August 19, 2013
PEMBERTON CC, LLC, a New Jersey Limited Liability Company, Plaintiff-Appellant/ Cross-Respondent,
D.R. HORTON, INC., - NEW JERSEY, a Delaware Corporation, Defendant-Respondent/ Cross-Appellant.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 6, 2013
On appeal from Superior Court of New Jersey, Chancery Division, Burlington County, Docket No. C-24-08.
Robert L. Selvers argued the cause for appellant/cross-respondent (Wilentz, Goldman & Spitzer, attorneys; Mr. Selvers, of counsel and on the brief).
Christopher E. Torkelson argued the cause for respondent/cross-appellant (Sterns & Weinroth, attorneys; Frank J. Petrino, of counsel; Mr. Torkelson and Jennifer L. Cordes, on the brief).
Before Judges Grall, Simonelli and Koblitz.
This appeal and cross-appeal are from a judgment entered following a bench trial and cross-motions for reconsideration on a contract dispute between plaintiff Pemberton CC, LLC (Pemberton), a New Jersey limited liability company established to acquire property in Pemberton Township for development, and defendant D.R. Horton, Inc. (Horton), a publicly traded corporation involved in mass residential construction. We affirm the determinations on liability substantially for the reasons set forth in the judge's thorough and thoughtful written opinions of August 23, 2010, and January 28, 2011, but we remand for reconsideration of damages in conformity with this opinion.
The parties' dispute arose under their 2002 contract and three amendments respectively made in 2004, 2005 and 2006. The contract and amendments were intended to result in the acquisition and development of more than 600 acres in Pemberton Township to establish several hundred age-restricted housing units. The acreage is situated in the Pine Barrens area of Burlington County. The parties focused on two tracts of land and such adjacent parcels as the project might require.
The goal was not one easily achieved due to the number of property owners who had to agree to sell the properties and the number of governmental entities that had to approve the project. The initial contract allocated responsibilities the venture entailed — matters ranging from funding and financing, to surveys, testing and legal work needed to acquire the land and obtain government approvals for a project of this magnitude in an environmentally sensitive area. As the parties encountered delay and difficulties, they re-allocated those responsibilities through the written amendments and their course of conduct. Through the amendments, Horton assumed much of Pemberton's responsibility to fund the project — and planned to recoup the funds upon completion.
When cooperation broke down, Pemberton filed a lawsuit alleging Horton breached, and Horton filed a cross-claim charging Pemberton with breach. Pemberton sought specific performance or damages including lost profits, and Horton sought damages. At the conclusion of the bench trial, the judge determined that Horton breached the agreement and waived its right to enforce the contractual provision Pemberton breached. Determining that the nature of the project and the parties' agreement precluded an order requiring Horton to specifically perform until completion of the project, the judge awarded Pemberton liquidated damages and equitable relief in the form of partial performance to "untie the Gordian knot that the parties" had tied. The provisions of the contract and the amendments as well as the pertinent events are discussed in detail in the judge's written opinions, and there is no need to repeat them here.
After considering the extensive record and the arguments presented in support of the parties' competing claims of error, we conclude that the judge's determinations on liability are "based on findings of fact which are adequately supported by evidence." R. 2:11-3(e)(1)(A). Horton's claims to the contrary are best characterized as a disagreement with the judge's factual findings, and our intervention is unwarranted because those findings are neither manifestly unsupported by nor inconsistent with the evidence. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974). In short, Horton's arguments on liability have insufficient merit to warrant any discussion beyond that provided in the judge's opinions. R. 2:11-3(e)(1)(E). As previously noted, the determinations on liability are affirmed substantially for the reasons stated by the judge.
In contrast, three objections to the damages award require some discussion: A) Pemberton's objection to the provision of the judgment requiring it to issue Horton notes and mortgages on the properties securing the funding Horton provided, which was nearly the entire amount Pemberton received as liquidated damages; B) Pemberton's objection to the denial of specific performance and Horton's objection to the award of partial performance; and C) Pemberton's claim that the judge erred in denying damages for lost profits.
The most significant issue raised is the judge's determination that Pemberton was required to execute "notes and recordable first Mortgages" on designated properties securing $1, 534, 192 with funds advanced by Horton. Because this obligation includes the return of funds to Horton that were defined by the parties as "liquidated damages" that Pemberton was entitled to keep after Horton's breach, we agree that the court erred. As Pemberton argues, its obligation to repay the funding Horton advanced plus interest defeats the purpose of the liquidated damages clause.
The initial contract provides for Pemberton to obtain liquidated damages on Horton's default as follows:
Buyer's Default. Should [Horton] violate or fail to fulfill and perform any of the terms or conditions of this Agreement after 30 days written notice from [Pemberton], [Pemberton] may terminate this Agreement. Upon such termination, the Deposit shall be retained by [Pemberton] and [Horton] shall deliver to [Pemberton] all engineering, environmental, and other studies, plans, prints, drawings and applications (except house plans) concerning the Property then in [Horton's] possession (collectively, "Horton's Plans"), as [Pemberton's] sole and exclusive remedy for such breach as liquidated damages. [Horton's] plans shall be fully paid for and transferable.
Under the initial contract, the term deposit referred to separate deposits totaling $350, 000. The parties redefined the term deposit, however, through their several amendments to the initial contract. In the first amendment, they agreed:
In lieu of the Deposit(s) to be made by [Horton] to [Pemberton] under the Agreement, [Horton] shall pay [Pemberton] such amounts necessary to contact for and close title to the lots adjoining the community required for access. [Pemberton] shall deliver note(s) and non-recourse mortgage(s) to secure [Horton's] payments to [Pemberton] to acquire the adjoining lots. Title to the adjoining lots shall be transferred to [Horton] at the first phase closing but [Horton] shall receive credit for the purchase of same by [Pemberton] at the final phase closing.
Thus, through this amendment, funds in lieu of deposit became the deposit for purposes of the liquidated damages clause.
While the third amendment to the contract "deletes" paragraph three of the first amendment, the second amendment, which survived the third amendment, provides that all funds advanced by Horton under that amendment, addressing the two principal properties, shall constitute additional deposits. In its second and third paragraphs, this second amendment expands Horton's funding obligation to include all approvals and all acquisition costs related to the two principal properties. Most pertinent here, the fourth paragraph of that amendment provides:
All funds advanced, under this Second Amendment, to [Pemberton] shall constitute additional Deposit(s) under the Agreement and [Pemberton] shall deliver non-recourse notes(s), mortgage(s), deed(s), or deed escrow agreement(s) to secure [Horton's] payments for same. Title to the lots acquired by [Pemberton] shall be transferred to [Horton] at the first phase closing or as [Horton] otherwise directs. In the event the Agreement is terminated all funds advanced under the Agreement, and the First and Second Amendment shall be reimbursed to Purchaser upon the sale of the properties secured by the mortgages provided for in the First and Second Amendment.
We agree with the judge that those funds advanced by Horton under the several agreements are deposits within the meaning of the liquidated damages clause.
The question, however, is whether the final sentence of the fourth paragraph — providing that in the event the "agreement is terminated" Horton will recover all funds it advanced upon sale of the properties, with interest indicated in a purchase money mortgage note — applies to an award of liquidated damages where Pemberton terminates upon Horton's breach. In our view, it does not.
Contracts are read as a whole and construed to avoid negating the significance of any of its provisions. Porreca v. City of Millville, 419 N.J.Super. 212, 233 (App. Div. 2011). A liquidated damages clause is an agreement on the sum an offending party agrees to pay and the non-offending party agrees to accept for a breach of their agreement. Westmount Country Club v. Kameny, 82 N.J.Super. 200, 205 (App. Div. 1964). If the critical phrase in the paragraph of the second amendment set forth above is applied, and Horton's deposits are refunded, then any benefit Pemberton was to derive from the liquidated damages clause would be so illusory as to be meaningless.
There is no perceptible benefit to an award of damages that must be repaid with interest, especially so because those deposits are the "sole" remedy for breach under the liquidated damages clause. In effect, enforcement of the parties' agreement concerning mortgages and notes on funds advanced gives Horton, the breaching party, the benefit of partial performance — the return of the funds it advanced plus interest due. In contrast, Pemberton recovers no benefit beyond the financing for which it is paying interest.
We cannot conclude that this is what the sophisticated principals of these corporations intended. Accordingly, we reverse this condition imposed on the liquidated damages award.
That does not end the inquiry, however. The judge fashioned this liquidated damages award on the assumption that Pemberton would be required to execute notes and mortgages in favor of Horton and Pemberton would receive partial performance of obligations that arose after Pemberton terminated the contract. The judge has not considered these questions in light of our determination that the mortgages and notes addressed in the second amendment cannot be required as a condition of recovering the funds advanced for the principal properties. Nor has the judge considered whether enforcement of the liquidated damages clause would be reasonable under the totality of the circumstances if Pemberton has no obligation to repay any of the funds advanced. Metlife Capital Fin. Corp. v. Washington Ave. Assocs., 159 N.J. 484, 495 (1999). Accordingly, we remand for reconsideration of the damages award in light of our conclusion that Pemberton's obligation to issue notes and mortgages cannot be a condition imposed upon the award of liquidated damages.
To focus the issues on remand, we affirm the judge's denial of Pemberton's claim for damages based upon lost profits. There are two reasons for affirming that determination.
The judge denied damages for lost profit on the ground that Pemberton's evidence was too speculative. Pemberton contends that the measure is found in the parties' agreement for Pemberton to receive $10, 000 at the time of closing on each sale of an approved residential unit. The first paragraph of the second amendment provides that a $10, 000 payment on each sale shall be "net to [Pemberton] with no credits to [Horton]" and will be paid "at each closing with a third[-]party purchaser."
Pemberton relies on a new Section twenty-two of the contract, which was added by the third and final amendment to demonstrate sufficient evidence given that evidence of lost profits need not be certain. Paragraph (e) of Section twenty-two provides:
Notwithstanding any other provision herein, if not sooner repaid by [Pemberton], all amounts paid by [Horton] to enable [Pemberton's] purchase of additional parcels of land pursuant to this Section shall be repaid pursuant to the terms and conditions set forth in Section 1 of the Purchase Money Mortgage Note attached hereto as Exhibit A. [Horton] shall not be required to pay [Pemberton] any additional consideration to acquire title from [Pemberton] to any parcel acquired pursuant to this Section. However, nothing herein relieves [Horton] of its obligation to pay [Pemberton] $10, 000.00 per unit for every AASFG [single family home with garages] and AADG [active adult duplex homes with garages] as set forth in the Second Amendment.
In our view, the damages award on this measure of lost profit required some evidence supporting a finding on the number of likely sales if the parties had proceeded as agreed. Pemberton does not point to any evidence other than preliminary approval of 578 residential units issued by the local planning and zoning boards. Based upon that evidence and evidence of the need for approvals from other governmental agencies, we cannot conclude that the trial court erred in denying this request for lack of adequate evidential support.
There is a second reason for affirming the judge's denial of damages for lost profits. The judge concluded that Pemberton was entitled to liquidated damages as provided in the contract, and the liquidated damages provision addresses nothing other than retention of Horton's deposits and further states that it is the sole basis for an award upon Pemberton's termination due to Horton's breach. Thus, upon receiving liquidated damages Pemberton was not entitled to any further relief.
To the extent Pemberton argues that this portion of Section twenty-two impliedly amends the liquidated damages provisions of the several agreements, the plain meaning of Section twenty-two defeats that claim. The amendment refers to money Pemberton is due on closings, and it cannot reasonably be understood as modifying the liquidated damages provision, which refers to an award of Horton's deposits.
For those reasons, we affirm the denial of damages for lost profits. We do not, however, foreclose the judge from reconsidering the adequacy of the evidence of lost profits in the event the judge determines that enforcement of the liquidated damages clause would be unreasonable.
Horton claims the judge erred by applying equitable considerations to untie the "Gordian knot" the parties tied in violation of the maxim that equities may not be applied to "trump the law." Kang In Yi v. Re/Max Fortune Props., Inc., 338 N.J.Super. 534, 537 (App. Div.), certif. denied, 169 N.J. 610 (2001). Here, Horton's objection is to the provision of the damages award requiring Horton to make extension payments due under contracts for the purchase of property not yet due when Pemberton terminated the contract. We agree that enforcement of the liquidated damages clause, implying that the clause was reasonable, barred equitable relief in the form of partial specific performance.
The judge awarded Pemberton $155, 000 on this basis. At oral argument on appeal, however, the parties made it clear that only one extension payment is now in dispute — the one due on the property referred to as the Settles property. Horton conceded that its objection to the extension payment on the Kopestecky property was not well-taken, and the parties agreed that the extension payment due on the property owned by D'Onofrio was mooted by a consent judgment entered in separate litigation between the escrow agent and the parties.
Because equitable relief was improperly awarded in conjunction with liquidated damages, we reverse without prejudice for reconsideration if the judge concludes that the liquidated damages clause should not be enforced.
We have considered the other competing objections to the damages award and conclude that they have insufficient merit to warrant discussion. R. 2:11-3(e)(1)(E).
Affirmed in part; reversed in part; and remanded for further proceedings in conformity with this opinion. We do not retain jurisdiction.