NATIONAL HEALTH INVESTORS, INC. v. IMPERIAL MANOR ASSOCIATES, INC., d/b/a REGAL MANOR HEALTHCARE CENTER, WILLOW ASSOCIATES, INC., d/b/a ROYAL HEALTH GATE NURSING AND REHABILITATION, and SURBHI V. TARKAS

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0487-04T20487-04T2

NATIONAL HEALTH INVESTORS,

INC.,

Plaintiff-Respondent,

v.

IMPERIAL MANOR ASSOCIATES, INC.,

d/b/a REGAL MANOR HEALTHCARE

CENTER, WILLOW ASSOCIATES, INC.,

d/b/a ROYAL HEALTH GATE NURSING

AND REHABILITATION, and SURBHI V. TARKAS,

Defendants-Appellants,

and

AMJAD F. CHOWDHRY,

Defendant.

_________________________________________________

 

Argued September 20, 2005 - Decided:

Before Judges Skillman, Payne and Francis.

On appeal from Superior Court of New

Jersey, Law Division, Mercer County,

L-3001-01.

Timothy P. Neumann argued the cause for

appellants (Broege, Neumann, Fischer &

Shaver, attorneys; Mr. Neumann of counsel

and on the brief).

Robert L. Grundlock, Jr., argued the cause

for respondent (Rubin, Ehrlich & Buckley,

attorneys; Mr. Grundlock and Gloria R.

Buckley on the brief).

PER CURIAM

In this appeal, defendants Imperial Manor Associates, Inc. (Imperial Manor), Willow Associates, Inc. (Willow) and Surbhi V. Tarkas appeal from deficiency judgments entered against them following mortgage foreclosure proceedings, as well as from the dismissal of defendants' claims of tortious interference with prospective contract and breach of a covenant of good faith and fair dealing. They also argue that they were erroneously denied the opportunity to conduct additional discovery after their first counsel was permitted to withdraw from representation on the basis of nonpayment of fees and as the result of defendants' accusations of counsel's wrongdoing in connection with the transactions at issue. Finally, they contest the trial court's determination to hold a non-jury trial on their tortious interference claim.

The facts of this matter are as follows. Plaintiff National Health Investors, Inc. (NHI), a real estate investment trust, loaned $10 million each to defendants Imperial Manor and Willow for the purpose of constructing nursing homes in Toms River and Trenton, respectively. The loans, evidenced by notes and secured by mortgages, were personally guaranteed by the corporations' principals, defendant Amjad J. Chowdhry (who declared bankruptcy prior to trial, received a discharge and is not a party to this appeal) and Tarkas, up to the amount of $6.6 million each plus one-third of any outstanding interest and attorneys' fees.

In July 2001, Imperial Manor and Willow defaulted on their loans, and negotiations commenced to avoid foreclosure. Following institution by NHI of foreclosure proceedings in the Chancery Division and an action on the notes in the Law Division, a settlement agreement, embodied in a July 29, 2002 consent order entered by Judge Neil Shuster, was reached in the foreclosure action that required waiver of all defenses to foreclosure, struck defendants' contesting answer to the foreclosure complaint, and permitted the entry of a final judgment in foreclosure in the amount of $22,030,000 plus interest to accrue from July 29, 2002 on the principal of $18,372,782 at a fixed rate of 18% per annum. However, the agreement further provided that neither the judgment in foreclosure nor any writ of execution would be sent to any sheriff for the purpose of listing the subject properties for sale if defendants delivered to plaintiff NHI's counsel a signed agreement for the sale of the subject properties no later than August 12, 2002. The settlement agreement stated additionally that "[i]f a signed agreement is not delivered by the date and time indicated, the plaintiff shall have the right to proceed with listing the properties and conducting the sheriff's sale in their respective counties." The agreement also provided:

