RED BANK ACQUISITION I, LLC, ETC. VS. R.B. REALTY Â ASSOCIATES, LP VS. LIZER JOZEFOVIC(C-23-12, MONMOUTH COUNTY AND STATEWIDE) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE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-1132-14T3
RED BANK ACQUISITION I, LLC,
d/b/a CHAPIN HILL AT RED
BANK, a New Jersey limited
liability company,
Plaintiff-Appellant,
v.
R.B. REALTY ASSOCIATES, LP,
a New Jersey limited partnership,
Defendant/Third-Party
Plaintiff-Respondent,
v.
LIZER JOZEFOVIC, LORRAINE
JOZEFOVIC, ZEV FARKAS, and
ISAAC FARKAS,
Third-Party Defendants-
Appellants.
Argued April 26, 2017 – Decided July 17, 2017
Before Judges Alvarez, Accurso, and Manahan.
On appeal from the Superior Court of New
Jersey, Chancery Division, Monmouth County,
Docket No. C-23-12.
Fred R. Gruen argued the cause for appellants
(Gruen & Goldstein, and Michael Paneth (Paneth
& O'Mahony, PLLC), attorneys; Mr. Gruen, on
the briefs).
Andrew Bayer argued the cause for respondent
(GluckWalrath LLP, attorneys; Mr. Bayer, of
counsel and on the brief; Emily Hinchman, on
the brief).
PER CURIAM
Red Bank Acquisition I, LLC, doing business as Chapin Hill
at Red Bank (Chapin Hill), Lizer Jozefovic, Lorraine Jozefovic,
Zev Farkas, and Isaac Farkas, appeal the entry of a judgment of
possession of a nursing home, along with an award of attorney's
fees and costs of $653,454.34. After nineteen days of trial, the
court also held that the parties were bound by an August 21, 2006
lease, and that the agreement did not transfer ownership to the
nursing home beds within the facility. We affirm the court's
judgment, except for counsel fees. On that score, we vacate the
award and remand for consideration in accord with this decision.
The final October 29, 2014 judgment included the following
provisions: 1) the lease dated August 21, 2006, promoted by R.B.
Realty Associates, LP (R.B. Realty), was the controlling lease
between the parties; 2) Chapin Hill materially breached the lease;
3) the court awarded possession of the nursing home to R.B. Realty;
2 A-1132-14T3
4) the judgment required Chapin Hill to vacate the premises and
cooperate fully with R.B. Realty to ensure a smooth transition of
nursing home operations; 5) the judgment obligated Chapin Hill to
pay rent in accordance with the lease until it vacated the
premises; 6) R.B. Realty was the sole owner of the nursing home's
180 licensed beds and thus retained ownership of the bed rights
upon termination of the lease; 7) Chapin Hill and the guarantors
on the lease had to pay legal fees and costs of $653,454.34; and
8) the court denied R.B. Realty's claim for liquidated damages.
Thereafter, on March 12, 2015, on R.B. Realty's motion to
enforce litigants' rights, the court ordered Chapin Hill to provide
R.B. Realty with the information and documentation necessary to
transfer operation of the nursing home. In addition, the court
directed that once the State authorities approved R.B. Realty's
assumption of operation, Chapin Hill was to vacate the premises.
The judge's decision relied to a great extent on the trial
testimony of Harvey Lichtman. Lichtman was the treasurer of Ganot
Corporation, a real estate holding company, which owned twenty-
six nursing homes throughout the United States. Sisel Klurman was
Ganot's president and chief executive officer in 2005, when the
lease negotiations began. Lichtman, in addition to his role as
Ganot's treasurer, was Klurman's long-time family friend and
confidante.
3 A-1132-14T3
The building in question, located in Red Bank, was sold to
R.B. Realty on July 1, 1979 for $1,914,000. On July 24, 1979, the
Department of Health (DOH) approved the certificate of need (CN)
and transfer of ownership of the building from the prior owner,
enabling R.B. Realty to operate the nursing home. R.B. Realty
leased the building to Red Bank Convalescent Center, Inc. (RBCC,
Inc.), which initially operated the nursing home as a 150-bed
long-term care facility, expanded in 1986 to house 180 beds. In
1993, RBCC, Inc.'s stock was purchased by AG Holdings, a Ganot
company, whose treasurer was Lichtman, and whose president and
director was Klurman. RBCC, Inc. then began doing business as
Avante at Red Bank (Avante). The Avante officers in 2005-2006
were Richard Berson, vice-president and acting president, Bill
Ioanno, secretary, and Lichtman, treasurer. Klurman was Avante's
director and chairman of the board.
Avante's successful nursing home business began to decline
after 2000. Its profit and loss statement for the fiscal year
ending May 31, 2006, showed a loss of $1,791,160.
Lizer Jozefovic worked for Avante as the Red Bank facility
administrator from 1993 to 1999, and initially held an ownership
interest in Chapin Hill. Zev Farkas was Avante's administrator
from 2004 until September 2006. Farkas owns the majority interest
in Chapin Hill.
4 A-1132-14T3
Lichtman testified that in 2005, he began negotiating the
lease agreement between the parties with Jozefovic. It was
Klurman's practice to rely upon Lichtman for advice, and she never
made business calls or conducted meetings on her own. David
Reimer, Esquire1 represented R.B. Realty in the transaction. Mark
Zafrin, Esquire represented Jozefovic and Chapin Hill. Reimer
prepared a draft agreement after Lichtman relayed the terms of the
proposed lease to him.
Lichtman sent Jozefovic the initial draft, which called for
a ten-year lease term with four five-year options to renew.
