed to Hovnanian notwithstanding its successful bid for all five parcels and the Board's resolution.

On February 6, 2008, Hovnanian filed a complaint against the County and the ECIA, seeking enforcement of the portions of the agreements of sale relating to the conveyance of Parcel 5; Hovnanian also filed a Notice of Lis Pendens in the office of the County's Register of Deeds, covering Parcel 5 in Cedar Grove.

In its complaint, Hovnanian alleged that the County had conveyed Parcels 1 through 5 to the ECIA and had appointed the ECIA as "redeveloper" of those properties. The complaint further alleged that the County was continuously and directly involved with the ECIA in negotiating and drafting documents establishing the ECIA's authority to market the properties.

Hovnanian's claims included the following:

28. [O]n or about December 15, 2004, the [Board] adopted Resolution No. R-04-1160,... [which] specifically acknowledged that... "County property located in Verona, Cedar Grove, North Caldwell and Caldwell... was to be conveyed to the [ECIA] so that the [ECIA] could effectuate its obligations as set forth in the Service Agreement... to create a Master Plan and a Redevelopment Plan for the Hilltop and Contiguous Property, and market and sell all such property for development.... The County Executive and the County Administrator are authorized and directed to execute such instruments... or other documents that are necessary... to accomplish the sale of the [Hilltop Parcels] to the [ECIA]...."


38. As of September 19, 2005, only one Hilltop Parcel (Parcel 5) had yet to be transferred by the County to the ECIA for conveyance to Hovnanian for redevelopment. Hilltop Parcel 5 is located in the Township of Cedar Grove....

39. Throughout 2006 and into early 2007, the County, as it promised it would be, was cooperative in assisting Hovnanian [to] obtain necessary approvals from Cedar Grove to enable it to close on Hilltop Parcel 5.

40. Indeed, on or about March 16, 2006, County Executive DiVincenzo attended a meeting with [the] Mayor... of Cedar Grove, the Township Council and Hovnanian in an effort to assist with meeting Cedar Grove's needs, with the ultimate goal of securing the requisite approvals.

41. However, in February 2007, the County... claimed that it had a significant budget gap that required closure and urged Hovnanian, as it had done in the past, to close early with regard to the remaining Hilltop Parcel.


48. At all times relevant hereto, the County and the ECIA were aware that Hovnanian was compliant with the Agreement and was actively pursuing all approvals for Hilltop Parcel 5, as required.... Indeed, the County and the ECIA were fully aware of the same since they each had been actively involved in the approval process with Cedar Grove.

49. Hovnanian continued to abide by the terms of the... Agreement and continued to work diligently toward the approval process.

50. Without notice to Hovnanian,... on or about December 27, 2007, the County, by [r]esolution..., refused to authorize the conveyance of Hilltop Parcel 5 to the ECIA. Such refusal was in direct contravention of the ECIA's agreement with the County, in direct contravention of its representations and promises to Hovnanian and in direct contravention of the... Agreement.


51. On or about January 4, 2008, Hovnanian was shocked to receive a letter from the ECIA wherein the ECIA advised that it was terminating the... Agreement due to "the County's refusal to transfer title to Parcel 5 to the ECIA."

Hovnanian asserted the following claims against the County:

(1) promissory estoppel; (2) breach of implied in fact contract; (3) breach of contract - agency; (4) third party beneficiary; (5) tortious interference with contract; (6) tortious interference with prospective economic advantage; (7) breach of the covenant of good faith and fair dealing; and (8) conspiracy to breach the covenant of good faith and fair dealing.

The relief which Hovnanian sought against the County was to "declar[e] the attempted termination of the [agreement between Hovnanian and the ECIA] to convey Hilltop Parcel 5 to Hovnanian null and void"; and to "enjoin[] the County... from taking any actions that would impair or otherwise limit the County's ability to convey Hilltop Parcel 5 to the ECIA for conveyance to Hovnanian."

On April 3, 2008, the County filed an answer, counterclaim and third-party complaint against Hovnanian, claiming that:

[O]n or about August 22, 1995[,] the County... entered into a Service Agreement with the... ECIA concerning the redevelopment of County land located in the Townships of Cedar Grove, North Caldwell and Verona. The Service Agreement provides that the project property shall be designated by the County for conveyance to the ECIA only through the approval of an Ordinance authorizing said conveyance by the [Board].

