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Textron Financial-New Jersey v. Herring Land Group

May 24, 2011


The opinion of the court was delivered by: Cooper, District Judge



This case is a dispute regarding several lease agreements for real property ("Ground Leases"), and the structures on that property ("Improvements"). Before the Court is the Motion of Defendant Herring Land Group, LLC ("Herring") to bar and preclude damages on the breach of contract claim brought by Plaintiffs and to require the deposit of rent into escrow. (Dkt. entry no. 178.) The Court has carefully reviewed the papers submitted by the parties on the Motion. (Dkt. entry nos. 178, 216, 217.) The Court also conducted oral argument on March 30, 2011. (Dkt. entry no. 232.) For the reasons stated herein, and for the reasons stated on the record, the Court will deny the Motion, with relevant rulings set forth in the conclusion.

I. Introduction

The relief sought by Herring on this Motion is to bar any and all damages on Plaintiffs' breach of contract claim. Herring has indicated that success on this Motion would operate to eliminate the breach of contract claim, thereby precluding a trial on same. (Dkt. entry no. 17, Am. Compl. at 6; see, e.g., dkt. entry no. 246, 3-30-11 Hearing Tr. at 27, 73.)*fn1

Herring argues that Plaintiffs cannot be permitted to present any damages claims, because all have been foreclosed except for the costs of defending Herring's Counterclaim, which are not recoverable alone under New Jersey law. (Dkt. entry no. 178, Def. Br. at 19.) In support of this argument. Herring notes the Complaint only sought declaratory judgment, and that the Amended Complaint's damage claim for breach of contract simply lists "including but not limited to incurring costs and fees to defend Herring's Counterclaims." (Id. at 2-3.) The attempts by Plaintiff GF Princeton ("GFP") to file a more expansive Second Amended Complaint, however, were denied. (Id. at 3.) Moreover, Herring contends that the Answers to the Interrogatories ("Interrogatories") supplied by Plaintiff Textron Financial-New Jersey Inc. ("Textron") stated no damages other than costs and fees, and that because GFP was also denied the opportunity to amend the Interrogatories, no damages claims remain. (Id.)

Herring further argues that "Plaintiffs were required . . . pursuant to [Federal Rule of Civil Procedure ("Rule")] 26(a)(1)(A)(iii) to include in their Initial Disclosure 'a computation fo each category of damages claimed by the disclosing party', and were required to supplement those disclosures and discovery responses in timely fashion pursuant to [Rule 26(e)(1)(A)]. The rule is self-executing, and therefore bars the use of any evidence that was not property disclosed." (Id. at 19-20.) Herring urges that it "follows automatically that no such evidence may be relied upon at trial." (Id. at 20.)

There are two plaintiffs here. The first, Textron, initially brought this action for a declaratory judgment only, and subsequently added a breach of contract claim. (Dkt. entry no. 1, Compl.; Am. Compl.) Textron sold the Improvements and assigned its interest in the Ground Leases to the second plaintiff, GFP, in December 2007. (Dkt. entry no. 64, 10-22-08 First Magistrate Judge Order at 4.) This was approximately four months after the close of discovery in this case, on August 31, 2007. (Dkt. entry no. 30, Scheduling Order.) GFP became a party to the suit pursuant to Rule 25(c) in October 2008, approximately thirteen months after the close of discovery. (See 10-22-08 First Magistrate Judge Order; Scheduling Order.)

GFP argues that "[i]t was not a party to the case when the [Scheduling] Order was entered" and that "[a]s soon as it plausibly could, after its entry, [GFP] updated and/or amended answers to interrogatories to include its damages information as soon as it became available." (Dkt. entry no. 217, GFP Opp'n at 19.) GFP asserts it has "suffered significant equitable and financial consequences" as a result of Herring's failure to abide by the appraisal process. (Id. at 7.) These consist of causing it to "incur substantial costs . . . in order to avoid default," as well as denying GFP "a stable platform from which to obtain a reasonable return on the value of its leasehold." (Id.) GFP contends that precluding it from presenting these damages would be an "extreme" discovery sanction. (Id. at 18-19.) It further contends that "[t]here is and would be great prejudice to [GFP] to force it to pay ground rent without consideration of its damages which were caused by Herring's contractual breaches." (Id. at 20.) GFP requests permission to submit its damages "for legal and equitable reasons." (Id. at 23.)

