CARTERET HOLDINGS URBAN RENEWAL, LLC v. CARTERET TOWN HOMES LLC

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

 

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2490-10T1

CARTERET HOLDINGS URBAN

RENEWAL, LLC,

Plaintiff-Appellant,

v.

CARTERET TOWN HOMES, LLC,

Defendant/Third-Party

Plaintiff-Respondent,

v.

MADISON TITLE AGENCY,

Third-Party Defendant.

_______________________________

CARTERET TOWN HOMES, LLC,

Plaintiff,

v.

CARTERET HOLDINGS URBAN

RENEWAL, LLC and MADISON TITLE

AGENCY,

Defendant.

_______________________________

March 13, 2013

 

Argued October 13, 2011 - Decided

Before Judges Fuentes, Harris, and Koblitz.

On appeal from Superior Court of New Jersey,

Law Division, Monmouth County, Docket No. L-5959-08,

and Morris County, Docket No. L-258-09.

Sean F. Byrnes argued the cause for appellant

(Byrnes O'Hern, LLC, attorneys; Mr. Byrnes, on

the brief).

Samuel D. Bornstein argued the cause for respondent.

PER CURIAM

On June 19, 2008, plaintiff Carteret Holdings Urban Renewal, LLC, entered into an "Agreement" to sell 100 "residential townhomes and an office" to defendant Carteret Town Homes, LLC, for the agreed upon price of $8,000,000. Under section "a" paragraph 2 of the contract, entitled "Purchase Price," defendant gave a $250,000 deposit to be held by an "Escrow Agent in an interest bearing account and applied toward the Purchase Price." The escrow agent agreed to release the deposit and the accrued interest "to the appropriate party in accordance with th[e] Agreement."

The agreement also contained provisions describing the remedy or relief the non-breaching party would be entitled to receive in the event of a "default." Under paragraph 19, if the seller (plaintiff) failed to honor its obligations under the agreement, purchaser's (defendant's) "sole remedy" was to seek specific performance requiring the transfer of title -- waiving all rights to seek monetary damages or other forms of equitable relief. Paragraph 20 gave the seller the right to retain the $250,000 deposit as liquidated damages, "as its sole remedy . . . for the Purchaser's default." The agreement also set November 1, 2008, as "a time of the essence"1 closing date.

Both parties acknowledge that transfer of title was contingent upon defendant obtaining approval from both the United States Department of Housing and Urban Development (HUD) and the New Jersey Department of Community Affairs (DCA). When title did not close on November 1, 2008, the date set in the agreement as "the time of the essence" closing, defendant attempted to renegotiate the terms of the agreement by seeking a $1,000,000 reduction in the sales price. Plaintiff rejected defendant's renegotiation offer. Defendant terminated the contract on November 10, 2008, alleging it had been unable to secure the required HUD approval.

Plaintiff offered to extend the closing date to permit defendant more time to secure the necessary approvals from HUD. Defendant rejected plaintiff's offer to extend the closing date and demanded the return of the deposit. At this juncture, plaintiff claimed that defendant: (1) had not proceeded in good faith; (2) had not acted with due diligence in trying to obtain HUD approval; and (3) had not made any effort to obtain DCA approval.

Plaintiff filed suit in December 2008 in the Law Division in Monmouth County (Docket No. L-5959-08) seeking the forfeiture of the $250,000 deposit, denoted in the contract as "liquidated damages." Defendant filed its own independent complaint on January 9, 2009, in the Law Division in Morris County (Docket No. L-258-09) against plaintiff (as the seller) and a third-party complaint against the escrow agent, Madison Title Agency. By order dated May 6, 2009, the Law Division in Morris County consolidated the cases under L-5959-08, the docket number assigned to the Monmouth County case filed by plaintiff.

