July 11, 2012
SETA ARTUNIAN NASSIF AND ARMAVENI ARTUNIAN D/B/A ARTUNIAN ASSOCIATES, PLAINTIFFS-APPELLANTS/ CROSS-RESPONDENTS,
JELMAC, L.L.C., DEFENDANT-RESPONDENT/CROSS-APPELLANT, AND JELMAC AUTO GROUP, RON JELLING AND MARK CURCIO, DEFENDANTS-RESPONDENTS.
LOU REALTY CO., PLAINTIFF,
JELMAC, L.L.C., JELMAC AUTO GROUP, RON JELLING, AND MARK CURCIO, DEFENDANTS.
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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 15, 2012
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 that Jelmac was not liable for future rent. It was also contemplated that Jelmac would be forced to file for bankruptcy.
7. Jelmac participated in the discovery process for both matters and participated in the mediation process in the Lou Realty matter. In fact, until today, Jelmac's accountants are still gathering financial information in response to Artunian's demand for documentation.
The court denied Jelmac's motion in an order dated September 16, 2010, and in a written addendum, found that "[t]he decision not to answer was a conscious, strategic decision based on the Defendant's desire to limit costs," and that such a "thoughtful decision" could not later serve as the basis for a finding of excusable neglect pursuant to Rule 4:50-1(a).
Jelmac had argued, alternatively, that the default judgment should be vacated as the result of the then-plaintiff's lack of standing. In support of that argument, Jelmac. claimed that the plaintiff, Artunian Associates, did not own the property in question, but rather, it was owned by Nassif and Armaveni Artunian. The court rejected that argument, determining that vacating the judgment pursuant to Rule 4:50-1(f) would be "inappropriate" in the circumstances presented, and that "'[t]he relation of landlord and tenant does not depend upon the landlord's title, but is created by contract, either expressed or implied, by the terms of which the tenant enters into possession of the land under the landlord, and such relation may be created although the landlord is not the owner of the property.'" Ocean City Co. v. Johnstone, 110 N.J.L. 596, 598 (E. & A. 1933). Instead, the court granted the motion of Artunian Associates to amend its complaint to identify as plaintiffs Artunian Associates, Seta Artunian Nassif and Armaveni Artunian.
Following consolidation of the action by the Artunians with a similar action by Lou Realty Company, a bench trial was conducted on October 4 and 6, 2010. In a written opinion in the matter, the court reviewed the evidence presented at trial and the parties' legal positions, and concluded that clear and convincing evidence of a fraudulent transfer of assets by Jelmac to Jelling and Curcio had not been produced. The court found:
In the case before the court, Jelmac's 2009 U.S. tax return reveals a cash distribution [which Jelmac's accountant claimed was incorrectly listed as such] to both Jelling and Curcio. Additionally, the plaintiffs attempted to show transfers of money from Jelmac to its other dealerships. However, without a forensic accountant to trail exactly where these transfers landed, the plaintiffs have failed to show by clear and convincing evidence that the cash distribution to Jelling and Curcio was fraudulent. The court finds that the defendants operated their business in a manner in which all of the dealership[s] would transfer money to one dealership, that being Chrysler of Paramus, and that dealership would distribute money to the other dealerships when necessary. Whether proper business practices or not, the defendants had one controller, Mr. Green, who managed the money for all of the dealerships out [of] Chrysler of Paramus. While the transfers were made to insiders, Jelling and Curcio, and the business was operating at a loss, these factors alone were insufficient to convince the court by clear and convincing evidence that a fraudulent transfer took place. It would also have been helpful to the court to know if any of these types of distributions were made to Jelling and Curcio in previous years or if this was the first of its kind purportedly because of Chrysler's termination of the franchise. [(Footnote paraphrased and inserted into text.)]
The court credited the testimony of the defendants' accountant, John Noonan, who was characterized as having "more than working knowledge of the interrelationship of these companies and the personal liability guarantee[s] that Jelling and Curio made on behalf of these companies and their various financial responsibilities including mortgages and credit lines." The court found that Noonan's testimony "was sufficient to raise issues in the plaintiffs' case, which prevented the plaintiffs from proving their case by clear and convincing evidence."
Although the court denied judgment to plaintiffs on their fraudulent transfer claim, it construed the termination clause of the lease between Jelmac and Artunian Associates as authorizing termination upon six months' notice. Accordingly, and despite acknowledgement of the prior award of rent, the court awarded to plaintiffs six months' rent measured forward from the day Jelmac gave notice, plus interest, taxes and insurance, for a total of $145,731. The court awarded no damages to Lou Realty, determining that it had not proven the amount of damages sustained.
