August 24, 2012
NHU THI DO, PLAINTIFF-APPELLANT,
PHUONG TRONG NGUYEN, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-3326-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 23, 2012
Before Judges Lihotz and Waugh.
Plaintiff Nhu Thi Do appeals from a judgment entered following a bench trial, awarding defendant Phuong Trong Nguyen damages on his counterclaim. We affirm in part, and reverse and remand in part.
The parties' dispute centers on their rights and obligations regarding a four-story mixed-use property located on South Virginia Avenue in Atlantic City (the building). Plaintiff's complaint alleged breach of contract and constructive eviction. Defendant filed an action to eject plaintiff from a commercial unit on the first floor of the building. The two matters were consolidated and the subject of a three-day bench trial. The record on appeal contains none of the trial court pleadings or exhibits, including written agreements or documents evincing disputed transactions and contractual obligations. These facts are taken from the trial testimony.
Defendant purchased the building from his aunt on October 21, 2007. Loan Nguyen,*fn1 defendant's mother, lived in the building and sought to develop a business and rental units. Loan converted the ground floor into a restaurant known as Far Saigon, which ultimately was owned and operated by Loan and two partners. The upper floors of the building housed apartments. Following closing, defendant returned to his home in Virginia and allowed Loan to negotiate the apartment leases, collect rents, determine and pay expenses, hire contractors, and generally manage the building.
In 2006, prior to defendant's purchase of the building, Loan approached plaintiff about purchasing an ownership interest in the building through a partnership. On October 15, 2006, plaintiff and defendant executed a partnership agreement, pursuant to which plaintiff tendered $5000 to Loan as the down payment for a 25% ownership interest in the building and partnership. The one page agreement required plaintiff to satisfy the balance of the agreed $80,000 purchase price within twelve months. When she supplied the down payment, Loan provided a list, which plaintiff believed recorded the building's tenants and their monthly rental obligations, totaling $5070. Plaintiff paid the $75,000 balance to defendant on October 12, 2007. Closing took place thereafter, and the recorded deed reflected plaintiff's ownership interest.*fn2
In August 2007, Loan offered plaintiff the opportunity to buy her interest in the restaurant. Plaintiff agreed and purchased Loan's interest along with the interest of one other business partner, the furnishings, fixtures, name, and equipment. Plaintiff began operating the restaurant in August 2007. By October 2009, plaintiff purchased the remaining partner's interest in the restaurant.
Plaintiff also executed a six-year lease agreement with defendant to rent the building's first floor, housing the restaurant. Commencing on August 1, 2007, plaintiff agreed to pay $1400 per month plus a proportionate share of the utilities.
In November 2007, Loan commenced renovations to the building's second-floor apartment. Thereafter, "almost every day[,]" "from November to December[,]" noise from the construction was present and "customer[s] were making faces at the dust coming down on them." Two additional witnesses on behalf of plaintiff verified the existence of the construction noise. On December 27, 2007, plaintiff was forced to close the restaurant when the water was shut off for plumbing repairs to an upstairs apartment. On two separate days during the apartment repairs, water leaked into the kitchen. Plaintiff also testified water leaked from the roof down the restaurant's walls when it rained, causing a "flood in the kitchen."
Beginning on December 29, 2007, plaintiff sent a series of letters to defendant describing defects with the premises. The first letter described the leaking roof. Correspondence sent on March 31, 2008, informed defendant that plaintiff "would not have the ability to continue to pay rent if all these problems [continued to] exist and [she could] not open up the restaurant." In letters dated May 26 and June 11, 2008, plaintiff again asked defendant to hire a licensed contractor to make the necessary repairs to resolve the water leaks. Defendant did not respond to any of these requests.*fn3
Plaintiff temporarily ceased the restaurant operations on January 14, 2008 and relocated to California. The parties stipulated plaintiff's last rental payment was made in March 2008. She allowed another individual to operate the restaurant sometime between January and February 2008, then began negotiations with a Jimmy Chaung, who was interested in taking over the business. Chaung discovered the mercantile license was not in plaintiff's name and unsuccessfully attempted to obtain a health inspection approval.