At the conclusion of the discovery period, both sides moved for summary judgment concerning the release of the $250,000 deposit.2 On December 17, 2010, the trial court denied plaintiff's motion, granted defendant's motion, and directed the Clerk of the Superior Court to release the deposit funds to defendant. Plaintiff now appeals from this judgment, arguing that the trial court erred in granting summary judgment to defendant and finding that it properly terminated the contract.

We agree that the trial court erred in disposing of this matter by way of summary judgment. Applying the same standards utilized by the trial court in deciding motions for summary judgment, we are satisfied that there are material factual issues in dispute that can only be resolved by a trier of fact. See Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); R. 4:46-2. Stated differently, the issues raised by these consolidated cases cannot be decided as a matter of law. We thus reverse and remand the matter for trial or for such other proceedings as may be warranted.

I

When plaintiff acquired the property in October 2007,3 HUD approved the transfer of title conditioned upon plaintiff upgrading the electrical and heating systems in the property. The record shows that plaintiff decided, however, to sell the property without first apprising HUD, and without performing any of the improvements it had agreed to complete. Before defendant's involvement, plaintiff engaged in negotiations with a prospective buyer, but the parties could not reach a meeting of the minds. According to defendant's statement of material facts in support of its motion for summary judgment, HUD officials were not pleased to learn of plaintiff's plan to "flip" the property without making the promised upgrades.

When plaintiff and defendant signed the agreement on June 19, 2008, they discussed the possibility that defendant would have to post some funds in escrow to assure HUD that the improvements to the property would be made. Paragraph 10(h) of the agreement memorialized these discussions as follows:

As a condition of prepayment of a HUD mortgage which previously encumbered the Property, HUD has required that an upgrade of a major system be completed at a cost of $5,000 per unit (the "HUD Rehab Obligation"). Such requirement is shown in the HUD payoff letter attached in Exhibit D together with the Seller's submission to HUD in connection with that requirement. Purchaser agrees to complete such repairs. This paragraph shall survive closing.

 

Paragraph 8 of the agreement also provided, in pertinent part, that purchaser would be solely responsible for any costs required to obtain HUD approval and that "the rehabilitation requirements of section 10(l) [of the agreement] and any conditions that HUD requires of Purchaser which relate to said rehabilitation requirements shall not release Purchaser from its obligations under this Agreement and Purchaser shall be considered as having received HUD consent for this transaction." (Emphasis added).

The agreement further stipulated that, in addition to obtaining HUD's approval, purchaser's obligations were "contingent upon" getting consent from DCA. Paragraph 8, titled "Governmental Approval," described this provision as follows:

Purchaser's obligations under this Agreement are contingent upon the Purchaser obtaining the consent of the HUD and the DCA if such consents are required for this transaction. Purchaser, within three (3) days of the expiration of the Due Diligence Period, shall submit the necessary applications or otherwise commence the procedure to obtain such consents. Purchaser shall be solely responsible for the payment of any costs, fees and expenses in connection with obtaining the required consents. In the event that despite Purchaser doing everything necessary to obtain the consent of HUD and DCA, the necessary consents are not obtained on or before the Closing Date, either party shall have the right, by notice to the other, to terminate this Agreement. In such event the Escrow Agent shall return the Deposit to Purchaser. In the event that the necessary consents are not received within sixty (60) days of the date hereof, Seller shall have the right to terminate this Agreement and return the Deposit to the Purchaser (the "Consent Expiration"). Notwithstanding the above, in the event the consents are not obtained by the Closing Date, Purchaser shall have the option, to extend the Consent Expiration for an additional thirty (30) days upon the written notice to Seller.

 

[(Emphasis added).]

 

When the parties executed the agreement, plaintiff recommended that defendant retain the services of an attorney associated with a firm in Washington, D.C., to manage the HUD application. Plaintiff also sent defendant information regarding the procedures for submitting a utility conversion request to HUD. After interviewing several attorneys, defendant agreed to retain the "Washington attorney" plaintiff recommended to file the HUD application.

