May 18, 2010
VERIZON NEW JERSEY, INC., FORMERLY KNOWN AS BELL ATLANTIC - NEW JERSEY, INC., FORMERLY KNOWN AS NEW JERSEY BELL TELEPHONE COMPANY, PLAINTIFF-RESPONDENT/ CROSS-APPELLANT,
ONE WASHINGTON PARK URBAN RENEWAL ASSOCIATION, AND SIETE URBAN RENEWAL ASSOCIATES, DEFENDANTS-APPELLANTS/CROSS-RESPONDENTS, AND EDWARD R. MCMAHON, ESQ., SOLELY IN HIS CAPACITY OF RECEIVER FOR ONE WASHINGTON PARK URBAN RENEWAL ASSOCIATES, DEFENDANT.
On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-120-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 9, 2010
Before Judges Carchman, Parrillo and Ashrafi.
Defendant Siete Urban Renewal Associates, LLC (Siete), successor-in-interest to defendant One Washington Park Urban Renewal Association, appeals from a final judgment awarding it $81,000 out of the $1,850,000 in damages it claimed was due under the terms of a lease agreement with its former tenant, plaintiff Verizon New Jersey, Inc.*fn1 On appeal, defendant contends that the trial judge erred in requiring it, rather than plaintiff, to present its proofs first, in precluding the testimony of its expert on restoration damages and in failing to, sua sponte, declare a mistrial following the testimony of another of its damages experts. On its cross-appeal, plaintiff asserts that the trial judge erred in his damages award, and that the counsel fee award to defendant was unwarranted. We affirm the damage award and reverse and remand on the cross-appeal as to counsel fees.
These are the relevant facts adduced at the bench trial of these issues. On March 6, 1981, plaintiff and Siete*fn2 entered into a written lease agreement in connection with Siete's soon-to-be-constructed seventeen-story office building in Newark. Specifically, Siete agreed to lease ninety-four percent of the building, known as One Washington Park, to Verizon for a term of twenty years, ending January 31, 2003.
Under the terms of the lease, in addition to a base rent of $532,759 per month, Verizon agreed to pay ninety-four percent of Siete's "operating expenses" in connection with the building. Operating expenses that qualified as "pass-throughs" or rent "escalations" were defined in the original lease and then redefined in January 1992 in a third amendment to the lease as all reasonable costs, expenses and disbursements which Landlord shall pay or become obligated to pay in connection with the operation, maintenance, replacement and repair of the Building and/or the Land, and the personal property, fixtures, machinery, equipment, systems and apparatus located in, on or used in connection with the Building and/or the Land . . . [including] current amortization (using useful lives) of capital improvements to the Building and/or the Land which are required by law or which are reasonably necessary for the operation, maintenance, repair or replacement of the Building and/or the Land.
Under the third amendment, operating expenses did not include, among other things:
(i) capital improvements except for the current amortization thereof . . . ,
(ii) costs for which Landlord is compensated for [sic] insurance,
(iii) costs for the construction of tenant space in the Building,
(iv) costs for which a tenant specifically reimburses Landlord without reference to this Article V,
(v) costs for which Landlord is reimbursed by a contractor's or manufacturer's guarantee,
(vi) brokerage or leasing commissions,
(vii) management fees,
(viii) costs required to correct latent defects, faulty design and faulty construction of the Building,
(xiii) any expense, including, but not limited to, petty cash expenses, for which proper documentation, including an invoice, is not provided,
(xiv) any expense for legal services that do [sic] not pertain to the operations of the Building and/or the Land,
(xv) with the exception of a reasonable fee for any annual audit(s) of the Landlord's operations conducted by an outside accountant or accounting firm (a copy of said annual audit(s) shall be provided by Landlord to Tenant within 30 days from the date of Landlord's receipt of same), any accounting fee and any expense incurred by Landlord associated or related in any manner to any accounting work, including, but not limited to, preparation of tax returns or work relating to refinancing[.]
In the third amendment, Verizon "reserve[d] its right to contest any 'Operating Expense' being passed through to it by Landlord that Tenant believes is not in accordance with the Primary Lease and all Amendments thereto."
Siete was obligated under the lease to provide Verizon with timely written statements of the projected escalation expenses for each year of the lease term, as well as timely final statements of the actual escalations for each year. Siete was further obligated to maintain "books and records showing Operating Expenses and Taxes" and to make these records available to Verizon for audit. In July 1998, Siete agreed to provide its written statements of projected escalation expenses by the end of the first quarter, March 31, of the year at issue and to provide its final escalation statements for each year with accompanying financial statements by March 31 of the following year.
Notwithstanding the foregoing, Siete failed to provide any statements of projected escalation expenses for 1997, 2000, 2001 and 2002. On November 12, 1998, it provided two statements of projected escalation expenses, one for 1998 and one for 1999, of which only the latter was timely. Siete also did not provide:
(1) its final escalation and financial statements for 1997 until November 1998, eight months after they were due; (2) its final escalation and financial statements for 1999 until June and August 2000, three to five months after they were due; (3) its final escalation and financial statements for 2000 until September 2001, six months after they were due; (4) its final escalation and financial statements for 2001 until March 2003, one year after they were due; and (5) its final escalation statement for 2002 until December 2003, nine months after it was due and without the required financial statement. Siete did provide its 1998 final escalation statement on time, but then failed to provide the corresponding financial statement until October 2002.
During each of the years between 1997 and 2002, disputes arose regarding the escalations due to Siete. Specifically, Siete initially claimed that it was due $4716 for 1997, $211,394 for 1998, $167,669 for 1999, $20,103 for 2000, $137,536 for 2001 and $521,661 for 2002, for a total of $1,063,079. However, a review performed by Siete's own accountant, J.H. Cohen, in 2003 revealed that these numbers were erroneous and that Siete had overbilled Verizon by $400,601. According to Cohen, Siete actually owed Verizon $450 for 1997 and $84,691 for 2000, and Verizon owed Siete only $175,673 for 1998, $15,619 for 1999, $84,914 for 2001 and $471,413 for 2002.
