April 13, 2012
MARKET STREET PROFESSIONAL, L.L.C., PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
MICHAEL J. SANZARI, D.M.D., DEFENDANT-RESPONDENT/CROSS-APPELLANT.
IN THE MATTER OF THE LAW OFFICES OF RICHARD MALAGIERE, APPELLANT/CROSS-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-8819-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 26, 2012
Before Judges Grall, Alvarez and Skillman.
This is an appeal from an award of attorney's fees against a litigant and its attorney under the Frivolous Litigation Statute, N.J.S.A. 2A:15-59.1, and Rule 1:4-8.
In 2006, defendant, an orthodontist, leased professional office space in a building in Saddle River from plaintiff's predecessor in title. The lease was for a term of three years running from June 1, 2006 through May 31, 2009. The lease also provided in paragraph 42 that "[T]enant shall have the option of two three (3) year renewal periods as described in the Addendum attached hereto and made a part hereof." The Addendum referred to in paragraph 42 was also the only place in the lease where the rent for the initial three-year term was set forth.
Paragraph 40 of the lease provided that "Landlord shall be responsible for electric (including air conditioning) heat, and hot water, sewer and gas."
In August 2009, plaintiff acquired the building containing defendant's professional office space. Plaintiff has three principals, one of whom, Piera Barcia, had dealings with defendant after the closing and testified at trial.
According to Barcia, the seller of the building provided her with a copy of defendant's lease, but not the addendum.
Barcia also testified that when she met with defendant in October 2009, she informed him that he would be receiving a letter informing him that he would be responsible for the payment of his electric bill. However, defendant informed her that under his lease plaintiff was responsible for the payment of his electric bill.
Nevertheless, on January 20, 2009, Barcia sent defendant a letter, which stated:
Due to the rapid increase in operating costs at 50 Market Street it is necessary that you will be responsible for your own electric bill as of February 10, 2009. Please contact PSE&G to make the proper changes.
Defendant informed Barcia by telephone that he would not assume responsibility for payment of electricity because that was plaintiff's responsibility under the terms of his lease. According to defendant, he sent a letter to Barcia on or around February 28, 2009, which stated in pertinent part:
I would like to exercise my lease renewal option as described in the Addendum sheet of the lease for the three-year period commencing on June 1, 2009 and ending on May 31, 2012.
The rent breakdown as stated is:
June 1, 2009-May 31, 2010 $1425.00 June 1, 2010-May 31, 2011 $1450.00 June 1, 2011-May 31, 2012 $1475.00
Defendant testified that he also handed an envelope containing a copy of this letter and the lease, with the addendum, to Barcia's son, who was doing maintenance work in the office building. Barcia denied receiving the letter either through the mail or from her son.
On May 13, 2009, an associate in the law office of Richard Malagiere, which represents plaintiff, sent defendant a letter dated May 13, 2009, which stated:
This office represents your Landlord, 50 Market Street, LLC, in connection with the above referenced matter.
Pursuant to your request, enclosed please find a copy of the Lease Agreement dated June 1, 2006. Please contact me upon receipt of the lease so that we may discuss same.
Although this letter referred to a lease "dated June 1, 2006," it apparently enclosed a lease for a new three-year term commencing June 1, 2009. Barcia admitted that she received a copy of the entire lease executed by defendant in 2006, including the addendum, from Malagiere sometime before this new lease was sent to him. In addition, there were discussions between defendant and the Malagiere office around the same time in which defendant expressed his belief that he had exercised his option to renew the 2006 lease.
On June 2, 2009, defendant sent a letter to the associate in the Malagiere law office who had sent him the proposed lease for a new three-year term, which stated:
I am writing this letter in response to the lease renewal that was forwarded to me from your office, dated June 1, 2009. I am a little confused as to the "new" lease. As previously discussed with you, there is an Addendum sheet attached to the original lease.
In the beginning of February, I forwarded a copy of the lease to Charlie Barcia. Mrs. Barcia had requested a copy from me when I received her letter from January 20th regarding switching the utilities into my name. I believed this issue to be resolved, as I no longer heard from the Barcias for the past four months regarding the switching [of] the utilities.
I also sent a letter to Mrs. Barcia on February 28th, stating my intent to exercise my lease renewal option for the next three years.
Enclosed are copies of the original lease and the letter sent to Mrs. Barcia as stated above. Please contact me at your earliest convenience to clarify these discrepancies.
Thereafter, defendant continued paying rent for his office at the rate provided in the 2006 lease, and plaintiff cashed those checks.