On June 20, 2008, plaintiff's counsel advised the Washington attorney that "[t]he contract provides that the Purchaser will assume the repair obligations." Plaintiff's counsel also suggested that plaintiff "be the ones [sic] to introduce the purchaser to HUD (after due diligence is over) so that it does not look like [plaintiff's principals] are doing things behind their back."

On July 1, 2008, plaintiff's counsel emailed Laurence J. Rappaport, a principal of defendant, the purchasing entity, asking him "to please let [counsel] know when [he] would like to have a call with HUD to introduce [defendant] as the purchasers [sic] of the property."4 The same day, plaintiff's representatives responded to defendant's request and provided documents, including a rent roll, a DCA agreement, documents related to a tax appeal, and other relevant information.

On July 14, 2008, defendant's Washington attorney requested from her client a list of nine items, including documents and information she would need to complete the HUD application. Two days later, on July 16, 2008, Adam Altman, a principal associated with defendant, sent an email to the Washington attorney stating as follows: "I spoke with [plaintiff's counsel] and he said they have confirmed with you their reasoning for the disposition of the Carteret asset. How do you want to approach a timeframe of notifying HUD?" The Washington attorney replied that she had not heard from plaintiff's counsel and that she would "like to go to [HUD] with a [package]." She continued as follows: "As [it's] getting ready to go out the door [I'll] call. So we [should] get going with the [information] needed per [the] prior email." (Emphasis added).

On July 21, 2008, the Washington attorney's assistant, T.G., contacted defendant's representative, Altman, to follow up on the items her employer had requested a week prior. On July 29, 2008, two weeks after the Washington attorney's initial request, T.G. followed up with Altman inquiring as to when they could expect the outstanding documents and information. Altman asked T.G. to list what she had received so far and to confirm what she still needed. The record shows, in the form of a series of emails exchanged between T.G. and Altman, that defendant had not produced any of the documents or information requested by its Washington attorney, who had been retained for the express and limited purpose of obtaining HUD's approval of the sale.

On August 6, 2008, the Washington attorney sent an email with an attached draft copy of the forms used to apply to HUD for approval of sale, noting the items that remained outstanding to complete the application. Five days later, T.G. once again emailed Altman advising him that she had not received the outstanding items. On August 22, 2008, T.G. emailed Altman, attaching the HUD request, again noting that there were sections of the application left incomplete due to the missing items.5

On August 25, 2008, defendant's Washington attorney received an email from Pamela Breitenbach of HUD, requesting that the application be submitted as soon as possible because they were nearing "the end of [HUD's] fiscal year." Breitenbach emphasized the need for defendant to comply with her request within this timeframe, because her office needed "to hire a third party appraiser to move quickly; otherwise [they would] run the risk of having to wait for new funding next fiscal year[,] which can take a long time." The next day, plaintiff's counsel emailed Altman inquiring into the status of the HUD approval. Altman responded: "We are on track. It is in process[.] [The Washington attorney] has completed the package." On August 29, 2008, T.G. sent documents to Altman for his signature and subsequent submission to HUD.

Despite this, defendant's application was not sent to HUD during the month of August 2008. By September 3, 2008, T.G. had not received the signed application from Altman. HUD finally received defendant's application on September 17, 2008 -- two days shy of three months from the date the parties executed the agreement. The record before us does not indicate that defendant made any attempt to obtain DCA approval of the sale.

On September 25, 2008, HUD's representative Dean J. Santa emailed defendant's Washington attorney expressing concern that "this project was just sold and the current owner [has] not completed the work he proposed." Although not entirely clear from the record, it appears that the Washington attorney's prediction that HUD would require some kind of escrow to assure that the repairs would be completed was correct. Her email to Santa characterized this as "the very issue" she had "anticipated and raised early on."

The next day, plaintiff's counsel sent an email to the Washington attorney, copying Altman and other principals, advising as follows: "It looks like we are all on the same page in regard[] to HUD's approval with the creation of an escrow. Do you have an idea of approximately how long it will take for HUD to approve the closing?" The Washington attorney replied that Rappaport had to get back to her so that she could then get back to HUD. She added that, once the issue with an escrow was settled, she anticipated HUD's approval to be forthcoming and take no longer than thirty days.