Meanwhile, Verizon had engaged a lease auditor, Jon Levy, who reviewed all available documentation and concluded that Verizon owed only $81,122 in escalations for the period 1997 through 2002. Notably, Levy was paid both a base fee and a thirty-five percent contingency applied against the amount of money he was able to save Verizon.
Although the parties made efforts to resolve the matter of the outstanding escalations, very little progress was made because of the disparity in the amounts each side claimed was due. Verizon became concerned that the statute of limitations might be raised as a defense to its claim that it had overpaid escalations for certain years. When it became clear that the matter would not settle, Verizon filed its declaratory judgment action in January 2005.
At trial, Siete, notwithstanding its status as defendant, was required to present its proofs first regarding the escalation and restoration damages allegedly due, but did not offer a single escalation statement or a single invoice to support any of the expenses it believed Verizon had wrongfully failed to pay. It also did not present the testimony of Cohen or any other accounting expert. Rather, Siete presented the testimony of Charles Geyer, Siete's principal, and Robert Colletti, one of several building managers employed by Geyer, regarding an alleged admission made in October 2002 by Robert Haines, a Verizon representative who had been negotiating all outstanding lease issues with Siete. Specifically, Geyer and Colletti reported that Haines stated, during a meeting, "I know we owe you approximately $400,000 for pass through[.]" However, although Geyer initially insisted that all documentation pertaining to outstanding escalations had been provided to Verizon before Haines made this statement, he subsequently conceded that: (1) Cohen's revised escalation calculations for 1997-2000, which reduced the amount Siete claimed was due for that period from $403,882 to $106,151, had not yet been furnished to Verizon; and (2) no documentation regarding 2001 and 2002 escalations was provided to Verizon until late 2003.*fn3
Haines denied making this statement.
At the close of Siete's case, Verizon moved for judgment. For purposes of the motion, Verizon's counsel stipulated that Verizon owed Siete $81,122 in escalations, i.e. the amount identified by Levy and put into evidence by Siete. Verizon's counsel argued that, aside from this figure, Siete had presented absolutely no proof regarding the amount of escalations it was allegedly due. In response, Siete's counsel insisted that the alleged admission by Haines that Verizon owed $400,000 in escalations was sufficient to defeat Verizon's motion. The judge reserved decision on the motion and required Verizon to present its evidence in defense of Siete's counterclaim.
Thereafter, accountant Lawrence Chodor testified on behalf of Verizon with respect to the disputed escalations. He reported that he recalculated the escalations due to Siete based upon his own review of the lease and its amendments, the financial statements prepared by all of Siete's accountants over the years, including Cohen, Siete's general ledgers, its depreciation schedules, numerous invoices, certain correspondence and the Levy report. After explaining each deduction he had made from Cohen's numbers, Chodor concluded that Verizon owed only $69,973 to Siete for escalations.
The parties also disputed whether certain items should have been removed from the Building. Section 31.01 of the lease provided that "Landlord shall construct the Building on the Land in accordance with the Plans and Project Description attached hereto as Exhibit I, and Landlord shall improve each floor of the Demised Premises with the improvements for each floor described on the Work Agreement." Section 31.03 of the lease further provided that Tenant may make or cause to be made any alterations, improvements, additions or installations in the Demised Premises subsequent to the initial occupancy of such premises by Tenant provided that none of such items affect the base Building systems or the structural integrity. . . . All alterations, improvements, additions and installations to or on the Premises shall become part of the Premises at the time of their installation and shall remain in the Premises at the expiration or termination of this Lease, or termination of Tenant's right of possession of the Premises, without compensation or credit to Tenant, except that Tenant may prior to the termination of this Lease remove Tenant[']s trade fixtures from the Demised Premises.
Pursuant to Article XXXVIII of the Lease, entitled "Surrender of the Premises," [u]pon the expiration or termination of this Lease or termination of Tenant's right of possession of the Demised Premises, Tenant shall surrender and vacate the Demised Premises immediately and deliver possession thereof to Landlord in a clean, good and tenantable condition, ordinary wear and tear excepted. Upon any termination which occurs other than by reason of Tenant's default, Tenant shall be entitled to remove from the Demised Premises all moveable trade fixtures and personal property of Tenant without credit or compensation from Landlord, provided Tenant immediately shall repair all damage resulting from such removal and shall restore the Demised Premises to a tenantable condition. . . . Notwithstanding the foregoing, the work performed by Landlord pursuant to the Work Agreement, the carpeting installed by Tenant in the Demised Premises and any wall coverings installed by Tenant in the Demised Premises shall upon the termination of this Lease by lapse of time or otherwise be the exclusive property of Landlord (without paying any compensation to Tenant), and Tenant shall not remove such items from the Demised Premises.
On July 18, 2002, six months before the expiration of the lease, Colletti sent Haines a list, prepared by building engineer Michael Lynch, of 150 items that he asserted had to be removed from the building "to return the building back to its proper state." Colletti wrote that he had yet to obtain prices for removal. In an effort to assist Colletti in obtaining pricing, one of Haines' co-workers, Steve Guarneri, had previously supplied Colletti with the names of several contractors Verizon had used in the past, including Suchana Construction, Inc. (Suchana), Lynch Construction and O'Beirne Construction (O'Beirne). According to Haines, when negotiating the surrender of a lease, Verizon preferred to pay a sum for restoration and let the landlord make the repairs.
By letter dated September 27, 2002, Haines advised Colletti that, in Verizon's view, forty-one of the items on the Lynch list were improvements to the building that Verizon was not obligated to remove under the lease. Among these items were three rooftop cooling towers, a rooftop generator, six exterior antennae, multiple bathrooms situated on the twelfth floor, a multi-floor Moesler mail delivery system and the raised computer floors and related ramps and knee walls on the second, third and fourth floors.
In November 2002, Colletti forwarded to Haines a proposal from Suchana containing itemized prices to perform all of the restoration work originally identified by Lynch, plus the removal of all telephone conduit and electrical wiring on floors five through seventeen. Suchana's total to perform all the specified work was $1,939,133. This included $932,547 to remove the disputed items, i.e., cooling towers, generator and the like, listed above. According to Haines, Verizon went into "sticker shock" upon reviewing the Suchana estimate and never considered the prices contained therein acceptable.
