MARK ALSENTZER v. STEPHEN N. BULBOFF

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6595-03T26595-03T2

MARK ALSENTZER,

Plaintiff-Respondent/

Cross-Appellant,

v.

STEPHEN N. BULBOFF,

Defendant/Third-Party

Plaintiff-Appellant,

and

STOUT PARTNERSHIP,

Third-Party Defendant/

Respondent.

_________________________________________________

 

Argued October 25, 2005 - Decided January 26, 2006

Before Judges Axelrad, Payne and Levy.

On appeal from Superior Court of New Jersey,

Chancery Division, General Equity Part,

Gloucester County, Docket No. C-45-01.

Steven E. Angstreich argued the cause for

appellant/third-party plaintiff (Levy,

Angstreich, Finney, Baldante, Rubenstein &

Coren and Russell & Russell, attorneys; Mr. Angstreich, Amy R. Brandt and Brock D. Russell of counsel).

William F. Ziegler argued the cause for

plaintiff-respondent/cross-appellant and

third-party defendant/respondent (Holston

MacDonald Uzdavinis Eastlack & Ziegler

attorneys; Mr. Ziegler, John C. Eastlack

Jr. and Samuel J. Myles on the brief).

PER CURIAM

On July 11, 2001, plaintiff Mark Alsentzer filed suit against defendant Stephen Bulboff seeking recovery of an unpaid balance of $300,000 allegedly due on a promissory note, plus interest, penalties and attorney's fees. Bulboff answered and filed a counterclaim against Alsentzer. He later filed a third-party complaint against an entity for which Alsentzer then acted as managing partner, Stout Partnership. In the counterclaim and third-party complaint, Bulboff sought damages as the result of Alsentzer's failure to close on two stock purchase agreements (SPAs) between Alsentzer and himself and one agreement between Stout and himself.

On November 21, 2003, the trial court entered summary judgment in Alsentzer's favor on the note. It also found breach of the notice provisions of the SPAs, but reserved for trial whether compliance with the notice provisions had been waived. In an amended judgment entered on June 30, 2004 after a bench trial, the court dismissed Bulboff's counterclaim and third-party complaint, finding that Bulboff had failed to properly schedule a closing on the SPAs as specified by their terms, that those terms had not been waived, and that the agreements had expired. In addition to awarding Alsentzer $300,000 on his promissory note claim, the judge granted interest in the amount of $57,000 for a period of two years, together with penalties of $17,850. Lawyers' fees of $27,175 and costs of $1,870.86 were additionally awarded, for a total sum of $403,895.86.

Bulboff has appealed the dismissal of his counterclaim and third-party complaint. Alsentzer has cross-appealed the court's award of interest, penalties and attorneys' fees.

On appeal, Bulboff claims that the court erred in (1) finding that Alsentzer and Stout Partnership did not breach the SPAs when they had actual knowledge of Bulboff's desire to close and refused to do so; (2) permitting Alsentzer and Stout to assert defective notice as a defense to their failure to close; (3) ruling that Alsentzer and Stout did not waive strict compliance with the SPAs' notice requirements; (4) failing to address Bulboff's claim of Alsentzer's breach of his duty of good faith and fair dealing by leading Bulboff to believe that a closing date would be set and in denying Bulboff's reasonable expectations; and (5) agreeing that Alsentzer and Stout had a right to rescind the SPAs, and that such rescission was embodied in the document known as the Stout II partnership agreement.

In his cross-appeal, Alsentzer argues that the trial court erred in arbitrarily limiting interest and penalties due under the note to a two-year period and awarding counsel fees only for recovery on the note. We affirm in part and reverse in part.

I.

This dispute arises out of a series of transactions between Bulboff, who owned or leased approximately thirteen car wash facilities, and Alsentzer, the chief executive officer of United States Plastic Lumber (USPL), a managing partner of Stout Partnership and a member of the board of directors of Mace Security International. Relevant facts commence with negotiations for the sale by Bulboff of his car wash businesses to American Wash Services, which was thereafter scheduled to merge into Mace. Consideration for the sale by Bulboff consisted in part of the receipt by him of shares of Mace common stock.

After the sale of Bulboff's car wash businesses had been negotiated, Alsentzer as general partner of Stout, designated as "seller," and Bulboff as "buyer" entered into a SPA, dated only by the year 1999, whereby Bulboff would exchange 313,348 of his shares in Mace for 313,348 shares of USPL owned by Stout. An additional SPA, dated March 26, 1999, provided for the exchange by Alsentzer as "seller" of 100, 000 SPL shares for 100,000 restricted shares of common stock in Mace owned by Bulboff, the "buyer." In a third SPA dated July 1, 1999, Bulboff as "seller" agreed to sell 25,000 restricted shares of common stock in Mace to Alsentzer for $2.00 per share. All agreements were drafted by Bulboff's attorney. A principal purpose of these transactions was to diversify the parties' stock holdings. Additionally, Bulboff, sought to acquire unrestricted shares of USPL so that he could sell them and repay a debt to Alsentzer, which we will discuss later in this opinion.

