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Hovbilt, Inc. v. Lair

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


February 25, 2010

HOVBILT, INC., PLAINTIFF-APPELLANT,
v.
PETER LAIR AND LAIR REAL ESTATE SERVICES, INC., DEFENDANTS-RESPONDENTS.

On appeal from the Superior Court of New Jersey, Chancery Division - General Equity, Ocean County, Docket No. C-187-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 19, 2010

Before Judges Baxter, Alvarez and Coburn.

This appeal arises out of a dispute between a developer, plaintiff Hovbilt, Inc., and defendants Peter Lair and Lair Real Estate Services, Inc., concerning Lair's services as Hovbilt's confidential intermediary in the acquisition of two parcels of land. Hovbilt chose to acquire the two parcels to enhance its prospects of obtaining approval from the Jackson Township Planning Board (Board) for the creation of a 965-unit housing development. After nearly three years of stalling by Lair, during which he repeatedly evaded Hovbilt's requests to convey the two parcels to Hovbilt as the parties' oral agreement required, and after Hovbilt discovered that Lair had fraudulently transferred one of the two parcels into his own name and had encumbered it with a mortgage, Hovbilt filed suit against Lair. After the court ordered Lair to convey the two parcels to Hovbilt, the judge sua sponte permitted Lair to assert a counterclaim to obtain payment for the strawman services Lair had rendered on Hovbilt's behalf.

Finding that there was no meeting of the minds between the parties on the value of those services, the judge awarded Lair the sum of $180,000 in quantum meruit and an additional $48,074 as reimbursement for costs Lair had advanced on Hovbilt's behalf, for a total judgment of $228,074. We agree with Hovbilt that Lair's dishonest and unscrupulous conduct on the very undertaking that was the subject of the parties' agreement should have disqualified Lair from receiving the benefit of the equitable remedy of quantum meruit compensation. We thus reverse the award of $180,000 in compensation to Lair and remand for the entry of an order so providing.

I.

For forty years, plaintiff has built thousands of housing units in Monmouth and Ocean counties. From 1997 through 2005, defendant Peter Lair, acting through his real estate agency, Lair Real Estate Services, Inc., served as Hovbilt's exclusive broker for six of the company's largest residential developments. The arrangement was profitable for both parties, as Lair, by representing Hovbilt in the sale of over 700 units of new housing, had earned commissions totaling approximately $854,000 during that eight-year period.

In 2000, Hovbilt took the initial steps to develop a 645-acre parcel it owned in Jackson Township into a residential development comprised of 965 units of affordable and market-rate housing, to be known as Jackson Valley. Based upon its many years of development experience, Hovbilt recognized that its prospects of obtaining the necessary development approvals from the Board would be significantly enhanced if it volunteered to reconstruct, at its own expense, a dangerous five-way intersection.

To accomplish the reconstruction, Hovbilt needed to acquire two parcels of land, one located on Cassville Road, and the other on Perrineville Road. Hovbilt realized that if it approached the owners of those two properties in its own name, the acquisition price would be significantly increased and the owners might conceivably refuse to sell. Consequently, because of Hovbilt's longstanding relationship with Lair and the trust that Hovbilt had reposed in Lair over the years, Hovbilt asked Lair to acquire title to the Cassville and Perrineville properties in his own name, on behalf of Hovbilt, using funds advanced by Hovbilt for that purpose. Using the funds provided by Hovbilt, Lair negotiated the purchase of the two properties, paid the necessary purchase price and closing costs, and instituted a quiet title action on the Perrineville Road property with the understanding that he would hold the two properties in his name until Hovbilt requested the transfer of title to Hovbilt.

The parties recognized that because of the sensitive nature of the undertaking and the parties' previous and longstanding relationship of trust, the agreement need not be reduced to writing. As we will discuss later in this opinion, Hovbilt's and Lair's understanding of the compensation to be provided to Lair for his strawman services differed enormously; however, both sides agreed that because the Cassville Road property contained an existing house, Lair would lease the house to a tenant and use the rental payments to cover any carrying costs on the property, such as insurance and real estate taxes. Although the precise date upon which Lair would be required to convey the title of the properties to Hovbilt was not established, it was understood that at a time of Hovbilt's choosing, such conveyance would occur.

