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Bg Monmouth, L.L.C v. Sue's Frozen Yogurt


August 3, 2012


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-1705-05.

Per curiam.


Submitted November 30, 2011

Before Judges Axelrad and Sapp-Peterson.

Appellant, Anthony R. Guglielmi (appellant), appeals from the trial court order, following a bench trial, awarding $158,405.89 in damages to respondent, BG Monmouth, LLC (respondent), the successor limited liability corporation to whom landlords RB-3 Associates, David Feuerstein, and Stephen B. Goodman (collectively, RB-3) sold its shopping center. The shopping center was the location where appellant was a guarantor under a lease agreement between respondent and its former tenant Sue's Frozen Yogurt, Inc. (Sue's), (d/b/a TCBY Treats (TCBY)), Nathan's Famous (Nathan's), and Manhattan Bagel (Manhattan). We affirm.


RB-3 initially filed suit against Sue's, appellant, and Sameh Mahmoud, who purchased Sue's from appellant in 2001. The complaint alleged that although RB-3 sold its business to respondent on May 20, 2004, it retained the right to collect rents through June 30, 2004. RB-3 demanded damages in the amount of $22,583.21, interest, attorney's fees, and the costs of suit. Only appellant filed an answer, and RB-3 secured a default against Mahmoud and Sue's on January 27, 2007. Appellant's December 2, 2004 answer included a counterclaim alleging RB-3 violated the exclusivity provision of the lease and a cross-claim alleging Mahmoud was responsible for unpaid rent to appellant.

On April 20, 2005, respondent filed a separate action against the same defendants, seeking money damages arising out of the same tenancy and lease. Appellant filed an answer to this claim on June 15, 2005, asserting a counterclaim and cross-claim similar to the ones in his answer to RB-3's complaint. On June 23, 2005, respondent moved for the entry of default, which the court granted, and the court conducted a proof hearing on September 8, 2005. Respondent's attorney testified at the hearing, and on September 15, 2005, the court entered a default judgment against Sue's in the amount of $204,498.63. The order, however, explicitly excepted appellant from the default judgment.

The trial court consolidated the two actions on August 25, 2005. The parties litigated the matter in a bench trial, and RB-3 did not have any representatives at the trial. Both RB-3 and respondent voluntarily dismissed their claims against Mahmoud because they were unable to serve him, and Sue's had been dissolved by the time of trial. Testimony occurred over four non-consecutive days between May 1, 2008 and December 12, 2008.

According to the evidence presented at the bench trial, appellant was the president of Sue's. In September 1995, Sue's purchased Frozen Yogurt Ventures, Inc. (FYV), which was a party to a lease agreement with RB-3. Under the lease agreement, FYV had been operating a franchise of TCBY, a frozen yogurt retail food establishment, in a shopping center in West Long Branch. Sue's assumed the terms of the lease agreement upon purchasing FYV and, in the fall of 1996, opened another retail food establishment, Nathan's, within the existing space it was renting.

Sue's struggled financially over the next two years, largely because the shopping center contained additional food establishments competing with Sue's. Appellant contemplated not renewing the lease when it expired in August 1998. Around March 1998, however, two of the competing food establishments closed, and RB-3 proposed new lease terms to appellant that included rent reductions and an additional retail franchise, Manhattan. Recognizing his company would have significantly less competition in the shopping center and his restaurants "would now be able to cover breakfast, lunch, and dinner," appellant believed Sue's would be able to change its fortunes and prosper in the shopping center. On April 21, 1998, Sue's signed a new five-year lease, which required the company to pay $20 per square foot for 2000 square feet, compared to the prior lease, which cost $25 per square foot for 1050 square feet. Under the lease, Sue's was also responsible for paying the $70,000 required to reconfigure the rented space to accommodate three establishments instead of two.

