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Raceway Petroleum, Inc., and Mdn Associates, Inc. D/B/A Red Bank Raceway v. James Gambacorto D/B/A Jimmy's Raceway Service Center and D/B/A Jimmy's Raceway

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


February 2, 2011

RACEWAY PETROLEUM, INC., AND MDN ASSOCIATES, INC. D/B/A RED BANK RACEWAY, PLAINTIFFS-APPELLANTS/ CROSS-RESPONDENTS,
v.
JAMES GAMBACORTO D/B/A JIMMY'S RACEWAY SERVICE CENTER AND D/B/A JIMMY'S RACEWAY, DEFENDANT-RESPONDENT/CROSS-APPELLANT.

On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-5055-00.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 5, 2011

Before Judges Fisher, Sapp-Peterson and Fasciale.

In its appeal in this convoluted commercial lease dispute, plaintiff-tenant Raceway Petroleum, Inc. and its subtenant, plaintiff MDN Associates, Inc. (hereafter collectively "plaintiff") contend that the trial court erroneously denied its application for an award of attorneys' fees based upon a provision of the lease that permits a fee award in favor of the prevailing party. In his cross-appeal, defendant-landlord James Gambacorto argues that the trial court erred in entering a partial summary judgment, which determined that defendant was responsible for environmental contamination on the leased property. We reject defendant's arguments regarding the partial summary judgment, but agree the trial court erred by failing to recognize plaintiff was a prevailing party in light of its success on most of the claims asserted.

I

In 1990, plaintiff leased Red Bank property from defendant for use as a gas station for an initial ten-year term. As a result of issues regarding subsurface contamination, plaintiff commenced this action in 2000 in the Chancery Division in Middlesex County, asserting defendant's breach of the lease; defendant commenced a summary dispossess action in Monmouth County.

On October 20, 2000, the Middlesex Chancery judge entered a series of orders, which, among other things, enjoined defendant from prosecuting the summary dispossess action, compelled defendant to cooperate so plaintiff could make certain repairs on the property, and transferred the action to the Law Division in Monmouth County.

In 2003, plaintiff moved for partial summary judgment on the cause of the property's environmental problems. After hearing oral argument, Judge Robert W. O'Hagan determined that many of the facts were undisputed but a material dispute remained regarding the origination of the subsurface environmental contamination and scheduled a plenary hearing, which occurred on June 16 and 30, 2003, and August 4 and 5, 2003, to resolve that factual dispute. By way of a written opinion issued on January 29, 2004, Judge O'Hagan determined the subsurface contamination existed prior to the commencement of the lease and was a problem for which defendant was responsible. Judge O'Hagan also concluded that the lease "likely entitled" plaintiff to a set-off "against its rental obligation for all monies spent to investigate and remediate the pollution at the site," but that it was premature to fashion a remedy at that time.

In later proceedings, orders were entered by another judge (the motion judge) on October 28, 2004, one of which quantified the damages sustained by plaintiff ($123,694.76); the other quantified the amount of withheld back rent ($164,715.76). A dispute about the net effect of those orders and plaintiff's entitlement to remain as a tenant prompted additional motions. On January 20, 2006, the motion judge found plaintiff was improperly holding over as a result of its failure to properly exercise its option to continue the lease for two additional five-year periods. We permitted an emergent appeal and reversed in light of the presence of disputed material facts about the exercise of the option. Raceway Petroleum, Inc. v. Gambacorto, No. A-3171-05 (App. Div. Mar. 9, 2006). The motion judge also entered an order on February 3, 2006, determining that as a result of the October 28, 2004 orders, plaintiff was indebted to defendant in the net amount of $43,768.64.*fn1

Because of its success on the environmental disputes, plaintiff moved for an award of attorneys' fees as permitted by paragraph 12 of the rider to the lease agreement. The motion judge denied that application on November 17, 2006, concluding that plaintiff's entitlement to fees should await the resolution of the remaining issues.

A jury trial on the remaining issues occurred over the course of six days in September 2008 before yet another judge (the trial judge). The jury determined that plaintiff had properly exercised two five-year options and consequently rejected defendant's claim for holdover damages. The jury also awarded plaintiff $40,000 in damages due to defendant's breach of the lease. On October 2, 2008, the trial judge entered a judgment that memorialized the jury verdict and additionally concluded that in light of plaintiff's withholding of rent, defendant was entitled to be reimbursed the net amount of $46,370.85. In addition, the judgment declared that plaintiff was entitled to submit an application for counsel fees that would, if filed, be adjudicated at a later date.