The [Board] has never adopted an Ordinance authorizing the conveyance of a Subject Property to the ECIA or any other party.


The Agreement... between Hovnanian and the ECIA indicated that the transfer of title for the Subject Property by the ECIA was specifically conditioned upon the ECIA obtaining title to the Subject Property from the County.... At the time that the Agreement... was originally executed by Hovnanian and at the time of execution of all the amendments thereto, Hovnanian was fully aware of the fact that the [S]ubject

[P]roperty was owned by the County.

The County... is not the party to any contract of sale nor has the [Board] authorized the transfer of the Subject Property to the ECIA or Hovnanian.

The relief sought by the County in its counterclaim was:

(1) dissolution of Hovnanian's notice of lis pendens; (2) compensatory damages; (3) punitive damages; and (4) attorneys' fees and costs.

On July 2, 2008, the County filed a motion for partial summary judgment and discharge of the notice of lis pendens. In support of its motion, the County submitted, among other things, a "Statement of Material Facts Not in Dispute." Included among the County's exhibits was Resolution R-04-1160, adopted by the Board on December 15, 2004, authorizing the conveyance to the ECIA of additional property "contiguous" to the property previously conveyed in the Agreement of Sale. The "Contiguous Property" is described therein as "Block 71, Lots 1, 3, 4; Block 101, Lot 1; Block 110, Lot 1 in the Township of Cedar Grove...."

In opposing the motion, Hovnanian took issue with many of the County's proffered material facts, and submitted a "Counterstatement of Material Facts," including the following:

1. The ECIA at all pertinent times, was acting "at the direction of its sole principal, the County";

2. The County and the ECIA jointly "represented in writing to the public the express intent to convey the Hilltop Parcels for redevelopment to the successful bidder";

3. The County was "directly involved" with the ECIA in the "negotiation of a formal contract for the sale of Hilltop Parcels 1-5 to Hovnanian";

4. Hovnanian relied upon certain representations made "by the County and its agent, the ECIA," in pursuing its purchase of the Hilltop Parcels;

5. Hovnanian also relied upon the 1995 Service Agreement between the County and the ECIA "and the County's course of conduct throughout the bidding and negotiating process";

6. Hovnanian, "together with the ECIA and other County representatives had regular and ongoing project meetings to effectuate the Agreement";

7. ECIA staff, County Counsel, as well as a Board representative "and on occasion, the County Executive himself" attended those project meetings;

8. The Board adopted Resolution No. R-04-1160 which "specifically authorized the conveyance of all the 'contiguous property,'... which necessarily includes Hilltop Parcel 5";

9. On or about December 27, 2004, "the County transferred Hilltop Parcels 1 and 2 to the ECIA" and on "[t]hat same date, the ECIA transferred Hilltop Parcels 1 and 2 to Hovnanian affiliates";

10. The County thereafter conveyed Hilltop Parcels 3 and 4 to the ECIA" and "[o]n or about September 19, 2005, the ECIA transferred Hilltop Parcels 3 and 4 to Hovnanian";

11. "Cedar Grove indicated that it was interested in modifying its... redevelopment plan" with respect to Hilltop Parcel 5;

12. Hovnanian "proceeded to diligently work with [Cedar Grove's] planners,... engineers, the County, and the ECIA to achieve a development plan that was acceptable to all parties";

13. The County thereafter pressured Hovnanian to close on the purchase of Hilltop Parcel 5 prior to completion of the redevelopment plan approval process;

14. In July 2007, County officials continued to press for a closing on the purchase of Hilltop Parcel 5, but Hovnanian was "unwilling to waive its contractual rights and would not close on Hilltop Parcel 5 at that time";

15. In December 2007, "Hovnanian received a letter from the ECIA purportedly advising Hovnanian that it was in 'default' of the Agreement for failing to submit to the ECIA, [its] preliminary site plans-subdivision plans for Hilltop Parcel 5";

16. Hovnanian "responded by... expressing its position that submitting a site plan application consistent with the unmodified Redevelopment Plan was a mistake and would delay any closing";

17. Hovnanian "continued to abide by the terms of the Agreement and continued to work diligently toward the approval process";

18. On or about January 4, 2008, Hovnanian "received a letter from the ECIA... advis[ing] that it was terminating the Agreement due to 'the County's refusal to transfer title to Parcel 5 to the ECIA.'"

