On appeal from the Superior Court of New Jersey, Chancery Division, Ocean County, Docket No. C-0296-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Cuff, Waugh, and St. John.
On this appeal, we are asked to determine whether the General Equity judge erred in extending a time-of-the-essence closing date because of the alleged misconduct of an individual with an equitable interest in the proceeds of the closing. For the reasons set forth in our opinion, we hold that, although such relief was permissible, there was an insufficient factual record to support that relief at the time the order was entered. Consequently, we remand for further proceedings consistent with this opinion.
Although the relationships among the various parties to this litigation are quite complicated and not adequately explained in the briefs, the facts relevant to this appeal can be summarized as follows.
In November 2009, plaintiff Cesar Dietrich commenced litigation against defendants Christopher and George Kontos*fn1 concerning the ownership of a restaurant known as the Captain's Inn and the land in Lacey Township on which it is located. Dietrich alleged that he owned a fifty-percent interest in the restaurant and land, and that the Kontos brothers each owned a twenty-five percent interest. Formal ownership of the restaurant and the property was split between two corporations also named as defendants in Dietrich's complaint. In their answer, the Kontos brothers and the corporations denied all of Dietrich's allegations concerning the percentages of ownership.
In June 2010, the parties settled their differences and entered into a consent order. Their agreement provided that Dietrich, or "his assignee," was to purchase the "defendants'" interest in the restaurant and property for $1.15 million. If Dietrich did not close on the purchase, the "defendants" were required to pay Dietrich $575,000 for his interest. The fact that Dietrich was to pay $1.15 million for the "defendants'" interest and, in the event he failed to do so, the "defendants" would pay him $575,000 for his interest, suggests that the settlement was based upon a tacit agreement that Dietrich owned a one-third interest in the restaurant and property, with the unspecified "defendants" owning the remaining interest.
Dietrich subsequently assigned his rights under the consent order to third-party defendant Debra Abrahamovic-Kay, who presumably also acquired Dietrich's one-third ownership interest. Abrahamovic-Kay created Finally Ours, LLC (Finally Ours), to acquire both the business and the property.
After Chris and Abrahamovic-Kay were unable to agree upon a specific form for the formal purchase agreements, the parties returned to court in January 2011. They eventually reached an agreement and signed two purchase agreements, one for the property and one for the restaurant. The agreements listed Chris and the appropriate corporate entity as the "seller" and Finally Ours as the "purchaser." An addendum addressing additional details was signed in March.
On April 1, Richard Schibell, a member of the Bar, wrote to the judge expressing concern, among other things, about whether Abrahamovic-Kay's attorney had obtained opinion letters from the restaurant's insurers concerning the sufficiency of its insurance to cover any recovery resulting from two lawsuits pending against the restaurant. The letter does not state on whose behalf Schibell wrote the letter. Our understanding, based upon his subsequent statements at the May 10, 2011 hearing, is that Schibell was representing George at that time. We note that he sent a copy of his letter to Chris's attorney, as well as the attorney for Abrahamovic-Kay.
Abrahamovic-Kay subsequently exercised her right to send a time-of-the-essence letter setting the closing date as May 5. Chris and Abrahamovic-Kay appeared at the lender's office for the closing on that date, along with their attorneys and the attorney for the lender. George was also in attendance, but Schibell was not. Although all of the required documents were signed on behalf of the sellers, the closing was not completed because the lender became concerned about the pending lawsuits and refused to fund the loan. Despite the failure to close, it appears that Abrahamovic-Kay began to run the restaurant on or about May 5.
On May 6, Chris's attorney wrote to counsel for Abrahamovic-Kay, declaring that she was in default of the time-of-the-essence closing and the purchase agreements. On May 9, Chris and one of his corporations, now all represented by Schibell, filed a third-party complaint against Abrahamovic-Kay and Finally Ours. George was not a party to the third-party complaint.
The third-party complaint alleged breach of the purchase agreements. It sought a declaration that the time-of-the- essence provision and the agreements had been breached, as well as injunctive relief addressed to control of the business and damages from breach of contract. Third-party plaintiffs also sought an order to show cause with temporary restraints (TRO), prohibiting Abrahamovic-Kay from disbursing any proceeds from operation of the restaurant and from continuing to exercise control over it.
Abrahamovic-Kay filed opposition to the TRO on May 10. She argued that George, who had appeared at the closing with documents about the lawsuits, engaged in disruptive conduct that caused the lender to refuse to fund the loan. Her attorney certified that, prior to the closing date, he had ascertained that the lawsuits did not endanger the lender's collateral and that there was no duty to disclose them to the lender.
The judge heard argument on the application for the TRO on the afternoon of May 10. Schibell took the position that Abrahamovic-Kay breached the time-of-the-essence provision and the agreements and argued that the failure to close was the result of her failure to disclose the lawsuits to the lender. He further argued that she had a duty to make the disclosure, even if she was satisfied that the pending lawsuits were not a problem for her. He also pointed to the fact that there was no allegation that Chris, who was "the record owner" of the restaurant and property, had been disruptive or had caused the lender to question the loan.
Abrahamovic-Kay's attorney argued that the lender had been willing to close until George appeared at the closing, started talking about the lawsuits, became disruptive, and caused the lender to refuse to fund the loan. He asserted that Abrahamovic-Kay had no duty to disclose the lawsuits to the lender. Finally, he informed the judge that Abrahamovic-Kay had obtained other funding and was prepared to close that day.
The judge recessed the hearing so that representatives of the lender, which was not a party to the litigation, could be contacted and appear by telephone. When the hearing resumed a short time later, two attorneys for the lender, one who had been present at the closing and one who had not, participated by speakerphone. The judge told them that he wanted to hear their understanding of what had happened at the closing. He did not put them under oath or permit questioning of them by counsel for the parties.*fn2
The lender's attorney who attended the closing gave the following recitation of the events of May 5:
So the closing probably started in terms of signing documents with the borrower probably around a little after noon. I would say about two and a half hours maybe into it when we had kind of taken a break --there's a lot of documents to sign -- one of the representatives from the bank came upstairs -- and throughout this time there were a lot of parties there that were downstairs having, you know, having conversation. I believe the seller was down there, the attorney was there, because ...