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Berk & Berk At Franklin Plaza Ii v. Franklin Electronic Publishers


July 22, 2011


On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket Nos. L-1039-06 and L-0491-08.

Per curiam.


Argued October 4, 2010

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 until the title company reviewed the A-1 survey.

The closing occurred on January 18, 2006. Berk paid $9,827,680 for Tract I and $472,320 for Tract II. Three months later, on April 10, 2006, Berk sued Franklin and C&W alleging intentional fraud, misrepresentation and negligence. Berk sought $225,000 in compensatory and punitive damages, attorneys' fees and costs. On December 27, 2005, more than eight months after the complaint was filed, Scangarello informed Berk that only .8 of an acre of Tract II could be developed.

On February 15, 2008, nearly two years after the litigation commenced, Berk filed the second lawsuit against Franklin and C&W, alleging consumer fraud claims, and seeking treble compensatory damages, attorneys' fees and costs. Franklin and C&W moved for summary judgment and Berk cross-moved. Judge Michael J. Hogan granted Franklin's and C&W's motion for summary judgment and denied Berk's motion.


On appeal, Berk contends that Franklin and C&W "were not entitled to summary judgment in view of their unconscionable conduct and sharp dealing"; and that Judge Hogan "failed to bring to bear the equitable principles of good faith and fair dealing, which left [his] summary judgment decision fatally flawed and, thus, reversible." We reject these contentions.

At the outset, we note that Berk was aware at the time of closing that the amount of developable land in Tract II was less than the acreage listed in the purchase contract and the 2003 C&W appraisal.

Berk's business decisions in connection with this transaction are fatal to its claims. At the outset of the negotiations Harvey Berk acknowledged, in writing, that defendants were not warranting the accuracy of the information in the prospectus. Moreover, the Agreement Berk executed indicated that the seller was not liable for or bound in any way by its prior representations, and it did not require Franklin and C&W to provide any information about environmental conditions on the property other than any existing environmental and engineering reports.

Berk's reliance on the description in the prospectus or the 2003 C&W appraisal was unjustifiable. That is so because the Agreement expressly disclaimed any representations and provided for a due diligence period, during which Berk could opt out of the transaction. In short, the burden was on Berk to satisfy itself as to what portion of the land was developable. There were no representations about the suitability of the property for development in the Agreement.

The judge concluded that Berk could not prove mutual mistake, negligence or fraud because Berk knew before the closing that there was less developable land than was represented in the prospectus. We agree that rescission or reformation of the contract was not an appropriate remedy, in this circumstance, because the risk was allocated to Berk pursuant to the contract. See Restatement (Second) of Contracts § 154 (1981) ("A party bears the risk of a mistake when . . . the risk is allocated to him by agreement of the parties . . . .").

Pursuant to Rule 4:46-2(c), the judge must decide whether there is a genuine issue of fact and whether the moving party is entitled to judgment as a matter of law. The judge must "consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party."

Brill, supra, 142 N.J. at 540. We review de novo, applying the same standard as the motion judge. Prudential Prop. & Cas. Ins. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).

Berk argues that Franklin and C&W falsely or negligently represented that Tract II had developable land; circumvented the equitable principles of fair dealing and good faith; or, if all parties believed that Tract II had developable land, proceeded to closing premised upon mutual mistake.

Mutual mistake constitutes a ground for rescission of a contract where: (1) the fact mistakenly assumed by the parties was a basis upon which the contract was entered into and (2) enforcement of the contract would be "materially more onerous . . . than it would have been had the fact been as the parties believed it to be." Beachcomber Coins, Inc. v. Boskett, 166 N.J. Super. 442, 445 (App. Div. 1979) (internal quotations omitted).

For example, in Beachcomber, a buyer and seller both believed that a rare coin was genuine, but later learned that it was counterfeit. Id. at 444. We held that because both parties entered the agreement while "laboring under the same misapprehension as to [a] particular, essential fact," the contract should be rescinded. Id. at 446.

Berk argues that throughout the negotiations both parties believed that a significant portion of Tract II could be developed, and because of that mutual mistake the judge should have rescinded the contract. We disagree because notwithstanding the prospectus and the flyer, the Agreement signed by Franklin's representatives stated that there were no warranties regarding environmental matters. Thus, it was not assumed by both parties to the contract that there was a certain quantity of developable property. Instead, Berk bore the burden of independently verifying the developable area and could not rely on any representations by Franklin and C&W.

