NEW WEST CALDWELL DENTAL GROUP, PA. v. PARS ENTERPRISES, LLC.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4867-07T34867-07T3

NEW WEST CALDWELL DENTAL

GROUP, PA,

Plaintiff-Respondent/

Cross-Appellant,

v.

PARS ENTERPRISES, LLC and

HAMID JABBARY,

Defendants-Appellants/

Cross-Respondents,

and

CALDWELL PHYSICAL

THERAPY CENTER,

Defendant-Respondent/

Cross-Appellant.

___________________________________________________

 

Argued February 3, 2010 - Decided

Before Judges Wefing, Messano and LeWinn.

On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-87-05.

Christine D. Petruzzell argued the cause for appellants/cross-respondents (Wilentz, Goldman & Spitzer, P.A., attorneys; Ms. Petruzzell, of counsel and on the brief; Deniza G. Gertsberg and Daniel J. Kluska, on the brief).

Jeffrey A. Bronster argued the cause for respondent/cross-appellant New West Caldwell Dental Group, P.A.

Michelle S. Babbitt (Kudman Trachten Aloe LLP) argued the cause for respondent/cross-appellant Caldwell Physical Therapy.

PER CURIAM

Defendant PARS Enterprises, LLC (PARS) owned commercial property at 700 Passaic Avenue, West Caldwell; defendant Hamid Jabbary was the sole shareholder of PARS and a practicing dentist (collectively, defendants). PARS purchased the property in early 1999 from Modon Realty Company (Modon). At the time, a portion of the premises was occupied by Caldwell Physical Therapy Center (Caldwell) pursuant to a lease previously entered with Modon and assumed by PARS. That lease provided Caldwell with a right of first refusal to purchase the property.

PARS entered into a lease for the balance of the space with West Caldwell Dental Group, P.C. (Dental Group), Jabbary's dental practice. This lease essentially mirrored the lease between Caldwell and Modon in all material respects. Prior to taking possession of its leasehold, Dental Group renovated its office space, extending its wall so as to reduce the lobby which had been part of Caldwell's leasehold by 112 square feet. PARS informed Caldwell about its renovation plans and Caldwell was aware that PARS was extending its space. Caldwell did not complain about the renovations or the reduction of square footage, and PARS made no adjustment to Caldwell's base rent or its percentage obligations for real estate taxes and common charges pursuant to the lease.

On March 28, 2001, Dr. Forauzan Ghaffari formed plaintiff, New West Caldwell Dental Group, P.A., which purchased Dental Group from Jabbary, and assumed its lease with PARS, pursuant to a separate modification, assignment and assumption agreement (the modification agreement). The modification agreement made significant changes to the existing lease and was negotiated by Ghaffari, Allen Raimi, Ghaffari's husband and plaintiff's office manager, and Jabbary. The modification agreement provided in part:

1. [T]he [l]ease is hereby modified as follows:

(a) the term has been extended for ten (10) years (Initial Term) with a ten (10) year option to renew (the Renewal Term) at the Tenant's option;

(b) the rent for the first year of the Initial Term shall be $3300[] per month;

(c) the rent shall be increased each year after the first year of the Initial Term by an amount equal to 3% of the prior year's rent;

. . . .

(f) the rent during the Initial Term and the Renewal Term shall be triple net with the Tenant paying its pro-rata share being 35% of any increase in real estate taxes over the base year which is the year 2000, plus 35% of common area maintenance charges . . . .

The modification agreement also provided plaintiff with an option to purchase the property not contained in the original lease:

(h) Tenant shall have the option to purchase the Property in which the Business Premises are located for the sum of $1,000,000.00 which option is exercisable at any time during the first four years of the Initial Term subject to the right of first refusal of [Caldwell] (the Other Tenant) to purchase the Property . . . .

As part of the sale of Dental Group, Jabbary agreed to remain in the employ of plaintiff for one year to help smooth the transition and introduce Ghaffari to his patients. The contract of sale for the dental practice (dental contract) provides:

Hamid Jabbary . . . will provide services to [plaintiff] for one (1) year after the Closing Date, as, if and when necessary provided that Buyer shall pay . . . Jabbary forty per cent (40%) of . . . Jabbary's production (i.e. his patient billings) which shall be paid . . . by the 10th day of the following month.

After the first year from the Closing Date, . . . Jabbary will provide consulting services to [plaintiff] no more than two days per month provided that [plaintiff] shall pay . . . Jabbary a per diem consultation fee of $500.00. [Plaintiff] shall also give . . . Jabbary reasonable advance notice of his [sic] for Dr. Jabbary's consulting services. Payment for such services shall be made at the end of the [sic] each consulting day.

Raimi had no experience running a dental practice. Since he "had no clue" about its day-to-day operations, Jabbary helped him "[i]n every step of it." He also showed Raimi how to figure out the compensation due to Jabbary under the agreement, and he reviewed the documentation regarding his compensation "every single month."

However, disputes developed between plaintiff and Jabbary. On March 5, 2003, Jabbary wrote Raimi and Ghaffari declaring plaintiff to be in breach of the dental agreement because of their "unjustifiable refusal to make the scheduled payment . . . of your loan obligation . . . ." However, the letter also noted that plaintiff had engaged in the "inexcusable practice of making continuous and serious late payments each month on both the note and the rent payments." Jabbary claimed plaintiff had "failed to calculate late payment charges and interest on all late payments . . . ." Jabbary promised to send a calculation itemizing the amounts due, plus late fees; no such letter was sent, and PARS continued to accept plaintiff's rental payments without objection.

