Opinion
DOCKET NO. A-4039-13T4
04-12-2016
INSURANCE RESTORATION SPECIALISTS, INC., Plaintiff-Respondent, v. 26 KENNEDY BOULEVARD ASSOCIATES, LTD., and DANIEL SHALIT, individually, Defendants-Appellants.
Gregory J. Cannon argued the cause for appellants (Berger & Bornstein, LLC, attorneys; Mr. Cannon, on the briefs). Glenn C. Slavin argued the cause for respondent (Slavin & Morse, LLC, attorneys; Mr. Slavin, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Alvarez, Haas, and Manahan. On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-5326-11. Gregory J. Cannon argued the cause for appellants (Berger & Bornstein, LLC, attorneys; Mr. Cannon, on the briefs). Glenn C. Slavin argued the cause for respondent (Slavin & Morse, LLC, attorneys; Mr. Slavin, on the brief). PER CURIAM
Defendants-counterclaimants 26 Kennedy Boulevard Associates, Ltd. (26 Kennedy), and Daniel Shalit, rented commercial space to plaintiff Insurance Restoration Specialists, Inc. (IRS), commencing November 1997. The initial three-year lease was extended twice, in October 2000 and on February 10, 2005, when the parties entered into a final five-year agreement. The lease provided that IRS would pay sixty percent of the real estate taxes, insurance costs, water and sewer charges for the building—the "CAM" charges. IRS was also responsible for maintenance of the heating and air conditioning (HVAC) system. After IRS vacated the premises, 26 Kennedy replaced the HVAC system due to plaintiff's failure to maintain the system. Therefore, 26 Kennedy refused to refund plaintiff's $24,784 security deposit.
The lease also included a waiver provision, providing:
The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease, or of any rule or regulation, shall not be construed as a waiver or relinquishment for the future of such covenant, condition, rule or regulation. The receipt by Landlord of rent with knowledge of a breach of any covenant of this Lease shall not be deemed a waiver of such breach. No payment by Tenant or receipt by Landlord of a lesser amount than the rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check nor any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept the balance of such rent or pursue any other remedy in this Lease provided.
IRS subsequently learned that defendants had obtained a significant real estate tax refund, after appealing their assessment, for the years 2008, 2009, and 2010. 26 Kennedy also refused to reimburse IRS for overpaid taxes.
IRS filed suit; 26 Kennedy counterclaimed for the cost of replacing the HVAC system and an additional $50,408.89 in unpaid CAM charges from 1997 to 2007. No request for those charges had been made during the parties' annual reconciliations as called for by the lease. IRS first learned of the claim shortly before trial.
IRS's motion for partial summary judgment dismissing the claims for unpaid CAM charges was granted. In deciding the motion, the judge relied on the lease term that required the parties to annually reconcile CAM charges in order to adjust the amount IRS would pay in the next twelve months. He noted that IRS "was given no notification of any deficiency of CAM charges, except for the year 2007 when landlord gave timely notice and tenant paid the deficiency shortly thereafter." Defendants alone maintained the necessary records, as although IRS occupied sixty percent of the premises, other commercial tenants occupied the remaining forty percent and paid their proportionate share of CAM charges. The judge therefore found that 26 Kennedy was obligated to notify tenants of any outstanding balances on a timely basis during annual reconciliations called for by the lease, and that having failed to do so, IRS had no obligation to make additional payments. The judge also found the six-year contracts statute of limitations applicable. N.J.S.A. 2A:14-1. Therefore, 26 Kennedy was not entitled to unpaid CAM charges accumulated between 1997 and 2004.
The judge rejected 26 Kennedy's argument that the equitable doctrine of recoupment allowed for a deduction from any sums it might be found to owe to IRS. He opined that the doctrine—which is "utilized to reduce or extinguish [IRS's] recovery to the extent that the . . . alleged damages arise from the same transaction as the . . . counterclaim[]"—required that the offset arise out of the same transaction. Because he found that the monthly payments were adjusted annually, they did not become due as part of one transaction but rather "involve[d] a series of transactions[.]" The judge therefore concluded that the doctrine of equitable recoupment was inapplicable.
