On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-87-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Wefing, Messano and LeWinn.
Defendant PARS Enterprises, LLC (PARS) owned commercial property at 700 Passaic Avenue, West Caldwell; defendant Hamid Jabbary was the sole shareholder of PARS and a practicing dentist (collectively, defendants). PARS purchased the property in early 1999 from Modon Realty Company (Modon). At the time, a portion of the premises was occupied by Caldwell Physical Therapy Center (Caldwell) pursuant to a lease previously entered with Modon and assumed by PARS. That lease provided Caldwell with a right of first refusal to purchase the property.
PARS entered into a lease for the balance of the space with West Caldwell Dental Group, P.C. (Dental Group), Jabbary's dental practice. This lease essentially mirrored the lease between Caldwell and Modon in all material respects. Prior to taking possession of its leasehold, Dental Group renovated its office space, extending its wall so as to reduce the lobby which had been part of Caldwell's leasehold by 112 square feet. PARS informed Caldwell about its renovation plans and Caldwell was aware that PARS was extending its space. Caldwell did not complain about the renovations or the reduction of square footage, and PARS made no adjustment to Caldwell's base rent or its percentage obligations for real estate taxes and common charges pursuant to the lease.*fn1
On March 28, 2001, Dr. Forauzan Ghaffari formed plaintiff, New West Caldwell Dental Group, P.A., which purchased Dental Group from Jabbary, and assumed its lease with PARS, pursuant to a separate modification, assignment and assumption agreement (the modification agreement). The modification agreement made significant changes to the existing lease and was negotiated by Ghaffari, Allen Raimi, Ghaffari's husband and plaintiff's office manager, and Jabbary. The modification agreement provided in part:
1. [T]he [l]ease is hereby modified as follows:
(a) the term has been extended for ten (10) years (Initial Term) with a ten (10) year option to renew (the Renewal Term) at the Tenant's option;
(b) the rent for the first year of the Initial Term shall be $3300 per month;
(c) the rent shall be increased each year after the first year of the Initial Term by an amount equal to 3% of the prior year's rent;
(f) the rent during the Initial Term and the Renewal Term shall be triple net with the Tenant paying its pro-rata share being 35% of any increase in real estate taxes over the base year which is the year 2000, plus 35% of common area maintenance charges . . . .
The modification agreement also provided plaintiff with an option to purchase the property not contained in the original lease:
(h) Tenant shall have the option to purchase the Property in which the Business Premises are located for the sum of $1,000,000.00 which option is exercisable at any time during the first four years of the Initial Term subject to the right of first refusal of [Caldwell] (the Other Tenant) to purchase the Property . . . .
As part of the sale of Dental Group, Jabbary agreed to remain in the employ of plaintiff for one year to help smooth the transition and introduce Ghaffari to his patients. The contract of sale for the dental practice (dental contract) provides:
Hamid Jabbary . . . will provide services to [plaintiff] for one (1) year after the Closing Date, as, if and when necessary provided that Buyer shall pay . . . Jabbary forty per cent (40%) of . . . Jabbary's production (i.e. his patient billings) which shall be paid . . . by the 10th day of the following month.
After the first year from the Closing Date, . . . Jabbary will provide consulting services to [plaintiff] no more than two days per month provided that [plaintiff] shall pay . . . Jabbary a per diem consultation fee of $500.00. [Plaintiff] shall also give . . . Jabbary reasonable advance notice of his [sic] for Dr. Jabbary's consulting services. Payment for such services shall be made at the end of the [sic] each consulting day.
Raimi had no experience running a dental practice. Since he "had no clue" about its day-to-day operations, Jabbary helped him "[i]n every step of it." He also showed Raimi how to figure out the compensation due to Jabbary under the agreement, and he reviewed the documentation regarding his compensation "every single month."
However, disputes developed between plaintiff and Jabbary. On March 5, 2003, Jabbary wrote Raimi and Ghaffari declaring plaintiff to be in breach of the dental agreement because of their "unjustifiable refusal to make the scheduled payment . . . of your loan obligation . . . ." However, the letter also noted that plaintiff had engaged in the "inexcusable practice of making continuous and serious late payments each month on both the note and the rent payments." Jabbary claimed plaintiff had "failed to calculate late payment charges and interest on all late payments . . . ." Jabbary promised to send a calculation itemizing the amounts due, plus late fees; no such letter was sent, and PARS continued to accept plaintiff's rental payments without objection.
In February 2003, Jabbary informed Caldwell that pursuant to the lease, PARS was entitled to a rent increase as of February 2002. Notwithstanding PARS's contention that Caldwell was not paying the correct amount of rent, it did not serve Caldwell with a default letter at that time. Anthony D'Annunzio, Caldwell's office manager and the husband of its principal, agreed with Jabbary's interpretation of the lease; he also realized that as a result of the renovations, Caldwell now occupied 62% of the total square footage of the building and was entitled to a recalculation of its rent, real estate taxes, and common charges.
