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CJS Corporate Center, LLC v. Merrill Lynch Mortgage Lending


July 2, 2010


On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-2236-07.

Per curiam.


Argued January 21, 2010

Before Judges Payne, Miniman and Waugh.

Plaintiff CJS Corporate Center, LLC (CJS), appeals the dismissal of its complaint seeking damages from defendants Merrill Lynch Mortgage Lending, Inc. (Merrill), and Douglas P. Shelley, one of Merrill's vice presidents. We affirm with respect to CJS's claim for consequential damages arising out of Merrill's refusal to lend, but remand to the Law Division for further proceeding and possible trial of CJS's claim for a refund of its deposits for certain costs related to its loan application.


We discern the following facts and procedural history from the record.


Because we are reviewing a dismissal on summary judgment, we relate the facts in the manner most favorable to CJS. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). However, we note certain disputed issues of fact for the sake of completeness.

CJS owns and operates a 30,000-square-foot commercial building on Route 34 South in Farmingdale. The building also serves as CJS's principal place of business. It has five other tenants, one of which is CJS Investments, Inc., the parent company of CJS.

Scott Caruso is an owner and managing member of CJS. According to Caruso, CJS started seeking a lender to refinance the mortgage on its building in January 2007. Prior to that time, Caruso, who has an M.B.A. and a J.D., had been involved in other commercial financial transactions in the range of $900,000 to $12,200,000. They included the original loan for CJS's building, as well as other commercial buildings in which he had a partial ownership interest.

Caruso and CJS had engaged in refinance negotiations with JPMorgan, its existing lender, GE Capital, and GE Finance over a period of two to three months in late 2006 and early 2007, but the negotiations had not advanced beyond the discussion stage and no formal loan applications had been made. According to Caruso, the best proposal prior to CJS's involvement with Merrill had come from JPMorgan, which proposal consisted of an interest rate "146 points over a ten-year treasury" and a ten-year balloon, with amortization based on a thirty-year period.

On February 1, 2007, Shelley contacted Caruso, seeking prospective borrowers on behalf of Merrill, his new employer. Shelley had previously solicited business from CJS, and had also acted as a mortgage broker for Caruso in connection with the refinancing of his home. However, after Shelley had failed to secure financing for Caruso's home from several banks, Caruso obtained his mortgage elsewhere. At his deposition, Caruso said that his prior experience did not deter him from considering further involvement with Shelley because he was then employed by Merrill and was no longer a sole practitioner.

Caruso told Shelley that CJS had already requested quotes from other lenders, but Shelley responded that he could quickly provide Caruso with "the terms of a type of loan that [Merrill] could offer." Caruso outlined CJS's desired terms, including "the balloon term, the interest rate, the approximate principal that was being discussed, [and]... the amortization term." With the help of Michael Glackin, the CJS controller, Caruso answered Shelley's questions about the building.

According to Caruso, "[t]he rental terms[, i.e. the length of the tenant leases,] were specifically discussed [with Shelley] that day because... [those terms had resulted in] negative feedback... from other lending institutions." Caruso maintains that he told Shelley that CJS's lease with its parent expired in 2014, which meant that there were seven years remaining at that time. The leases for the four tenants not related to CJS were for five-year terms and would expire in 2009, but they contained options for five-year renewals. Shelley, on the other hand, maintains that Caruso told him that the leases for the four other tenants were for ten-year terms.

The record contains an e-mail sent by Shelley to Caruso at 7:11 p.m. that evening, in which Shelley asked a number of questions, including the following question about the leases: "[W]hat are the start dates for each of the tenants... I think you said leases are all 10 years with 10% bumps in August 2009." Caruso's responding e-mail did not address the term of the leases, but stated only the start dates of the tenants. Caruso acknowledged at his deposition that it would be "fair to conclude that if Mr. Shelley was under the impression, mistaken or otherwise, that [Caruso's] clients had 10-year leases, that [Caruso's] response would have left him with that impression[.]"

Caruso, Glackin, and Shelley also discussed the amount of gross rent CJS received from its tenants and the amount of reserves required for tenant improvements. According to Shelley, "reserves are an element of the loan which assures the lender [and others] that money is set aside by the borrower to cover the various listed contingencies. The reserves may be used by the borrower to address the contingencies as they arise." However, "reserves remain the borrower's property, subject to the lender's security interest."

JPMorgan had required CJS to reserve $3,000 dollars a month in tenant improvement and replacement reserves, with an overall cap of $150,000. CJS was seeking a substantially lower rate on reserves because the building was "brand-new" and still under warranty.

