August 11, 2010
MARISOL DENEGRI AND GRINILDA MARRERO, PLAINTIFFS-RESPONDENTS/CROSS-APPELLANTS,
KIRIAKI FASSILIS AND GIKAS FASSILIS, DEFENDANTS-APPELLANTS/CROSS-RESPONDENTS, AND ESTRELLA PIEMONTESE AND NOAH BURSTEIN, ESQ., DEFENDANTS, AND NOAH BURSTEIN, ESQ., THIRD-PARTY PLAINTIFF,
RC SEARCH COMPANY, THIRD-PARTY DEFENDANT.
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-2336-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: April 14, 2010
Before Judges Cuff and Waugh.
Defendants Kiriaki Fassilis and Gikas Fassilis sold plaintiffs Marisol Denegri and Grinilda Marrero a house in Pompton Lakes. Plaintiffs claimed defendants falsely represented that the ground level of the house was habitable, and plaintiffs relied on this representation to buy the house. Defendants appeal from a money judgment entered following a jury trial, and a pre-trial order denying their motion to extend discovery. We affirm in part and reverse in part.
Plaintiffs are mother and daughter. They decided to purchase a house in which each family could live in separate living spaces. To this end, they retained a realtor, defendant Estrella Piemontese, to find a house for them to buy. Eventually, Piemontese showed them the house owned by the Fassilis defendants in Pompton Lakes.
The house owned by the Fassilis defendants had separate living quarters on the ground level and on the street level. Plaintiffs never learned the house was located in a flood plain or that the Fassilis defendants altered the house following construction and issuance of a certificate of occupancy to include living quarters at ground level. The Fassilis defendants also never informed plaintiffs that the stream encroachment permit issued by the New Jersey Department of Environmental Protection (NJDEP) prohibited habitation and the location of any structure at ground level.
In the course of several discussions with the Fassilis defendants, plaintiffs expressed their intention to have two families live in the house in separate areas. Plaintiffs asserted, and the trial court found, that defendants knew that plaintiffs intended to use the ground level of the house, and defendants represented to them that habitation on this level was permitted. Based on these representations, plaintiffs decided to purchase the Fassilis house for $600,000 and included the following language in the contract: "The lower level could be occupied by my near relative and/or mother as soon as possible." A rider to the contract also provided that "[s]eller shall obtain the [certificate of occupancy] and smoke and carbon monoxide certificates."
Plaintiffs retained defendant Noah Burstein to represent them in this purchase. He reviewed the contract and approved it. At no time during the negotiations or before closing did the Fassilis defendants advise plaintiffs that the ground level could not be occupied by Denegri's parents. The Fassilis defendants never informed plaintiffs that current use of the ground level as living space was unlawful or that an encumbrance existed that prevented use of the ground level as living space because the house was located in a flood plain. In fact, plaintiff Denegri testified that defendant Gikas Fassilis told her that the ground level never flooded. The transaction proceeded to closing without a certificate of occupancy. The inspection required to obtain the certificate would have revealed the unlawful use of the ground level and the ban on habitation on that level.
Three months after plaintiffs occupied the house, flood waters entered the lower level.*fn1 At that time, municipal officials informed plaintiffs that habitation of the ground level of the house was not permitted and that neither defendant Piemontese (the realtor) nor defendant Burstein (plaintiffs' lawyer) had obtained a certificate of occupancy.
In their May 31, 2006 complaint, plaintiffs sought compensatory and punitive damages against defendants Fassilis for breach of contract, fraud and equitable fraud. They also sought compensatory and punitive damages against their realtor for fraud and negligent misrepresentation, and against their attorney for professional negligence and negligent misrepresentation. Discovery proceeded and the court entered several discovery orders. On June 17, 2008, Burstein filed a motion to extend discovery until September 4, 2008. At that time the discovery deadline was July 6, 2008. Burstein argued that an extension was required because his malpractice carrier disclaimed coverage, his attorneys had withdrawn, and defendant Piemontese refused to attend scheduled depositions. The motion judge denied the motion even though no party opposed the contested relief. The Fassilis defendants filed a motion for reconsideration in which they emphasized that they had relied on Burstein to procure the expert to address plaintiffs' damages claim. The judge also denied this motion, and the matter proceeded to trial before another judge on October 23, 2008.
We review the decision to deny a discovery extension for abuse of the considerable discretion reposed in the civil presiding judge to manage the trial calendar. Huszar v. Greate Bay Hotel & Casino, Inc., 375 N.J. Super. 463, 471-72 (App. Div.), certif. granted and remanded on other grounds, 185 N.J. 290 (2005); Serenity Contracting Group, Inc. v. Fort Lee, 306 N.J. Super. 151, 159 (App. Div. 1997), certif. denied, 153 N.J. 214 (1998). The rules adopted ten years ago to manage the pre-trial process seek to strike a balance between thorough preparation of cases and timely disposition of cases. Huszar, supra, 375 N.J. Super. at 472; Zadigan v. Cole, 369 N.J. Super. 123, 130 (Law Div. 2004).
