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Four Pals, LLC v. Javamoon Café Franchise Services

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 10, 2010

FOUR PALS, LLC, RONALD CHANDLER AND RACHEL CHANDLER, PLAINTIFFS-APPELLANTS,
v.
JAVAMOON CAFÉ FRANCHISE SERVICES, LLC, JAVAMOON TOMS RIVER, LLC, JOSEPH BRADY AND JOE AND KATHY BRADY, INC., DEFENDANTS, AND NICHOLAS DALIA, DEFENDANT-RESPONDENT.

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

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

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 discussions took place, no accounting was ever provided, and no monies were ever paid over to Four Pals.

In August, plaintiffs filed their initial and then an amended complaint against Franchise Services, Toms River, Dalia, Brady and the Billottis alleging various theories of liability, including breach of contract, violation of the FPA, the CFA, and conversion. They sought compensatory and punitive damages. On December 19, 2008, the judge entered an order, striking the answers and suppressing the defenses of Franchise Services, Toms River, and Brady "for failure . . . to comply with the notices to take their oral depositions . . . ." Their pleadings were never restored.*fn2

On the day of trial, Dalia appeared pro se. Brady, who plaintiffs had subpoenaed as a witness, was also present. In addition to the facts we have already detailed, Brady testified that on March 3, 2006, he signed a sublease with Toms River and an indemnification agreement that was executed by Dalia on behalf of Toms River.*fn3 Brady paid $89,000 to Dalia and took possession of the franchise location sometime in March of 2006 and finished construction. The business closed in July 2007, and Brady subsequently filed for bankruptcy.

Defaults had already been entered against Franchise Services, Toms River, and Brady. When plaintiffs rested, they requested that default judgment be entered against those defendants in the amount of $181,866.84, an amount that reflected plaintiffs, out-of-pocket expenses, but not their own labor. The judge denied plaintiffs' motion with respect to Brady, but entered default judgment against Franchise Services and Toms River for an amount to be determined after the balance of the trial.

Dalia testified that contrary to plaintiffs' assertions, they continued to negotiate with him regarding a buyout price after he offered $163,000 to buy out their interests. Dalia claimed the Chandlers never accepted that figure. After September 2005, he had to pay the landlord monthly rent. It was stipulated that he received $89,000 from Brady who was permitted to operate a JavaMoon franchise at plaintiffs' location.

In his oral decision, the judge concluded "[t]here was an agreement between the parties to release each other from the franchise agreement in the amount of $163,000." He further concluded that "Toms River . . . owes $163,000 to Four Pals . . . and [he] enter[ed] judgment as of August 25, 2005, which is the latest possible date that . . . the parties came to that agreement . . . ." The judge further determined

[T]hat there was no wrongful conversion of the property; that the parties came to an agreement; that the parties are rightfully entitled to the benefit of that bargain; that there is $163,000 due and owing as of the date of August of 2005; that they are entitled to that judgment; that the [c]court finds that the subsequent contract lease agreement and sublease that was entered into between Toms River . . . and . . . Brady took place subsequent to the agreement between Four Pals and . . . Toms River . . . .

The judge also determined that there was [not] any overt attempt to commit a fraud on behalf of . . . Toms River . . . ; that the monies that were paid were paid in good faith by Brady as well as by Four Pals[;] that the corporation has an obligation to pay those monies back; that there were no representations made to either party by . . . Dahlia [sic] individually; that all correspondence, all conversations, all documents, all franchise agreements and all subleases were always signed in a corporate capacity. Dahlia [sic] always held himself out as a representative of the corporate entity. There were no personal benefits and the agreements between [the] Bradys and . . . Toms River . . . were in corporate capacities and that monies were paid to [the] corporate capacities.

The actual judgment entered on February 20, 2009, however, was entered against Franchise Services, not Toms River. Plaintiffs raised this apparent mistake when they moved for reconsideration.

Plaintiffs also contended that judgment should be rendered against "all the Java[]Moon [d]efendants and the Bradys." They further argued that Franchise Services and Toms River were the "alter egos" of Dalia, and that he should be personally liable on the theory that he had committed fraud. The judge denied plaintiffs' motion, stating he "[wa]s satisfied that the entry of the judgment . . . was appropriate, and just, and reflected the factual findings, and the law at the time." This appeal followed.