David Lee, a friend of plaintiff and Loan, testified on behalf of plaintiff, explaining he kept an eye on the restaurant property in plaintiff's absence, following her move to California. On August 2008, Lee also photographed a bathroom enclosure, refrigerator/freezer, range hood, discarded toilet, and used mattress left in the restaurant's kitchen. Lee photographed water damage, fungus, mold, and mildew found in the kitchen, as well as six ceiling tiles that collapsed into the kitchen preparation area after a heavy July 2008 rain. Furthermore, Lee confirmed the second floor renovations continued until December 2008.
In September 2009, plaintiff returned to New Jersey to reopen the restaurant. In October 2009, she engaged Steve Nguyen, a Pennsylvania licensed contractor, to repair the damage. Nguyen inspected the restaurant premises on October 13, 2009 and prepared a list of defects he observed. Prior to commencing work, he advised plaintiff to contact the health inspector to obtain a complete list of items required to be repaired in order to pass inspection. Nguyen identified defects in the premises, including the "floor foundation was all decayed" and soiled; "the wall structure [was] damaged[,]" which included water damage; there was no ground fault interruption receptacle for the electrical circuits, which he described as a "safety hazard"; tiles needed to be replaced; the floor was "sloped" from water "erosion"; the ceiling suffered water damage in the dining area; and "the plumbing lines for the washing area [were] not correctly connected."
Plaintiff contacted the city health inspector, who, after viewing the property, rejected any request to allow the restaurant's renewed operation. For two months plaintiff attempted repairs, but suggested the water damage to the ceiling and walls of the kitchen area had become too extensive. At trial, plaintiff described several photographs taken between September 2009 and November 2009, showing water leaking down the kitchen walls, holes in the ceiling, puddles of water accumulated on the floor, and a gas leak in the kitchen.*fn4
In the Fall of 2009, Loan informed plaintiff the building was operating at a deficit and requested plaintiff to contribute her proportionate partnership share to alleviate the loss. Plaintiff declined pending receipt of documentation evincing the building's income and expenses. Plaintiff maintained she never received any information regarding the building's operation or distributions from the partnership.
Vincent X. Luong, the other 25% owner of the building, corroborated plaintiff's description of the building's renovations and Loan's unilateral activities. He stated Loan alone controlled the rents and expenses without consultation or authorization from him or plaintiff. He stated Loan ignored his requests for an accounting of partnership income and expenses. He also noted Loan resided in an apartment in the building but did not pay rent.
Defendant testified, acknowledging he bought the building at his mother's request and allowed her to manage all the operational aspects of the building. When purchased, the building's roof needed replacement, which he asserted was understood by plaintiff and Luong. Defendant financed the roof's replacement in December 2007 and Loan made all the arrangements with the contractors. The work was completed in February 2008. Defendant conceded he had little information regarding the renovation work, which was handled by Loan, and he neither responded nor addressed plaintiff's complaints regarding defects in the premises.
Loan also testified, stating she alone managed the building, suggesting plaintiff and Luong took no interest in the undertaking. She arranged for the roof replacement and second floor renovations, agreeing jackhammer noises were present for a portion of each day over a one month period in January and February 2008. She also testified toilet water from the second floor apartment invaded the restaurant on February 18, 2008, which she helped clean up. Loan admitted she knew the water leaked through the restaurant side walls during rain storms and noted, after plaintiff closed the restaurant, the second floor plumbing leaked, causing the restaurant ceiling tiles to collapse. She recited her efforts to correct these problems.
Regarding rents, Loan kept a ledger of who paid. She lived in one of the building's apartments, but did not pay rent. However, she maintained she often had a roommate who contributed $500 per month and she arranged for the work to maintain and repair the building. Loan insisted she allowed her partners to review her ledger if requested, but never consulted with them before she undertook repair or renovation work. Loan was questioned on each expenditure entry recorded in the ledger. She admitted she did not discuss the cost of: renovating the second floor; electrical repairs; legal fees for evictions; a plumbing repair and water leaks to one apartment; replacing a hot water tank; or hiring counsel for eviction proceedings, including the action against plaintiff. Loan asserted plaintiff owed $38,344 toward her share of the building's expenses.
To refute assertions she interfered with plaintiff's business operation, Loan produced a business trade name certification dated August 1, 2006, stamped received by the city, asserting plaintiff was listed as a registered owner of the building. On cross-examination, Loan denied knowledge of an August 1, 2007 one-year mercantile license in her name, despite agreeing the document bore her photograph.
