MAZAJ RESTAURANT, LLC v. 1255-1257 MADISON AVE LLC

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

 

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4944-11T4

MAZAJ RESTAURANT, LLC AND

BARAKAT KIAME,

Plaintiffs-Appellants,

v.

1255-1257 MADISON AVE., LLC,

DAMASCUS GATE II CORPORATION,

ZOUHEIR ZIDAN and TAYSIER ZAYDAN,

Defendants-Respondents.

_______________________________

Telephonically argued March 6, 2013 - Decided June 4, 2013

 

Before Judges Messano and Lihotz.

 

On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-1291-12.

 

Brett A. Nadler argued the cause for appellants (Ballon Stoll Bader & Nadler, PC, attorneys; Mr. Nadler, of counsel and on the briefs).

 

Joseph A. Ferriero argued the cause for respondents.

 

PER CURIAM

Plaintiff Barakat Kiame is the managing member and majority shareholder of plaintiff Mazaj Restaurant, LLC, (collectively plaintiff). Plaintiff appeals from a May 22, 2012 Law Division order denying a motion to consolidate this earlier-filed action, which alleges defendants breached the lease agreement, with a summary dispossess action initiated by defendants 1255-1257 Madison Ave., LLC (Madison), Damascus Gate II Corporation (Damascus), and Zouheir Zidan, the owner of the premises (Docket No. LT-2668-12).1 Further, the judge dismissed plaintiffs' Law Division complaint with prejudice and granted defendants a judgment of possession for the premises. We reverse.

These facts, taken from the motion record, are not disputed. In March 2009, Madison, Damascus and Zidan, "acting as a joint venture[,]" executed a five-year commercial lease agreement (the lease) as the landlord; Mazaj executed the lease agreement as the tenant.2 The lease described the leased premises as "the first floor and third floor[,] but excluding the second floor of 1255 Madison Avenue, and the entire building at 1257 Madison Avenue and the adjacent yard at 1259 Madison Avenue, and the vacant lot at 1253 Madison Avenue[.]" The lease specified the premises would be used to operate "a restaurant and legally permissible ancillary activities."3 In addition to the terms and conditions of rental, the lease included a right to extend the lease term for an additional five years and a right of first refusal with an option to purchase in the event the landlord sought to sell the premises.

Within six months, plaintiff sought to purchase the property. Plaintiff's attorney informed defendants he had checked records and learned several municipal citations for building code violations were issued against the premises during the period of defendants' and their predecessors' ownership, which remained outstanding. The claimed violations included construction of an addition without approval or permits, failure to obtain a certificate of occupancy prior to use, and constructing the building in violation of the property rights of the City of Paterson (City) and a backyard neighbor. Consequently, plaintiff was able to secure only a temporary certificate of occupancy. Despite these difficulties, plaintiff reasserted its desire to continue negotiations regarding its purchase of the property.

Over the ensuing months, plaintiff also learned the mortgage encumbering the realty was in default and a sheriff's sale was first scheduled for May 11, 2010.4 The sale was adjourned by defendants and set for July 6, 2010. U.S. Bank informed plaintiff it had filed a lis pendens in January 2009, three months prior to the execution of the lease agreement, therefore the tenancy was not a basis to reopen final judgment.

Further, the real estate taxes and sewer assessments for the first quarter of 2010 were unpaid and a City-scheduled public auction was scheduled for June 9, 2010.5 The City also notified plaintiff that 1255-1257 Madison Avenue lacked permits for use of the second and third floors, as well as the rear building, and "[a]pproval for upper floors and rear building [wa]s being held pending the submittal of documentation of approved use and construction."

Plaintiff initiated a Law Division action, under Docket No. L-4022-10, alleging defendants had committed fraudulent misrepresentation and concealment, and had breached the lease agreement, precluding plaintiff's lawful and continued use of the premises as a restaurant (initial complaint). The initial complaint also alleged defendants acted in bad faith in thwarting plaintiff's attempt to exercise the option to buy the property.