Following extensive oral argument on October 10, 2008, the trial court granted the County's motion for partial summary judgment, stating:

I've listened to the arguments... and I find... that the service contract... was to certain conditions... that had to be approved by the freeholder board.... I don't think it applies to Hovnanian.... They knew that the contract... had to be... approved by the board, which was done for the sale of parcels one, two... and to acquire parcel five, that too had to be approved by the board, and the board failed to approve....

The court thereupon entered an order (1) granting partial summary judgment to the County; (2) ordering the Register of the County to "discharge, cancel and make null and void the... [l]is [p]endens"; and (3) awarding the County costs and attorneys' fees.

On or about October 31, 2008, Hovnanian filed a motion for reconsideration of the award of attorneys' fees and costs. On December 5, 2008, the court entered an initial order denying that motion; subsequently on that same date, the court entered an amended order "preserv[ing]" the County's right "to seek an award of its costs and attorneys' fees on th[e] motion, as well as its rights to seek recovery of any and all other damages, costs and attorneys' fees it has incurred or will incur in this matter...."

On appeal, Hovnanian argues:


We have carefully reviewed the entire record in light of the argument presented and the applicable law. We reverse and remand because the record presented to the trial court at the time the County moved for summary judgment was inadequate. We conclude that factual disputes currently exist which, after the completion of discovery, may well prevent the County from obtaining summary judgment.

The principles governing the grant of summary judgment are well-settled. Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).

Initially, we observe that the trial court should at least have denied the County's motion as premature. The County filed its motion for summary judgment five months after Hovnanian filed its complaint and only two months after the County had filed its counterclaim and third-party complaint. The record contains no evidence of any exchange of discovery prior to the County's motion; we conclude, therefore, as plaintiff asserts in its brief, that "[b]ecause of... outstanding discovery issues, the County's motion relied upon a record that was a factual vacuum."

We concur with plaintiff that "many critical facts" exist, "regarding agency, estoppel and third[-]party beneficiary status, [which] are peculiarly and exclusively within the County's knowledge and control and remain to be discovered."

For example, one of the exhibits noted earlier, which the County submitted in support of its motion, was a December 15, 2004 resolution of the Board, R-04-1160, authorizing the conveyance to the ECIA of "Contiguous Property" located in Cedar Grove. The block and lot specifications in that resolution are substantially identical to the specifications in Exhibit A ("Description of Premises") appended to the December 14, 2004 "[a]mended and [r]estated [a]greement of [s]ale" between the ECIA and Hovnanian. Exhibit A describes "Parcel 5" as: Part of Block 101, Lot 1, Cedar Grove Block 70, Lot 1, Cedar Grove Block 71, Lots 3 and 4, Cedar Grove[.]*fn1

The County has failed to address this particular aspect of R-04- 1160.

"To the extent that evidence was not fully presented due to the procedural infancy of the case, the motion for summary judgment was premature." Driscoll Constr. Co., Inc. v. Dept. of Transp., 371 N.J. Super. 304, 318 (App. Div. 2004). In that case, as here, "no discovery had been exchanged at the time the motion was filed." Ibid. When, as in this matter, "th[e] suit is in an early stage and still not fully developed, we ought to review a judgment terminating it now from the standpoint of whether there is any basis upon which plaintiff should be entitled to proceed further." Bilotti v. Accurate Forming Corp., 39 N.J. 184, 193 (1963).

Hovnanian has asserted three principles as grounds for relief: (1) agency; (2) third-party beneficiary status; and (3) estoppel.

Hovnanian first contends that a material factual dispute exists as to whether the ECIA was the County's agent, asserting that "the conduct of the County and the ECIA paint a picture of principal and agent." The County asserts that even if the ECIA were considered an agent of the County, the ECIA's authority to act was limited by the terms of its Service Agreement with the County.

As a general rule:

the principal is bound by the acts of the agent within the apparent authority which he knowingly permits the agent to assume or which he holds the agent out to the public as possessing. The factual question is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business uses, and the nature of particular business, is justified in presuming that such agent has the authority to perform the particular act in question.

[Mesce v. Auto. Ass'n of N.J., 8 N.J. Super. 130, 135 (App. Div. 1950).]

Here, the County and the ECIA entered into a Service Agreement whereby the County appointed the ECIA as the "redeveloper" of the Hilltop Parcels and directed the ECIA to issue RFPs for the purchase and redevelopment of those parcels.