By letter dated March 4, 2003, Caldwell informed PARS of the reduction in space and the resulting error in the calculations; PARS denied that the renovations had resulted in any reduction of Caldwell's leasehold. When the parties met with respective counsel to discuss the dispute, Caldwell expressed an interest in purchasing the property. Without resolution of their differences, both sides agreed to explore the possibility of a sale. PARS continued to accept Caldwell's rent payments without any adjustment, and it never served a default notice upon Caldwell.
In November, Caldwell advised PARS that it was still contemplating the possibility of a purchase, though "[c]onsidering the option that [PARS] ha[d] given the other tenant in the building [it] believe[d] that there [wa]s no rush in [its] presentation." PARS's counsel responded by suggesting another face-to-face meeting "to resolve the remainder of the outstanding issues surrounding the Lease Agreement as the majority of those issues were put on hold, pending [Caldwell's] decision whether to purchase the property." Discussions continued into 2004 when PARS notified Caldwell that it was not willing to sell at that time, but might be willing to do so in Spring 2005.
D'Annunzio remained interested, however, and knew that Caldwell could not force a sale but that plaintiff could. In the latter part of 2004, D'Annunzio and Raimi spoke about Caldwell and plaintiff purchasing the property together. They reached an agreement wherein one of the entities would buy the property and "flip [it] into an LLC that was jointly owned 65% and 35%," with Caldwell maintaining the majority share. D'Annunzio understood that Jabbary would have to consent to a sale to the LLC; otherwise, one entity or the other would need to consummate the purchase. Caldwell was prepared to purchase the property on its own and had the necessary funds to do so.
Plaintiff and Caldwell formed 700 Passaic Avenue, L.L.C. to purchase the property and applied for the necessary financing with Commerce Bank. D'Annunzio paid the $9000 mortgage commitment fee out of his personal bank account. A commitment was issued for a $900,000 commercial loan, subject to numerous conditions; the commitment expired sixty days after acceptance. By letter dated February 11, 2005, plaintiff gave written notice to PARS that it was exercising its option. Jabbary provided the letter to his attorney, Alexander M. Lee, who secured a copy of the mortgage commitment from plaintiff.
By letter from Lee dated March 4, 2005, PARS rejected plaintiff's exercise of the option, claiming that "the Lease [had been] terminated on or about March 15, 2003 for [plaintiff's] failure to remedy certain defaults . . . ." PARS specifically claimed that plaintiff was in default for failing to pay its share of taxes and common charges, and for unpaid late charges in the amount of $47,200. PARS also claimed "that [plaintiff's] election [wa]s not timely made in accordance with the terms and conditions of the Lease." PARS also alleged that plaintiff was in default for failing to deliver proof of insurance, as required under the lease, and that plaintiff's partnership with Caldwell "constitute[d] a de facto transfer or assignment" of its option rights without consent in further violation of the lease. PARS advised that the lease had been terminated, and "demand[ed] surrender and return of possession of the premises within thirty (30) days notice of th[e] letter." On March 7, Jabbary wrote D'Annunzio advising he would not sell the property:
Your recent actions have been nothing short of a complex conspiracy. Despite our open communication, you have chosen to conspire against me with [plaintiff] for your own personal gain to defraud me by asserting a claim to unlawfully purchase my building. As a result of your actions, I now know all your letters and delays in payment have been nothing but a rouse [sic] to cammouflauge [sic] your intentions to defraud me of monies due me under the lease.
No sale occurred and the mortgage commitment expired.
On March 18, plaintiff filed a verified complaint against PARS and Jabbary seeking specific performance of the option and an order directing PARS to provide notice to Caldwell; damages for PARS's breach of contract; damages for tortious bad faith; and a declaration that plaintiff had not materially breached its lease and that PARS had no grounds for eviction. Plaintiff named Caldwell as a "nominal defendant" based upon its right of first refusal. On March 30, 2005, plaintiff sought an order to show cause with temporary restraints prohibiting PARS from selling or otherwise transferring its interest in the property.
On April 21, defendants filed their answer, as well as a seven-count counterclaim against plaintiff and a one-count cross-claim against Caldwell. In the counterclaim, defendants sought possession of the premises as a result of various alleged breaches of the lease by plaintiff, and damages, alleging theories of breach of contract, quantum meruit, unjust enrichment, breach of the implied covenant of good faith and fair dealing, and tortious interference. Defendants' cross-claim sought damages from Caldwell alleging tortious interference.
On April 20, pursuant to Rule 1:4-8, plaintiff's counsel sent a "frivolous litigation letter," to defense counsel and demanded the withdrawal of certain "offending documents . . . ." It provided in part:
The first document that I wish to address is the Answer and Counterclaim filed on behalf of your clients. We do not object to that part of the document that addresses a wage dispute between Dr. Jabbary and [plaintiff]; we recognize that this is a routine contract dispute that Dr. Jabbary has a right to file a claim on. Our objections relate to that part of the case that involves the purchase option . . . . [Emphasis added.]
Counsel then specifically cited various documents and claims asserted in the counterclaim that he deemed objectionable and frivolous. On April 26, pursuant to Rule 1:4-8, Caldwell's counsel sent a "frivolous litigation letter" to defendants' counsel demanding withdrawal of the ...