In February 2003, Jabbary informed Caldwell that pursuant to the lease, PARS was entitled to a rent increase as of February 2002. Notwithstanding PARS's contention that Caldwell was not paying the correct amount of rent, it did not serve Caldwell with a default letter at that time. Anthony D'Annunzio, Caldwell's office manager and the husband of its principal, agreed with Jabbary's interpretation of the lease; he also realized that as a result of the renovations, Caldwell now occupied 62% of the total square footage of the building and was entitled to a recalculation of its rent, real estate taxes, and common charges.

By letter dated March 4, 2003, Caldwell informed PARS of the reduction in space and the resulting error in the calculations; PARS denied that the renovations had resulted in any reduction of Caldwell's leasehold. When the parties met with respective counsel to discuss the dispute, Caldwell expressed an interest in purchasing the property. Without resolution of their differences, both sides agreed to explore the possibility of a sale. PARS continued to accept Caldwell's rent payments without any adjustment, and it never served a default notice upon Caldwell.

In November, Caldwell advised PARS that it was still contemplating the possibility of a purchase, though "[c]onsidering the option that [PARS] ha[d] given the other tenant in the building [it] believe[d] that there [wa]s no rush in [its] presentation." PARS's counsel responded by suggesting another face-to-face meeting "to resolve the remainder of the outstanding issues surrounding the Lease Agreement as the majority of those issues were put on hold, pending [Caldwell's] decision whether to purchase the property." Discussions continued into 2004 when PARS notified Caldwell that it was not willing to sell at that time, but might be willing to do so in Spring 2005.

D'Annunzio remained interested, however, and knew that Caldwell could not force a sale but that plaintiff could. In the latter part of 2004, D'Annunzio and Raimi spoke about Caldwell and plaintiff purchasing the property together. They reached an agreement wherein one of the entities would buy the property and "flip[] [it] into an LLC that was jointly owned 65% and 35%," with Caldwell maintaining the majority share. D'Annunzio understood that Jabbary would have to consent to a sale to the LLC; otherwise, one entity or the other would need to consummate the purchase. Caldwell was prepared to purchase the property on its own and had the necessary funds to do so.

Plaintiff and Caldwell formed 700 Passaic Avenue, L.L.C. to purchase the property and applied for the necessary financing with Commerce Bank. D'Annunzio paid the $9000 mortgage commitment fee out of his personal bank account. A commitment was issued for a $900,000 commercial loan, subject to numerous conditions; the commitment expired sixty days after acceptance. By letter dated February 11, 2005, plaintiff gave written notice to PARS that it was exercising its option. Jabbary provided the letter to his attorney, Alexander M. Lee, who secured a copy of the mortgage commitment from plaintiff.

By letter from Lee dated March 4, 2005, PARS rejected plaintiff's exercise of the option, claiming that "the Lease [had been] terminated on or about March 15, 2003 for [plaintiff's] failure to remedy certain defaults . . . ." PARS specifically claimed that plaintiff was in default for failing to pay its share of taxes and common charges, and for unpaid late charges in the amount of $47,200. PARS also claimed "that [plaintiff's] election [wa]s not timely made in accordance with the terms and conditions of the Lease." PARS also alleged that plaintiff was in default for failing to deliver proof of insurance, as required under the lease, and that plaintiff's partnership with Caldwell "constitute[d] a de facto transfer or assignment" of its option rights without consent in further violation of the lease. PARS advised that the lease had been terminated, and "demand[ed] surrender and return of possession of the premises within thirty (30) days notice of th[e] letter." On March 7, Jabbary wrote D'Annunzio advising he would not sell the property:

Your recent actions have been nothing short of a complex conspiracy. Despite our open communication, you have chosen to conspire against me with [plaintiff] for your own personal gain to defraud me by asserting a claim to unlawfully purchase my building. As a result of your actions, I now know all your letters and delays in payment have been nothing but a rouse [sic] to cammouflauge [sic] your intentions to defraud me of monies due me under the lease.

No sale occurred and the mortgage commitment expired.

On March 18, plaintiff filed a verified complaint against PARS and Jabbary seeking specific performance of the option and an order directing PARS to provide notice to Caldwell; damages for PARS's breach of contract; damages for tortious bad faith; and a declaration that plaintiff had not materially breached its lease and that PARS had no grounds for eviction. Plaintiff named Caldwell as a "nominal defendant" based upon its right of first refusal. On March 30, 2005, plaintiff sought an order to show cause with temporary restraints prohibiting PARS from selling or otherwise transferring its interest in the property.

On April 21, defendants filed their answer, as well as a seven-count counterclaim against plaintiff and a one-count cross-claim against Caldwell. In the counterclaim, defendants sought possession of the premises as a result of various alleged breaches of the lease by plaintiff, and damages, alleging theories of breach of contract, quantum meruit, unjust enrichment, breach of the implied covenant of good faith and fair dealing, and tortious interference. Defendants' cross-claim sought damages from Caldwell alleging tortious interference.

On April 20, pursuant to Rule 1:4-8, plaintiff's counsel sent a "frivolous litigation letter," to defense counsel and demanded the withdrawal of certain "offending documents . . . ." It provided in part:

The first document that I wish to address is the Answer and Counterclaim filed on behalf of your clients. We do not object to that part of the document that addresses a wage dispute between Dr. Jabbary and [plaintiff]; we recognize that this is a routine contract dispute that Dr. Jabbary has a right to file a claim on. Our objections relate to that part of the case that involves the purchase option . . . .

[Emphasis added.]

Counsel then specifically cited various documents and claims asserted in the counterclaim that he deemed objectionable and frivolous. On April 26, pursuant to Rule 1:4-8, Caldwell's counsel sent a "frivolous litigation letter" to defendants' counsel demanding withdrawal of the cross-claim. Defendants did not withdraw their counterclaim or cross-claim.

In the interim, on April 19, plaintiff filed an amended complaint, which added two additional counts against Jabbary individually. Plaintiff sought damages as a result of overpayments it had allegedly made to Jabbary pursuant to the dental contract, and for payments it made to other dentists because Jabbary "quit providing services" after plaintiff exercised its option. On June 7, defendants filed an answer to the amended complaint.