The lease also contained an exclusivity clause which prohibited the lessor from leasing space to a competitor, provided "the Lessee has not been in default[.]" Unlike other portions of the lease, which required the lessor to provide notice to appellant and Sue's before taking action when they were held in default, the exclusivity section of the lease did not explicitly require RB-3 to provide Sue's or appellant notice or an opportunity to cure the default, only mentioning that Sue's could not enforce its exclusivity rights when in default.*fn2

Concurrently with the new lease agreement, appellant executed a personal guaranty. Under the terms of the guaranty, appellant agreed to guarantee all of Sue's obligations under the lease, including "the payment of rent and all other charges reserved in the Lease and the performance by the Lessee of all the terms and provisions therein contained . . . ."

Despite the new lease agreement with modified terms, Sue's continued to suffer, and appellant was often late with rent payments, though he testified he "never allowed a late payment to go uncured." Between April 1998 and April 2001, he was "late with rental payments all the time." He also admitted to receiving written notice from RB-3 concerning Sue's defaults. In 1999, appellant decided he would put Sue's up for sale at an initial price of $350,000. While the business was up for sale, appellant again was "consistently late with rent payments," and RB-3 served several notices of default on Sue's and appellant.

In April 2001, appellant finally found a buyer, Mahmoud, who purchased the business for $150,000. RB-3 approved a lease assignment to Mahmoud on April 20, 2001, but it also required that appellant remain a personal guarantor on the lease. Appellant agreed to this condition. Mahmoud continued the trend appellant established of making late rental payments to RB-3, and RB-3 sent a notice of default to Mahmoud (and sent a copy to appellant) on March 8, 2002.

In September 2002, RB-3 leased a large space in the shopping center to a new barbeque restaurant (BBQ). Appellant alleged BBQ sold a number of products offered by Sue's, including ice cream, in violation of the exclusivity granted to Sue's in the lease. RB-3's attorney, however, told appellant that because BBQ did not sell items listed in the exclusivity clause as its primary business, the BBQ operation did not violate the restrictive covenant. Despite BBQ's primary menu items consisting of items different than the ones Sue's offered, Sue's experienced a 19.4% decrease of revenues in the year following BBQ's opening.

In May 2003, RB-3 granted a lease to Amazon Cafe (Amazon), a food establishment containing a menu very similar to Sue's establishments. In November 2003, Mahmoud advised appellant he would no longer be able to pay full installments under the purchase money note he had obtained, and appellant agreed to renegotiate the terms of their agreement. Mahmoud continued to operate the business into 2004, but after Amazon opened in May 2004, Mahmoud's business suffered even more, and he failed to make his July 2004 payment to appellant. RB-3 had previously sent notices of default to Mahmoud and appellant in July 2003, November 2003, and February 2004.

On June 4, 2004, RB-3 provided notice to appellant that it had sold its interest in the shopping center to respondent, an affiliate of Developer's Diversified Realty (DDR), effective May 21, 2004. Mahmoud closed the business in August 2004, and at that time, DDR mailed him notice of past amounts due for rent and gave him ten days to resolve the problem. When Mahmoud failed to pay the outstanding rent, DDR sent him a notice of default and an account summary on August 27, 2004, reflecting the amount of money due. After further inaction, on September 14, 2004, DDR sent a letter to appellant's house, addressed to Sue's, advising him of "the seriously delinquent nature" of his account and warning him that legal action would occur unless the money due was paid.

Appellant responded by blaming Mahmoud's struggles on RB-3 and respondent's failures to abide by the exclusivity provision in the lease, but respondent rejected this position and claimed the opening of Amazon did not violate the provision. Respondent's counsel then sent appellant a letter on December 12, 2004, warning him of impending civil action in the event he failed to comply with the lease's guaranty provision. On December 17, 2004, following commencement of a summary dispossess action, respondent obtained a Judgment for Possession from the court, and Mahmoud was formally evicted.

Respondent actively attempted to find a new tenant. It eventually executed a lease on March 30, 2005, with an individual named Tam Ly, who intended to convert the premises to a nail salon. Respondent's representative established a schedule that included Ly's business opening on October 1, 2005, but appellant contended the project was delayed for various reasons, and Ly could not open the nail salon until April 2006. Ly began paying rent on October 15, 2005, however, and in its complaint, respondent only sought to recover the rental deficiency payment from appellant through that date.

