April 7, 2010
FOUR G'S LAND, LLC, PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
U.S. HOME CORPORATION D/B/A LENNAR HOMES, DEFENDANT-RESPONDENT/CROSS-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-2390-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Telephonically argued December 16, 2009
Before Judges Parrillo and Ashrafi.
Plaintiff Four G'S Land, LLC, appeals from an order of the Law Division dated November 21, 2008, dismissing its complaint with prejudice. Defendant U.S. Home Corporation d/b/a Lennar Homes cross-appeals from an order of February 20, 2009, denying its motion for attorney's fees and other expenses under the frivolous pleadings statute, N.J.S.A. 2A:15-59.1, and Rules 1:4-8 and 4:42-9(a)(8). We affirm both orders.
Last year, we decided a related appeal against plaintiff Four G's and in favor of defendant U.S. Home arising out of the same transaction for the sale of land. U.S. Home Corp. v. West Pleasant - CPGT, Inc., No. A-3985-07T3 (App. Div. March 6, 2009). This action is a second attempt by Four G's to litigate the same dispute decided against it in the prior litigation. The Law Division granted summary judgment to defendant U.S. Home dismissing the complaint filed by Four G's in this matter on grounds of res judicata, collateral estoppel, and the entire controversy doctrine.
In reviewing a grant of summary judgment, an appellate court applies the same standard under Rule 4:46-2(c) that governs the trial court. See Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007). The court must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). On this appeal, we review the facts most favorably to Four G's. U.S. Home is a builder of homes. Four G's owned two parcels of vacant land in Jackson Township adjoining two vacant parcels owned by West Pleasant - CPGT, Inc. On August 9, 2005, Four G's and West Pleasant entered into a contract to sell their four parcels to defendant U.S. Home for $8,400,000. Defendant intended to subdivide the land into forty-two building lots, and the contract contained contingency provisions making it subject to sub-division and other development approvals. The contract also provided that "[a]ny controversy or claim arising from or relating to this contract or the breach thereof" would be "settled" by arbitration.
The contract identified Four G's and West Pleasant "collectively" as "Seller." At the time of execution of the contract, defendant paid a deposit of $10,000 to be held in escrow by "Seller's Attorney, as Escrow Agent." The contract also provided that within thirty days of its execution, defendant would "advance to Seller" $750,000 of the purchase price upon execution and release to defendant of a "Note and Mortgage in recordable form in the amount of ONE MILLION FIVE HUNDRED THOUSAND ($1,500,000) DOLLARS in the form hereto attached as Exhibit C."*fn1 Defendant was further obligated to advance another $750,000 to "Seller" within forty-five days after final subdivision approval. The contract did not provide an escrow agreement for the payment of the $1,500,000 advance from defendant to Seller. If development approvals were not obtained within set time limits, the contract gave defendant the option of either extending the contingency period or terminating the contract and demanding return of the advance payment.
In accordance with the contract, West Pleasant executed a mortgage and note in favor of defendant on the two parcels it had agreed to convey, plus an additional adjoining parcel of its land, and defendant issued checks totaling $1,500,000 to West Pleasant in September 2005 and January 2006. Four G's contends it did not receive any of the $1,500,000 advance payment. Four G's was also not named in the mortgage and note.
During 2006, the parties corresponded alleging breach by the other in completing the contingency provisions of the contract, primarily relating to environmental approvals for development of the land. In August 2006, defendant wrote to Four G's and West Pleasant terminating the contract. In November 2006, Four G's and West Pleasant filed a demand for arbitration in accordance with the contract. Defendant filed an arbitration counterclaim demanding return of its deposit and advance payments. On December 5, 2007, the arbitration panel issued its decision awarding $1,510,000 plus interest to defendant to be paid jointly and severally by Four G's and West Pleasant.
Defendant U.S. Home filed a summary action in the Law Division to confirm the arbitration award. Four G's filed an answer requesting that the court vacate the arbitration award or, alternatively, modify it to require that West Pleasant be solely liable for refund of the $1,500,000 advance payment to U.S. Home because Four G's had not received any of those funds.*fn2
West Pleasant also filed pleadings in the Law Division, contending that the issue of joint and several liability should have been contested in the arbitration proceedings and was not properly before the court. Judge Wellerson in the Law Division rejected the arguments of Four G's and entered judgment on April 2, 2008, confirming the arbitration award as issued.
After obtaining judgment on the arbitration award, U.S. Home filed a separate foreclosure action against West Pleasant for default on the mortgage and note. At a later time, Four G's filed its own separate action against West Pleasant seeking indemnification for the arbitration award. As of the time of argument on this appeal, those separate actions remained pending.
Four G's filed a notice of appeal to this court from the April 2, 2008 judgment of the Law Division confirming the arbitration award. Shortly after filing that notice of appeal, Four G's filed a new complaint against U.S. Home in the Law Division on June 30, 2008. The new complaint is the subject of the Law Division's orders on the appeal that is now before us.