Lynch prepared a multi-column spreadsheet identifying the items Siete claimed were Verizon's personal property, the items Verizon claimed were improvements and the corresponding Suchana price for removal. The parties engaged in extensive negotiations as to which items were improvements and which were personal property. They did not discuss pricing of the removal costs, and several versions of the spreadsheet were produced, wherein items changed columns. These negotiations continued through 2003 and into 2004.
Meanwhile, in December 2002, with no resolution in sight and an imminent deadline, Haines decided to move ahead with the removal of the items Verizon had identified as personal property. Haines had obtained an unspecified, but substantially lower, "lump sum" estimate from O'Beirne which he had originally intended to "bounce off" the Suchana estimate. Instead, Haines decided to simply hire O'Beirne to perform the work. O'Beirne did not remove the Moesler mail system, the three cooling towers, the antennae, the additional bathrooms, the raised floors and knee walls nor the emergency generator.
After O'Beirne performed its work, a janitorial service cleaned each floor. Lynch, who was the Siete point person with respect to the restoration, inspected the work and "signed off" on each floor. According to William Tate, another Verizon employee who was on-site every day in January 2003, Lynch agreed, on behalf of Siete, that Verizon could leave the generator and the raised floors. Tate further noted that Lynch agreed that the concrete trench headers on the eighth floor could remain because they could not be removed without knocking down walls.
Verizon surrendered the building on January 31, 2003. According to Haines, he and Tate waited to meet with Geyer and Colletti, but they never showed up, and so he turned the keys to the building over to Lynch. Haines recalled that, while he was waiting in the parking lot, he received a fax indicating that Siete believed Verizon to be in breach of the lease for failure to remove all of its personal property.
Verizon did not thereafter hear from Siete on this issue for over a year. Siete did not undertake to perform any of the allegedly essential restoration work it claimed Verizon had wrongfully failed to perform. On May 5, 2004, Siete entered into a contract to sell the building to Fidelco for $26,500,000. According to Geyer, the condition of the building negatively affected the sale price. He noted that the building had been valued at $32,500,000 for purposes of a 1998 refinancing. Geyer conceded, though, that the sale price was also affected by his need for a quick sale, as well as the fact that the building was ninety-five percent unoccupied.
In mid-July 2004, just prior to the closing on the building, Siete sent Verizon an estimate dated July 12, 2004, from Enclave Builders, Inc. (Enclave), for $1,200,702 in previously identified and new building repairs it alleged were Verizon's responsibility. Verizon subsequently retained its own expert, Klein Construction Company (Klein), who prepared a report rebutting the Enclave estimate.
At trial, Siete was precluded from presenting expert testimony from both Enclave and Suchana as to its restoration damages. At the close of Siete's case, Verizon moved for judgment, and the judge reserved on the motion without comment. In view of what it believed to be Siete's failure to present essential expert testimony, Verizon elected not to call its expert, Klein. Although Siete attempted to subpoena Klein to testify on its behalf, the trial judge did not order an unwilling Klein to testify.
Following trial, Judge Stephen Smith issued a decision and awarded defendant $81,000 on its claim for escalation damages. The judge denied both defendant's claim for restoration damages and plaintiff's "Fox-Lance" claim*fn4 . The judge entered a final judgment to this effect, as well as a separate order awarding defendant $107,762 in counsel fees, on October 23, 2008. The judgment also directed that the balance of certain monies held in escrow by plaintiff be released to plaintiff after payment of the two awards. This appeal and cross-appeal followed.
On appeal, defendant asserts that the trial judge erred: 1) in requiring it to proceed first with its proofs; 2) in failing to declare a mistrial after defendant's expert testimony was deemed inadmissible; 3) in precluding testimony from its restoration expert; 4) in declining to award restoration damages; and 5) in awarding escalation damages to defendant*fn5 .
We address the issues seriatim.
We briefly discuss and dispose of the issue of the order of proofs. In concluding that defendant should proceed first with its proofs, the trial judge observed:
Well, it seems to me that the parties both have . . . agreed, at least to some extent, as to what their . . . financial obligations [are] . . . . There, however, are areas where the parties disagree. And . . . defendant is seeking certain dollar amounts which it claims it's due under the lease to deal with those situations. The plaintiff is saying essentially that we don't agree with the amounts that you are seeking or that we had an obligation to do certain things.
So, . . . despite the caption of the case as to who is plaintiff and who is defendant, it's clearly the defendant that is seeking money damages under the terms of the lease. And at least, as far as . . . the escalations and restoration are concerned . . . it seems to me that the defendant has the burden of proving the[m][, that] under the terms of the lease they are, in fact, entitled to something, and then that can be disproved by the defense by their . . . witnesses and their proofs. But a right has to be established, and at least there has to be a showing of a . . . right to some monies or to some relief before we can logically handle it within the terms of the litigation. So I will require that the defendant come forward with the burden of proof as far as the dollar amounts you're seeking for . . . escalations and restorations[.*fn6 ]
We agree with the judge's ruling as to the order of proceeding. As a general rule, "the burden of establishing . . . a fact [or circumstance] is on the party relying thereon." County of Essex v. First Union Nat. Bank, 373 N.J. Super. 543, 555 (App. Div. 2004) (citing Snyder v. I. Jay Realty Co., 53 N.J. Super. 336, 347 (App. Div. 1958), aff'd in part, rev'd in part on other grounds, 30 N.J. 303 (1959)), aff'd, 186 N.J. 46 (2006); accord Esteves v. Esteves, 341 N.J. Super. 197, 202-03 (App. Div. 2001). The burden of producing evidence and the burden of persuasion are imposed "on the party best able to satisfy those burdens" because of its "greater expertise and access to relevant information . . . ." J.E. on Behalf of G.E. v. State, 131 N.J. 552, 569-70 (1993). A party should not be placed in the position where it is required to prove a negative. Kvaerner Process, Inc. v. Barham-McBride Joint Venture, 368 N.J. Super. 190, 201 (App. Div. 2004); Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 330-31 (1998). In the usual case, a party seeking damages bears both the burden of both production and persuasion. Caldwell v. Haynes, 136 N.J. 422, 436 (1994).
