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Four Pals, LLC v. Javamoon Café Franchise Services

August 10, 2010


On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-3307-06.

Per curiam.


Argued March 23, 2010

Before Judges Grall, Messano and LeWinn.

Following a bench trial, judgment was entered in favor of plaintiff Four Pals, LLC (Four Pals) against defendant JavaMoon Café Franchise Services, LLC (Franchise Services) in the amount of $163,000, together with interest and costs. The judge dismissed plaintiff's claim against Franchise Services under the Franchise Practices Act (the FPA), N.J.S.A. 56:10-1 to -15. Additionally, the judge entered judgment in favor of defendants JavaMoon Toms River, LLC (Toms River), Nicholas Dalia, Joseph Brady and Joe and Kathy Brady, Inc. on plaintiff's claims for conversion, fraud, and violation of the Consumer Fraud Act, N.J.S.A. 56:8-1 to -184 (the CFA). Four Pals, along with plaintiffs Ronald and Rachel Chandler (the Chandlers) (collectively, plaintiffs) sought reconsideration of the order for judgment. That motion was denied, and this appeal followed.

The factual and procedural histories are convoluted. The Chandlers are married and currently own 100% of Four Pals, an entity they formed with another couple, Robert and Rosemary Billotti, to purchase, construct and operate a JavaMoon Café franchise through Franchise Services. Dalia was a 40 percent shareholder of Franchise Services, and acted as its representative in all dealings with the Chandlers and Billottis.

Four Pals entered into a franchise agreement with Franchise Services on May 6, 2004, paying a non-refundable franchise fee of $50,000. The franchise agreement provided that, among other things, Franchise Services would "assist [Four Pals] in obtaining a PREMISES and negotiating a lease on the PREMISES" and "assist [Four Pals] with the layout of the JavaMoon Café PREMISES." Dalia created a separate limited liability company, Toms River, of which he was the sole owner. On November 15, 2004, Toms River, as tenant, entered into a twenty-year lease agreement with 37 West Associates L.L.C., as landlord, for property located at 909 Route 37 West in Dover Township.

Although Four Pals never executed a sublease for the property, it paid a $12,000 security deposit to the landlord on November 9, 2004. Four Pals intended to extensively renovate the space; the landlord provided a $25,000 credit for installing bathrooms and drop ceilings, and also provided a grace period during which no rent was charged. By September 2005, all the credits and grace periods expired, and rent for the premises was due. Toms River began paying the rent thereafter.

In the interim, Four Pals was given access to the site sometime in March 2005, and a construction permit was issued on May 5, 2005. Messrs. Chandler and Billoti both had extensive construction experience, and did much of the work themselves; however, Four Pals spent an additional $182,000 on "subcontractors and the materials." A conflict developed between the Chandlers and the Billottis over the construction at the site. At a meeting on July 15, the Billottis indicated that they no longer wanted to pursue the venture. Dalia was willing to settle with Four Pals for the labor and materials they put into the premises because another franchisee, Brady, was interested in the Toms River location after his efforts to procure a franchise location in East Windsor fell through.

Negotiations between Four Pals and Dalia did not bear immediate fruit; on July 29, Dalia told plaintiffs to stop working on the site because he would not reimburse them for any additional work. At some point between late July, and early September, plaintiffs left the site and never returned. In early August 2005, Dalia offered Four Pals $163,000 to settle any and all disputes; the Chandlers accepted orally, and told Dalia to prepare the necessary paperwork. It was never prepared.

The Chandlers then spoke directly to Brady who offered them $98,000 for the costs of the improvements already made to the premises; the offer was rejected. Brady and Four Pals could not agree, so Brady turned his attention to Dalia and began direct negotiations with him in earnest. The Chandlers, however, listed the business for sale at the asking price of $299,000.

On September 15, when the rent credits expired, Dalia sent Four Pals an eviction notice.*fn1 On October 13, 2005, Dalia sent a letter to Brady's attorney offering to sell the franchise location for $143,000, and indicated that Franchise Services sought "to immediately terminate [the] Franchise Agreement" with Four Pals. Brady believed, based upon his discussion with Dalia, that any money he paid was going to Four Pals in order to buy out its interest.

On December 13, Franchise Services served notice of its intention to terminate the franchise agreement upon Four Pals. Four Pals objected, claimed it wanted to execute a sublease for the premises, and demanded access to complete its renovations. Each side consulted their attorneys, and a meeting was convened on February 27, 2006. Plaintiffs' counsel testified at trial regarding the meeting.

At the conference, the attorneys for Franchise Services and Toms River acknowledged that their clients were not entitled to keep the money paid over by Brady to purchase the franchise and location. Plaintiffs sought "an accounting and distribution from the $143,000 that [was] . . . received from Brady for the purchase of the franchise location, improvements, and other assets . . . ." No further settlement ...

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