After Hovbilt obtained the numerous environmental approvals that were required for Jackson Valley, Hovbilt's vice-president and general counsel, Arthur Havighorst, sent Lair an email on September 3, 2004 asking Lair to call him "about transferring the Cassville property from [him] to Hovbilt." Havighorst asked Lair to compile a list of the expenses he incurred, including property tax and insurance, so that Havighorst could make the necessary arrangements to reimburse Lair for those expenses.

On October 27, 2005, Havighorst sent an email to Lair commenting that "[w]e need to transfer title to the properties now, so please give me some dates and times next week when we can get together to go over the course of action." Lair's email response two days later proposed a delay of the transfer. Six emails were exchanged in December 2005 discussing Hovbilt's request for the transfer of the properties and Lair's promises to prepare a list of the expenses he incurred, but Lair continued to avoid Havighorst's requests to transfer the two titles. Lair did not disclose that he had already transferred the Cassville Road property into his own name and encumbered it with a mortgage. Not until years later would Hovbilt discover that was the reason for Lair's evasive responses.

In the fall of 2006 and January 2007, Havighorst renewed his request for the transfer of the titles. Lair did not respond until February 5, 2007, when he wrote to Havighorst telling him that since the fall of 2006, he had "experienced a series of setbacks from heart problems . . . and depression from medications" he had been taking. He also told Havighorst that he had closed his real estate office and was in the process of "attempting to move and get re-organized." He promised to "advise [Havighorst] as to when [he] can deal with Jackson."

By May 9, 2007, when Havighorst had heard nothing further from Lair, he sent another email, in which he commented that he hoped the passage of three months had allowed Lair to "rehab," and he again asked Lair to contact him. Rather than respond to Havighorst's May 9, 2007 email, Lair retained counsel and forwarded a letter to Havighorst on May 16, 2007 in which, for the first time, Lair demanded payment for the strawman services he rendered. In the letter, he claimed that he was entitled to fifty percent of the value of the two properties, which he estimated at $1,000,000, less the $295,000 Hovbilt had already advanced. Thus, according to Lair, "Hovbilt, Inc. must purchase these properties from Peter Lair for 50%, or the sum of $352,500." Lair also demanded reimbursement of $40,000 for outof-pocket expenses he had incurred for the past six years. Third, he maintained that Havighorst and Hovbilt had agreed to provide him with a sales commission of $2,500 for each of the 965 units along with an "upgrades commission" of $1,447,500 for a total of $3,895,000. Lair maintained that the parties had already agreed that the $3,895,000 in commissions would be payable "50% in advance and [would be] non-refundable."

In the May 16, 2007 letter, Lair also asserted that Hovbilt had agreed that if it ultimately chose not to go forward with the Jackson Valley project, it would pay Lair a flat sum equal to .5% of the estimated value of the project, $313 million, thereby producing an allegedly agreed-upon payment of $1,570,000. Lair asked Hovbilt to advise him whether it intended to move forward on the project, in which case he expected to receive the $3,895,000 of commissions or, whether instead, it had decided not to construct the development, in which case he would be entitled to $1,570,000.

Thus, in addition to demanding that Hovbilt "purchase" the Cassville and Perrineville Road properties from him for the sum of $352,000, Lair also asserted a right to receive either $3,895,000 in commissions or a $1,570,000 payment in lieu of commissions.

Havighorst testified that he was stunned when he received Lair's May 16, 2007 letter, and was even more disturbed when he received a telephone call from Lair's attorney in early June advising him that Lair would not transfer the titles to the Cassville and Perrineville Road properties unless his May 16, 2007 demands for compensation were met. At that point, Havighorst realized that Hovbilt would not be able to obtain title to the Cassville Road and Perrineville Road properties unless it instituted litigation. Consequently, Havighorst filed a notice of lis pendens on Hovbilt's behalf against the two properties.

Havighorst also searched the title records and learned for the first time that, on July 1, 2004, Lair had transferred title to the Cassville Road property from Lair Real Estate Services, Inc. to "Peter Lair, Sole Proprietor," and had encumbered the property by securing a mortgage from Washington Mutual Bank in the amount of $195,000. In the affidavit of title Lair provided to Washington Mutual to secure his $195,000 loan, he falsely certified that he intended to live at the property, was the "only owner" of the property and that "no other persons" had any "legal rights in this property."