Plaintiff filed a motion for fees within the month, and defendant quickly cross-moved for fees as well. Prior to the return date of these motions, defendant appealed the March 9, 2004 order of partial summary judgment on the mistaken understanding that the October 2, 2008 order constituted a final judgment. Because that order was not final, we dismissed defendant's appeal, thereby permitting the trial judge the opportunity to rule on the cross-motions for fees. The trial judge denied the fee motions for reasons expressed in a written opinion filed on February 11, 2009.

Plaintiff thereafter filed this appeal, seeking reversal of the denial of its counsel fee application. Defendant filed a cross-appeal, seeking review of the partial summary judgment entered on March 9, 2004.

We turn first to the issues raised in the cross-appeal because its outcome is certainly germane -- if not critical --to whether plaintiff is a prevailing party in this litigation and entitled to an award of counsel fees.

II

Defendant's appeal of the partial summary judgment on the environmental issues centers on the procedure adopted by the trial court.

Defendant first argues that in initially ruling on the summary judgment motion, Judge O'Hagan recognized there was a disputed question of fact regarding the cause of the subsurface contamination. Defendant is certainly correct that the judge could have simply denied the motion in light of that dispute, but our rules permit judges a more active role, which Judge O'Hagan properly donned.

Rule 4:46-3 authorizes a judge, who has found a matter unripe for summary judgment, to identify the remaining factual issues and, if practical, conduct a hearing to resolve them. In this fashion, a judge may expeditiously dispose of a claim where the factual disputes are narrow and can be adjudicated through discovery and relatively minimal testimony. See, e.g., Agurto v. Guhr, 381 N.J. Super. 519, 531 (App. Div. 2005). Utilization of the Rule was entirely appropriate in this action. At the time Judge O'Hagan heard the motion for partial summary judgment, the suit was nearly three years old. His decision to conduct an evidentiary hearing, which resolved the discrete factual disputes that precluded summary judgment on the environmental issues, was not only authorized by our rules but commendable and went far in advancing the disposition of the entire case.*fn2

In addition, defendant argues the procedure was defective because it deprived him of the right to have a jury of his peers decide the critical factual dispute preventing summary judgment. This argument is also without merit because defendant failed to assert it in the trial court at any time prior to, during or after the plenary hearing. In fact, as we have already noted, when the plenary hearing commenced, defendant's attorney acknowledged the propriety of the procedure and chose not to assert his client's right to have a jury decide the factual disputes identified by the judge. By failing to assert his right to trial by jury at that time, defendant is precluded from making such an argument on appeal. State v. Robinson, 200 N.J. 1, 20 (2009); Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973).

Also, defendant has not argued in his appeal brief that Judge O'Hagan's findings of fact were not supported by evidence in the record or not otherwise entitled to our deference. Nor has defendant argued that the judge applied mistaken principles of law in concluding that the subsurface contamination existed prior to the commencement of the lease. In any event, even if we could discern any such contentions in defendant's written and oral arguments in this court, we reject them and affirm the order of partial summary judgment substantially for the reasons set forth by Judge O'Hagan in his comprehensive and thoughtful written opinion.

III

Plaintiff argues the trial judge mistakenly failed to award counsel fees pursuant to the lease, which, in paragraph 12, stipulated that "in the event it shall become necessary for either party to enforce the provisions of this Lease by legal action or employ attorneys for the collection of any monies due hereunder, then the prevailing party shall be entitled to recover its reasonable attorney's fees, court costs and other cost of such proceedings."

As noted earlier, after the jury rendered its verdict, the trial judge permitted fee applications pursuant to paragraph 12. Plaintiff timely applied for an award in excess of $200,000. In finding plaintiff was not a prevailing party, the judge summarized the case's history in the following way:

A review of the orders in this case shows successes and failures by both parties. Even though Judge O'Hagan entered partial summary judgment in favor of

[p]laintiff, the net result at that time was that plaintiff still owed money to defendant which ultimately resulted in plaintiff being found in violation of litigant's rights by [the motion judge].