At the trial's conclusion, Judge Paul Kapalko issued a written opinion. The judge first found that respondent and/or RB-3 had violated the exclusivity provision in the lease by allowing Amazon to operate in the shopping center. He determined, however, that the numerous defaults of Sue's and Mahmoud invalidated the parties' exclusivity protection under the lease, and he therefore concluded that "the leasing of space at the Center to Amazon . . . [was] not an actionable violation of the lease or guaranty and plaintiff [was] entitled to an award for damages as a result of the default by the tenant thereunder." Appellant filed a motion for reconsideration, which the court denied, and several months later the court entered final judgment in favor of respondent against appellant for $158,405.89.

Appellant raises the following arguments on appeal:






"Final determinations made by the trial court sitting in a non-jury case are subject to a limited and well-established scope of review." Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011). "The general rule is that findings by the trial court are binding on appeal when supported by adequate, substantial, credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 484 (1974). Deference is especially appropriate "'when the evidence is largely testimonial and involves questions of credibility.'" In re Return of Weapons to J.W.D., 149 N.J. 108, 117 (1997). "Because a trial court 'hears the case, sees and observes the witnesses, [and] hears them testify,' it has a better perspective than a reviewing court in evaluating the veracity of witnesses." Pascale v. Pascale, 113 N.J. 20, 33 (1988) (quoting Gallo v. Gallo, 66 N.J. Super. 1, 5 (App. Div. 1961)) (alterations in original). Consequently, we will not disturb the "factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice." Rova, supra, 65 N.J. at 484; Cesare v. Cesare, 154 N.J. 394, 411-12 (1998).

"Where the terms of a contract are clear and unambiguous there is no room for interpretation or construction" and the courts must enforce those terms as written." Levison v. Weintraub, 215 N.J. Super. 273, 276 (App. Div.), certif. denied, 107 N.J. 650 (1987). See also Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960). It is not our function "to rewrite the contract merely because [we] might conclude that it might well have been functionally desirable to draft it differently." Brick Twp. Mun. Utils. Auth. v. Diversified R.B. & T. Constr. Co., 171 N.J. Super. 397, 402 (App. Div. 1979). Nor may we remake a contract better than the parties "themselves have seen fit to enter into, or alter it for the benefit of one party to the detriment of the other." James v. Fed. Ins. Co., 5 N.J. 21, 24 (1950). "It is not the real intent but the intent expressed or apparent in the writing that controls." Friedman v. Tappan Dev. Corp., 22 N.J. 523, 531 (1956). We therefore must determine whether the trial court's findings and interpretations of the lease were supported by adequate, substantial, credible evidence.


First, we must determine whether Judge Kapalko properly determined that while RB-3 violated the exclusivity provisions contained in the lease with Sue's, it did not actually breach the terms of the lease because appellant was in default, thus automatically terminating the exclusivity provision, when RB-3 permitted a competing food establishment to open. The parties do not dispute that appellant entered into a lease agreement with RB-3 and remained an obligee to RB-3 when he signed the personal guaranty upon transferring the lease to Mahmoud. They also agree that Mahmoud stopped paying rent to RB-3, and later to respondent once respondent purchased the shopping center from RB-3, and that neither Mahmoud nor appellant cured the default when Mahmoud completely stopped paying rent. Nor does respondent dispute the finding by Judge Kapalko that RB-3 violated the terms of the exclusivity granted to Sue's when it signed the lease with Amazon.

Paragraph 2 of the Lease Modification Agreement states:

Provided the Lessee has not been in default hereunder and Lessee is operating the Demised Premises as a restaurant featuring hot dogs, ice cream, bagels, yogurt and frozen yogurt, then Lessor agrees not to lease any space in the Shopping Center to any tenant whose primary business is either the sale of hot dogs, ice cream, bagels, yogurt, and/or frozen yogurt. The foregoing shall not be applicable to any lease in effect prior to the date of this lease.

