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Kalogeras v. 239 Broad Avenue

June 16, 2010

NICHOLAS KALOGERAS, PLAINTIFF-RESPONDENT,
v.
239 BROAD AVENUE, L.L.C., 12 BRINKERHOFF, L.L.C., GOLDEN EAGLE DINER, INC., AND GOLDEN G, INC., DEFENDANTS-RESPONDENTS, AND MYINHO HAHN AND GOLDEN EAGLE MANAGEMENT, L.L.C., INTERVENORS-APPELLANTS.



On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

The issue before the Court is whether, in the absence of any contractual provision directly on point, the transfer of a liquor license pursuant to a contract for sale of a business is specifically enforceable.

In 1976, plaintiff, Nicholas (Nick) Kalogeras and his brother Konstantinos (Gus) Kalogeras purchased and thereafter co-owned a diner in Palisades Park. Their relationship deteriorated, necessitating the separation of their business interests. In 2002, they had the diner business appraised at $4,000,000. Because they were equal owners, they agreed that Nick would receive one half that amount, $2,000,000, in exchange for the transfer of his interest in the diner business to a series of entities (defendants) that were controlled by his brother Gus. At the closing, Nick was paid $1,050,000 and took back a $950,000 mortgage note bearing eight percent interest and payable in equal installments over a ten-year period.

The agreement of sale provided that Nick would have two additional sources of contract rights because Nick was concerned that his brother's ultimate goal was to "flip" the diner, that is, to sell it to another for an amount greater than the one for which it was appraised. First, in order to protect against being "short-changed" by a quick resale of the business at a profit, the agreement required that, if the business was sold within two years from the date he sold his interest to his brother, Nick would be entitled to one-half of the sale proceeds in excess of the agreed upon $4,000,000 appraised amount for the business. Second, the agreement also provided that, while any portion of the ten-year $950,000 purchase money mortgage note remained unpaid, Nick retained a right of first refusal on any sale of the business.

In 2005, three years after the sale of Nick's interest to his brother Gus and, thus, beyond the two-year profit-sharing period agreed to by the brothers in 2002, defendants entered into an agreement of sale with Byung Kim. That agreement provided that defendants would sell to Kim the diner, including the realty, improvements, furniture, fixtures, equipment, and the liquor license, in exchange for $6,500,000. The agreement also notified Kim that Nick was a predecessor in title and that he had a right of first refusal that if he so exercised would cancel the contract.

In respect of the liquor license itself, the agreement provided that, among other assets, "Liquor License #0245 33 027 001" would be sold and transferred from defendants to Kim "free and clear[;]" that of the $6,500,000 purchase price, $200,000 was "allocated" to the liquor license; that defendants would "[e]xecute and deliver such other document as are necessary and appropriate to carry out the transfer of the [l]iquor [l]icense to [Kim;]" that Kim "covenant[ed] and agree[d] to comply with all laws and requirements, whether Federal, State, Municipal, or other which affect the [liquor l]icense;" that Kim "covenant[ed] and agree[d] that [he] has the obligation to pay all charges, expenses and fees concerning the transfer of [the liquor l]icense to [Kim;] and that defendants agreed '[t]o use [their] diligent and best efforts to effect the consummation of the transactions contemplated" by the agreement of sale. The parties also agreed that "[i]f any provision of this Agreement is held to be invalid or unenforceable, all other provisions shall, nevertheless, continue in full force and effect."

When this agreement was disclosed to Nick, he negotiated with intervenor/plaintiff Myinho Hahn; sold the right of first refusal to Hahn for $100,000; and contemporaneously exercised the right of first refusal. Defendants countered by terminating the underlying agreement of sale with Kim, purportedly because Gus no longer was interested in selling the diner and thought it was undervalued.

Nick brought suit in the Chancery Division, seeking specific performance of the right of first refusal and other damages. Intervenor/plaintiff Hahn sought, and was granted, leave to intervene as a party plaintiff, also demanding specific performance of the right of first refusal and commanding a closing, with Hahn as the purchaser, under the defendants-to-Kim agreement. On March 9. 2007, after a contested sixteen-day bench trial, the Chancery Court entered judgment in favor of Nick and Hahn on their separate requests for specific performance, together with other ancillary relief. In respect of the transfer of the liquor license, the Chancery court determined that the condition precedent of prior government approval necessarily was implied within the contract, even though the contact was silent in respect of whether the transfer of the liquor license was subject to prior approval pursuant to the New Jersey Alcohol Beverage Control Act (ABC Act), N.J.S.A. 33:1-1 to -97. Based on that, the court ordered that Gus not interfere with and cooperate with Hahn in the transfer of the liquor license from defendants to an entity to be established by Hahn. The court's order required that the closing take place on or before December 10, 2007. On defendants' application, the Chancery court stayed its judgment pending appeal.