The remaining issues were tried before a different judge. That judge observed that 26 Kennedy's retention of the security deposit when no rent was due and owing was the same as "holding on to somebody else's money when it should be returned[,]" and hence, "fit the definition of unjust enrichment as an equitable doctrine[.]" He viewed the question of whether IRS was responsible for repairs to the HVAC system, and if so to what extent, as a separate issue. The judge found the repairs were included in the lease terms and that IRS, at a minimum, "had an obligation to return it in its original condition, excluding reasonable wear and tear." The problems with the HVAC system were attributable to IRS's failure to maintain it as required by the lease. After the trial concluded, he assigned values to the replacement items and thereby calculated the total IRS owed 26 Kennedy. The judge found IRS liable for $121,148.45 in damages for its failure to maintain the HVAC system. 26 Kennedy was found liable for $48,572.79 in overpaid CAM charges and IRS's security deposit of $24,784 was credited against the amount due. After offsetting the various sums, IRS owed 26 Kennedy $47,791.66. He observed that neither party "acted in bad faith."
Thereafter, 26 Kennedy filed a motion for counsel fees and costs in the amount of $46,867.50 under Paragraph 16(B)(7) of the lease which reads:
The prevailing party in a law suit between Landlord and Tenant shall be entitled from the non-prevailing party to any and all reasonable attorneys' fees and other costs which the prevailing party may incur as a result of seeking to enforce or protect its rights against the other.26 Kennedy contended they prevailed because of the award regarding the HVAC system.
IRS cross-moved for $38,403.85 in attorney's fees and costs based on the same clause in the lease. IRS argued it prevailed because of the summary judgment award of pre-2010 CAM charges and the refund of prorated real estate taxes.
Relying upon North Bergen Rex Transport, Inc. v. Trailer Leasing Co., 158 N.J. 561 (1999), the judge calculated that IRS's recovery of $48,572.79 of the $73,356.79 total sum they had demanded established that they prevailed on 66.2 percent of their claims. He further found that 26 Kennedy' recovery of $121,148.45 as against their approximately $200,000 demand was 61 percent. After analysis of the lodestar and other relevant considerations, he came up with modified amounts for both parties after multiplying their counsel fee requests by their prevailing percentages. IRS was entitled to recover $25,428.91 and 26 Kennedy to recover $26,797.67. After offsetting the two amounts, the difference was $1368.76, payable by IRS to 26 Kennedy.
Now on appeal, defendants raise the following points:
POINT I
THE LOWER COURT MISAPPLIED THE DOCTRINE OF EQUITABLE RECOUPMENT AND IMPROPERLY DISMISSED DEFENDANTS' COUNTERCLAIM RELATING TO PLAINTIFF'S UNDERPAYMENT OF CAM CHARGES FROM 1997 TO 2007.
A. Defendants' Counterclaim Was Not Barred By The Statute Of Limitations Because It Sought Equitable Recoupment.
B. The Trial Court Improperly Decided That the Doctrine Of Equitable Recoupment Was Inapplicable.
C. The Trial Court Ignored The Terms Of The Lease And Improperly Concluded That Defendants Waived Their Right To Seek Recoupment Of The Underpaid CAM Charges.
POINT II
THE LOWER COURT IMPROPERLY AWARDED ATTORNEYS' FEES AND COSTS TO PLAINTIFF AND INCORRECTLY OFFSET THE PARTIES' COMPETING FEE CLAIMS.
A. The Lease Expressly Provides For An Award Of Attorneys' Fees and Costs To The Prevailing Party.
B. Defendants Undisputedly "Prevailed" In This Litigation.
C. The Trial Court Erred By Awarding Attorneys' Fees And Costs To Plaintiff And Offsetting Defendants' Award.
I.
It is well-established that in deciding motions for summary judgment, courts determine whether the evidence presented, "when viewed in the light most favorable to the non-moving party, [is] sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). This standard is employed both on appeal as well as by the trial courts. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).
Equitable recoupment is "the reduction of a claim because of an offsetting claim arising out of exactly the same transaction[.]" Beneficial Fin. Co. v. Swaggerty, 86 N.J. 602, 609 (1981) (quoting Gibbins v. Kosuga, 121 N.J. Super. 252, 258 (Law Div. 1972)). In contrast, a "[s]etoff is an offsetting claim arising out of a completely independent and unrelated transaction[.]" Ho v. Rubin, 333 N.J. Super. 599, 606 (App. Div. 1999).
Summary judgment dismissal of claims is appropriate where they are asserted beyond the statute of limitations. See ibid. For claims arising out of contracts, the relevant period is six years. See N.J.S.A. 2A:14-1. Setoffs are subject to statutes of limitations. Ho, supra, 333 N.J. Super. at 606.
