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New Flyer of America, Inc. v. Mid-Newark

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 6, 2010

NEW FLYER OF AMERICA, INC., PLAINTIFF-RESPONDENT,
v.
MID-NEWARK, L.P., DEFENDANT-APPELLANT.

On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-5323-08.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted May 10, 2010

Before Judges Lisa, Baxter and Alvarez.

This appeal arises out of a dispute over the return of a $60,000 security deposit on a commercial lease. After vacating the premises at the end of the lease term, New Flyer of America, Inc. (New Flyer) acknowledged that $9100 should be deducted from the security deposit for repairs. The landlord, Mid-Newark, L.P. (Mid-Newark) refused to refund the $50,900 New Flyer requested. New Flyer sued Mid-Newark for that amount. After a bench trial, the judge found that New Flyer was entitled to the $50,900 plus interest of $5705.29, for a total amount of $56,605.29. The judge also found that Mid-Newark breached the implied covenant of good faith and fair dealing in the lease agreement and, based upon that breach, awarded New Flyer counsel fees and costs in the amount of $47,646.02. The court entered final judgment on May 14, 2009 in favor of New Flyer against Mid-Newark for a total of $104,251.31.

Mid-Newark appeals, arguing (1) the judge erred in admitting in evidence New Flyer's email reflecting that the costs of repairs would be $9100, (2) the judge failed to consider Mid-Newark's evidence of photographs of the premises and the written estimates and testimony of Mid-Newark's contractor in awarding New Flyer the return of $50,900 of the security deposit, and (3) the judge erred in awarding attorney's fees to New Flyer. We reject the first two arguments and affirm that portion of the judgment awarding return of a portion of the security deposit plus interest, in the total amount of $56,605.29. We agree with Mid-Newark's third argument and reverse the portion of the judgment awarding counsel fees and costs in the amount of $47,646.02.

I.

New Flyer leased a warehouse in Mid-Newark's building in Jersey City for the purpose of conducting its operations pursuant to a contract with New York City Transit to service and maintain its buses. The lease was dated August 29, 2001. The lease term was for six months, with renewal options. The rent was $30,000 per month, and the security deposit, which New Flyer paid, was $60,000. The security deposit would be returned at the end of the lease term after New Flyer vacated the premises, provided it performed all of its obligations under the lease, which contained the following provision:

On the last day of the term hereof, or on any sooner termination, Lessee shall surrender the Premises to Lessor in the same condition as when received, broom clean, ordinary wear and tear and damage from casualty excepted.

With respect to attorney's fees, the lease provided that "[i]f Lessor brings an action to enforce the terms hereto, the Lessee shall be liable for Lessor's reasonable attorney's fees and costs." The lease contained no corresponding provision obligating the lessor to be liable for the lessee's attorney's fees.

At trial, Alan Farrant, New Flyer's senior customer support manager, testified that at the inception of the lease the walls were bare concrete and the floor had been painted, but the paint was worn. He further said that the office space portion of the premises was dilapidated and needed new paint and new carpet.

New Flyer's tenancy proceeded uneventfully through the original six-month term and was apparently extended multiple times through November 2006. Farrant testified that by November 2006, New Flyer had completed its work with New York City Transit. As November 2006 approached, New Flyer requested a final inspection of the premises to take place on November 28, 2006. According to Farrant, Solomon Gadeh, the owner of Mid-Newark, was supposed to attend a walk-through inspection on November 29, 2006, but neither he nor any representative of Mid-Newark showed up.

Prior to the walk-through date, New Flyer had the floor and offices cleaned by a professional cleaning company. According to Farrant, "other than the holes in the drywall... there was no real damage." On November 30, 2006, New Flyer turned over the keys to Mid-Newark's warehouse manager and vacated the premises.

A series of emails between Gadeh and Farrant followed. On December 4, 2006, Farrant emailed Gadeh seeking to confirm that the premises were left in satisfactory condition, stating that should Gadeh wish to perform a joint inspection he should contact Farrant, and requesting return of the $60,000 security deposit. Gadeh responded on December 6, 2006. He said he had been overseas on the date of the scheduled walk-through. He further said he had a list of "many things that need repairs." However, he continued that he was aware that New Flyer might receive another contract with New York City Transit in February 2007 and might wish to reoccupy the premises, in which case Mid-Newark would "repair the damages without any cost to you." As a "courtesy," Gadeh would hold the premises for New Flyer until February 2007, "in hopes that you might renew the lease with us." If not, Gadeh would refund the security deposit at that time, less the cost of the repairs.