On August 17, 2009, the attorney representing defendant sent a letter to the associate in the Malagiere office who had been communicating with defendant, which stated in part:
Dr. Sanzari executed a valid lease commencing on June 1, 2006. You incorrectly referenced an "undated amendment" to the lease. In fact, this was an addendum signed simultaneously with the original lease. Moreover, the two (2) renewal periods of three (3) years each are clearly referenced in section 42 of the lease itself. My client has elected to exercise his first option to renew by providing timely notice. The current lease term will end on May 31, 2012. It will be at Dr. Sanzari's sole discretion whether he will elect to exercise his second option to renew at the end of the current term. Any allegation that my client is under a month to month lease is patently false.
Second, any demand that my client take responsibility for payment of any utilities is flatly rejected. Pursuant to Section 40 of the lease, the "Landlord shall be responsible for electric (including air conditioning) heat and hot water, sewer and gas." Be advised that if your client discontinues any of these included services for even a brief period of time, Dr. Sanzari will be substantially injured. We will not hesitate to initiate a lawsuit to recover damages and attorney's fees incurred as a result of your client's bad faith actions.
My client is not interested in renegotiating any lease terms at this time. Any baseless demands for the same should immediately be discontinued.
On October 9, 2009, plaintiff filed this action for a declaratory judgment that defendant had failed to exercise the option to renew the lease for his office and therefore the lease had expired on May 31, 2009.
On August 6, 2010, defendant's attorney sent the Malagiere law firm a letter, which stated:
This letter is sent pursuant to Rule 1:4-8 to demand that Plaintiff dismiss their complaint within 28 days. If Plaintiff does not voluntarily dismiss their Complaint with prejudice, Defendant will make a motion for sanctions and legal fees defendant has incurred in defending this litigation.
Plaintiff's claims are frivolous and without basis. Your client is bound by the terms of the Lease, which commenced on June 1, 2006, and remains in full force and effect in the first optional renewal period. My client fully complied with the terms of the Lease, and hand delivered a renewal notice to Joe N. Barcia prior to the end of the initial term. That being said, my client had no obligation to provide notice of his intent to exercise the renewal term, pursuant to the terms of the lease.
Instead, the renewal term automatically commenced on June 1, 2009, when Dr. Sanzari remained in possession of the demised premises and remitted his rent, which your client accepted, in accordance with the terms of the Lease.
There is no dispute that your client is bound by the terms of the Lease, and further, even if your client's agent, Joe N. Barcia, was careless with my client's timely notice of renewal, your client was on notice of Dr. Sanzari's intent to exercise his first renewal option because Dr. Sanzari remained in the premises on the first day of the renewal term. As such, your complaint is not made in good faith and is entirely without merit.
Your continued assault on the validity of my client's Lease is in bad faith and has caused my client substantial damages in terms of attorney's fees, costs and lost revenues. If the complaint is not withdrawn, with prejudice, within 28 days from your receipt of this letter, I have every intent of filing a motion seeking to recover fees and costs from both your client and your firm pursuant to R. 1:4-8 and N.J.S.A. 2A:15-59.1.
Plaintiff did not withdraw his complaint, and the case was tried on December 9, 2010. The primary witnesses at the trial were Barcia and defendant.
At the close of plaintiff's case, the trial court granted defendant's motion to dismiss the complaint. The court concluded that defendant was not required by the lease to give notice of his intent to exercise the right of renewal. The court also stated that it was "not convinced" that defendant's February 28th letter notifying plaintiff "was not mailed," and in any event, it was undisputed that defendant had discussions with the Malagiere law firm on or about May 13, 2009, in which he informed them he had exercised his right to renew the lease. Consequently, the court concluded that there was no basis for plaintiff's claim that defendant had not effectively renewed the lease for his professional office.
Defendant then moved for an award of his attorney's fees against plaintiff and the Malagiere law firm under the Frivolous Litigation Statute, N.J.S.A. 2A:15-59.1(b), and Rule 1:4-8. The trial court granted the motion, stating in an oral opinion:
As a result of this litigation [defendant] did incur substantial legal fees and he had testified that it was said to him that it would just be easier for him to agree to some increase or to pay the utilities, I can't remember which one, just to avoid the litigation. And he indicated he would not, that he did not have to pursuant to this lease and he would see through the lawsuit as he did. . . .
. . . [T]here's nothing in that lease requiring the tenant to have to pay utilities. And the fact that the new landlord, Market Street Professional, was really, you know, almost harassing Dr. Sanzari to pay the utilities, . . . when he wasn't required to, it's, you know, even more believable that the landlord would then just believe that, "Well, now I can increase the rent," because they feel entitled to have more monies for a lease, which they are not in possession of.
I mean, once they had a copy of the lease, which he indicated he gave to them, all of this should have stopped. I remember he indicated that he did find a copy of the lease and he hadn't heard anything more about the utilities after he gave it to them and it was in that same year that they then sought to increase his rent, which he denied willing to do based on the validity of the lease that he executed.