Berk cites Cataldo Construction Company v. County of Essex, 110 N.J. Super. 414 (Ch. Div. 1970), for the proposition that rescission would be appropriate here. There, Cataldo realized after its bid on a public construction contract was accepted that the bid contained a $10,000 mathematical error. Id. at 416-17. Cataldo immediately sought to withdraw its bid, but the County insisted upon holding him to his offer. Id. at 417.

The Chancellor held that although a unilateral mistake of fact is not typically adequate grounds for rescission, sometimes equity requires an exception. Id. at 418. To be entitled to relief for unilateral mistake, a plaintiff must prove four elements:

(1) the mistake must be of so great a consequence that to enforce the contract as actually made would be unconscionable;

(2) the matter as to which the mistake was made must relate to the material feature of the contract;

(3) the mistake must have occurred notwithstanding the exercise of reasonable care by the party making the mistake, and

(4) it must be able to get relief by way of rescission without serious prejudice to the other party, except for loss of his bargain.

[Id. at 418-19 (quoting Conduit & Foundation Corp. v. Atlantic City, 2 N.J. Super. 433, 440 (Ch. Div. 1949)) (internal quotations omitted and line breaks added).]

Here, the Agreement called for a due diligence investigation before closing. It was during this period that Berk was able to ascertain that there was less developable land on Tract II than noted on the 2003 C&W appraisal. Thus, his remedy was to rescind the contract in accordance with its terms. Instead, he sought a reduction in price and continued to closing despite Franklin's refusal to adjust the price.

Moreover, despite having ample opportunity to perform a survey and gather information in a timely fashion, Berk obtained its survey, at the earliest, on the day before the due diligence period expired. Thus, Berk cannot claim that its mistake occurred despite its reasonable care.


Berk argues that Franklin and C&W were not entitled to summary judgment because they did not act in the spirit of good faith and fair dealing. The covenant of good faith and fair dealing "is implied in every contract in New Jersey." Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001). In order to show that this covenant has been breached, a party must establish bad motive or intention. Id. at 251.

Berk argues that Franklin withheld information regarding the developable acreage. This alone does not establish bad faith. Franklin wished to sell the property, and had nothing to gain by entering into a contract that was subject to a due diligence investigation because that provision put any sale at risk of cancellation.

Berk began its due diligence in September 2005, two months before the Agreement was signed. Franklin and C&W delivered the survey to Glennon before the sales Agreement had even been signed. In December 2005, Berk first mentioned that it had obtained its own survey, which revealed greater proportions of wetlands than the prospectus. Berk also obtained additional information that the property was virtually undevelopable in December 2006, after the closing and the commencement of this litigation.

Therefore, the record does not show that Franklin or C&W intentionally withheld any information or had any improper motive. Rather, it is undisputed that Franklin and C&W provided Berk with contact information for Pennel and clearly disclaimed any warranties. There is nothing in the record indicating that Franklin or C&W was aware that the property was undevelopable, because none of the surveys or appraisals that were performed for Franklin ever indicated this.


Berk contends that Franklin and C&W's vague interrogatory responses wrongly deprived it of information necessary to make its claims, and judge's refusal to extend discovery to remedy the situation constituted an abuse of judicial discretion. We disagree.

Berk filed motions for more specific answers to interrogatories aimed at determining how Franklin and C&W had acquired the information contained in the prospectus. According to Berk, this information was needed in order to prove Franklin's and C&W's bad faith. In response, Franklin and C&W supplemented their answers.

At oral argument on Berk's motion for reconsideration, the judge addressed each interrogatory that Berk questioned. The judge stated that the answers were reasonable, particularly because Berk's interrogatories were not always clear. Discovery rulings are discretionary and we review them to determine whether the court pursued a "manifestly unjust course." Gittleman v. Cent. Jersey Bank & Trust Co., 103 N.J. Super. 175, 179 (App. Div. 1967), rev'd on other grounds, 52 N.J. 503 (1968).

We conclude that this was a reasonable exercise of the judge's discretion and that it did not result in any manifest injustice. The documentation to which Franklin and C&W gave Berk access, namely the Pennel survey and the 2003 appraisal, either did not pertain to the amount of wetlands or essentially confirmed what was in the prospectus. Therefore, Berk had access to the exact same information upon which Franklin and C&W had relied when preparing the prospectus. Thus, more specificity in the answers to interrogatories would not have produced any relevant information.

Berk also challenges the judge's refusal to extend discovery. However, the record is replete with examples of Berk's failures to comply with discovery dates, to produce discovery, to accept delivery of subpoenas and to agree upon dates and locations for depositions. The judge found that the acrimony between counsel caused the slow progress of the case. Therefore, the judge's decision not to extend discovery was not an abuse of his discretion.


Berk contends that its CFA action was wrongfully dismissed. We reject this argument.

