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Robert DeRuggiero, Inc. v. Sanchez

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


December 24, 2009

ROBERT DERUGGIERO, INC., PLAINTIFF-RESPONDENT,
v.
OSCAR SANCHEZ, ZUNILDA SANCHEZ, AND OZ PROPERTIES, L.L.C., DEFENDANTS-APPELLANTS.

On Appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-1254-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued December 2, 2009

Before Judges Graves and J.N. Harris.

Defendants appeal from the January 26, 2009, judgment awarding plaintiff $64,500 for a real estate broker's commission, plus $10,438.40 in prejudgment interest, after a bench trial. We affirm as to the broker's commission, but reverse and remand on the issue of the prejudgment interest.

I.

In early 2003, defendants Oscar and Zunilda Sanchez utilized plaintiff Robert DeRuggiero, Inc. (the broker) to acquire real property located at 610-612 12th Street, Union City. The property contained a six-unit residential structure with a side lot that defendants rented out as parking spaces.

On January 21, 2003, Sanchez formed a business entity to manage the property, defendant Oz Properties, L.L.C. (Oz), and duly registered it with the State of New Jersey. The couple transferred the property to Oz by a deed dated March 31, 2003, which was not recorded until July 24, 2003.

As part of their long-term plan for the property, defendants hired an architect and sought to obtain residential zoning approvals to develop the property for a much higher density. However, within one year after the acquisition, defendants instead decided to try to sell the property.

In early 2004, Oscar Sanchez contacted Roger Ruiz (Ruiz), a real estate agent affiliated with plaintiff, regarding the sale of the property. On January 8, 2004, Oscar Sanchez--presumably on behalf of Oz, the nominal owner--executed an "Exclusive Right to Sell Agreement" (listing agreement) with plaintiff, listing the property for sale at a starting price of $1,050,000. The broker's commission was agreed to be five percent of the sales price.

The listing agreement was limited in its duration; it commenced on January 8, 2004, and expired on July 8, 2004. Nevertheless, it contained an extension provision, which still gave plaintiff the right to the five percent commission if the property were sold to a purchaser within 180 days after the expiration date of the listing agreement. The commission would be earned only if plaintiff or a cooperating broker introduced the buyer to defendants during the term of the listing agreement. This provision effectively extended the listing agreement and entitlement to a potential broker's commission to January 8, 2005. It was never expressly extended or renegotiated beyond that date.

In due course, Ruiz submitted defendants' listing to the Hudson County Multiple Listing. Basil Skaltsis (Skaltsis), of Corporate Realty, located in Hoboken, saw the listing and telephoned Ruiz on an undisclosed date to discuss a client he believed was interested in defendants' property. The interested party was Daniel Johnson (Johnson), a developer of mid-rise residential condominiums who was working through his business entity, Genesis I-Union City, L.P. (Genesis).

Johnson was in the process of attempting to assemble properties for a condominium project. Johnson's original proposal contained 156 units but was reduced to seventy-two units after negative public reaction. Defendants' property would have comprised ten units in Johnson's plan.

Johnson authorized an offer to purchase defendants' property, which Skaltsis presented to Ruiz on an unidentified date. After discussions went back and forth, the realtors for Johnson and defendants arrived at an agreement, memorialized in a Memorandum of Sale (Memorandum) dated February 23, 2004, which outlined the terms of a proposed transaction. The selling price indicated in the Memorandum was in the amount of $1,000,000. The real estate commission was to be five percent, split in half for plaintiff and Corporate Realty to each retain 2.5%.

Because the deal involved commercial property, the transaction was turned over to the attorneys for both sides in order to prepare a formal contract of sale. Ruiz organized a meeting among the principals, their attorneys, and the brokers' agents.

Ruiz testified that his participation after that meeting was limited and that he was never asked to do anything more in connection with the transaction. He and plaintiff also were never paid a commission, and Ruiz was not even aware that the transaction had been consummated until a chance meeting with Oscar Sanchez at a Pathmark grocery store in Weehawken months later.

On September 10, 2004, the individual defendants (not including the nominal title holder Oz) and Genesis entered into a written "Agreement for Sale of Real Estate" (Agreement) for a purchase price of $1,200,000. Section 4.02 of the Agreement conditioned Genesis's obligation to purchase the property upon obtaining all zoning approvals required for constructing a multi-unit building on the premises based on "a minimum fifteen units per lot allowance." The same provision also granted to Genesis a period of 180 days from the date of the Agreement's execution "to file and pursue the necessary zoning applications." Genesis had the further option of extending the contingency period for an additional sixty days by paying defendants two separate $5,000 sums on the 181st and 211th days following the execution of the contract.