Plaintiffs appealed from the judgment dismissing their fraudulent conveyance claim and from the award of rent, insofar as it could be deemed to supersede the prior amount awarded by default. Jelmac appealed from the default judgment, the court's order denying its motion to vacate that judgment and from its award, following trial, of additional rent.
On appeal, plaintiffs claim that the court applied the wrong standard of proof to their claim of fraudulent transfer, and that a preponderance of the evidence standard should have been utilized. We disagree, noting that in Jecker v. Hidden Valley, Inc. we held that a plaintiff asserting a claim pursuant to the Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34, "bears the burden of proving the transfer was fraudulent by clear and convincing evidence." 422 N.J. Super. 155, 164 (App. Div. 2011), certif. denied, 210 N.J. 28 (2012). In doing so, we adopted the standard applicable to common law fraud cases. See Barsotti v. Merced, 346 N.J. Super. 504, 520 (App. Div. 2002) (cited by the court in Jecker, supra, 422 N.J. Super. at 164); see also In re Polk, 80 N.J. 550, 568-69 (1982) (holding that "[t]he clear and convincing proof standard is generally used to assist the factfinding tribunal in adjudicating cases that involve circumstances or issues that are so unusual or difficult, that proof by a lower standard will not serve to generate confidence in the ultimate factual determination."); Gilchinsky v. Nat'l Westminster Bank N.J., 159 N.J. 463, 477, 483 (1999) (utilizing a clear and convincing standard and observing that the fraudulent intent required as an element of a fraudulent transfer is rarely susceptible of direct proof, and must be established "through inferential reasoning, deduced from the circumstances surrounding the allegedly fraudulent act.").
Plaintiffs claim additionally that their proofs were sufficient to establish fraudulent transfers by Jelmac to Jelling and Curcio in violation of the UFTA made in order to avoid payment of the rent that was due. In that regard, they rely on income tax entries disclosing cash distributions of $225,000 each to Jelling and Curcio that defendants sought to explain as an improperly reported paper exchange of indebtedness, not as cash distributions used to reduce the sums owed to owners and officers, as plaintiffs contend.*fn6
Plaintiffs also rely on evidence of transfers by Jelmac, L.L.C. of $17,500 per month to Chrysler of Paramus for use in the payment of the salary or management fee of Jelling, who assertedly performed no services for Jelmac and received no salary from it. They rely, as well, on inadequately documented transfers from Jelmac's three bank accounts, totaling $554,000, made in the period between May 13, 2009 and July 23, 2009, after defendants became aware that the dealership would be terminated, to accounts of other Jelmac Auto Group members that defendants claimed were maintained for the benefit of Chrysler Financial Corporation as payment for inventory. However, plaintiffs noted that not all dealerships sold Chrysler products, and they claimed that, although "the figures did not exactly correlate," the May through July 2009 transfers were used to pay sums owed to Curcio and Jelling.*fn7 Plaintiffs argued: "It appears that Curcio and Jelling received the $225,000 cash distributions indirectly from the other dealerships since there was no substantive explanation or documentary support that there were debts owing by Jelmac to the related companies to otherwise explain the transfers."
While we agree that Jelmac's accounting was casual and inadequately documented at trial, we are satisfied that the trial court reasonably concluded that plaintiffs failed to meet their burden to prove the existence of fraudulent transfers by clear and convincing evidence. The purpose of the UFTA is "to prevent a debtor from placing his or her property beyond a creditor's reach." Gilchinsky, supra, 159 N.J. at 475 (citing In re Wintz Cos., 230 B.R. 848, 859 (8th Cir. 1999). Proof of a fraudulent conveyance entitles the creditor to "undo the wrongful transaction so as to bring the property within the ambit of collection." Ibid. (citing Hearn 45 St. Corp. v. Jano, 27 N.E.2d 814, 816 (N.Y. 1940)).
A transfer is fraudulent if one puts some asset beyond the reach of creditors that would have been otherwise available to them and does so with an intent to defraud, delay or defeat collection. Id. at 475-76 (citations omitted). Because intent is generally not susceptible to direct proof, courts look to factors that have been labeled the "badges of fraud." N.J.S.A. 25:2-26 enumerates those badges as follows:
a. The transfer or obligation was to an insider;
b. The debtor retained possession or control of the property transferred after the transfer;
c. The transfer or obligation was disclosed or concealed;
d. Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
e. The transfer was of substantially all the debtor's assets;
f. The debtor absconded;
g. The debtor removed or concealed assets;
h. The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
i. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
j. The transfer occurred shortly before or shortly after a substantial debt was incurred; and
k. The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
"In determining actual intent to defraud, courts should balance the factors enumerated in N.J.S.A. 25:2-26, as well as any other factors relevant to the transaction." Gilchinsky, supra, 159 N.J. at 477. Although the presence of one factor may raise suspicions as to a debtor's intent "the confluence of several in one transaction generally provides conclusive evidence of an actual intent to defraud." Ibid. (citing Max Sugarman Funeral Home, Inc. v. A.D.B. Investors, 926 F.2d. 1248, 1254-55 (1st Cir. 1991). No specific number of factors has been established as necessary to establish the existence of a fraudulent transfer. Id. at 483.