On June 8, citing Jabbary's deposition that had already taken place, plaintiff's counsel sent defense counsel another "frivolous litigation letter" demanding the withdrawal of Jabbary's employment/wage dispute claim. Jabbary did not withdraw the claim.

On June 9, Caldwell filed its answer to defendant's cross-claim, and asserted a counterclaim against defendants seeking damages for the overpayment of rent due to the reconfiguration of its demised premises; specific performance under the lease requiring PARS to afford notice so it could exercise its right of first refusal; damages for breach of contract and tortious bad faith against PARS and Jabbary; a declaration that it had not materially breached its lease and that PARS lacked any grounds for eviction; and attorneys' fees and costs pursuant to Rule 1:4-8.

Plaintiff and Caldwell renewed their motions for partial summary judgment. On October 28, the judge granted partial summary judgment to plaintiff, finding that plaintiff's exercise of the option was timely; that the joint venture between plaintiff and Caldwell did not vitiate the option; and that PARS had waived plaintiff's alleged breaches of the lease. By separate order, the judge entered partial summary judgment in favor of Caldwell dismissing defendants' cross-claim with prejudice, and ordering PARS to extend the right of first refusal to Caldwell. The court also concluded that PARS's refusal to extend notice of the right of first refusal was a violation of the covenant of good faith and fair dealing. Although denying defendants' motion for reconsideration, the judge granted a stay and ordered plaintiff and Caldwell to pay PARS "only that portion of the rent that cover[ed] [PARS's] mortgage, taxes, and insurance" each month, and to place any additional amounts due as monthly rent into respective escrow accounts "until further order of the Court."

A bench trial took place thereafter over twenty-six days intermittently between March and August 2006. The judge issued a written decision on October 30, 2007. She concluded plaintiff was entitled to damages occasioned by PARS's refusal to honor the option to purchase, fixing those damages as "all rent payments from and after April 1, 2005 until the actual date of closing and . . . the difference between the interest rates existing on April 1, 2005 and the rates at such time as a closing actually takes place." She further found that PARS breached the covenant of good faith and fair dealing, but that no additional damages were warranted. The judge denied plaintiff's claim for tortious interference against PARS and Jabbary, finding the claims to be "too vague and illusory . . . ." The judge denied plaintiff's claims against Jabbary arising out of the dental practice contract. She awarded plaintiff $1,119.87 for overpayments of its maintenance obligations under the lease.

The judge concluded Caldwell had proven that PARS breached the lease by failing to provide notice of its right of first refusal, awarded compensatory damages in the same manner as she did for plaintiff, and further awarded D'Annunzio the $9000 he paid to secure the mortgage commitment. She also concluded that Caldwell was entitled to a rent abatement "based upon the reconfiguration of the square footage under the lease . . . ." The judge further determined that PARS "violated the implied covenant of good faith and fair dealing with respect to Caldwell," but awarded no additional damages.

The judge rejected PARS's and Jabbary's claims set forth in the counterclaim. Finally, she rejected plaintiff's and Caldwell's claims that Jabbary should be held personally responsible for their damages, and denied their request for punitive damages.

On December 21 and 26, 2007, respectively, Caldwell and plaintiff moved for attorneys' fees and costs pursuant to N.J.S.A. 2A:15-59.1 and Rule 1:4-8. On January 28, 2008, the judge rendered an oral opinion setting forth her reasons for awarding attorneys' fees and costs, as well as a minor modification of her earlier decision. On February 6, she entered an order and final judgment awarding sanctions in the form of attorneys' fees and costs against PARS and Jabbary "jointly and severally" pursuant to N.J.S.A. 2A:15-59.1 and Rule 1:4-8 -- $115,965.50 to plaintiff, and $102,000.54 to Caldwell, together with accrued interest. Final judgment on the compensatory damages claims was entered on May 2 in favor of Caldwell for $42,897.52 and in favor of plaintiff for $16,242.30 against only PARS. This appeal followed.

PARS argues that the judge improperly determined on summary judgment that plaintiff's exercise of its option to purchase was "timely and effective." PARS and Jabbary further contend that the award of counsel fees and costs was improper, as was the award of compensatory damages. Jabbary also argues that the judge erred in denying his claims under the dental contract regarding services rendered to plaintiff.

Plaintiff has cross-appealed. It contends that the judge erred as to the amount of compensatory damages awarded, erred in denying its claim for tortious interference, erred in not awarding punitive damages regarding defendants' breach of the implied covenant of good faith and fair dealing, and erred as to the amount of counsel fees awarded. Caldwell has also cross-appealed. It contends that the award of counsel fees and costs was insufficient, that the compensatory damages awarded were insufficient, and that punitive damages should have been imposed.

We have considered the arguments raised in light of the record and applicable legal standards. We affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

I.

PARS argues the judge erred by granting partial summary judgment declaring that plaintiff's exercise of the option to purchase was timely and proper because the option had expired, or, alternatively, that the terms of the modification agreement were ambiguous and summary judgment was inappropriate. It further argues that plaintiff's exercise of the option was an attempt to transfer its option rights to Caldwell without approval, and that the judge improperly determined that PARS waived plaintiff's breaches of the lease.

When reviewing a grant of "summary judgment, we [employ] the same standard[s] . . . [used] by the motion judge." Atl. Mut. Ins. Co. v. Hillside Bottling Co., 387 N.J. Super. 224, 230 (App. Div.) (citation omitted), certif. denied, 189 N.J. 104 (2006). We first determine whether the moving party has demonstrated there were no genuine disputes as to material facts, id. at 230, and then we decide "whether the motion judge's application of the law was correct." Id. at 231.