In her oral opinion, the trial judge concluded plaintiff failed to sustain her burden of persuasion and claims for constructive eviction as a result of the landlord's activity. She found plaintiff was obligated to pay rent from April 2008 to September 2010, warranting application of her $2000 security deposit and eviction. The trial judge also found the landlord breached the covenant of quiet enjoyment based on the noise interruption and storage of items in the restaurant. She quantified plaintiff's damages for these two events as $1600. A judgment for defendant was entered, totaling $38,900.
Regarding defendant's counterclaim for the partnership expenses, she reviewed Loan's ledger and determined partnership losses through July 31, 2010 totaled $96,592, for which plaintiff was obligated to pay $24,148. Plaintiff appealed.
A trial judge's factual findings following a non-jury trial are "binding on appeal when supported by adequate, substantial and credible evidence." Rova Farms Resort v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). We also defer to the trial judge's credibility determinations. Cesare v. Cesare, 154 N.J. 394, 412 (1998); RAB Performance Recoveries, L.L.C. v. George, 419 N.J. Super. 81, 86 (App. Div. 2011). However, our review of a trial judge's legal conclusions is de novo as "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)
Our review is also guided by contract principles. "New Jersey has been a leader in its recognition that the modern lease should be construed in accordance with principles of contract law." N.J. Indus. Props. v. Y.C. & V.L., 100 N.J. 432, 456 (1985). In this regard, the landlord's obligation to make repairs and the tenant's covenant to pay rent are construed as mutually dependent. Marini v. Ireland, 56 N.J. 130, 145 (1970).
On appeal, plaintiff maintains the evidence supports her claim of constructive eviction. An act or omission by a landlord, or someone acting under the landlord's authority, constitutes a breach of the covenant of quiet enjoyment and constitutes constructive eviction if the conduct "renders the premises substantially unsuitable for the purpose for which [it was] leased," or if it "seriously interferes with the beneficial enjoyment of the premises[.]" Reste Realty Corp. v. Cooper, 53 N.J. 444, 457 (1969). The unfitness of the premises is shown when the condition complained of is permanent or regularly recurs, causing serious interference with the use. Id. at 458-59. A constructively evicted tenant has the right to vacate the premises and cease rental payments, if done "within a reasonable time after the right comes into existence." Id. at 461.
In Berzito v. Gambino, 63 N.J. 460, 466-67 (1973), the Court reviewed a tenant's constructive eviction claim when she neither vacated the premises nor undertook the required repairs, claiming a corresponding offset against the rental obligation, concluding a landlord becomes liable to a tenant for any breach of the implied covenant or warranty of habitability for the duration of the residential lease term. "Accordingly in an action by a landlord for unpaid rent a tenant may plead, by way of defense and set off, a breach by the landlord of his continuing obligation to maintain an adequate standard of habitability." Id. at 469.
Furthermore[,] a tenant may initiate an action against his landlord to recover either part or all of a deposit paid upon the execution and delivery of the lease or part or all of the rent thereafter paid during the term, where he alleges that the lessor has broken his covenant to maintain the premises in a habitable condition. In such an action, if the alleged breach on the part of the landlord is proven, the tenant will be charged only with the reasonable rental value of the property in its imperfect condition during his period of occupancy. As a prerequisite to maintaining such a suit, the tenant must give the landlord positive and seasonable notice of the alleged defect, must request its correction and must allow the landlord a reasonable period of time to effect the repair or replacement. Not every defect or inconvenience will be deemed to constitute a breach of the covenant of habitability. The condition complained of must be such as truly to render the premises uninhabitable in the eyes of a reasonable person. [Ibid.]
