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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 ...

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