[A] determination whether there exists a "genuine issue" of material fact that precludes summary judgment requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party.

[Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).]

"In . . . our review, we owe no deference to the" motion judge's conclusions on issues of law. Atl. Mut. Ins. Co., supra, 387 N.J. Super. at 231.

The original lease between PARS and Dental Group was for a term of five years, effective March 1, 1999. The modification agreement, executed on March 28, 2001, extended that term for ten years, and defined that period as the "Initial Term." It provided plaintiff with an option to renew for an additional ten year term, defining that period as "the Renewal Term." The modification agreement also provided plaintiff with an option to purchase the property, "exercisable at any time during the first four years of the Initial Term." The judge concluded the expiration date for the option to purchase was thus March 27, 2005, and therefore plaintiff's exercise of the option was timely. PARS contends that the modification agreement modified the original lease that commenced in 1999, created an "Initial Term" of fifteen years, and that the four-year period to exercise the option expired in 2003.

"When reading a contract, our goal is to discover the intention of the parties. Generally, we consider the contractual terms, the surrounding circumstances, and the purpose of the contract." Marchak v. Claridge Commons, Inc., 134 N.J. 275, 282 (1993) (citing Jacobs v. Great Pac. Century Corp., 104 N.J. 580, 582 (1986)). "To determine the meaning of the terms of an agreement by the objective manifestations of the parties' intent, the terms of the contract must be given their 'plain and ordinary meaning.'" Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997) (citation omitted). "The court makes the determination whether a contractual term is clear or ambiguous." Schor v. FMS Fin. Corp., 357 N.J. Super. 185, 191 (App. Div. 2002) (citing Nester, supra, 301 N.J. Super. at 210). "An ambiguity in a contract exists if the terms of the contract are susceptible to at least two reasonable alternative interpretations[.]" Schor, supra, 357 N.J. Super. at 191 (quotation omitted).

The judge's decision was fully supported by the plain and ordinary meaning of the terms used in the modification agreement. The original lease with Dental Group did not contain the phrase "Initial Term." That first appeared in the modification agreement, which defined the ten-year extension period as the "Initial Term." More importantly, the option to purchase was not contained in the original lease, a document that involved PARS and Dental Group, both of which were essentially controlled by Jabbary. It therefore logically flows that PARS and plaintiff, a new legal entity, intended to define a new lease term, i.e., the "Initial Term," distinguished it from the "Renewal Term," and that they intended plaintiff be permitted to exercise its option to purchase during the first four years of the new "Initial Term," i.e., on or before March 27, 2005.

Although we need not look beyond the express terms of the modification agreement to reach our conclusion, the terms of the dental contract provide further support. That document, executed by the parties on the same day as the modification agreement, provides:

The lease with PARS ENTERPRISES, LLC, . . . as Landlord, and WEST CALDWELL DENTAL GROUP, P.C., as Tenant for the Office, a copy of which has been give to the Buyer, subject to the following modifications which will be including [sic] in the closing documents entitled Modification, Assignment and Assumption of Lease Agreement (the Modification): . . . 3) the term shall be 10 years from the Closing Date with a 10 year option to renew the Lease with annual increases of 3%; 4) Tenant shall also have the option to purchase the property in which the Office and Practice is located which is only exercisable in years one (1) through four (4) for the purchase price of $1,000,000.00 subject to the right of first refusal of [Caldwell] . . . .

[Emphasis added.]

The judge properly determined on summary judgment that plaintiff exercised its option in a timely fashion.

PARS argues that plaintiff was not entitled to exercise the option because it was not in compliance with the terms of the lease/modification agreement. It contends that plaintiff did not exercise the option -- another entity did -- or that plaintiff had assigned its rights without approval.

In a real estate transaction, an option contract is a unilateral agreement requiring a party to convey property at a specified price, provided the option holder exercises the option "in strict accordance" with the terms and time requirements of the contract. "Within the terms and time limitations of the option contract, the property owner is bound by an irrevocable offer to sell the property, while the option holder is under no obligation to act. Because the property owner cannot withdraw the offer, we require the option holder, who is "free to accept or reject," to adhere strictly to the terms of the contract.

[Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 223 (2005) (citations omitted).]

Plaintiff exercised the option in strict compliance with the terms of the offer. PARS did not retain a right to restrict plaintiff's exercise of the option by limiting the method or manner in which it chose to buy the property.

PARS also argues that summary judgment was not appropriate because plaintiff was in violation of various provisions of the lease, and its acceptance of rent after notice of these violations was not, as a matter of law, a waiver of those breaches. We disagree.

As a general proposition, "acceptance of rent with knowledge of [a] breach [of the lease] . . . constitutes a waiver of all past breaches." Carteret Props. v. Variety Donuts, Inc., 49 N.J. 116, 129 (1967) (citations omitted). The same rule applies in the context of a lease that contains an option to purchase. See Matlack v. Arend, 2 N.J. Super. 319, 326 (Ch. Div. 1949) (holding that landlord's acceptance of rent from subtenant waived any breach of lease's prohibition on sub-letting, and thus provided no basis for landlord to deny exercise of option to purchase); see also Schlegel v. Bott, 93 N.J. Eq. 607, 610-11 (E. & A. 1922) (landlord's failure to collect security deposit at inception of lease cannot be used to defeat tenant's option to purchase after landlord collected rent). PARS accepted plaintiff's monthly rent after the alleged breaches had occurred for approximately two years without complaint. See Goodyear Tire & Rubber Co. v. Kin Props., Inc., 276 N.J. Super. 96, 103 (App. Div.) ("[E]quity aids the vigilant, not those who sleep on their rights[,]" and "does not ordinarily aid one whose indifference was the sole cause of the injury of which he now complains.") (quotations omitted), certif. denied, 139 N.J. 290 (1994).

In short, we affirm the judge's grant of partial summary judgment declaring that plaintiff had properly and timely exercised its option to purchase the property.