Approximately five months later, on February 1, 2005, Genesis submitted an application for development (with Oz's consent) to the Union City Board of Adjustment for use, height, density, parking, and bulk variances, plus site plan approval. The assemblage comprising the application for development included Oz's land together with the property of three others, one of which was owned by Genesis itself. After Genesis submitted the application, Oscar Sanchez and Skaltsis attended several hearings regarding the proposed construction project throughout the early months of 2005, including formal Board of Adjustment hearings and an informal community meeting with residents and an elected Union City official.

On March 21, 2005, seven weeks after Genesis submitted its application for development, defendants' attorney attempted to declare time to be of the essence and set a closing date for April 5, 2005. Through counsel, on March 25, 2005, Genesis reminded defendants of its right to extend the zoning contingency for sixty days, upon two payments of $5,000 to defendants. Genesis sought to exercise the Agreement's extension provision and included a $5,000 check in its counsel's March 25, 2005, correspondence. On April 11, 2005, another $5,000 check was mailed by Genesis's lawyer to defendants' attorney.

After Genesis had still not obtained the requisite zoning approvals at the conclusion of the extension period, defendants demanded a decision from Genesis whether it wished to cancel the Agreement or waive the contingency and proceed to acquire title forthwith. The record is unclear as to the response to this demand. However, in subsequent correspondence addressed to Genesis dated May 26, 2005, defendants renewed their declaration that time was of the essence and scheduled a new closing date for June 13, 2005.

Counsel for defendants subsequently issued to Genesis a "Notice as to Breach of Contract" (Notice) on June 16, 2005, for its failure to attend the closing on the scheduled date. Johnson testified:

We did not have our full approvals at that time. I worked out an agreement with Mr. Sanchez for an extension fee of, I think it was $5,000 a month . . . he was willing to accept that for several months, I don't remember, maybe three or four months. And at that point he no longer wanted to accept the $5,000 a month and cancelled the contract.

Explaining his rationale for canceling the contract, Oscar Sanchez testified:

Q: And then there came a point in time when you no longer wished to grant extensions; correct?

A: That's correct. We had vacated the property. We were carrying the property for over a year, vacant. And we -- Mr. Johnson could not close for some reason or another, and we felt that it was to our best interest to move on.

Genesis and defendants do not dispute that the Agreement effectively was terminated on June 16, 2005, through defendants' Notice. Johnson testified that he understood the Notice was "the document that cancelled the contract," but he did not amend Genesis's application to the Board of Adjustment in order to remove defendants' names or retract Oz's consent because "I still felt that we would work it out. I didn't think anybody else would be willing to pay what I was willing to pay for that piece of property . . . I was grossly overpaying for the property." Additionally, Johnson kept in touch with defendants throughout this series of events. Notably, Johnson never dealt with plaintiff or Ruiz, and only spoke to Skaltsis from Corporate Realty.

In contrast, Oscar Sanchez testified that after his attorney sent Genesis the Notice, defendants considered the Agreement dead, and began to pursue new development approvals with "an architect out of Hoboken." Oscar Sanchez testified that he instructed his attorney to notify Genesis to "withdraw" the property from Genesis's application. By a letter dated September 7, 2005, defendants' counsel directed Genesis "to remove my client's property from your proposed project." Nevertheless, Oscar Sanchez told the court he was "not sure" if the property was actually removed from the application.

Towards early February 2006, Johnson began contacting Oscar Sanchez directly to renew negotiations for the sale of defendants' property. Johnson telephoned him "every week, or every two weeks" to work out a deal, and "[u]ltimately, we agreed to a price, and we worked on the contract, and we closed." During the gap between defendants' Notice on June 16, 2005, and Johnson's renewed contact with defendants throughout 2006, Oscar Sanchez testified that he had no communications or contact with Ruiz or plaintiff's office. The only contact he had with any realtor was with Skaltsis from Corporate Realty when they greeted each other at several zoning meetings.

A second contract of sale was executed for the property and the transaction closed on the very same day: May 23, 2006. The parties to this second contract were limited to Oz and Genesis. The purchase price was $1,400,000 and the arrangement eliminated all contingencies related to environment, zoning, or financing that were part of the unfulfilled Agreement. Furthermore, the second contract struck out Section 6.01(b), which provided:

Seller [Oz] has not dealt with any broker or other person entitled to a commission in connection with this transaction, other than the Brokers/Realtors entitled to a commission in any Listing Agreement executed by Seller.

Oscar Sanchez testified that he thought the strikeout was protecting the buyer, but could not recall why it was crossed out. In addition, Section 7(b), regarding representations by the purchaser, stated that Genesis had utilized the services of Corporate Realty in connection with the transaction.

On January 13, 2009, Judge Edward T. O'Connor conducted a one-day bench trial to resolve the parties' contractual dispute.