On July 6, 2007, Hovbilt filed a sixteen-count complaint against Lair and Lair Real Estate Services, Inc. asserting claims for breach of contract, constructive trust, equitable title, fraud and a violation of Lair's obligations as a licensed realtor. Hovbilt sought compensatory and punitive damages and demanded that Lair convey legal title to the two properties free and clear of the Washington Mutual mortgage and any other liens.

Lair filed a counterclaim on August 10, 2007, in which he asserted the right to retain title to the two properties free and clear of any claims by Hovbilt. He also sought unspecified damages and attorney's fees.

The Chancery Division granted partial summary judgment to Hovbilt on July 3, 2008, by imposing a constructive trust on the two properties in favor of Hovbilt. The judge also ordered Lair to deliver a deed to Hovbilt within ten days transferring title to the two properties free and clear of the Washington Mutual Bank mortgage.

In his July 3, 2008 order, the judge ordered the dismissal of the two counts of Lair's August 10, 2007 counterclaim in which he asserted he was entitled to retain title to the properties free of any claims by Hovbilt; however, the judge ordered, sua sponte, that Lair would be permitted to amend his counterclaim to add claims for quantum meruit compensation, and adjourned the trial for a period of three months for pretrial discovery on Lair's quantum meruit claim. The judge also ordered Lair to deliver to Hovbilt copies of the "slips of paper" on which Lair claimed to have recorded the hours spent in providing strawman services to Hovbilt.

During the two-day trial, which began on December 9, 2008, Lair advanced the same claim to compensation that he had asserted in his attorney's May 16, 2007 letter. Havighorst's testimony described a markedly different compensation agreement. He contended that in return for the strawman services to be provided by Lair, Hovbilt had agreed to permit Lair to retain the monthly rental payments from the tenants on the Cassville Road property to reimburse him for all expenses he incurred, and to permit Lair to retain the six percent commission he derived when he purchased the Cassville Road and Perrineville Road properties on Hovbilt's behalf.

At the conclusion of the testimony, the judge asked Lair's attorney, assuming there was an oral agreement that provided for payment to Lair, whether Lair had "breach[ed] the agreement by conveying the title to himself and then mortgaging it." The judge queried:

[O]nce you breach the agreement how can you sue on damages if you caused your own damage? In other words, if you breach your contract, you can't say, . . . I want you to forget the fact that I actually did something that was completely illegal at the time, completely against even my [own] understanding of the agreement with my adversary, went out and convert[ed] the property to my own personal use, mortgage[d] the property and then come before a court of equity and say, you know, Judge, forgive me my error, my discretionary error here, but I do want you by the way to enforce the agreement anyway. Even though [the court] had to . . . order the [constructive] trust and order the property back [to Hovbilt] and intercede, I want you to give me my [$]1.2 million anyway.

Well, this is a court of fairness and equity.

You have to come in with clean hands.

In an oral opinion on January 22, 2009 that covered forty transcript pages, the judge concluded that, in light of the sharply divergent testimony on payment for Lair's services as a strawman, there was "no meeting of the minds" and therefore no express oral contract on how Lair should be compensated. The judge also found that although Lair had been able to purchase the Cassville Road property with a minimum of effort, the purchase of the Perrineville Road property was considerably more complicated and had culminated in a quiet title action that Lair initiated and brought to a successful conclusion.

The judge also determined that because the Statute of Frauds, N.J.S.A. 25:1-16(d)(1), prohibits a real estate broker from receiving compensation for services rendered in connection with the sale of real estate unless such agreement is reduced to writing, Lair was not entitled to a commission related to the potential sale of the individual units in the Jackson Valley project. He therefore rejected Lair's contention that the compensation agreement he had negotiated with Havighorst entitled him to a $2,500 commission on the sale of each unit.

