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Cheesequake Realty, L.L.C. v. Finkelstein


July 28, 2010


On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-4031-07.

Per curiam.


Argued February 9, 2010

Before Judges Grall, Messano and LeWinn.

The dispute that gave rise to this litigation involves the rental and use of commercial real estate. The premises includes a gas station with a service area and a parking area. The tenant vacated the premises before the term of the lease expired, claiming it was terminated pursuant to a clause requiring the tenant to use nationally-branded gasoline. The tenant had subleased a portion of the premises to a limousine company, which used a portion of the parking area, and the sublessee remained after the tenant departed.

The landlord commenced this action to recover damages from the tenant, the guarantors of the tenant's performance under the lease, and the sub-lessee. In addition to breach of the lease by the tenants, the landlord alleged violations of the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 to -23.11z; negligence; strict liability for damage to the premises; nuisance; and unjust enrichment. The tenant counterclaimed for return of its security deposit and filed a cross-claim against the sub-lessee for indemnification.

On cross-motions for summary judgment, the judge dismissed the landlord's claims against the tenant and the guarantors because the landlord did not make any effort to obtain a new tenant and failed to establish damage to the premises warranting an award of damages or retention of the security deposit. On the landlord's claims of unjust enrichment, the judge found the sub-lessee, but not the tenant, liable. Accordingly, judgment was entered in favor of the tenant on their cross-claim for return of the security deposit, and against the sub-lessee on the landlord's claim of unjust enrichment in the amount of $9300 plus prejudgment interest.

The landlord appeals and the sub-lessee cross-appeals. With the exception of the award of the security deposit to the tenant, the landlord's competing claims to that deposit and the award of prejudgment interest to the sub-lessee, we affirm.

The facts, viewed in the light most favorable to the non-prevailing party on the respective claims, are as follows. Plaintiff Cheesequake Realty, L.L.C. is the owner of the gas station, which is located on Bordentown Avenue in the Township of Old Bridge. On July 31, 1997, William Delizia, the owner of Cheesequake, and defendant Thomas Heim, as the president of defendant Rendl Corp., signed a lease that was to terminate on May 31, 2007. Under the terms of the lease, it was to be used "solely for a retail gasoline service station, the sale of gasoline and petroleum products at retail, and for the storage, repair and maintenance of motor vehicles as permitted by law, and for no other purpose."

Rendl's performance under the lease was guaranteed by Heim, defendant Mark Finkelstein, who is the director and a fifty-percent shareholder of Rendl Corp., and defendant Tanzboden Corp., a second corporation owned by Heim and Finkelstein (collectively the Rendl defendants). The guaranty provides that it is given "absolutely, unconditionally and irrevocably" with respect to "the full and prompt performance and observance of all of [Rendl's] obligations under the Lease."

Between 1997 and 2000, defendant J. Enterprises, Inc. (J. Enterprises), an entity owned by defendant Joseph Longo and doing business as defendant Longo Limousine, leased parking spaces on the premises through Cheesequake. Thereafter, J. Enterprises made other arrangements, but beginning on January 1, 2004, Rendl sub-leased the parking spaces to J. Enterprises without seeking the landlord's approval as required by the lease. On March 25, 2005, Rendl and J. Enterprises entered into a lease at a rate of $3600 per year for a period commencing on March 1, 2005 and ending on March 1, 2008.

Rendl, however, vacated the premises before the lease expired. Rendl asserted that circumstances warranted termination pursuant to a provision of the lease addressing the source of petroleum products to be sold. The Rendl/Cheesequake lease required Rendl to sell petroleum products produced by a "'major' oil refiner." That provision further stated that the lease would cease upon "thirty (30) days notice after the termination or non-renewal date of the supply agreement, unless owner shall have arranged for a substitute branded supplier of a nationally recognized brand and trademark." Initially Rendl's supplier was Amoco. Subsequent to Amoco's merger with British Petroleum, BP supplied the petroleum products.

