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Stephen N. Frankel Real Estate, Inc v. John G. Merrett


March 25, 2011


On appeal from the Superior Court of New Jersey, Law Division, Cape May County, Docket No. L-44-07.

Per curiam.


Submitted October 26, 2010

Before Judges Graves, Messano and Waugh.

The Law Division granted summary judgment to defendants, C-Breeze LLC (C-Breeze), Charles J. and Mark E. Kuski (Kuski), Maher and Sohair Sedra (Sedra), David J. Kinder, and Alejandro and Rosana Melli (Melli) (collectively, the sellers), dismissing the cross-claims of defendant East Bennett Holding Co., L.L.C. (East Bennett). Thereafter, plaintiff, Stephen N. Frankel Real Estate, Inc. and East Bennett settled their claims. East Bennett now appeals from the grants of summary judgment to the sellers. We have considered the arguments raised in light of the record and applicable legal standards. We affirm.


East Bennett intended to build a multi-story, residential condominium in Wildwood on a series of lots owned by the sellers. Defendant John G. Merrett was East Bennett's managing member.*fn1 Merrett signed a commission agreement with plaintiff on April 27, 2005, that listed various parcels of land and committed "the [s]elling [e]ntity" to pay plaintiff "5% of the [g]ross amount of sale" "if the Wildwood project . . . [wa]s sold" by plaintiff. A second similar agreement was signed on May 9.

On July 14, plaintiff and East Bennett entered into a third commission agreement whereby East Bennett agreed to pay plaintiff $25,000 upon execution of real estate contracts with the sellers, and an additional $75,000 when certain approvals were issued by the City of Wildwood. The sellers did not enter into any commission agreements with plaintiff.

In July, August and September 2005, East Bennett executed contracts of sale with the sellers for their respective properties. Apparently, the parties were prepared to close in February 2006. However, on February 10, plaintiff commenced a chancery action alleging it was entitled to a commission from East Bennett apparently based upon its introduction of an investor, Eli Weinstein, to the project. Plaintiff also alleged that Merrett had misrepresented the amount of investment that Weinstein had made to the project. As a result, plaintiff claimed it was entitled to a commission based upon the April 2005 agreement, i.e., an amount that was greater than the $100,000 contained in the July 2005 agreement.

Although plaintiff made no specific allegations against the sellers, they were named as defendants in the suit, and plaintiff requested that an equitable lien be placed upon the proceeds of the sales of their properties. On February 28, 2006, plaintiff filed a lis pendens against the sellers' properties.

On May 12, 2006, a case management conference was held before the chancery judge who entered an order setting a time of the essence closing date of May 31.*fn2 The order further provided that "counsel for plaintiff and . . . East Bennett . . . have agreed that at the . . . closing . . . an escrow shall be established with funds to be provided by East Bennett, and that the lis pendens shall then be discharged on that basis." The order further provided for the immediate release of "[a]ny . . . deposits which have not yet been released . . . to sellers." On the record, the judge told plaintiff's and East Bennett's counsel the following:

[T]he worst thing that happens is that [counsel for plaintiff] and [counsel for East Bennett], if they can't agree, will have to ask me to establish an amount that goes into escrow, and the dispute would be a fairly limited one . . . that I could deal with fairly easily.

On May 25, 2006, based upon financial information East Bennett supplied plaintiff regarding the amount of Weinstein's investment, plaintiff's attorney sent a letter to East Bennett's counsel demanding a commission of $425,000. The letter stated in part:

In our conference call with [the judge] I indicated that we have no desire to stand in the way of a closing. We all agreed that if we could not agree on a commission then we would attempt to agree on an escrow. If we could not agree on an escrow then we agreed to submit to [the judge] for his decision the amount of the escrow. I am prepared to do that. I would suggest that we not wait for the day of the closing to accomplish that.

However, neither plaintiff nor East Bennett contacted the judge. As a result, the lis pendens were not discharged and the closings did not occur. On June 1, 2006, the contracts were terminated.*fn3

On August 31, in its first amended answer to plaintiff's complaint, East Bennett filed cross-claims against the sellers alleging breach of contract and seeking the return of all deposit monies and other monetary damages, as well as specific performance. East Bennett also asserted counterclaims against plaintiff which are not relevant to the issues on appeal.

In November 2006, the sellers moved for summary judgment against plaintiff and East Bennett. On December 7, the judge granted partial summary judgment to the sellers and dismissed East Bennett's cross-claims for specific performance against them. He also dismissed plaintiff's claims against the sellers and ordered it to discharge all lis pendens on the properties.*fn4

The matter was subsequently transferred to the Law Division to resolve the remaining issues, i.e., plaintiff's and East Bennett's claims against each other, and East Bennett's claims of breach of contract against the sellers. Discovery ensued.