Section 9.3 of the draft stated that all licenses and CNs were
vested exclusively in the landlord, and that the tenant had no
rights unless expressly granted in the lease. Because Klurman and
Lichtman had always enjoyed a good relationship with Jozefovic,
the draft required him to remain as the tenant's managing partner.
On July 20, 2005, Zafrin sent Reimer an email with Jozefovic's
comments. Rather than a ten-year term with options to renew,
Jozefovic asked for a flat thirty-year term. He also sought a
modification of section 9.3 whereby the landlord would retain
rights only to the building, and would convey the CN. Jozefovic
also wanted to reduce the bed size of the facility, and to that
1
Reimer did not testify at deposition or trial despite the
parties' efforts to subpoena him.
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end, wanted the right to temporarily decertify beds for periods
not to exceed two years at a time.
Lichtman said that he rejected most of Jozefovic's proposals.
He identified a September 15, 2005 memorandum from Reimer to
Zafrin, containing Jozefovic's requests accompanied by Lichtman's
responses. Lichtman denied the request for a thirty-year lease,
but agreed that the four, five-year options to renew would be
automatic. He wrote "*?No" next to Jozefovic's § 9.3 proposal and
wrote "No Lessee is not purchasing the CN" in the September 15
memo. Lichtman likewise wrote "No" next to the request to reduce
the number of beds. At trial, he explained that bed rights are a
valuable asset and he did not want the tenant to do anything to
jeopardize the number of beds on the license.
After Zafrin informed Reimer that Jozefovic wanted to assign
up to seventy-five percent membership interest in the company to
people who were investors or to family members, Reimer agreed, but
added that a condition of any transfer would be that Jozefovic
remain in voting control. Zafrin accepted that condition, but
asked Lichtman to reconsider the bed decertification issue.
Lichtman reluctantly agreed to decertification under five specific
conditions described in the document.
On January 3, 2006, Lichtman sent Jozefovic an email with a
new lease draft attached that Reimer had just prepared. Section
6 A-1132-14T3
9.3 remained unchanged from the June 23, 2005, draft. Reimer
incorporated Lichtman's comments to section 12.4 concerning
percentage of membership, but instead of writing Jozefovic's name
as retaining voting control, he left the space for a name blank.
Lichtman testified that it was understood that the limited
liability company would be manager-controlled and that Jozefovic
would be the manager. The draft had a new section, section 13.3,
that enumerated the steps the tenants had to take before the number
of beds could be reduced.
At this time the parties were also discussing a second
agreement necessary to consummate the lease initially designated
as an "asset transfer agreement," but later designated as the
"operations transfer agreement (OTA)." According to Lichtman, the
OTA's purpose was to set forth the protocols for addressing
accounts receivable, inventory, supplies, accounts payable,
prepaid credits, employees, fringe benefits, approved payroll and
so on. Although Lichtman was involved in certain aspects of
negotiating the OTA, the primary responsibility for negotiation
fell on Berson.
On January 4, 2006, Zafrin sent a draft OTA to Reimer,
Jozefovic, and Lichtman. Lichtman forwarded the draft to Berson
and also to Farkas. At that time, Lichtman believed that Farkas
was simply Avante's administrator; he did not know that Farkas was
7 A-1132-14T3
also part of Chapin Hill's ownership group. He testified that he
did not believe it was a coincidence that once the parties entered
negotiations the nursing home began to experience large losses.
He implied Farkas intentionally brought down the value of the
facility and personally changed the terms of the lease and OTA to
benefit Chapin Hill.
On February 8, 2006, Reimer sent Lichtman a red-lined version
of the OTA reflecting the changes made by Berson. Paragraph 8(d)
addressed Avante's right to assign licenses and permits, adding
"except to the extent held by the landlord." Lichtman testified
that the language was added to protect the landlord's CN and bed
rights.
Starting on February 16, 2006, Reimer and Zafrin exchanged
emails concerning changes to the lease agreement and OTA; by
February 21, 2006, Zafrin stated that he was ready to execute the
documents. On February 23, 2006, Reimer responded that his client
was signing the OTA and he would send Zafrin the signature pages
to be followed by the complete agreement. Zafrin replied that his
client had already signed the lease and the OTA, and that he would
fax the signature pages. At that point, Lichtman believed that
both the lease and the OTA were "done deals."
On February 23, 2006, Berson signed the OTA on behalf of
Avante, and Klurman signed as a witness. Lichtman was present
8 A-1132-14T3
when the documents were signed. Lichtman sent Reimer a fax of the
signature pages for the OTA and the lease, adding that "some
signatures need to be added" to the lease. Zafrin then sent Reimer
a fax of the signature pages of the lease and OTA, both signed by
Jozefovic.
The lease draft exchanged on February 23, 2006, while executed
by both parties, left the dates, the term of the lease, and the
amounts of rent due blank. Sections 9.3 and 13.3 were complete,
however, and consistent with the changes that had been negotiated
in January 2006.
On May 16, 2006, Zafrin applied to DOH to transfer ownership
of the nursing home from Avante to Chapin Hill. In the cover
letter, he stated that the lease had an initial term of ten years
with four additional five-year renewal options. Annexed to the
application was a copy of the lease, consistent with the February
23, 2006 draft, except that the term of the lease was set at ten
years with four, five-year renewal options, and the rent was set
at $509,752. The OTA was also attached. The submission identified
the ownership of Chapin Hill, and included Jozefovic and Farkas.
R.B. Realty was not copied on the application and attachments, and
Lichtman testified that as of May 2006, he was still unaware that
Farkas was an owner of Chapin Hill.