The June 30, 2008 complaint alleged facts as recited here regarding the contract of sale, the advance payments made by defendant, the West Pleasant note and mortgage, and the results of the arbitration proceedings. Count one of the complaint sought damages from U.S. Home for breach of contract in failing to seek return of the advance payments from West Pleasant under the terms of the mortgage and note issued by West Pleasant. Count two alleged detrimental reliance by Four G's on "the promises made in the Mortgage and Note." Count three alleged breach of the implied covenant of good faith and fair dealing in that defendant "did not proceed as it is contractually obligated to proceed and foreclose on the mortgage and mortgage note." Count four alleged unjust enrichment of defendant by "an unjust and unfair result" of the arbitration award holding Four G's jointly and severally liable for refund of the advance payments when it did not receive any of those proceeds.
In accordance with Rule 1:4-8, counsel for defendant wrote to counsel for Four G's demanding that it withdraw its complaint or face sanctions for filing frivolous litigation. Four G's declined to withdraw the complaint.
In October 2008, defendant filed a motion to dismiss the complaint under Rule 4:6-2(e) for failure to state a claim upon which relief can be granted or, in the alternative, to grant summary judgment dismissing the complaint. Judge Peterson in the Law Division heard oral argument in November 2008 and granted defendant's motion to dismiss. Four G's filed its pending notice of appeal from that decision.
At about the same time, defendant moved before the Law Division for attorney's fees and other expenses of litigation under the frivolous litigation statute and court rules. Judge Peterson heard argument and denied defendant's motion in February 2009. Defendant filed its pending notice of cross-appeal from that ruling.
On March 6, 2009, another panel of this court issued an unpublished opinion deciding the earlier appeal of Four G's. The panel affirmed Judge Wellerson's April 2, 2008 judgment confirming the arbitration award, including joint and several liability of Four G's for refund of the advance payment. U.S. Home Corp., supra, No. A-3985-07T3 (slip op. at 26).
On this appeal, Four G's contends that the current matter is not a repetition of the prior arbitration and the summary proceedings before Judge Wellerson confirming the arbitration award. It argues that its June 30, 2008 complaint alleged breach of the mortgage and note and the foreclosure remedies in those agreements rather than breach of the contract of sale. Four G's argues further that the mortgage and note did not contain an arbitration clause and, therefore, arbitration under the contract of sale did not bar its claims brought pursuant to the mortgage and note. We disagree with these contentions.
Initially, the arguments of Four G's fail because it was not a party to the mortgage and note issued by West Pleasant to defendant and also because, as the mortgagee, defendant did not breach the mortgage and note by failing to seek the remedies available to it in those agreements. Four G's has no cause of action against defendant for breach of the mortgage and note under any circumstances.
If Four G's could allege standing to assert claims and rights under the mortgage and note to which it was not a party, those claims and rights would only arise out of the contract of sale to which Four G's was a party, or related common law rights and remedies associated with that contract. Such related common law rights include the implied covenant of good faith and fair dealing, see, e.g., Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 420 (1997); Onderdonk v. Presbyterian Homes of N.J., 85 N.J. 171, 182 (1981), or the alleged detrimental reliance and unjust enrichment that Four G's has pleaded in its June 30, 2008 complaint. In other words, the mortgage and note could only confer rights and benefits upon Four G's through the contract of sale and related common law rights.
In that regard, the June 30, 2008 complaint does not allege facts that if proven would establish that the contract of sale required a mortgage and note that made West Pleasant solely liable for repayment of the advance funds paid by defendant. Nor did Four G's present any evidence in opposing defendant's motion to dismiss that established such a provision in the contract of sale. See ante n.1. The contract states that defendant as the purchaser "may exercise forthwith all legal rights available to Purchaser including but not limited to collection proceedings and foreclosure under the first lien Note and Mortgage." (Emphasis added.) It does not provide, as alleged by Four G's, that defendant was "obligated" to exercise foreclosure remedies to the exclusion of other collection options.
Moreover, because the claims asserted by Four G's could arise only from the contract of sale and from related common law rights associated with that contract, Four G's was required to resolve its "controversy and claim" against defendant U.S. Home through arbitration. The absence of arbitration clauses in the mortgage and note is irrelevant to the claims that Four G's can pursue against U.S. Home related to the sale of the land.
The Law Division dismissed the June 30, 2008 complaint on grounds including the entire controversy doctrine. See R. 4:30A. "The entire controversy doctrine requires the joinder of 'virtually all causes, claims, and defenses relating to a controversy between the parties engaged in litigation.'" Sweeney v. Sweeney, 405 N.J. Super. 586, 592 (App. Div.) (quoting Oltremare v. ESR Custom Rugs, Inc., 330 N.J. Super. 310, 314-15 (App. Div. 2000)), certif. denied, 199 N.J. 519 (2009); accord Thomas v. Hargest, 363 N.J. Super. 589, 595-96 (App. Div. 2003).
Here, Four G's was required by the entire controversy doctrine to litigate in one action all claims and defenses it had relating to its dispute with defendant regarding the land sale and return of defendant's advance payments. We need not decide whether the entire controversy doctrine applies to arbitration proceedings such that Four G's was required to raise its defenses to joint and several liability in arbitration. Because the arbitration was followed by an action in the Law Division to confirm the arbitration award, Four G's had an opportunity to, and in fact did, raise its defense to joint and several liability in the first Law Division action before Judge Wellerson. See U.S. Home Corp., supra, No. A-3985-07T3 (slip op. at 13). We reviewed and affirmed Judge Wellerson's decision rejecting the claims and defenses of Four G's in the prior case. Id. at 23-26. The prior judgment bars the same claims and defenses of Four G's in the current action under the doctrine of res judicata.
"The term 'res judicata' refers broadly to the common-law doctrine barring relitigation of claims or issues that have already been adjudicated." Velasquez v. Franz, 123 N.J. 498, 505 (1991). The doctrine "advances the goals of fairness, efficiency, and finality." Watkins v. Resorts Int'l Hotel & Casino, 124 N.J. 398, 412 (1991). Res judicata also bars refiling of a claim or defense that has previously been decided through a forum that is the equivalent of judicial proceedings, such as formal arbitration. Konieczny v. Micciche, 305 N.J. Super. 375, 380, 384-85 (App. Div. 1997); Chattin v. Cape May Greene, Inc., 216 N.J. Super. 618, 634-38 (App. Div.), certif. denied, 107 N.J. 148 (1987); Nogue v. Estate of Santiago, 224 N.J. Super. 383, 385-86 (App. Div. 1988).
For res judicata to apply:
(1) the judgment in the prior action must be valid, final, and on the merits; (2) the parties in the later action must be identical to or in privity with those in the prior action; and (3) the claim in the later action must grow out of the same transaction or occurrence as the claim in the earlier one. [Watkins, supra, 124 N.J. at 412.]
In this case, all of these elements are satisfied. The April 2, 2008 judgment confirming the arbitration award was a final judgment on the merits, now affirmed on appeal; both Four G's and U.S. Home were parties in that case and in this one; and the dispute resulting in that judgment grew out of the same transaction involving refund of $1,510,000 to U.S. Home from the same contract for the sale of land. Four G's is precluded by res judicata from litigating a second time any claim that it is not liable to defendant for repayment of $1,500,000.
Four G's argues nevertheless that, in confirming the arbitration award, Judge Wellerson stated Four G's could bring a separate judicial action to apportion liability between itself and West Pleasant. Four G's contends Judge Wellerson's statements are the law of the case. As we stated in our prior opinion, Judge Wellerson's remarks about a separate action to apportion liability pertained to an issue of liability between Four G's and West Pleasant. U.S. Home Corp., supra, No. A-3985-07T3 (slip op. at 26). Judge Wellerson did not rule that Four G's had a right to pursue its defenses against U.S. Home in a separate judicial action.
In conclusion, we reject the appeal of Four G's from Judge Peterson's order of November 21, 2008, dismissing its complaint with prejudice under the doctrine of res judicata.
As to defendant's cross-appeal, our standard of review under the frivolous pleadings statute, N.J.S.A. 2A:15-59.1, is whether the trial court abused its discretion. Ferolito v. Park Hill Ass'n, 408 N.J. Super. 401, 407 (App. Div. 2009); Masone v. Levine, 382 N.J. Super. 181, 193 (App. Div. 2005).
A claim is "frivolous" within the meaning of the statute if filed or pursued "in bad faith, solely for the purpose of harassment, delay or malicious injury," N.J.S.A. 2A:15-59.1(b)(1), or if "[t]he non-prevailing party knew, or should have known, that the [claim or defense] was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law," N.J.S.A. 2A:15-59.1(b)(2). [Ferolito, supra, 408 N.J. Super. at 407-08.]
In this case, defendant does not have evidence that Four G's filed its June 30, 2008 complaint for the purpose of harassment, delay, or malicious injury. In fact, because that action did not stay the prior judgment issued by Judge Wellerson, it did not delay defendant's ability to execute on the prior judgment.
Defendant can only claim that Four G's knew or should have known that its claim was without any reasonable basis and could not be supported by a good faith argument for extension or modification of existing law. With respect to that claim, prior decisions have interpreted the statute to require a showing of bad faith. McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 558, 563 (1993); Ferolito, supra, 408 N.J. Super. at 408. Bad faith does not include a litigant's "honest attempt to press a perceived, though ill-founded and perhaps misguided, claim." Belfer v. Merling, 322 N.J. Super. 124, 145 (App. Div.) (citing McKeown-Brand, supra, 132 N.J. at 563), certif. denied, 162 N.J. 196 (1999). Here, Four G's pressed a misguided claim based on the mortgage and note to which it was not a party.
We conclude that Judge Peterson did not abuse his discretion in declining to find bad faith, and in denying defendant's claims for attorney's fees and litigation expenses.