If the [sale] agreement, delivered as required above ( 4), does not vary with regard to the terms involving the plaintiff from agreements previously circulated among the parties and further identified, and as explained and clarified as to how they apply due to the passage of time, on the record before the Court on July 29, 2002, the plaintiff has committed to agree to approve that transaction. The previously circulated agreements contemplated the sale of the subject properties to Princeton Realty, LLC, or any affiliated entity/assignee, providing that ownership of the real estate and license was vested in the individual defendants, Amjad Chowdhry and Surbhi Tarkas, to an extent no greater than 50%. If, however, the terms for the proposed sale of the subject properties vary with regard to the plaintiff, or the proposed purchaser changes, the plaintiff reserves the right to review the proposed sale and to indicate its acceptance or rejection no later than 12:00 p.m. (cst) on August 13, 2002. If the plaintiff rejects the new proposed agreement, it shall have the right to proceed with listing the properties and conducting the sheriff's sale.

(Footnote omitted.)

If the purchase and sale agreement were timely executed, the action on the note pending in the Law Division would be dismissed, and the judgment in foreclosure would be vacated.

As stated in the agreement, it was anticipated at the time that the properties would be sold to Princeton Realty, LLC (Princeton) and managed by Broadway Healthcare Management LLC (Broadway). The agreement was not signed by the settlement's deadline.

NHI did not immediately declare the settlement agreement to have been breached. However, thereafter, both it and defendants negotiated with Broadway and Princeton. There is no evidence that NHI's negotiations preceded August 12, and indeed, they appear to have commenced no earlier than mid-September 2002.

On August 21, 2002 a purchase and sale agreement, entered into "as of this 12th day of August, 2002" between Princeton and defendants Imperial, Willow and their principals Chowdhry and Tarkas, was delivered to NHI. The agreement, which varied in its terms from previously circulated agreements, required NHI's consent to the restructuring of NHI's $20 million mortgage loan, assumption of the restructured loan by Princeton, and the placement of a $5 million second mortgage on the property to secure a loan given by Princeton to Imperial Manor and Willow. NHI did not give its consent. In a September 5, 2002 letter from Robert L. Grundlock, Jr., counsel for NHI, to defendants' counsel at the time, R. James Kravitz, Grundlock discussed "stumbling blocks" to closing on the sale agreement and stated:

The present "primary stumbling block" is your clients' delay in complying with the consent order that they entered into before Judge Shuster. Your clients entered into that agreement, and they promptly violated it. They obviously had no intention of complying with it from the outset. The consequences of that action rest solely with your clients. As you know, NHI has not waived any rights in that regard, and NHI is proceeding to foreclose on both of the nursing homes.

On November 15, 2002, a commitment letter was sent by NHI to Broadway agreeing that, if NHI were the successful bidder for the subject nursing homes in contemplated foreclosure sales, it would enter into a lease of the properties to Princeton with a purchase option. Management was to be provided by Broadway. Shortly thereafter, on December 16, 2002, defendants filed an order to show cause before Judge Shuster seeking to enjoin the scheduled sheriffs' sales and to vacate the settlement agreement between the defendants and NHI. In that application, defendants alleged that NHI had not proceeded in good faith and in an equitable manner with regard to the parties' settlement and that evidence suggested improper contact between NHI and contract purchasers Princeton and Broadway, leading to a delay in the signing of the purchase and sale agreement beyond the August 12 deadline and to negotiations between NHI and both Princeton and Broadway that excluded defendants.

Judge Shuster construed defendants' application both as a request for adjournment of the sheriffs' sales for good cause pursuant to N.J.S.A. 2A:17-36 and as an application for a temporary restraining order, and he denied it and declined to issue an order to show cause on the ground that NHI was freed of any constraints on its ability to negotiate with Princeton and Broadway once the August 12 deadline passed, and there was insufficient evidence of collusion between NHI and Princeton or Broadway prior to that date.

