ELIZABETH HUTLER v. MARINA AT SOUTHWINDS L.L.C.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is only binding on the parties in the case and its use in other cases is limited. R.1:36-3.

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5877-13T1

ELIZABETH HUTLER, individually

and as executor of the estate

of Stephen, TARA KATSIANIS,

trustee of the Stephen Hutler

trust, SOUTHWIND ENTITIES, INC.,

SOUTHWINDS RESTAURANT HOLDING

CORPORATION, SOUTHWINDS MARINA

LACEY, INC. and SOUTHWINDS

HARBOR YACHT SALES, INC.,

Plaintiffs-Respondents,

v.

MARINA AT SOUTHWINDS, L.L.C. BY

JOHN CAVALIER, member, and

STEPHEN BURTON, member, and

JOHN CAVALIER, individually,

AND STEPHEN BURTON, individually,

Defendants-Appellants.

___________________________________

October 12, 2016

Submitted September 16, 2015

Before Judges Ostrer and Haas.

On appeal from the Superior Court of New Jersey, Chancery Division, Ocean County, Docket No. C-108-13.

Taff & Davies, attorneys for appellants (Matthew K. Kalwinsky, on the briefs).

Dasti, Murphy, McGuckin, Ulaky, Koutsouris & Connors, attorneys for respondents (Jerry J. Dasti, of counsel; Mr. Dasti and Timothy J. McNichols, on the brief).

The opinion of the court was delivered by

OSTRER, J.A.D.

Defendant Marina at Southwinds, LLC (Marina) contracted to purchase from plaintiffs certain real property and an ongoing business in Lacey Township.1 The real property consisted of a commercial condominium, which operated as a marina with over 170 boat slips, a restaurant, and a banquet facility. It was located within a residential condominium development of forty existing units. The contract also proposed to convey twenty unbuilt or phantom residential units.2 The purchase price was $4.7 million.

Under the October 30, 2009 contract, plaintiffs were to gradually transfer possession and operation of the business, starting December 1, 2009. The closing date was set for two years later, December 1, 2011. In the interim, Marina was obliged to pay plaintiffs $25,000 a month, and bear other costs.

But the parties did not close as scheduled. In June 2013, plaintiffs alleged that defendants had defaulted on various financial obligations and sought an order compelling them to close title, or to vacate the property and pay monies allegedly due and owing.

Defendants filed an eight-count counterclaim asserting fraud and breach by plaintiffs of various provisions of the contract. Among their principal claims, defendants alleged that plaintiffs failed to disclose a 2004 agreement with the condominium development's homeowners association. This agreement required construction of the unbuilt residential units by February 2014 and reduced the number of units allowed to sixteen. Defendants also contended they were entitled to a credit for boat slip fees for the 2010 season that plaintiffs received before they transferred possession of the marina in 2010. Defendants also sought damages caused by plaintiffs' alleged delay in transferring the liquor license. They also claimed to be entitled to partial reimbursement of the cost of flood insurance and a security deposit that plaintiffs returned to a tenant at the marina.

In March 2014, after a period of discovery and cross-motions for summary judgment, the court dismissed some of defendants' counterclaims, and reserved others for trial. The court compelled defendants to close, which they ultimately did at the end of April 2014. After trial in May 2014, the court dismissed the remainder of defendants' counterclaims.

Defendants appeal from the final judgment. Having considered defendant's arguments in light of the record and applicable principles of law, we affirm.

We review a grant of summary judgment de novo, applying the same standard as the trial court. Henry v. N.J. Dep't of Human Servs., 204 N.J.320, 330 (2010). We defer to a judge's findings and conclusions after a bench trial, based on his or her ability to perceive witnesses and assess credibility. SeeRova Farms Resort, Inc. v. Inv'rs Ins. Co. of Am., 65 N.J.474, 484 (1974); see alsoPascale v. Pascale, 113 N.J.20, 33 (1988). We shall not disturb the trial court's findings "unless they are so clearly insupportable as to result in their denial of justice." Estate of Ostlund v. Ostlund, 391 N.J. Super.390, 400 (App. Div. 2007). We do not "engage in an independent assessment of the evidence as if [we] were the court of first instance." State v. Locurto, 157 N.J.463, 471 (1999). However, we review de novo the trial court's interpretation of the law. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J.366, 378 (1995).