Caruso maintained that he was "very up front" with Shelley during the course of their discussions and e-mails, telling Shelley that he needed a "serious commitment." Shelley told Caruso that he would take the information and respond within twenty-four hours, assuring him that Merrill would be able to meet CJS's desired time frame, which was to close on the loan within forty-five days from their initial discussion.

Caruso acknowledged that there were no binding promises made during the call, and that Shelley only made the assurance that "he would do everything possible and [that Shelley gave Caruso] an indication that he felt it was a slam dunk...." Caruso then stated that, as a result of that conversation, he had promised Shelley that he would "not go forward with any lending institution until [Shelley] got back to [him], giving him a few days to do so."

Merrill sent CJS a loan application on February 5, 2007. It proposed a $5,000,000 refinance mortgage loan, with a ten-year term and thirty-five year amortization. The loan would be non-recourse except for certain specified events, with an adjustable interest rate equal to the greater of (1) 125 basis points over the treasury rate, (2) seventy-four points above the appropriate Swap rate, or (3) six percent.

The application states:

Conditions Precedent to Loan Commitment: A loan commitment may be issued only upon (1) Lender's receipt of all information requested by Lender, (2) Lender's review and approval of all such information and completion of its due diligence, and (3) approval of Lender's credit committee.

The application also set forth that it "is provided for discussion purposes only and does not constitute commitment to lend or an agreement to issue a commitment."

With respect to required deposits and fees, the application had the following provisions: (1) "[a] $5,000 non-refundable application fee shall be payable upon execution" of the application; (2) a $15,000 good faith deposit "to cover Lender's out-of-pocket expenses"; and (3) a $15,000 legal deposit "to cover Lender's legal expenses." Under the descriptions of the good faith and legal deposits, the application notes that the applicant was also to be responsible for additional out-of-pocket and legal expenses that were not covered by those deposits. Towards the end of the application, the following appeared:

By signing below, Applicant authorizes Lender to apply the Deposits against any fees or expenses incurred or paid by Lender in connection with processing and underwriting the proposed financing, including, without limitation, property inspection fees, travel expenses, fees for appraisal, environment and building condition reports..., lien search fees and legal fees.

The application contained provisions for three different reserves that would be required, a completion/repair reserve, a replacement reserve and a tenant improvement and leasing reserve, but did not specify their amounts. The application also contained a section for special conditions: (1) giving borrower the "option for a 60 day Early Rate Loan subject to Lender approval of Borrower Financials;" (2) "Loan proceeds are subject to a sufficient appraisal indicating competitive market vacancy of 5%, rents at the subject property to be at or below market, and an appropriate valuation;" and (3) "CJS Investments shall extend its lease through 2019." The application did not mention any requirement involving a letter of credit from CJS to be retained by Merrill until other tenant leases were renewed.

After receiving the application, Caruso sent questions to Shelley about the reserve analysis and whether the $35,000 fee was refundable if the loan did not proceed. Caruso's letter sent via e-mail on February 5, states:

With respect to your fees, I want to make sure that the Commitment Deposit is a refundable fee. It is my assumption that it is nothing more than an additional good faith deposit which will be refunded to my company at the time that the loan closes, assuming that there are no overages of your professional's expenses. Should this be the case, then it will be in line with the other lending institutions.

Shelley's e-mail response, sent that same day, contained several brief responses to Caruso's questions. The only response to the deposit inquiry was that "[t]he commitment deposit is refundable at closing."

Caruso's letter also contained an inquiry about the reserves, noting that CJS "would like to get a better handle on what is customarily charged by [Merrill]. Furthermore, because we are a new building, there should be no completion/repair reserves required." Shelley's e-mail response stated that he would "expect the replacement reserves to be $.20 [per square foot] per year. This number is based on the engineering report." According to Caruso, Shelley had given "satisfactory" responses to his questions.

On or about February 6, 2007, CJS submitted the mortgage application to defendants. CJS provided defendants with the required $35,000 for the fee and deposits. Caruso acknowledged at his deposition that the fee and deposits were detailed in the application, and that when he signed the application, he understood and agreed to its terms. Caruso stated that it was his understanding that if the loan closed, the $5,000 would be non-refundable and that the $15,000 good faith deposit would be returned unless CJS terminated the process. Caruso also stated that, at the time of signing, he understood the agreement to mean that the $15,000 legal deposit would not be utilized by Merrill until the loan was approved. Caruso acknowledged that CJS was free to walk away from negotiations with Merrill at any time, but that doing so would result in forfeiture of the application fee.