In the present case, the trial court found that Curcio and Jelling
were insiders and that "the business" was operating at a
loss,*fn8 but it held that those factors were
insufficient to convince it that a fraudulent transfer took place. In
reaching that conclusion the court found the testimony provided by
accountant Noonan to have been both credible and crucial in casting
sufficient doubt on plaintiffs' proofs to prevent plaintiffs from
establishing their claim by clear and convincing evidence.*fn9
As additional support for its conclusion, the court noted the
absence of forensic accounting evidence that traced
with some precision the financial dealings undertaken by Jelmac,
L.L., L.L.C. and the absence of historical evidence that might
have established that Jelmac's inter-company dealings in 2009 were
different from those undertaken by it in the past, thereby raising the
inference that an intent to defraud existed.
We have no reason to disturb the factual findings of the trial court, which rested in part upon its evaluation of the credibility of the testimony presented, particularly that of Noonan. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974). In this regard, we emphasize that it was not Jelmac's burden to establish with precision all of its financial dealings with other members of the Jelmac Auto Group and with Curcio and Jelling. It was plaintiffs' burden to establish clearly and convincingly that Jelmac was transferring funds out of plaintiffs' reach for the purpose of defrauding it.
We find it significant in this regard that plaintiffs' proofs of transfers with the alleged intent to defraud, to the extent that dates can be ascribed to them,*fn10 concerned the period from May through July 2009 when Jelmac owed, at most, one month's rent of approximately $6,700. It was not until July 14, 2009, that Jelmac was placed on notice that plaintiffs would decline to accept voluntarily its position that, under the circumstances presented, its lease legally could be terminated. Even then, it would have been reasonable for Jelmac to assume that plaintiffs would actively seek to mitigate their damages by re-letting the premises to another dealership or utilizing the property for a different purpose. Nothing in the record supports a conclusion that Jelmac anticipated being held liable for the full amount of rent due under the existing term of the lease at the time that the vast majority of the transfers upon which plaintiffs rely were made. We note further that the suit providing notice that plaintiffs would seek damages for the full lease term was not filed until September 9, 2009, a date after the transfers in evidence had taken place. Thus, the record offers little support to plaintiffs' position that defendants intended to defraud plaintiffs by their financial dealings with other members of the Jelmac Auto Group and with Jelling and Curcio.
Plaintiffs also claim entitlement to funds transferred by Jelmac to insiders Jelling and Curcio pursuant to N.J.S.A. 25:2-27(b), which provides:
A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.
However, plaintiffs' claim arose, at the earliest, upon Jelmac's notice to plaintiffs on July 1, 2009 that it intended to quit the premises. Even if we assume that Jelmac transferred $225,000 each to Jelling and Curcio during 2009, and at the time of the transfer, the two insiders knew Jelmac to be insolvent, there is no evidence as to when the transfer took place. In other words, no evidence demonstrates whether the alleged cash transfer was made before or after plaintiffs' claim arose. As a consequence, the conditions for recovery under N.J.S.A. 25:2-27(b) have not been met.
In its cross-appeal, Jelmac challenges the court's order denying its motion to vacate the default judgment entered against it. Although it does not contest the court's determination, pursuant to Rule 4:50-1(a), that it failed to demonstrate excusable neglect, it argues that the judgment should have been vacated pursuant to the catch-all provision of Rule 4:50-1(f).
While the standard applicable to motions to vacate default judgments under other portions of Rule 4:50-1 is generous, the standard under subsection (f) is more stringent.
Rule 4:50-1 is intended to reconcile the judicial efficiency resulting from treating judgments as final with the equitable principle of permitting courts to avoid injustice in a particular case. Mancini v. E.D.S., 132 N.J. 330, 334 (1993). A trial court is obliged to treat applications to vacate default judgments "with great liberality, and should tolerate 'every reasonable ground for indulgence . . . to the end that a just result is reached.'" Ibid. (citation omitted). However, when the application arises solely under subsection (f), the policy favoring finality of judgments becomes more important. Housing Auth. of Town of Morristown v. Little, 135 N.J. 274, 286 (1994). Therefore, relief "is available only when 'truly exceptional circumstances are present.'" Ibid. (citation omitted). While each case must be determined on its own particular facts, Ibid., subsection (f) is to be used "sparingly" and only "in situations in which, were it not applied, a grave injustice would occur." id. at 289 (emphasis added). [First Morris Bank & Trust v. Roland Offset Serv., Inc., 357 N.J. Super. 68, 71 (App. Div.), certif. denied, 176 N.J. 429 (2003).]