The next day, January 14, 2009, Judge O'Connor read an oral decision into the record and to counsel for both parties over the telephone, summarizing his findings as follows:

I find, one, that the brokers were the efficient [] procuring cause of the sale. And addressing the issue of their efficient producing cause of the sale, I consider the fact that [] Corporate brought it's (sic) client, Johnson, to Sanchez, through [] Ruiz, shortly after the listing agreement was signed in January of 2004.

An offer was made, followed by a series of meetings over a four month -- four to five month period in an effort to bring about an agreement. The brokers set up the meeting resulting in the September 2004 contract, and then spent considerable time with the parties at Zoning Board meetings, Town meetings, etcetera. Their efforts were ongoing throughout.

I also find that the deal which was ultimately struck between the parties, Johnson and Sanchez, [] was virtually no different than the first contract. The same parties were involved, almost the same price, except for the $200,000 bonus, etcetera.

I find that there was [] a continuum of actions tying the two together. I find that there was no substantial break in the negotiations. Johnson and Sanchez continued to talk after the termination of the first contract in June 2005.

Johnson so testified, and Sanchez's lawyer sent a letter of September 2005 confirming the fact that a new offer had been made by Johnson, which [] Sanchez rejected, at some point over the summer of 2005.

Therefore, I'm persuaded that the brokers are entitled to the agreed upon 5 percent commission. Judgment for the plaintiff in the amount of 5 percent, or $70,000 will be entered. And I will allow the cost of suit.

On the same day, January 14, 2009, counsel for plaintiff submitted a proposed form of judgment to the trial court, which included an award of prejudgment interest in the amount of $10,438.40. Plaintiff's counsel proposed that the actual judgment reflecting the broker's commission be in the amount of $64,500. This amount had been agreed to by the parties before the trial commenced, rather than the arithmetically-correct $70,000 awarded by the trial court, which was calculated on the purchase price of $1,400,000 as contained in the second contract.

On January 22, 2009, defendants' counsel objected in writing to plaintiff's request for prejudgment interest on the ground that plaintiff had presented no legal or factual basis in the record to support such an award. The court subsequently entered an "Amended Order for Judgment" in favor of plaintiff on January 26, 2009, which reflected the reduced amount requested by plaintiff ($64,000), plus the prejudgment interest requested by plaintiff ($10,438.40), and costs of suit in favor of plaintiff. This appeal followed.

II.

Our standard of review is highly deferential. All that is required is that the facts as discerned by the judge be supported by adequate competent evidence in the record. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974). So long as the trial judge's findings are "supported by adequate, substantial and credible evidence," they will be affirmed. Id. at 484. Our appellate function is therefore limited. We will not "'engage in an independent assessment of the evidence as if [we] were the court of first instance,'" N.J. Div. of Youth & Family Servs. v. Z.P.R., 351 N.J. Super. 427, 433 (App. Div. 2002) (quoting State v. Locurto, 157 N.J. 463, 471 (1999)). Therefore, "'we do not disturb the factual findings and legal conclusions . . . unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.'"

Ibid. (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155 (App. Div. 1963)).

We accord particular deference to findings of credibility. Even when a trial judge does not expand upon credibility determinations, those determinations are entitled to deference if supportable by the evidence presented. These findings "are often influenced by circumstances such as observations of the character and demeanor of witnesses, and common human experience that are not transmitted by the record." Locurto, supra, 157 N.J. at 474 (citation omitted).

However, where our review addresses questions of law, a trial judge's findings "are not entitled to that same degree of deference if they are based upon a misunderstanding of the applicable legal principles." Z.P.R., supra, 351 N.J. Super. at 434 (citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)).

As we have before acknowledged, "[c]lassically in respect of a listing agreement, absent specific provisions to the contrary, the seller is liable for a commission if the property is sold to any non-excepted buyer during the listing term or is sold after the listing term to any buyer generated by the contracting realtor before the listing term expired." Island Realty v. Bibbo, 329 N.J. Super. 528, 533-34 (App. Div.), certif. denied, sub nom. Island Realty v. Decker-Bibbo, 165 N.J. 487 (2000). Moreover, "the seller is liable for the commission where, during the listing term, the realtor was the 'efficient procuring cause' of an actual sale." Id. at 534 (quoting Prudential Stewart Realty v. Sonnenfeldt, 285 N.J. Super. 106, 112 (App. Div. 1995)). With regard to the ordinary prospective purchaser, "it [is] a matter of common knowledge that [he] knows when he consults a broker that if he buys a property through the efforts of the broker, customarily the broker will earn a commission on the sale to be paid by the owner-seller out of the purchase price." Ellsworth Dobbs, Inc. v. Johnson, 50 N.J. 528, 558 (1967); see also Exit A Plus Realty v. Zuniga, 395 N.J. Super. 655, 663-64 (App. Div. 2007).