Shelley's certification states that after the application was submitted, Merrill proceeded with due diligence by collecting building and financial information from CJS, which it supplied to its independent third-party appraiser, CB Richard Ellis (CBRE). Upon receipt of CBRE's formal appraisal on or about March 6, [Merrill's] underwriting department determined that because of the extremely high rollover of tenants in [CJS's] building, a loan commitment could not be issued without [CJS] providing a letter of credit to be held by the lender until the leases were renewed by existing tenants or made with new tenants, together with tenant improvement and leasing reserves totaling approximately $2.00 per square foot per year.

Consequently, the reserves would approximately be $60,000 per year, or $5,000 per month.

According to Shelly, the amount of reserves was based on the projected costs to be incurred for tenant improvement and leasing commissions over the ten-year term of the loan. The total projected costs were $1,067,874. Shelley's certification notes that, considering that amount on a yearly basis ($106,787.40), Merrill was only charging 56% of the projected costs. Shelley sent Caruso those additional terms on or about March 9, 2007.

In an e-mail to Caruso dated March 15, 2007, Shelley wrote that Merrill would also require a letter of credit in the amount of $550,000, which would be returned to CJS once at least three tenants renewed their leases. Shelley's certification states that Merrill's underwriting department concluded that the letter of credit and the reserves were "necessary in order for the loan to meet secondary market conditions... [and that if the loan] could not meet [such] conditions, it could not be submitted to or approved by Merrill's credit committee."

Caruso e-mailed Shelley on March 15, stating that, given the amount of reserves and the letter of credit requirement, the terms of the loan were unacceptable to CJS. Caruso went on to state that, "[b]ecause of the departure from the original loan proposal, [CJS is] asking that [the] entire application fee be refunded immediately." Caruso also asked that Merrill reimburse CJS for the more than $4,000 in attorneys' fees it had incurred in connection with the application. Shelley responded that Merrill would be able to return the remaining deposited funds and offered to send CJS the third-party reports and appraisal in exchange for a release.

Caruso confirmed the termination of CJS's application in an e-mail dated March 16, reiterating that CJS wanted a full refund. Caruso acknowledged in his deposition that Merrill offered to return $10,000 of CJS's deposits if CJS signed a release.

In April 2007, CJS resumed negotiations with JPMorgan and GE Capital. Caruso asserted that CJS had to start "from scratch" soliciting quotes, and that JPMorgan was unwilling to give CJS the same rate it had offered during the prior negotiations. CJS eventually refinanced with GE Capital, submitting an application letter on July 23, 2007. GE Capital required that Caruso and his brother personally guarantee the loan. The loan was for twenty-five years with an interest rate of 6.96%.


CJS filed suit against Merrill and Shelley in May 2007, alleging causes of action sounding in breach of contract, negligent misrepresentation, deceit and fraud, intentional interference with business relations, promissory estoppel, equitable estoppel, and misrepresentation. It sought $430,187.60 in damages and counsel fees. The parties engaged in discovery.

Merrill and Shelley moved for summary judgment on December 10, 2008. Following oral argument on February 6, 2009, the motion judge granted the motion:

There are no questions of fact in this whatsoever. Nobody's going to argue any questions of fact. Whether [the leases were] five years or ten years, or five years plus five years, it doesn't matter. It's clear that the application was just that. And this language is crucial to my decision.

"This application letter is provided for discussion purposes only and does not constitute a commitment to lend or an agreement to issue a commitment. Its terms are not inclusive, not all inclusive, and are subject to the lenders credit committee approval, as well as satisfactory secondary market conditions."

This is not a homeowner who's never seen a business. This guy is a sophisticated businessman. And he's an attorney too, right?

[DEFENDANTS' COUNSEL]: That's correct, Your Honor.

THE COURT: Okay. "Additions and changes may be made as the lender and its counsel deem necessary, prudent or desirable." Once you say that you've got to know that, look, anything can happen. And he says he read this....

This guy is going in with eyes open. ["]A commitment may be issued only after lender's receipt review and approval of all of the required information set forth in the attached application, the completion of the lender's due diligence, and approval of the lender's credit committee.["]

Okay, they did it. They did what they were supposed to do. They said, look, we're not going to lend this guy $5 million unless we check it out first. Makes perfect sense. When they check it out they see that, my goodness,... in two years, he could end up with 85 percent of his tenants gone. They may re-up, but we don't know if they will or not.

