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R.C. Search Co., Inc. and Richard Cecere v. Howard Silver

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 19, 2012

R.C. SEARCH CO., INC. AND RICHARD CECERE, PLAINTIFFS-APPELLANTS/ CROSS-RESPONDENTS,
v.
HOWARD SILVER, 34 LABEL STREET ASSOCIATES AND EMER FEATHERSTONE, DEFENDANTS-RESPONDENTS/ CROSS-APPELLANTS.

On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-3453-09.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted February 14, 2012

Before Judges Parrillo, Skillman and Hoffman.

This is a convoluted commercial landlord-tenant appeal. Defendant 34 Label Street Associates is the owner of a large property in Montclair, which contains several buildings and is put to multiple uses. This action involves leases for three separate areas of the property, which are referred to by the parties as the Office, the Garage and the Restaurant.

On or about October 1, 1986, 34 Label leased the approximately 6,300 square foot area referred to as the Office to Perdue Radio Company, which is not a party to this action. The lease was for a ten-year term, subject to renewal for an additional ten years. The parties agreed that the rent for that potential renewal term would be "the fair market value" as agreed to by them or, in the absence of such agreement, as determined by appraisers.

On or about February 7, 1987, 34 Label and Perdue entered into an amendment of their original lease, referred to in this litigation as the "First Amendment," under which 34 Label agreed to partially finance certain improvements to the premises, which Perdue was to repay by the payment of additional rent to 34 Label over the initial ten-year term of their lease.

On or about July 27, 1989, Perdue sublet the Office premises to Woodbridge Stereo Center, Inc., which is not a party to this action. The record does not indicate the terms of that sublease, which do not appear to be relevant to the issues presented by this appeal.

On or about December 6, 1991, Woodbridge Stereo entered into a further sublease of the Office premises to plaintiff R.C. Search Co., Inc. The principal of R.C. Search is plaintiff Richard Cecere. 34 Label consented to, but was not a party to, the sublease from Woodbridge Stereo to R.C. Search.

On or about September 22, 1993, 34 Label and R.C. Search entered into a written agreement, referred to by the parties as the "Extension Agreement," pursuant to which 34 Label accepted R.C. Search as the principal tenant of the Office premises, effective upon the expiration of Woodbridge Stereo's and R.C. Search's subleases on December 31, 1996, for the ensuing ten-year renewal period (i.e., from January 1, 1997 through December 31, 2006) provided for in the original lease between 34 Label and Perdue. The Extension Agreement also provided that the original lease "with all its terms and conditions except those modified herein shall be continued through December 31, 2006." The Extension Agreement provided that "[t]he rent as agreed to in the sublet document effective January 1, 1992 ($6,989.00 monthly) subject to the agreed thirty-month CPI increases, including the common area maintenance charge adjustments and real estate property tax adjustments (current monthly rent and common charges amount to $7,149.) will continue through December 31, 2006."

On December 31, 2006, the ten-year renewal period expired, at which time R.C. Search began a month-to-month tenancy of the Office premises pursuant to one of the terms of the original lease continued in effect by the Extension Agreement.

For the entire period of the Extension Agreement and the first nine months of its holdover tenancy through September 2007, R.C. Search paid rent for the Office premises in accordance with the terms of the Extension Agreement. However, R.C. Search stopped paying rent for the Office premises in October 2007.

In addition to its lease of the Office premises to R.C. Search, on April 30, 1996, 34 Label also entered into a lease of the Garage area with Cecere personally. Cecere stopped paying the rent for the Garage premises at the same time R.C. Search stopped paying rent for the Office premises, which was October 2007.

On June 22, 1995, Cecere entered into an agreement with 34 Label pursuant to which Cecere began renting the Restaurant, which was then a vacant brick building, for a ten-year term, with renewal options.

However, before the expiration of that initial ten-year term, on June 24, 2002, Cecere and 34 Label entered into a ninety-nine-year lease agreement, automatically renewable in one-hundred-year increments, for the Restaurant premises. The sum of $387,199.20, representing the total rent for the ninety-nine-year period, was paid by Cecere at the time of execution. Additionally, the parties agreed that Cecere would assume responsibility for payment of 7.83% of the taxes assessed against

34 Label and 100% of any increase in taxes resulting from the improvements to the Restaurant premises. Cecere stopped making those tax payments when R.C. Search and he stopped paying rent on the Office and Garage premises, in October 2007.