Based upon the clear terms of the lease as modified, we are satisfied Judge Kapalko properly found Sue's default released RB-3 from any obligation to honor the exclusivity provision under the lease agreement. Appellant emphasizes the fact that RB-3 could not prove it took any action after sending each of the default letters, but the language of Paragraph 2 of the lease modification did not require respondent to take action once appellant defaulted; instead, the exclusivity clause was automatically invalidated upon the occurrence of a default.

Additionally, it is irrelevant whether appellant cured every default within the ten-day period. Paragraph 2 specifically was created to address the exclusivity issue, and the language was approved by appellant. The paragraph simply states the exclusivity provision is in effect "[p]rovided the Lessee has not been in default hereunder[.]" The provision did not explicitly state notice or an opportunity to cure were required before terminating exclusivity, and "[w]here the terms of a contract are clear and unambiguous there is no room for interpretation or construction" and the courts must enforce those terms as written. Levison, supra, 215 N.J. Super. at 276. Appellant and Mahmoud both were consistently late in paying rent to RB-3 and respondent, thus placing them in default.

The trial court noted that "the chronic problems of late payments demonstrated, from a practical business perspective, the substantial possibility of Sue's failure and the need to have a replacement tenant ready to operate." Appellant testified he was late "every month" on payment of his rent, and he received multiple letters from RB-3 saying he defaulted. The letters sent to appellant notifying him of the defaults were from 2000 and 2002, and formal notices indicating Mahmoud was in default and his debts had not been cured were sent to Mahmoud as early as March 8, 2002. Paying rent late every month without attempting to correct that problem and receiving letters warning of potential defaults should have alerted appellant that RB-3, and later respondent, could have exercised their rights under the lease in the case of default. RB-3 exercised one of those rights by signing a lease with Amazon on May 19, 2003. It was contrary to the exclusivity provision, but RB-3 was permitted to sign the lease because a default had already occurred.

Appellant also contends RB-3 never intended for the exclusivity provision to terminate, as evidenced by RB-3's representative not discussing anything about exclusivity being destroyed in his deposition. The parties' apparent intentions, however, do not control when the contract language is unambiguous, and that is the case here. See Kutzin v. Pirnie, 124 N.J. 500, 507 (1991) ("Where the terms of a contract are clear and unambiguous there is no room for interpretation or construction and we must enforce those terms as written.").

Respondent also correctly notes that Paragraph 2 of the Lease Modification Agreement concerning the exclusivity was more restrictive than Paragraph 10 of the original lease concerning a default under the agreement. While Paragraph 10 permitted appellant to cure a default within ten days and required respondent to provide notice of default to appellant, Paragraph 2 in the modified agreement automatically terminated appellant's rights to enforce the exclusivity provision upon default.

Nor do we find respondent waived any rights it had to invalidate the exclusivity clause. "Waiver is traditionally defined as the voluntary relinquishment of a known right evidenced by a clear, unequivocal and decisive act from which an intention to relinquish the right can be based." Country Chevrolet, Inc. v. North Brunswick Planning Bd., 190 N.J. Super. 376, 380 (App. Div. 1983). "The party waiving a known right must do so clearly, unequivocally, and decisively." Knorr v. Smeal, 178 N.J. 169, 177 (2003). "The intent to waive need not be stated expressly, provided the circumstances clearly show that the party knew of the right and then abandoned it, either by design or indifference." Ibid.

Appellant asserts because RB-3 never said anything or performed actions implying that the exclusivity provisions of the lease had been terminated, it had no right to enter into the lease agreement with Amazon, as it had waived its right to invalidate the exclusivity provision. He claims RB-3's actions between 2002 and 2004 signified it believed the exclusivity provision was still in effect, while respondent, in its brief, cites examples of actions demonstrating RB-3 treated the exclusivity provision as inoperative. We find, based on the contract's language alone, RB-3 had a right to treat the exclusivity provision as invalid without affirmatively exercising an option to terminate it and enter into an agreement with Amazon despite it offering similar menu items to the ones at appellant's establishments. As mentioned earlier, RB-3 had no obligation to notify appellant it was terminating the exclusivity provision in Paragraph 2 of the modified lease. Therefore, the fact that RB-3 did not explicitly tell appellant he no longer had exclusivity rights did not serve as a waiver of its rights under the lease modification agreement. Instead, RB-3 had the right to enter into an agreement with any other food establishment as soon as Sue's first defaulted.


