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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 ...

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