Between May and August 2008, the various parties filed dispositive motions. The sellers sought summary judgment dismissing East Bennett's cross-claims against them. East Bennett filed a cross-motion seeking summary judgment against Kuski, Sedra and Melli. Plaintiff sought summary judgment against East Bennett, which also cross-moved for summary judgment on its tortious interference claim against plaintiff.

After considering argument on September 11, the Law Division judge orally granted summary judgment to the sellers. On April 13, 2009, the judge issued a written decision and accompanying orders that addressed all the motions. In relevant part, the judge denied East Bennett's motion for summary judgment on its breach of contract claims against the sellers and granted summary judgment to the sellers dismissing East Bennett's cross-claims.*fn5

After settling with plaintiff, East Bennett filed this appeal challenging the orders entered in the Law Division that denied East Bennett summary judgment, and granted the sellers summary judgment dismissing the cross-claims against them.*fn6


East Bennett argues that because the sellers breached their respective contracts, i.e., the properties were not free and clear of all liens at the time of closing, it is entitled to summary judgment and the return of all deposit monies. As a corollary argument, East Bennett contends that the responsibility to discharge plaintiff's lis pendens, which were improperly filed, rested solely with the sellers.

The issues first presented themselves before the chancery judge in December 2006. In response to the sellers' motions for summary judgment, East Bennett argued that it was prepared to close on May 31, but, because of plaintiff's increased commission demand, it was unable to secure additional monies to escrow so that plaintiff would discharge the lis pendens.

The judge rejected this argument because he had provided a mechanism to resolve the lis pendens issue so that the closings could proceed. He further noted that because the sellers "weren't responsible for the obligation that was suggested or referred to in the lis pendens," there was no reason to escrow the funds from their proceeds at closing. The judge rejected East Bennett's argument that because the sellers could not provide clear title, the closing could not proceed on May 31. Additionally, the judge concluded that the sellers were prepared to close, that East Bennett "could have asked for additional relief from [the court]," but that East Bennett was never "ready, desirous, prompt and eager to perform."

Subsequently, in granting the sellers summary judgment and denying East Bennett's motion for summary judgment on its breach of contract claims, the Law Division judge adopted similar reasoning. Rejecting the claim that sellers "were not able to transfer a marketable title," the judge noted that "[t]he lis pendens in this matter . . . must be understood in the context of the hearing before [the chancery judge]." He concluded that the sellers had not breached their contracts.

When reviewing a grant of summary judgment, we employ the same standards used by the motion judge. Atl. Mut. Ins. Co. v. Hillside Bottling Co., Inc., 387 N.J. Super. 224, 230 (App. Div.), certif. denied, 189 N.J. 104 (2006). We first determine whether the moving party has demonstrated there were no genuine disputes as to material facts. Ibid. In this case, the essential facts are undisputed.

We then decide "whether the motion judge's application of the law was correct." Id. at 231. We "owe no deference" to the motion judge's conclusions on issues of law. Ibid. (citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)).

A lis pendens may be filed in an action affecting real estate. See N.J.S.A. 2A:15-6; Wendy's of S. Jersey, Inc. v. Blanchard Mgmt. Corp. of N.J., 170 N.J. Super. 491, 495 (Ch. Div. 1979). The filing of a lis pendens provides notice that there is an action to enforce a lien and establishes the priority of that lien in relation to subsequently obtained interests in the subject real estate. N.J.S.A. 2A:15-7(a); Manzo v. Shawmut Bank, N.A., 291 N.J. Super. 194, 199-200 (App. Div. 1996). But, an "adversely affected party [is] entitled to have the notice of lis pendens discharged if . . . he c[an] demonstrate . . . that [the] plaintiff in fact and in law had no right to a lien or to a claim affecting the title to the realty in question but only, . . . some different claim or right against the defendant, as for damages." O'Boyle v. Fairway Prods. Inc., 169 N.J. Super. 165, 167 (App. Div. 1979).

N.J.S.A. 2A:15-7(b) provides:

Any party claiming an interest in the real estate affected by the notice of lis pendens may, at any time thereafter, file with the court, . . . a motion for a determination as to whether there is a probability that final judgment will be entered in favor of the plaintiff sufficient to justify the filing or continuation of the notice of lis pendens.

In Fravega v. Sec. Savs. & Loan Ass'n, 192 N.J. Super. 213, 217 (Ch. Div. 1983), the court noted that the "obligations and remedies which attach upon the filing of a notice of lis pendens vary depending on the nature of the claim." When a motion to discharge a lis pendens is made, "the determination of the court will depend on 'whether there is a probability that final judgment will be entered in favor of the plaintiff sufficient to justify the filing or the continuation of the notice of lis pendens.'" Ibid. (quoting N.J.S.A. 2A:15-7(b)). "It is plaintiff's burden to establish such probability." Ibid.