In this matter, the trial judge found the facts did not constitute a constructive eviction as the events interfering with the tenancy did not thwart plaintiff's continued operation of her restaurant. The judge determined plaintiff never abandoned her tenancy as plaintiff "continued to maintain [the restaurant] as if she was the tenant until she filed suit[,]" exercised possession by allowing others to operate the restaurant, requested Lee to oversee the premises, and secured the site. Further, the judge found:
She had numerous pictures that she introduced of damages and things, leaks in the restaurant . . . . I find . . . plaintiff has not proven any loss of profits. . . . The evidence shows from her own . . . document[s] in evidence, which shows how much she was making and how much she spent, that she made a profit, and although it went up and down a little bit, she was making as much during . . . November and December -- [i]n fact, she makes the most in November ever. And if her numbers are accurate, and they're her numbers, she didn't make any less in November, December and January. . . . [T]he [c]court finds that nothing suggests that until she closed the business she was prevented from making the same living [or] that she couldn't operate the business.
The trial judge determined the second-floor renovation noise emanating into the restaurant from January to February 2008 did not impact plaintiff's profits and "[w]hen she walk[ed] out in January, there [wa]s really no evidence to support her position that the building was not tenable or couldn't be used as a restaurant." From January through March, plaintiff allowed two individuals to attempt to operate the restaurant.
The trial judge's findings denying plaintiff's claim of constructive eviction are adequately supported by substantial, credible evidence in the record and will not be disturbed. Further, although the articulated findings are limited, we affirm the trial court's quantum of damages awarded for interference with the implied covenant of quiet enjoyment up to September 2008. However, following our review, we determine the limited factual findings regarding the landlord's failure to maintain the premises for the period beginning September 2008 to December 2010 is not supported by the evidence in the record, requiring a remand for consideration of additional damages and rental offset during this period.
The trial judge's statements ignored much of plaintiff's evidence without explanation. Plaintiff and Lee testified regarding the premise's condition once plaintiff returned from California to attempt reopening the restaurant. They each discussed the on-going water leaks following rain storms. Plaintiff's expert, Nguyen, related the significant problems he attributed to this repetitive water damage. Luong also observed the water leaks damaging the first floor. These facts were not refuted by Loan or defendant. Rather, defendant and his mother acknowledged the ceiling collapse, as depicted in the photographs, was caused by a second-floor plumbing leak. Moreover, they admitted the restaurant walls leaked during storms and water seepage continued after the roof's replacement, which defendant later learned was the result of a structural defect.
Our review is hampered by the absence of the lease agreement's inclusion in the record. However, the testimony of defendant and Loan accepted the landlord's responsibility to resolve building defects impacting a leasehold, not the tenant's responsibility as the trial judge stated. The uncontroverted evidence of repetitive water seepage into the restaurant from building defects or problems in other tenancies, appears within the scope of the landlord's responsibility for repair, not a tenant's requirement to maintain the leased premises in good repair.
Although we agree the proofs failed to show constructive eviction, the trial court's conclusion, rejecting what appears to be an uncontroverted basis for damages resulting from interference with the tenancy because of the landlord's failure to make necessary repairs after September 2009, is not supported.*fn5 The water seepage continued with each rain, interfering with plaintiff's use and enjoyment of the property, even if it alone did not preclude operation of the restaurant. Consequently, plaintiff is entitled to damages in the form of a rental offset. See Berzito, supra, 63 N.J. at 466-67 (allowing for offsets against rental obligation because of disruption in use of the premises).
Following our review we determine the trial court's findings on this issue are unsupported. Rova Farms, supra, 65 N.J. at 484. We reverse and remand for a determination of the appropriate rent abatement as a result of the landlord's breach of its implied covenants, resulting in interference with plaintiff's use of the premises.
Plaintiff also contends defendant breached his fiduciary duty in respect to the partnership agreement. This argument is grounded on a finding that defendant interfered with the lease precluding plaintiff's use of the premises. Because the trial judge's findings in this regard are well supported, we reject plaintiff's argument. R. 2:10-3(e)(1)(E).
Plaintiff further argues defendant, as managing partner, breached fiduciary duties owed to her as a member of the partnership. See Heller v. Hartz Mountain Indus., Inc., 270 N.J. Super. 143, 150 (Law Div. 1993) (stating partners stand in a fiduciary relationship to each other). Plaintiff asserts defendant was required to keep the partners informed, transmit records regarding partnership obligations, and avoid waste. In light of this breach, plaintiff argues the trial judge's determination of her partnership obligation was not supported by the evidence. The trial court's findings on this issue require expansion. See R. 1:7-4 (mandating a trial judge to state findings of fact and conclusions of law).
