HARRISON EVG PROPERTIES, LLC VS. STATE OF NEW JERSEY, ETC. (L-0024-15, ESSEX COUNTY AND STATEWIDE) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE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 binding only 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-5242-18T2
HARRISON EVG PROPERTIES,
LLC, and MICHAEL TRENCHER,
Plaintiff-Appellant,
v.
STATE OF NEW JERSEY, acting
by and through its DIVISION OF
PROPERTY MANAGEMENT &
CONSTRUCTION,
Defendant-Respondent.
______________________________
Argued November 10, 2020 – Decided December 16, 2020
Before Judges Fisher, Gilson, and Moynihan.
On appeal from the Superior Court of New Jersey, Law
Division, Essex County, Docket No. L-0024-15.
Douglas S. Brierley argued the cause for appellant
(Brierley & Humick, LLP, attorneys; Bruce H. Bergen,
on the briefs).
Sudha V. Raja, Deputy Attorney General, argued the
cause for respondent (Gurbir S. Grewal, Attorney
General, attorney; Sookie Bae, Assistant Attorney
General, of counsel; Sudha V. Raja and Vivek N.
Mehta, Deputy Attorney General, on the brief).
PER CURIAM
Plaintiff Harrison EVG Properties, Inc. appeals from the motion judge's
grant of summary judgment in favor of defendant State of New Jersey, acting by
and through the Division of Property Management (the Division), dismissing
Harrison's complaint with prejudice.
We review the motion judge's ruling de novo, and apply the same standard
as did the judge. Templo Fuente De Vida Corp. v. Nat'l Union Fire Ins. Co. of
Pittsburgh, 224 N.J. 189, 199 (2016). That standard compels the grant of
summary judgment "if the pleadings, depositions, answers to interrogatories and
admissions on file, together with the affidavits, if any, show 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." R. 4:46-2(c). "To defeat a
motion for summary judgment, the opponent must 'come forward with evidence
that creates a genuine issue of material fact.'" Cortez v. Gindhart, 435 N.J.
Super. 589, 605 (App. Div. 2014) (quoting Horizon Blue Cross Blue Shield of
N.J. v. State, 425 N.J. Super. 1, 32 (App. Div. 2012)). Viewing the competent
evidence in the light most favorable to Harrison, Brill v. Guardian Life Ins. Co.
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of Am., 142 N.J. 520, 540 (1995), we agree with the motion judge that Harrison
failed in that regard and affirm.
In December 2009, Harrison and the Division entered a written lease
agreement for several floors of commercial office space. The lease terms
required Harrison to complete fit-out construction work and provide a temporary
certificate of occupancy (TCO) or a final certificate of occupancy (CO) to the
Division by February 12, 2010. When Harrison did not complete the work or
obtain a TCO or CO, the parties entered into an initial lease amendment and
extended the completion date to September 27, 2010. Harrison did not complete
construction by that date for various reasons, including internal organizational
and financial issues.
In May 2012, Harrison refinanced the property with Paradigm Evergreen
LLC (Paradigm), and Harrison agreed to: (1) "use reasonable efforts to
complete" designated construction work by June 30, 2012; (2) deposit funds in
escrow to ensure there were sufficient available funds to complete construction;
and (3) grant Paradigm the option to intervene and complete construction in the
event Harrison breached. Paradigm exercised the option to undertake
construction when Harrison failed to meet the June 30, 2012 deadline.
A-5242-18T2
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Harrison failed to make the required mortgage payments, and Paradigm
declared a default and accelerated the loan in March 2013. Harrison and
Paradigm entered into a Settlement and Forbearance Agreement, which allowed
Paradigm to foreclose if Harrison failed to pay amounts due by August 22, 2013.
When Harrison failed to meet that payment requirement, it and Paradigm entered
into three "Discounted Payoff Agreements," dated March 24, 2014, May 14,
2014 and May 21, 2014. Paradigm secured the right to record a deed in lieu of
foreclosure if Harrison failed to make full payment to Paradigm.
The Division, which was not a party to the agreements between Paradigm
and Harrison, entered into a second lease amendment with Harrison on
September 20, 2013, after construction had still not been completed. That
amendment granted Harrison a ninety-day extension to complete construction.
Harrison failed to meet that December deadline. The Division, as it had done
after every previous missed deadline, did not exercise its right to terminate the
lease.
Harrison failed to make payments to Paradigm as per the Discounted
Payoff Agreements, and Paradigm exercised its right to record a deed in lieu of
foreclosure in July 2014. Harrison never completed the construction work or
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obtained a TCO or CO. Paradigm completed the work and delivered occupancy
to the Division in May 2016.
