Opinion
DOCKET NO. A-2365-14T4
07-26-2016
WAKEFERN FOOD CORP., Plaintiff-Respondent, v. MW ASSOCIATES, Defendant-Appellant.
Roberto A. Rivera-Soto argued the cause for appellant (Ballard Spahr, L.L.P., attorneys; Mr. Rivera-Soto, of counsel and on the briefs; Michele C. Ventura, on the briefs). Eric S. Aronson argued the cause for respondent (Greenberg Traurig, L.L.P., attorneys; Mr. Aronson, of counsel and on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Reisner, Leone and Whipple. On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County, Docket No. C-174-13. Roberto A. Rivera-Soto argued the cause for appellant (Ballard Spahr, L.L.P., attorneys; Mr. Rivera-Soto, of counsel and on the briefs; Michele C. Ventura, on the briefs). Eric S. Aronson argued the cause for respondent (Greenberg Traurig, L.L.P., attorneys; Mr. Aronson, of counsel and on the brief). PER CURIAM
This appeal arises from a dispute over a commercial lease between the landlord, defendant MW Associates (defendant or MW), and its tenant, plaintiff Wakefern Food Corp. (plaintiff or Wakefern). Defendant appeals from a December 23, 2014 order requiring the parties to submit to arbitration their dispute over the fair market rental of a warehouse for years eleven through fifteen of the lease extension term, as set forth in § 2(g) of the first amendment of the lease; dismissing MW's counterclaims with prejudice; and, pursuant to the lease terms, awarding Wakefern $288,727 in counsel fees.
MW contests Wakefern's entitlement to fees under the lease terms, but does not challenge the amount of the fee award.
Following a two-day bench trial held on September 16 and 17, 2014, the trial judge determined that MW was equitably estopped from holding Wakefern to a ten-day time limit for responding to MW's written rent increase proposal. He determined that, under the lease terms, the parties were required to submit their rent dispute to baseball-style binding arbitration. He also determined that Wakefern was a prevailing party for purposes of a lease clause entitling a prevailing party to counsel fees. We affirm, because we agree that in the circumstances of this case, equitable estoppel was applicable. We also agree that the judge properly awarded counsel fees.
I
We begin our consideration of the case by reviewing some well understood legal principles. On this appeal, we may not disturb the trial judge's factual findings so long as they are supported by substantial credible evidence. Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011).
Final determinations made by the trial court sitting in a non-jury case are subject to a limited and well-established scope of review: "'we do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice[.]'"
[Ibid. (citations omitted).]
We owe particular deference to his evaluation of witness credibility, and to his overall feel for the case, which a cold record cannot give us. Cesare v. Cesare, 154 N.J. 394, 411-12 (1998). However, we review the judge's legal interpretations, including his construction of contracts, de novo. Kieffer v. Best Buy, 205 N.J. 213, 222 (2011). A trial court's award of counsel fees "will be disturbed only on the rarest of occasions, and then only because of a clear abuse of discretion." Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 444 (2001) (quoting Rendine v. Pantzer, 141 N.J. 292, 317 (1995)).
Mindful that "equity follows the law," a court cannot, based solely on an individual judge's idea of "fairness," make a better contract for the parties than the one they have made for themselves. Dunkin' Donuts of America, Inc. v. Middletown Donut Corp., 100 N.J. 166, 183-84 (1985). Consequently, it is not dispositive that strict enforcement of a contract term will have a harsh result, if that term is what the parties bargained for. Id. at 183-84.
On the other hand, by longstanding precedent, our courts have applied equitable remedies which, in well recognized and limited factual circumstances, will relieve a party from the strict enforcement of contract terms. See N.J. Suburban Water Co. v. Harrison, 122 N.J.L. 189, 194 (E. & A. 1939). Hence, in some situations, it is appropriate to consider whether a party seeking to strictly enforce a contract term has, by its own actions, induced reliance by the other party in delaying compliance with that term.
In contract actions, equitable estoppel has been used to prevent a defendant from asserting the statute of limitations when the defendant engages in conduct that is calculated to mislead the plaintiff into believing that it is unnecessary to seek civil redress. Thus, we have recognized that equitable estoppel may be appropriate where "a defendant has lulled a plaintiff into a false sense of security by representing that a claim will be amicably settled without the necessity for litigation."