From the standpoint of this court, however, the real key is what happened at the trial in September. While the jury verdict may appear to be a win for plaintiff on the surface, it[']s only clear win was on the lease extension issue. The $40,000.00 damage award was less than half the sum plaintiff was withholding and resulted in a payment from plaintiff to defendant. Even more important than the amount withheld, however, were the damage claims made to and rejected by the jury. In particular were environmental costs allegedly paid by plaintiff to a company called Ozark which appeared to be its own alter ego.

Predictably, in such a multi-faceted, lengthy and hard-fought litigation -- spanning a decade -- both parties encountered successes and failures. The trial judge's conclusion confirming that fact is, therefore, hardly surprising. Nor is it determinative.

We considered the enforceability and application of a similar provision in Kellam Associates, Inc. v. Angel Projects, LLC, 357 N.J. Super. 132 (App. Div. 2003). There, we held that to succeed, a fee applicant must show the litigation fell within the purview of the contractual provision permitting fees, id. at 138-39, a circumstance not disputed here. In addition, we applied the two-prong test outlined in North Bergen Rex Transport, Inc. v. Trailer Leasing Co., 158 N.J. 561, 570-71 (1999) ("North Bergen"), in determining whether the fee applicant was a prevailing party.

The first prong of the North Bergen test requires "a factual causal nexus between the pleading and the relief ultimately received." Id. at 570; see also Singer v. State, 95 N.J. 487, 494, cert. denied, 469 U.S. 832, 105 S. Ct. 121, 83 L. Ed. 2d 64 (1984); Kellam Assocs., supra, 357 N.J. Super. at 139. The second prong requires that "the party seeking attorneys' fees . . . show that 'the relief granted had some basis in law.'" North Bergen, supra, 158 N.J. at 571 (quoting Singer, supra, 95 N.J. at 494). In further refining the second prong, the Court held that [t]he party seeking attorneys' fees need not recover all relief sought, but rather, there must be "'the settling of some dispute that affected the behavior of the [party asked to pay attorneys' fees] towards the [party seeking attorneys' fees.]'" [Ibid. (quoting Davidson v. Roselle Park Soccer Fed'n, 304 N.J. Super. 352, 357 (Ch. Div. 1996) (quoting Feriozzi Co. v. City of Atlantic City, 268 N.J. Super. 310, 314 (Law Div. 1993))).]

As we have observed, the trial judge found plaintiff was not a prevailing party for three essential reasons: first, plaintiff won some motions and lost some motions; second, in his view the jury verdict represented only a superficial victory for plaintiff; and third, the net result required plaintiff to reimburse defendant for a portion of the rent withheld. We reject the trial judge's determination for a number of reasons.

First, the judge's opinion cites only to a decision of a Florida appellate court*fn3 and decisions from three federal courts of appeals*fn4 ; the judge made no reference to North Bergen's two-prong test or any other New Jersey authorities. As a result, it is not at all certain -- indeed, it is quite doubtful -- that the trial judge implicitly applied New Jersey law when he found that plaintiff's few unsuccessful claims in this case precluded a finding that plaintiff was a prevailing party. Second, even if we were to assume the trial judge sub silentio followed the principles announced in North Bergen, his decision lacks any clear or searching comparison of those aspects of plaintiff's complaint that failed and those that succeeded.

The trial judge's three-page written decision -- the critical portion of which we have already quoted -- placed undue emphasis on the fact that plaintiff was not entirely successful in the claims it prosecuted against defendant at trial*fn5 and gives too little regard to the success achieved not only at trial but in the proceedings before Judge O'Hagan. The record reveals that plaintiff's action -- as it existed when initially filed and as it evolved with changing circumstances -- chiefly sought a declaration that the environmental conditions pre-existed the commencement of the lease term and were therefore the responsibility of defendant, as well as damages, and sought the right to extend the lease to 2010 in accordance with its terms. Plaintiff was successful in prosecuting these principal issues, and defendant's claims that plaintiff caused the environmental condition and that plaintiff failed to properly exercise the options to renew the lease for two additional five-year terms were soundly rejected.

The environmental claim was resolved in plaintiff's favor by way of the extended summary judgment procedures discussed earlier in this opinion.*fn6 Damages emanating from defendant's failure to address the environmental condition were also assessed in plaintiff's favor.