The agreements each provided that the sales or exchanges would occur at a "Closing (as hereinafter defined)" and "[i]n the event a closing does not occur prior to the Expiration Date, this Agreement shall terminate and be of no further force or effect." The three agreements also contained a section entitled "Certain Definitions" that stated:

For purposes of this Agreement, the following terms shall have the following meanings:

a. "Closing" shall mean five (5) business days after the closing of a transaction pursuant to which Mace acquires all of the shares of American Wash Services, Inc., pursuant to a Merger Agreement dated March 29, 1999 ("the Paolino Agreement").

b. "Expiration Date" shall mean the date that the Paolino Agreement is terminated without a closing taking place.

In a section entitled "Closing Procedures," each agreement provided: "At any time from the date hereof until the Expiration Date, Buyer may set the date and place of the Closing by delivering written notice thereof to Seller at least three days prior to the designated date of Closing." Addresses for the service of notice were provided. The agreements also stated that "[a]ny provision of this Agreement may be amended or waived only with the prior written consent of the Seller and Buyer."

Neither of the SPAs envisioning a stock swap contained a provision for a market value adjustment if one stock to be swapped became more valuable than the other. Unfortunately, that is what happened, and USPL's value at one time came to exceed approximately twice that of Mace, thereby making a swap disadvantageous to Alsentzer and Stout. Additionally, testimony and evidence at trial established Alsentzer's concern that the stock transactions would be regarded as illegal insider trading by the Securities and Exchange Commission as the result of the business relationship between Alsentzer and both Mace and USPL.

Because the debt carried by Bulboff's car wash businesses at the time of the closing on their sale was greater than the parties had anticipated, necessitating a cash contribution by him, on July 1, 1999, a further agreement was reached between Bulboff and Alsentzer whereby Alsentzer loaned Bulboff the sum of $450,000. The loan was secured by a promissory note and a pledge of 200,000 shares of Mace stock. The note provided for payment of interest from July 1, 1999 of nine and one-half percent per annum. The maturity date of the loan was October 1, 1999, at which time a lump-sum balloon payment of the entire outstanding balance plus interest was due. Additionally, the note provided for the payment of a late charge of five cents for each dollar overdue for a period in excess of ten days and for the payment by the defaulting debtor of reasonable attorney's fees incurred in collecting on the note. Bulboff returned $150,000 of the balance of the loan immediately, as not needed. The remainder was not repaid, nor was the stock that served as collateral tendered. Bulboff claimed at trial that his purpose in signing the March 26, 1999 SPA was to acquire enough saleable shares of USPL to fund repayment of his debt to Alsentzer. Bulboff's liability on the principal amount of the note is not disputed on appeal.

On June 30, 1999, the car wash deal closed, and a merger of American Wash Services and Mace occurred on July 5, 1999. None of the SPAs was consummated. At trial, Bulboff testified that he had sent several notices to close to Alsentzer. However, he produced a copy of only one notice which proposed two possible closing dates, but did not set a definite date for closing. Bulboff testified that he had hand delivered the notice to Alsentzer in Florida. Alsentzer denied receipt. The court credited Alsentzer's testimony, finding that Bulboff's recollection at trial of alleged events relating to notice that he had been unable to recall during his deposition rendered Bulboff's trial testimony incredible. In argument before us, Bulboff's counsel conceded the absence of proper written notice. According to Alsentzer's testimony, by late in the summer of 1999, both he and Bulboff recognized that the stock swap deals were dead. However, the alternative of pooling the stock was raised by Alsentzer. On November 2, 1999, a proposed agreement captioned the "Stout II Partnership Agreement" was faxed on behalf of Alsentzer to Bulboff's New Jersey attorney. The agreement provided for the formation of a partnership between the Stout Partnership and Bulboff for "the purpose of purchasing or acquiring securities and making other investments in real or personal property as the opportunity may arise and as may be agreed upon by the Partners." The initial capital contribution by the partners was stated as 413,348 shares each of Mace and USPL, the total amounts of the prior stock swap agreements, and it was proposed that the stock would be pooled and sold, with the proceeds divided equally between the parties. Bulboff eventually rejected this proposal.