9 A-1132-14T3
Zafrin emailed Reimer on July 17, 2006, that DOH could not
read the signature page from the OTA, and needed a fully executed
copy of the lease. In response, Reimer sent Zafrin a fax of
Klurman's signature for the lease. Lichtman stated that Klurman
would have believed the February 23, 2006 lease was the only one
she was signing in July 2006, because they did not know that Zafrin
submitted a different version of the lease to DOH in May. DOH
approved the transfer of ownership on July 20, 2006.
From the end of July through the end of August 2006, emails
were exchanged in anticipation of closing. With regard to the
lease, the emails addressed the closing statement, security
deposits, amounts to be paid, capital improvements to the building,
and the means of calculating annual rent increases. As to the
OTA, the parties had to agree on the value of the inventory,
approved salaries, union benefits, and disposition of the
facility's automobiles.
R.B. Realty became concerned when it learned that Jozefovic
was no longer going to be the "key man" in the transaction and
wanted to ensure the monthly rent would be paid. Therefore,
guarantee agreements were negotiated and signed at the end of
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August with the principals of Chapin Hill.2 There was no mention
in any of the emails from July or August of bed decertification,
license rights, or CNs.
Lichtman testified that the deal closed on either August 31,
2006, or on September 1, 2006. Chapin Hill sent R.B. Realty a
check for the amount due at closing on September 1, 2006, and
started operating the nursing home on that date.
Lichtman identified the hand-dated August 21, 2006 lease as
the final lease between the parties. When Reimer forwarded the
lease to Zafrin on August 22, 2006, Zafrin asked for one additional
change: that a sentence be added to section 22.2 requiring the
landlord, in the event of a default, to make commercially
reasonable efforts to obtain a new tenant so as to mitigate
damages. Lichtman did not agree to the requested change. R.B.
Realty received no other emails from Zafrin between August 21 and
September 1, except for those addressing capital improvements
Chapin Hill was making to the facility and the guarantees.
The August 21, 2006 lease was consistent with prior lease
drafts. Although section 1.2 was blank as to the lease term,
2
Appendix VIII contains unsigned, undated guarantee and
indemnification agreements attached to unsigned, undated copies
of the lease. The guarantees purportedly sent to R.B. Realty on
August 31, 2006 are attached to the August 21, 2006 version of the
lease.
11 A-1132-14T3
section 1.3 specified four periods of five years each for renewal.
Rent was set at $509,752.51 annually with a two percent annual
increase. Sections 9.3 and 13.3 were unchanged from the February
23, 2006 draft.
Although the signature page contained two signatures from
Klurman, Lichtman testified on direct examination that Klurman did
not sign the August 21, 2006 lease.3 Rather, Klurman's signatures
were copies of earlier signatures that she provided to Reimer,
probably in response to Zafrin's request for signatures in July
2006. Lichtman speculated that Reimer had simply attached those
signatures to the lease.
On January 25, 2008, Reimer gave Lichtman a final, executed
original copy of the August 21, 2006 lease that had both Klurman's
signature and Jozefovic's signature attached. When Lichtman
received the lease from Reimer, he believed that all the signatures
were proper.
Matan Ben-Aviv, Klurman's grandson, joined Ganot as chief
executive officer, and began systematic review of relevant leases
of all of the company's facilities. The search for the lease for
3
On cross-examination, however, Lichtman stated that he did not
remember whether or not he had Klurman sign the August 21, 2006
lease. On redirect, he said that he definitely had Klurman sign
the lease and he gave that signature to Reimer. He did not explain
these inconsistencies.
12 A-1132-14T3
the Red Bank nursing home led to the discovery in November 2009
that the lease provided by Jozefovic was inconsistent with the
August 21, 2006 lease in R.B. Realty's files. At that juncture,
the discrepancies could not be discussed with Klurman, then
struggling with problems with dementia and heart disease.
Lichtman testified that the August 31, 2006 lease provided
by Chapin Hill was significantly different from the August 21,
2006 lease. Section 1.2 provided for a fixed thirty-year lease
term instead of the ten-year term with four five-year options.
The August 31, 2006 lease did not contain section 12.4, requiring
Jozefovic to act as Chapin Hill's sole manager. It also deleted
all of section 13, except for two minor provisions, thus allowing
Chapin Hill to make temporary changes to the number of licensed
beds. Furthermore, at the end of section 22.2, a sentence had
been added requiring the landlord, after notice of default, to
make commercially reasonable efforts to obtain a new tenant so as
to mitigate damages. Section 8.3, which prohibited Chapin Hill
from financing equipment or fixtures without the landlord's
permission, was eliminated.
The August 21, 2006 lease had Klurman's signature on the
signature page, below which Lichtman had written her name and
title. The August 31, 2006 lease only had her signature. Lichtman
testified that although he witnessed Klurman's signature on every
13 A-1132-14T3
document she signed on behalf of R.B. Realty or Ganot; he did not
see her sign the August 31, 2006 lease. She did not have a
computer in her home or office, and did not know how to operate a
fax machine. Klurman relied upon others, including Lichtman, to
open her mail and organize her papers. She never mentioned any
changes to the August 21, 2006 lease to Lichtman.
At Ben-Aviv's behest, R.B. Realty's attorneys became involved
in September 2010 and sent Chapin Hill an executed copy of the
August 21, 2006 lease. In October 2010, Chapin Hill responded
that it needed the right to manage its own bed count. Chapin Hill
stated that it had temporarily decertified beds and put them into
a holding company pursuant to DOH regulations.