The properties were sold for $100 each to NHI on December 17 and 18, 2002 and were then leased by NHI to Broadway and a related entity pursuant to the terms of a December 18, 2002 lease agreement. Thereafter, NHI moved before Judge Paulette Sapp-Peterson in the action on the notes pending in the Law Division for summary judgment on its claim of personal liability on the part of Chowdhry and Tarkas. Defendants, in turn, cross-moved for leave to amend their counterclaims in the action to allege breach of a duty of good faith and fair dealing and tortious interference with a prospective contract - the claims unsuccessfully raised before Judge Shuster - and to assert a claim for a fair market credit. The judge denied summary judgment in relevant part and granted defendants' motion to amend their counterclaims insofar as that motion related to defendants' first two allegations of misconduct, ruling that entitlement to a fair market credit could be asserted as an affirmative defense.

At a conference held on August 11, 2003, a date previously scheduled for trial, discovery (closed since October 28, 2002) was reopened to September 12, 2003 on the tortious interference claim only. Following the entry of an order on October 27, 2003 relieving counsel from their representation of defendants and requiring the retention of new counsel by December 10, 2003, discovery was further extended to February 10, 2004. Prior to that time, trial had been re-scheduled for April 26, 2004.

Despite the court's deadlines, defendants did not retain substitute counsel until December 22, 2003, and counsel did not enter an appearance on behalf of Imperial Manor, Willow and Tarkas until January 5, 2004. NHI objected to the late appearance as violating the court's order by letter dated January 7, 2004, and it questioned counsel's authority to proceed in the representation.

In a motion filed on January 15, 2004, substituted counsel sought relief from the deadline for entry of appearance set forth in the court's prior order (a matter that counsel suggested should be expeditiously resolved in a conference with the court), an order compelling full responses to existing discovery requests and the appearance of witnesses for oral deposition, and a ninety-day extension of discovery on issues presented in the counterclaim and on fair market value. The discovery relief sought in the motion was denied. NHI's cross-motion to quash subpoenae served by defendants on January 13, 2004 upon Princeton and Broadway as violating existing discovery orders was granted. The March 24, 2004 order embodying the foregoing rulings stated: "Discovery in this matter is closed. Exceptional circumstances have not been demonstrated."

A bench trial of the matter occurred before Judge Sapp-Peterson commencing on May 18 and concluding on May 26, 2004. NHI's evidence suggested that at the commencement of trial, the total amount owed to NHI was $28,100,243. At the conclusion of the defendants' evidence on their counterclaim, NHI moved for a directed verdict on defendants' claim of tortious interference by NHI with their prospective contract with Princeton and Broadway. NHI argued that as the result of the requirement in the August 2002 purchase and sale agreement that it consent to the restructuring of the mortgage loan and its assumption by the purchaser, NHI occupied a position akin to a party to the agreement, and accordingly, could not be found liable for interference with the execution of that agreement by withholding its consent, which it was entitled to do. The motion was granted by the court, which ruled that it was clear that the parties to the purchase and sale agreement contemplated that NHI would be a party to the relationship, regardless of the fact that it was not a signatory to the agreement itself, and as such, no claim of interference could be asserted against it.

Additionally, the judge granted judgment against defendants on their claim of breach of a duty of good faith and fair dealing, finding that the claim depended on the existence of a contractual relationship between the parties, that any such relationship expired on August 12, 2002, and that after August 12, the parties were free to engage in negotiations with any entity. No competent evidence of conduct occurring prior to August 12 that was relevant to the claim was adduced at trial.

At the conclusion of the trial, the judge found the fair market value of the properties as of the dates of foreclosure to have been $17,175,070, after subtraction of a six percent real estate commission, basing that figure upon the purchase options in the November 15, 2002 proposed lease agreement between NHI and Princeton and Broadway and the December 18, 2002 executed lease agreement. No appeal has been taken from this determination.

Judgment was entered as of May 26, 2004 in favor of NHI and against Imperial Manor and Willow, jointly and severally, in the amount of $7,781,921. Judgment was entered against Tarkas in the amount of $2,593,973.97, reflecting one-third of the total amount due. Additionally, judgment was entered against Imperial Manor, Willow and Tarkas, jointly and severally for counsel fees in the amount of $40,672.50 and costs of $3,900.97.

On appeal, defendants present the following arguments:

POINT ONE - THE JUDGMENT AGAINST SURBHI TARKAS SHOULD BE REVERSED BECAUSE PLAINTIFF NEVER PROVED THE AMOUNT DUE ON THE GUARANTY

POINT TWO - PLAINTIFF WAS NOT A PARTY TO THE CONTRACT BETWEEN DEFENDANTS AND THE BUYER AND THEREFORE IT WAS ERROR TO DISMISS THE TORTIOUS INTERFERENCE CLAIM AS A MATTER OF LAW

POINT THREE - PLAINTIFF WAS A PARTY TO THE AGREEMENT EMBODIED IN THE CONSENT ORDER AND IT WAS ERROR TO DISMISS THE COUNTERCLAIM FOR BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

POINT FOUR - DEFENDANTS' PRIOR COUNSEL'S INCAPACITATION BY CONFLICT OF INTEREST AT A CRUCIAL TIME IN THE CASE CONSTITUTED AN EXCEPTIONAL CIRCUMSTANCE WARRANTING THE EXTENSION OF DISCOVERY

POINT FIVE - DEFENDANTS WERE DEPRIVED OF THEIR RIGHT TO TRIAL BY JURY

We affirm.

I.

Surbhi Tarkas gave a personal and unconditional guaranty of the $20 million loan by NHI to Imperial Manor and Willow in a document that stated in Section 3:

Irrevocable Guaranty of Payment. Guarantor hereby unconditionally and irrevocably guarantees the timely payment and performance of the Indebtedness as and when due. Guarantor's guaranty of the Indebtedness is irrevocable. This Guaranty cannot be cancelled by Guarantor and shall remain in full force and effect until full and final payment and discharge of the Indebtedness. This Guaranty can only be terminated by Lender's delivery to Guarantor of a written instrument expressly terminating this Guaranty. The liability of all guarantors signing this Guaranty is joint and several, and the term "Guarantor" shall refer herein jointly severally and individually to all guarantors signing this Guaranty.

Section 4 of the guaranty, as we previously stated, limited Tarkas's liability to $6.6 million plus one-third of any outstanding accrued and unpaid interest, plus other charges. That section further provided that "Guarantor's Maximum Liability shall be reduced by $1.00 for each $3.00 of principal payments made on the Indebtedness by Borrower."

In her appeal, Tarkas claims that NHI was required to prove the amount of her indebtedness on the guaranty and that, despite the existence of the consent judgment of foreclosure fixing the amount owed to NHI by Imperial Manor and Willow, it failed to properly do so. This position is premised on a provision of the consent judgment that stated the "judgment will not be a judgment as to the personal liability of the individual defendants Amjad F. Chowdhry and Surbhi V. Tarkas. That liability being the subject of a separate proceeding." The order did not render the judgment non-evidential in NHI's action on the notes.

Judge Sapp-Peterson found the provision upon which Tarkas relies to have been necessitated by the existence, in the action by NHI on the notes, of claims by Chowdhry and Tarkas of entitlement to a fair market value credit that was unavailable to Imperial Manor and Willow in the foreclosure action. No other reasonable explanation for its presence has been advanced. Accordingly, once the fair market value of the properties was established in the action on the notes (a presently uncontested figure), a calculation of the indebtedness guaranteed by Tarkas and hence the amount of the judgment against her was essentially a ministerial act. Further proofs were not required. No argument has been presented that the amount of the judgment in foreclosure was wrong (indeed, it was conceded to be correct), that the guaranty by Tarkas was inapplicable or revoked, that the terms of that guaranty were misconstrued in calculating the judgment against her, or that the calculation was erroneous. In this circumstance, we decline to address Tarkas's further evidential arguments, finding them to be wholly lacking in merit. R. 2:11-3(e)(1)(E).

II.

Imperial Manor, Willow and Tarkas challenge the entry of judgment in NHI's favor on their claim of tortious interference with prospective contractual advantage, contending that the court erred in finding NHI's relationship to the purchase and sale agreement, arising from the necessity of obtaining NHI's consent to the terms of the agreement, insulated it from liability as if it were a party to the prospective contract.

We reject defendants' argument. The settlement agreement between Imperial Manor, Willow and NHI entered in the foreclosure action gave NHI the right to accept or reject any purchase and sale agreement that varied from the terms of agreements that had been previously circulated, as the August 21, 2002 agreement did. Further, the obligations of Imperial Manor and Willow as sellers and Princeton as purchaser under the August 21 purchase and sale agreement were made expressly contingent upon NHI's acceptance of the restructuring of the mortgage loan, its assumption by Princeton, and the placement of a second mortgage on the properties in the amount of $5 million. As the result of the language contained in the two agreements, NHI was authorized to reject the purchase and sale agreement, which did not conform in its terms to previously circulated drafts.

A legally cognizable claim of tortious interference with prospective economic advantage requires, among other things, not only evidence of a prospective economic benefit, but also evidence of interference occurring without justification or excuse. Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 751, 756-59 (1989); Rainier's Dairies v. Raritan Valley Farms, Inc., 19 N.J. 552, 563 (1955). Since NHI was authorized to reject the nonconforming August 21 agreement, the evidence necessary to establish an element of defendants' claim was lacking. The court's conclusion was thus correct.

Moreover, as we have previously noted, the settlement agreement deferred execution on the judgment of foreclosure only until August 12, at which time presentment of a signed purchase and sale agreement acceptable to NHI was required to avoid the scheduling of sheriffs' sales. Defendants concede that there is no evidence of contact between NHI and either Princeton or Broadway prior to August 12. As a consequence, no claim of interference can lie.

For a like reason, the court properly entered judgment in favor of NHI on defendants' claim of breach of a duty of good faith and fair dealing. NHI's contractual obligation to refrain from scheduling the sheriffs' sales expired on August 12, 2002, at which time Imperial Manor's and Willow's failure to offer an acceptable purchase and sale agreement eliminated any further contractual restraint on NHI's conduct, freeing it to negotiate with Broadway, Princeton or any other entity for the lease or sale of the properties at issue. A claim of breach of an implied covenant of good faith and fair dealing by NHI cannot arise in the absence of any contractual obligation on its part. Wade v. Kessler Institute, 172 N.J. 327, 345 (2002).

In fact, there is no evidence that NHI conducted any negotiations with Broadway or its affiliated entities until some time after the August 21 purchase and sale agreement had been rejected by it as nonconforming, and after NHI had made it clear to defendants that it intended to proceed with the sheriffs' sales. In these circumstances, neither theories of waiver nor estoppel can operate to further extend NHI's obligations under the settlement agreement. That NHI's correspondence to defendants prior to August 21 suggested a willingness to accept a late-submitted purchase and sale agreement is immaterial, since we have found that NHI properly rejected the agreement that was offered for its approval, finding its terms unacceptable.

III.

We likewise reject defendants' argument that the court erred in denying their request to extend the period for discovery beyond February 10, 2004. The case, filed on September 17, 2001, was at that time two years and five months old. Two extensions of the period of discovery had already been granted.

Defendants recognize that their application for an extension of discovery was governed by the "exceptional circumstances" standard set forth in R. 4:24-1(c), since at the time that it was made, a trial date had been set. They cite as evidence of such exceptional circumstances the fact that, on September 19, 2003, two years after the litigation had commenced, their attorney R. James Kravitz informed the court that discovery was outstanding, but that he was concerned that it would be "unethical" to proceed in the matter and therefore had refrained from filing a motion. However, defendants do not explain why discovery had not been diligently pursued prior to that date. Nor do they explain the delay in the entry of the appearance of substitute counsel until the period for discovery, which had been further extended by the court when it permitted prior counsel to withdraw, was within approximately one month of expiring. In these circumstances, we find no abuse of discretion on the part of the trial judge in rejecting a request for a further extension. R. 4:24-1(c); Huszar v. Greate Bay Hotel & Casino, Inc., 375 N.J. Super. 463, 471-72 (App. Div 2005).

IV.

As a final matter, defendants claim error in the court's determination to conduct a bench trial of their counterclaim of tortious interference with a prospective contract. That determination was based upon language in Section 24 of the guaranty signed by Chowdhry and Tarkas, which stated:

EACH OF GUARANTOR AND LENDER HEREBY KNOWINGLY, WILLINGLY AND IRREVOCABLY WAIVES HIS OR HER OR ITS RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTY, ANY OF THE INDEBTEDNESS, ANY COLLATERAL, ANY OBLIGOR OR ANY RELATIONSHIP BETWEEN THE LENDER AND GUARANTOR. GUARANTOR WARRANTS AND REPRESENTS THAT HE OR SHE HAS REVIEWED THE FOREGOING WAIVERS WITH HIS [or] HER LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WIAVED HIS OR HER JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS SECTION MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

A substantially identical provision applicable to Imperial Manor and Willow appears in Section 11.23 of the loan agreement.

Although defendants acknowledge these provisions and concede their applicability to the trial that occurred, they claim that because NHI offered no proof that the waivers were knowing and voluntary, they are unenforceable. We find that Fairfield Leasing Corp. v. Techni-Graphics, Inc., 256 N.J. Super. 538 (Law Div. 1992), upon which defendants rely in claiming that a presumption of unenforceability existed that NHI did not overcome, is inapplicable in the present circumstances.

In Fairfield Leasing, the jury waiver clause was not negotiated, it was inconspicuous, and it was contained in a standardized form contract of adhesion executed without the advice of counsel. Id. at 540. These conditions do not exist in the present case, since defendants were represented by counsel, their contracts with NHI were fully negotiated, and the waivers were in larger type than the remainder of the agreements and confirmed the presence of legal consultation. As Judge Coburn acknowledged in Fairfield Leasing, "where the parties have been represented by counsel or there was evidence of negotiation without substantial inequality in bargaining positions, or the waiver provision was conspicuous, the tendency has been to enforce the waiver." Id. at 542. We find no principled basis for the trial judge in this case to have declined to do so.

We note additionally, that the argument that the waiver was not knowing or voluntary was not raised before the trial judge. Neider v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973). Further, we note that the existence or not of a jury was rendered immaterial by the proper dismissal of defendant's tortious interference claim.

 
Affirmed.

Pursuant to the settlement agreement, the judgment in foreclosure was entered on August 9, 2002.

A lease agreement dated December 18, 2002 was later executed between NHI, Broadway and an entity related to Broadway. The agreement contained an option to purchase the properties prior to June 30, 2004 for the sum of $18,513,703.

Defendants had previously fully utilized their statutory rights pursuant to N.J.S.A. 2A:17-36 to two fourteen-day adjournments of the sheriffs' sales, as permitted by the settlement agreement, and had filed a petition for bankruptcy, which had been dismissed in November 2002.

The transcript of the court's decision, which reflects incomplete recordation, suggests that a portion of NHI's motion may have been granted. The resulting order has not been included in defendants' appendix.

The firm's first motion to be relieved as counsel was filed on January 8, 2003 and denied by order of April 16, 2003. Its second motion was filed on July 23, 2003 and decided on October 27, 2003 in an order that was amended on November 21, 2003 with no change in the date for retaining substitute counsel or for the conclusion of discovery.

This amount consisted of a consent judgment of $22,030,000 and interest at 18% per annum of $6,063,018. The interest figure was recalculated in connection with the entry of judgment.

This amount has been obscured by a stamp placed on the judgment and is not recited by either party. It may therefore be slightly inaccurate. The calculations resulting in this figure have not been supplied.

We note that entitlement to a fair market credit was raised as an issue before Judge Shuster prior to the July 29, 2002 settlement. Claims of tortious interference and breach of a duty of good faith and fair dealing were expressed in connection with defendants' December 16, 2002 application for an order to show cause. These claims, therefore, were not new.

(continued)

(continued)

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A-0487-04T2

November 9, 2005