II.

Before we consider the award of counsel fees to plaintiff and Caldwell, we examine the other issues raised by the appeal and cross-appeals. Our review of the factual findings made by the trial judge in a non-jury trial is quite limited. Estate of Ostlund v. Ostlund, 391 N.J. Super. 390, 400 (App. Div. 2007). "'[W]e do not weigh the evidence, assess the credibility of witnesses, or make conclusions about the evidence.'" Mountain Hill, L.L.C. v. Twp. of Middletown, 399 N.J. Super. 486, 498 (App. Div. 2008) (quoting State v. Barone, 147 N.J. 599, 615 (1997)). In general, the judge's factual "findings . . . should not be disturbed unless they are so wholly insupportable as to result in a denial of justice . . . ." Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974) (quotation omitted). However, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

(A)

PARS contends that the award of damages against it was "improper and without support in the evidence presented at trial." It makes four specific claims: (1) plaintiff and Caldwell were obligated to pay rent, and therefore were not entitled to have any portion of the rent remitted as damages; (2) plaintiff and Caldwell were not entitled to any interest on the portion of the rent they were permitted to retain; (3) the judge improperly determined that Caldwell's office space was reduced by 112 square feet, and, therefore, it was not entitled to an adjustment in rent; and (4) the judge improperly reimbursed Caldwell $9000 for the mortgage commitment fee. Additionally Jabbary argues that the judge erred in denying his employment claims.

"'Under contract law, a party who breaches a contract is liable for all of the natural and probable consequences of the breach of that contract.'" Totaro, Duffy, Cannova and Co., v. Lane, Middleton & Co., 191 N.J. 1, 13 (2007) (quoting Pickett v. Lloyd's, 131 N.J. 457, 474 (1993)). "[T]he goal is 'to put the injured party in as good a position as . . . if performance had been rendered.'" Totaro, supra, 191 N.J. at 13 (quoting Donovan v. Bachstadt, 91 N.J. 434, 444 (1982)); see also Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 13 (2004) ("In an ordinary breach-of-contract case, the function of damages is simply to make the injured party whole. . . .") (quotation omitted). "[I]n order to be compensable, 'the loss must be a reasonably certain consequence of the breach[,] . . . [but] the exact amount of the loss need not be certain.'" Totaro, supra, 191 N.J. at 14 (quoting Donovan, supra, 91 N.J. at 445). "'It is therefore sufficient that the plaintiff prove damages with such certainty as the nature of the case may permit, laying a foundation which will enable the trier of the facts to make a fair and reasonable estimate.'" Totaro, supra, 191 N.J. at 14 (quoting Lane v. Oil Delivery Inc., 216 N.J. Super. 413, 420 (App. Div. 1987)). The "award of damages is left to the sound discretion of the trier of fact . . . ." Endress v. Brookdale Cmty. Coll., 144 N.J. Super. 109, 141-42 (App. Div. 1976).

The judge ordered plaintiff and Caldwell to pay PARS only that portion of the monthly rent that covered its mortgage, taxes, and insurance, and place any additional amounts into respective escrow accounts. She subsequently released those escrows to plaintiff. PARS contends this accorded plaintiff and Caldwell a windfall. PARS also argues that the judge erred in awarding plaintiff and Caldwell interest on the rent monies retained by PARS. In their cross-appeals, plaintiff and Caldwell contend that the judge should have remitted all rental payments they made after PARS failed to honor the exercise of plaintiff's option because from that point on, PARS was not entitled to receive any rent from either of them.

In our view, the judge fashioned a remedy that equitably addressed the circumstances presented. PARS continued as landlord after the breach, and incurred certain expenses as a result. Plaintiff and Caldwell continued to utilize the property for their businesses, and did not have to pay carrying charges they would have paid if they had closed on the property. Imposing interest on the amount retained by PARS recognized that the circumstances were caused by its failure to honor plaintiff's option and Caldwell's right of first refusal. "Whenever a legal right is infringed or may be endangered, or may not adequately address a concern which has arisen, a court of equity may grant appropriate relief." Banach v. Cannon, 356 N.J. Super. 342, 361 (Ch. Div. 2002). The remedy fashioned by the judge was an appropriate exercise of her broad discretion.

PARS contends that the judge erred by awarding Caldwell a set-off of $12,058.16 against rent it previously paid to compensate it for the reduction of square footage because the lobby space was not part of Caldwell's leasehold; and, under the terms of the lease, Caldwell's rent was not calculated on a square footage basis. The argument is of insufficient "merit to warrant [any extensive] discussion . . . ." R. 2:11-3(e)(1)(E).

PARS could not dispute that its renovations reduced the size of the lobby, and that the lobby was originally intended and used as part of Caldwell's suite. Although the lease did not expressly utilize square footage as a basis to calculate rent, it provided that Caldwell's "share" of the premises was 65%. The judge's decision in this regard was supported by the competent, relevant and reasonably credible evidence presented at trial, and we will not disturb it. See Rova Farms, supra, 65 N.J. at 483-84.

The same can be said of PARS's claim of error in awarding Caldwell $9000 paid for the mortgage commitment because Caldwell was in breach of its lease. Those alleged breaches were in dispute when the parties suspended discussion with an eye towards Caldwell's possible purchase, and the judge ultimately determined that Caldwell was not in breach. It is well established that consequential damages are "those fairly and reasonably contemplated by the parties at the time of the execution of the contract . . . ." Paris of Wayne, Inc. v. Richard A. Hajjar Agency, 174 N.J. Super. 310, 318 (App. Div.) (citation omitted), certif. denied, 85 N.J. 454 (1980). It was reasonable to believe that if Caldwell was properly notified that plaintiff exercised its option, it would invoke its right of first refusal and obtain financing to consummate the purchase.