The judge relied on the entire controversy doctrine to dismiss Berk's CFA claim. The doctrine requires a litigant to present "all aspects of a controversy in one legal proceeding." Hobart Bros. Co. v. Nat'l Union Fire Ins., 354 N.J. Super. 229, 240 (App. Div.) (internal quotations omitted), certif. denied, 175 N.J. 170 (2002). The doctrine is an equitable rule that promotes judicial economy by preventing a party from strategically electing to hold back a component of the controversy in the first proceeding only to raise it in a subsequent proceeding. Id. 240-41; see also R. 4:30A ("Non-joinder of claims required to be joined by the entire controversy doctrine shall result in the preclusion of the omitted claims . . . ."). However, the doctrine will only preclude a litigant from asserting a claim if the party has had a fair and reasonable opportunity to litigate the claim. Hobart, supra, 354 N.J. Super. at 241.

Here, the judge appropriately applied the doctrine to bar Berk from raising the CFA in the second lawsuit. If a CFA claim existed, it would have been "an aspect of the controversy" between Berk, Franklin and C&W, and germane to the allegations of breach of contract and fraud.


Franklin and C&W cross-appeal the amount of attorney's fees awarded. Franklin also cross-appeals the dismissal of its third party complaint and the judge's initial denial of its motion for summary judgment.

The judge dismissed Franklin's counterclaim and its third-party action because, although timely, Franklin knew of these claims when filing the first action and conceded that it only raised these claims in response to Berk's second action. Thus, the judge reasoned that the entire controversy doctrine precluded the assertion of these claims in a later action. Given the circumstances of this case, we concur with the judge's decision.

Franklin's counterclaim asserted breach of contract and spoliation of evidence. The third-party complaint alleged breach of the confidentiality provision, fraud, breach of the Agreement, spoliation of evidence and violations of N.J.S.A. 2C:21-4. Franklin argues that the judge erred by dismissing the third-party complaint, because the third-party defendants were not named in the first complaint and, therefore, the doctrine did not apply.

Although we realize that the doctrine had been narrowed when non-parties are at issue, Higgins v. Swiecicki, 315 N.J. Super. 488, 492-93 (App. Div. 1998), here, all of the claims, with the exception of spoliation of evidence, were known to Franklin at the time that the first action was filed. Moreover, the third-party defendants and plaintiff were all controlled by Harvey Berk, and the alleged fraud and breaches were part of the controversy between Franklin and Berk that was the subject of the first lawsuit. We conclude that in these circumstances, the judge did not err.

Franklin contends that the judge erred in the amount of sanctions he awarded in connection with the second action, and in not awarding additional sanctions in the first action. The judge held that the first action was not frivolous because Berk legitimately believed that Franklin and C&W knew that Tract II was virtually undevelopable and withheld that information from Berk.

C&W sought $22,000 in attorney fees in the second action and Franklin requested $47,800 for both actions. The judge found that the second action was frivolous because it was filed for the purpose of circumventing the judge's discovery ruling and inhibiting resolution of the dispute. In fact, Berk's counsel conceded at oral argument that the second complaint was "improvident"; and, he acknowledged in his brief that it was "misguided and ill-founded". The judge determined that each defendant was entitled to only $10,000 in attorney fees for the second action because the rule prohibiting frivolous actions was designed to deter, rather than shift fees. R. 1:4-8. The judge's determination was not inconsistent with this purpose.

N.J.S.A. 2A:15-59.1 and Rule 1:4-8 authorize sanctions against attorneys who bring frivolous lawsuits. These sanctions are primarily "punitive . . . to deter frivolous litigation," but are also intended to compensate parties that have been victimized by such litigation. Deutsch & Shur, P.C. v. Roth, 284 N.J. Super. 133, 141 (Law Div. 1995). Given the legal services that can be attributed to defending against Berk's claims in the second action, we cannot conclude that the judge abused his discretion in awarding $10,000 to each defendant.

Franklin argues that sanctions should have been awarded in the first action because Berk misrepresented that it had never received the appraisal during the due diligence period and this formed the basis of the judge's initial denial of the motion for summary judgment. Berk's misrepresentation was revealed when later-acquired e-mails established that Glennon had been given a copy of the appraisal in November 2005.

Although the timing of the appraisal being given to Berk formed the basis of the judge's initial denial of the motion for summary judgment, the judge required additional fact-finding in order to determine whether there had been any deceitful withholding of information by Franklin and C&W or any mistaken information relied upon by Berk. Thus, the record does not establish that this misrepresentation caused the litigation to be extended.

Affirmed on the appeal and cross-appeals.

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