[W .V. Pangborne & Co. v. N.J. Dep't of Transp., 116 N.J. 543, 553-54 (1989) (quoting Lawrence v. Bauer Publishing & Printing, Ltd., 78 N.J. 371, 376 (1976)).]
The equitable estoppel doctrine has similarly been described as follows:
. . . 'the effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed . . . as against another person, who has in good faith relied upon such conduct, and has been led thereby to change his position for the worse. . . .'
The doctrine is "designed to prevent a party's disavowal of previous conduct if such repudiation 'would not be responsive to the demands of justice and good conscience'."
[Heuer v. Heuer, 152 N.J. 226, 237 (1998) (quoting Carlsen v. Masters, Mates & Pilots Pension Plan Trust, 80 N.J. 334, 339 (1979)) (additional citations omitted).]
The Court has described two types of estoppel, either of which may justify equitable relief:
There are two basic forms of estoppel. "True estoppel" is used to define the situation in which "'one party induces another to rely to his [or her] damage upon certain representations.'" "Quasi-estoppel" describes a situation in which "an individual is not permitted to 'blow both hot and cold,' taking a position inconsistent with prior conduct, if this would injure another, regardless of whether that person has actually relied thereon."
[Ibid. (citations omitted).]
In the context of equitable estoppel claims asserted against government agencies, the Court has consistently required "a knowing and intentional misrepresentation" by the party against whom estoppel is sought. Berg v. Christie, ___ N.J. ___, ___ (2016) (slip op. at 47) (quoting O'Malley v. Dep't of Energy, 109 N.J. 309, 317 (1987)). However, in cases involving private parties and where the asserted estoppel involves a missed time limit or deadline, the Court has phrased the inquiry more broadly, as whether the party against whom estoppel is asserted has "engaged in conduct, either intentionally or under circumstances that induced reliance." Knorr v. Smeal, 178 N.J. 169, 178 (2003). The Court also recently quoted the same language from Knorr in a case involving arbitration. Hirsch v. Amper Financial Servs., L.L.C., 215 N.J. 174, 189 (2013) (quoting Knorr); see also Lopez v. Patel, 407 N.J. Super. 79, 92-93 (App. Div. 2009).
In considering the specific facts of particular commercial transactions, our courts have condemned sharp practice. Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 230 (2005) ("[T]here are ethical norms that apply even to the harsh and sometimes cutthroat world of commercial transactions. Gamesmanship can be taken too far, as in this case.") Our Supreme Court has acknowledged that the duty of good faith and fair dealing is an implicit term of every contract. Id. at 214; Sons of Thunder, Inc. v Borden, Inc., 148 N.J. 396, 420-21 (1997). A violation of the duty may be found, for example, where a landlord, by its conduct, lulls a tenant into failing to strictly comply with a lease term and then invokes the term to terminate the lease or impose a large rent increase. Brunswick Hills, supra, 182 N.J. at 227, 230-31; see Goodyear Tire and Rubber Co. v. Kin Props., Inc., 276 N.J. Super. 96, 103-04 (App. Div. 1994) (addressing a tenant's premature exercise of an option), certif. denied, 139 N.J. 290 (1994).
II
Against that backdrop, we summarize the most pertinent evidence. In 1991, Wakefern and MW entered into a joint venture to construct a specialized food storage warehouse. Once the warehouse was constructed, the joint venture became the landlord and Wakefern occupied the warehouse as the tenant, under a long-term lease. Over the years, the lease was amended three times. In the third amendment, signed in 2003, the parties agreed to a fifteen-year lease extension, divided into "tranches" of five years each. The 2003 amendment set the rent for the first five years, and the parties agreed to a specific procedure to set the rent for each of the last two five-year tranches. That procedure was set forth in section 2(g) of an earlier lease amendment, which the 2003 amendment incorporated by reference. We quote the pertinent language from section 2(g):
Lessor shall propose the fair market rental for the Premises and notify Lessee of same in writing. Lessee shall have ten (10) days to accept or reject Lessor's proposed fair market rental and, if Lessee rejects same, then Lessee shall submit an alternative fair market rental within such time period. In the event Lessee rejects Lessor's proposed fair market rental and submits an alternative fair market rental, then Lessor shall have ten (10) days to accept or reject Lessee's proposed fair market rental. Failure on the part of Lessee or Lessor to respond to the other party's notice, as the case may be, shall be construed as a deemed acceptance of the fair market rental indicated in such other party's notice, as the case may be.