On October 1, 2008, Rappaport emailed plaintiff's counsel to arrange a phone conference regarding the "issues raised by HUD on the transfer of the Property ASAP." The next day, Altman emailed the Washington attorney asking if she was available to conference about the "escrow of electrical monies."6 Rappaport testified at his June 10, 2010 deposition that he agreed to put up the monies in escrow to avoid delaying the HUD application process:

Q: The application was submitted September

4th, 2008. At some point in the weeks that followed, as I understand it, HUD raised an issue with respect to repairs that were needed for the property.

 

Do you remember something about that?

 

A: Yes.

 

Q: And there were discussions about how to

deal with that, and at some point an escrow was discussed.

 

Do you recall that?

 

A: [The Washington attorney] had said to me that HUD is demanding an escrow, and I said to her that I didn't see it was my obligation to put that escrow up. That I agree that I would -- under the contract I believe there was a provision that I would do the repairs or the electrical work. I don't know that it was exactly repairs. It was an upgrade to the heating system . . . . And I told [plaintiff's counsel] that I didn't think I was required to do it. We went back and forth on the who was going to do it. I didn't want to hold up the application, so I ultimately told [the Washington attorney], put it in that we agree to an escrow, and I told [plaintiff's counsel] we can agree to disagree right now, but at least it will move forward.

 

Q: Okay. So do you know what the amount of that escrow was going to be?

 

A: I believe it was half a million dollars.

 

Q: Okay. So as of that point in time there was agreement that there would be an escrow but disagreement over where the money was coming from?

 

A: Correct.

Q: Did that ever get resolved at any point?

 

A: No.

 

An email sent by an insurance associate to one of defendant's principals on October 23, 2008, indicated that defendant was seeking insurance coverage to meet the requirements of the bank financing the acquisition. In this email, the insurance associate inquired about the closing date and indicated that she had "reviewed the bank's requirements" and was working to get premium quotes for a "$5 [million] Umbrella and a Boiler & Machinery policy." From this record, it can be inferred that, as of October 23, 2008, the parties were preparing to close title on this transaction.

Emails between the parties and their legal representatives inquiring about the status of the closing continued throughout October 2008. The November 1, 2008 closing date passed without the parties or their legal representatives expressing a desire to terminate the agreement. In fact, on November 4, 2008, three days after the "time of the essence" closing date, defendant's insurance associate provided premium quotes to one of defendant's principals.

On November 5, 2008, T.G. informed defendant that "a few things [had fallen] through the cracks on the management documents submitted to HUD."7 She also indicated that "HUD recommended a longer than one year term [on the leases] in order that HUD approval need not be obtained annually." On November 7, 2008, plaintiff's counsel forwarded defendant an email from HUD indicating as follows: "The rent increase approval for [the subject property] was sent to [the New Jersey Housing and Mortgage Finance Agency] yesterday. The utility conversion is approved in my office by the director of Multifamily; we will be submitting the approval letters for his signature on Monday."

On November 10, 2008, defendant sent a letter to plaintiff's counsel terminating the agreement on the grounds that HUD approval had not been obtained by the closing date. This was the first time defendant communicated to plaintiff any intent to terminate the agreement. On November 12, 2008, plaintiff rejected defendant s termination and refused to return the $250,000 deposit. Plaintiff argued that the notice of termination was premature and offered to extend the closing date. Plaintiff also alleged that defendant had not worked diligently to obtain HUD approval.

II

As noted prior, the parties filed two separate actions in the Law Division in two separate vicinages: plaintiff filed in Monmouth County seeking forfeiture of the $250,000 deposit; defendant filed in Morris County seeking a declaration that the agreement was appropriately terminated and seeking return of its deposit.8 The Assignment Judge of the Morris vicinage entered an order consolidating both actions and establishing venue in Monmouth County.

