On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket Nos. L-7815-09 and L-7904-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Payne, Simonelli and Accurso.
Plaintiffs, Armaveni Artunian and her daughter Seta Artunian Nassif, d/b/a Artunian Associates, appeal from portions of an order of judgment, entered on March 24, 2011, following a two-day bench trial, (1) dismissing with prejudice allegations in their complaint against defendants Jelmac, L.L.C. (Jelmac), Jelmac Auto Group, Ron Jelling, and Mark Curcio of fraudulent and preferential transfers of funds by Jelmac to the remaining defendants for the purpose of avoiding payment of rent and (2) awarding rent in an amount less than that set forth in a prior default judgment that remained in effect. Defendant Jelmac cross-appeals from (1) a default judgment against it, entered on March 22, 2010 in the amount of $537,703.35, for non-payment of rent; (2) an order of September 16, 2010 denying its motion to vacate that default judgment; and (3) the court's March 24, 2011 order of judgment, insofar as it awarded additional rent to plaintiffs in the amount of $145,731, payable by Jelmac.
The record on appeal reveals that, on May 16, 1983, a partnership was formed by Garabed Artunian, his wife Armaveni Artunian, and his daughter, Seta G. Artunian.*fn1 The partners owned, in equal one-third shares, commercial property located at 22 Kinderkamack Road, Westwood, New Jersey. By deed dated January 28, 1987, Garabed Artunian's one-third interest in the property was conveyed to Armaveni Artunian in accordance with a property settlement agreement incident to divorce, thereby increasing her share to two thirds. Nassif retained the other one-third interest. At trial, Nassif testified that she and her mother had formed an oral partnership. Their jointly-owned property was managed under an unregistered trade name: Artunian Associates. As of the time of trial, Garabed and Armaceni Artunian were owners of the registered trade name Artunian Associates. The identity of Armaceni*fn2 Artunian is not specified in the record.
On May 11, 1994, Artunian Associates*fn3 entered into a five-year lease of the Kinderkamack Road property to Lakeview Motors, Inc., and later, the lease was extended through March 31, 2004. However, after Lakeview Motors declared bankruptcy in 2002, the lease was assumed by Jelmac. On March 24, 2004, Ronald Jelling, as operating manager of Jelmac, and both Seta Nassif and Armaveni Artunian, as partners in Artunian Associates, executed an amendment to the lease agreement extending its renewal term to December 31, 2020, with one option to renew for an additional five years. Additionally, the amendment contained a provision with respect to termination that stated:
3. RIGHT TO TERMINATE LEASE. Lou Realty*fn4 and Tenant (as successor in interest from Lakeview Motors, Inc. by assignment) are parties to that certain Lease Agreement dated December 8, 2000 ("Chrysler Lease"),*fn5 pursuant to which (i) the base term expires on December 31, 2015, and (ii) Tenant has the option to renew the Chrysler Lease for three (3) consecutive five (5) periods [sic] ("Chrysler Lease Renewal Options"). Notwithstanding anything contained in the Lease or in this Amendment to the contrary, Tenant shall have the right to terminate the Lease upon written notice to Landlord no later that one hundred eighty (180) days prior to December 31, 2015 (i.e., July 5, 2015), provided that Tenant does not exercise the initial Chrysler Lease Renewal Option under the Chrysler Lease.
The initial lease placed no obligation on the Landlord to mitigate the Tenant's damages upon default in payment of rent. The amendment executed by Jelling on behalf of Jelmac preserved that term.
Jelmac, the lessee of the premises, was a company equally owned by defendants Jelling and Curcio. Additionally, as previously noted, Jelmac leased the adjoining property from Lou Realty, Inc., operating a car dealership known as Westwood Jeep-Chrysler on the combined premises. Additionally, Jelling and Curcio had equal ownership interests in other dealerships known as Dodge-Hyundai of Paramus, Chrysler of Paramus, Nissan of Bergenfield, and Dodge of Englewood. All of the dealerships, including Westwood Jeep-Chrysler, were operated under the name Jelmac Auto Group. The trial record is silent as to how the various entities were related to each other and as to the nature of their corporate or other business structures. However, testimony at trial demonstrated that the financial dealings of the various businesses were substantially intertwined in a fashion that was not clearly presented.
By letter dated May 13, 2009, addressed to Jelling, Jelmac was informed of Chrysler's intent to file a motion in the bankruptcy court rejecting the sales and service agreements between Chrysler and Jelmac, effective June 9, 2009. In accordance with the announcement, on June 9, 2009, the bankruptcy court granted Chrysler's motion and entered an order rejecting, among others, Jelmac's dealer agreement and barring it from acting as a Chrysler dealer. The step was not unforeseen by Jelling.
Evidence introduced at trial demonstrated that, in the period prior to Chrysler's bankruptcy, Jelmac, d/b/a Westwood Jeep-Chrysler was not doing well financially. Its Dealer Financial Statement for the period from January 1, 2009 to May 31, 2009 disclosed total liabilities of $4,855,873, with total assets of $4,511,770. Its working capital was -$124,103, and its retained earnings were -$248,845. Its pretax earnings were also in the negative: -$111,725. At trial, Curcio conceded that the company's negative working capital "represented the fact that the current liabilities of Jelmac exceed[ed] its current assets by that amount[.]" Evidence demonstrated that Jelmac's financial situation grew worse following the termination of the Westwood Jeep-Chrysler franchise.
On July 1, 2009, Jelmac notified Artunian Associates, through counsel, of the loss of its dealership, and it requested consent to terminate its lease, invoking "the doctrines of implied condition and frustration of purpose which are modifications of the long-established rule of the law of contracts that performance will not be excused merely because of the occurrence of an unexpected contingency or circumstance not provided for in the agreement." In a letter dated July 14, 2009, counsel for Artunian Associates claimed a breach of the lease by Jelmac and indicated that damages would be sought.
An action for payment of rent was filed on September 9, 2009, and on March 22, 2010, the court entered default judgments in the amount of $537,703.35 against Jelmac, Jelling and Curcio. Damages were calculated for the period July 1, 2009 to December 31, 2015 as follows:
Base rent $440,390.40 Real Estate Taxes 97,037.65 Insurance 5,443.75 Attorney's Fees 2,831.55 (Return of Security Deposit) (-8,000,00)
On April 30, 2010, the court set aside the default judgments entered against Jelling and Curcio and, thereafter, they filed answers. At the time, no motion was filed on behalf of Jelmac. As Curcio explained in an August 30, 2010 certification in support of the motion later filed on behalf of Jelmac seeking to vacate the default judgment entered against it:
6. . . . Despite there being a dialogue between counsel to settle this matter from the onset, and, without notifying Jelmac's attorney as a courtesy, Artunian entered default judgment against Jelmac. . . . Jelmac had no financial means to fund this litigation. In addition, since I and my partner, Ron Jelling, were also being sued and had to retain separate counsel, it was decided that the discovery process should proceed and that hopefully, the plaintiffs would realize ...