The purpose of N.J.S.A. 2A:15-7(b) is to "prevent the unfair use of lis pendens which creates a hardship on the owners of real estate where the alleged interest in the property is uncertain or problematical." Id. at 218. Acknowledging a then-recent amendment to the statute inserting the word "probability" for "possibility[,]" Ibid. (citation and quotations omitted), and the phrase "sufficient to justify the filing or continuation of the notice," the court in Fravega concluded:

The Legislature appears to have chosen a standard which, although couched in terms of probability instead of possibility, requires the court to weigh the strengths of plaintiffs' case against the detriment imposed on defendant by reason of the filing of the notice of lis pendens.

[Id. at 219 (citation and quotations omitted).]

Applying the above standards to this case, once it could not agree with plaintiff as to the escrow amount, East Bennett could have nonetheless proceeded to closing by 1) contacting the judge to resolve the dispute; or 2) moving to discharge the lis pendens on the sellers' properties. It is readily apparent, indeed East Bennett argues, plaintiff's lis pendens was improperly filed because the suit sought only money damages based on the commission agreements. East Bennett had standing to move under N.J.S.A. 2A:15-7(b), despite not having been served with plaintiff's complaint at the time, because it was aware of the filing and was a "party claiming an interest in the real estate affected by the notice." N.J.S.A. 2A:15-7(b). East Bennett chose to pursue neither course.

East Bennett argues, as it did below, that the sellers were obligated to convey title that was free and clear of all liens. Therefore, the sellers should have taken the necessary steps to discharge the lis pendens or agree to escrow the monies from their proceeds of sale. East Bennett contends that the failure by sellers to do so amounts to a breach of the contracts of sale. We disagree.

We have said that contractual language "must be interpreted 'in accord with justice and common sense.'" Karl's Sales & Serv. Inc. v. Gimbel Bros., Inc., 249 N.J. Super. 487, 492 (App. Div.) (quoting Krosnowski v. Krosnowski, 22 N.J. 376, 386-87 (1956)), certif. denied, 127 N.J. 548 (1991). Each of the contracts for sale contained some language dealing with the quality of title the sellers were obligated to convey. The Kinder contract provided that "title shall be marketable . . . and shall be free and clear of any and all claims, liens and/or encumbrances of any nature whatsoever." The C-Breeze, Kuski, Melli and Sedra contracts provided that the sellers would convey title "free of all claims and rights of others." Most of the contracts, however, provided East Bennett with a "[d]ue [d]iligence [p]eriod" during which it could conduct title searches of the properties; these contracts permitted East Bennett to cancel the contracts and have its deposits returned during the due diligence period if the sellers did not have "good and marketable" title. These contracts further provided that the right to cancel based upon the title status would be waived if not exercised.

The Court has determined that "[m]any titles, imperfect of record, are nonetheless marketable." Conklin v. Davi, 76 N.J. 468, 473 (1978). In this case, when the contracts were executed, it is apparently undisputed that each seller had marketable title to its/his or her respective property and was able to comply fully with the contracts of sale. We note that there were no mortgage contingencies in any of the contracts. Therefore, it was only East Bennett's inability to reach agreement with plaintiff that resulted, albeit improperly, in a "claim" against the properties. The sellers did nothing to cause the "claim" that East Bennett now argues resulted in the breach of their contracts.

As the Conklin Court further noted:

The law assures to a buyer a title free from reasonable doubt, but not from every doubt . . . . If "the only defect in the title" is "a very remote and improbable contingency," a "slender possibility only," a conveyance will be decreed. . . .*fn7

[Ibid. (quoting Norwegian Evangelical Free Church v. Milhauser, 252 N.Y. 186, 169 (N.Y. 1929), rehearing denied, 252 N.Y. 617 (N.Y. 1930).]

Moreover, "[w]here, because of an alleged title defect, vendor and vendee litigate the issue, it will be the title as it exists at the time of final decree or judgment that will control, not the title the vendor may have had when the suit was commenced." Ibid. (citations omitted).

As the discussion above demonstrated, plaintiff's lis pendens was subject to discharge because it was improperly filed. Had East Bennett accepted the sellers' titles subject only to plaintiff's specious lis pendens, there is no doubt that at the conclusion of the litigation, the quality of title conveyed by sellers would have fully complied with their contractual obligations.

Lastly, every contract for sale specifically provided that East Bennett would indemnify and hold the seller harmless from any claims brought by brokers based upon commission agreements made by East Bennett. We fail to see how the sellers had any obligation to discharge the lis pendens, nor was their failure to do so a breach of their contracts with East Bennett.

In a separate point in its brief, East Bennett argues that it is entitled to the return of all deposit monies and development costs because the sellers did not deliver marketable title to the properties. It seeks a remand for a determination of the actual amount of those costs.

In this regard, East Bennett's argument is premised entirely upon the claim that the sellers breached their respective contracts and, as the non-breaching party, it was entitled to the return of its deposits. For the reasons already expressed, we disagree.


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