At the outset, we reject defendants' argument that their statement of material facts (SOMF) should have been deemed admitted and, based thereon, summary judgment should have been granted in their favor. We recognize, as did the trial judge, that plaintiffs' flat denials of defendants' SOMF violated Rule 4:46-2(b). We do not condone plaintiffs' violation of the Rule. However, plaintiffs opposed defendants' motion and presented admissible evidence in opposing certifications, which raised genuine issues of material fact. Under those circumstances, the trial court did not err in declining to grant defendants' relief based solely on plaintiffs' procedural misstep. See Leang v. Jersey City Bd. of Educ., 198 N.J. 557, 568 n.2 (2009) (stating that sanctions are preferable to reflexive dismissal of a party's opposition in response to a violation of Rule 4:46-2(b)).

Turning to the substantive claims, we affirm the court's summary judgment dismissal of defendants' claim that plaintiffs breached the contract as a result of the 2004 agreement between the homeowners association and Stephen and Elizabeth Hutler, as successors to the original sponsor.3

The 2004 agreement, which was not publicly recorded, noted that the 1987 master deed authorized sixty residential units in twelve "mansions," with a boat slip assigned to each unit as a limited common element. Only forty residences were built in eight mansions, although all sixty slips were constructed.4 The agreement recognized the Hutlers' right to build the twenty remaining units in four mansions and their use of the twenty assigned slips. The parties agreed that the remaining mansions would contain a maximum of sixteen units instead of twenty.5 The agreement also provided that "if building permits are not obtained and construction is not commenced within ten (10) years . . . the right to construct any such building for which construction has not commenced shall be deemed abandoned and shall automatically terminate."6

Absent construction and sale of new units, the Hutlers were granted the exclusive right, in perpetuity, to use the allocated twenty boat slips. The agreement also granted the Hutlers an irrevocable and non-exclusive license to use, for restaurant patrons, a parking lot containing approximately fifty spaces, conditioned on payment of $500 a month (subject to an increase for inflation every five years), and maintenance of $1 million in general liability insurance.

The contract between defendants and plaintiffs indirectly referred to the 2004 agreement's restrictions. The contract described the property by block and lot number. Within Block 291, Lot 4.03, it separately identified each phantom unit by number, C01 through D15, and C-21 through C-25, as well the commercial condominium, C61. The description also included Block 291, Lot 5.02; and Block 291, Lot 4.02. The contract then stated

It is understood and agreed that all property, which is the subject of this sale, is described in an appraisal dated April 13, 2009, by Tony Kamand Realty, LLC. More particularly as described in a certain letter dated April 13, 2009, addressed to Mr. Edward Madden of Sun National Bank. More specifically, the marina, which is Block 291, Lot 4.03, Unit C-61, and vacant land located in Block 291, Lot 4.03, Units 201 through 215 and C-21 through C-15 [sic - should be 25], and vacant land in Block 291, Lot 4.02. A copy of said letter is attached to this Contract as Exhibit A and made a part hereof.

This provision was included in the initial drafts prepared by defendants' attorney, as well as the final version.

However, a provision was later added, at plaintiffs' counsel's request, which expressly referred to the 2004 agreement, but in connection to the parking provision. It stated

Purchaser also understands and agrees that there is an agreement between the Condominium Association and the Seller relative to certain portions of the Condominium property for parking for the restaurant. This sale and transfer of title shall be subject to that agreement, as well as subject to the continued terms and provisions of the Master Deed and By-Laws of the Condominium Association. The property in question is Unit 61 in a 60 unit residential and 1 unit commercial condominium known as Southwinds.