Appellant additionally argues that equitable or judicial estoppel should provide relief. "Estoppel is an equitable doctrine, founded in the fundamental duty of fair dealing imposed by law." Casamasino v. City of Jersey City, 158 N.J. 333, 354 (1999). It is "designed to prevent injustice by not permitting a party to repudiate a course of action on which another party has relied to his detriment." Mattia v. N. Ins. Co. of New York, 35 N.J. Super. 503, 510 (App. Div. 1955). Estoppel is invoked in "the interests of justice, morality and common fairness." Palatine I v. Planning Bd., 133 N.J. 546, 560 (1993) (quoting Gruber v. Mayor of Raritan Twp., 39 N.J. 1, 13 (1962)). Unlike waiver, estoppel "requires the reliance of one party on another." Country Chevrolet, supra, 190 N.J. Super. at 380. In short, to establish equitable estoppel, appellant must show respondent engaged in conduct, either intentionally or under such circumstances that naturally induced reliance, and that appellant acted or changed his position to his detriment. Miller v. Miller, 97 N.J. 154, 163 (1984); Knorr, supra, 178 N.J. at 178. Judicial estoppel "only arises when a party advocates a position contrary to a position it successfully asserted in the same or a prior proceeding." Kimball Intern., Inc. v. Northfield Metal Prods., 334 N.J. Super. 596, 606 (App. Div. 2000), certif. denied, 167 N.J. 88 (2001).

Appellant claims respondent's attorney's statement at a September 8, 2005 proof hearing that he believed default occurred in August 2004 should preclude respondent from arguing on appeal that appellant defaulted any time before that month. However, only the August 2004 default was mentioned at the proof hearing because that was the specific default causing RB-3 to move to terminate the lease, and appellant's exclusivity rights were not an issue raised at that time. Appellant received multiple notices of default in the years prior to 2004. Because the issue of exclusivity was never raised at the proof hearing and respondent is not asserting a position contrary to one it previously asserted, neither equitable nor judicial estoppel prevent respondent from demonstrating defendants defaulted on multiple occasions before 2004.


Appellant also argues he was erroneously denied his constitutional right to a jury trial. He demanded a jury trial in his responsive pleadings and filed a motion in limine demanding a jury trial, and the issue was argued before Judge Kapalko on March 19, 2008.

Article I, Paragraph 9 of the 1947 New Jersey Constitution provides that "[t]he right of trial by jury shall remain inviolate." N.J. Const. art. 1, ¶ 9. This provision guarantees the right to trial by jury as it existed at common law at the time of the adoption of the New Jersey Constitution. Weinisch v. Sawyer, 123 N.J. 333, 343 (1991); In re Li Volsi, 85 N.J. 576, 587 (1981). Traditionally, the right to a jury trial attaches in legal, but not equitable, actions. Weinisch, supra, 123 N.J. at 343. [Ciba-Geigy Corp. v. Liberty Mut. Ins. Co. (In re Envtl. Ins. Declaratory Judgment Actions), 149 N.J. 278, 291 (1997).]

When there has been a contractual waiver of the right to a jury trial, it is important to consider "[t]he right to a jury trial . . . is far more fundamental than the right to personal service, and cannot be waived absent a showing that its relinquishment is knowing and intentional." Fairfield Leasing Corp. v. Techni-Graphics, Inc., 256 N.J. Super. 538, 541 (Law Div. 1992) (internal quotation omitted). "[T]here is no public policy hostile to jury trial waivers, and agreements to waive the right to trial by jury are viewed no differently than waivers resulting from the parties' failure to make a jury trial demand in their pleadings." Investors Sav. Bank v. Waldo Jersey City, LLC, 418 N.J. Super. 149, 160 (App. Div. 2011) (citations omitted).