Prior to the recording of the deed in lieu of foreclosure, Harrison sought
to refinance the property with Revere Capital LLC (Revere). In its complaint,
Harrison alleges on May 9, 2014, it, through counsel, "requested that [the
Division] execute an Estoppel and Subordination, Non-Disturbance and
Attornment Agreement (SNDA) and provide a final punch list, all of which were
required by Revere to close the loan." It also alleges
[o]n June 3, 2014, [the Division] provided a proposed
Estoppel, SNDA, and a third amendment to the Lease,
which again imposed conditions that exceeded the
scope of the [original l]ease, as amended. After
attempting to negotiate the terms of these three
documents over the next two days, [the Division],
without reason, withdrew the proposed documents on
June 5, 2014.
In its three-count complaint, Harrison alleges breach of agreement; breach
of implied covenant of good faith and fair dealing; and tortious interference with
prospective economic advantage 1 due to the Division's refusal to provide the
documents needed for Harrison to close on the refinance with Revere, pay
Paradigm and prevent the foreclosure resulting in Harrison's loss of the property.
1
In the third count, Harrison also includes language alleging tortious
interference with contractual relationships.
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Plaintiff argues the motion judge erred because there are "material issues
of fact [in dispute] that must be determined by the trier of fact," "more fully
set[ting] forth" those arguments in Points II and III of his merits brief: 1) The
trier of fact should determine if defendant's refusal to cooperate with defendant
in their attempt to refinance the property violated the implied covenant of good
faith and fair dealing, and 2) the motion judge erred in determining defendant
was immune under the New Jersey Contractual Liability Act (the Act), N.J.S.A.
59:13-1 to 13-10, because plaintiff sought compensatory, not consequential
damages as found by the motion judge, an issue that should have been left to the
trier of fact.
There is no dispute the original lease and the first and second amendments
thereto were contracts between the parties. But to establish a breach of
contract claim, a plaintiff is also required to prove it "did what the contract
required [the plaintiff] to do; . . . [the] defendant did not do what the contract
required [the defendant] to do, . . . ; and . . . [the] defendant's breach, or failure
to do what the contract required, caused a loss to the plaintiff." Woytas v.
Greenwood Tree Experts, Inc., 237 N.J. 501, 512 (2019) (first, third, fourth and
seventh alterations in original) (quoting Globe Motor Co. v. Idgalev, 225 N.J.
469, 482 (2016)).
A-5242-18T2
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Tellingly, Harrison's merits brief does not identify any provision in the
lease or amendments that the Division breached. And, as the motion judge
noted, Harrison was "[t]he only party that breached its contractual duties" by
failing "to complete the required construction work within the time agreed by
the parties through the original [l]ease and the two [a]mendments, and which
never produced a TCO or CO for the [p]remises[.]" Without a TCO or CO, the
Division could not occupy the premises.
Instead, Harrison's complaint alleges the Division acted to thwart its
refinance with Revere. Even if true, those actions did not breach any provision
of the original or modified lease terms. No provision in the agreements
contemplated the Division's cooperation in Harrison's refinance of the property.
Indeed, Harrison's complaint states the Division "provided a proposed
[e]stoppel, SNDA, and a third amendment to the [l]ease, which again imposed
conditions that exceeded the scope of the [l]ease, as amended," and that
negotiations regarding the terms of those documents "over the next two days"
failed, leading the Division to withdraw those documents. The complaint
confirms that the Division was under no obligation under the lease or
amendments to provide the documents. Any new agreement to do so was never
reached. Harrison admits in its complaint it "continued efforts to negotiate with
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[the Division] and [was] willing to accept more and more unreasonable demands
and conditions imposed by [the Division] in an attempt to mitigate [its] damages,
but all to no avail." Thus, the Division was not in breach of any contract it
entered with Harrison.
In the absence of a breach of any express contract term, Harrison contends
the Division "violate[d] the implied covenant of good faith and fair dealing" and
did not "turn square corners" in its dealings. All "contract[s] contain[] an
implied covenant of good faith and fair dealing." Wade v. Kessler Inst., 172
N.J. 327, 340 (2002). But the covenant means that "'neither party shall do
anything which will have the effect of destroying or injuring the right of the
other party to receive the fruits of the contract[.]'" Bak-A-Lum Corp. v. Alcoa
Bldg. Prods., 69 N.J. 123, 129 (quoting Ass'n Group Life, Inc. v. Catholic War
Vets. of U.S., 61 N.J. 150, 153 (1972)). "The party claiming a breach of
the covenant of good faith and fair dealing 'must provide evidence sufficient to
support a conclusion that the party alleged to have acted in bad faith has engaged
in some conduct that denied the benefit of the bargain originally intended by the
parties.'" Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr.