In the fall of 2004, Rendl attempted but failed to negotiate acceptable terms for a supply agreement with BP. Although BP continued deliveries for a time, on March 31, 2005, BP notified Rendl that it would cease supplying gasoline effective June 30, 2005 unless Rendl agreed to its terms. On April 8 and 12, 2005, Rendl's attorney advised Cheesequake's attorney of the situation and outlined the options under the lease, including Cheesequake's option to consent to Rendl's continuance of operations as an independent dealership. No response was received, and by letter dated June 22, 2005, Rendl advised that it would vacate the premises on June 30, 2005. By letter dated June 24, 2005, Cheesequake advised that Rendl's "purported surrender" was rejected, that it could sell unbranded petroleum products and that the guarantors would be liable if Rendl left before the lease expired on May 31, 2007.

Rendl left the leased premises on June 30, 2005. At that time, J. Enterprises was paying $300 per month in rent in accordance with the Rendl/J. Enterprises lease. While Rendl directed J. Enterprises to leave as of June 30, 2005, J. Enterprises stayed and offered to pay the rent to Cheesequake. Cheesequake refused to accept payment, and Delizia told Longo to send the rent to Rendl. J. Enterprises continued to use the property without paying anyone until January 2008.

With respect to the condition of the property, the lease required Rendl to deliver it "broom clean" and in "good repair and safe condition except for reasonable wear and tear"; Rendl was obligated to make repairs as specified and indemnify Cheesequake against any claims arising from management of its business on the premises. When Rendl vacated the premises, a "lube cube," which "is a safe storage cube for waste oil," was not cleaned out. When Cheesequake inspected the premises at the end of the lease, more than two years after Rendl's departure, it found that there were missing and broken ceiling tiles, the bay lifts were damaged and the heating system needed repair.

Rendl acknowledged that it had not inspected the ceiling tiles or the heating system before vacating the premises.

During Rendl's tenancy there were two incidents involving fuel. In 1999, twelve gallons of diesel fuel were released onto an impervious surface because a nozzle malfunctioned. A similar incident occurred in 2003 or 2004. In both instances, Rendl contacted the fire department and the department filed reports. No action was taken by any governmental agency as a consequence.

Rendl had cut through the cement on two occasions. On one occasion, the cement was removed to correct a problem in the vapor line from a fuel storage tank to the pumps. The second excavation was done to replace lids on the underground tanks to prevent water from entering.

There was no evidence of environmental damage or fuel leaking from the tanks. Commencing in 1998, the Department of Environmental Protection implemented a program to monitor fuel storage tanks in gas stations. Operators without approved monitoring instruments on their tanks were required to file reports on input and output. Rendl submitted the requisite reports until it installed a monitoring system.

There was no evidence that any action to remediate environmental damage was required or taken at Cheesequake's expense or that Rendl or Cheesequake was charged with any regulatory violations related to the leased property. Similarly, there was no evidence of the costs of any repairs or cleanup Cheesequake needed to do to restore the property.

While using the premises, Longo received two citations for violations of local ordinances, but the citations were not related to property damage. One was for storage of tree trunks, and one was for operation of a landscaping business.

There was no evidence tending to show that Cheesequake delayed any effort to find a new tenant until Rendl's lease was about to expire. During its occupancy, J. Enterprises had two signs posted on the property - one for Longo Limousine and one for Longo Land & Tree. According to Longo, he had received many calls from persons expressing interest in leasing the vacant gas station. Longo relayed the information to Delizia, but Delizia informed him he could not do anything until Rendl's lease expired. He instructed Longo not to bother telling him about future inquiries. At his deposition, Delizia, on behalf of Cheesequake, was asked whether he "tr[ied] to get new tenants or purchasers for the property." Delizia responded: "not until [Rendl's] lease was up." According to Longo, he first noticed a sign indicating that the gas station was available for leasing about one month before his deposition was taken.

Cheesequake filed its complaint in this action on April 25, 2007. With respect to rent specified in the Rendl/Cheesequake lease, the amount is $94,077.36 for the period commencing upon June 1, 2005 and ending on May 31, 2006 and $95,958.90 for the following year.