Matters lay fallow thereafter until June 2001 when Alsentzer demanded payment on the note or release of the shares pledged as security. Bulboff defaulted, and suit was commenced by Alsentzer.

II.

Following entry of partial summary judgment and trial of remaining issues, the court issued an opinion from the bench. First, the judge confirmed his prior determination that notice of an intent to close was not properly provided, because Bulboff had failed to offer evidence of a writing conforming to the requirements of the SPAs that was delivered to Alsentzer or Stout. He also found evidence of receipt by Alsentzer of any other form of adequate notice by Bulboff or his attorney to be absent, and determined that any communications by Bulboff with Alsentzer were too indefinite to constitute notice, in that they may have indicated a general desire to close, but did not state a closing date. The court relied additionally upon testimony by Bulboff's attorney that he had never been requested by Bulboff to set a closing date, and that Bulboff was unwilling to disturb the friendly relationship that he maintained with Alsentzer by demanding a closing. The judge further cited to testimony that suggested that at the time, Bulboff lacked the shares of Mace stock necessary for a closing to occur.

The judge then found that the requirement of notice had not been waived, since there was no evidence that expressly or by implication demonstrated that Alsentzer had knowingly and voluntarily relinquished his rights in that regard. The court found:

This is not an agreement that lapsed on the basis of allegedly some oblique technical deficits. This is just a total failure of the buyer to ask in plain everyday English for a firm settlement date and set a time and place for settlement, which is the simplest of all things to do. As I said, also, there was no written or oral waiver of any terms, in my view.

* * *

As I said, Bulboff never really indicated a firm date for settlement, never instituted a lawsuit, and the bottom line here is that there still wouldn't have been a claim made if Mr. A did not make an effort to collect his note.

The judge found further that Alsentzer came to believe that the stock swap envisioned by two of the SPAs was instead a sale with insider trading implications that could violate the law, but that Alsentzer still favored diversification. For that reason he sought to repudiate the agreements, which he in any case thought were long dead, and to substitute the stock pooling arrangement contained in the Stout II partnership agreement forwarded to Bulboff on November 2, 1999. The judge found further that, although Bulboff ultimately rejected the pooling proposal, his willingness to discuss it was consistent with Alsentzer's impression that the initial stock swap agreements had lapsed. The court noted testimony by Bulboff's attorney that in connection with the rejection of the Stout II proposal, the attorney had orally demanded that the original stock swap agreements be honored. However, the attorney admitted that the demand was never reduced to writing, and no closing date was proposed.

The court found that by the time of the November 2 proposal, the SPAs had expired. In that connection, the judge noted an ambiguity in the expiration date of the SPAs arising from the definitional section of those agreements, which provided for a closing to occur five days after the merger of American Wash Services into Mace, but further defined the expiration date of the agreements as occurring when "the Paolino Agreement is terminated without a closing taking place" -- a definition deprived of any significance by the fact that the closing had occurred. In this circumstance, in which the agreements could otherwise be construed as non-terminable, the court found that case law required that a "reasonable" time for termination be read into them, and that such time had passed. In general, the court rejected the credibility of Bulboff, finding that his conduct did not comport with business practices with which Bulboff was entirely familiar and his claim that he provided notice to Alsentzer and was strung along by him was not supported by the attorney that represented Bulboff throughout the period in question. Further, the court found that trial testimony at variance from that given by Bulboff in deposition exhibited a "clarity of recollection born of desperation," not the truth. Evidence that Bulboff claimed to exist to support his positions had not been produced during trial, and its absence had not been adequately explained. Indeed, the judge repeatedly observed that Bulboff's excuses for the lack of evidence most closely resembled "the dog ate my homework." Yet, "[i]n this case we have no dog, no x-ray of the dog," to establish the dog's conduct as an appropriate excuse.

The judge ended his opinion by stating:

In this case I clearly conclude that Bulboff was not snookered in any way, or no one made him wait to do anything. The bottom line here is that Mr. Bulboff and his attorney just did not do anything the right way, and that's the bottom line in this case.

For all these reasons I find that as a matter of law that the contract was appropriately canceled, that there was no . . . estoppel here, no breach of good faith and fair dealing, no waiver and no deal.

The counterclaim and third-party complaint were thus dismissed.

III.

Our review of the record satisfies us that the court's extensive findings of fact with respect to the counterclaim and third-party complaint were based upon substantial credible evidence and that no manifest denial of justice has taken place. We therefore decline to disturb those findings on appeal. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974) Because Bulboff's arguments before us in large measure constitute challenges to the court's factual findings, those arguments are likewise rejected.