In the present case, Jelmac challenges the default judgment on the ground that Artunian Associates, the judgment plaintiff, lacked standing to bring suit, arguing that Artunian Associates was not the true owner of the premises. We reject that argument. Evidence produced in the matter discloses, as previously stated, that prior to January 28, 1987, the property had been owned in equal thirds by Garabed Artunian, Armaveni Artunian and Nassif. On January 28, 1987, as part of a property settlement agreement, Garabed Artunian relinquished his ownership interest in the property, and thereafter, a two-thirds ownership interest was held by Armaveni Artunian and a one-third interest in the property was held by Nassif. At trial, Nassif testified that she and her mother operated under an oral partnership agreement, and did business pursuant to that partnership under the name of Artunian Associates. The lease of the property and the amendment to that lease listed Artunian Associates as the lessor, and all relevant documents were executed by Nassif and Armaveni Artunian as partners in that entity. Although Garabed Artunian also may have continued to conduct business under the trade name Artunian Associates, a name that he registered, no evidence suggests that he challenged his daughter's and former wife's informal use of the same name as a trade name to identify their partnership.
"It is axiomatic that an individual using a trade name does so for h[er] personal convenience and motive, but that [s]he remains liable for all debts incurred. In other words, one using a trade name does not create a separate entity." Zucker v. Silverstein, 134 N.J. Super. 39, 48 (App. Div. 1975). The use by Armaveni Artunian and Nassif of the designation Artunian Associates in their pleadings thus signified their partnership, and nothing more. See Blanar v. Goldstein, 124 N.J.L. 523, 525 (E. & A. 1940) (holding that a business, conducted by an individual through a trade name, merely constituted an alternative designation for the same thing). Because the two partners owned the property for which they claimed rents from Jelmac, the "real adverseness with respect to the subject matter" and a financial interest in the litigation sufficient to confer standing was demonstrated, regardless of whether the users of the trade name were identified in the pleadings. In re New Jersey Bd. of Public Utilities, 200 N.J. Super. 544, 556 (App. Div. 1985) (requiring "real adverseness); Pressler & Verniero, Current N.J. Court Rules, comment 2.1 on R. 4:26-1 (2012) (noting that evidence of a financial interest in the litigation will support standing). That Nassif and Artunian did not register the trade name does not invalidate their judgment. Levy v. Rothschild, 104 N.J.L. 460, 462 (Sup. Ct. 1928).
Jelmac argues additionally that the judgment was void because it was against public policy and that the agreement in the name of Artunian Associates to rent the premises was void, as it was contrary to the Statute of Frauds. We find neither argument to have sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(A) and (E). However, while not opining on the merits of such, we do not foreclose a motion for an offset against the judgment pursuant to Rule 4:50-1(b) should the Artunians' property be rented prior to the expiration of the lease.
We agree with plaintiffs and with Jelmac that the judgment for rent in the amount of $145,731, entered following the trial of the matter, was granted in error. As a matter of contractual interpretation, we disagree with the trial court's determination that the termination clause of Jelmac's lease permitted it to end its tenancy upon six months notice. The termination clause, properly interpreted in accordance with its unambiguous language, Township of White v. Castle Ridge Development Corp., 419 N.J. Super. 68, 74-75 (App. Div. 2011), permitted non-renewal by Jelmac of its lease of the Artunian property, upon six months' notice, if Jelmac did not renew its lease with Lou Realty pursuant to the "initial Chrysler lease renewal option." The clause did not confer upon Jelmac the right to terminate its lease of the Artunian property under any other conditions.
Of greater significance, however, is the fact that the award of rent following trial duplicated, in part, the default judgment previously entered against Jelmac. "'A judgment of a court having jurisdiction of the parties and of the subject matter operates as res judicata, in the absence of fraud or collusion, even if obtained upon a default.'" Morris v. Jones, 329 U.S. 545, 455-56, 67 S. Ct. 451, 455, 91 L. Ed. 488, 495 (1947) (quoting Riehle v. Margolies, 279 U.S. 218, 225, 49 S. Ct. 310, 313, 73 L. Ed. 669, 673 (1929)). Because plaintiffs' claim against Jelmac for unpaid rent had been finally determined prior to trial, that claim was not properly before the trial court. Accordingly, the award must be vacated.
Affirmed in part; reversed in part.