Following oral argument on the motions and cross-motions for summary judgment, the trial court issued a written decision and order filed on October 27, 2008.

On review of orders granting summary judgment, this court, like the trial court, must consider the evidential materials submitted on the motion in the light most favorable to the non-prevailing party and give that party the benefit of all favorable inferences that are reasonable. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); Kramer v. Ciba-Geigy Corp., 371 N.J. Super. 580, 602 (App. Div. 2004).

With respect to Cheesequake's claim of breach based on Rendl's departure, the trial judge found that there was a genuine dispute of material fact. We agree that the facts pertinent to compliance with the lease provisions addressing termination in the absence of a supplier were not sufficiently one-sided to permit entry of judgment in favor of either party. Brill, supra, 142 N.J. at 540. For example, the reasonableness of Rendl's rejection of the terms offered by BP and its refusal of Cheesequake's late consent to permit the use of unbranded petroleum products are matters on which reasonable jurors could disagree. The same is true with respect to Cheesequake's delay in responding to Rendl's first notice about the breakdown of its negotiations with BP.

The trial judge, however, granted summary judgment on this claim of breach on a different basis. He found that Cheesequake did not present any evidence that would permit a jury to find that it made any effort to mitigate its damages.

In the absence of evidence of a declining rental market or evidence of some other basis for an award of partial recovery, a landlord's total failure of effort to mitigate damages by seeking another tenant warrants entry of judgment in favor of the tenant on a landlord's claim for rent due after surrender of the property. See generally McGuire v. Jersey City, 125 N.J. 310, 320-23 (1991); JS Properties, L.L.C. v. Brown and Filson, Inc., 389 N.J. Super. 542, 552 (App. Div. 2006); Harrison Riverside Ltd. P'ship v. Eagle Affiliates, Inc., 309 N.J. Super. 470, 471-75 (App. Div.), certif. denied, 156 N.J. 384 (1998); Fanarjian v. Moskowitz, 237 N.J. Super. 395, 404-07 (App. Div. 1989).

On appeal Cheesequake urges us to determine that the judge erred in considering the motion for summary judgment filed by the Rendl defendants because they did not comply with Rule 4:46-2. Cheesequake is correct that the Rendl defendants' statement of material facts does not include citations to the record as required by Rule 4:46-2(a), but we cannot conclude that the trial judge abused his discretion by ruling on the merits rather than dismissing the motions without prejudice.

It is clear that compliance with Rule 4:46-2(a) is not optional. Lyons v. Twp. Of Wayne, 185 N.J. 426, 435 (2005). Nonetheless, the judge has discretion in addressing a violation. Rule 4:46-2(a) permits, but it does not require, dismissal without prejudice. Indeed, a sanction for non-compliance is the recommended approach when the record permits the court and the adversary to proceed based on a close review of the record.

Leang v. Jersey City Bd. of Educ., 198 N.J. 557, 568 n.2 (2009).

In this case, Cheesequake, in its statement in opposition pursuant to Rule 4:46-2(b), objected to the Rendl defendants' failure to provide citations to the record, but Cheesequake's statement pursuant to Rule 4:46-2(b) also lacked specific citations to the record. In any event, the record in this case was not so extensive as to preclude a thorough review of the evidential materials in light of the statements of material facts that were filed. Discerning no apparent prejudice to Cheesequake, we are confident that the course the judge opted to follow was not capable of leading to an unjust result and does not warrant relief on appeal. R. 2:10-2.

Aptly characterizing the judge's denial of its claim for rent owed under the lease as based upon its failure to mitigate damages, Cheesequake also urges us to grant a motion to supplement the record filed with this court. They seek to have us consider information relevant to its efforts in mitigation that was not submitted to the trial judge.*fn1 The materials submitted on the motion also include information that Cheesequake asserts is relevant to show environmental damages and the extent of property damage. We now deny that motion.