Hovnanian has asserted that the County was a consistent and active participant in all significant stages of the sale of these parcels. The Service Agreement between the County and the ECIA expressly states that the "ECIA shall have the authority and responsibility to... [d]ispose of the Project Property in whole or part...." At all pertinent times, Hovnanian asserts, the ECIA acted pursuant to authority expressly granted to it by the County.

Hovnanian has the burden of establishing the agency relationship.

More specifically, the plaintiff must establish, (1) that the appearance of authority has been created by the conduct of the alleged principal and it cannot be established "alone and solely by proof of [conduct by] the supposed agent[]"; (2) that a third party has relied on the agent's apparent authority to act for a principal[]; and (3) that the reliance was reasonable under the circumstances....

Direct control by the principal over the putative agent is not absolutely necessary. Rather, a court must examine the totality of the circumstances to determine whether an agency relationship existed even in the absence of such direct control.

[Mercer v. Weyerhaeuser Co., 324 N.J. Super. 290, 318 (App. Div. 1999) (citations omitted).]

The trial court made no factual findings on this issue. In fact, no record had yet been developed with respect to this issue, due to the lack of discovery.

The trial court similarly failed to make any factual findings with respect to plaintiff's second claim, that it was a third-party beneficiary of the Service Agreement between the County and the ECIA. The determination of such a status is inherently factual and focuses upon the intent of the parties to the contract. Broadway Maint. Corp. v. Rutgers, The State Univ., 90 N.J. 253, 259 (1982). Specifically, the test for third-party beneficiary status is "'whether the contracting parties intended that a third party should receive a benefit which might be enforced in the courts....'" Strulowitz v. Provident Life & Cas. Ins. Co., 357 N.J. Super. 454, 459 (App. Div.), certif. denied, 177 N.J. 220 (2003) (quoting Rieder Communities Inc. v. N. Brunswick, 227 N.J. N.J. Super. 214, 222 (App. Div.) certif. denied, 113 N.J. 638 (1988)).

The County disputes Hovnanian's claim to third-party beneficiary status. That position, however, merely serves to underscore the outstanding factual issues in need of resolution; here, that dispute focuses specifically on the intent of the contracting parties.

Finally, Hovnanian claims that the County should be equitably estopped from avoiding its obligations regarding Hilltop Parcel 5 because Hovnanian "relied to its detriment upon representations by the County and its agent and representatives that it would transfer Hilltop Parcels 1-5 to the ECIA. The County duly authorized the ECIA to sell the property." Moreover, as Hovnanian certified in opposition to the County's motion, it has expended over $700,000 on Hilltop Parcel 5 alone, "in engineering and architectural fees, due diligence expenses, costs relating to feasibility studies, traffic analyses, geotechnical soils testing and related lab fees..., concept plans preparation, and a preliminary environmental assessment and site investigation."

The doctrine of promissory estoppel is well established in New Jersey.... A promissory estoppel claim will be justified if the plaintiff satisfies its burden of demonstrating the existence of, or for purposes of summary judgment, a dispute as to a material fact with regard to, four separate elements which include:

"(1) a clear and definite promise by the promisor; (2) the promise must be made with the expectation that the promissee will rely thereon; (3) the promissee must in fact reasonably rely on the promise[;] and (4) detriment of a definite and substantial nature must be incurred in reliance on the promise."

[Pop's Cones v. Resorts Int'l. Hotel, 307 N.J. Super. 461, 468-69 (App. Div. 1998) (quoting Malaker Corp. Stockholders Protective Comm. v. First Jersey Nat'l. Bank, 163 N.J. Super. 463, 479 (App. Div. 1978), certif. denied, 79 N.J. 488 (1979)).]

We are satisfied that the record presents a substantial "dispute as to a material fact[,]" ibid., regarding whether Hovnanian has a viable equitable estoppel claim against the County. Here again, the lack of an adequate record hampered the court's ability to make factual findings with respect to this claim.

In sum, we concur with Hovnanian that material factual disputes exist regarding:

(1) representations made by the County regarding its intent to close on Parcel 5...; (2) its reasonable and (3) actual reliance on the County's representations and course of conduct;... and (4) the substantial detriment resulting from its reliance on the representations....

Based upon the record established on the motion, summary judgment was not warranted.

Reversed and remanded.

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