In contrast, recoupment is "never barred by the statute of limitations so long as the main action itself is timely." Nester v. O'Donnell, 301 N.J. Super. 198, 208 (App. Div. 1997). In order for equitable recoupment to apply: "(1) there must be a single transaction, (2) there must be an identity of interest among parties, and (3) a need to balance the equities must exist. Gen. Motors Acceptance Corp. v. Dir., Div. of Taxation, 26 N.J. Tax 93, 100 (App. Div.) (citing Superior Air Prods. Int'l, Inc. v. Dir., Div. of Taxation, 9 N.J. Tax 463, 473 (Tax), aff'd o.b., 10 N.J. Tax 238 (App. Div. 1988)), certif. denied, 208 N.J. 337 (2011).
Recoupment, a doctrine employed primarily in tax matters, requires a single transaction. A single transaction has been interpreted by "Federal and New Jersey courts . . . 'as one involving only a particular item on a tax return or a single event or transaction during the tax period [in question].'" Ibid. (alteration in original) (quoting Superior Air, supra, 9 N.J. Tax at 474). Superior Air highlights the historically narrow view of the "single transaction" requirement, and emphasizes that absent such a narrow approach, "[e]very assessment of deficiency would invite a search of the taxpayer's entire tax history for items to recoup." Supra, 9 N.J. Tax at 474 (alteration in original) (quoting Boyle v. United States, 380 F.2d 973, 975 (3d Cir. 1967)). The Tax Court also asserted that distinct occurrences - even if "related or connected" - do not satisfy the definition of a single event for purposes of recoupment. Id. at 475-76.
A similar interpretation is illustrated in Troup, a foreclosure case. See Assocs. Home Equity Servs., Inc. v. Troup, 343 N.J. Super. 254, 272 (App. Div. 2001). In that case, the mortgage loan transaction at issue satisfied the first element of equitable recoupment as it "was the common source of both the Troups' liability to pay the debt and their correlative rights under the fair housing and civil rights statutes." Ibid.
Turning to the amount in dispute here, 26 Kennedy sought unpaid CAM charges from 1997 to 2007 as a shield against IRS's claim for overpaid CAM charges from 2008 to 2010. Other than all being "CAM" charges, they are not otherwise similar.
The relevant lease provision required reconciliation of amounts annually. After each annual reconciliation, a monthly adjustment was made for the coming year on the rent. Each annual reconciliation, not to mention each annual lease term, constitutes a separate event or transaction for purposes of recoupment in this case. Even looking at the facts in the light most favorable to defendants, it is clear that their definition of single transaction is fatally flawed. With each new annual reconciliation, a new agreement was entered into by the parties. With each new lease, IRS incurred a new obligation. Accordingly, we agree with the Law Division judge that defendants cannot claim recoupment as a defense to offset sums owed to plaintiff.
26 Kennedy claims that the language in the lease regarding the waiver of any right to be in writing barred the judge's analysis of recoupment law. We do not agree that the judge ignored that provision of the agreement to their detriment. The standard waiver language is irrelevant to the legal definition of single transaction being applied in this case. The issue is not whether 26 Kennedy waived any rights they had, but whether they met the legal test for a defense.
Thus we affirm the judge's grant of partial summary judgment to IRS. Even viewing the facts in the light most favorable to 26 Kennedy, no material issue existed and IRS was entitled to judgment as a matter of law.
II.
"[F]ee determinations by trial courts will be disturbed only on the rarest of occasions, and then only because of a clear abuse of discretion." Packard-Bamberger & Co., Inc. v. Collier, 167 N.J. 427, 444 (2001) (quoting Rendine v. Pantzer, 141 N.J. 292, 317 (1995)). We review fee determinations deferentially. Ibid.
The threshold issue on the question of attorney's fees is whether the party seeking them prevailed. See N. Bergen Rex, supra, 158 N.J. at 570. In making that determination, we look to the test established in Singer v. State: 1) "that [the party's] lawsuit was causally related to securing the relief obtained"; and 2) "that the relief granted had some basis in law." 95 N.J. 487, 494, cert. denied, 469 U.S. 832, 105 S. Ct. 121, 83 L. Ed. 2d 64 (1984).
We take into account that generally fee shifting is disfavored, although allowed when provided for in a contract. N. Bergen Rex, supra, 158 N.J. at 569-70. Such provisions, however, should be strictly construed. Id. at 570. There must be a correlation between the amount of a party's recovery and any award of attorney's fees when the right to claim fees arises from a contract provision. Id. at 566, 573-74.