The new provision required disclosure of the 2004 agreement, stating: "This Contract shall also be contingent upon Seller providing to the Purchaser a copy of the aforementioned documents that embody this understanding and is subject to review by the Purchaser and acceptance of the aforementioned terms and provisions."

The full text of the appraisal referenced in the first paragraph quoted above addressed, although inaccurately, the 2004 agreement. It stated

This agreement also states that the owners have 10 years from the date of the agreement to commence construction of 20 residential condominiums (on the subject's vacant land units C01-C15 and C21-C25) or lose construction rights. We suggest that the client obtain and review a copy of this agreement.

The second document from the appraiser, which was attached as an exhibit to the contract, did not mention the agreement. It valued the marina and related properties, at $4.8 million; and the unbuilt residential units at $1.05 million.

Plaintiffs alleged they provided the 2004 agreement to defendants shortly after execution of the contract in October 2009. Defendants insisted they did not receive it until November 2010. Prior to that point, they claimed they believed the agreement addressed only parking. They claimed they were surprised to learn of the significant limitations on their development rights. Nonetheless, they sent no written protest to plaintiffs. Defendants claimed plaintiffs delayed the closing because they "could no longer convey what they promised and we were trying to figure out what could be done." Defendants alleged they attempted without success to secure approvals before the February 2014 deadline.7

Defendants contend that plaintiffs breached the contract to convey the twenty residential units, because the ability to construct the units was limited by the 2004 agreement, of which they were unaware.8 We disagree.

The contract accurately described the undeveloped units. Unless and until the unbuilt units were removed from the master deed, their existence continued. See Highpoint at Lakewood Condo. Ass'n, Inc. v. Twp. of Lakewood, 442 N.J. Super. 123, 134 (App. Div. 2015). Thus, twenty unbuilt units which included twenty existing boat slips were part of the real property that plaintiffs owned and contracted to sell to defendants. The contract itself included no promises or representations regarding the rights to develop the unbuilt units. Furthermore, the contract expressly stated that the property was described in the April 13, 2009 appraisal. Although the full appraisal, and not the attached letter, mentioned the 2004 agreement, one would presume that defendants' counsel was privy to the appraisal to which the contract he drafted referred.

Furthermore, the contract expressly empowered defendants to terminate the contract upon review of the 2004 agreement. The contract states it was "contingent" on plaintiffs' disclosure of the 2004 agreement, and was "subject to" defendants' "review . . . and acceptance of the aforementioned terms and provisions" of the agreement. Defendants concede that they did not rescind after they allegedly received the 2004 agreement in November 2010. They contended they had already invested too much time and money into improving the property to unwind the deal.9

Nonetheless, defendants could have elected to rescind the contract and seek restitution for the value of their improvements. See Cty. of Morris v. Fauver, 296 N.J. Super. 26, 38 (App. Div. 1996), aff'd in part and rev'd on other grounds, 153 N.J. 80 (1998). Instead, they elected to proceed. That election must be deemed governed by the terms of the 2004 agreement.10

We therefore conclude that the court did not err in dismissing defendants' breach of contract claim based on the development limitations in the 2004 agreement.

The trial court also did not err in dismissing, after trial, defendants' claim, in count four of their counterclaim, to boat slip rental payments that plaintiffs received in 2009 for the 2010 season, which defendants claim exceeded $165,000.11

The contract was ambiguous at best. See M.J. Paquet, Inc. v. N.J. Dep't of Transp., 171 N.J.378, 396 (2002) (stating that a contract is ambiguous if it is susceptible to two reasonable alternative interpretations). The contract was silent on the issue of crediting defendants for payments plaintiffs received before they took possession of the marina on December 1, 2009. Defendants place undue reliance on the sentence, "Effective December 1, 2009, possession of the marina and all that is contained herein12 other than the restaurant and banquet hall, will be given to the Purchaser for operation." It is questionable whether "all that is contained herein" referred to money. Furthermore, nothing in the language barred plaintiffs from retaining funds received before December 1, 2009.