Defendants appealed and Nick and intervenor/plaintiff Hahn cross-appealed. In an unpublished opinion focusing solely on whether a liquor license transfer can be specifically enforced, the Appellate Division reversed. The panel concluded that 1) there was no provision in the agreement that states that transfer of the liquor license is conditioned upon ABC approval; and 2) by ordering specific performance of the sales agreement, including the provision for the transfer of the liquor license, the Chancery court erred, noting that Route 73 Bowling Center, Inc. v. Aristone was well-settled law and, according to that case, specific performance may not be granted for a contract of sale of a liquor license.

Intervenor/plaintiff Hahn sought certification, which was granted by the Supreme Court.

HELD: The requirement for governmental approval is an implied condition of all agreements for the transfer of alcoholic beverage licenses, and, subject to that condition precedent, a contract for the transfer of a liquor license can be specifically enforced, but only to the extent the parties would be required to act, in accordance with the implied covenant of good faith and fair dealing, in respect of the statutory condition precedent of prior governmental approval. To the extent that 73 Bowling Center v. Aristone is interpreted otherwise, it is disapproved.

1. The pervasive and strict regulation of the distribution, sale and consumption of alcoholic beverages is an integral part of this State's alcoholic beverage control matrix. The Legislature has declared that there are many, overlapping public policy concerns that undergird the ABC Act, which inform and govern the Court's analysis in this case. The transferee must make application to the local board for the transfer of the liquor license. The Alcoholic Beverage Control Commission or local ABC boards determine whether to permit the transfer of a liquor license and that sound discretion will not be disturbed. (Pp. 14-20)

2. Informed by the authorities from sister states, but firmly tethered to New Jersey jurisprudence, the Court holds that the requirement for governmental approval is an implied condition of all agreements for the transfer of alcoholic beverage licenses. When parties contract to transfer a liquor license, they perforce covenant to act in a manner that will seek to achieve that goal, even if its attainment rests in the discretionary act of another. The fact that a governmental entity may possess the ultimate right to determine whether a contractual term is to be enforced does not relieve that contracting parties from the obligation to interact in good faith. There is no rational basis on which to extrapolate -- from the undeniable fact that a governmental agency must approve a liquor license transfer -- a principled theory that excuses a party to a contract from good faith performance, to the extent it can, of its contractual duties. (Pp. 20-23)

3. The Court finds unpersuasive the reasoning that would require that a contract explicitly set forth either the obligation to act in accordance with the implied covenant of good faith and fair dealing or with knowledge of the law. Here, the Chancery Court properly considered the basis of the bargain between the parties and molded its judgment to achieve, to the best effect possible, that result. Nothing in the Chancery court's judgment contravenes or otherwise limits the legislative command that only the governmental entity may transfer any liquor license to the applicant for transfer. Even after cooperating in good faith, the parties nevertheless may be unable to obtain the governmental approvals needed to secure the transfer of the liquor license. Nothing in this opinion shall be read or construed to limit the Chancery court's authority to invoke the contractual doctrines of novation or the like, or its inherent equitable power to adjust any of the terms or conditions of the contract. (Pp. 23-26)

Judgment of the Appellate Division is REVERSED, the judgment of the Chancery court is REINSTATED, and the case is REMANDED to the Appellate Division for consideration of the remaining arguments advanced by the parties on the appeal and the cross-appeal.

CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, ALBIN, WALLACE and HOENS join in JUSTICE RIVERA-SOTO'S opinion.

The opinion of the court was delivered by: Justice Rivera-soto

Argued February 22, 2010

After a contested sixteen-day bench trial spanning a period of seven months concerning a $6,500,000 agreement of sale of a diner, this appeal boils down to a single, narrow issue: whether, in the absence of any contractual provision directly on point, the transfer of a liquor license pursuant to a contract for the sale of a business is specifically enforceable. The Chancery court determined that the condition precedent of prior governmental approval necessarily was implied within the contract, even though the contract was silent in respect of whether the transfer of the liquor license was subject to prior approval pursuant to the New Jersey Alcoholic Beverage Control Act (ABC Act), N.J.S.A. 33:1-1 to -97. Based on that conclusion, the Chancery court ordered that the contract seller cooperate with the buyer in seeking to effectuate the transfer of the liquor license. The Appellate Division reversed, concluding (1) that "[t]here is no provision in the agreement which states that transfer of the [liquor] license is conditioned upon [Division of Alcoholic Beverage Control (ABC)] approval[,]" and (2) that, by "order[ing] specific performance of the sales agreement, including the provision for the transfer of the liquor license[,]" the Chancery court erred.

Whether a contract for the sale of a liquor license includes a specific provision conditioning the transfer of the license on the receipt of the necessary governmental approvals is immaterial to the enforcement of that contract; any obligation of prior governmental approvals imposed by the Legislature unstated in the contract but otherwise required by law necessarily is incorporated into the contract. In the circumstances presented, we conclude that the agreement of sale perforce included the legislatively mandated requirement that the transfer of a liquor license is subject to the condition precedent of the receipt of all required governmental approvals. We further conclude that, inasmuch as the parties to the contract cannot compel the issuance of those approvals, the parties will be obliged, under the implied covenant of good faith and fair dealing, to cooperate with each other in seeking ...


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