34 Label subsequently brought summary dispossessions against plaintiffs in the Special Civil Part for possession of the Office and Garage premises. On appeal from the judgment for possession of the Office premises, we affirmed. 34 Label St. Assocs. v. R.C. Search Co., No. A-4556-08 (App. Div. April 8, 2010).*fn1

During the pendency of the summary dispossession actions, plaintiffs brought this action in the Law Division alleging various theories of liability, all premised upon or related to the claim of rental overcharges for the Office premises. Plaintiffs joined as defendants not only 34 Label, but also Howard Silver, who is the principal of 34 Label, and Emer Featherstone, who is the company's accountant.

Defendants filed a counterclaim that sought to recover past due rent for the Office and Garage and past due tax payments for the Restaurant.

The trial court granted defendants' motion to dismiss certain counts of plaintiffs' complaint, which are not at issue in this appeal, and the parties then engaged in discovery. Following the completion of discovery, defendants filed a motion for a summary judgment dismissing the remaining counts of plaintiffs' complaint and entering judgment in their favor on the counterclaims for unpaid rent for the Office and Garage and unpaid taxes for the Restaurant premises, which the trial court granted. The court entered a final judgment in defendants' favor on March 25, 2011 against R.C. Search for the unpaid rent on the Office lease in the amount of $190,501.32, and against Cecere personally for unpaid rent on the Garage lease in the amount of $22,126.51 and for the unpaid taxes on the Restaurant premises in the amount of $149,468.96. However, the final judgment denied defendants' application for attorneys fees and also rejected defendant's claim against Cecere individually for the unpaid rent on the Office premises.

Plaintiffs appeal from the final judgment entered against them for the unpaid rent on the Office and Garage premises and the unpaid taxes on the Restaurant premises, and defendants appeal from the denial of their application for attorneys fees.

I.

Defendants' motion for summary judgment with respect to the unpaid rent for the Office and Garage premises was based on two arguments: (1) that plaintiffs' claim that defendants had overcharged the rent for the Office premises was barred by the applicable statutes of limitations; and (2) that the undisputed facts showed that R.C. Search was only charged the rent for the Office premises it had agreed to pay by executing the 1993 Extension Agreement. In granting defendants' motion for summary judgment, the trial court failed to issue any opinion. Consequently, we cannot determine which of these arguments was the basis for the summary judgment. However, the summary judgment must be affirmed if either of these arguments was correct. See Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).

In arguing that their rent overcharge claim is not time-barred, plaintiffs contend that there is a contested material issue of fact as to whether they knew or should have known of that overcharge before 2007 and therefore an evidentiary hearing is required on the issue of whether the timeliness of this claim was preserved by the "discovery rule." Henry v. Dept. of Human Servs., 204 N.J. 320, 333 (2010); Lopez v. Swyer, 62 N.J. 267, 273 (1973). Although we have serious doubt whether the record indicates a genuine issue of material fact as to when plaintiffs knew or should have known of the alleged rental overcharge, we have determined to bypass the timeliness issue and to address the merits of this claim.

R.C. Search occupied the Office premises from December 1996 pursuant to the Extension Agreement executed in 1993 until its eviction in 2010 under the judgment in the dispossession action. Therefore, a review of the Extension Agreement is the appropriate starting point for determining whether there are contested material issues of fact regarding plaintiffs' claim that it was overcharged rent during this more than sixteen-year period.

The rent term of that agreement stated that the rent for the ten-year term would be:

The rent as agreed to in the sublet document effective January 1, 1992 ($6,989.00 monthly) subject to the agreed 30-month CPI increases, including the common area maintenance charge adjustments and real estate property tax adjustments (current monthly rent and common charges amount to $7,149.) will continue through December 31, 2006.

The agreement also stated that the original lease for the Office premises between 34 Label and Perdue "with all of its terms and conditions except those modified herein shall be continued through December 31, 2006." (Emphasis added). The rent term of the Extension Agreement was obviously one of the terms of the original lease that was "modified" by that agreement. The December 6, 1991 sublease from Woodbridge Stereo to R.C. Search, referenced in the rent term of the Extension Agreement, provided for the payment by R.C. Search of $6,947.72 rent per month, beginning January 1, 1992, which was the same rent provided for under the Extension Agreement.