Lastly, Jabbary argues that the court erred by "fail[ing] to award [him] the sum of $12,639 owed for [the] services that he performed during his last month at the practice in February 2005." Raimi disputed this claim, and the judge found his testimony to be credible, and Jabbary's to be incredible. See State v. Locurto, 157 N.J. 463, 474 (1999). The argument lacks "sufficient merit to warrant [further] discussion . . . ." R. 2:11-3(e)(1)(E).

(B)

Plaintiff contends that the judge improperly denied it relief on the theory of tortious interference with prospective economic advantage and should have held Jabbary personally liable. Both plaintiff and Caldwell claim they were entitled to punitive damages.

"An action for tortious interference with a prospective business relation protects the right 'to pursue one's business, calling or occupation free from undue influence or molestation.'" Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 750 (1989) (citation omitted). To establish such a claim, plaintiff must establish: (1) a reasonable expectation of economic advantage; (2) that defendants intentionally interfered with that interest; (3) injury or loss inflicted without justification or excuse; and (4) causation. Id. at 751-52.

The judge denied plaintiff's claim for tortious interference finding that plaintiff's dealings with Caldwell had not ripened into a "protectable interest," and therefore did not satisfy the first element of the tort. That conclusion is supported by the record. Caldwell paid for the mortgage commitment, was prepared to purchase the property on its own, and had no legal responsibility to purchase the property with plaintiff. Although an LLC was formed, no operating agreement was executed by the parties. Since plaintiff failed on its claim against PARS, it follows that Jabbary could not be personally liable on this theory.

"[T]he decision to award [punitive] damages and the amount" of such damages is "within the sound discretion of the" factfinder. Leimgruber v. Claridge Assocs. Ltd., 73 N.J. 450, 456 (1977). "To warrant a punitive award, the defendant's conduct must have been wantonly reckless or malicious. There must be an intentional wrongdoing in the sense of an 'evil-minded act' or an act accompanied by a wanton and willful disregard of the rights of another." Nappe v. Anschelewitz, Barr, Ansell & Bonello, 97 N.J. 37, 49 (1984) (citation omitted).

Punitive damages are usually not awarded when the essence of the claim is the breach of a commercial contract. See Sandler v. Lawn-A-Mat Chem. & Equip. Corp., 141 N.J. Super. 437, 449 (App Div.) ("Where the essence of a cause of action is limited to a breach of . . . a [commercial] contract, punitive damages are not appropriate regardless of the nature of the conduct constituting the breach."), certif. denied, 71 N.J. 503 (1976). Exceptions to this general rule, however, include cases that present "an aggravated set of facts," or involve the existence of a fiduciary relationship. Ibid.; see also Sec. Aluminum Window Mfg. Corp. v. Lehman Assocs., Inc., 108 N.J. Super. 137 (App. Div. 1970).

There was no fiduciary relationship between PARS and plaintiff or Caldwell. The judge concluded that PARS's conduct, "[a]s repugnant as [it] may [have] be[en], . . . cannot be seen as the type of 'evil-minded act' or the product of 'actual malice' that is the hallmark of punitive damages." We find no mistaken exercise of the judge's discretion.

III

In granting plaintiff's and Caldwell's motions for counsel fees, the judge explained:

As of [the court's grant of partial summary judgment] the defendant knew that the option was valid. . . . And nevertheless, he refused to compromise. Defendant wanted to maintain the litigation. And from what I understand persisted, in fact, in demanding more than the stated option price. I heard [defense counsel] say that all this was was Dr. Jabbary acting in his own economic interest, which the evidence at trial reflected was an effort to receive another $600,000. But the case law tells us that it is improper to do that if you do it without regard for the rights of others.

. . . From the time I granted partial summary judgment, as I see it, that is where the frivolousness of the defendants' position became clear and what is admittedly the central issue of the case from which everything else flowed.

Although she accepted the lodestar amounts proposed by plaintiff and Caldwell, the judge reduced those amounts by eliminating all fees and costs incurred prior to the grant of partial summary judgment on October 28, 2005.

Despite this conclusion, the judge then reviewed some of the points raised by PARS in opposition to plaintiff's exercise of the option. She reviewed plaintiff's success in the litigation, noting "[i]t lost out on punitive damages and it lost out on tort damages . . . . As I see it those were . . . the big ticket items and probably one of the main incentives in the litigation." (Emphasis added). The judge reduced plaintiff's award by an additional twenty-five percent based on the overall relief it obtained in the litigation. The judge otherwise did not reduce Caldwell's fees, noting that it "had no choice" but to participate in the litigation. The judge noted that the issues Caldwell raised "required a trial due to Dr. Jabbary's intransigen[ce]. He wouldn't agree on anything, even though he had no contrary evidence. He wouldn't abandon the cross-claim for tortious interference against [Caldwell]." The judge concluded that Jabbary "kept this litigation going in an ego driven attempt to prove he personally was in the right . . . . He prolonged the trial. He provoked a vigorous defense. It was . . . an abuse of the system."

Defendants contend that: the litigation that followed the entry of partial summary judgment was not frivolous; they were entitled to the advice of counsel; the judge failed to separate frivolous from non-frivolous aspects of the litigation and made an award on non-frivolous aspects; the judge failed to consider defendants' ability to pay; the judge failed to consider the amount of damages awarded in determining the award of attorneys' fees; plaintiff's counsel was declared ineligible to practice law during a portion of the trial and yet was awarded fees for services rendered during this timeframe; plaintiff and Caldwell were not completely successful in the litigation and the awards should have been further reduced; and defendants' motion for reconsideration of the grant of partial summary judgment was not frivolous. Plaintiff and Caldwell contend they should have been awarded the full amount of fees requested, and plaintiff further argues it should be entitled to fees based upon the frivolous nature of defendant's appeal.