Most significantly, according to the lease, the landlord was required to send a written proposal for the rent, and the tenant would thereafter have ten days to accept the proposal or reject it and make its own proposal. If the parties could not agree on the rent, the lease provided that the new rent would be set through arbitration. The rent for the second five-year tranche was set at $6.15 per square foot, through the arbitration process. The dispute in this case arose over the rent for the third and final tranche, which was to begin in July 2013.
As the trial judge noted, section 2(g) specifically required that the landlord's proposal be "in writing" but did not state that the tenant's response must be in writing. However, section 31.2 of the lease stated that "[a]ny notice required or permitted to be given hereunder shall be in writing."
In the arbitration, the parties would each select an appraiser. If the two appraisers could not agree on a fair market value, each appraiser would select a fair market value, the appraisers would appoint a third appraiser, and the third appraiser would choose one of the two appraisers' fair market value in baseball-style arbitration.
For the last five-year tranche, the lease set a floor of $6.15 per square foot and a ceiling of $9.20 per square foot.
On May 13, 2013, defendant's executive vice-president and chief operating officer, Mark Bava, sent plaintiff a letter proposing a rent increase to $6.85 for the third tranche, to be effective in July. At the trial, Bava admitted that he knew, when he sent the May 13 letter, that the proposed rent increase would be unacceptable to plaintiff and he anticipated that plaintiff would reject it.
Bava was defendant's only witness. His brief testimony consisted of little more than this admission.
At the same time that Bava sent the May 13 letter, he also sent plaintiff's general counsel, James Watson, an email proposing a meeting to discuss "pressing matters[,]" including "rent for next lease period[.]" Bava later emailed Watson an agenda for the meeting, which included "Existing Lease Term Extension and Rent[,]" as well as two other issues relating to a possible expansion of the warehouse and installation of solar panels on the roof. Watson testified that the parties' discussion of the latter two issues could affect the prospective rent for the facility.
Watson's and Bava's staff discussed possible meeting dates and finally agreed on June 5, 2013, which was beyond the ten-day deadline to respond to the May 13 letter. At oral argument of this appeal, in response to our question, defense counsel stated that it was his client's position that the default in this case occurred prior to the June 5, 2013 meeting. In other words, according to defendant, by the time the June 5 meeting was held, plaintiff was already in default of the ten-day deadline and defendant was entitled to enforce the new rent stated in Bava's May 13, 2013 letter. However, there is no dispute that no one who attended the June 5 meeting on behalf of defendant asserted that position.
According to Watson, at the June 5 meeting, which was attended by the top management of Wakefern and MW, Wakefern rejected the proposed $6.85 rent. Watson testified that the parties agreed to continue discussing the issues of expanding the facility and installing solar panels, and agreed to continue discussing the rent as well, because the three issues were intertwined. Watson confirmed that "a final agreement on rent couldn't be realized until there was an agreement on solar and on expansion" and "there was an agreement . . . to continue to talk and to meet."
Watson explained that he did not provide a formal written response to the May 13 letter because he "didn't think it was necessary." When asked why he did not think a formal written reply was necessary at that point, he testified that he relied on defendant's conduct in concluding that the May 13 letter was not intended to trigger the ten-day time period:
[W]e had been having discussions concerning rent and solar and expansion prior to the request for the meeting. The letter came in following the request for the meeting. I figured it was just their attempt to set a floor for their discussions. We discussed the rent and why we didn't think it was appropriate to go up to [$]6.85, and we had had this agreement to go forward with respect to looking into solar and looking into expansion.Watson also testified that, after the June 5 meeting, the parties continued to discuss all three issues, including the rent. Watson further testified that on June 20, 2013, Tish Daly, a manager in plaintiff's real estate department, emailed Ron Schramm, one of defendant's real estate employees, to advise him that Watson was working on a written response "to the July 1-effective rent letter." Bava received a copy of the email and responded, "Ok."