"Ordinary services of a general nature rendered by the broker are not recoverable even on a quantum meruit basis; they are the cost of doing business. These principles are in keeping with the general rule that, in the absence of bad faith or special circumstances, the owner is not liable for the full commission unless a sale actually occurs." Island Realty, supra, 329 N.J. Super. at 534. See Van Winkle & Liggett v. G.B.R. Fabrics, Inc., 103 N.J. 335, 347-49 (1986); Ellsworth Dobbs, Inc., supra, 50 N.J. at 551.

The substantial break doctrine provides that a broker may receive a commission on a sale, which the broker caused to occur by producing a buyer who was willing and able to consummate a sale, and by facilitating the negotiations which lead to the sale without a substantial break in the negotiations. Michele Matthews, Inc. v. Kroll & Tract, 275 N.J. Super. 101, 106 (App. Div. 1994). Simply stated:

[T]he negotiations with the customer or prospect need not be uninterrupted so long as the continuity of the broker's agency in bringing the transaction to a conclusion can be established. But if the negotiations are broken off, and the broker thereafter abandons his efforts, or there is a substantial break in negotiations and the transaction is subsequently concluded by the principal without the aid of the broker, he may be denied any commissions. [Leadership Real Estate v. Harper, 271 N.J. Super. 152, 184 (Law. Div. 1993) (quoting 12 Am. Jur. 2d Brokers § 190 (1964)).]

Defendants argue that the interval between the June 2005 termination of the Agreement between Genesis and the individual defendants and the actual closing between Genesis and Oz, in May 2006, bespeaks a substantial break, disentitling plaintiff from the status of an efficient procuring cause of the transaction. Defendants further assert: (1) the time lapse between contracts; (2) the reduction in plaintiff's role after the undisputed termination of the first contract; and (3) the new terms in the second contract combined to create a substantial break in the negotiations that required the trial court to determine that plaintiff was not the efficient procuring cause of the sale. We disagree.

We are unconcerned about how we--if we were the trier of fact in the first instance--would have decided this fact-sensitive case. Rather, we scour the record to see if the trial court's analysis is logically supportable and sustained by competent evidentiary materials in the record. With that framework in mind, we remain convinced that the conclusions of the trial judge are sustainable.

Just as it was reasonable for the court to conclude that plaintiff introduced or caused the parties to become aware of each other by virtue of creating the multiple service listing that attracted Skaltsis, it was within the realm of the evidence presented to the trial judge to conclude that any break in continuity occurred merely because of the passivity of plaintiff, not its purposeful abandonment. There was, according to the trial court, no meaningful difference between the transaction that closed in May 2006, and the transaction that was contemplated by the Agreement of September 2004. This was a factual determination by the trier of fact that is entitled to our deference and will be displaced only in the most extreme circumstances. Such circumstances do not exist on this record.

Our conclusion does not suggest that the trial court inevitably was required to reach the conclusion it made by awarding the broker's commission. Rather, it represents our faith in the purposeful sifting and analysis of the evidence by the trial court as it was presented and considered in real-time. There is no principled way in which we can second-guess the findings of the trial judge who observed the witnesses, reviewed the documents, listened to the arguments of counsel, and then explained his rationale for agreeing with plaintiff's point of view. In other words, the question of whether there was a substantial break in the transaction that would short-circuit an efficient procuring cause status cannot--in this case--be decided as a matter of law. Accordingly, we uphold that determination of the trial court.

The same, however, cannot be said for the trial court's deus ex machina award of prejudgment interest. Prejudgment interest is provided for pursuant to Rule 4:42-11(b). Clearly, the Rule does not expressly address a contract action such as this. Prejudgment interest may run on contract claims, not as a matter of right, but in accordance with equitable principles. See Bak-A-Lum Corp. of Am. v. Alcoa Bldg. Prod., Inc., 69 N.J. 123, 131 (1976).

The amount of prejudgment interest comprised over ten percent of the total judgment. It was a material component of the award to plaintiff. Yet, there was no explanation given for why this discretionary verdict accrued in plaintiff's favor. In the absence of even a hint of a factually-supported rationale, we are constrained to remand for the trial court to reconsider the award of prejudgment interest and to explain its reasons for the ultimate determination. We do not express an opinion one way or the other as to that final decision. On remand, the court may exercise its discretion with respect to the awarding of prejudgment interest as it deems advisable.

Accordingly, while we affirm the broker's commission verdict in the amount of $64,500, we reverse the award of prejudgment interest and remand for the limited purpose of conducting further proceedings to determine whether prejudgment interest is appropriate and, if so, its proper amount. We do not retain jurisdiction.

Affirmed in part, reversed in part.

20091224

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