Frivolous litigation sanctions may be imposed pursuant to N.J.S.A. 2A:15-59.1a(1) "if the judge finds at any time during the proceedings or upon judgment that a complaint, counterclaim, cross-claim or defense of the nonprevailing person was frivolous." To be "frivolous," the pleading or defense must be "commenced, used or continued in bad faith, solely for the purpose of harassment, delay or malicious injury[,]" or with knowledge that it "was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law." N.J.S.A. 2A:15-59.1(b)(1) and (2). "The term 'frivolous' as used in the statute must be given a restrictive interpretation." Belfer v. Merling, 322 N.J. Super. 124, 144 (App. Div.) (citing McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 561 (1993)), certif. denied, 162 N.J. 196 (1999).

A claim will be deemed frivolous or groundless when no rational argument can be advanced in its support, when it is not supported by any credible evidence, when a reasonable person could not have expected its success, or when it is completely untenable. Fagas v. Scott, 251 N.J. Super. 169, 189 (Law Div. 1991) (citation omitted). False allegations of fact will not justify a fee award unless they are made in bad faith, for the purpose of harassment, delay, or malicious injury. [McKeown-Brand], supra, 132 N.J. at 561. When the plaintiff's conduct bespeaks an honest attempt to press a perceived, though ill-founded and perhaps misguided, claim, he or she should not be found to have acted in bad faith. Id. at 563.

[Belfer, supra, 322 N.J. Super. at 144-45.]

"Rule 1:4-8 supplements N.J.S.A. 2A:15-59.1 . . . ." Masone v. Levine, 382 N.J. Super. 181, 192 (App. Div. 2005). "An attorneys' fees sanction pursuant to R. 1:4-8 'is not warranted where the plaintiff has a reasonable good faith belief in the merit of [its] action.'" DeBrango v. Summit Bancorp, 328 N.J. Super. 219, 227 (App. Div. 2000) (alteration in original) (quoting J.W. v. L.R., 325 N.J. Super. 543, 548 (App. Div. 1999) (citation omitted).

We have recently held that "'[c]ontinued prosecution of a claim or defense may, based on facts coming to be known to the party after the filing of the initial pleading, be sanctionable as baseless or frivolous even if the initial assertion of the claim or defense was not.'" United Hearts, L.L.C. v. Zahabian, 407 N.J. Super. 379, 390 (App. Div.) (quoting Iannone v. McHale, 245 N.J. Super. 17, 31 (App. Div. 1990) (applying N.J.S.A. 2A:15-59.1)), certif. denied, 200 N.J. 367 (2009). "The requisite bad faith or knowledge of lack of well-groundedness may arise during the conduct of the litigation." United Hearts, supra, 407 N.J. Super. at 409 (quotation omitted). "In reviewing the award of sanctions pursuant to Rule 1:4-8, we apply an abuse of discretion standard." Ibid. (citing Masone, supra, 382 N.J. Super. at 193).

We accept the judge's conclusion that until she granted partial summary judgment to plaintiff regarding the option to purchase, defendants' opposition was not frivolous. We reject the arguments made by plaintiff and Caldwell in their cross-appeals that they are entitled to fees ab initio because PARS had no basis upon which to deny the vitality of the option. We find no mistaken exercise of the judge's discretion in this regard.

Therefore, the issue became whether defendants' pursuit of their counterclaim and cross-claim, or their defense of the claims asserted by plaintiff and Caldwell, thereafter became "frivolous," as defined by the statute. Clearly, plaintiff never abandoned any of its claims against defendants, and indeed continues to pursue them on appeal. Although it contends that the critical issue in the case was the purchase option, and we agree, the reality is that plaintiff pursued the "big ticket items" throughout trial and lost. Defendants' cannot be held to have acted frivolously in vigorously contesting those claims.

The same is true regarding plaintiff's claims against Jabbary under the dental contract. We note that in his first "frivolous litigation" letter, plaintiff's counsel specifically limited his notice to the option issue, and recognized Jabbary's "right to file a claim" "on [his] routine contract dispute." Nevertheless, it was plaintiff that subsequently filed an amended complaint that challenged Jabbary's claims for remuneration and sought, instead, to have Jabbary disgorge monies already paid on the theory that he had breached the dental agreement. The judge thought these claims asserted by plaintiff were justified in light of Jabbary's counterclaim, noting, "that's what happens when you bring forth a claim like this." Yet, the judge noted Raimi's claim of overpayment to Jabbary was "a de minimis thing," and found against plaintiff on this claim.

In his opening statement made on the first of twenty-six days of trial, plaintiff's counsel told the judge that her grant of partial summary judgment was a ruling "on what was probably the single most important issue in the case . . . ." He further noted that by ordering specific performance, the judge "ha[d] cured most of the problems that were raised." He added that the "most significant" issues that would take "the majority of [his] presentation" would involve plaintiff's claims that Jabbary should be personally liable, and that punitive damages should be awarded. As noted, defendants successfully defeated those claims at trial. We think it is clear, therefore, that in most important respects, the defenses raised by defendants to plaintiff's claims could not be cast as "frivolous," thus justifying an award of fees and costs.

With regard to defendants' counterclaim against plaintiff, we surmise from the judge's ruling that she concluded Jabbary's continued pursuit of those claims was motivated by bad faith, i.e., they were frivolous. We will not disturb those findings, and to the extent defendants' arguments seek to have us do so, we reject them.

Thus the issue becomes whether plaintiff, which pursued without success a number of issues, all of which necessitated opposition from defendants' perspective, and which were inextricably entwined with the frivolous claims made by defendants in their counterclaim, is entitled to the sanctions of the statute and the Rule.