Nor did the negotiating history of the contract resolve the issue. An unsigned letter of intent proposed by defendants provided that plaintiffs would retain winter storage fees but "[a]ny other monies paid for 2010 season shall be credited to [P]urchaser." The initial drafts of the contract were more limited, and provided defendants a credit only for boat slip rental payments for 2010 received after November 1. However, the final draft deleted the provision entirely.

On its face, the implication was ambiguous. Defendants contend the deletion reflected an understanding they were entitled to a credit for all pre-payments. They claim their receipt of the prepayments was related to the increase in the purchase price from $4.4 million in the letter of intent, to $4.7 million in the contract. Plaintiffs contend the language was deleted because Hutler refused to credit defendants with any payments she received before December 1, 2009. At trial, plaintiffs highlighted the apparent inconsistency between the letter of intent, which proposed to give defendants credit for all 2010 slip fees, and the provision in the contract their own attorney drafted, which surrendered fees received before November 1, 2009.

The trial judge credited Hutler's trial testimony that the contract provision was deleted at her request, based on her refusal to grant any credit for payments she received before possession was transferred. We are obliged to defer to that finding. See Rova Farms Resort, supra, 65 N.J.at 484. The court noted that defendants did not call their attorney, the principal drafter of the agreement, to corroborate their asserted reason for the deletion. They also presented no evidence that they sought the credit before litigation began. The judge concluded that this demonstrated the parties' intent that no credit was due. We discern no error in that conclusion. See Michaels v. Brookchester, Inc., 26 N.J. 379, 388 (1958) ("Where ambiguity exists, the subsequent conduct of the parties in the performance of the agreement may serve to reveal their original understanding."); see Restatement (Second) of Contracts 202(4) comment g (1981) ("The parties to an agreement know best what they meant, and their action under it is often the strongest evidence of their meaning.").

We turn to defendants' claim, in count seven of the counterclaim, that plaintiffs breached the contract provisions regarding the existing tenant on the property, Blood Marine Services, operated by Douglas Blood. Defendants argue they were entitled to summary judgment on the claim. The Blood lease was set to expire at the end of March 2010. It began in 2007 as a year-long lease with the option of two annual extensions. The contract required plaintiffs to notify Blood that "on December 1, 2009 . . . all future rental payments shall be paid to the Purchaser." The contract also required all security deposits be transferred to defendants.

It was undisputed that the security deposit was not transferred to defendants. Blood did not pay rent from January to March 2010, although he paid rent to defendants for December. However, the trial court denied defendants summary judgment because plaintiffs contended that after the contract was executed, the parties entered into an oral agreement with Blood to permit him to terminate the lease early, on January 1, 2010. As there was no damage to the premises, Hutler returned the security deposit to Blood.

Defendants argue the parol evidence rule barred any such oral agreement. We disagree. Absent a statutory prohibition, such as the Statute of Frauds,13 parties may orally agree to modify a written contract (even one that expressly prohibits oral modifications). See Lewis v. Travelers Ins. Co., 51 N.J. 244, 253 (1968); Headley v. Cavileer, 82 N.J.L. 635, 637-39 (E. & A. 1912).14 As there was no legal bar to the oral lease modification, the court correctly reserved the issue for trial.

At trial, Hutler and Blood testified about the oral agreement. Defendants denied it. However, defendant Stephen Burton testified that it was okay for Blood to vacate in January. It was also established that defendants did not pursue rent from Blood after his early termination, nor did they raise the issue with plaintiffs until they commenced litigation. Based on this evidence, the trial court found that the parties orally agreed to an early end to the tenant's leasehold and denied defendants' claim to the security deposit that plaintiffs returned to Blood. We defer to that finding.

We also affirm the court's dismissal of defendants' claim to a portion of the flood insurance premiums that they reimbursed plaintiffs. The court correctly found that the contract was ambiguous with respect to who was responsible for the cost of flood insurance pending the closing. The contract stated

The risk of loss to the premises by fire or otherwise is hereby assumed by the Purchaser from the date of contract settlement under this Agreement. Seller and Purchaser agree that the Seller shall procure the insurance covering the dwelling. Said policy shall set forth the interest of the Purchaser as an additional insured. The Purchaser shall be responsible for all premiums associated with the fire and liability insurance that will be procured by the Seller. The Purchaser agrees to pay for the cost for the insurance coverage in accordance with the payment schedule that the Seller has arranged with its insurance broker.

Plaintiffs contended the contract required defendants to be responsible for the premiums on all insurance covering the property, although plaintiffs were responsible for procuring it. Defendants contended their financial obligation extended only to "fire and liability insurance," which they contended did not include flood insurance.

Nonetheless, at trial, defendant John Cavalier testified that he reimbursed plaintiffs $8075 for flood insurance premiums in June 2012. He did so after the insurance expired and plaintiffs' mortgage lender, Sun National Bank, obtained the insurance and charged plaintiffs in late 2010. Thereafter, Cavalier obtained flood insurance, paid the premiums, and never sought reimbursement for the $8075, or subsequent payments. He testified he also paid all fire and casualty insurance on the property. However, after plaintiffs commenced litigation, he sought reimbursement but only for the difference between the $8075 and what he contended was a reasonable premium of roughly $5000 less, which he paid.15

The court rejected defendants' claim for reimbursement, concluding that the contract did not make plaintiffs responsible for the flood insurance premiums. The judge relied on the language of the contract, and defendants' assumption of those costs without protest. Inasmuch as the parties' performance under the contract is evidential of their original intent, we discern no error in the court's decision on this claim.

Defendants also argue that the trial court erred in denying their motion, presented on the eve of trial, to amend their complaint to add a claim for damages allegedly incurred as a result of plaintiffs' inability to close in mid-March 2014. The court had previously ordered the closing to occur by May 1, 2014, time of the essence. Defendants obtained that delay from the court at a hearing on March 10, 2014. Nonetheless, counsel apparently agreed thereafter to close later in March. However, defendants allege that plaintiffs could not provide clear title on the selected date because the tidelands license had expired. As a result, defendants incurred various transactional costs imposed by its lender during the ensuing delay; they also paid additional management fees to plaintiffs in the interim.

Without addressing the merits of the claim, we discern no abuse of discretion in the trial court's refusal to permit an amendment so close to trial. See Morales v. N.J. Acad. of Aquatic Sci., 302 N.J. Super. 50, 56 (App. Div. 1997) (stating decision whether to grant leave to amend is left to the "sound discretion of the trial court" and court did not abuse discretion where a party "did not seek to amend . . . until the eve of trial"). However, inasmuch as the claim arose so late in the litigation, the claim should have been expressly reserved for a subsequent action, free of the preclusive effect of the entire controversy doctrine. See DiIorio v. Structural Stone & Brick Co., 368 N.J. Super. 134, 139 (App. Div. 2004).

We also shall not disturb the court's denial of defendants' eve-of-trial motion to compel discovery of the file of plaintiffs' transactional attorney. Plaintiffs did disclose excerpts of that file, which they deemed non-privileged, in response to defendants' request. Defendants contended that the plaintiffs disclosed privileged documents, thereby waiving privilege over the remainder of the file. We are bound to defer to a trial court's exercise of discretion in matters related to discovery, absent the appearance of injustice. See Pomerantz Paper Corp. v. New Cmty. Corp., 207 N.J. 344, 371 (2011); Cunningham v. Rummel, 223 N.J. Super. 15, 19 (App. Div. 1988). Particularly given the lateness of the motion, we discern no abuse of discretion here.

Defendants' remaining points lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

Affirmed.