Plaintiffs raise the following points on appeal:

POINT I THE TRIAL COURT ERRED IN INTERPRETING THE CONTRACT OF SALE PERMITTING DEFENDANT JAVAMOON TOMS RIVER, OR ANY OTHER JAVAMOON DEFENDANT OR BRADY DEFENDANT, TO TAKE POSSESSION AND TITLE TO PLAINTIFF FOUR PALS' FRANCHISE LOCATION AND ASSETS BEFORE PAYING PLAINTIFF FOUR PALS FOR THESE ASSETS.

POINT II THERE WAS NO EVIDENCE ADDUCED AT TRIAL THAT THERE WAS AN EXPRESS TERM OF THE CONTRACT THAT POSSESSION AND TITLE TO PLAINTIFF FOUR PALS' FRANCHISE LOCATION AND ASSETS WOULD BE CONVEYED AS SOON AS THERE WAS AN AGREEMENT ON THE PRICE.

POINT III THE TRIAL COURT ERRED BY NOT FINDING IN FAVOR OF PLAINTIFF ON THE CONVERSION CLAIMS.

POINT IV DEFENDANT JAVAMOON TOMS RIVER WAS USED TO SHIELD THE WRONGFUL ACTS OF ITS SOLE SHAREHOLDER, AND THE TRIAL COURT ERRED BY NOT PIERCING THE CORPORATE VEIL OF DEFENDANT JAVAMOON TOMS RIVER TO REACH DEFENDANT DALIA.

POINT V THE TRIAL COURT ERRED BY NOT FINDING ANY WRONGFUL CONDUCT BY DEFENDANT DALIA DIVERTING THE LEASE FOR PLAINTIFF FOUR PALS' FRANCHISE LOCATION TO HIS CORPORATION, DEFENDANT JAVAMOON TOMS RIVER We have considered these arguments in light of the record and applicable legal standards. We affirm.

Our review of the factual findings made by the trial judge in a non-jury trial is quite limited. Estate of Ostlund v. Ostlund, 391 N.J. Super. 390, 400 (App. Div. 2007). "'[W]e do not weigh the evidence, assess the credibility of witnesses, or make conclusions about the evidence.'" Mountain Hill, L.L.C. v. Twp. of Middletown, 399 N.J. Super. 486, 498 (App. Div. 2008) (quoting State v. Barone, 147 N.J. 599, 615 (1997)). In general, the judge's factual "findings . . . 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., 65 N.J. 474, 483-84 (1974) (quotation omitted). However, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995) (citations omitted).

As we discern the first three arguments presented, plaintiff challenges the trial judge's determination that the oral agreement reached between plaintiffs and defendants Franchise Services, Toms River and/or Dalia as to the $163,000 buyout price somehow permitted those defendants to convey the plaintiffs' assets, whatever they were at the time, to Brady without payment, and that plaintiffs' remedy is limited to simple breach of contract.

"Conversion [is] defined as 'an unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of their condition or the exclusion of an owner's rights.'" LaPlace v. Briere, 404 N.J. Super. 585, 595 (App. Div.) (quoting Barco Auto Leasing Corp. v. Holt, 228 N.J. Super. 77, 83 (App. Div. 1988)), certif. denied 199 N.J. 133 (2009). "Conversion is an intentional tort in that the defendant must have intended to exercise a dominion or control over the goods which is in fact inconsistent with the plaintiff's rights." LaPlace, supra, 404 N.J. Super. at 595 (quotations omitted).

However, conversion does not require intent or knowledge of wrongfulness by the defendant but only "'the wrongful exercise of dominion and control over property owned by another inconsistent with the owners' rights.'" Ibid. (quoting Sun Coast Merch. Corp. v. Myron Corp., 393 N.J. Super. 55, 84 (App. Div. 2007), certif. denied, 194 N.J. 270 (2008)). The law has long recognized that "[t]o constitute a conversion of goods, there must be some repudiation by the defendant of the owner's right, or some exercise of dominion over them by him inconsistent with such right . . ." LaPlace, supra, 404 N.J. Super. at 596.

The tort of conversion has been historically applied to chattels, and "courts have restricted its application to money to avoid turning a claim based on breach of contract into a tort claim." Chi. Title Ins. Co. v. Ellis, 409 N.J. Super. 444, 455 (App. Div.) certif. denied, 200 N.J. 506 (2009). "An action for conversion will not lie in the context of a mere debt or chose in action . . . . Where there is . . . only a relationship of a debtor and creditor, an action for conversion of the funds representing the indebtedness will not lie against the debtor." Advanced Enters. Recycling, Inc. v. Bercaw, 376 N.J. Super. 153, 161 (App. Div. 2005) (citations omitted).