The dispute regarding plaintiff's right to remain in the premises to 2010 was also decided in plaintiff's favor. Initially, the motion judge ruled in defendant's favor, putting plaintiff to the task of seeking emergent relief from this court. We determined that the motion judge mistakenly granted summary judgment in favor of defendant on this point and remanded for further proceedings. Ultimately, the jury found plaintiff validly exercised the options, which would permit plaintiff to remain in the leased premises into 2010. And the jury awarded plaintiff $40,000 in damages because of defendant's breach of the lease agreement.*fn7

The trial judge held that plaintiff's substantial victories on the key aspects of this litigation were offset by the fact that plaintiff sought damages in the approximate amount of $96,000 at trial, but only succeeded in obtaining $40,000, and by the fact that plaintiff's withholding of rent exceeded the damages awarded and required reimbursement to plaintiff. These circumstances are of insufficient weight to support the determination that plaintiff was not a prevailing party.

Not long after the trial judge's decision on the fee issues, the Supreme Court rendered a decision that applied the principles announced in North Bergen in a situation where a plaintiff did not completely succeed on all its claims. In Litton Industries, Inc. v. IMO Industries, Inc., 200 N.J. 372, 378 (2009), the plaintiff sought damages based on the defendant's alleged breach of two provisions of a contract. Ultimately, defendant was found to have breached only one of the contractual provisions and plaintiff was awarded only $2,300,000, far less than the $9,000,000 sought. Ibid. The Court concluded that the plaintiff was a prevailing party despite achieving only a partial victory. Id. at 386.

We conclude that the trial judge misapplied the law applicable to plaintiff's fee claim and, specifically, erred in rejecting plaintiff's assertion that it was a prevailing party. There is no doubt plaintiff failed to obtain all the damages it sought at trial. Yet, plaintiff was awarded damages in nearly half the amount sought -- a greater percentage of its claim than that achieved by plaintiff in Litton Industries -- and had earlier obtained an award of damages regarding the environmental contamination that defendant had refused to address. Moreover, plaintiff obtained a declaration of defendant's responsibility for the environmental contamination and succeeded in convincing the jury, despite defendant's contrary contentions, that it had properly exercised its lease renewal options to allow it to remain in the property until 2010.

In determining plaintiff was not a prevailing party, the trial judge placed too much emphasis on the net result of the jury's verdict; that is, the judge was persuaded by the fact that when the damages awarded to plaintiff were deducted from the withheld rent, plaintiff was obligated to reimburse defendant the amount of $46,370.85. There is no question,

however, that plaintiff was entitled to withhold fifty percent of the rent as a result of defendant's breach.*fn8 As it turned out, the amount properly withheld proved more than necessary to address the damages eventually awarded by the jury, but no determination was ever made that in withholding rent plaintiff breached or exceeded its rights under paragraph 18. In short, plaintiff correctly exercised its rights under the lease and the fact that plaintiff was ultimately obligated to pay defendant a portion of the withheld rent was only of superficial significance. That defendant created the circumstances that justifiably warranted the withholding of rent and that plaintiff was awarded damages as a result of defendant's breach of the lease are the critical factors in determining whether the results of the jury trial demonstrated that plaintiff was a prevailing party.

In assessing the overall circumstances, we are satisfied the trial judge unduly discounted plaintiff's successes and over-evaluated those few defeats that only superficially suggested a less than thorough victory achieved by plaintiff in this prolonged litigation. For these reasons, we conclude that the trial judge mistakenly determined that plaintiff was not a prevailing party and, therefore, reverse the trial court order of February 11, 2009.

IV

Plaintiff argues that with a determination it was a prevailing party we should simply proceed to award fees in its favor. We reject the invitation to exercise original jurisdiction in this matter despite the action's considerable age and the additional consequence that all three trial court judges involved in this case are now retired. The trial court is better equipped in the first instance to consider the reasonableness of the fees sought with regard to the various services rendered over the lengthy course of this case than this court.

We remand to the trial court for the proceedings necessary to quantify the fees to which plaintiff is entitled. Those proceedings and the entry of a final order regarding plaintiff's claim for fees must be completed within ninety days.

Affirmed in part; reversed and remanded in part. We do not retain jurisdiction.

A-3487-08T1


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