By that time, both Lichtman and Ben-Aviv were aware that
Chapin Hill had transferred fifty beds off license. Ben-Aviv
explained that he discovered that information on his own by looking
on a government website that listed the facility as having only
130 beds. Chapin Hill had never notified R.B. Realty of the
transfer, nor did it post a bond as required by section 13.3 of
the August 21, 2006 lease.
In November or December 2010, R.B. Realty received documents
from DOH pursuant to an OPRA request. The documents revealed that
on September 1, 2006, Chapin Hill sold thirty-five beds to Red
Bank Acquisition I Holding LLC ("the holding company") for ten
14 A-1132-14T3
dollars each. On January 10, 2007, Chapin Hill wrote to DOH
requesting to change the number of transferred beds from thirty-
five to fifty. That request was approved by DOH on February 23,
2007.
The first page of the February 23, 2007 letter from DOH
identified the ownership of Chapin Hill; Jozefovic's name was not
on that list. An application for a license filed by Chapin Hill
with DOH on April 11, 2007, which confirmed the fifty-bed transfer,
was signed by Farkas as managing member.
As a result of the information contained in these documents,
Ben-Aviv authorized his attorneys to send Chapin Hill a notice of
default. On January 12, 2011, counsel sent Chapin Hill a letter
entitled "Notice of Default and Termination of Right to
Possession." Chapin Hill disputed the allegations of this letter,
and R.B. Realty sent a second notice of default and termination
of the lease on February 25, 2011. Unsuccessful settlement
negotiations followed. R.B. Realty sent Chapin Hill additional
notices of continuing default on August 19, 2011, and October 8,
2013.
During the litigation, Chapin Hill continued to pay, and R.B.
Realty continued to collect, rent on the nursing home property.
Nevertheless, Ben-Aviv stated that as a result of the breach R.B.
Realty suffered liquidated damages of $100,000 per transferred
15 A-1132-14T3
bed, litigation costs, and losses associated with its inability
to refinance the building while litigation was underway. He also
claimed that Klurman's reputation was besmirched by comments made
by Jozefovic and Farkas.
Jozefovic's testimony entirely contradicted the negotiations
as described by Lichtman. Jozefovic asserted, for example, that
Klurman signed the August 31 lease after he explained the
impossibility of successfully operating the nursing home without
the ability to exercise greater control over the number of nursing
home beds. He testified he did not sign the August 21, 2006 lease
for that reason. He claimed that because he was dissatisfied with
the August 21, 2006 lease, he had a heart-to-heart last-minute
call with Klurman, during which she agreed to the terms found in
the August 31 lease. He also claimed that after she signed the
lease and faxed her signature back to Farkas, he then reviewed it
and signed it. Jozefovic never received the original of Klurman's
signature attached to the August 31, 2006 lease.
The judge did not find Jozefovic's testimony credible. Among
other details, Jozefovic testified that he had Farkas make the
changes to the August 21 lease directly, rather than referring it
to the attorneys who had prepared and exchanged earlier documents,
because time was of the essence. Additionally, when he spoke with
16 A-1132-14T3
Lichtman in late August, he never mentioned the August 31, 2006
lease nor did he tell Berson.
Moreover, the closing statement indicated the purchase price
for the lease was $300,000. R.B. Realty was credited for rent
advances, security deposits, real estate taxes, inventory,
automobiles and prepaid expenses, and Chapin Hill was credited for
employee benefits. Bed rights or license rights were not
referenced in the closing statement.
Chapin Hill began construction work almost immediately upon
assuming the operation of the nursing home, replacing the wall
coverings, flooring and ceiling on the first floor of the building;
renovating every room in the subacute unit on the top floor; and
remodeling all common areas. Jozefovic estimated that his
expenditures on capital improvements exceeded $1.5 million.
Chapin Hill did not dispute that on January 10, 2007 it
submitted an application to DOH to transfer thirty-five beds to
the holding company, which had "substantially similar ownership"
to Chapin Hill. On February 23, 2007, DOH approved Chapin Hill's
request to increase the number of transferred beds to fifty. An
official license DOH issued to Chapin Hill on April 26, 2007,
indicated that the nursing home was now a 130-bed facility.
Jozefovic explained that decertifying beds, as contemplated
in the earlier drafts of the lease, was risky because DOH might
17 A-1132-14T3
view the beds to be "disappeared" and not allow them to be put
back on the license in the future. The better practice, which was
formally approved by DOH in 2005, was to transfer the beds to a
separate holding company. If DOH approved the transaction, there
would be no trouble transferring the beds later back to the
operating company.
Jozefovic also denied having signed the August 21, 2006 lease
which purportedly bore his signature. Although he attempted to
reach out to Klurman to discuss the problem with the leases in
September 2010, once he learned about her health issues, he did
not attempt to contact her again.
In the January 18, 2011 response Jozefovic sent to R.B. Realty
after receipt of the first letter of default and termination of
possession, Zafrin stated that "the tenant has never asserted
ownership over those beds, in derogation of the landlord's
expressed rights to the beds upon the expiration of the lease nor
does the tenant intend to make such as assertion." Jozefovic
testified that this sentence was "mistakenly written" and that he
reproached Zafrin for writing it. Nevertheless, he admitted that
he never sent anything to R.B. Realty to correct the mistake.
Indeed, Jozefovic acknowledged that his new counsel, Fred
Gruen, "reiterated the same mistake" in a December 7, 2011 letter
to R.B. Realty: "[y]our client continues to own the reversionary
18 A-1132-14T3
rights of all licensed beds and that the [fifty] beds as well as
the 130 bed balance will be returned to your client at lease
expiration termination in accordance with its terms." Jozefovic
stated that he always believed that he owned the bed rights and
that his attorneys' letters were written to placate R.B. Realty
for settlement purposes.