Assocs., 182 N.J. 210, 225 (2005) (quoting 23 Williston on Contracts § 63:22
(Lord ed. 2002)).
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The Division's alleged actions did not deprive Harrison of the "fruits " of
the contracts. Again, nothing in the lease or amendments contemplated or
required the Division to cooperate in a refinance. Even if, as Harrison contends
in its merits brief, the Division imposed demands in its negotiation of a third
lease amendment, including: "detailed and comprehensive financial analysis of
Harrison and the subject lease by a [certified public accountant]; . . . [the hiring
of] an outside property manager for a period of [ten] years; . . . an unreasonable
amount of time to complete its investigation; and . . . numerous amendments to
the lease[,]" those actions did not impact the lease agreements, depriving
Harrison of any benefit thereunder. Harrison deprived itself of those "fruits" by
failing to complete construction and deliver the premises, and by failing to fulfill
its obligations to Paradigm. As the motion judge observed, "it took the
intervening action of an unrelated third-party—the lender, exercising separate
contractual rights given to it by Harrison—to bring about the loss." There was,
therefore, no support for Harrison's implied-covenant claim.
In light of our determination that the Division's actions did not deprive
Harrison of any benefit under the lease and amendments, we need not extend
our analysis of that issue. For completeness, however, we agree with the motion
judge's reasoning, set forth in his written opinion, that Harrison failed to support
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its implied-covenant cause of action by proffering evidence of the Division's bad
faith or ill motive, a required element of that claim. Seidenberg v. Summit Bank,
348 N.J. Super. 243, 261 (App. Div. 2002). As the judge explained, in view of
Harrison's continued failure to complete construction and deliver the premises,
"[t]he State was not required 'to overlook its own rights under the agreement to
protect its property interests because such action is detrimental to the other
party's interests.'"2
We also agree with the motion judge that the New Jersey Contractual
Liability Act, to which the lease was expressly subject, barred Harrison's claim.
Under the Act, the State "waives its sovereign immunity from liability arising
out of an express contract or a contract implied in fact," but "recovery against
the State for punitive or consequential damages arising out of contract" and for
"any recovery against the State for claims based upon implied warranties or upon
contracts implied in law" is prohibited. N.J.S.A. 59:13-3. The Act thus bars
Harrison's claim based on the implied covenant of good faith and fair dealing,
and all claims because the damages it seeks are consequential.
2
In his written opinion, the judge quoted Liqui-Box Corp. v. Est. of Elkman,
238 N.J. Super. 588, 599-600 (App. Div. 1990) in support of his reasoning.
A-5242-18T2
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As said, Harrison failed to identify any lease term the Division breached.
But assuming there was a breach—which we neither determine nor imply—
Harrison's damages resulted from the loss of the property when the deed in lieu
of foreclosure was filed. Both Harrison's complaint and statement of damages
aver all its damages flow from that loss of ownership. As such, they were not
direct compensatory damages. That is they did not "aris[e] naturally, i.e.,
according to the usual course of things, from such breach of contract itself"; nor
were they "reasonably . . . supposed to have been in the contemplation of both
parties at the time they made the contract as the probable result of the breach of
it." Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854); see also
Totaro, Duffy, Cannova & Co., L.L.C. v. Lane, Middleton & Co., L.L.C., 191
N.J. 1, 13 (2007).
If Harrison's damages did not arise "according to the usual course of
things," it follows that they were consequential damages. See Restatement
(Second) of Contracts § 351cmt. b (Am. Law Inst. 1981) (defining consequential
damages as "[t]he damages recoverable for loss that results other than in the
ordinary course of events"). Harrison's financing, breach of financing
agreements, and refinancing were not contemplated in the lease or amendments.
The damages did not arise in any course of events related to the lease or
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amendments. They were, at best, consequential; Harrison is therefore barred
from any recovery under the Act.
We thus conclude the motion judge did not err in granting the Division's
motion for summary judgment.
Harrison's merits brief contained no argument with regard to its claims for
tortious interference with prospective economic advantage and tortious
interference with contractual relationships. As such, Harrison waived any
argument that the motion judge erred in dismissing those claims. Dep't of Env't
Prot. v. Alloway Twp., 438 N.J. Super. 501, 505 n.2 (App. Div. 2015); see also
Pressler & Verniero, Current N.J. Court Rules, cmt. 5 on R. 2:6-2 (2021).
Affirmed.
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