Bulboff argues on appeal that because Alsentzer, and through him, Stout, had actual oral notice of Bulboff's "desire to close," the court erred in finding that Alsentzer and Stout did not breach the SPAs. However the clear and unambiguous notice provisions of the agreements did not permit the expression of a mere desire for action to trigger the obligations that the agreements contained. County of Morris v. Fauver, 153 N.J. 80, 103 (1998) (where the terms of a contract are clear, the court must enforce it as written); East Brunswick Sewerage Auth. v. East Mill Assocs., Inc., 365 N.J. Super. 120, 125 (App. Div. 2004) ("A court has no power to rewrite the contract of the parties by substituting a new or different provision from what is clearly expressed in the instrument.") (citing Schenck v. HJI Assocs., 295 N.J. Super. 445, 450 (App. Div. 1996), certif. denied, 149 N.J. 35 (1997) and Tomaiuoli v. U.S. Fid. & Guar. Co., 75 N.J. Super. 192, 201 (App. Div. 1962)). The agreements explicitly required written notice of a closing date to be provided by Bulboff to Alsentzer, and he has now admitted that no such notice was ever delivered.

The judge, by distinguishing precedent offered by Bulboff, found further that no evidence of notice in any other form that was of sufficient specificity to meet the agreements' terms was offered, either. We will not disturb that finding, which was based upon a thorough review of the evidence and evaluation of the credibility of the parties.

In the absence of actual notice, neither Alsentzer or Stout was obligated to act. Precedent cited by Bulboff, which concerns situations in which actual notice was received, is thus inapposite. See G.E. Capital Mortgage Servs. Inc. v. Marilao, 352 N.J. Super. 274 (App. Div. 2002) (finding homeowner had waived strict compliance with statutory notice of foreclosure by declining to have notice posted on house); Gaglia v. Kirchner, 317 N.J. Super. 292 (App. Div. 1999) (actual notice of the rejection of a real estate contract was sufficient to avoid the contract, despite improper form of rejection), certif. denied, 160 N.J. 91 (1999); Public Service Elec. & Gas Co. v. Uphold, 316 N.J. Super. 168 (App. Div. 1998) (strict compliance with statutory notice of cancellation provisions was not required when actual notice had occurred and no prejudice was demonstrated), certif. denied, 160 N.J. 90 (1999); Watford v. Unsatisfied Claim & Judgment Fund Bd., 113 N.J. Super. 495 (Law Div. 1971) (notice to the Board, which was not on the statutorily mandated form, was sufficient to trigger the Board's duty to defend).

We find no legal support for Bulboff's further contention that Alsentzer and Stout were precluded from asserting that Bulboff's notice was defective because they had not notified Bulboff of that conclusion. Alsentzer's and Stout's inaction in that regard does not provide evidence of their waiver of the notice provisions of the agreements, either expressly or by implication. The judge found after a review of the trial record that no evidence of a voluntary and intentional relinquishment of a known right on Alsentzer's or Stout's part had been adduced by Bulboff, as required to prove waiver. County of Morris, supra, 155 N.J. at 104; West Jersey Title & Guar. Co. v. Industrial Trust Co., 27 N.J. 144, 152-53 (1958).

Nor can Alsentzer's obvious diminishment of interest in consummating the SPAs be interpreted as creating an estoppel barring insistence upon compliance with those agreements' notice provisions. The testimony suggests Bulboff recognized Alsentzer's reluctance to close, and as a result of their friendship, did not press the issue with him. The evidence does not disclose misleading conduct on the part of Alsentzer or of reliance by Bulboff upon such conduct. Knorr v. Smeal, 178 N.J. 169, 178 (2003); Casamasino v. City of Jersey City, 158 N.J. 333, 354 (1999); County of Morris, supra, 153 N.J. at 104.

We do not construe the court's opinion as according either Alsentzer or Stout the right to "rescind" the SPAs while they remained in effect. The court instead read a reasonable termination provision into the agreements, as it was legally required to do given the absence of any clear indication when they were terminable and no evidence that the parties intended their perpetual duration. See In re Miller's Estate, 90 N.J. 210, 218-19 (1982) (a perpetual contract is not favored, and if a contract contains no express terms as to its duration, it is terminable at will or after a reasonable time); Restatement (Second) of Contracts 204 (1981) (when the parties to a valid contract have not agreed in respect to a term that is essential to a determination of their rights and duties, a term that is reasonable in the circumstances shall be supplied by the court). We decline to disturb the court's factual finding that termination had occurred, and was recognized to have occurred prior to November 2, 1999 and prior to any definite expression by Bulboff of an intent to close at a specific time. The SPAs had become financially unviable, and that fact was known to both Alsentzer and Bulboff.

