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5907 Blvd. L.L.C. v. West NY Suites, L.L.C.

Superior Court of New Jersey, Appellate Division

July 19, 2013

5907 BLVD. L.L.C., Plaintiff-Respondent,
v.
WEST NY SUITES, L.L.C., Defendant-Appellant.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 6, 2013

On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-5870-09.

David Kessler argued the cause for appellant (David Kessler & Associates, L.L.C., attorneys; Mr. Kessler, of counsel; Matthew M. Fredericks, on the brief).

Bradley M. Wilson argued the cause for respondent (Nowell Amoroso Klein Bierman, P.A., attorneys; Mr. Wilson, of counsel and on the brief).

Before Judges Ashrafi, Espinosa and Guadagno.

PER CURIAM

Defendant West NY Suites, L.L.C., appeals from the Law Division's judgment following a bench trial finding it liable on a breach of contract claim brought by plaintiff 5907 Boulevard, L.L.C., and awarding damages and attorney's fees. We affirm.

In summary form, the parties entered into a contract for the sale of an apartment building from plaintiff to defendant with the intention that the property be converted to condominiums. After plaintiff did all it could to effectuate registration of the property with the State as condominiums, defendant refused to cooperate in producing required documents and allowing transfer of the deed into its name — the only two steps required before the property could be registered. Defendant took the position that the contract required plaintiff to obtain the registration before the closing, even though this was impossible given the structure of the deal. Defendant also claimed that plaintiff failed to prove that all the rents being charged for the apartments were lawful, thus excusing defendant's obligation to purchase the property. The trial court concluded otherwise. It ruled for plaintiff on its breach of contract claim and awarded liquidated damages and attorney's fees in accordance with provisions of the contract.

Having reviewed the record and considered defendant's arguments, we agree with the Law Division's conclusions and find no basis to disturb its rulings.

I.

The evidence at the trial showed the following. On June 5, 2008, defendant entered into a contract with plaintiff to purchase a forty-five-unit apartment building in West New York, which was to be converted into condominiums. The contract documents consisted of a "Contract for Sale of Real Estate, " prepared by plaintiff's attorney, and a "Rider to Contract for Sale of Real Estate, " prepared by defendant's attorney following many hours of negotiations. The contract made closing contingent on approval of the conversion to condominiums by the State Department of Community Affairs (DCA). Plaintiff was to "complet[e] all requirements to obtain a [condominium] registration, " at its "sole cost and expense." Closing was set for sixty days from the "Final DCA Condominium Registration of the Property."

The contract also provided for a due diligence period, during which defendant could cancel the contract for any reason. Additionally, if the condominium registration was not obtained within one year of the end of the due diligence period, defendant could terminate the contract at its option. If defendant failed to purchase the property for another reason, amounting to breach of the contract, the agreement provided for liquidated damages to be paid to plaintiff. By changes made at defendant's insistence in the rider, the liquidated damages were fixed at $100, 000 payable to plaintiff if defendant breached the contract before issuance of the condominium registration.

On July 2, 2008, defendant's attorney sent a letter to plaintiff's attorney with a spreadsheet detailing rent increases in the building's apartments. The letter requested that plaintiff "advise as to the steps taken to achieve the increased rents" because defendant was concerned about compliance with West New York's rent control laws. The parties met with their respective attorneys on July 30, 2008, to discuss the rent increases and other issues. The result was a two-page handwritten amendment to the contract.

Among other changes, the handwritten amendment extended the due diligence period until July 31, 2008 (the next day), reduced the purchase price to $4, 950, 000, and, in the letter's paragraph 6, required plaintiff to "provide documentation [to defendant] to substantiate rental increases at the property." Further on the issue of rent increases, the handwritten modification of the contract provided in its paragraph 4:

Seller and Seth Martin [plaintiff-seller's principal] will provide an indemnification and hold harmless agreement as to rents which may be rolled back or refunds due as a result of rent control ordinance violations, if any, for the period prior to closing of title and delivery of the deed by Seller to Buyer. The first monies due by Seller and Seth Martin pursuant to this paragraph 4 will be deducted from the consulting fee in paragraph 2. Seller will file rent registration statements with the Town of West New York through closing of title.

Following these additions to the contract, an email from defendant's attorney dated the next day stated that "[a] condition of the amendment and payment of the balance of the deposit is the timely delivery to my office of the documents required by paragraph 6 of the amendment." After follow-up emails were exchanged, plaintiff's attorney sent to defendant on August 20, 2008, what he represented was "the entire rent registration package" for the building. Included in the package were rent registration statements plaintiff had filed with the Town of West New York and a number of resolutions from the West New York Rent Control Board approving rent increases. Not included, however, were resolutions for seven apartments that defendant suspected had rent "increases beyond the annual increases permitted by the municipality." Defendant's attorney requested resolutions for those seven units in an email sent on August 22, 2008. More emails and letters between the attorneys were exchanged, but plaintiff could not find any other rent control documents. Testifying as a fact witness at trial, plaintiff's attorney confirmed that plaintiff never found any resolutions approving rent increases for the seven units.

Beginning on April 8, 2009, correspondence between counsel turned to the subject of registration of the condominium conversion. Plaintiff's attorney stated that plaintiff had taken all the necessary steps to obtain registration from the DCA, with the "only items remaining" being the disclosure by defendant of its ownership interest and an updated title report in defendant's name. Counsel's letter also referenced a conference call the parties had with DCA, indicating that the final registration would be issued once the deed was in defendant's name. A memo from DCA was attached to the letter indicating these remaining deficiencies. At the trial, a DCA representative testified that a deed in the sponsor's name was required before DCA would issue a final registration, but that many preliminary steps in the process toward registration could be completed before the deed was executed and received by DCA.

Despite plaintiff's having completed the preliminary steps to register the property, defendant refused to close on the sale. Defendant's attorney listed reasons on April 28, 2009, for refusing to close, including that plaintiff had not obtained final registration of the condominium as the contract required, and that plaintiff had failed to "substantiate the rent increases" in the seven units mentioned above. Plaintiff's response accused defendant of bad faith and repeated its understanding that the final condominium registration would be issued after "the Deed was transferred." It also indicated that defendant had failed to disclose its ownership structure, and had "failed to provide the Escrow Agreement required by the DCA." The DCA witness at trial confirmed that condominium registration could not issue until the DCA received an escrow agreement and a deed in defendant's name.[1]

After further correspondence of counsel did not resolve the dispute, plaintiff filed its complaint on May 21, 2009, originally in the Chancery Division. Amended pleadings were subsequently filed, and the case was transferred to the Law Division.

By letter dated August 19, 2009, defendant asserted that plaintiff had not obtained DCA registration within twelve months after the due diligence period expired on July 31, 2008, and so, defendant was "exercis[ing] its option to terminate the Contract." On September 30, 2009, DCA rejected the condominium conversion plan because of the absence of a deed in the sponsor's name and a valid escrow agreement.

After hearing this evidence at the trial, the Law Division held that defendant breached the contract by failing to cooperate in obtaining the condominium registration, and that its breach was not excused by a material breach of the contract by plaintiff in failing to substantiate rent increases for all forty-five apartments. In accordance with the liquidated damages provision of the contract, the court awarded $100, 000 to plaintiff, and in accordance with the attorney fee-shifting provision of the contract, it awarded an additional $115, 349.44 to plaintiff for its attorney's fees and litigation expenses.

II.

Defendant's appeal presents the following main issues for our consideration:

1) Did plaintiff materially breach the contract by failing to provide rent resolutions for seven units, thus permitting ...

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