Shortly thereafter, a joint walk-through inspection was conducted by Jose Dotel, a New Flyer representative, and a representative of Mid-Newark identified as "Izzy." A number of items needing repair were identified. On December 20, 2006, Dotel emailed Farrant an itemization of the items needing repair as well as estimated costs to complete the repairs as follows: $4500 to paint the walls and fix the holes in the drywall, and $4600 for new carpet, totaling $9100. Dotel stated in the email that he had also "called around ten other places for an estimate." It was expected that the repairs would take one to two weeks to complete. On December 22, 2006, Farrant emailed Gadeh:

Per your inspection of the Garfield facility, New Flyer is prepared to go in and complete repairs per your request. A New Flyer employee was on the premises with Izzy yesterday and find [sic] that material is being moved into the facility, which would prevent us from performing the work.

We have received quotes in the amount of $9,100 and would like to offer you the following: If you would prefer to deduct the amount from our two month's deposit and leave the repairs we ask that you forward a cheque [sic] for the difference.

If you would like us to perform the repairs please have the material removed from the warehouse & advise when we can access the building.

Solomon, we have still not seen the bid from New York City Transit for repairs to MCI buses, so we will not be starting up operations again in February. We would appreciate if you would forward a cheque for our deposit once you are satisfied with either the repairs or retaining cost of same.

All the best for the holiday season. Hope to hear your decision soon.

Regards, Alan. [Emphasis added.]

After nearly two months passed with no response, Hans Peper, New Flyer's executive vice-president and Farrant's superior, wrote to Gadeh requesting resolution of the return of the security deposit issue. He confirmed that any hopes of obtaining a new contract with New York City Transit had not materialized and that New Flyer would not be reoccupying the premises. Apparently referring to the fact that New Flyer's employee said that he discovered during the joint inspection that material had been moved back into the premises, Peper wrote that "As you have now moved back in to the facility we assume that you would like to receive a credit" for the repair costs in the amount of $9100. Accordingly, Peper again requested a check be sent for the return of the security deposit in the amount of $50,900, representing the security deposit less the cost of repairs.

Gadeh replied by letter of March 7, 2007 that he had asked Farrant for a breakdown of the $9100 estimate but had not received a response. There is no evidence of such a request in the record. Gadeh said Mid-Newark had its own estimate of $14,500, and that the repairs would take three weeks to one month to complete. Accordingly, Gadeh planned to deduct not only $14,500 from the security deposit but also one month's rent, $42,000, to compensate for the time the building would not be rented due to the repair. However, Gadeh said that it had "come to [his] knowledge" that the possibility still remained that New Flyer may bid on a New York City Transit contract. Gadeh hoped that New Flyer would bid, win, and renew the lease, at which time Mid-Newark "would be willing to absorb the above mentioned" $42,000. Otherwise, Gadeh would "be happy" to return the balance of the security deposit, $3500 ($60,000 less $14,500 for repairs and $42,000 for lost rent).

Finding this proposal unsatisfactory New Flyer filed its complaint on June 20, 2007, alleging breach of contract, conversion and unjust enrichment. It sought return of the $50,900 plus costs and attorney's fees. Mid-Newark counterclaimed, seeking a determination that it was entitled to retain the entire $60,000. The bench trial was conducted on March 18 and 19, 2009. Farrant and Gadeh testified, as did Gadeh's son, Teddy Gadeh, and Sayed Imran Husain. The latter two witnesses provided testimony regarding photographs they took of the premises after New Flyer vacated, which we will later discuss. Mid-Newark also produced a contractor, Yaakov Saada, who provided cost-of-repair testimony.