As I said, I did not consider this [letter] to be a trigger.
According to Watson, the formal communication he was preparing was not the rent proposal, but was "a letter . . . informing them when necessary of our arbitration requirement, who our arbitrator would be and what the joint instructions would be." In other words, Watson was looking ahead to the possibility that the parties would be unable to agree on the rent and would have to invoke the arbitration clause. However, according to Watson, after June 20, the parties continued to discuss the rent. That testimony was corroborated by a June 26, 2013 letter from Schramm to Daley, setting forth a proposed rent for an expanded facility.
From June 5 to July 30, 2013, while the parties continued to negotiate a possible solar installation and an expansion of the facility, defendant remained silent as to its alleged position that plaintiff was already in default of the ten-day deadline. The next tranche began on July 8, 2013. Defendant continued to bill plaintiff at the existing rental rate, including the July 2, 2013 bill for the July rent and the July 26, 2013 bill for the August rent. Defendant accepted the $6.15 rent without reservation or objection.
However, defendant's position changed after plaintiff rejected the expansion and solar proposals on or about July 25, 2013. On July 30, 2013, defendant's managing partner, Joseph Morris, sent Watson a letter asserting, for the first time, that plaintiff had missed a deadline which had expired ten days after the May 13, 2013 letter, and claiming that plaintiff was therefore obligated to pay the increased rent proposed in that May 13 letter.
On August 7, 2013, less than ten days later, plaintiff's senior vice-president, Frank Rostan, sent Morris a written response, drafted by Watson. In the letter, Rostan reminded Morris that plaintiff had already rejected the proposed rent increase at the June 5 meeting, for reasons its representatives had explained in detail; that the parties had nonetheless continued to discuss the rent over the past weeks; and that plaintiff had most recently once again rejected the $6.85 rent proposal on July 23. He also reminded Morris that the issues of the solar project and the rent were intertwined. Rostan proposed that the parties have another meeting - this time with their appraisers present - to try to resolve their differences before proceeding to arbitration.
Morris did not respond to Rostan's letter. However, on August 28, 2013, defendant's outside counsel wrote plaintiff a letter asserting that plaintiff was in breach of the lease for failing to pay the increased rent. Defendant subsequently attempted to terminate the lease, leading to this litigation in which plaintiff sought to preserve its lease, remain as a tenant, and enforce the arbitration clause.
Joseph Sheridan, plaintiff's president, who attended the June 5 meeting, corroborated Watson's version of what occurred. According to Sheridan, he unequivocally told defendant's president, Joseph Morris, that the proposed rent increase was unreasonable and plaintiff would not agree to it. He told Morris that plaintiff would not pay a higher rent than the $6.15 that it was already paying. Sheridan testified that he expected that the parties would continue to discuss the rent issue, as well as the issue of the solar installation and the expansion. However, at the June 5 meeting, he initially told Morris that plaintiff was not willing to agree to the expansion. He explained that plaintiff needed to decide where this warehouse fit into its business plan before deciding whether to agree to the solar and expansion proposals. The rent was part of that consideration, because they needed to agree on "business terms that made sense between business people to go forward with it."
Tish Daly, plaintiff's real estate manager, also testified at the trial. She was responsible for managing day to day issues concerning the warehouse. Her contact person at defendant was Schramm. Their course of dealing was always informal, through emails and telephone calls. Daly corroborated Sheridan's and Watson's version of the meeting. She testified that, after June 5, she and Schramm continued to discuss the solar proposal. She also explained that, under the existing lease, plaintiff only had the right to extend the lease by another ten years, consisting of two five-year extensions. The solar company wanted a fifteen-year guarantee, and thus plaintiff understood that if it went along with the solar project, it "would have to exercise those two additional optional periods early." She explained that, prior to the June 5 meeting, she and Schramm had begun discussing how the solar project might affect the rent, including the rent for the next five years.