The Uniform Partnership Act (1996) (UPA), N.J.S.A. 42:1A-1 to -56, governs the relationship between partners, although no partnership agreement exists. See N.J.S.A. 42:1A-4(a) (stating "[t]o the extent the partnership agreement does not otherwise provide, this act governs"); see also N.J.S.A. 42:1A-10(a).
Partners must be afforded access to the partnership's "books and records pertaining to the period during which they were partners." N.J.S.A. 42:1A-23(b). Additionally, upon demand, each partner and the partnership must furnish "any other information concerning the partnership's business and affairs, except to the extent the demand or information demanded is unreasonable or otherwise improper under the circumstances." N.J.S.A. 42:1A-23(c)(2).
The record supports plaintiff's assertion she and Luong were not given an accounting, despite their request; Loan's ledger was not accompanied by invoices supporting her asserted expenses and defendant permitted Loan free access to reside in the building without paying rent and to control all expenses without need for his partners' approval. Although the trial judge prospectively ordered an ongoing accounting, stating "as of November 1, 2010 and every three months thereafter . . . defendant is obligated to report to . . . plaintiff all income and all expenses for the building, together with copies of all invoices for bills paid during that period[,]" she accepted a portion of Loan's ledger entries to fix plaintiff's unpaid partnership obligation. In doing so, the trial judge did not award the sum asserted by Loan, but did not explain those liabilities for which plaintiff was held responsible. More important, the judge failed to assess defendant's liability for allowing Loan's rent-free residence in the building, a decision made without informing his partners. See N.J.S.A. 42:1A-24(a),
(c) (providing a partner's fiduciary duty of loyalty includes refraining from actions intended to cause material injury to the partnership).
On remand, the trial judge shall review this matter and provide a factual basis underpinning her rejection of plaintiff's claims regarding defendant's apparent self-dealing in allowing his mother to reside in the building rent-free, as well as her findings supporting plaintiff's determined partnership obligation for expenses incurred by Loan, totaling $24,148. See N.J.S.A. 42:1A-18(a) (stating that each partner is personally liable "for all obligations of the partnership").
As necessary, the trial court should conduct further proceedings on these issues to address proof of past expenses incurred by Loan for which defendant seeks his partners' contributions, and the relationship of these expenses to the partnership's business. See N.J.S.A. 42:1A-13 (stating each partner is an agent of the partnership). See also N.J.S.A. 42:1A-17 (discussing partnership liability for loss caused by an individual partner "acting in ordinary course of business of the partnership"). Finally, the calculation of partnership loss must not ignore the judgment awarded for plaintiff's rental obligation, which would be different had the rental income been collected, a fact the trial judge does not clearly show was considered. In short, the interrelation of the parties' interests must be defined when fixing damages. Also, the judgment for unpaid rent was awarded to defendant, despite the dearth of evidence that he financed each of the claimed expenses resulting in the shortfall.
One final point. We decline to address defendant's assertion plaintiff lacks jurisdiction to present this appeal as a result of her filing a voluntary petition seeking Chapter 7 relief on March 9, 2011. Defendant argues any claims belong to the trustee to present and are no longer proper on appeal. Following our review, plaintiff will retain an obligation, not an asset. If the debt has been discharged in the bankruptcy proceeding, which we cannot discern from this record, remand proceedings may be obviated.
In summary, we affirm the trial judge's conclusion that plaintiff failed to prove a constructive eviction and affirm the entry of a judgment of eviction. We also affirm the damages awarded to plaintiff for the breach of the implied covenant of quiet enjoyment prior to September 2009. We reverse the denial of plaintiff's claim of breach of the covenant for repair of the building and remand for further review of the amount of damages suffered by plaintiff as a result of the persistent water seepage, along with a calculation of the amount of rental offset. We also reverse the award to defendant for partnership losses as the record does not sufficiently support the court's findings. The court must account for defendant's unilateral decision for Loan's rent-free use of the building, as well as the evidentiary support for the amount of claimed expenses listed in Loan's ledger and their necessity for the partnership's benefit and purpose. Any award for partnership losses must account for the judgment awarding rent to be paid by plaintiff, as that sum would reduce partnership losses.
Affirmed in part, reversed and remanded in part. We do not retain jurisdiction.