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The Staubach Company of Pennsylvania v. Galloway Automotive

December 3, 2010


On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-9598-06.

Per curiam.


Argued November 9, 2010 - Decided Before Judges Payne, Baxter and Koblitz.

Plaintiff, The Staubach Company of Pennsylvania, appeals from a Law Division order awarding counsel fees and costs to defendant, Eastern Reach, LLC, pursuant to the Frivolous Litigation statute, N.J.S.A. 2A:15-59.1(b). We affirm.


On November 25, 2005, defendants Gabe Staino and James Daniels, who were the owners of Galloway Automotive, LLC (Galloway), a motor vehicle dealership in Egg Harbor City, signed a listing agreement with plaintiff. The agreement afforded plaintiff an exclusive listing for the sale of Galloway Automotive and the property upon which the dealership was located. In relevant part, paragraph eight of the November 2005 listing agreement specified that "[a]ny and all inquiries received by SELLER [Galloway Automotive] during the life of this Agreement for the sale of the above business will be referred to BROKER [Staubach]." Thus, paragraph eight prohibited Galloway or its owners from directly entering into an agreement of sale with any purchaser and from thereby denying Staubach the broker's fee or commission that the November 25, 2005 exclusive listing agreement had guaranteed.*fn1

At some point during the six-month term of the Agreement, Staino and Daniels received an inquiry from defendant Eastern Reach for the sale of the dealership and real estate. Instead of referring the prospective purchaser to plaintiff, Staino and Daniels negotiated the sale of the franchises and business assets directly with Eastern Reach, thereby denying Staubach a commission. Upon learning of the May 1, 2006 sale to Eastern Reach, Staubach demanded payment of its broker's fee from Staino, Daniels and Eastern Reach, all of whom refused to pay.

In particular, Eastern Reach asserted that Staino and Daniels repeatedly assured Eastern Reach that there was no listing agreement in effect with any real estate broker, and Eastern Reach pointed to the agreement of sale between Galloway and Eastern Reach, which contained an express provision so stating.

Staubach filed suit against Galloway Chrysler-Dodge, Staino and Daniels on August 21, 2006, alleging breach of contract and a breach of the implied covenant of good faith and fair dealing. The court granted plaintiff's motion for summary judgment against Staino and Daniels, ordering them to pay Staubach the real estate commissions that were guaranteed to Staubach by the November 2005 listing agreement. Not until June 25, 2007 did Staubach file an amended complaint naming Eastern Reach as a defendant and alleging "tortuous [sic] interference with a contract." Approximately seven months later, on February 5, 2008, Eastern Reach filed an answer and served Staubach with a "Demand to Cease Frivolous Litigation R. 1:4-8" (Demand to Cease).

In its Demand to Cease, Eastern Reach asserted: 1) it had no knowledge of the listing agreement between Staubach and Galloway; 2) there was no privity of contract between Eastern Reach and Staubach; and 3) the legal claims asserted by Staubach in the amended complaint were "not warranted by existing law." Eastern Reach notified Staubach that "if this frivolous pleading [the amended complaint] is not withdrawn within 28 days of service of this demand," Eastern Reach would make application for frivolous litigation sanctions in accordance with Rule 1:4-8.

Despite the February 5, 2008 Demand to Cease, Staubach did not dismiss its complaint against Eastern Reach, causing Eastern Reach to move for summary judgment and sanctions. On May 9, 2008, the court granted the summary judgment motion of Eastern Reach, thereby dismissing all claims Staubach had asserted against it. By subsequent order of July 18, 2008, the judge granted Eastern Reach's request for sanctions against Staubach, awarding counsel fees of $9,019. On September 12, 2008, the judge awarded Eastern Reach an additional $1,000 for the expenses it incurred in defending against Staubach's unsuccessful motion for reconsideration. On November 6, 2008, the judge entered judgment in favor of Eastern Reach in the amount of $10,019.

In a written opinion awarding counsel fees to Eastern Reach under the Frivolous Litigation statute and Rule 1:4-8, Judge Johnson observed that the undisputed facts demonstrated at the time Michael Schwartz, the owner of Eastern Reach, contacted Staino and Daniels, they assured him there was no broker representing Galloway in the sale of the dealership. The undisputed facts also showed the Asset Purchase Agreement of April 14, 2006 between Galloway and Eastern Reach contained an express representation that the "transactions contemplated [by the Asset Purchase Agreement] have been carried on without the intervention of any person acting on behalf of Seller or [Eastern Reach] in such manner as to give rise to any valid claim against [Eastern Reach] for any brokerage or finders' commission, fee or similar compensation."

Consequently, the judge held there were no facts in the record upon which to base a conclusion that Eastern Reach knew, or had reason to know, of Staubach or of its exclusive listing agreement with Galloway at the time Eastern Reach was negotiating with Galloway. Judge Johnson held that because Eastern Reach had no knowledge of the listing agreement, no cause of action by Staubach for tortious interference with a contractual relationship could be maintained because such a cause of action requires proof that the defendant was aware the other two parties had established a contractual business relationship. Therefore, according to the judge, "[a]bsent direct testimony that Eastern [Reach] knew of ...

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