In its opinion regarding the amount of the counsel fee award, the court stated:
. . . [T]he Court was aware that Dr. Sanzari had felt from the very outset of this litigation that it was not dropped because it had been said to him in some manner, I believe this was his testimony, if he would somehow give into the wishes of the landlord to pay for utilities or higher rent just to avoid the ongoing legal costs which were certainly getting larger and larger. And that from a financial point of view it would make sense for him to just change the terms of his lease, which he insisted he did not have to do and this Court found he certainly did not have to do, rather than litigate to the end and incur all of these costs. Well, in fact, he did incur all these costs and he did litigate to the end because he decided if this is right not [to] settle the matter. And as he put it, be forced to give into the demands of his landlord.
The Frivolous Litigation Statute provides in pertinent
In order to find that a complaint, counterclaim, cross-claim or defense of the non-prevailing party was frivolous, the judge shall find on the basis of the pleadings, discovery, or the evidence presented that either:
(1) The complaint, counterclaim, cross-claim or defense was commenced, used or continued in bad faith, solely for the purpose of harassment, delay or malicious injury; or
(2) The non-prevailing party knew, or should have known, that the complaint, counterclaim, cross-claim or defense was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law.
Rule 1:4-8(a) provides in pertinent part:
. . . By signing, filing or advocating a pleading, written motion, or other paper, an attorney or pro se party certifies that to the best of his or her knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:
(1) the paper is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; . . . .
Rule 1:4-8(d)(2) provides that "[a] sanction imposed for a violation of [Rule 1:4-8(a)] . . . may consist of . . . an order directing payment to the movant of some or all of the reasonable attorneys' fees and other expenses incurred as a result of the violation."
The court awarded defendant $30,216.31 for his attorney's fees. This award was limited to the fees defendant incurred after August 6, 2010, which was the date his counsel sent the previously quoted "frivolous litigation" letter. The court ordered that plaintiff and the Malagiere law firm would be "jointly and severally liable" for those attorney's fees. Plaintiff and the Malagiere law firm have appealed from this award, and defendant has cross-appealed from the limitation of the award to his attorney's fees incurred after August 6, 2010.
Counsel for appellants stipulated at oral argument that there was no difference between N.J.S.A. 2A:15-59.1(b) and Rule 1:4-8(a) as applied to the award of attorney's fees involved in this appeal. Counsel for appellants also indicated that the Malagiere law firm would pay the attorney's fee award if it were affirmed on appeal, thus obviating the conflict that could arise if the law firm represented both itself and plaintiff.
The Supreme Court has indicated that the Frivolous Litigation Statute must be interpreted and applied "restrictively." McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 561 (1993). A similar approach is taken to an application for an award of attorney's fees under Rule 1:4-8(a). See Alpert, Goldberg, Butler, Norton & Weiss v. Quinn, 410 N.J. Super. 510, 543-45 (App. Div. 2009). Consequently, when an application is made for an award of attorney's fees under either the statute or court rule, a trial court must make detailed findings of fact and conclusions of law in accordance with Rule 1:7-4(a). Id. at 544. Those findings and conclusions should clearly indicate the specific subsection of N.J.S.A. 2A:15- 59.1(b) or Rule 1:4-8(a) under which an award of attorney's fees was made, and the factual basis for that award.
Although the trial court made certain findings relevant to an award of attorney's fees, the court did not specifically find that plaintiff's complaint "was commenced, used or continued in bad faith, solely for the purpose of harassment, delay or malicious injury," N.J.S.A. 2A:15-59.1(b)(1), nor that plaintiff "knew or should have known" that its "complaint . . . was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law," N.J.S.A. 2A:15- 59.1(b)(2).
Moreover, the court's award of attorney's fees is based on a finding of fact that is not supported by the record. In its January 25, 2011 opinion the court stated defendant "testified that it was said to him," presumably by one of plaintiff's representatives, that "it would just be easier for him to pay some increase [in rent] or to pay the utilities, . . . just to avoid the litigation[,]" and in its February 28, 2011 opinion the court reiterated that defendant testified that it "had been said to him" that "if he would . . . give into the wishes of the landlord to pay for utilities or higher rent . . . [,] from a financial point of view it would make sense for him to just change the terms of the lease . . . rather than litigate to the end and incur all these costs." If defendant had so testified, and the court found the testimony credible, such a statement by plaintiff's representative could support a finding that this action was "commenced . . . or continued in bad faith, solely for the purpose of harass[ing]" defendant into agreeing to pay the utilities or additional rent even though plaintiff knew defendant was not obligated to make such payments. However, our review of the record shows that defendant did not give such testimony. Therefore, the trial court's award of attorney's fees appears to have been based, at least in part, on an erroneous recollection of the trial record.
Accordingly, we vacate the award of attorney's fees and remand for reconsideration of defendant's application in conformity with this opinion. Jurisdiction is not retained.
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