Plaintiffs argue that because the $6989 per month rental obligation established by the 1993 Extension Agreement was originally established by the 1987 First Amendment to the 1986 34 Label-Perdue lease, which provided for additional rent for the repayment, at the rate of $2317 per month, of the portion of the costs of the improvements to the Office premises financed by 34 Label, that $2317 portion of the rent it paid under the Extension Agreement constituted an overcharge for which 34 Label is liable.

However, there is no factual foundation for this argument. Although the rent term of the Extension Agreement recites that the agreed upon rent of $6989 per month is the same rent established under the December 6, 1991 sublease from Woodbridge Stereo to R.C. Search, it does not incorporate that sublease and is in no way dependent upon that sublease. Moreover, the Extension Agreement does not even reference the First Amendment to the 34 Label-Perdue lease, which originally established the increased rental of $6989 per month. Indeed, Cecere denies even being aware of that amendment before 2007.

Thus, the rental term of the Extension Agreement stands on its own. The original lease of the Office premises, which the Extension Agreement renewed, specifically provided that the rent for a renewal term, would be "the fair market value" of the premises as "agreed upon" by the parties. Consequently, in entering into the Extension Agreement, 34 Label was free to charge whatever rent R.C. Search would agree to pay. Consequently, it is irrelevant that the monthly rental figure it proposed, and R.C. Search agreed to accept, was established originally as one component of 34 Label's agreement to partially finance the improvements to the premises then leased by Perdue. Moreover, Silver's assertion that the rent for the Office premises established by the Extension Agreement was "squarely comparable on a per square foot basis to the rents paid by other tenants in the building for comparable space" is undisputed.

Therefore, the trial court correctly granted summary judgment dismissing plaintiffs' claims based on defendants' alleged overcharging of rent for the Office premises and entering judgment in defendants' favor for the unpaid rent for the Office and Garage premises.

II.

Plaintiffs argue that the trial court erred in granting defendants summary judgment on their claim for reimbursement of the portion of defendants' real estate taxes attributable to the improvements Cecere made to the Restaurant premises because there is a dispute concerning the amount of those taxes that is currently being litigated in the Tax Court.

Cecere's liability for the payment of such taxes derives from a paragraph of the ninety-nine-year lease of the Restaurant premises, which provides in pertinent part:

Should the taxes be increased over and above the base year of 2002, based upon the improvements made to the leased premises . . . by the Lessee (Richard Cecere) then, and in that event, Lessee shall pay One Hundred (100%) Percent of the increase in taxes resulting from the improvements made to the leased premises above described. Lessee has the burden of responsibility to cause the municipality to differentiate any increase as to land, the existing property, and the subject property

(2 Erie Street, Montclair, New Jersey). The intent being that any increase in taxes caused by the improvements to 2 Erie Street be paid by Lessee, not Lessor. The Lessor will submit a copy of the quarterly tax bill to the Lessee who will remit his portion promptly (5 days after submittal), made payable to 34 Label Street Associates, to the Lessor. 34 Label Street Associates will remit to the municipality the payment due.

It is undisputed that the real estate taxes upon the Restaurant premises were substantially increased after Cecere completed significant improvements, and that 34 Label paid the full amount of those taxes. Cecere has contested this tax increase by an action in the Tax Court.

However, the filing of this action did not relieve Cecere of the obligation to pay the increased amount of the tax assessment to 34 Label. The previously quoted provision of the Restaurant premises lease expressly states that "[t]he Lessor will submit a copy of the quarterly tax bill to the Lessee who will remit his portion promptly (5 days after submitted) . . . to the Lessor." If Cecere prevails in his Tax Court action, he would of course be entitled to the repayment by 34 Label of whatever amount the court determines to exceed his actual tax obligation, but unless and until there is such a determination, Cecere remains liable for the entire amount of the increased taxes imposed upon the Restaurant premises. Therefore, the trial court correctly entered summary judgment against Cecere for that amount.

III.

We turn next to defendants' argument on their cross-appeal that the trial court erred in failing to hold Cecere personally liable for R.C. Search's unpaid rent obligation to 34 Label for the Office premises based upon Cecere's alleged disregard of the corporate form in the conduct of R.C. Search's business and treating that entity's rights and assets as his own.*fn2

In assessing this argument, "[w]e begin with the fundamental propositions that a corporation is a separate entity from its shareholders, . . . and that a primary reason for incorporation is the insulation of shareholders from the liabilities of the corporate enterprise." State of N.J., Dept. of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 500 (1983).