In Befler, supra, we vacated an award of fees based upon a claim of frivolous litigation. 322 N.J. Super. at 147. Among other reasons, we noted "that the so-called frivolous issues were not severable from the non-frivolous ones. . . . Thus plaintiff's overall complaint could not be deemed frivolous." Id. at 145. In Lake Lenore Estates v. Twp. of Parsippany-Troy Hills Bd. of Educ., 312 N.J. Super. 409, 421 (App. Div. 1998), however, we held that despite two admittedly "'non-frivolous' counts," the third count or plaintiff's complaint "may properly be treated as severable from the first two for purposes of determining whether it is 'frivolous.'"

Here, the judge failed to consider whether the fees and costs plaintiff incurred in defending against defendants' frivolous counterclaim could be severed from the time spent in pursuing its own claims, many of which were unsuccessful. If those fees and costs cannot be severed, then plaintiff is not entitled to any award at all. If they can, then plaintiff is entitled to an award commensurate with the time and costs associated with its defense of defendants' frivolous counterclaim. The judge should also reexamine whether only a 25% reduction in the overall award based upon plaintiff's limited success at trial is reasonable under all the circumstances. We vacate the award of counsel fees to plaintiff, and remand the matter to the trial court for further proceedings consistent with this opinion.

We make two other points regarding the hearing on remand. The judge awarded plaintiff counsel fees and costs associated with opposing defendants' motion for reconsideration of the grant of partial summary judgment. She did not explain, and it is not obvious to us, why that motion was "frivolous." On remand, the judge should set forth adequate findings and conclusions, Rule 1:7-4(a), as to why defendants' motion was frivolous, particularly since the judge determined that none of defendants' actions in opposing the grant of summary judgment was frivolous.

Additionally, when plaintiff's counsel actually moved for fees, he had been declared ineligible to practice law for failing to satisfy financial and reporting requirements to the New Jersey Lawyers' Fund for Client Protection. The period of ineligibility ran from September 24, 2007 through January 13, 2008. Rule 1:21-1(a) expressly provides: "[N]o person shall practice law in this State unless that person is an attorney holding a plenary license to practice . . . [and] is in good standing . . . ." "Recovery of compensation for legal services by one not authorized to practice law will not be permitted . . . ." Slimm v. Yates, 236 N.J. Super. 558, 564 (Ch. Div. 1989). Plaintiff is not entitled to fees for services rendered by its attorney during the period of time he was ineligible to practice.

We now consider the award to Caldwell. It was brought into the suit when plaintiff named it as a "nominal defendant" in its original and amended complaints. Defendants asserted a cross-claim against it alleging tortious interference. When it filed its answer, Caldwell asserted cross-claims against PARS and Jabbary alleging breach of contract and "tortious bad faith." However, the judge dismissed defendants' cross-claim and granted Caldwell partial summary judgment at the same time she granted plaintiff partial summary judgment. Thus, from that point on in the litigation, Caldwell was in pursuit of its own claims for compensatory and punitive damages.

We note that Caldwell never moved for summary judgment on the claims for compensatory damages, despite contending throughout the litigation, and the judge ultimately concluding, that PARS's opposition was without merit. In deciding the motion for fees, the judge noted that defendants took no discovery and had "no opposing measurement that would disprove [Caldwell's] calculations, nothing." Then the judge quickly turned her attention to defendants' previously-dismissed cross-claim, noting it alleged Caldwell "conspired and tortiously interfered with defendants' relationship with plaintiff." The judge noted that Caldwell's counsel "kept saying over and over, I shouldn't be in this case. I shouldn't be in this courtroom . . . ." But the judge noted, "I think she had no choice but to be here when those kind of issues were floating around." As we noted, however, those issues were no longer "floating around" during the twenty-six day trial over which the judge presided.

As we see it, any claim Caldwell had for fees and costs must be premised upon the frivolous nature of defendants' defenses to its claims. Since the judge denied Caldwell's affirmative claims excepting its contractual claims, clearly some of those defenses were not frivolous.

We vacate the award made to Caldwell and remand the matter to the trial judge for further consideration. On remand, the judge is required to state her reasons for concluding that defendants' defenses to Caldwell's affirmative claims were frivolous as defined by the statute, and any award made shall take into account the limited nature of Caldwell's success on its affirmative claims.

We are compelled to make one last comment. In deciding the fee issue, the judge provided an extensive description of Jabbary's conduct during trial:

The dynamics in this courtroom, him on the stand, him facing the counsel table. I mean, it showed me that he thought he was in control. . . .

I could use a number of adjectives. I could say devious, conniving, vengeful, arrogant, and, yes, I did catch him frequently with that smirk on his face. This is what I'll call a nightmare type of client whose conduct sandbags his own representation. . . .

Clearly, we accept all of the judge's comments regarding Jabbary's conduct at trial. Such conduct deserves only the sternest condemnation and, when appropriate, sanctions if it rises to contumacious levels. However, whether such conduct translates into a finding that a party's claims or defenses are "frivolous" is another matter.

 
Affirmed in part, reversed in part, and remanded. We do not retain jurisdiction. The cross-appeals are dismissed.

Caldwell's lease provided that its "pro-rata share for purposes of calculating taxes and all other common charges shall be 65%[,]" and that "[i]f the Building is changed so that the square footage of rentable building space is changed, then the allocations provided for in this Lease shall be equitably and proportionately adjusted."

PARS had commenced a landlord-tenant action seeking to evict Caldwell alleging non-payment of various charges and late fees.

Their earlier motions had been denied without prejudice.

We subsequently denied defendants' motion for leave to appeal.

We also conclude that defendants' arguments that they were entitled to the defense of reliance upon advice of counsel, that the judge failed to consider their ability to pay, and that the award was disproportionate to the amount of actual damages lack sufficient merit to warrant further discussion. See R. 2:11-3(e)(1)(E).

We granted defendants' motion to supplement the record in this regard.

(continued)

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A-4867-07T3

 

August 11, 2010