In Fairfield, a lessor filed a motion to strike a lessee's jury demand, as the standardized lease and guaranty contract contained a jury waiver provision. Fairfield, supra, 256 N.J. Super. at 539. The court determined it was an adhesion contract, meaning it was a standardized mass contract not specific to that lease and not bargained for by either party, although the defendants had clearly signed the contract. Id. at 539-40. The trial court, citing federal authority, held that jury waiver provisions contained in adhesion contracts are unenforceable. Id. at 544 (citing Dreiling v. Peuqeot Motors of Am., Inc., 539 F. Supp. 402, 403 (D. Col. 1982), aff'd in part, rev'd in part, 850 F.2d 1373 (10th Cir. 1988)).

Here, Judge Kapalko determined that the lease was not an adhesion contract, noting "there is no argument or suggestion that the contract before the Court here is such a contract." We agree. While the jury waiver provision is contained towards the end of a lengthy lease and is not prominent, it was not hidden. The paragraph containing the waiver is short, clear, and in the same format and typeset as the rest of the terms of the lease, and it was initialed by appellant. We may therefore presume that appellant read each page.

Appellant also argues respondent's failure to formally respond to or otherwise address his jury demand for over two years constituted an implied waiver of the lease's jury waiver provision. Under Rule 4:35-1(d), however, respondent was under no obligation to respond to appellant's jury demand. Its motion in limine to clarify that the matter would proceed as a bench trial was more than sufficient. The Court noted in a similar case over 50 years ago that "the failure to assert a contractual right to a non-jury trial may well be the result of an oversight by counsel." Franklin Disc. Co. v. Ford, 27 N.J. 473, 492-93 (1958). In that case, the court permitted the plaintiff to assert his contractual right to a non-jury trial on retrial, even when the initial trial had a jury and the plaintiff had failed to assert that right. Id. at 495. Here, neither respondent nor its attorney ever expressed any intent to waive the non-jury provision in the subject lease. Appellant also argues the personal guaranty he signed did not contain its own waiver of a jury trial, and therefore he never waived his right to a jury trial in his individual capacity. "A writing is interpreted as a whole and all writings forming part of the same transaction are interpreted together." Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997) (quoting Barco Urban Renewal Corp. v. Hous. Auth. of Atl. City, 674 F.2d 1001, 1009 (3d Cir. 1982)). The Supreme Court has previously determined a "lease and promissory note should be read together as instruments executed as part of the same transaction." Ligran, Inc. v. Medlawtel, Inc., 86 N.J. 583, 591 (1981).

Respondent cites numerous cases from other states holding that a jury waiver provision in a lease also applies to a personal guarantor on the lease. See, e.g., In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 128 (Tex. 2004) (holding a personal guaranty automatically is incorporated into an original lease containing a jury waiver despite not explicitly stating so); R.I. Depositors Econ. Prot. Corp. v. Coffey & Martinelli, Ltd., 821 A.2d 222, 227 (R.I. 2003) (finding that because a loan agreement, promissory note, and personal guaranty were all executed simultaneously, the waiver of jury trial contained only in the promissory note applied to each of the documents). While these cases are not controlling in this jurisdiction, we reach the same conclusion here. The guaranty was executed on the same day as the subject lease, it refers to the lease, and it was signed, along with the lease, by appellant. It is illogical to expect a personal guaranty attached to a lease to contain each of the same terms as the original lease, as the only point of a guaranty is to ensure that the obligations on the lease will be fulfilled, and it is inherent that the same rights and duties transfer to the guarantor in case the party to the lease defaults. Therefore, the two documents should be read together, and appellant's argument that he never waived the right to a jury trial in his individual capacity fails.

To summarize, appellant breached the lease agreement by defaulting, which automatically terminated the exclusivity provision in the lease and in turn permitted respondent to open new food establishments in the shopping center. There is substantial credible evidence in the record to support Judge Kapalko's factual findings, and we are in complete agreement with the judge's application of the law to those factual findings. We discern no basis to disturb these findings.


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