As a Track III case, the parties had 450 days to complete discovery. R. 4:24-1(a). The party seeking the extension is required to demonstrate good cause but must append all prior orders permitting or denying an extension of discovery. R. 4:24-1(c). Here, two prior orders had been entered extending discovery. In written comments on the July 3, 2008 order denying the extension sought by Burstein, the motion judge wrote "good cause not demonstrated why [indecipherable] 661 days of discovery on a Track III case." In his August 15, 2008 order denying the motion for reconsideration, the judge wrote
Application is denied. Defendant cannot sit back and assume a co-defendant will provide an expert that will appear on the defendant[']s as well as co-defendant's behalf. Exceptional circumstances [have] not [been] demonstrated. Reconsideration is saved for those cases in which either the court has expressed a decision on a palpably incorrect basis or the court did not consider the significance of competent evidence[.] It also should be noted there are crossclaims filed by the defendant against co-defendant and vice versa. For defendant to rely on co-defendant to protect their interests is a bit unclear.
The Fassilis defendants may not have anticipated that Burstein's malpractice insurance carrier would disclaim and his attorney would withdraw from the case. They may have anticipated that Burstein would produce an expert to address plaintiffs' damages claims, and the withdrawal of counsel and inability of Burstein to absorb the cost of an expert hampered their defense. We cannot disagree, however, with the motion judge's observations that such reliance carried considerable risk.
When a judge has explained his decision and the stated findings reveal that he considered the various reasons for and against the requested relief, we should not interfere even if we may have reached a different decision. This is such a case.
At the commencement of trial, the judge entered default against Piemontese, Burstein, and RC Search Company, the title company. The parties waived a jury, and the matter proceeded on various dates as a bench trial. Plaintiffs Denegri and Marrero testified. They also presented the testimony of Sal Cittadino, a real estate appraiser; Thomas Johnson, a home builder; and Ronald Van Dine, a construction and zoning official in Pompton Lakes. Defendants Gikas and Kiriaki Fassilis testified, as well as Jordan Yuelys, the attorney who represented them at the closing.
Following closing arguments and the submission of proposed findings of fact and conclusions of law, the judge issued an oral decision. Addressing the liability of the Fassilis defendants, the judge found that they knew the condition of the house, knew the limitations on use of the ground level of the house, and withheld that information from plaintiffs. He stated:
[T]hese defendants knew exactly what the condition of the house was. They created the house. When the house was built, they were part of the permitting process and they can't hide behind their alleged lack of understanding or knowledge of the English language. They knew what the requirements were, because they built a house exactly in accordance with those requirements.
The judge then found that defendant Gikas Fassilis was an experienced builder and a sophisticated businessman and knew "the significance of what he failed to tell these purchasers."
The judge proceeded to find the realtor negligent because she had assumed the task of obtaining the certificate of occupancy and allowed the transaction to close without the required certificate. The judge also found her failure to disclose the absence of the certificate to be fraudulent because she withheld necessary information that permitted plaintiffs to purchase a house that could not ever meet their needs or expectations. Finally, he found plaintiffs' attorney, Burstein, negligent for allowing the transaction to close without the certificate of occupancy.
In a separate oral decision, the judge rendered his findings of fact regarding damages. The judge found that the difference in value between the mother/daughter house they thought they bought and a one-family house without any structures or living space on the ground level was $270,000. In awarding this sum, the judge accepted the opinion of plaintiffs' expert appraiser Cittadino. The judge also awarded plaintiffs $112,500 to restore the house to the condition reflected on the plans filed with the municipal construction and zoning official at the time he issued the original building permit. The work required demolition of all structures on the ground level and relocation of utilities.
In addition, the judge awarded plaintiffs $2000 to compensate them for the fines imposed by the municipality for the work performed on the ground level without a permit and contrary to the stream encroachment permit issued by the NJDEP. The judge also found that the revision to the structure would require plaintiffs to vacate the house for six to eight weeks.
He, therefore, awarded $5000 in moving and storage expenses and $1500 a month for temporary housing. In calculating this element of the damages, the trial judge accepted the testimony of Johnson, a builder, that the extent of the work, including the revision of the electrical and heating systems, required plaintiffs to vacate the house.
Finally, the judge awarded plaintiffs $77,611.25 in counsel fees and closing costs of $10,686.36. The attorneys' fee award was consistent with the affidavit of services submitted by plaintiffs' attorney.
On appeal, defendants do not challenge the findings of fraud. They argue, however, that the appraiser's testimony does not establish a $270,000 diminution of value. Defendants also contend that the judge impermissibly assessed legal fees, moving and storage costs, and closing costs.
Our review of the finding of facts made by a judge sitting without a jury is limited. We review the record to determine whether the judge's findings of fact are supported by substantial credible evidence in the record. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). If so, we examine whether the facts as found satisfy the evidential burden for the claim asserted and whether those findings permit recovery by the plaintiff as a matter of law. Ibid.
Here, Cittadino testified that he used the market approach to determine the value of the house plaintiffs bought from the Fassilis defendants. He stated that he located comparable properties within one-third of a mile from the house. Although he noted that plaintiffs' house was a nicer house, he also recognized its location in a flood zone and the need for plaintiffs to modify the house substantially diminished its market value.
Admittedly, Cittadino's testimony was not a model of clarity. The record reveals that he used the market approach when he first valued the property. Then, he performed a second appraisal in which he established the market value of the house in its existing condition and estimated the cost of demolition of the ground floor structure. Some of the confusion seems to be the product of responses to questions in which he combined elements of the two approaches used by him to derive the value of the house.
The judge accepted the market value approach. There is sufficient credible evidence in this record to allow the judge to accept Cittadino as an expert and to find that the valuation derived from a market approach is the most reliable estimate of value.
The record also supports the judge's decision to award moving and storage costs and the cost of temporary housing for two months. The builder testified the house required extensive modifications to remove the structures on the ground level and to relocate critical utilities, such as the electrical service and the heating unit, from that level. The extent of the construction certainly supports a finding that plaintiffs will be required to vacate the premises for at least six weeks, if not longer, and they should be compensated for the costs associated with their temporary relocation. Furthermore, the $6500 award has some support in the record. Plaintiff testified that she would be required to pay $4000 monthly for a suitable house during renovations.
On the other hand, neither the closing costs nor counsel fees are permitted by law. The trial judge awarded plaintiffs $10,686.36 in closing costs; he did not explain the basis for this award. In the course of his findings of fact concerning the circumstances surrounding the purchase of the house, the judge found plaintiffs sought to purchase a mother/daughter house and agreed to purchase a residence represented to them as a mother/daughter house. The record also demonstrates that plaintiffs learned two years later that they could not use the house as intended. However, they used the house as intended for a period of time and continue to own a house which they may occupy or dispose of as they see fit.
Ordinarily, in a breach-of-contract action, we award damages for the purposes of "'mak[ing] the injured party whole.'" Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 13 (2004) (quoting Cox v. Sears Roebuck & Co., 138 N.J. 2, 21 (1994)). The injured party "must be given the 'benefit of the bargain' and placed in 'as good a position as he would have been in had the contract been performed.'" Ibid. (quoting Scully v. US WATS, Inc., 238 F.3d 497, 512 (3d Cir. 2001)). "What that position is depends upon what the parties reasonably expected." Donovan v. Bachstadt, 91 N.J. 434, 444 (1982). In other words, the injured party "has a right to damages 'based on his expectation interest as measured by . . . the loss in the value to him' caused by the breaching party's nonperformance." Furst, supra, 182 N.J. at 13 (quoting Restatement (Second) of Contracts § 347 (1981)).
Here, plaintiffs purchased a home that they reasonably expected to be used as a mother/daughter residence. They did not receive their "benefit of the bargain," and the judge compensated them with the difference in the value of the home as is and as they had expected. That plaintiffs have remained in the home and not, for example, sought rescission of the contract, demonstrates that the judge's $270,000 award for the loss in value of the home sufficiently covers plaintiffs' expectation damages.
Moreover, the legal fees awarded to plaintiffs are not permitted by law. Plaintiffs' complaint sought compensatory and punitive damages for common law fraud and equitable fraud. The judge found that the Fassilis defendants fraudulently withheld material information about the ability of the ground level to be used for habitation.
A party who successfully establishes a cause of action for fraud can expect to receive compensatory damages and perhaps punitive damages. A counsel fee award is ordinarily not an element of damages unless a party is forced into litigation with a third party as a result of another's fraud. DiMisa v. Acquaviva, 198 N.J. 547, 553-54 (2009); Dorofee v. Planning Bd. of Pennsauken, 187 N.J. Super. 141, 144 (App. Div. 1982). Furthermore, only the fees incurred in the litigation with the third party are recoverable. See First Atl. Fed. Credit Union v. Perez, 391 N.J. Super. 419, 430-31 (App. Div. 2007); Jugan v. Friedman, 275 N.J. Super. 556, 573 (App. Div.), certif. denied, 138 N.J. 271 (1994). In order to demonstrate that fraudulent conduct forced a plaintiff into litigation with third parties, the test "is not whether [the legal fees] were generated 'in the same case' but rather whether they were incurred in 'bringing or defending an action against a third person.'" Dorofee, supra, 187 N.J. Super. at 145 (quoting Restatement (Second) of Torts § 914 (1979)).
Plaintiffs argue that attorneys' fees are permitted pursuant to the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20, specifically N.J.S.A. 56:8-19. That is a correct statement of the law, but plaintiffs never asserted a CFA cause of action. They never sought to amend the pleadings prior to trial or pursuant to Rule 4:9-2, and the failure of the trial judge to treble the damages clearly indicates he never believed such a claim was before the court.
In their cross-appeal, plaintiffs argue that the trial judge erred in his allocation of liability among the sellers, realtor and their attorney. This issue is without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Having held that the judge improperly included $77,611.25 for attorneys' fees and $10,686.36 for closing costs, the judgment is reduced from $479,297.61 to $391,000. In all other respects, the judgment as modified is affirmed.
Affirmed in part, reversed in part.