The judge then turned to the question of whether Lair -- by transferring the Cassville Road property into his own name, encumbering the property with a mortgage from which he derived $195,000 as proceeds, refusing to convey the two properties to Hovbilt unless the developer paid him fifty percent of the value of the properties, and evading Hovbilt's requests that he convey the properties for nearly three years -- should forfeit any right to be paid for the value of his strawman services. Ultimately, despite his earlier misgivings on that subject, the judge concluded that the doctrine of unclean hands should not bar Lair from receiving compensation. The judge reasoned:

It's clear ultimately from the testimony of Mr. Lair that he delayed in turning back the property over to Hovbilt in part because he had used it as collateral and had not disclosed that to Hovbilt during the entire process. I am also satisfied that he did not turn the property back to Hovbilt . . . because of intervening health and financial issues and also because he was closing his office at the time and wanted to be compensated for his efforts . . . as strawman. I am satisfied the behavior is inappropriate, but I am also satisfied [that] to deny him all equitable relief would be to deny the fact that his efforts proved fruitful on behalf of Hovbilt. [Emphasis added.]

Because there was no "meeting of the minds" on the subject of Lair's compensation, the judge concluded that Lair should be compensated by using a quantum meruit approach. Observing that Lair's after-the-fact reconstruction of the hours he had expended as strawman had resulted in an unreliable, and somewhat inflated claim, the judge reduced the number of hours for which quantum meruit compensation should be awarded to 1,200, thereby rejecting Lair's claim of 1,800 hours. The judge also determined that Lair should be compensated at the rate of $150 per hour, with a resulting award of $180,000 for the value of Lair's strawman services. The judge added $48,074 as reimbursement for sums that Lair had advanced, and entered judgment on March 9, 2009 in favor of Lair and against Hovbilt in the amount of $228,074.

On appeal, Hovbilt argues that: 1) the record does not support the trial judge's "key finding" that Hovbilt and Lair failed to come to an agreement on the method of payment for Lair's strawman services; 2) the trial court erred when it rejected Hovbilt's claim that Lair breached his agreement with Hovbilt by converting and mortgaging the Cassville Road property and by "stalling" the transfer of title; 3) Lair's "dishonest conduct" should have barred him from benefiting from the equitable doctrine of quantum meruit; and 4) even if, for the sake of argument, Lair was entitled to a quantum meruit recovery, the record does not support the judge's finding that Lair rendered 1,200 hours of service to Hovbilt and that he was entitled to $150 per hour for such services.

II.

Although a trial judge's findings of fact are binding upon us as long as such findings are supported by sufficient and credible evidence present in the record as a whole, Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974), we owe no deference to the judge's conclusions of law, which are reviewed de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

We turn first to Hovbilt's claim that the judge committed reversible error of law by allowing Lair to benefit from the equitable remedy of quantum meruit despite Lair's unethical and unscrupulous conduct. Quantum meruit, "which literally means 'as much as is deserved,'" Kas Oriental Rugs, Inc. v. Ellman, 394 N.J. Super. 278, 286 (App. Div.), certif. denied, 192 N.J. 74 (2007), is a remedy that "'rests on the equitable principle that a person shall not be allowed to enrich himself unjustly at the expense of another.'" Starkey, Kelly, Blaney & White v. Estate of Nicolaysen, 172 N.J. 60, 68 (2002) (quoting Weichert Co. Realtors v. Ryan, 128 N.J. 427, 437 (1992)). Thus, courts will apply the equitable remedy of quantum meruit "when one party has conferred a benefit on another, and the circumstances are such that to deny recovery would be unjust." Weichert, supra, 128 N.J. at 437. The remedy is applied in quasi-contract to prevent a windfall and is "'imposed by the law for the purpose of bringing about justice . . . .'" St. Barnabas Med. Ctr. v. County of Essex, 111 N.J. 67, 79 (1988) (quoting St. Paul Fire & Marine Ins. Co. v. Indem. Ins. Co. of N. Am., 32 N.J. 17, 22 (1960)).