After litigation started, Jozefovic transferred the fifty
beds from his holding company back to Chapin Hill. He did this
as a "peace offering" and because Medicaid had stopped enforcing
the low occupancy penalty, not because he conceded there had been
a breach of the lease. To the contrary, Jozefovic claimed that
R.B. Realty was looking for a loophole in the lease to get him out
of the building. He had finally made the nursing home profitable
and now R.B. Realty wanted to take the business back.
Zafrin, Jozefovic's counsel in the Chapin Hill transaction,
testified that since he and Reimer were not located in the same
state, communication was by phone, email, or fax. All documents,
including at closing, were exchanged by fax and email, and the
principals exchanged their signature documents directly. Hence
not everyone was copied on everything.
Zafrin corroborated Jozefovic's testimony that section 13.3
was under discussion until the time of closing, and that any
limitation on the ability to adjust the bed count was unacceptable
19 A-1132-14T3
to Chapin Hill. He prepared the OTA draft, and believed it granted
Chapin Hill the right to take the beds and licenses with them
after the lease expired. Zafrin understood the purpose of the OTA
to be to convey all assets used in the operation of the nursing
home, as opposed to the real estate. He claimed that the fully
signed February 23, 2006 lease draft was simply a "placekeeper"
necessary to get Chapin Hill's application initiated with DOH.
The parties were under pressure to get the deal finalized on or
before September 1, 2006, so that Avante could avoid filing a
fiscal report for 2005 and incurring a Medicaid low occupancy
penalty.
Zafrin submitted the unsigned June 2005 draft to DOH, not the
February 23, 2006 document. On cross-examination, he acknowledged
that he did not remember details regarding the DOH application
because it was handled by others in his office. Lawyers were not
involved in the transaction after September 1, 2006, and as a
result he did not become aware of a finalized copy of the lease
until the 2010 dispute regarding its terms. Zafrin acknowledged
writing the January 18, 2011 letter in which he said Chapin Hill
did not assert ownership over the beds, but added that by that
time he had forgotten the terms of the OTA.
In 2007, Farkas held a fifty-five percent interest in Chapin
Hill. He was not directly involved in the negotiations for the
20 A-1132-14T3
lease and OTA. Farkas changed the August 21, 2006 lease on
Jozefovic's directions. He filled in the blanks in section 1.2
to reflect a lease term of thirty years, and deleted all of
sections 12.4 and 8.3, and parts of sections 13.1, 13.2, 13.3, and
18.1. Farkas did not recall when he made the changes.
The attorneys were not available and there was a deadline
coming up so Farkas met with Jozefovic, who signed the modified
lease. Farkas then faxed the lease to Klurman and received a
signature page signed by Klurman by return fax. He attached her
signature to the lease and put it in his filing cabinet. He did
not remember ever sending a copy of the fully signed August 31,
2006, lease to R.B. Realty or to the attorneys involved in the
transaction and noted that the original lease was destroyed by
flooding caused by Hurricane Irene in August 2011.
With regard to the April 11, 2007 license application to DOH
that he signed as "managing member," Farkas denied that the
designation was his actual title. He said he did not "look at
titles," and that the difference between a member and managing
member was "splitting hairs."
The parties presented two handwriting experts. The court
credited the testimony of R.B. Realty's expert, J. Wright Leonard,
who testified that Klurman's signature on the August 31, 2006
lease exactly matched her signature on the February 23, 2006 OTA
21 A-1132-14T3
that was submitted to DOH in May 2006. Leonard opined "that this
questioned signature was lifted, or manipulated from the [OTA]
signature . . . in order to create the signature page in
question." She was not exactly sure how Klurman's signature was
lifted, but noted that there are several ways to do it, the most
current being to cut and paste on a computer using photo software.
The court did not credit Chapin Hill's expert, William J.
Ries. The judge noted that Leonard compared signatures with the
aid of a microscope, whereas Ries enlarged the previously reduced
signature on a lease to do a side-by-side comparison. He had
difficulty explaining why enlarging a poor quality reduction might
not have distorted the original, thereby significantly
contributing to his opinion that Klurman's signature on the August
31 lease was not a copy.
The court also heard testimony from experts in nursing home
regulations and DOH process. James Fogg, Chapin Hill's expert,
stated that based on his research, a CN was issued to RBCC, Inc.,
but never issued to R.B. Realty. A change of ownership application
was made in 1993 when the operator changed from RBCC, Inc. to
Avante through a stock exchange. As of 1993, DOH recognized Avante
as the licensed operator of the nursing home and R.B. Realty as
the owner of the physical plant. No transfer of ownership
application is on file with DOH, which would have been necessary
22 A-1132-14T3
in order for R.B. Realty to acquire license rights from Avante.
Accordingly, it was his opinion that Avante was the only party
recognized by DOH as holding license rights throughout the
operation and history of the facility. Fogg also testified that
the DOH files contained a fully executed copy of the August 31,
2006 lease, submitted in 2007 when Chapin Hill renewed its license.
The file also contained a copy of the February 23, 2006 lease
signed by Jozefovic, and an unsigned May 2006 lease draft.
Fogg noted that Avante could have leased its license rights
and bed rights to Chapin Hill instead of selling them. Fogg
believed, however, that Avante transferred its license rights to
Chapin Hill by sale as evidenced by the OTA language. Because
Chapin Hill purchased the beds, when the lease term expires it can
choose to move the license to another physical location.
In Fogg's experience, if the landlord intends to resume
control over the license, and nursing home beds revert to it at
the end of the lease, then the landlord clearly states that
understanding in the recitals portion of the contract. The lease
normally includes a clause requiring the tenant to cooperate in
any such transfer. None of those elements are present in the OTA
executed by Avante and Chapin Hill, and for that reason Fogg
concluded that the parties did not intend for the license rights
23 A-1132-14T3
to revert back to the landlord. Fogg opined "that Chapin Hill
purchased and now owns the license rights for that facility."
Chapin Hill transferred fifty beds from its license to a
holding company on February 23, 2007. Those beds were transferred
back to the Chapin Hill license in 2012. Fogg represented Chapin
Hill in both transactions. He testified that he did not provide
R.B. Realty with notice of the bed transfers because section 13.3
was not in the lease that he had been given.
Based on the evidence produced at trial, the court found that
"the lease promoted by [R.B. Realty], D-19 in evidence marked
8/21/06 is the true lease. The testimony of [] Jozefovic, []
Farkas and [] Zafrin was not credible or persuasive." It rejected
Jozefovic's testimony that he resolved all issues in his favor
during a single phone call to Klurman, observing that his version
of events was "totally unworthy [of] belief[,]" and further
observed:
[] Zafrin would have the Court believe after
over one and a half years of negotiations with
attorneys and principals, he ceded the
finalization of the transaction to the parties
themselves, and never followed up on it.
Furthermore, the testimony that []
Jozefovic finalized the terms of the lease
with [] Klurman is controverted by the
testimony that [she] was 80 years old, in
failing health, and never conducted any
business without her right hand man, Mr.
Lichtman. [] Lichtman testified that he knew
24 A-1132-14T3
nothing of the heart to heart between []
Jozefovic and [] Klurman.
The court noted that Chapin Hill violated the terms of the
August 21, 2006 lease beginning the day after closing when it sold
thirty-five beds to its holding company. Chapin Hill further
violated the lease when it named Farkas rather than Jozefovic as
a "principal." The court continued:
It is obvious that Chapin Hill had no
intention of complying with the lease. The
request by R.B. Realty in 2009, for a copy of
the executed lease was fortuitous. It gave
Chapin Hill the opportunity to provide its own
version of a lease on terms entirely favorable
to it. The Court finds that [] Klurman's
signature was lifted from one document onto
the August 31, 2006 Chapin Hill version by
someone acting on behalf of Chapin Hill.
As to bed rights, the judge found that both parties understood
that the reference to licenses and permits in section 9.3 of the
lease encompassed that term. The judge refused to consider any
expert opinions with regard to whether Chapin Hill purchased the
bed rights, finding that it constituted impermissible testimony
concerning the interpretation of a contract. The judge also found
that section 9.3 of the lease clearly reserved the bed rights to
the landlord, and that while section 2 of the OTA stated that the
buyer was purchasing all "licenses and permits" held by the seller,
that reference did not include bed rights in light of sections
25 A-1132-14T3
13.3 and 9.3 of the lease. Furthermore, Chapin Hill did not assert
ownership of the bed rights until after the litigation commenced:
The assertion by [Chapin Hill] that it owns
the bed rights is disingenuous. Further,
Chapin Hill retransferred the beds back [to]
its license in February 2012. It would not
have done that it if owned the bed rights.
The Court finds that R.B. Realty did not sell
the bed rights to Chapin Hill either through
the lease or the [OTA]. The Court finds that
R.B. Realty owns and has always owned the bed
rights.
The judge further found that the notices of default were
proper and that Chapin Hill defaulted under the terms of the lease
by transferring beds to a holding company, failing to give timely
notice of the transfer, failing to provide R.B. Realty with all
communications with DOH, failing to pay the $100,000 transfer fee,
and substituting the managing member of Chapin Hill.4 These
defaults were material, thus the court entered judgment for
possession in favor of R.B. Realty.
The court denied R.B. Realty's request for $5 million in
liquidated damages. The court concluded that since both the beds
and the premises would be returned, a more appropriate remedy
would be to award counsel fees to R.B. Realty.
4
The judge said by "substituting [] Jozefovic as the managing
member of Chapin Hill," but given the decision and context, no
doubt the judge intended to say either "substituting [] Farkas"
or "substituting for [] Jozefovic."
26 A-1132-14T3
On appeal, Chapin Hill raises the following points for our
consideration:
I. STANDARD OF REVIEW.
II. THE TRIAL COURT CONCLUSION THAT THE
NOTICE OF DEFAULT/TERMINATION OF JANUARY
11, 2012 COMPLIES WITH THE LEASE §19 AND
WAS SUFFICIENT TO TERMINATE THE LEASE AND
PLAINTIFF'S RIGHT TO POSSESSION IS
CONTRARY TO CONTROLLING CASE LAW; IT WAS
A MISTAKE OF LAW.
III. THE TRIAL COURT'S TERMINATION OF
PLAINTIFF'S LEASEHOLD RIGHTS IN THE
CONTEXT OF EQUITY'S ABHORRENCE OF A
FORFEITURE (CONFUSION OVER WHICH LEASE
DRAFT IF ANY WAS THE "TRUE LEASE", THE
RE-TRANSFER OF PAPER BEDS TO PLAINTIFF
AND ABSENCE OF INJURY TO DEFENDANT, AND
PLAINTIFF'S HAVING SPENT $1.5 MILLION TO
IMPROVE THE DEMISED BUILDING AND HAVING
CREATED A PROFITABLE BUSINESS)
CONSTITUTED AN ABUSE OF DISCRETION.
IV. THE TRIAL COURT'S HOLDING THAT THE AUGUST
21, 2006 LEASE DRAFT IS THE "TRUE LEASE"
IS UNSUPPORTED BY ADEQUATE, SUBSTANTIAL,
CREDIBLE EVIDENCE IN THE RECORD, AND IS
A MISTAKE OF LAW (STATUTE OF FRAUDS).
V. THE TRIAL COURT'S HOLDING THAT THE AUGUST
31, 2006 LEASE WHICH CONTAINED NO BED
TRANSFER RESTRICTIONS DOES NOT REFLECT
AGREEMENT OF THE PARTIES AND WAS NOT
SIGNED BY SISEL KLURMAN FOR LANDLORD, IS
UNSUPPORTED BY ADEQUATE, SUBSTANTIAL,
CREDIBLE EVIDENCE IN THE RECORD.
ALTERNATIVELY, THE HOLDINGS WERE BASED
UPON AN EVALUATION OF THE FACTS AS
TESTIFIED TO BY PLAINTIFF'S WITNESSES, AS
UNPERSUASIVE AND INCREDIBLE, AND NOT UPON
AN EVALUATION OF THE CREDIBILITY OF THE
WITNESSES. AS SUCH, PLAINTIFF IS
27 A-1132-14T3
ENTITLED TO A DE NOVO REVIEW OF THAT
EVALUATION, AND SO REVIEWED, THE AUGUST
31, 2006 LEASE SHOULD BE ADJUDGED THE
TRUE LEASE BETWEEN THE PARTIES.
VI. THE TRIAL COURT'S HOLDING THAT THE
LANGUAGE OF THE LEASE §9.3 AFFIRMED
DEFENDANT'S OWNERSHIP OF LICENSE
RIGHTS/BED RIGHTS AND THAT THE OPERATIONS
TRANSFER AGREEMENT DID NOT CONVEY THE
SAME TO PLAINTIFF IS A QUESTION OF LAW
ENTITLED TO DE NOVO REVIEW, AND AS SO
REVIEWED MUST BE REVERSED.
VII. THE AWARD OF ATTORNEYS' FEES IS
UNDERMINED BY THE VERY CERTIFICATION OF
SERVICES OF DEFENDANT'S ATTORNEY UPON
WHICH IT IS BASED.
I.
In an appeal from a bench trial, "[t]he scope of appellate
review of a trial court's fact-finding function is limited."
Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011)
(quoting Cesare v. Cesare, 154 N.J. 394, 411 (1998)). The factual
findings and legal conclusions of the trial judge are not disturbed
unless the reviewing court is "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." In re Trust Created by Agreement Dated
Dec. 20, 1961, ex rel Johnson, 194 N.J. 276, 284 (2008) (quoting
Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474,
484 (1974)). "Deference is especially appropriate when the
28 A-1132-14T3
evidence is largely testimonial and involves questions of
credibility. Because a trial court hears the case, sees and
observes the witnesses, and hears them testify, it has a better
perspective than a reviewing court in evaluating the veracity of
witnesses." Cesare, supra, 154 N.J. at 412 (internal quotation
marks and citations omitted); accord Zaman v. Felton, 219 N.J.
199, 215-16 (2014); N.J. Div. of Youth & Family Servs. v. E.P.,
196 N.J. 88, 104 (2008).
An appellate court owes no deference, however, to a trial
court's interpretation of the law and the legal consequences that
flow from established facts. Gallenthin Realty Dev., Inc. v.
Borough of Paulsboro, 191 N.J. 344, 358 (2007); Manalapan Realty,
L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). In
particular, a trial court's interpretation of a lease or contract
is a question of law entitled to de novo review. Kieffer v. Best
Buy, 205 N.J. 213, 222 (2011); Spring Creek Holding Co. v.
Shinnihon U.S.A. Co., 399 N.J. Super. 158, 190 (App. Div.), certif.
denied, 196 N.J. 85 (2008). The appellate court "pay[s] no special
deference to the trial court's interpretation and look[s] at the
contract with fresh eyes." Kieffer, supra, 205 N.J. at 223.
In our view, the trial court's decision was grounded in
factual determinations made significantly based on credibility
determinations, in addition to the correct application of relevant
29 A-1132-14T3
law. The numerous rulings were substantially supported by the
record, and are entitled to deference on appellate review.
II.
Chapin Hill contends that the trial court erred by concluding
the landlord's notice of default complied with the terms of the
lease, was legally sufficient, or afforded it a cure period. We
disagree.
Chapin Hill actually received three notices regarding its
failure to comply with the terms of the August 21, 2006 lease. In
both the August 21 and August 31 leases, section 19.1 required
R.B. Realty to extend to Chapin Hill a seven-day cure period before
it could declare an event of default. The January 12, 2011 notice
of default sent on Ben-Aviv's authorization, was titled "notice
of default and termination of right to possession[.]" Chapin Hill
disputed the allegations of this letter on January 18, 2011, and
R.B. Realty therefore sent a second notice of default and
termination of lease on February 25, 2011. When unsuccessful
settlement negotiations ensued, R.B. Realty sent Chapin Hill
additional notices of continuing default on August 19, 2011, and
October 8, 2013. In the interim, Chapin Hill continued to pay
rent on the nursing home property.
With regard to notice, the court stated:
30 A-1132-14T3
Chapin Hill further contends that R.B. Realty
did not send a proper notice of default and
did not allow Chapin Hill to cure the alleged
default within the seven[-] day period. This
is a convoluted reading of Section 19.2. . .
. The Court finds that the notices of default
were proper and that Chapin Hill has defaulted
under the terms of the lease . . . .
Where the terms of a contract are clear and unambiguous, they
must be enforced as written. Twp. of White v. Castle Ridge Dev.
Corp., 419 N.J. Super. 68, 74-75 (App. Div. 2011); Kampf v.