In this case, the judge concluded that plaintiffs' recovery was limited to breach of contract. Plaintiffs contend that defendants Franchise Services, Toms River, Dalia and Brady also committed the tort of conversion. However, it is unclear from the record what property plaintiffs claim was converted. Improvements were admittedly made to the leasehold, but there is nothing in the record that indicates these improvements were the kind of personal property or chattel for which the tort of conversion might be an appropriate remedy. In fact, the opposite conclusion may be drawn from the limited description of the improvements that can be gleaned from the trial transcript. The leasehold improvements certainly seem to be the kind that were made and became inseparable from the real estate itself.

Similarly, plaintiffs' leasehold interest, and whether it was property converted by defendants, is unclear from the record. Admittedly, plaintiffs never executed a sublease with Toms River. Though they contend that they were evicted, the purported eviction letter is not part of the appellate record; what is clear, however, is that Four Pals was never evicted through actual legal process. Even though plaintiffs' attorney sent a letter to Dalia advising of their intention to complete the renovations if a sublease was tendered, the testimony from the Chandlers was that they never returned to the site. Whether they abandoned the premises was, in our opinion, debatable.

Even if we are mistaken in our conclusion that plaintiffs failed to prove that defendants converted their property, a different result would not inure to plaintiffs' benefit. Plaintiffs' contract damages, and any damages from an alleged conversion were the same, i.e., $163,000. We recognize that plaintiffs' initial claim was greater. However, based upon the evidence, the judge found that the parties settled upon that amount in full payment of all claims. Plaintiffs do not dispute such an agreement was in place. Thus, we fail to see why any claim for conversion, if proven, would yield a different result as a measure of plaintiffs' damages.

Plaintiffs also argue that the judge erred in not "piercing the corporate veil" to "reach . . . Dalia." It is axiomatic "that a corporation is a separate entity from its shareholders . . . ." State, Dep't of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 500 (1983) (citation omitted). "Except in cases of fraud, injustice, or the like, [c]courts will not pierce a corporate veil." Ibid. (citation omitted). "The party seeking" to have the court pierce the corporate veil "bears the burden of proving that the court should disregard the corporate entity." Verni ex rel. Bernstein v. Harry M. Stevens, Inc., 387 N.J. Super. 160, 199 (App. Div. 2006) (quotation omitted), certif. denied, 189 N.J. 429 (2007).

Plaintiffs contend that Toms River was "nothing more than a shell corporation owned solely by . . . Dalia, that had zero capital investment from . . . Dalia, and whose only asset was a lease that was obtained by converting . . . Four Pals' security deposit." In this regard, plaintiffs presume "that the transcript of the [t]rial [c]court's decision should be treated as the accurate finding . . . and the form of judgment as being in error."

However, the judge explained in his decision on the motion for reconsideration why judgment was appropriately entered against Franchise Services, and not Toms River. He noted, for example, that "there was no contractual arrangement between [Toms River] and Four Pals," and that the only written agreement in place was the franchise agreement between plaintiffs and Franchise Services.

Moreover, the substance of plaintiff's argument is without merit. The judge explained the basis for his factual determination that Dalia always acted as a corporate representative. We find no basis to disturb those findings which are entitled to our deference. See State v. Locurto, 157 N.J. 463, 472 (1999) (noting it is not the appellate court's function to "'weigh the evidence, assess the credibility of the witnesses, or make conclusions about the evidence'") (quoting Barone, supra, 147 N.J. at 615).

Lastly, plaintiffs contend that the judge erred by not finding wrongful conduct by Dalia in "diverting the lease to his personal corporation without the permission of [p]laintiff[s] . . . , his improper diversion of [p]laintiff[s'] . . . security deposit to [Toms River], and the failure and refusal to provide a written sublease from this corporation," all of which amount to tortious interference with plaintiffs' franchise rights for which Dalia should be "personally liable . . . ." As already noted, we will not disturb the judge's factual findings that led to his legal conclusion that Dalia was acting on behalf of Franchise Services and/or Toms River at all times. Moreover, plaintiffs fail to articulate the basis for their conclusion that the evidence demonstrated that either corporate defendant tortiously interfered with their lease. While they may not have known Dalia formed Toms River, they were under the impression that Franchise Services would enter into the lease with the landlord, and that they would sublease the premises. We fail to appreciate how that distinction provides a basis for liability in tort.

Affirmed.


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