At the conclusion of the discovery period, defendant moved for summary judgment on both consolidated complaints, seeking the return of the deposit monies. Plaintiff responded by filing a cross-motion for summary judgment, seeking to have the deposit monies forfeited as liquidated damages. After hearing arguments from counsel and considering the record presented by the parties, the motion judge denied plaintiff's motion, granted defendant's motion, and directed the Court Clerk to transfer the deposit monies to defendant.

The motion judge found that defendant had not waived its right to cancel the contract on November 10 simply by waiting ten days to communicate the cancellation to plaintiff. The judge added the following:

The bottom line is the HUD approval was not obtained by the closing date of November the 1st, 2008, an[] acknowledged time of the essence closing date. And I think, under the facts and circumstances here, it appears, even by that which the plaintiff Carteret Holdings submits, there was an effort to get this HUD approval. It doesn't appear that Carteret Town Homes completely stopped or dragged their feet. They hired specialized counsel. It's a complicated application. Again, it was all to be done within a short period of time. Again, that's perhaps why there was a liquidated damage provision in the contract. But the bottom line is it was a condition precedent, I'm satisfied, that was not met. And I am satisfied that Carteret Town Homes was well within their right to declare, on November the 10th, that the contract should be canceled, and that they should be -- or have their deposit returned.

 

Apparently, on November the 12th, the seller, Carteret Holdings, tried to reschedule the closing date for November the 24th, and then that didn't work out, and the matter ensued. The parties are here today on a motion for summary judgment, and I'm satisfied, under Rule 4:46-2(c), that the -- there are no genuine issues as to any material fact in the case.

 

The [purchaser] did attempt to get the HUD approval. Although it might not have been at the speed that the plaintiff would have liked they, I'm satisfied, did make the attempt, and the approval was not obtained by November the 1st. The fact that the economy might have changed, and it might have been a good thing for the defendant that the closing didn't take place is really not for me to look at today, or even to consider today. What I have to consider today is was this a conditioned [sic] precedent, and did Carteret Town Homes properly cancel the contract. And I'm satisfied, again, based upon all that's been submitted, that there are no issues of fact, and that they did properly cancel the contract, and that they're entitled to return of their deposit monies.

 

Against this backdrop, plaintiff now appeals that the motion judge erred in concluding, as a matter of law, that defendant had properly terminated the agreement and was entitled to the return of the $250,000 deposit. Plaintiff argues that there are material factual issues in dispute precluding the trial court from deciding this matter by way of summary judgment. Plaintiff claims that defendant terminated the agreement because it perceived that the deal was no longer economically viable. Finally, plaintiff argues that the motion judge did not properly consider defendant's lack of due diligence in its efforts to obtain HUD approval or the lack of any effort by defendant to secure DCA approval. According to plaintiff, all of these items are material issues of fact that remain highly disputed and cannot be decided without a trial.

We agree, for the most part, with plaintiff's position and reverse the order granting defendant's motion for summary judgment. We further remand this matter for such further proceedings as may be warranted.

III

We begin our analysis by reaffirming the basic principles of law that will guide our discussion and ultimate conclusion. When reviewing grants of summary judgment, this court employs the same standard used by the trial court. Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). As Rule 4:46-2(c) makes clear, summary judgment may be granted only if the record shows that "there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." Most importantly, the factual issues involved "'cannot be resolved on the basis of affidavits and depositions where inferences for and against the truth of facts grounding the existence of a cause of action arise therefrom, no matter how strongly they point in one direction or the other.'" Bello v. Hurley Limousines, 249 N.J. Super. 31, 39 (App. Div. 1991) (quoting Brenner & Co. v. Perl, 72 N.J. Super. 160, 167-68 (App. Div. 1962)).