Farrant described the events in the manner we have set forth. Mid-Newark's counsel objected to the admission into evidence of the email from Farrant to Gadeh and the email from Dotel to Farrant setting forth the repair amount of $9100. Although Farrant provided live testimony as to the content of the emails, Mid-Newark's counsel argued that they constituted inadmissible hearsay. The court accepted Farrant's testimony that the email communications were used as part of the ordinary and regular conduct of New Flyer's business and that Farrant's practice was to file all of his emails. Thus, the court admitted them under the business record exception to the hearsay rule. New Flyer provided no other testimony as to the cost of repairs.

Gadeh testified that New Flyer left the premises in terrible condition. In June 2007, about seven-and-one-half months after New Flyer vacated, Teddy Gadeh took photographs of the premises. Farrant acknowledged in his testimony that some of the photographs accurately reflected the condition of the premises at the time New Flyer vacated.

Gadeh testified that as soon as New Flyer vacated, Mid-Newark "decided to occupy it ourselves" and "made use of the warehouse space" and the office space, and did not attempt to rent the premises to any other tenants. He also admitted that he did not allow New Flyer access to the building to make the repairs. Gadeh did not get written estimates of the cost of repairs until July 2008, more than one-and-one-half years after New Flyer vacated. These estimates were prepared by Saada, who first viewed the premises in July 2008 and estimated the repairs would cost over $43,000 and would take three to four weeks to complete. Saada testified accordingly at trial.

The judge found Farrant's testimony more credible and persuasive than that provided by Gadeh. The judge made these critical factual findings: (1) Mid-Newark denied New Flyer access to the building for the purpose of making the repairs; (2) New Flyer notified Mid-Newark twice that it would not be renewing the lease; and (3) Mid-Newark never attempted to lease the premises to another tenant despite attempting to deduct $42,000 from the security deposit for lost rent opportunities. The judge concluded that New Flyer attempted to surrender the premises in its original condition by either making the repairs itself or allowing Mid-Newark to deduct $9100 from the security deposit, but Mid-Newark frustrated those efforts. Accordingly, the judge reasoned that Mid-Newark could not now object to the condition of the premises or the costs of the repairs.

The judge found that Mid-Newark breached the express terms of the lease agreement. The judge also found that Mid-Newark breached the implied covenant of good faith and fair dealing by failing to timely respond to New Flyer's efforts to repair the premises or deduct $9100, misrepresenting that it had obtained a written estimate that repairs would cost $14,500, and waiting until six months after New Flyer vacated to take pictures of the alleged damage. The judge concluded that even accepting MidNewark's argument that New Flyer should have undertaken the cleaning and repairs before the lease term ended, Mid-Newark "cannot simply choose not to take action."

The judge accordingly entered judgment for New Flyer for $50,900 plus interest. The judge further found that New Flyer was "entitled to consequential damages for [Mid-Newark]'s breach of the implied covenant of good faith and fair dealing," and that Mid-Newark "either knew that [New Flyer] would have to sue in order to obtain its security deposit" or "should have known that a commercial tenant would sue under the circumstances." For those reasons, the judge awarded New Flyer counsel fees and costs as consequential damages.

II.

We first consider Mid-Newark's argument that the judge erred in admitting the December 20, 2006 email from Dotel to Farrant as evidence that the repairs would cost $9100. As we previously set forth, this evidence was admitted under the business records exception to the hearsay rule, N.J.R.E. 803(c)(6). Mid-Newark argues that the document did not fit within this exception because it was not kept in the regular course of business. However, based on Farrant's testimony, which the judge found credible, New Flyer's employees regularly communicate by email and it is a regular practice of the business to file the emails. Therefore, the requirement of N.J.R.E. 803(c)(6) of a "writing or other record... made in the regular course of business... [as a] regular practice of that business" was established. It was also established, and Mid-Newark does not argue otherwise, that the writing or record was "made at or near the time of observation by a person with actual knowledge or from information supplied by such a person." Ibid. That the document or record is a print-out of a computer-generated email rather than a traditional business record is irrelevant. Carmona v. Resorts Int'l Hotel, Inc., 189 N.J. 354, 380 (2007). Finally, the party opposing the document bears the burden of producing evidence to demonstrate that it was not trustworthy. Hahnemann Univ. Hosp. v. Dudnick, 292 N.J. Super. 11, 18 (App. Div. 1996). The sequence of events leading up to the email establish that as part of New Flyer's effort to make the repairs on the building, it sought price quotes from various companies. The email reflects that Dotel contacted such companies and relayed the information to his superior, Farrant, by the normal method of communication regularly used by New Flyer employees. We are satisfied that the judge did not err in admitting the email in evidence.