And the deal was,..., if the tenants re-up then you don't need the letter of credit and those reserves, correct? [DEFENDANTS' COUNSEL]: We would not need the letter of credit.


[DEFENDANTS' COUNSEL]: Reserves are always negotiable. I mean, that's the nature of loans.

THE COURT: Okay, but you wouldn't need that big letter of credit, if [the tenants] reup.

[DEFENDANTS' COUNSEL]: You would not. Yes, that's correct.

THE COURT: That's what I thought. I read that somewhere. So that's what it was. They say, look, we've got to make sure that we've got this guy, these tenants in there for 10 years. And if we don't, we're in deep trouble. Because we know that his office is there, that's not going to be a big cash flow help. So we want to make sure.

So they did a letter, their due diligence. They said, look, we can't do it unless you give us a letter of credit. You give us a tenant improvement and leasing reserves, which basically, as I said before, means hey, if they move out, you have to fiX the place and we have to redo it to suit the new tenant. You have to advertise. We have to get a broker to re-rent it, and that's going to cost money. We want money there to make sure we get new tenants in. Perfectly reasonable.

And then, well why should we pay it, is the plaintiff's position. Well, here's why you should pay it. Because you agreed to pay it. "By signing below, applicant authorizes lender to apply the deposits against any fees or expenses incurred or paid by lender in connection with processing and underwriting the proposed financing, including without limitations, property inspection fees, travel expenses, fees for appraisal, environmental and building condition reports, and seismic study if applicable, liens, search fees and legal fees." That's why he has to pay it, because he agreed to pay it.

He went in with his eyes open. He read this, he understood it. There are no questions of fact. The motion is granted.

The order of dismissal was entered the same day. This appeal followed.


An appellate court reviews a grant of summary judgment using the same standard that governs the trial court. Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-46 (2007). Generally, 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 fact finder to resolve the alleged disputed issue in favor of the non-moving party." Brill, supra, 142 N.J. at 540; see also R. 4:46-2(c). However, a "'genuine' issue of material fact" does not exist if there is only one "unavoidable resolution of the alleged disputed issue of fact." Ibid. (citation omitted).


There was no breach of the contract with respect to the proposed loan.*fn1 The essence of the motion judge's decision granting summary judgment is that CJS applied to Merrill to refinance the mortgage for its commercial real estate knowing that the application itself provided that it was "for discussion purposes only" and did "not constitute [a] commitment to lend or an agreement to issue a commitment." CJS also knew, again from the clear and specific language of the application itself, that a "loan commitment may be issued only upon (1) [Merrill]'s receipt of all information requested by [Merrill], (2) [Merrill]'s review and approval of all such information and completion of its due diligence, and (3) approval of [Merrill]'s credit committee."

After obtaining additional information and doing its due diligence, Merrill proposed specific additional loan terms that CJS found unacceptable. As we held in National Community Bank of New Jersey v. G.L.T. Industry, 276 N.J. Super. 1, 4 (App. Div. 1994): "The very nature of an application and appraisal process is to explore, not necessarily to cement, the possibility of a viable loan.... Every courtship does not lead to marriage. Every refinancing application does not guarantee acceptance." See also Int'l Minerals & Mining Corp. v. Citicorp N. Am., Inc., 736 F. Supp. 587, 595 (D.N.J. 1990) ("[A] proposal to agree in good faith to consider a loan is not tantamount to an agreement to lend money.").

CJS sought to avoid the clear import of the language of the application it submitted, and our holding in National Community Bank, by premising defendants' liability on other legal theories. We hold that those efforts must fail as a matter of law.

CJS contends that there are material issues of fact relating to whether Merrill and Shelley breached the implied covenant of good faith and fair dealing. "A covenant of good faith and fair dealing is implied in every contract in New Jersey." Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001). The Supreme Court has held that, for a claim for breach of this covenant, "'bad motive or intention' is vital," and that "[t]he party claiming a breach... 'must provide evidence sufficient to support a conclusion that the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties.'" Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 224 (2005) (quoting 23 Williston on Contracts § 63:22 (Lord ed. 2002) (footnotes omitted)).

Our review of the record reveals the existence of no such evidence. A motion for summary judgment can be defeated by genuine issues of material fact that, if decided in the non-moving party's favor, would give rise to legitimate inferences supporting the non-moving party's position, but it cannot be defeated by mere speculation. See Bello v. Lyndhurst Bd. of Educ., 344 N.J. Super. 187, 196 (App. Div. 2001).