On June 13, 2011, the parties, each represented by counsel, advised the court the litigation was settled and read the terms of a handwritten settlement agreement titled "Contract for Sale of Property" on the record, marking the document as a joint exhibit. The settlement provided:

[P]laintiff shall pay to the defendant[s] the sum of $16,000 within 24 hours[.]

 

. . . [D]efendant[s] shall sell and the plaintiff shall purchase the properties which [are] the subject matter of this litigation for a purchase price of $1,025,000.6

 

. . . [P]laintiff shall pay $650,000 at the time of closing and the defendant[s] shall accept a note and mortgage from the plaintiff in the amount of $375,000 for a period of one year with 7 percent interest and an additional 6-month period at a rate of 18 percent interest.

The monthly payment during the first year shall be $3,370.59 plus real estate taxes and insurance. And after one year, the rate increases to 18 percent for a period of 6 months, at which time the note and mortgage shall be paid in full.

 

Plaintiff shall execute a consent judgment of foreclosure which will be held in escrow by plaintiff's counsel which will be delivered to defendant[s] in the event of non-payment of the mortgage under these terms.

 

There shall be no prepayment penalty on the note and mortgage. The defendant[s] will have a right of first refusal on any bona fide offer made to the plaintiff for the purchase of the property for a period of five years.

 

The closing will occur within 120 days of the execution of this agreement.

 

The property is being sold in an as-is condition and the . . . plaintiff knows that there are some code issues that will have to be addressed and is buying the property with those.

 

. . . [D]efendant[s] shall assign [the] pending zoning application to the plaintiff and provide the application and supporting documentation to him immediately.

 

If the plaintiff is unable to close title through no fault of the defendant[s] within 120 days, the plaintiff shall forfeit his right to purchase the property . . . and the lease shall continue in full force and effect and both parties will be bound by that lease.

The parties also testified. Taysier Zaydan appeared on behalf of defendants and Kiame testified on behalf of plaintiff. Each responded affirmatively when asked whether he understood that by entering into the settlement he was giving up the right to a trial, and having the judge take evidence and testimony and make a determination on the issues.

In the following two months, the parties "exchanged various iterations of contracts of sale for the [p]remises, but . . . were still unable to agree on the material and other terms of said contracts." The contemplated closing never occurred. Plaintiff claimed its efforts to obtain from defendants various municipal permits, approvals, and certificates of occupancy were ignored, and claimed its inability to close resulted from defendants' refusal to perform under the settlement agreement. Defendants moved to enforce the final provision of the settlement agreement, forfeiting plaintiff's right to purchase if settlement was not completed within 120 days.

The motion was deemed unopposed following the denial of plaintiff's request for adjournment by consent. The court granted defendants' motion, entering an order on December 2, 2011, forfeiting plaintiff's right to purchase and requiring the parties to comply with the terms of the original lease agreement.

On March 23, 2012, plaintiff filed a second Law Division action against defendants, under Docket No. L-1291-12 (this action). The four-count complaint explained the City had issued notice on February 17, 2012, stating the restaurant operation would be shut down and plaintiff forced to vacate because of unsafe conditions and code violations. Plaintiff sought a declaratory judgment ordering defendants to remediate the defects affecting plaintiff's use of the premises to allow use as a restaurant. Pending defendants' performance, plaintiff sought permission to withhold rent. This action also included counts alleging breach of the lease, seeking equitable restraints preventing eviction pending defendants' compliance, and requiring disgorgement based on unjust enrichment. Plaintiff was withholding rent, directing "all rent payments to [counsel's] trust account . . . until such time as the matter is resolved or the [c]ourt orders otherwise." It appears defendants never filed an answer.

On April 3, 2012, defendants filed a landlord-tenant action seeking possession under Docket No. LT-2668-12. Before the Law Division, plaintiff moved to consolidate the landlord-tenant matter with this action, which defendants opposed. Defendants filed a cross-motion to dismiss plaintiff's Law Division complaint in this action asserting res judicata. Following argument, the judge concluded:

I do believe that in this particular case most importantly is the [e]ntire [c]ontroversy [d]octrine applies. I think that these issues were raised. However[,] they were resolved . . . in the settlement agreement.