Therefore, "[i]n the absence of fraud or injustice, courts generally will not pierce the corporate veil to impose liability on the corporate principals." Lyon v. Barrett, 89 N.J. 294, 300 (1982). Moreover, "the party seeking an exception to the fundamental principle that a corporation is a separate entity from its principal bears the burden of proving that the court should disregard the corporate entity." Tung v. Briant Park Homes, Inc., 287 N.J. Super. 232, 240 (App. Div. 1996).

Defendants failed to carry this burden. It is undisputed that R.C. Search conducted business as a licensed title insurance company. Although Cecere apparently was the sole principal, there is no evidence in the record before us that he disregarded the corporate form in the conduct of the business or that it was undercapitalized, at least up to the time it encountered financial difficulties as a result of the 2008 recession. Indeed, it is undisputed that R.C. Search paid the rent for the Office premises for the sixteen-year period from 1991 until 2007. In the face of this evidence of Cecere's operation of R.C. Search as an independent corporate entity, his statement at his deposition that "I'm R.C. Search" was insufficient to create a factual issue concerning the requirements for piercing the corporate veil. Therefore, the trial court correctly rejected defendants' attempt to hold Cecere personally liable for R.C. Search's unpaid rent for the Office premises.

IV.

Finally, we consider defendants' argument that the trial court erred in failing to award them any attorneys fees for the legal services they obtained to collect the unpaid rent for the Office and Garage premises. The leases for those premises specifically provided for the award of attorneys fees if plaintiffs breached their obligations thereunder. The lease for the Office premises stated:

Tenant agrees to indemnify and save Landlord harmless from and against all liability, and all loss, cost and expense, including reasonable attorneys' fees and costs, arising out of the operation, maintenance, management and control of the Premises or in connection with . . . any breach of this Lease by Tenant[.]

The lease for the Garage premises stated:

. . . In the event that this Lease is terminated by reason of . . . dispossession of the Tenant by summary proceedings . . . the Landlord shall have as additional remedies the right to:

Recover from Tenant . . . such expenses as the Landlord may reasonably incur for legal expenses, attorney's fees . . . .

The trial court's order of February 8, 2011 specifically recognized defendants' entitlement to an award of such fees.

Nevertheless, the court denied any award of attorneys fees in this final judgment entered on March 25, 2011. The court's only explanation for the denial of any award of attorneys fees was a cryptic note attached to the judgment, which stated:

[T]he Court finds that the Landlord's (defendant-counter-claimant) claim for fees must be DENIED as the lease agreement does not specifically set forth the Tenant's (plaintiff) responsibility therefore nor can the court determine what services applicable to the Landlord/Tenant matter and the other issues which were the subject of this litigation.

The court's first comment in this note is simply wrong. As previously indicated, the leases for the Office and Garage premises specifically provide for the award of attorneys fees to

34 Label in the event plaintiffs breached any of their obligations thereunder, which obviously included the payment of rent. Therefore, defendants are entitled to an award of the attorneys fees they incurred in pursuing their claims for that rent and defending against the claims plaintiffs asserted as a basis for withholding payment of the rent.

Plaintiffs correctly argue that defendants are not entitled to the attorneys fees they incurred in attempting to hold Cecere personally liable for the unpaid rent for the Office premises because they did not prevail on that claim. Plaintiffs also correctly argue that defendants are not entitled to the attorneys fees they incurred in connection with the lease of the Restaurant premises because that lease does not contain any provision for an award of attorneys fees in the event of a breach by plaintiffs. However, the fact that defendants may not be entitled to the full amount of attorneys fees they seek does not justify the order of the court denying any award at all. Moreover, to whatever extent the court may determine that defendants' submission in support of their claim for attorneys fees does not adequately distinguish between those legal services for which they are entitled to reimbursement and those that fall outside the attorneys fee provisions of the Office and Garage leases, it may direct defendants to clarify or supplement their submission.

Accordingly, we reverse the part of the final judgment denying defendants' application for attorneys fees and remand that part of the case to the trial court for further proceedings in conformity with this opinion. The trial court is directed to make detailed findings of fact and conclusions of law relating to its award of attorneys fees to defendants on the remand. The final judgment is affirmed in all other respects.


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