Although the parameters of the terms suggested by Shelley during his discussions with Caruso and contained in the loan application were different in significant respects from those eventually offered by Merrill, Merrill clearly had the right to modify its loan proposal after engaging in its review of the underlying facts and due diligence. That process is established by the application document itself.

CJS argues that Merrill acted in bad faith by trying to cover up Shelley's purported misunderstanding with respect to the term of the tenant leases. In doing so, CJS appears to argue that, as a matter of law, Merrill had no right to change its proposal upon discovering such a mistake or misunderstanding. That argument is inconsistent with Merrill's right to perform due diligence to ensure that Merrill had a complete and accurate understanding of the facts. In addition, CJS's assertion is not legally supported by the case cited, Addesa v. Addesa, 392 N.J. Super. 58, 74 (App. Div. 2007), which is a matrimonial case involving a property settlement agreement. We know of no cases supporting CJS's argument.

There is no evidence to suggest that Merrill's proposal was commercially unreasonable or, more importantly, that Merrill acted with the required bad faith in proposing modified terms after fully examining the information supplied by CJS. Indeed, CJS withdrew its application before any further negotiations of terms could take place between Merrill and CJS.

There can have been no binding oral contract for the making of the refinance loan because such contracts must be in writing pursuant to N.J.S.A. 25:1-5(f), which applies to "contract[s]... to loan money... in an amount greater than $100,000, not primarily for personal, family or household purposes, made by a person engaged in the business of lending or arranging for the lending of money or extending credit." CJS's reliance on McBarron v. Kipling Woods, L.L.C., 365 N.J. Super. 114 (App. Div. 2004) is misplaced. That case involved the sale of real property, as to which the Statute of Frauds, N.J.S.A. 25:1-13, has been modified to require either a writing or proof of an oral agreement by clear and convincing evidence. Because there has been no similar amendment to N.J.S.A. 25:1-5(f), McBarron is simply inapposite, and an oral agreement, even if proven by clear and convincing evidence, is not binding in a case such as this one.

The remaining issues raised on appeal do not warrant extended discussion in a written opinion. R. 2:11-3(e)(1)(E). We add only the following.

We see no evidence in the record that would support any allegation sounding in fraud, which involves misrepresentation of past or existing facts, as opposed to predictions of the future, and reasonable reliance on such misrepresentations. Int'l Minerals and Mining Corp., supra, 736 F. Supp. at 598 (applying New Jersey law). At oral argument before us, CJS conceded that it was not alleging that Merrill and Shelley sought submission of the application merely to obtain the application fee and deposits without any intention of ever making a loan. We discern no evidence in the record to support such an assertion. And, given the language of the loan application as outlined above, there could have been no reasonable reliance on any oral representation or statement that a loan would be made.

For the same reasons, CJS's claims sounding in promissory and equitable estoppel must fail. See Malaker Corp. Stockholders Protective Comm. v. First Jersey Nat'l Bank, 163 N.J. Super. 463, 479 (App. Div. 1978) (noting that promissory estoppel requires reasonable reliance), certif. denied, 79 N.J. 488 (1979); Miller v. Miller, 97 N.J. 154, 163 (1984) (noting that equitable estoppel requires reasonable reliance); Fairken Assocs. v. Hutchin, 223 N.J. Super. 274, 280 (Law Div. 1987) (same).

CJS cannot bring a claim for negligent misrepresentation because "a tort remedy does not arise from a contractual relationship unless the breaching party owes an independent duty imposed by law." Saltiel v. GSI Consultants, Inc., 170 N.J. 297, 316 (2002). See also Int'l Minerals and Mining Corp., supra, 736 F. Supp. at 597, in which the district court granted the lender's motion for summary judgment because the lender owed no independent duty to the prospective borrower outside the loan application. CJS has demonstrated no factual or legal basis for a finding that any such independent duty existed in this case.


We depart from the motion judge's decision only with respect to the narrow issue of the return of the deposits, particularly the deposit for legal services. We have concluded that a remand is necessary for either further motion practice or a trial with respect to whether CJS is entitled to the return of some or all of its deposits. Although the application fee is clearly not refundable, we do not see evidence in the record to support a determination that CJS is not entitled to a full accounting of the expenditures of the deposited funds and the return of funds that were either not spent at all, or not appropriately and reasonably spent, by Merrill under the terms of the application.


For the reasons stated above, we affirm the judgment on appeal as to all issues except the claim for the return of the deposits made by CJS. As to that issue, we reverse and remand to the trial court for further proceedings consistent with this opinion.

Affirmed in part, reversed in part and remanded.

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