As the judge recognized, a party is not entitled to reap the benefits of the quantum meruit remedy unless he has acted in good faith. Indeed, "[t]he basic equitable maxim of unclean hands provides that '[a] suitor in equity must come into court with clean hands . . . .'" Chrisomalis v. Chrisomalis, 260 N.J. Super. 50, 53-54 (App. Div. 1992) (quoting A. Hollander & Son, Inc. v. Imperial Fur Blending Corp., 2 N.J. 235, 246 (1949)). "[A] court should not grant relief to one who is a wrongdoer with respect to the subject matter in suit." Faustin v. Lewis, 85 N.J. 507, 511 (1981). While it is true that "general iniquitous conduct" will not operate to bar a party from receiving equitable relief from a court of equity, United Bd. & Carton Corp. v. Britting, 61 N.J. Super. 340, 344 (App. Div.), certif. denied, 33 N.J. 326 (1960), when such "iniquitous conduct" relates to the very matter or transaction on which judicial protection is sought, the wrongdoer will be denied relief. Ibid.

Although the judge certainly recognized the existence of those principles, he chose not to apply them because

[t]o permit Hovbilt to benefit [from] the actions of Mr. Lair without any compensation would be unjust. . . . [Lair] consistently acted as a strawman, had to collect, had to pay the taxes, pay the bills and the like[,] and dealt with the lawyer in an attempt to quiet title and in fact expended a substantial period of time in doing so.

The judge concluded that it would be "unjust" to deny Lair compensation in quantum meruit because he had performed the very services Hovbilt sought. That conclusion erroneously focuses on only the first half of Lair's undertaking, namely his obligation to purchase the two properties on Hovbilt's behalf. The judge ignored Lair's additional obligation to convey the properties back to Hovbilt when Hovbilt requested. As is evident from the record, Lair refused to do so. For the thirty-two months after Havighorst first asked Lair to convey title, Lair stalled by alluding to various health problems and the closing of his office. By June 2007, however, Lair's outright breach of his fiduciary obligations became complete when, through his attorney, he advised Hovbilt that he would not convey the Cassville Road and Perrineville Road properties unless Hovbilt paid him the sums demanded in his May 16, 2007 letter within ten days.

Thus, the judge's conclusion that Hovbilt received the benefit of Lair's strawman services is belied by the undisputed fact that Lair did not convey title to Hovbilt until after he was ordered to do so by the court on July 3, 2008. Therefore, even after Hovbilt filed suit in July 2007, Lair unjustifiably retained title to the two properties for another year until the court ordered him to convey them to Hovbilt in July 2008.

The judge's conclusion that it would be "unjust" not to compensate Lair also ignores the fact that Lair engaged in intentional misconduct on the very subject matter of the undertaking for which the judge rewarded him in quantum meruit. Lair's conduct should have triggered the disqualification for compensation that we described in United Board, supra, 61 N.J. Super. at 344. As Hovbilt correctly argues, Lair "converted Hovbilt's title, he stalled on his delivery back to Hovbilt; he made an outrageous and fictitious claim for compensation; and he held the titles hostage until ordered by the court to [disgorge] them." Lair was, as Hovbilt accurately describes him, "a faithless fiduciary who abused the trust that Hovbilt placed in him."

Indeed, Lair abused the very property that was the subject of his fiduciary agreement with Hovbilt by, behind its back, using the Cassville Road tract as collateral on his personal loan. Then, when Hovbilt discovered Lair's wrongdoing, Lair's attorney told Hovbilt by telephone in June 2007 that unless, within ten days, Hovbilt paid Lair the sum of $1 million, a sum that the trial judge characterized as "inconceivable," Lair would not transfer the titles. The judge's finding that Lair performed the very services that Hovbilt sought was, under such circumstances, an error of law.

Moreover, to conclude, as the judge did here, that Lair was not disqualified by his unclean hands from receiving quantum meruit compensation ignores the unscrupulous and dishonest conduct that pervaded Lair's relationship with Hovbilt. By his wrongdoing, Lair forfeited the right to the protection afforded by the doctrine of quantum meruit. The judge's application of that doctrine to award Lair $180,000 was an error of law and a mistaken exercise of the chancery court's discretion. We reverse the award of $180,000 to Lair as compensation.

In light of that determination, we need not address Hovbilt's alternative claim that Lair should not have been compensated for 1,200 hours of service and should not have received the benefit of an hourly rate of $150. We remand for the entry of an order vacating the award of $180,000 as compensation; however, we leave intact the $48,074 awarded as reimbursement for Lair's out-of-pocket expenses. In light of our disposition of this appeal, we need not address Hovbilt's remaining claims.

Reversed and remanded for the entry of an amended judgment.

20100225

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