As to the test, the first prong states that a party's "efforts are a 'necessary and important' factor in obtaining the relief." Singer, supra, 95 N.J. at 494 (citing Nadeau v. Helgemoe, 581 F.2d 275, 280 (1st Cir. 1978)). Under the second prong, the "party seeking fees need not obtain all relief sought, but there must be a resolution of some dispute that affected the defendant's behavior towards the prevailing plaintiff." Packard-Bamberger, supra, 167 N.J. at 444.
In this case, IRS succeeded in claiming $48,572.79 in reimbursement for CAM charges. IRS succeeded in barring 26 Kennedy from recovering uncharged CAM contributions. Therefore, under the two-prong Singer test, IRS could be considered a prevailing party. 26 Kennedy succeeded in claiming $121,148.45 in HVAC damages, thus prevailing in part on its claims.
Moreover, there must be a close relationship between the amount of damages recovered, or the success of the litigation, in comparison to any fee award. Id. at 445-46. The New Jersey Supreme Court has rejected a purely "mathematical approach comparing the total number of issues in the case with those actually prevailed upon because [s]uch a ratio provides little aid in determining what is a reasonable fee in light of all the relevant factors." New Jerseyans for a Death Penalty Moratorium v. N.J. Dep't of Corr., 185 N.J. 137, 154 (2005) (alteration in original) (quoting Silva v. Autos of Amboy, Inc., 267 N.J. Super. 546, 555-56 (App. Div. 1993)). Rather, when the claim for relief "involve[s] a common core of facts or will be based on related legal theories," the court must focus on the "significance of the overall relief obtained by the plaintiff in relation to the hours reasonably expended[.]" Silva, supra, 267 N.J. Super. at 556 (quoting Hensley v. Eckerhart, 461 U.S. 424, 435, 103 S. Ct. 1933, 1940, 76 L. Ed. 2d 40, 51-52 (1983)).
When only partial or limited success is achieved, "the critical factor is the degree of success obtained." Ibid.; see N. Bergen Rex, supra, 158 N.J. at 572-574 (finding a 100% award of counsel fees unreasonable when 58% of the prevailing party's claims were rejected). Further, while no requirement exists "that counsel fees be proportionate to damages, the amount of damages a plaintiff recovers is relevant to the amount of attorney's fees to be awarded." Silva, supra, 267 N.J. Super. at 557 (citing Chattin v. Cape May Greene, Inc., 243 N.J. Super. 590, 616 (App. Div. 1990), aff'd o.b., 124 N.J. 520 (1991)).
In Silva, the court rejected the trial court's calculation of the fee, which was obtained by mechanical division of the lodestar based on the number of counts in the complaint. Id. at 559. We reiterated the notion that the amount sought and the recovery should be considered in determining any award. Id. at 559-60. In New Jerseyans, supra, 185 N.J. at 155-56, an OPRA case, the Court rejected the reduction of a counsel fee request to 70% - and therefore awarded 100% - where the percentage of fees had been calculated based solely on the number of documents obtained.
Open Public Records Act, N.J.S.A. 47:1A-1 to -13. --------
The lease provision between these parties arguably contemplated one prevailing party, not two. Nonetheless, the claims here are somewhat novel in nature in that each party was awarded items unrelated to the claims of the other.
IRS was clearly entitled to a refund of real estate taxes. On the other hand, 26 Kennedy was entitled to repair costs as a result of IRS's failure to maintain the HVAC system. An option the court had was to conclude that neither party prevailed fully on its claims, and deny fees to both. See N. Bergen Rex, supra, 158 N.J. at 569-70.
We cannot say, however, in light of the claims and counterclaims here, and the manner in which they were resolved, that the judge abused his discretion. After all, we review the award deferentially.
The judge engaged in the required analysis of the reasonableness of the fees and calculated the lodestar, he reduced the hours charged where appropriate. A better option may have been for the court to determine whether the expenditure of counsel's time on the entire litigation was reasonable in relation to the relief obtained before. See N. Bergen Rex, supra, 158 N.J. at 572. While the judge's computation was more like that formulaic analysis historically rejected by our courts, see Silva, supra, 267 N.J. Super. at 555-56; New Jerseyans, supra, 185 N.J. at 154, we cannot say that the methodology applied in this case, given our deferential review, amounted to an abuse of discretion.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION