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570 Escuela Partners, L.L.C., A Limited Liability Company v. State-Operated School District of the City of Newark

August 30, 2011

570 ESCUELA PARTNERS, L.L.C., A LIMITED LIABILITY COMPANY, PLAINTIFF-RESPONDENT/CROSS-APPELLANT,
v.
STATE-OPERATED SCHOOL DISTRICT OF THE CITY OF NEWARK, DEFENDANT-RESPONDENT/CROSS- RESPONDENT, AND MCMANIMON & SCOTLAND, L.L.C., A LIMITED LIABILITY COMPANY, DEFENDANT-APPELLANT/CROSS-RESPONDENT. 570 ESCUELA PARTNERS, L.L.C., A LIMITED LIABILITY COMPANY, PLAINTIFF-RESPONDENT,
v.
STATE-OPERATED SCHOOL DISTRICT OF THE CITY OF NEWARK, DEFENDANT-APPELLANT,
AND
MCMANIMON & SCOTLAND, L.L.C., A LIMITED LIABILITY COMPANY, DEFENDANT-RESPONDENT.



On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-1462-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 11, 2011

Before Judges A.A. Rodriguez, Grall and LeWinn.

A jury awarded plaintiff 570 Escuela Partners, L.L.C. (Escuela) $1,000,000 plus interest - $900,000 plus interest on its claim that defendant State-Operated School District of the City of Newark (District) breached a warranty clause in a lease agreement, and $100,000 plus interest on its claim of legal malpractice by defendants McManimon & Scotland, L.L.C. (M&S). The total award is equivalent to Escuela's initial nonrefundable deposit on a contract to purchase a building in downtown Newark plus interest paid on the loan taken to secure it. Escuela alleged it lost that money because 1) the District breached its warranty of compliance with the laws and procedures governing its authority to lease the building once plaintiff acquired it, and 2) M&S provided a legal opinion letter stating that the District had met those obligations.

The judge allocated responsibility for payment of interest on the loan and counsel fees as ninety percent to the District and ten percent to M&S. He assessed prejudgment interest and expert fees against M&S, but not the District.

M&S appeals,*fn1 contending only that plaintiff's expert was not qualified and was permitted to testify as to a standard of care that is contrary to the law. Finding no abuse of the judge's discretion and concluding that the expert's testimony, which discusses the need for an attorney providing an opinion to state essential caveats, read as a whole, is consistent with Petrillo v. Bachenberg, 139 N.J. 472, 486-88 (1995), we reject M&S's arguments substantially for the reasons stated by the trial court in ruling on its motions.

The District cross-appeals,*fn2 arguing, among other things, that Escuela's loss was not caused by the District's breach. For the reasons stated in part II of this opinion, we agree and vacate the judgment against the District.

Escuela also cross-appeals and claims error on two grounds. First, Escuela contends that it is entitled to prejudgment interest on the damages payable by the District. That issue is mooted by our reversal of the judgment against the District. Second, Escuela claims the trial court erred by dividing the defendants' responsibility for counsel fees. In so doing, the court relied on Grubbs v. Knoll, 376 N.J. Super. 420, 431-34 (App. Div. 2005). We affirm that determination substantially for the reasons stated by the court in its letter opinion of May 14, 2009. Escuela's arguments on this point are without sufficient merit to warrant any additional discussion. R. 2:11-3(e)(1)(E).

I

These facts are pertinent to Escuela's claim that the District breached the warranty clause in its lease. At all times relevant to Escuela's claims, the District was a state-operated school district and Marion Bolden was its superintendent. In 2001, the District's administrative offices were housed in an office building it leased from Hartz Mountain Industries, Inc. under terms the District had come to view as unsatisfactory. Accordingly, the District contacted a realtor. On May 9, 2001, the District executed a letter of intent to enter into an agreement to lease and then purchase a property known as 570 Broad Street from Gale & Wentworth Property Group L.L.C. or its affiliate, later designated as Escuela. Pursuant to the letter of intent, Escuela would purchase and renovate the building. On May 9, the building was owned by Investment Properties Associates (IPA). The letter of intent provided that "execution and delivery of a mutually acceptable Lease is a necessary precondition to a binding agreement between the parties."

On June 12, 2001, Bolden wrote to Eugene R. Diaz, Chief Investment Officer for Gale & Wentworth, and advised that so long as the lease included an acceptable purchase option, she had approval from the Department of Education to finalize the agreement and forward the parties' final version for approval by the Department's Commissioner.

The lease includes provisions that allocate responsibility for work that both parties had to do prior to the lease taking effect. The work was significant because Escuela did not own the building, and the District needed approvals to enter into the long-term lease and purchase agreement the parties contemplated.

In the lease, the parties recognize that Escuela must acquire the property and will have transaction costs, including acquisition costs such as the purchase price and fees paid to lawyers and realtors in connection with the purchase and lease. They also recognize that the District and its superintendent cannot agree to this long-term lease and purchase agreement without obtaining approvals.

Two paragraphs of the agreement address the District's obligation to get approvals prior to the signing of the lease. Paragraph 25.17 provides:

Prior to the date hereof, LESSEE caused the Commissioner of Education of the State of New Jersey to deliver to LESSOR a letter dated October 16, 2001, a copy of which is annexed hereto as Exhibit G ("the Commissioner's Letter"). LESSEE acknowledged that LESSOR required the ...


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