If there are no genuine issues of material fact in dispute, we must next determine whether the trial court applied the relevant legal principles correctly. Luchejko v. City of Hoboken, 414 N.J. Super. 302, 309-10 (App. Div. 2010), aff d, 207 N.J. 191 (2011); Atl. Mut. Ins. Co. v. Hillside Bottling Co., 387 N.J. Super. 224, 230-31 (App. Div.), certif. denied, 189 N.J. 104 (2006). We view the trial court's legal analysis and conclusions of law de novo, without according it any special deference. Zabilowicz v. Kelsey, 200 N.J. 507, 512-13 (2009).

The material question in dispute here is a hybrid of fact and law concerning a party's good faith. Such a question is ill-suited for resolution through summary judgment, because it requires the motion judge to make findings about the state of mind of a party concerning a material obligation under the agreement, to wit, whether defendant acted with due diligence in its efforts to secure HUD approval.

Our Supreme Court has admonished that "when the 'subjective elements of willfulness, intent or good faith of the moving party are material to the claim or defense of the opposing party, a conclusion from papers alone that palpably there exists no genuine issue of material fact will ordinarily be very difficult to sustain.'" Liberty Surplus Ins. Corp. v Nowell Amoroso, P.A., 189 N.J. 436, 447 (2007) (quoting Judson v. Peoples Bank & Trust Co., 17 N.J. 67, 76 (1954)).

Plaintiff (seller) can present evidence that defendant (buyer) did not act in good faith and with due diligence in the form of the record developed by the exchanged emails and other communications between the Washington attorney and her staff. Plaintiff can also argue, and a reasonable jury may find, that defendant did not keep HUD fully apprised of the circumstances leading to the delay of approval. With respect to the DCA, the record is silent on what efforts, if any, defendant made to obtain this agency's approval. From defendant's perspective, it can also argue that plaintiff's decision to "flip" the property without completing any of the repairs it had promised HUD it would make contributed to defendant's delay in getting the required approvals and unfairly tainting defendant's relationship with HUD by creating an undeserved atmosphere of distrust by HUD against defendant. In short, there are a myriad of material issues of fact in dispute, which must be resolved by a jury, before the legal implications flowing from those facts can be determined.

Reversed and remanded for such further proceedings as may be warranted. We do not retain jurisdiction.

1 In a real estate contract, a "time of the essence" clause is a set date requirement that is "so important that if the requirement is not met, the promisor will be held to have breached the contract and a rescission by the promisee will be justified." Black's Law Dictionary 1196 (9th Ed. 2009).

2 By the time the parties filed these motions, the trial court had ordered the third-party escrow agent to deposit the escrow funds with the Clerk of the Superior Court, thereby dismissing all claims against third-party defendant Madison Title Agency.

3 The appellate record does not contain the specific date plaintiff acquired the property. The month and year indicated here is taken from the undisputed factual presentation presented by the parties in support of their summary judgment motions.

4 We note the apparent impropriety of this communication. Although the email was "cc'd" to the Washington attorney, who by this time was defendant's counsel of record for HUD related matters, it is, on its face, inappropriate for plaintiff's counsel to communicate directly with a buyer who is being represented by separate counsel. See RPC 4.2.

5 T.G. specifically noted that "[t]here are still lots of blanks with regards to other items." She thus asked Altman whether he was willing to "chat" so that they could "finish it up."

6 Nothing in the record reveals whether this conference occurred.

7 T.G. noted the following, mostly ministerial, errors on the application: 1) "[t]he management entity profile was not dated;" 2) "[t]he project owner management agent certification did not reference the date on the management entity profile;" and 3) "[a]ttachment 1 to the project owner management agent profile was not completed"; specifically, "[t]he max management fee [was] $48 per unit per month, so the management fee calculation" had to reflect it.

8 As noted supra, footnote 2, defendant's action included as a third-party the title company that had acted in the capacity of escrow agent for the $250,000 deposit. On August 20, 2009, the judge assigned to try the case entered an order dismissing from the case the third-party escrow agent, and directing it to pay the deposit monies to the Clerk of the Superior Court.