Finally, we find no support for Bulboff's position on appeal that the court erred in determining that Alsentzer had not breached a duty of good faith and fair dealing in "leading Bulboff to believe Alsentzer would set a closing date and denying Bulboff his reasonable expectations under the Stock Purchase Agreements." Bulboff is correct that such a duty is inherent in every contract. Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001). However, after a comprehensive review of the evidence, the court suggested such a claim had not been supported by any evidence of unfair dealing. We concur. Bulboff possessed the power to require that the parties' obligations under the SPAs be performed. Evidence demonstrates that he failed to exercise that power.

As a consequence of the foregoing, we affirm the trial court's order dismissing Bulboff's counterclaim and third-party complaint as the result of his failure to meet his burden of proof on the issues raised therein.

III.

Following trial of the matter, the court held additional argument on the issues of interest and late fees on the promissory note and attorneys' fees.

As we have previously stated, the promissory note, entered on July 1, 1999, provided for payment of interest at a rate of nine and one-half percent per annum. The agreement further provided that "[c]ommencing August 1, 1999 and continuing on the first day of each month thereafter until October 1, 1999, Maker shall pay interest only . . . at the aforesaid rate . . . on the principal balance outstanding during the previous month." The entire balance on the note was payable in full on the maturity date, October 1, 1999. The agreement additionally stated:

If Maker shall fail to pay any sum when due or if Maker shall in any other way be in default hereunder, then the entire unpaid principal balance of this Note, together with interest accrued thereon and with all other sums due or owed by Maker hereunder or under the terms of the Stock Pledge Agreement shall at the option of Payee become due and payable immediately together with a reasonable attorney's fee for collection and payment of the same may be enforced and recovered by the entry of judgment on this Note and the issuance of execution thereon.

The remedies of Payee provided herein and in the Stock Pledge Agreement shall be cumulative and concurrent, and may be pursued singly, successively and together at the sole discretion of Payee, and may be exercised as often as occasion therefore shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release of the same.

Maker (and all endorsers, sureties and guarantors) waive presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note; liability hereunder shall be unconditional and shall not be affected in any manner by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Payee.

A verified complaint seeking recovery on the loan was filed in the matter by Alsentzer on July 11, 2001 after entry, on July 9, 2001, of an order to show cause why Bulboff should not be restrained from transferring the 200,000 shares of Mace stock that served as collateral for the loan.

Despite the terms of the agreement, the court only allowed two years of prejudgment interest, finding that term "reasonable" as the result of Alsentzer's perceived delay in obtaining judgment on his claim. Late fees were similarly limited.

Alsentzer has appealed from the court's ruling, and we reverse, finding no basis in law for the court's determination not to honor the terms of the note and no obligation on the part of Alsentzer to mitigate his damages by moving more swiftly. Although the allowance of interest in contractual actions is generally governed by equitable principles, such principles are inapplicable when the rate of interest is, as here, determined by contract. Van Note-Harvey Assocs. v. Twp of E. Hanover, 175 N.J. 535, 541-42 (2003). On appeal, Alsentzer seeks interest from October 1, 1999 and is entitled to that sum. Late fees shall similarly be enhanced. Bulboff is entitled to a credit for any interest and late fee payments made to date.

As a final matter, we find that the trial judge correctly interpreted the note as authorizing an award of attorneys' fees to Alsentzer, and that he properly exercised his discretion in limiting those fees to an amount attributable solely to the action on the note. Packard-Bamberger & Co, Inc. v. Collier, 167 N.J. 427, 444 (2001); Grubbs v. Knoll, 376 N.J. Super. 420, 431-32 (App. Div. 2005).

 
We affirm the court's grant to plaintiff Alsentzer of attorneys' fees and its dismissal of defendant Bulboff's counterclaim and third-party complaint. We reverse its award of interest and late fees, and remand the matter for entry of an amended judgment.

In May 1999, an agreement was entered between USPL and Bulboff restricting Bulboff's right to sell these shares for a period of one year.

Bulboff claimed at trial that sale of the 100,000 shares of USPL that were the subject of the March 26, 1999 agreement was not restricted.

Alsentzer has made no claim under the July 1, 1999 SPA, in which he as "buyer" could elect to close. That SPA is not a focus of this appeal.

Bulboff testified that during this period, "I got involved in my divorce, and I was thrown from my home and my life was in turmoil. . . . I was living in -- basically living in my car out of my house, and I was just worried about basic living. I didn't have a job." Trial testimony disclosed sporadic oral contact between Bulboff and Alsentzer.

(continued)

(continued)

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A-6595-03T2

January 26, 2006