Textron joins in GFP's opposition to Herring's Motion, and further argues that it is not liable to Herring for any back rent because it sold the Improvements and assigned all of its rights and obligations under the Ground Leases and in this lawsuit to GFP. (Dkt. entry no. 216, Textron Opp'n at 1, 7.)*fn2 During Oral Argument before this Court, Textron averred "[i]t's always been our position that because they won't adhere to the appraisal procedure, we can't set the ground rent, and so we couldn't rent it or ostensibly sell it for fair market value to anybody. So because of that, we were not responsible for paying ground rent." (3-30-11 Hearing Tr. at 49.)

To understand the parties' sharply conflicting contentions with respect to the damages available on the breach of contract claim, the Court has thoroughly reviewed the procedural history of this case as it bears upon this motion.

II. Procedural History

A. Pleadings

This action was commenced on June 8, 2006 with a single count for declaratory judgment on the appraisal process for establishing the ground rent. (Compl.) The Amended Complaint, filed on November 3, 2006, contains two counts. Count One is substantially the same; Count Two alleges breach of contract. The prayer for relief in Count One asks the Court to declare:

a. That the Ground Lease and Improvements Lease . . . require the appraisers to take into account the remaining term of the Ground Lease and limitations on any potential additional development imposed by the existing buildings and improvements owned by Textron Financial;

b. That the Ground Lease and Improvements Lease . . .

1) require the appraisers to take into account, in their determination of the 'highest and best use' of the property for purposes of determining the fair market rental value under the Ground Lease, the right of the existing buildings and improvements owned by Textron Financial to continue to remain in place; and 2) preclude the appraisers from determining the fair market rental value as if the underlying land were raw land without any buildings or leasehold interests; and c. for such other and further relief as the Court may deem just and appropriate. (Am. Compl. at 5-6.) Count Two alleges:

23. The parties were not successful in reaching agreement within the 60-day period, as alleged above, and Textron Financial delivered to Herring an appraisal consistent with the appraisal procedure established by the terms of the lease agreements.

24. Herring failed and refused to deliver its own appraisal to Textron Financial, and thereby breached the Ground Lease.

25. As a result of Herring's breach, Textron Financial has been damaged, including but not limited to incurring costs and fees to defend Herring's Counterclaims in this action.

(Id. at 6-7.) Count Two asks for "damages, costs and attorneys' fees, and for such other relief as this Court may deem equitable and just." (Id. at 7.)

The Counterclaim brought by Herring asks for a judgment:

A. Specifically enforcing the provisions of the Ground Lease for the determination of Basic Rent.

B. Retaining jurisdiction for the purpose of entering Judgment in favor of counterclaim defendant, and against plaintiff, for the full amount of Basic Rent found to be due, together with interest at the overdue Rate.

C. For costs of suit, including reasonable attorneys' fees under the Ground Lease.

D. For such other relief as the Court deems just and proper. (Dkt. entry no. 8, Ans. at 9.) One affirmative defense to the Counterclaim states "[t]he Counterclaim Plaintiff's claims are barred in whole or in part by its failure to proceed under the contractual appraisal process established under the relevant lease agreements." (Dkt. entry no. 11, Rep. to Countercl. at 4.)

After GFP purchased the Improvements from Textron, it began a series of attempts to join the action and file a Second Amended Complaint with additional counts and damage claims. GFP first argued that "[b]y receiving the assignment and transfer of property, GF steps into the shoes of Textron Financial as the real party in interest and may pursue any and all claims brought by Textron Financial." (Dkt. entry no. 36, First Mot. to Amend/Correct Pleadings at 6.) GFP further asserted that "GF may bring additional individual claims against Herring, as the current owner of the Improvements and lessor under the Ground Lease. Thus, GF is not only an assignee of Textron Financial, but also has individual claims against Herring." (Id.)

The Magistrate Judge denied the motion to substitute because GFP failed to provide sufficient documentation of the transfer of interest from Textron, noting that GFP had not asked to be added as an additional plaintiff. (Dkt. entry no. 42, 7-29-08 First Magistrate Judge Order at 5 n.1.) After various unsuccessful appeals to this Court, motions for reconsideration, and renewed motions (see dkt. entry nos. 45, 56, 46, 57, 58, 59), the Magistrate Judge finally ruled that "pursuant to Rule 25(c), GF should be permitted to join Textron as a plaintiff in this matter," noting that "the Court does not at this time decide whether GF will be permitted to file a Second Amended Complaint." (10-22-08 First Magistrate Judge Order at 4.)

GFP then moved for leave to file a Second Amended Complaint under Rule 15(a). (Dkt. entry no. 66, Second Mot. to Amend/Correct Pleadings.) Similar to the previous motion, its proposed Second Amended Complaint sought punitive damages and listed separately counts for Tortious Interference with Economic Advantage, Breach of Duty of Good Faith and Fair Dealing, Breach of the Covenant of Quiet Enjoyment, ...

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