 

. . . I don't think that it's appropriate to now []institute another civil action because you're claiming certain damages because of a breach of the lease. All of these issues existed at the time of the prior litigation. They should have been addressed[.]

 

And I think that I agree with [defense] counsel . . . that this case is about as clear a case applying the . . . the [e]ntire [c]ontroversy [d]octrine and also to some extent res judicata. I think when you look at the two doctrines together I don't see how this new complaint survives.

 

. . . [W]hen you look at the fact that all of these issues existed at the time that the earlier litigation had been filed, and at the time that that litigation was completed, [plaintiff] can not [sic] now re[-]file a complaint where the same issues exist even though [it] may claim new damages, the fact is these are issues that existed.

 

They were . . . addressed either completely or incompletely, however the case may be, . . . they existed. The [e]ntire [c]ontroversy [d]octrine applies. And I'm not going to allow this case to be re-litigated on that issue.

 

The judge denied plaintiff's motion to consolidate and granted defendants' cross-motion to dismiss this action. Then, without any testimony or the admission of documentary evidence, the judge awarded a judgment for possession of the premises to defendant, finding rent was unpaid for the months of March, April, and May. The judge also rejected plaintiff's request for rent abatement based on defendants' failure to deliver use of the entire leased premises. A conditional stay of the order, based on plaintiff's rent escrow was entered. Plaintiff's appeal ensued.

On appeal, plaintiff alleges error in dismissing its complaint in this action. Defendants' motion asserted any issue regarding breach of the lease agreement was adjudicated in plaintiff's initial action, which was resolved by the parties' settlement agreement; therefore, the equitable doctrine of res judicata precluded further review of these issues. The motion judge dismissed with prejudice plaintiff's complaint, in part by erroneously concluding res judicata precluded plaintiff from maintaining a cause of action already raised in the initial action.

We are not bound by a "trial court's interpretations of the law and the legal consequences that flow from established facts[,]" which are "not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Following our review, we conclude the determination that the claims now raised in this action were adjudicated in the prior action and further relief was precluded was error.

"The term 'res judicata' refers broadly to the common-law doctrine barring relitigation of claims or issues that have already been adjudicated." Velasquez v. Franz, 123 N.J. 498, 505 (1991). Specifically, the doctrine "provides that a cause of action between parties that has been finally determined on the merits by a tribunal having jurisdiction cannot be relitigated by those parties or their privies in a new proceeding." Ibid. (citation omitted). "By insulating courts from the relitigation of claims, res judicata prevents the judicial inefficiency inherent in multiplicitous litigation[,]" ensures the finality of judgments, and advances the interest of fairness "[b]y preventing harassment of parties[.]" Watkins v. Resorts Int'l Hotel & Casino, 124 N.J. 398, 409 (1991).

For an action to be barred based on the application of res judicata "there must be (1) a final judgment by a court of competent jurisdiction, (2) identity of issues, (3) identity of parties, and (4) identity of the cause of action." Brookshire Equities, LLC v. Montaquiza, 346 N.J. Super. 310, 318 (App. Div.) (citation omitted), certif. denied, 172 N.J. 179 (2002). "[A] consent judgment has the same res judicata effect as any other judgment." Joseph L. Muscarelle, Inc. v. State, by Trans. Dep't, 175 N.J. Super. 384, 395 (App. Div. 1980) (citation omitted), appeal dismissed, 87 N.J. 321 (1981). Further, "[t]he preclusive effect of res judicata applies not only to matters which were raised in a prior action but also to matters which could have been raised." Ibid. (citation omitted).

Although the initial action alleged defendants breached the lease agreement, the terms of settlement specifically stated "the lease shall continue in full force and effect and both parties will be bound by that lease" in the event plaintiff failed to purchase the property within 120 days. Defendants' obligations under the lease remained ongoing, as did plaintiff's obligation to pay rent. A review of the complaint in this action reveals the factual basis asserted for defendants' breach occurred following the entry of the settlement agreement. Consequently, res judicata does not apply.