We perceive no error here. Siete claimed that it was due an additional $1,850,000 under the lease in escalation and restoration damages. Because Siete was the party seeking damages, it had the burden of demonstrating, as an initial matter, what it believed it was owed through the production of invoices and expert testimony. To compel plaintiff to proceed first would have required Verizon to speculate as to the damages Siete would be able to prove and then attempt to offer a preemptory defense, in essence proving negatives. Contrary to Siete's representations, it was the party who had better access to the proofs pertaining to escalations since the escalations were its own claimed operating expenses. It also had at least the same access to proofs regarding the restoration of the building. Siete was not prejudiced by the trial judge's discretionary decision on this issue, and we find no abuse of that discretion.
Siete contends for the first time on appeal that the judge erred in failing to declare, sua sponte, a mistrial following the testimony of Michael and Marla Iannocone.
These are the facts relevant to the issue. At trial, Lynch testified that, in July 2004, more than one year after Verizon vacated the building, he provided a list of needed repairs to Enclave and requested an estimate. Lynch claimed that he met with Michael Iannacone of Enclave and walked through the building. That same month Enclave supplied Lynch with an estimate in the amount of $1,200,702, signed not by Michael, but by Marla Iannacone, Michael's daughter.
Thereafter, in its March 2006 interrogatory answers, Siete named Enclave as its expert with respect to restoration and remedial costs. However, in the fall of 2007, Marla advised Siete that she was not an expert, and that she would not willingly testify for Siete that the estimate she had prepared set forth fair and reasonable costs to restore. Nonetheless, during the trial, counsel for Siete subpoenaed both Michael and Marla. Counsel insisted that Michael was an expert witness and had prepared a report on Siete's behalf. Counsel for Verizon objected, representing that, when he had sought to depose Michael, counsel for Siete advised that Enclave was no longer Siete's expert.
Michael subsequently testified and identified himself as an electrical, not a general, contractor, who had performed electrical work for Verizon for nearly forty years. He denied that he was employed by, or had any ownership interest in, Enclave. He further denied that he had prepared the 2004 estimate for Siete. Michael insisted that he was not qualified to serve as Siete's expert, and that he was unwilling to do so.
Marla testified that she and her mother owned Enclave and that she performed general office work for the company. She confirmed that Enclave had performed work for Verizon since 1992. Marla recalled that, in 2004, she received a fax from Siete outlining work that needed to be done at the building and requesting an estimate. No blueprints were provided, and no Enclave representative ever walked through the building.
Marla claimed that she was not interested in the job because she had heard that Geyer did not pay his bills, and because Siete had not included blueprints or offered her the opportunity to walk through the building and talk to their architects and engineers. She nonetheless prepared a "courtesy" bid utilizing "dreamed up," inflated prices, which she did not anticipate would be accepted. She did not consult with a professional estimator. According to Marla, no one from Siete ever called her thereafter to discuss the proposal until Geyer contacted her three years later, ostensibly for "insurance" purposes.
Marla insisted that the original fax from Siete had not indicated that a proposal was being sought for use against Verizon. She stated that, had she been apprised of this fact, she would never have submitted even a "courtesy bid." She noted that her company had no desire to damage its longstanding relationship with Verizon and believed that she had been deceived by Siete.
Based upon the foregoing, Judge Smith was satisfied that Michael had not signed the bid, and that he could not be compelled to serve as Siete's expert. Counsel for Siete did not dispute these findings and also made no argument that Marla qualified as an expert. Counsel for Siete also did not move for a mistrial.
Expert testimony must be given voluntarily and cannot be compelled by subpoena. Graham v. Gielchinsky, 126 N.J. 361, 369 (1991); Rocco v. N.J. Transit Rail Operations, Inc., 330 N.J. Super. 320, 342 (App. Div. 2000). An expert is also entitled to contract and receive compensation for his or her testimony. Stanton v. Rushmore, 112 N.J.L. 115, 117-18 (E. & A. 1934).
Siete insists that the trial judge should have declared, sua sponte, a mistrial after Marla's testimony because it had unexpectedly been deprived of its expert on its claim for restoration damages. We disagree. Siete never actually engaged Enclave as its expert, but rather, Siete misled Enclave into supplying a proposal by advising that it was soliciting bids for work. It never advised Enclave that it intended to use its bid as an expert report until three years later. At that point, Enclave stated, without reservation, that it would not serve as Siete's expert, and Siete confirmed to Verizon that it no longer intended to rely upon Enclave. Despite this representation, as well as the fact that the trial was not set to begin until some six months later, Siete chose not to engage a new expert and subpoenaed Michael and Marla to appear at trial. We find no manifest injustice was worked on Siete, and the judge had no affirmative obligation to intervene on Siete's behalf.
Siete next contends that the judge erred in barring the "factual testimony" of Russell Suchana. These are the facts relevant to this argument.
Siete identified Enclave as its expert as to restoration damages in its interrogatory answers. On February 13, 2008, after the expert problems arose regarding Enclave, Siete amended its answers to include Russell Suchana of Suchana, as a "potential witness at trial." It did not identify Suchana as an expert on restoration damages or provide Verizon with any expert report from Suchana.
Prior to trial, counsel for Verizon moved for an order precluding Suchana from testifying as an expert witness on behalf of Siete as to restoration damages and deeming the Suchana estimate admissible only as proof that it was received, rather than as proof that the prices contained therein were fair and reasonable. In response, counsel maintained that Verizon would not be prejudiced by the admission of either Suchana's testimony or his estimate because Suchana was a "Verizon-suggested contractor," and Verizon had made an adoptive admission that Suchana's prices were reasonable when it permitted them to be placed into a spreadsheet for use during settlement negotiations.
Judge Smith ruled that expert testimony was necessary to establish that the prices contained in the Suchana estimate were fair and reasonable. The judge found that, to the extent Siete proposed to call Suchana to provide this testimony, he could not disregard the fact that Suchana "was not listed as an expert witness, therefore putting [Verizon] at a disadvantage in not deposing that witness and not having their expert try to meet the estimates set forth in the Suchana report[.]" Ultimately, the judge concluded that, while he would not preclude Suchana from testifying as to factual matters, he would not allow Suchana to testify as to the amount of damages Siete was due on its restoration damages claim.
Siete did not call Suchana as a witness. After the close of Siete's proofs, Judge Smith admitted the Suchana estimate into evidence with the understanding that the prices contained in the estimate were not proof of the fair and reasonable cost of restoring the building.*fn7
Siete now asserts that the judge improperly precluded Suchana from testifying as a fact witness. We find the record indicates otherwise. The judge expressly permitted Suchana to testify as a fact witness and only precluded him from offering expert opinions regarding the reasonableness of his estimate since he had never been named as Siete's expert. The judge did not err in his ruling as to Suchana.
Siete next asserts that the judge erred in concluding that it failed to establish its claim for restoration damages. In considering this argument, we are mindful of the standard of review that applies to the factual determinations of the trial judge in a bench trial.
The findings on which a judgment is entered following a non-jury trial are not to be disturbed unless "they are so wholly unsupportable as to result in a denial of justice." In re Guardianship of J.N.H., 172 N.J. 440, 472 (2002) (citations omitted). Therefore, "[f]indings by the trial judge are binding on appeal when supported by adequate, substantial and credible evidence." Triffin v. Automatic Data Processing, Inc., 411 N.J. Super. 292, 305 (App. Div. 2010) (citing Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974)). It is of no consequence that we might have reached a different result or that all testimonial or evidentiary issues were resolved in favor of one side. State v. Elders, 192 N.J. 224, 244 (2007) (citing State v. Johnson, 42 N.J. 146, 162 (1964)).
In cases involving injury to real property, damages may be measured by the diminution in value of the property or by the cost to repair the property. Velop, Inc. v. Kaplan, 301 N.J. Super. 32, 64 (App. Div. 1997), appeal dismissed, 153 N.J. 95 (1998); Siligato v. State of New Jersey, 268 N.J. Super. 21, 31-32 (App. Div. 1993). The choice between these two approaches depends upon the circumstances in each individual case. Velop, Inc., supra, 301 N.J. Super. at 64. When repair costs are used as the measure of damages, those costs generally may not exceed the diminution in value of the property because of the concern of avoiding unreasonable economic waste. Ibid.; Correa v. Maggiore, 196 N.J. Super. 273, 285 (App. Div. 1984).
In that part of his decision addressing the claimed restoration damages, Judge Smith concluded:
. . . I found in limine that Siete is in effect a plaintiff as far as the claims for escalation and restoration are concerned and bears the burden of proof. . . . Regarding Siete's claims for costs associated with removing certain systems and structures that Verizon allegedly left behind, it would be an interesting exercise to go through the items one by one and discuss whether they were in fact the property of Verizon and should have been removed at Verizon's expense, or whether they became the property of Siete, and therefore remained with the building as their property. There was a lot of testimony regarding cooling towers and antennas and a mail chute system and trenches dug in the floor and windows that were covered and closed, telephone equipment rooms that were left in the building, improvements to executive lavatories and the like, but all this discussion becomes unnecessary because Siete never proved damages in this regard, and despite what may or may not be entitlement to removal or restoration, without damages having been proved, there is no loss. The cost of removal of the systems in question [is] not a matter of common knowledge, and expert testimony is required to prove the losses in question. Siete tried to produce evidence of loss through what was described as a fact witness, but in evidential rulings made during the course of the trial, the court found that the proposed testimony was in fact expert testimony and no expert report had been prepared and presented to Verizon.
During the course of the trial, Siete attempted to subpoena Maria Iannacone and her father, Michael Iannacone[,] with regard to some of the repair costs. Both witnesses denied being engaged by Siete as expert witnesses and refused to provide testimony.
Siete, therefore, has proved no damages as to restoration, and there will be judgment for Verizon on these claims.
Siete now argues that, contrary to the trial judge's findings, it did present evidence regarding its restoration damages. Specifically, Siete insists that "[t]he prices to restore the building to pre-Verizon condition [were] set forth in the estimate prepared by Suchana." In Siete's view, these prices were never challenged by Verizon and were adopted by Verizon as fair and reasonable. We disagree.
Preliminarily, Siete ignores the fact that it was expressly precluded from relying upon the Suchana estimate in support of its claim for restoration damages because it failed to name Suchana as its expert. Moreover, the record does not support Siete's assertion that Verizon "adopted" the Suchana prices as fair and reasonable. In fact, Haines testified that Verizon went into "sticker shock" upon reviewing the estimate, and the prices contained in the estimate were never acceptable to Verizon. While the parties' negotiations may have focused more on whether an item was personal property or an improvement, rather than on the Suchana prices, Haines secured a second estimate from O'Beirne a short time after receiving the Suchana estimate and ultimately hired O'Beirne to perform the bulk of the items on the Lynch list. We reject Siete's argument that it proved its restoration damages through the Suchana estimate.
Alternately, Siete argues that it should have been permitted to re-open its case, subpoena Klein and rely upon his estimate of the restoration damages. We again disagree. We reiterate the principle that an unwilling expert, such as Klein, cannot be compelled to testify. Graham, supra, 126 N.J. at 369.
We reject Siete's reliance on Cogdell v. Brown, 220 N.J. Super. 330, 332-33, 336 (Law Div. 1987), where the plaintiffs named the defense expert as its own expert a year before trial, and the expert had no objection to testifying on behalf of both parties.
Lastly, Siete contends that it established that Verizon's failure to restore the building diminished the building's value from $32,500,000 to $26,500,000. However, Geyer, who offered the only testimony on this issue, was not qualified as an expert in building valuation and based his lay opinion upon a six-year-old assessment of the building's value for purposes of a mortgage refinancing. As such, and because Geyer conceded that other factors affected the sale price of the building, including his need for a quick sale and the building's lack of tenants, we reject Siete's contention that it proved that Verizon's failure to restore the building diminished its value.
We next address the issue of escalation damages. Siete contends that the trial judge erred in failing to award escalation damages of either $400,000 or $650,000. In its cross-appeal, Verizon argues that the lower court erred in awarding $81,000 in escalation damages based solely upon a stipulation made by Verizon's counsel for purposes of a motion for judgment at the close of Siete's proofs. We reject both arguments.
In his decision, Judge Smith initially noted that it was "impossible to ascertain" the amount of escalation damages claimed by Siete since Siete had not produced a single document or witness in support of this claim. The judge observed that [t]he only support for escalation expenses, other than a bare claim[,] came through Verizon's expert Chodor, who . . . reviewed all the pertinent documents available. Chodor reviewed Siete's calculations for the years 1997 through 2002[,] which amounted to $1,063,079[,] and the revised calculations prepared by [Cohen], Siete's accountants, which reduced that amount to $662,478, a $400,601 difference representing a 40% error in Siete's calculations. He then went on to testify line item by line item as to what in his opinion were the proper allocations of expenses . . . . It should be noted that Chodor's testimony was hardly an impartial analysis of the items, costs and expenses involved, and he gave Verizon the benefit of the doubt whenever there was an expense that was either unsubstantiated by documentation, or in his opinion improbable under the circumstances of the case. It should further be noted, however, that this is the only testimony produced during the trial dealing with any specificity with the issues involved and the costs associated therewith. . . . I found Chodor to be generally a credible witness, even though his testimony is tainted somewhat by his allegiance to Verizon and by giving them the benefit of any doubt that existed in his analysis . . . . At the end of the day, the [Cohen] calculation of $662,478 for escalations was reduced by Chodor to $69,973. Verizon . . . has acted throughout the course of the matter acknowledging that they owed some money to Siete on pass throughs. Siete has taken a position that a statement was made by Robert [Haines] . . . allegedly admitt[ing] that . . . Verizon owed at least $400,000 in pass throughs. [Haines] testified that he never made that representation. I did not find [Haines] to be a particularly credible witness. . . . However, that off-hand statement unsupported by other evidence is not a basis for Siete to recover "at least $400,000." The amounts in question must be specified and proved by competent evidence.
I find therefore, that Siete is entitled to judgment in the amount of at least $69,973, based on the proofs adduced at trial. However, there was a stipulation between counsel that the amount in question was at least $81,000, and judgment will be entered in that amount.
Siete argues first that the judge erred in giving any credence to Chodor's escalation calculation because Chodor "relied" substantially upon the Levy audit, which was prepared largely on a commission basis. In Siete's view, the Cohen analysis was the only "first hand account of what occurred" and therefore the only "credible" analysis before the trial judge.
Preliminarily, it must be noted that the Cohen analysis was never offered in evidence and only made its way into the record through references by Chodor as he attempted to explain why certain claimed escalations were not owed. Cohen's calculations were never tested for reliability, and the judge was not obligated to give them any credence.
As to the reliability of Chodor's report, Siete ignores Chodor's testimony that he reviewed numerous documents in preparing his report, including the Levy audit, the lease and its amendments, the financial statements prepared by all of Siete's accountants over the years, including Cohen, Siete's general ledgers, its depreciation schedules, numerous invoices and certain correspondence. Chodor's testimony regarding the adjustments he made to the Cohen escalations reflected an in-depth knowledge of the terms of the lease and the limited documents Siete had produced in support of each claimed operating expense. In sum, contrary to Siete's representations, there is no reason to assume that Chodor merely copied Levy's commission-driven audit, or that Chodor's report was suspect.
Siete also contends that Chodor erred in certain adjustments he made to the Cohen escalation figures; it demonstrated through its cross-examination of Chodor that his analysis was incorrect; and Chodor erred in eliminating as an escalatable expense the agreed-upon accounting fee of $7500 for each of the years in question because the expense statements were not provided in a timely fashion. According to Siete, the parties never agreed in their 1998 amendment to the lease that this fee did not have to be paid "if the expense statement[s] w[ere] not received" by the deadlines specified therein.
The record reflects contrary facts. Siete attempted to charge Verizon $75,000 in accounting fees between 1997 and 2002. Chodor explained that he immediately reduced this figure by $30,000 because Siete had charged Verizon $15,000, rather than $7500, for accounting fees between 1999 and 2002. Chodor ultimately discounted the remaining $45,000 in fees because the expense statements provided to Verizon were, in Chodor's view, essentially useless since they were consistently late, laden with errors and lacking in documentation. Although Chodor conceded on cross-examination that the 1998 amendment to the lease did not impose such a condition to Verizon's obligation to pay these fees, we cannot accept Siete's position that Chodor's elimination of these fees was inappropriate.
We reach the same result regarding Chodor's elimination of the claimed expense of $22,038 in 1997. In his testimony, Chodor explained that there was an unidentified cash receipt by One Washington Park on their books for $22,038, and no adjustment was made to the escalation calculation for that, and what we found was that in prior years and in the next year, in 1998, a similar type of adjustment was included as a reduction in the operating expenses.
And typically other income might be . . . an insurance refund or some other source of income and if the insurance expense is included in . . . operating expenses . . . if you get a refund of the payment, . . . they should be given credit for that, the tenant, just they would be required to pay for an additional expense.
So just to be consistent with 1996 and 1998, this $22,038, we reduced the operating expenses by that.
Chodor later found an explanation in the miscellaneous income column of One Washington Park's general ledger that confirmed that the $22,038 was an insurance refund. Although alluded to on cross-examination, the bona fides of that conclusion was never challenged.
We likewise reject Siete's argument that Chodor erroneously removed, without explanation, $18,053 in extra real estate taxes from Cohen's 1997 escalations figure. In fact, Chodor explained that Siete had failed to provide any documentation that the 1997 taxes were actually increased by this amount. He further noted that, based upon a tax analysis he had performed and testified to in connection with Verizon's Fox-Lance claim, it was highly improbable that enhanced taxes were paid by Siete that year. Siete's failure to produce documentation contradicting Chodor's conclusions supports the ultimate finding regarding his testimony.
We reach the same result regarding Chodor's elimination of $34,981 in alleged 1998 insurance expenses and the elimination of $53,236 in claimed insurance expenses for 1999. He explained that $5233 of the 1998 alleged expenses were actually attributable to the requirements of Siete's new mortgage lender and were not an expense. Chodor deducted the remainder, $29,758, because Siete failed to provide any documentation confirming that it was a legitimate expense.
As to the 1999 expenses, Chodor explained his decision:
The [insurance] expense was very high for 1999. It was $123,236. And what I did was I did a comparison. I looked at the two years prior to that, and the insurance expense . . . was $86,000 in 1997, it was $64,000 in 1998, 1999 was[$]123,000, way over the prior two years, and then in 2000 the number was $73,000,  it was $83,000, so I looked at the two years before and the two years after, and . . . clearly they averaged about $70,000. So something . . . was not right with that.
We requested backup information, invoices, insurance policies, et cetera, and we could not . . . corroborate that number. So without having that, . . . I made a judgment call and I reduced the expense to $70,000 even, just to be in line with prior years. And that's the result. So the adjustment is $5,236 to bring that insurance to more comparable level to the two prior years and the two subsequent years.
No documentation was forthcoming. We consider Chodor's "judgment call" to be an appropriate accommodation absent Siete's proofs.
Next, Siete argues that Chodor improperly reduced the 2000 escalations by $21,315. However, Chodor explained that [t]he other item . . . relates to [an entry for] a booster pump that was . . . included in repairs and maintenance for 20[00.] . . . [I]t was $21,315 . . . to refurbish a booster pump system and install shutoff valves. Well, clearly this meets the definition that I gave a little while ago about a capitalizable item because you're installing shutoff valves, you're extending the life or enhancing an asset. That would be capitalizable. That's not a repair.
A repair is something that puts something back into working condition, and adding shutoff valves and other things are clearly a capitalizable improvement, and these should be amortized over 15 years. So what I did was I took the [$]21, out of repairs and maintenance, and . . . reduced operating expenses by that.
However, what I did was I added back in . . . additional amortization for that year of $474 under the assumption it should have been capitalized and not expensed.
Despite Siete's challenge to this adjustment, the judge properly concluded that the exclusion was appropriate.
The lack of documentation from Siete also supports the excluded expenditures of $15,266 for remedial roof work in both 2001 and 2002. Because of this lack of documentation, Chodor could not determine whether the expenditures were for repairs, capitalizable improvements or to correct latent defects. Verizon presented evidence that the building's roof had been partially replaced in 1996 due to latent defects, and that the replacement itself was defective.
Next, Siete argues that Chodor improperly capitalized a claimed 2002 elevator repair expense of $245,303. According to Siete, this amount was clearly not for the replacement of the elevators since the contract price Siete had negotiated for that work was $625,000. Alternately, Siete argues that Chodor should have capitalized this amount over a fifteen-year period, thereby resulting in a $16,353 credit due to Siete, rather than the $7620 allowed by Chodor.
Chodor confirmed that, in late 2000 or early 2001, Siete entered into a contract to replace the building's elevators for approximately $625,000. He noted that Siete did not try to expense the whole amount and explained:
I saw the contract for $625,000. I saw that payments were made on the company's books and they were classified as a capital improvement to the elevators. And then I noted that in 2002 the books of the company showed [$245,303] being taken out of capital improvement and put into expense.
So there - -- in my estimation there were, since this is a $625,000 contract, there were probably additional costs that hadn't been incurred yet because the work was not done, but what I do see is that it was held in an asset category for a period of years and then suddenly all moved to expense in 2002, and that's peculiar.
Siete produced no invoice indicating that it actually spent $245,303 to simply repair the elevators in 2002. Chodor concluded that these monies had been applied against the amount due under the contract to replace the elevators, and that Siete was only entitled to a credit for the amortization on this improvement. We find no error here nor in Siete's alternative contention that $16,353, rather than $7620, should have been allowed as an amortization credit. Again, Siete offered nothing by way of proofs, expert or otherwise, to support that view.
Lastly, Siete argues that it should have been awarded at least $400,000 in escalation damages in view of Haines' 2002 admission that Verizon owed Siete this amount. We have previously alluded to this issue. Even if, as the trial judge seemed to believe, Haines did make some statement in this regard, an award of $400,000 in escalation damages was not supported by the remainder of the record in this case. First, as noted by Chodor and admitted by Geyer, any statement made by Haines could not have encompassed the 2001 and 2002 escalations since Siete did not submit the documentation pertaining thereto to Verizon until 2003. Second, while Haines was likely aware in October 2002 of Siete's initial claim that $403,882 in escalations was due for 1997 through 2000, Siete's accountant, Cohen, subsequently conceded that Verizon only owed $106,151 for that period. We agree with the trial judge that Verizon cannot be bound by the alleged admission made by Haines.*fn8
In its cross-appeal, Verizon argues that the trial court erred in awarding Siete $81,000 in escalations based solely upon a stipulation made by Verizon for purposes of its motion for judgment at the close of Siete's case. We reject Verizon's argument. The judge had sufficient proofs in the record, including both Levy's and Chodor's calculations, to conclude that the sum of $81,00 was due and owing. While reference to the stipulation may have been misleading, independent of that reference, the proofs support the award.
Finally, we address the issue of counsel fees raised on the cross-appeal. Verizon contends that the trial judge erred in its award of counsel fees to Siete. We agree.
Pursuant to Rule 4:42-9, a party may agree by contract to pay counsel fees. See Pressler, Current N.J. Court Rules, Comment 2.10 on R. 4:42-9 (2010); Serpa v. N.J. Transit, 401 N.J. Super. 371, 382 (App. Div. 2008). The contract provision, however, will be strictly construed in light of the general policy disfavoring counsel fee awards. McGuire v. City of Jersey City, 125 N.J. 310, 326 (1991); Verna v. Links at Valleybrook, 371 N.J. Super. 77, 100-01 (App. Div. 2004). The first issue to be resolved is "whether the subject of [the] litigation falls within the purview of the contractual provision authorizing attorneys' fees and costs." Kellam Assocs., Inc. v. Angel Projects, LLC, 357 N.J. Super. 132, 138 (App. Div. 2003).
When an award of fees is contractually authorized, the award does not mechanically encompass the full fee charged, but is limited to those reasonable in the circumstances. N. Bergen Rex Transport, Inc. v. Trailer Leasing Co., 158 N.J. 561, 570-74 (1999). The initial question to be answered in determining whether a counsel fee award is reasonable is whether the party seeking the fee prevailed in the litigation. Id. at 570. A party seeking fees must demonstrate that the litigation was a necessary and important factor in securing the relief obtained, and that the relief was obtained as the result of a legal ruling in its favor. Id. at 570-71 (citing Singer v. State, 95 N.J. 487, 494, cert. denied, 469 U.S. 832, 105 S.Ct. 121, 83 L.Ed. 2d 64 (1984)). However, the party seeking fees need not have recovered all of the relief sought. Id. at 571.
If a prevailing party "'has achieved only limited relief in comparison to all of the relief sought, the [trial] court must determine whether the expenditure of counsel's time on the entire litigation was reasonable in relation to the actual relief obtained . . . and, if not, reduce the award proportionately.'" Id. at 572 (quoting Singer, supra, 95 N.J. at 500). Ultimately, an award of counsel fees is only disturbed upon a clear abuse of discretion. Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 444 (2001) (citing Rendine v. Pantzer, 141 N.J. 292, 317 (1995)).
Article XXXX, Section 40.3 of the parties' lease addressed the issue of counsel fees as follows: "Tenant shall pay upon demand, all costs and expenses, including attorney's fees, incurred by the Landlord in successfully enforcing Tenant's obligations under this Lease or resulting from the Tenant's default under this Lease."
In July 2008, Siete filed a motion seeking $107,672.72 in attorney's fees and costs. The fees reflected counsel's hourly billing rate, which ranged between $250 and $300. The fees were neither allocated as to issue nor discounted to reflect the amount claimed as opposed to the amount recovered.
The trial judge granted Siete's motion and awarded fees in the full amount requested. He concluded that counsel's billing rate was reasonable, and the number of hours spent on the case was appropriate. He further found that Siete's affirmative claim, as well as the defense of Verizon's claim fall within [the counsel fee] provision [contained in the lease].
Siete has prevailed not only on its affirmative claim, but on Verizon's substantial claims for relief. . . .
Questions regarding the amount recovered by Siete are raised. It appears that the matter could have been settled for substantially more money at an earlier state in the case, and that settlement amounts were discussed. It further appears that offers were withdrawn as the case and discovery progressed. The court is not going to get involved in settlement negotiations and the spirit of [N.J.R.E.] 408, if not the precise language, would make reference to settlement negotiations inappropriate under the circumstances of this case. It should be noted that an offer of judgment pursuant to [Rule] 4:58-1 was not made.
Plaintiff argues first that the trial judge erred in awarding fees to Siete in connection with plaintiff's Fox-Lance claim because this claim did not fall within the purview of the counsel fee provision in the parties' lease. The judge did not explain his finding to the contrary, and Siete makes no argument in response to plaintiff's contention.
We agree with plaintiff. The Fox-Lance claim was a claim for reimbursement based upon an alleged breach of the lease by Siete. Siete did not have to "enforce" Verizon's obligations under the lease since there was no default, and the tax payments were timely made. Rather, Siete was simply defending itself against a claim that it had breached the lease. Strictly construing the fee-shifting provisions, we conclude that Siete's request for fees in connection with plaintiff's Fox-Lance claim should have been denied.
Next, plaintiff similarly argues that Siete neither "successfully enforce[d]" the lease against plaintiff, nor proved a default, with respect to its two affirmative claims for damages, such that it was entitled to a fee award under the lease's counsel fee provision. Alternately, plaintiff contends that, even assuming that the fee-shifting provision was properly invoked as to these claims, Siete still was not entitled to any fee award because it did not "prevail" in the litigation. Finally, plaintiff argues that, in any event, the fee award should have been reduced to reflect Siete's failure to obtain any relief on its claim for restoration damages and its very limited success on its claim for escalation damages. We are of the view that, at the very least, Siete's fee award must be reduced by the amount of fees incurred in connection with its entirely discrete and failed claim for restoration damages.
Siete did not demonstrate its entitlement to any fee award under the lease in connection with its claim for restoration damages. Contrary to its representations, Siete failed to prove any default on the part of plaintiff in connection with this claim. Siete did not prevail on its claim regarding the dispute as to personalty as opposed to improvements.
As to the claim for escalation damages, Siete again failed to prove any default on plaintiff's part. To the contrary, the proofs revealed that it was Siete who had breached the lease when it failed to provide its expense statements in accordance with the deadlines set forth in the 1998 amendment to the lease and when it failed to supply Verizon with supporting documentation regarding the expenses it claimed it had incurred. Notably, plaintiff was expressly authorized under the lease to challenge the escalations claimed by Siete.
We agree that Siete did, arguably, "successfully enforce" the lease against Verizon with respect to its claim for escalation damages. It is true that Siete obtained only an $81,000 judgment on a claim for $650,000; however, since Siete obtained a judgment in its favor, it may assert a claim for fees as to this claim under the lease's fee-shifting provision and as a prevailing party pursuant to N. Bergen Rex Transport, supra, 158 N.J. at 570-71.
Finally, plaintiff argues that counsel fees should not have been awarded here because of Siete's bad faith in refusing to accept a pretrial settlement offer of "more than 300 percent of the amount Siete ultimately recovered." Plaintiff's reliance on Davidson v. Roselle Park Soccer Fed'n, 304 N.J. Super. 352, 360 (Ch. Div. 1996), is misplaced. The Chancery Division expressly noted that fees could not be denied on this basis alone. Likewise plaintiff's citations to various federal cases in support of its argument is inapplicable as these cases implicate Fed. R. Civ. P. 68, the federal counterpart to Rule 4:58-1, pertaining to pretrial offers of judgment. As noted by the trial judge, no offer of judgment under Rule 4:58-1 was made by Verizon.
We reverse and remand the issue of counsel fees. On remand, the trial judge must consider, among other issues, whether the fees sought in connection with the escalation claim should be reduced in light of Siete's limited recovery. The judge could also consider whether Siete was entitled to an award encompassing the fees it incurred to reinstate its counterclaim following discovery violations and fees associated with the other issues that we have addressed.
The judgment of $81,000 in favor of plaintiff is affirmed; the counsel fee award is reversed and the matter is remanded for consideration of counsel fees consistent with this opinion. We do not retain jurisdiction.