On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County, Docket Nos. C-252-07 and F-35185-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted January 11, 2012 -
Before Judges Fuentes, Graves, and Harris.
These consolidated appeals involve a dispute regarding the performance of a settlement agreement that ended an earlier round of litigation. In 2004, through the efforts of a mediator and the coercive enforcement of the Chancery Division, the parties resolved their myriad differences over the control of several closely-held businesses. Among the commitments undertaken by defendants as part of the settlement was their promise to sell specific real estate in order to pay plaintiffs for their interests in the businesses. To secure this obligation, defendants executed mortgages on the affected parcels of real estate. With the properties still unsold after nearly three years, plaintiffs commenced a new action in the Chancery Division (Docket No. C-252-07) seeking, among other things, specific performance of the settlement agreement.
Separately, a mortgage foreclosure action (Docket No. F-35185-07) was commenced based upon the claim that defendants had incurably violated several covenants in the mortgage. The motion court granted summary judgment in favor of defendants, dismissing both actions. We affirm in part, reverse in part, and remand for further proceedings.
Plaintiff Jack Whitman*fn2 and defendants Harold D. and William J. Herbert (collectively, the Herberts) were affiliated in the ownership of several parcels of land and business enterprises, including defendant Dallenbach Sand Company, Inc. (Dallenbach). Dallenbach owned acreage in Monroe Township (the Dallenbach property). Whitman and the Herberts also individually owned one-third interests in contiguous land (the Cranbury Road property). The approximate area of both parcels (the properties) is 148.3 acres. Although the properties are zoned for residential uses, because they consist of arable land, they were mostly used for farming operations.
Adjacent to the properties is land commonly referred to as the JIS Landfill Site (the JIS site). This site includes a landfill that has contaminated the nearby ground water, and which has been listed as a federal superfund site since 1983. As such, it is under the supervision of the New Jersey Department of Environmental Protection (DEP) and the United States Environmental Protection Agency (EPA).
During the JIS site's implementation of a mandated remediation plan, it was discovered that ground water contamination had migrated underneath approximately one-third of the parties' properties. Remediation efforts have been ongoing since 1995 to stem further degradation of ground water and to extract and treat the ground water itself. More recently, a revised remediation plan -- called biosparge treatment technology -- was initiated to replace the extract-and-treat remedy, which is expected to foster the biodegradation of contaminants in place.
Starting in 2002, Whitman and the Herberts became engaged in a series of lawsuits in the Chancery Division, Somerset Vicinage, involving their common ownership interests. The parties subsequently agreed to mediate their disputes, which yielded a provisional settlement in July 2004.
The terms of the provisional settlement called for various transfers of the parties' ownership interests in jointly owned businesses. The relevant provisions provided that plaintiffs would give up their interests in Dallenbach, and Whitman agreed to transfer his individual interest in the Cranbury Road property. In exchange, defendants agreed to pay the "Whitman Family . . . a total of $11.0 million on an installment sale basis."
Under the provisional settlement, a first payment of $1.7 million would be made at the time real property referred to as the North End property was sold. The remaining $9.3 million was to be paid when both the Dallenbach property and Cranbury Road property were sold. To secure the $9.3 million expectancy, defendants agreed to execute mortgages on the two properties.
When the July 2004 mediation session ended, Whitman refused to sign the written settlement agreement because he wanted his financial advisors to review its tax implications. Over the next four months, the parties attempted to resolve the details of their provisional settlement.
In early August 2004, Whitman's attorney sent defendants' counsel a document entitled "Outline of Settlement Agreement Issues." It stated in relevant part:
5. With respect to the payment of the funds to the Whitmans at the closing of [the properties], the current structure has negative tax consequences in that the IRS will impute interest on the balance not carrying interest going forward. Since the Herberts will be gaining the value of the appreciation on the property, we need a provision in the agreement to ensure that the Herberts take appropriate timely steps to sell the property. In that regard, we require a provision whereby the unpaid balance would begin accruing interest at the prime rate compounded annually after a certain period of time if the property is unsold. We propose the time period prior to the obligation accruing interest as two years after the signing of the settlement agreement.
One week later, the Herberts rejected the demand for interest, but agreed to add a best efforts clause to the contract:
With respect to Item 5 which you also characterize as a tax problem, the Herberts are unwilling to add an interest provision to the Agreement. Although it is true they hope to enjoy the appreciation in the property, they are also taking all the risks and obligating themselves to incur all of the expenses. The Herberts will agree to add a best efforts clause regarding their development efforts regarding the [properties].
In November 2004, a revised settlement agreement was circulated that included a provision requiring the Herberts to use "reasonable best efforts" to locate a buyer and sell the properties. It also required the Herberts to fully cooperate with potential buyers, and to send bi-monthly letters to Whitman explaining what efforts were made to market and sell the properties.
In a response dated November 23, 2004, the Herberts' counsel rejected Whitman's proposed revisions, asserting that
(1) the case "already settled in July," and (2) post-July discussions were merely "to reach an agreement on the best wa[y] to implement that agreement." Regarding the duty-to-sell issue, counsel noted that "the Herberts have every financial incentive to sell the [properties] as soon as possible."
On December 1, 2004, defendants filed a motion in the Somerset vicinage to enforce the provisional settlement reached through mediation. Notwithstanding strong opposition to the motion, including a cross-motion to declare defendants in breach, the Chancery Division (without the benefit of an evidentiary hearing) granted the motion to enforce the provisional settlement, and denied the cross-motion. The court concluded that a contract existed as of July 22, 2004, because "the essential elements of what would be sold, transferred and amounts of compensation were agreed upon" even though "[i]t appear[ed] that mechanics were not totally fleshed out."
On April 20, 2005, the court directed Whitman and his wife -- plaintiff Joan Whitman -- to execute certain documents and accept mortgages as security from the Herberts to fulfill the terms and conditions of the July 22 settlement. It also directed that the proceeds from the sale of the North End property be distributed in accordance with the settlement. On May 12, 2005, the parties executed a stipulation of dismissal with prejudice. None of the parties appealed.
Before and after the settlement agreement was declared enforceable by the court, some efforts were made to sell the properties. Several prospective buyers expressed interest, before learning about the immediate environmental issues. The Herberts described contacts they had with potential developers who gave various reasons why deals could not be struck. For example, when Centex Homes and Ryan Homes/Somerset learned of the contamination, both did not want to purchase the properties at any price. Toll Brothers allegedly did not want to acquire the properties until the JIS site was taken off the list of superfund sites. Another real estate developer was reported as entering into a letter of intent with the Herberts towards the end of 2005, but cancelled the transaction in 2007 after discovering that the environmental issues supposedly made the procurement of insurance too expensive.
According to the Herberts, even with the deployment of the biosparge treatment technology, several years were needed to complete the remediation given the scope of the known environmental contamination. Moreover, they understandably did not want to sell the properties during a depressed real estate market.
Plaintiffs disputed the quality of the Herberts' selling efforts. They obtained several expert reports that opined, among other things, that the efforts to market the properties were half-hearted at best. At worst, the Herberts were accused of dissembling, delaying, and destroying the reasonable expectations of plaintiffs that the ...