Aside from the fact that there was no substantive determination of plaintiff's breach claims in the initial action, we must also consider whether the claims now presented could have been adjudicated in the initial action, thus invoking the entire controversy doctrine. We conclude the entire controversy doctrine does not bar adjudication of plaintiff's claims regarding contract breaches arising following the settlement of the initial matter.

"The entire controversy doctrine embodies the principle that the adjudication of a legal controversy should occur in one litigation in only one court[.]" Cogdell v. Hosp. Ctr. at Orange, 116 N.J. 7, 15 (1989) (citation omitted). It was "judicially created as a . . . recognition of the value in resolving related claims in one adjudication so that all matters in controversy between parties may be completely determined." Higgins v. Thurber, 413 N.J. Super. 1, 11-12 (App. Div. 2010) (internal quotation marks and citations omitted), aff'd 205 N.J. 227 (2011). "'[T]he doctrine is one of judicial fairness and will be invoked in that spirit.'" Id. at 11 (quoting Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 343 (1984)). "[T]he objectives of the doctrine are: '(1) to encourage the comprehensive and conclusive determination of a legal controversy; (2) to achieve party fairness, including both parties before the court as well as prospective parties; and (3) to promote judicial economy and efficiency by avoiding fragmented, multiple and duplicative litigation.'" Id. at 12 (quoting Mystic Isle Dev. Corp. v. Perskie & Nehmad, 142 N.J. 310, 322 (1995)). See also Joel v. Morrocco, 147 N.J. 546, 548 (1997) (stating "[t]he objectives behind the doctrine are threefold: (1) to encourage the comprehensive and conclusive determination of a legal controversy; (2) to achieve party fairness, including both parties before the court as well as prospective parties; and (3) to promote judicial economy and efficiency by avoiding fragmented, multiple and duplicative litigation" (internal quotation marks and citations omitted)).

Consistent with these objectives, Rule4:30A addresses joinder of claims, stating:

Non-joinder of claims required to be joined by the entire controversy doctrine shall result in the preclusion of the omitted claims to the extent required by the entire controversy doctrine, except as otherwise provided by R. 4:64-5 (foreclosure actions) and R. 4:67-4(a) (leave required for counterclaims or cross-claims in summary actions).

The rule "encompasses 'virtually all causes, claims, and defenses relating to a controversy[,]'" Oliver v. Ambrose, 152 N.J. 383, 394 (1998) (quoting Cogdell, supra, 116 N.J. at 16), and requires all parties in an action to raise all transactionally related claims or risk preclusion. K-Land Corp. No. 28 v. Landis Sewerage Auth., 173 N.J.59, 69-71 (2002); R.4:30A. See also Kopin v. Orange Prods., Inc., 297 N.J. Super. 353, 374 (App. Div.) ("'The entire controversy doctrine requires a party to join all its claims against its adversary when those claims [are] related to and part of the same [underlying] controversy.'" (quoting Aetna Ins. Co. v. Gilchrist Bros., Inc., 85 N.J. 550, 557 (1981)), certif. denied, 149 N.J. 409 (1997).

As an equitable principle, the entire controversy doctrine's applicability is left to judicial discretion to be exercised on a case-by-case basis. Mystic Isle, supra, 142 N.J. at 323. The courts "are to be guided by the general principle that all claims arising from a particular transaction or occurrence[,]" including those actually litigated and those which might have been litigated and decided, "should be joined in a single action." Higgins, supra, 413 N.J. Super. at 12 (citation omitted).

In plaintiff's initial action and in this mater, the parties are identical and the claims are focused on the same lease agreement. However, no provision of the settlement agreement or the subsequently entered order enforcing the settlement agreement eschewed any lease provisions, save plaintiff's right to purchase the realty. On the contrary, the rights and obligations of the parties remained in full force and effect, as if the purchase controversy never existed. Defendants were in no way relieved of their continuing obligation to comply with all lease terms, including the provision of the defined leased premises, for the purposes so stated.