Daly's married name is "Bauso." She is identified in the trial transcript as Mary Patricia Daly Bauso.
According to Daly, in a telephone conversation with Schramm on July 23, 2013, she told him that plaintiff understood the parties had reached an impasse on the rent and "we need to move to get our appraisals." Schramm said "okay" and told her that he would need to discuss the matter "with Mark Bava and Joe Morris." A couple of days later, Daly retained an appraiser, because she understood that the parties would be going to arbitration on the rent issue.
In his opinion, the trial judge accepted plaintiff's version of events as accurate. The judge found that, when Bava sent the May 13 letter, he understood that plaintiff would reject the proposed rent increase and understood that plaintiff's alternate proposal would be the $6.15 default rate.
The judge found that, at the June 5 meeting, one of the stated purposes of which was to discuss the rent, plaintiff's representatives firmly and unequivocally rejected defendant's proposed rent increase and put forward plaintiff's proposal to continue paying rent at the existing rate of $6.15, which they told defendant was actually higher than comparable rents in the area. The judge found that "[n]one of the MW representatives [at the meeting] suggested that Wakefern was in default of any Lease obligation during this meeting, or that Wakefern was obligated to pay MW['s] proposed fair market rental." Instead, at the meeting, the parties had a substantive discussion as to their respective positions on the fair market rent.
The judge also credited plaintiff's evidence that the issue of a possible rent increase was inextricably intertwined with the issues of the possible expansion and solar project, and as a practical matter, the parties could not agree on a new rent without knowing whether the two projects would go forward. He found that the parties continued to discuss the three issues of the solar lease, the expansion and the rent, and "[a]t no time" during those discussions "did MW suggest that Wakefern was in default" under the ten-day clause of the lease. He found that MW invoiced and accepted rent at the $6.15 rate "without reservation or objection."
Based on the facts as he found them, the judge concluded that "[b]y its conduct, MW is estopped from asserting the strict adherence to any ten-day response requirement, to the extent such a requirement existed with respect to MW's May 13, 2013 letter." The judge reasoned that:
By requesting a "partner's meeting" on the same day as its "notice" to discuss the "rent for the next lease period," meeting on June 5, 2013 with Wakefern and discussing all of the agenda items, including "rent for the next period," invoicing on July 2 and July 26 and accepting without objection the $6.15 per square foot "Base Rent" for the first two months of the Extension Term, MW is estopped from asserting strict adherence to any ten day written response period.
Wakefern's written response would have been due, under MW's interpretation of the agreement, before the partners meeting which MW requested. Clearly, rent for the next period could not be finalized until the partners completed their negotiations regarding the potential solar lease . . ., and the proposed building expansion. The negotiations over all of the interrelated issues ended July 24, 2013 when Wakefern advised MW that it could not proceed with MW's proposed expansion of the building and installation of solar panels. Imposition of the $6.85 per square foot rent because
Wakefern failed to respond within ten days of MW's May 13, 2013 "Notice" would not be "responsive to the demands of justice and good conscience." Carlsen, supra.Accordingly, the judge held that "the rent increase is subject to the appraisal process set forth in the lease." He also found that plaintiff had prevailed in the lawsuit before him and, under section 31.8 of the lease, it was entitled to counsel fees.
III
Based on our reading of the record, the judge's factual findings are supported by substantial credible evidence. Seidman, supra, 205 N.J. at 169. In light of those factual findings, we agree with the judge that, by their actions, defendant's officers and managers created in plaintiff's officers and managers a reasonable belief that a formal, written response to the May 13 letter was not required within ten days. The record supports the judge's factual finding that all parties understood that the rent could not be finalized until they had completed their discussions of the intertwined issues of the solar project, the proposed expansion, and the rent. Given Bava's May 13 email requesting a meeting to discuss the rent, his email putting the rent on the meeting agenda, and his staff's agreement to hold the meeting on a date after the ten-day period, Watson reasonably reliable on Bava's conduct when he concluded that a formal, written response to the May 13 letter was not necessary within the ten-day period. Moreover, defendant's conduct during the entire two-month negotiation period, beginning with the May 13 email asking for the meeting, was inconsistent with its later position advocating strict enforcement of the ten-day deadline.
