Y-TWO, INC. v. STEWART DAILEY, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3083-04T53083-04T5

Y-TWO, INC.,

Plaintiff-Appellant,

v.

STEWART DAILEY, MICHAEL SLOMOVITZ,

TOBY SLOMOVITZ, and ARTHUR NETZER,

Defendants,

and

BRIELLE YACHT CLUB, INC., and

ARNOLD J. D'AMBROSA,

Defendants-Respondents/

Third-Party Plaintiffs,

v.

JAMES YACENDA,

Third-Party Defendant.

__________________________________

 

Submitted October 26, 2005 - Decided January 24, 2006

Before Judges Wefing and Graves.

On appeal from Superior Court of New

Jersey, Law Division, Monmouth County,

No. L-1488-01.

OlenderFeldman, attorneys for appellant

(Kurt D. Olender and Michael J. Feldman,

on the brief).

Gibbons, Del Deo, Dolan, Griffinger &

Vecchione, attorneys for respondents

(Philip W. Crawford, on the brief).

PER CURIAM

Plaintiff has appealed from a judgment dismissing its complaint that was entered following a three-day bench trial. After reviewing the record in light of the contentions advanced on appeal, we affirm.

Plaintiff Y-Two Inc. owned a marina with 121 boat slips and related facilities located on the Manasquan River in Brielle, New Jersey, and known as the Brielle Yacht Club. There was testimony at trial that the marina's location was considered particularly favorable among boat owners, one reason being that it was not subject to freezing. Boat owners, if they wished, could leave their boats moored at their slips without risking danger from ice.

Fifty-four of these slips were leased on a short-term basis, generating regular recurring rental payments to Y-Two. The remaining sixty-seven slips were held under long-term leases that were executed pursuant to a Second Amended Offering Plan dated April 3, 1988. Under this Plan, a lessee would obtain a lease for a slip, with a lease term ending on August 15, 2077. The terms of the long-term lease called for the lessee to pay Y-Two the base rent for the entire term in advance, together with an annual pro rata percentage of operating costs and maintenance fees. Thus a long-term lease, in contrast with a short-term lease, did not generate a present income stream for the owner of the marina. Under the 1988 offering plan, the marina owner also had to pay a pro rata percentage of the marina's operating costs and maintenance fees for those slips for which long-term leases had not been executed.

In 1994 Arnold D'Ambrosa formed the corporate defendant Brielle Yacht Club, Inc. ("BYC") to purchase the interest of Y-Two Inc. in the marina and related facilities. Because these long-term leases did not generate an income stream for Y-Two, their inclusion in the sale did not affect the purchase price being paid. However, in connection with the negotiations over the terms of sale, James Yacenda, the principal of Y-Two Inc., insisted on retaining a share to the reversionary rights under the long-term leases. Arnold D'Ambrosa, the principal of BYC, resisted but eventually acceded. This agreement was reflected in a document captioned as a deed and executed by the parties on May 18, 1994. It provided in pertinent part:

Purpose of Deed. This Deed is being recorded simultaneously with a Deed from the Grantor to the Grantee, in which Deed the Grantor has conveyed ownership of the property to the Grantee. It is the purpose of this conveyance to memorialize the agreement made by the Grantor and Grantee whereby the Grantor has reserved, and does hereby reserve, an interest in the long term boat slip leases presently held by third parties. The long term boat slips which are the subject of this reservation are described on Schedule "B" attached hereto. Upon the expiration of any long term lease, or termination thereof for any reason, the rights associated with said lease(s), and the revenues thereafter generated by said boat slip, shall revert to the Grantor and the Grantee. The revenues shall be divided equally by the Grantor and Grantee, after deduction for real estate taxes, common area maintenance and repair reserves.

Acceptance By Grantee. The Grantee, by acceptance and recording of this Deed does hereby agree to be bound by the reservation herein set forth. The Grantee signs this Deed to evidence the acceptance of its provisions.

This document was recorded with the Monmouth County Clerk's office.

In connection with its purchase of the marina and to secure its payment obligations to Y-Two, BYC executed a collateral assignment of its interest in these long-term leases. Under this collateral assignment, BYC agreed:

. . . not to alter, modify or change the terms of said lease or give any consent or exercise any option required or permitted by such terms without the prior express written consent of the Assignee (Y-Two), or cancel or terminate said Lease or accept a surrender thereof or convey or transfer or suffer or permit a conveyance or transfer of the Premises demised thereby or of any interest therein so as to effect directly or indirectly, proximately or remotely a merger of the estates and rights of, or a termination of (sic) diminution of the obligations of, lessee thereunder . . ., not to consent to any assignment or subletting under said lease which consent shall not be unreasonably withheld or delayed without the prior written consent of the assignee (Y-Two) . . . and deliver at the request of the assignee all such further assurances and assignments in the premises as the assignee shall from time to time require.

This collateral assignment remained in effect until July 2001, by which point BYC had satisfied its payment obligations to Y-Two.

Several years after BYC purchased this marina, certain individuals who held long-term leases for boat slips wished to surrender their leasehold interests. One, Stewart Dailey, III, who held eight of these long-term leases, commenced litigation against BYC. The parties settled that litigation, and Dailey executed assignments, assigning all of his right, title and interest under those leases to BYC. Yacenda testified that he was unaware of that lawsuit although there was other testimony that he had been served with a subpoena to appear as a witness. The trial court in this matter did not resolve that factual dispute because it was not material to the parties' respective legal positions. BYC also took assignments from individuals holding two other long-term leases. BYC, in turn, executed new leases for these slips. These new leases did not extend the leasehold term beyond the original end date of April 15, 2077.

Y-Two contended its reversionary rights under the deed language we set forth earlier entitled it to share in the rental payments BYC received as a result of these new leases. When BYC did not agree, this litigation resulted.

Plaintiff contends on appeal that the trial court erred when it rejected plaintiff's argument that the result of BYC accepting assignments for these long-term leases was to create a merger of its interest of lessor and as lessee, thus effecting a termination of the leasehold interest. This, according to plaintiff, triggered its reversionary right.

In support of its position, plaintiff cites Anthony L. Petters Diner, Inc. v. Stellakis, 202 N.J. Super. 11, 19 (App. Div. 1985), in which we summarized the common law of merger, "whenever a greater estate and a lesser estate coincide in the same person without any intermediate estate, the lesser estate merges into the greater." Id. at 19 (quoting Contos v. Lipsky, 433 So. 2d 1242, 1244 (Fla. Dist. Ct. App. 1983)). In that same case, however, we recognized that the doctrine of merger

is not favored in equity and is never allowed unless for special reasons and to promote the intention of the parties. The doctrine of merger of estates is not to be applied rigidly and mechanically as it was at common law.

[Id. at 18 (Citation omitted).]

The Mississippi Supreme Court has expressed similar views.

[T]he doctrine of legal merger is now practically extinct both in England and in the United States, for equitable principles are generally applied by the courts of both countries. The doctrine is not now operative, either at law or in equity, if thereby the intention of the parties will be frustrated. Consequently, the courts will not compel a merger of estates where the party in whom the two interests are vested does not intend such merger to take place . . . .

[IP Timberlands Operating Co. v. Denmiss Corp., 726 So. 2d 96, 108-09 (Miss. 1998).]

Having reviewed this record, we are satisfied the trial court was entirely correct in rejecting plaintiff's contention about merger; clearly, BYC never intended such merger to occur.

Plaintiff also contends that the trial court erred in not finding that the actions of BYC constituted a breach of the covenant of good faith and fair dealing. Again, we disagree.

 
The actions of BYC were not unfair to plaintiff. Plaintiff received, at the time the initial long-term leases were executed, full payment for their use through 2077. The actions of BYC did not deprive plaintiff of any of its contractual rights. When these leases terminate in 2077, plaintiff or its successors will be entitled to an equal share in the revenues then generated.

Affirmed.

(continued)

(continued)

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A-3083-04T5

January 24, 2006