Here, the trial judge was of the view that plaintiff's claims arose from the initial litigation, requiring plaintiff to file a motion under that docket number to enforce the settlement agreement, rather than initiate a new action. While the suggestion that the new claims were related to the initial action may be sound, that fact may not support an order dismissing the complaint with prejudice. Perhaps the better procedural course may have been to seek enforcement by resurrecting the initial action, rather than filing a new matter seeking effectively to enforce the terms of settlement.

The entire controversy doctrine is inapplicable to, and does not "'apply to bar component claims either unknown, unarisen or unaccrued at the time of the original action.'" K-Land Corp., supra, 173 N.J. at 70 (quoting Pressler, Current N.J. Court Rules, comment 2 on R. 4:30A (2002)). When "considering fairness to the party whose claim is sought to be barred, a court must consider whether the claimant has had a fair and reasonable opportunity to have fully litigated that claim in the original action." Gelber v. Zito P'ship, 147 N.J. 561, 565 (1997) (internal quotation marks and citation omitted).

The claims now raised occurred after the settlement agreement and could not have been presented in the earlier proceeding. In fact, during oral argument plaintiff conceded: "We're not seeking damages going back to 2010[,] . . . we're not seeking damages that were already perhaps settled in the prior action. We're saying from June 2011 when the settlement agreement was reached to today." Accordingly, any new claim of breach, even if arising from ongoing conduct, is not barred by the entire controversy doctrine as the issue was neither adjudicated nor eliminated by the first judgment.

We reject defendants' argument suggesting the settlement agreement, and the subsequent order enforcing the agreement, absolved defendants of any claimed breach of the lease agreement until the date of termination. More to the point, the settlement agreement specifically incorporated the terms of the lease agreement and bound both parties to fully perform as agreed.

We also reject defendants' notion that the unopposed enforcement action and the December 2, 2011 order serve as an adjudication of defendants' compliance with the lease. The enforcement order addressed only plaintiff's right to purchase the realty and restated the terms of the settlement agreement, which again imposed the benefits and burdens of the lease on plaintiff as well as defendants. Defendants did not seek modification or elimination of any lease terms at the time the first action was settled or upon advocating enforcement of the settlement. Defendants were fully aware of the responsibilities imposed on them as landlord under the lease agreement and knew the settlement agreement reinstated the lease agreement as originally written, and did not relieve any obligation to perform. Therefore, new claims raised by plaintiff following the settlement agreement have not been previously adjudicated and are not barred. This court is not in a position to decide these claims on this record.

Finally, we find the judge erred in entering judgment of possession without a factual basis to do so. Defendants presented no evidence at the hearing to support their claim. At minimum, evidence supporting their claim for possession must be provided prior to entry of judgment. In this matter, there exists the additional issue of plaintiff's asserted claims of breach offsetting defendants' right to receive rent. In light of its claims of breach, plaintiff had escrowed the rent. During oral argument, plaintiff noted the complaint sought rent abatement based on defendants' alleged breach, but the judge rejected the request, erroneously concluding issues surrounding breach had been adjudicated. For the reasons detailed in this opinion, adjudication of these claims remains outstanding. We conclude it would be prudent that the matters be consolidated and heard at the same time.

The trial judge's May 22, 2012 order is reversed; plaintiff's complaint is reinstated; and the matter is remanded for further proceedings on the issues raised in these separate actions, which should be consolidated for ease of adjudication.

R

eversed and remanded.

1 The record suggests Zidan and his three brothers Taysier Zaydan, Mohammad Hassan Zaidan, and Ebrahim M. Zidan had an ownership interest in the realty prior to the transfer to Madison. Various deeds are contained in the record, which predate the lease agreement.

2 Kiame and Raymond Mourad also executed the lease individually.

3 At the time the parties executed the lease agreement, the premise was being used as a restaurant; the first floor was the "functioning" area and the second and third floors were employed for "ancillary restaurant uses."

4 According to U.S. Bank records, defendants' outstanding mortgage obligation was $262,134.97.

5 The past due municipal tax and sewer payments totaled $5732.62.

6 The record does not discuss whether or how the parties' addressed U.S. Bank's foreclosure action.