By giving the impression that it was content to engage in discussion of all issues, including the rent, after the ten days had passed — never once suggesting that the deadline was even applicable — defendant obtained the benefit of continued negotiations over the solar project and the expansion. Once those negotiations fell through, however, defendant "dropped the hammer" and claimed that plaintiff was legally obligated to pay the $6.85 rent for the next tranche, because of a deadline that passed back on May 25, 2013. See Brunswick Hills, supra, 182 N.J. at 220. Moreover, based on her reasonable understanding of the situation, Daly retained an appraiser for plaintiff in the belief that the parties were preparing for arbitration. Schramm did not dissuade her from that understanding when she told him what she was about to do. Thus, in addition to defendant obtaining a benefit, plaintiff incurred a financial detriment, in reliance on defendant's conduct. See Hirsch, supra, 215 N.J. at 189 (equitable estoppel requires a showing of detrimental reliance); Knorr, supra, 178 N.J. at 178.
Lastly, there is no dispute that, long before defendant invoked the ten-day clause on July 30, 2013, plaintiff had orally advised defendant, multiple times, beginning with the June 5 meeting, that its $6.85 proposed rent was unacceptable and had provided its own proposed fair market rent of $6.15. Defendant did not object that plaintiff's response was not in writing or was not timely. Instead, it continued to negotiate. It was not until the July 30, 2013 letter from Joseph Morris that defendant suddenly asserted that a written response to its May 13, 2013 letter was required. Plaintiff responded to Morris's July 30 letter less than ten days later, on August 7, rejecting the proposed $6.85 rent and once again stating what plaintiff believed was a fair market rent of $6.15. In light of its course of conduct, defendant is estopped from asserting that the August 7, 2013 letter was an untimely response under section 2(g) of the lease.
As an alternative argument in support of the judgment, plaintiff contends, as it did in the trial court, that we should also invoke the duty of good faith and fair dealing. We conclude that, whether defendant's actions are described in terms of equitable estoppel or as a violation of the duty of good faith and fair dealing, they represent the kind of inequitable conduct which our Court has found to justify relief. See Brunswick Hills, supra, 182 N.J. at 227, 230-31; Knorr, supra, 178 N.J. at 178; Goodyear Tire and Rubber Co., supra, 276 N.J. Super. at 103-04.
Equitable estoppel "is designed to prevent a party's disavowal of previous conduct if such repudiation would not be responsive to the demands of justice and good conscience." Hirsch, supra, 215 N.J. at 189 (quoting Heuer, supra, 152 N.J. at 237). That principle applies here. Accordingly, we affirm the order requiring arbitration.
A somewhat similar concept is embedded in contract law, and is relevant to defendant's refusal to engage in arbitration under the lease. "Where a party fails to declare a breach of contract, and continues to perform under the contract after learning of the breach, it may be deemed to have acquiesced in an alteration of the terms of the contract, thereby barring its enforcement." Garden State Bldgs., L.P. v. First Fid. Bank, N.A., 305 N.J. Super. 510, 524 (App Div. 1997), certif. denied, 153 N.J. 50 (1998) (citing Ballantyne House Assocs. v. City of Newark, 269 N.J. Super. 322, 334 (App. Div. 1993)); see Frank Stamato & Co. v. Lodi, 4 N.J. 14, 21 (1950) (Where a party chooses to continue to perform, following the other party's breach, he cannot later use the prior breach as "any excuse for ceasing performance on his own part." (quoting 5 Williston on Contracts (Rev. Ed.) 3749)). --------
IV
Finally, defendant challenges the award of counsel fees. We affirm the fee award for the reasons cogently stated by the trial judge in his oral opinion issued on December 23, 2014. We agree with the judge that under section 31.8 of the lease, plaintiff brought this action "to enforce the terms" of the lease, and was "entitled to reasonable attorneys' fees" as "the prevailing party." Defendant's arguments on this point are without sufficient merit to warrant further discussion. R. 2:11-3(e)(1)(E).
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION