On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-1828-07.
The opinion of the court was delivered by: R. B. Coleman, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Carchman, R. B. Coleman and Simonelli.
In these back-to-back appeals,*fn1 plaintiff-appellants, Richard and Fulda Kocher (the Kochers), challenge a judgment of the Law Division that dismissed their claims against defendant, UC Overlook Development, LLC (Overlook) and directed the Kochers to reimburse Overlook $18,675.48 for attorney's fees and court costs incurred in defending against those claims. The Kochers also challenge separate orders of the Law Division dated January 4, 2008 and January 28, 2008, that granted Overlook's motion for enforcement of litigant's rights, pursuant to Rule 1:10-3. In granting that motion, the Law Division ordered the Kochers to pay $100 for each day beyond the prescribed period during which they failed to comply with the order to pay; the Kochers were also directed to pay reasonable attorney's fees and court costs incurred by Overlook in pursuing the motion for enforcement of litigant's rights.
Because we agree with the Kochers' contention that the Law Division prematurely dismissed their claims before they could avail themselves of discovery, we reverse and remand for further proceedings. With regard to the Kochers' second appeal, we affirm the judgment granting Overlook's motion for enforcement of litigant's rights.
The underlying dispute arises out of a contract for the sale of a 3.2-acre parcel of real property known as the Yardley (the Property). The Property, perched on cliffs above the Hudson River at 600 Palisades Avenue in the City of Union City, enjoys broad unobstructed views of the river and the New York City skyline. The Kochers purchased the property for $5,050,000 in late June 2000. Subsequently, in 2001, Union City adopted a resolution declaring that the Property was in an area in need of redevelopment pursuant to the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-5. On July 29, 2003, Union City adopted a redevelopment plan pursuant to N.J.S.A. 40A:12A-7. Thereafter, after the Property had been declared in need of redevelopment, the Kochers entered into a joint venture agreement with Joseph Panepinto to develop the Property, and Panepinto Properties, Inc. (Panepinto Properties) was designated by the Union City Redevelopment Agency (the Agency) as the redeveloper under its redevelopment plan. The Kochers and Panepinto subsequently found themselves in disagreement about their rights and obligations under their joint venture agreement and that disagreement resulted in litigation (the Panepinto Litigation), that was ultimately settled.
On July 30, 2004, while the Panepinto Litigation was pending, Overlook purchased the Property from the Kochers for $14,250,000 pursuant to a complex contract (the Purchase Agreement) that underlies the present dispute. Pursuant to the Purchase Agreement, Overlook paid $6,000,000 to the Kochers at closing and the remaining $8,250,000 was the subject of a second mortgage (Seller's Mortgage). The Purchase Agreement specified that the Kochers were obligated to use their best efforts to have Overlook designated as the redeveloper, and that the Seller's Mortgage would only accrue interest if and when Overlook was appointed redeveloper of the property.
The Purchase Agreement also provided for a landlord-tenant relationship between the parties. In selling the property, the Kochers retained a triple net master lease of the entire property for a two-year term and paid Overlook a monthly rent equal to taxes, insurance, and the monthly amount due on the First Mortgage.
Because both parties understood that the Property was designated for redevelopment and could be condemned, the Purchase Agreement contained certain provisions regarding the defense of condemnation proceedings taken against the Property. For example, Section 10.5 of the Purchase Agreement states:
A. Conduct of the Taking Litigation. Within ten (10) business days of the Taking, each party shall notify the other of its intention whether or not to continue participating therein. If [the Kochers] deliver notice to [Overlook] that [they] wish to do so within such 10-day period and [Overlook] does not provide such notice to [the Kochers], then [the Kochers] shall proceed with the defense of the Taking litigation at [their] sole cost and expense.... If [Overlook] provides such notice to [the Kochers], but [the Kochers] do not provide such notice to [Overlook], then [Overlook] shall conduct the defense of the Taking litigation at its sole cost and expense.
B. If the parties each provide notice to the other as set forth in subsection to the other [sic] as set forth in subsection 10.5.A above, the provisions of Section 10.4 shall apply.
Section 10.4 sets forth a detailed scheme for the division of the "proceeds of the condemnation proceeding" in the event that the parties undertake a "joint defense." Section 10.4 of the Purchase Agreement provides
If at any time subsequent to the Closing, and prior to [Overlook] being designated as developer for the Property, any entity possessing the power of eminent domain shall file a Declaration of Taking and deposit monies for the condemnation of the Property (the "Taking"), then the following shall apply:
B. The parties shall conduct the defense of the Taking as set forth below.
C. If the parties shall jointly conduct such defense, the proceeds of the condemnation proceeding provided for in Section 10.4, shall be distributed in the following order:
1. Payment of the First Mortgage Note, with all accrued interest.
2. The next $1,150,000.00, plus $80,000.00 for each month after the twelfth month from the Closing until distribution is made, shall be split equally between [the Kochers] and [Overlook].
3. All remaining proceeds up to $13,000,000.00, less the amounts necessary to pay the items listed in Section 10.4.C.1 and 2, shall be paid to [the Kochers].
4. All proceeds in excess of the amount to be paid to [the Kochers] under Section 10.4.C.3 shall be split equally between [the Kochers] and [Overlook].
Thus, the Purchase Agreement provides that either party may "conduct the defense of the Taking litigation" on its own or in "joint defense" with the other party. It does not, however, specify whether the "defense of the Taking litigation" pertains only to the condemnation phase of the taking, only to the valuation phase of the taking, or to both.
On July 12, 2005, the Agency offered to purchase the Property from Overlook for $5,600,000. Overlook apparently did not respond to that offer, and on September 26, 2005, the Agency filed a declaration of taking. On October 8, 2005, the Agency filed its complaint in condemnation of the Property and deposited $5,600,000 into court pursuant to an October 27, 2005 order entered by the judge. Both Overlook and the Kochers provided notice that they would be undertaking a defense of the taking litigation, triggering Section 10.4.C of the Purchase Agreement.
As demonstrated by correspondence between Overlook and the Kochers, the parties soon found themselves in disagreement as to the meaning of the phrase "defense of the taking litigation," as employed in the Purchase Agreement. Overlook's view is that its opposition to the judgment of condemnation was contemplated and encouraged by the Purchase Agreement, while the Kochers contend that the Purchase Agreement permitted the parties to contest only the valuation phase of the condemnation proceedings and to thereafter divide the proceeds in the manner specified in Section 10.4.C. Against the Kochers' wishes, Overlook opposed the Agency's order to show cause for final judgment of condemnation and to appoint commissioners.
On March 30, 2006, the judge issued a written opinion rejecting Overlook's opposition to the Agency's order to show cause for final judgment and to appoint commissioners, thereby granting the Agency judicial authorization to condemn the Property. Overlook appealed the judge's decision, and, on May 8, 2007, this court affirmed. Union City Redev. Agency v. UC Overlook Dev., No. A-4485-05 (App. Div. May 8, 2007) (slip op. at 5).
In the meantime, on April 11, 2007, the Kochers filed their complaint (the Complaint) against Overlook alleging that Overlook's actions in opposing the judgment of condemnation constituted a breach of the Purchase Agreement as well as a breach of its fiduciary duty, a breach of the covenant of good faith and fair dealing, and fraud. By letter dated June 4, 2007, Overlook demanded that the Kochers withdraw their complaint, asserting that the claims therein were frivolous. On June 29, 2007, Overlook filed a motion to dismiss the complaint under Rule 4:6-2(e), and/or for summary judgment under Rule 4:46, for ...