An appellate court ordinarily considers only evidential material submitted to the trial court. R. 2:5-4(a); Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 452 (2007). There is no question that we have the authority to consider a motion to supplement the record. Ibid. (citing R. 2:9-1(a)). As with any grant of judicial discretion, it is not absolute. It must be exercised in accordance with factors relevant to a "fair determination": (1) whether, at the time of the hearing or trial, the moving party knew of the information it seeks to add to the record; and (2) if the new evidence is included, whether it is likely to affect the outcome. Id. at 452-53.

All of the information Cheesequake asks us to consider was available to Cheesequake at the time of the motion. Moreover, it has limited probative value, especially on the question of mitigation. That is so because the efforts to obtain a tenant reflected in the new materials were made either prior to Rendl's delivery of notice or when the expiration of Rendl's lease was relatively imminent given the complexities involved in negotiating a long-term lease of a gas station. The evidence allegedly relevant to contamination and property damage is also less than persuasive. Reports reflecting the presence of certain chemical substances do not explain the significance of the substances detected, and the evidence of the condition of the premises was acquired long after Rendl vacated. For those reasons, we deny the motion.

Cheesequake also argues that the court erred in granting summary judgment with respect to its Spill Act, strict liability and nuisance claims. With respect to environmental damage, there was no evidence of damage caused or regulations violated by either the Rendl defendants or Longo and J. Enterprises. Accordingly, we reject the claim and affirm the dismissal of Cheesequake's claims based on environmental damage.

In contrast, Cheesequake's objection to the aspect of the judgment that awards Rendl return of its security deposit has merit. The judge relied on N.J.S.A. 46:8-21.1, a statute that applies to residential not commercial leases, see N.J.S.A. 46:8-26. But this case involves a commercial lease. Under its terms, the deposit was held "as security for the faithful performance by [t]enant of all the terms, covenants and conditions of" the lease, not just as security for property damage.

We cannot conclude that the evidence was so one-sided as to warrant a grant of relief in Rendl's favor on this claim or Cheesequake's claim of entitlement to retain the deposit under the terms of the lease. Rendl's representative admitted that he had not checked the ceiling tiles or heat and neglected to remove the "lube cube." Moreover, as discussed above, there is a genuine dispute of material facts relevant to breach by Rendl. Accordingly, we reverse the grant of summary judgment in so far as it requires return of the security deposit to Rendl and dismisses claims of breach and property damage compensable under the provision of the lease addressing the security deposit. Those competing claims are remanded for further proceedings.

Cheesequake and J. Enterprises both argue that the judge erred in awarding Cheesequake damages based on unjust enrichment. Cheesequake claims the award was inadequate, and J. Enterprises contends there was no basis for any award. We affirm that determination substantially for the reasons stated by the trial judge. "To establish a claim for unjust enrichment, a plaintiff must show both that defendant received a benefit and that retention of that benefit without payment would be unjust." Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88, 110 (2007) (internal quotations omitted). The material facts relevant to that showing were not in dispute. On the basis of the evidence presented, the rent J. Enterprises avoided was a reasonable measure of its unjust enrichment.

We cannot, however, affirm the award of prejudgment interest to J. Enterprises. A claim of unjust enrichment is not a tort action in which prejudgment interest is mandatory, R. 4:42-11(b); it is a claim based on the equities of the situation. "[T]he award of prejudgment interest on contract and equitable claims is based on equitable principles." County of Essex v. First Union Nat'l Bank, 186 N.J. 46, 61 (2006). A reviewing court generally does not disturb an award of prejudgment interest in the absence of an abuse of discretion resulting in "a manifest denial of justice." Musto v. Vidas, 333 N.J. Super. 52, 74 (App. Div.), certif. denied, 165 N.J. 607 (2000). But in this case the judge stated no reasons for his exercise of discretion. Accordingly, we vacate the award with direction for the judge to consider the pertinent factors and explain the basis for and amount of any prejudgment interest awarded.

Affirmed in part; reversed in part and remanded for further proceedings in conformity with this decision.

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