1 Marina is formally described as "Marina at Southwinds, L.L.C. by John Cavalier, member, and Stephen Burton, member, and/or their assigns." Cavalier and Burton, who personally guaranteed Marina's performance, were also named as defendants.

2 See Highpoint at Lakewood Condo. Ass'n, Inc. v. Twp. of Lakewood, 442 N.J. Super. 123, 134-36 (App. Div. 2015) (discussing tax and assessment issues pertaining to "phantom" units, that is, unbuilt units that were never formally removed from a condominium master deed).

3 Stephen Hutler died before execution of the contract at issue in this case. Therefore, we use "Hutler" to refer to Elizabeth Hutler.

4 The master deed is not in the record before us.

5 As the agreement did not specify that the mansions had to be smaller in size, we presume that the sixteen units would be larger than the units in the pre-existing buildings. The 2004 agreement provided that the percentage interest in the common elements of new units would be greater than that of pre-existing units.

6 The agreement noted that the Hutlers would need regulatory approval of multiple State, county and municipal entities to comply with various environmental and land use laws.

7 They explained that the development would run afoul of then-applicable limits on impervious coverage. They anticipated that a "town center" designation of the area, sometime in the future, would have opened the way for the development, but not before the deadline in the 2004 agreement.

8 In their counterclaim, defendants also asserted a count of fraud, alleging plaintiffs provided a false property description by omitting reference to the 2004 agreement's limitations. However, as their point on appeal asserts only breach of contract, we do not reach their contention that defendant's omission also "represents . . . possible fraud." See Mid-Atl. Solar Energy Indus. Ass'n v. Christie, 418 N.J. Super. 499, 508 (App. Div.), certif. denied, 207 N.J. 190 (2011). Consequently, we do not address whether plaintiffs had an affirmative obligation to disclose the limitations and whether they satisfied that obligation by referring to the appraisal, or by conditioning the contract on defendants' review of the agreement in the context of a paragraph that apparently pertained only to a parking agreement. Cf. State Dep't of Env't Prot. v. Ventron Corp., 94 N.J. 473, 503-04 (1983) (stating the elements of fraudulent concealment by seller of real estate are "deliberate concealment or nondisclosure by the seller of a material fact or defect not readily observable to the purchaser, with the buyer relying upon the seller to his detriment"); Weintraub v. Krobatsch, 64 N.J. 445, 455 (1974).

9 Defendant John Cavalier asserted that he was trying to work things out with plaintiff, whom he believed had financial issues. Defendants were experienced builders and developers. Hutler was a full-time school teacher and mother, whose late husband was principally responsible for managing the marina and related businesses.

10 We recognize that when a party discovers he entered an executory contract as a result of fraud, he must rescind (unless he is unable to do so without prejudice), or affirm the contract and retain the right to damages for deceit. See Merchants Indem. Co. v. Eggleston, 37 N.J. 114, 130 (1962); see also Deerhurst Estates v. Meadow Homes, Inc., 64 N.J. Super. 134, 144 (App. Div. 1960), certif. denied, 34 N.J. 66 (1961). Defendants do not contend on appeal they were fraudulently induced. Moreover, the contract expressly stated it was "subject to" acceptance of the 2004 agreement. Thus, the sole remedy for dissatisfaction with the 2004 agreement was rescission and a potential claim for restitution.

11 Before trial, defendants estimated the value of the retained payments at over $169,000. However, at trial, they increased the amount to over $221,000.

12 We presume the drafter meant "therein."

13 The Statute of Frauds applies to leases of more than three years. N.J.S.A. 25:1-12.

14 However, "to avoid imposition," proof of the oral modification must be clear and convincing to overcome a prior anti-oral-modification provision. See Home Owners Constr. Co. v. Glen Rock, 34 N.J. 305, 317 (1961).

15 Although he contended the coverage was identical it appears the coverage for contents was reduced from $500,000 to $10,000.