On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket Nos. L-1039-06 and L-0491-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges A. A. Rodriguez, Grall and LeWinn.
We have consolidated two appeals and cross-appeals arising from the same facts. In a single commercial real estate transaction, plaintiff Berk & Berk at Franklin Plaza II purchased two tracts owned by defendant Franklin Electronic Publishers, Inc. (Franklin) and marketed by defendant Cushman & Wakefield of Pennsylvania, Inc. (C&W). Tract I was developed with an office building and warehouse, and Tract II was undeveloped land. The dispute centers on an alleged discrepancy between the actual area of Tract II suitable for development and the developable area as represented in the initial offering.
Based on that alleged discrepancy, Berk commenced an action claiming negligence, fraud, breach of the covenant of good faith and fair dealing and mistake warranting rescission or reformation of the contract. Discovery in that action was protracted, and while that action was pending, Berk filed a second action alleging that the misrepresentation of the developable acreage constituted equitable fraud and violated the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20.
In response to both complaints, Franklin served notice of its
intention to seek sanctions for frivolous litigation.*fn1
C&W gave notice of its intention to seek such sanctions in
response to the second action only. In the second action, Franklin
also filed a counterclaim and third-party complaint charging Berk and
its affiliates - Berk-Cohen Associates Investment Co., Manhattan
Management Co., L.L.C., Berk & Berk Trust - with fraud, spoliation of
evidence and breach of contract. All of the claims in both actions
were dismissed on summary judgment; Berk's attorney was ordered to pay
both Franklin and C&W $10,000 as a sanction for frivolous litigation
in the second action; Franklin was denied sanctions for the first
action; and no sanctions were awarded against Berk.
Berk, Franklin and C&W now seek relief from this court. Berk contends that the judge erred in dismissing its complaints and awarding sanctions. Franklin argues that the judge erred by denying its first motion for summary judgment in the first action; by dismissing its counterclaim and third-party complaint in the second action; by denying sanctions for frivolous litigation in the first action; and by refusing to impose a larger sanction and a sanction against Berk in the second action. C&W argues that the judge abused his discretion when he awarded a sanction of only $10,000. Finding no error in the grants of summary judgment or abuse of discretion in the judge's resolution of the claims for sanctions, we affirm.
These are the facts viewed in the light most favorable to Berk. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); R. 4:46-2(c). In 2005, Franklin offered a property consisting of two tracts for sale through C&W. Although Franklin had a 1997 title report and survey of Tract II ("Pennel survey"), this survey did not indicate how much of the property contained undevelopable wetlands. In 2003, however, C&W had prepared an appraisal stating that Tract I is comprised of 13.25 acres, including 5.50 acres of wetlands; and Tract II is comprised of 10.35 acres, with 1.24 acres of wetlands and 3.75 acres located in a "detention area." A map on file with the Burlington County Clerk's Office confirmed this assessment of the size of wetlands area.
When C&W listed the property for sale in June 2005, C&W prepared a flyer or "teaser," and a prospectus describing Tract I as "13.248 acres including 7.748 acres developable (net of wetlands)." It described Tract II as "an adjoining parcel of vacant land containing 10.35 acres including 1.24 acres of wetlands area and 3.75 acres located within a detention area." Thus, according to the flyer and the 2003 appraisal, the amount of developable land in Tract II was 5.36 acres.
Kirk Miller, a C&W representative, approached Harvey J. Berk, a professional engineer and certified property manager, about the property and gave him the prospectus. Harvey is the settlor of the Berk & Berk Trust, which owns Berk. He also controlled numerous real estate investment companies, including Berk-Cohen Associates Investment Company, LLC (Berk-Cohen) and Manhattan Management Company, LLC (MMC). Miller told Harvey that there were 7.75 developable acres on Tract II, and Harvey Berk believed him despite the contradictory description in the prospectus. In any event, on June 23, 2005, Harvey Berk signed an agreement acknowledging that defendants were not giving any warranty as to the accuracy or completeness of the prospectus.
In July 2005, Harvey Berk offered to purchase the property through Berk-Cohen for the listed price of $10.3 million. Harvey Berk consulted professional land planner Thomas J. Scangarello, but did not ask him to report on the amount of developable land. Harvey Berk also selected Joseph Glennon, an MMC employee, to conduct a due diligence evaluation of the property.
In September 2005, Glennon met with Franklin representatives, who showed him the 2003 appraisal. Franklin's representative then sent a 1997 title report without the Pennel survey to Berk's counsel, who responded by requesting a copy of the 1997 Pennel survey and the 2003 C&W appraisal. Berk also informed Franklin that they were ordering a new survey. Franklin's representative was unable to produce the Pennel survey, but he sent Glennon and Berk's counsel Pennel's contact information. Franklin's representative also reminded Glennon that the Pennel survey and 2003 appraisal were not due diligence documents that Franklin was required to provide pursuant to the contract for sale. Nevertheless, Franklin sent Glennon a copy of the 2003 appraisal in November 2005. Although Berk's counsel later insisted that his client had not received the 2003 appraisal prior to the end of the due diligence period and that Harvey Berk would not have proceeded with the contract if he had, Franklin eventually produced e-mails from Glennon acknowledging receipt of that appraisal on November 8, 2005.
On November 14, 2005, Berk-Cohen entered into a contract with Franklin to purchase the property (Agreement) for $10.3 million, and gave a $300,000 deposit. Subsequently, Berk-Cohen assigned its interest to Berk. The Agreement provided that the deposit was refundable "[w]ithin two (2) business days after the expiration of the Due Diligence Period."
Section 5 of the Agreement governs the Due Diligence Period. It provides in relevant part: 5.1 Buyer shall have from the date hereof until the date which is fifteen (15) days after the Execution Date (the "Due Diligence Period") to satisfy itself as to all matters respecting the Property and the lawful uses to which the same may be put by Buyer, including without limitation the following: conduct a review of title to the Property; conduct a structural and mechanical engineering review of the improvements located at the Property; conduct a non-invasive environmental study; and review the status of all governmental approvals . . . .
Section 5.1.2 permits the Buyer to terminate the transaction before the expiration of the due diligence period if the "Buyer's inspection discloses any exception or condition unsatisfactory to Buyer in its sole discretion." Pursuant to Section 5.1.2, the due diligence period expired on November 29, 2005.
Section 6.1 disclaims any warranties or representations by the seller or any agent of the seller regarding the condition of the property including "environmental matters," and reiterated that the property is sold "as-is." The agreement was fully integrated and "reflect[ed] the entire Agreement between Seller and Buyer."
Franklin attached several due diligence documents to the Agreement, including existing environmental reports and copies of the last title report, but not a survey or appraisal. The Agreement called for closing thirty days after the expiration of the due diligence period. Time was made "of the essence."
Berk's surveyor, A-1 Land Surveys, Inc. (A-1), did not complete its survey until November 28, 2005, one day before expiration of the due diligence period. On December 13, 2005, Harvey Berk received another copy of the appraisal from Franklin. On December 14, Harvey Berk wrote to Franklin asserting that the developable area of Tract II was only 5.428 acres and requesting a reduction in the purchase price. On December 21, 2005, Harvey Berk received a report from A-1 indicating that 5.110 acres of Tract II is wetlands and that 5.249 acres are developable. A-1 also expressed concerns that building setback requirements could prevent development of part of the 5.249 acres. In that letter, A-1 referenced the survey it completed on November 28, 2005.
Franklin refused, and responded that "time was of the essence" and the closing must occur before December 29, 2005. Berk's counsel responded that closing was impossible ...