III.

Mid-Newark's argument that the judge erred in failing to consider Mid-Newark's photographs of the premises and written estimates and testimony of its contractor is not borne out by the record. The judge did consider the evidence submitted by Mid-Newark, including the photographs, which were admitted into evidence over New Flyer's objection. Likewise, the judge received and considered Saada's testimony regarding the cost of repairs and his written estimate. The judge found the contrary testimony presented by New Flyer more credible and persuasive. Therefore, in discharging her factfinding responsibility, the judge relied upon the evidence found more reliable in reaching her ultimate conclusion.

The scope of appellate review of a judgment entered in a non-jury case is limited and the "findings on which it is based should not be disturbed unless... they are so wholly insupportable as to result in a denial of justice." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974). "Appellate courts should defer to trial courts' credibility findings that are often influenced by matters such as observations of the character and demeanor of witnesses and common human experience that are not transmitted by the record." State v. Locurto, 157 N.J. 463, 474 (1999). Reviewing the record as a whole, we have no basis to interfere with the judgment of the trial court and the findings on which it was based.

The record reveals that New Flyer did everything in its power to make the repairs requested or set off their costs, but Mid-Newark refused to let it do so and retained the entire deposit. As discussed, the terms of the lease required Mid-Newark to return that portion of the deposit not applied to costs for repair "at the expiration of the term hereof and after Lessee has vacated the premises." Prior to the end of the lease term, New Flyer employed professional cleaners to clean the premises and requested a joint inspection with Mid-Newark. The inspection was scheduled, but Mid-Newark did not show up. New Flyer then vacated the premises and turned over the keys. MidNewark's subsequent actions amounted to a breach of the express terms of the lease.

The judge's factual findings in this case are well supported by the record, including the finding regarding the cost of repair as a set-off against the amount due on the refund of the security deposit.

IV.

Finally, we address the attorney's fee issue. Under the "American rule," each party normally bears its own costs and attorney's fees. Rule 4:42-9 authorizes counsel fee awards in certain instances, but the circumstances of this case do not fit within any of the provisions of that rule.

The judge did not rely on Rule 4:42-9. Instead, she viewed attorney's fees as an element of consequential damages flowing from Mid-Newark's breach of the implied covenant of good faith and fair dealing.

However, even assuming for purposes of analysis that the judge's finding that Mid-Newark breached the covenant of good faith and fair dealing, Mid-Newark provides no authority to support its position that attorney's fees may be awarded for the breach. We are aware of no such authority. Indeed, attorney's fees are not normally a proper measure of contract damages. Magnet Res., Inc. v. Summit MRI, Inc., 318 N.J. Super. 275, 292-93 (App. Div. 1998) ("In the absence of a contrary agreement, an injured party with the legal right to be compensated for the breach of a contract is entitled to the amount of damages (assuming they were reasonably in the contemplation of the parties) which, excluding attorneys' fees and court costs [fn6] for prosecuting the breach of contract action itself, will put that party in the same position it would have been in if the breaching party had performed the contract in accordance with its terms, no better position and no worse.") (emphasis added) (citations omitted from footnote). fn6 Of course, contracts frequently provide that a party injured by a breach can recover attorney's fees and court costs as part of its damages. Such a provision is generally enforceable.

Awarding attorney's fees for any breach of contract, even if foreseeable, would erode the American rule. In this case, of course, the lease agreement contained a provision authorizing Mid-Newark to recover attorney's fees in the event of New Flyer's breach, but did not contain a similar provision authorizing New Flyer to recover attorney's fees in the event of Mid-Newark's breach. This agreement was between two sophisticated commercial parties. We should not write for New Flyer a better contract than it entered into under the guise of consequential damages flowing from the breach of an implied covenant in the agreement.

Accordingly, we conclude that the court erred in awarding New Flyer $47,646.02 in attorney's fees and costs. The portion of the judgment setting forth that award is reversed and vacated.

Affirmed in part; reversed in part.

20100706

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