Franklin Life Ins. Co., 33 N.J. 36, 43 (1960). The court may not
make "a better contract for the parties than they themselves have
seen fit to enter into, or alter it for the benefit of one party
and to the detriment of the other." Karl's Sales & Serv., Inc.
v. Gimbel Bros., 249 N.J. Super. 487, 493 (App. Div.), certif.
denied, 127 N.J. 548 (1991).
When faced with differing proposed interpretations of
contractual terms, however, the court must determine whether the
language of the agreement is indeed clear and unambiguous. Schor
v. FMS Fin. Corp., 357 N.J. Super. 185, 191 (App. Div. 2002).
An ambiguity in a contract exists if the terms
of the contract are susceptible to at least two
reasonable alternative interpretations. To
determine the meaning of the terms of an
agreement by the objective manifestations of
the parties' intent, the terms of the contract
must be given their plain and ordinary meaning.
31 A-1132-14T3
[Ibid. (quoting Kaufman v. Provident Life &
Cas. Ins. Co., 828 F. Supp. 275, 283 (D.N.J.
1992), aff'd, 993 F.2d 877 (3d Cir. 1993).]
The determination of whether ambiguity exists, just as other
interpretations of the terms of a contract, is a question of law.
Celanese Ltd. v. Essex Cty. Improvement Auth., 404 N.J. Super.
514, 528 (App. Div. 2009).
Here, although the parties interpret the requirements imposed
by sections 19.1 and 19.25 differently, the wording is not
ambiguous. Under section 19.1, an "event of default" occurs when
the lessee fails to fulfill any of the covenants of the lease and
the lessee has not cured, or commenced curing such default, within
seven days after receiving written notice. Section 19.1 further
provides that the "Lessor, at its option, may give to Lessee a
notice of intention to Terminate this Lease, effective as of the
date of the occurrence of an Event of Default." (emphasis added).
Section 19.2, upon which Chapin Hill heavily relies, simply gives
the lessor a right of re-entry, i.e., to take possession of the
demised premises after the lease is terminated in accord with
section 19.1.
The January 12, 2011 default letter specified that Chapin
Hill's right to possession was being terminated because it
5
The relevant portions of sections 19.1 and 19.2 are identical in
the August 21, 2006 lease and the August 31, 2006 lease.
32 A-1132-14T3
submitted an altered and unapproved version of the lease agreement
to DOH; Chapin Hill transferred facility beds to a holding company
without R.B. Realty's consent; and Chapin Hill failed to pay the
December 2010 rent in a timely fashion. It concluded:
R.B. Realty is hereby placing [Chapin Hill]
on notice that it is terminating [Chapin
Hill's] right to possession of the Premises.
Please contact me so that we may discuss how
you intend to vacate the Premises in an
orderly fashion by no later than March 31,
2011 so that the residents of the nursing home
are properly protected.
The January 12 letter conforms to the requirements of sections
19.1 and 19.2. It identifies the relevant violations of covenants
in the lease, informs Chapin Hill that R.B. Realty intended to
take possession, and specifies a termination date more than seven
days after the date of the notice. Although it did not state that
Chapin Hill had the right to cure within seven days, nothing in
either the August 21 or August 31 sections 19.1 or 19.2 required
such language.
Additionally, R.B. Realty did not take possession until after
two additional notices of default, dated February 25, 2011, and
August 19, 2011. Obviously, Chapin Hill had ample time in which
to correct the alleged defaults.
Furthermore, N.J.S.A. 2A:18-53(c)(4), which governs
commercial leases, authorizes the removal of a tenant where a
33 A-1132-14T3
breach of the covenants in the lease is committed, reserving a
right of reentry in the landlord so long as a written notice has
been served, and a written demand made for removal. The notices
complied with the statute. The notices are not required to include
language to the effect that the tenant must cease the objectionable
conduct. Ivy Hill Park Apartments v. G&B Parking Corp., 236 N.J.
Super. 565, 570 (Law Div.), aff'd, 237 N.J. Super. 1 (App. Div.
1989). Thus, the notices of default complied with the law.
Chapin Hill's reliance on Ingannamorte v. Kings Super
Markets, Inc., 55 N.J. 223 (1970), is inapposite. Ingannamorte
does not support Chapin Hill's argument because the issue in
dispute between these parties is not a technical deficiency
regarding the right to cure. Id. at 226. That was the issue in
Ingannamorte, while here the notices were clear that R.B. Realty
was willing to allow the tenant to continue in the premises.
Chapin Hill, however, does not even recognize the August 21, 2006
lease as valid, or acknowledge that a breach occurred.
Porter & Ripa Associates, Inc. v. 200 Madison Avenue Real
Estate Group, 159 N.J. Super. 317, 320 (Ch. Div. 1978), aff'd, 167
N.J. Super. 48 (App. Div. 1979), upon which Chapin Hill also
relies, is a case in which a landlord locked out a tenant. R.B.
Realty did not engage in such conduct, and in fact served Chapin
34 A-1132-14T3
Hill with three notices over eleven months. Accordingly, the
holding in Porter & Ripa has no bearing on the issues at hand.
Chapin Hill's arguments regarding the notices of default stem
from its disagreement that the August 21 lease controlled, not
from any actual deficiencies in the notices. Since the August 21,
2006 lease controls, Chapin Hill's reduction in the number of beds
through transfer, rather than by temporary decertification, was a
breach. It kept those beds off license for more than ninety days,
failing to give R.B. Realty written notice of the transfer, failing
to give R.B. Realty copies of communications with DOH concerning
the transfer, and failing to provide R.B. Realty with an
irrevocable letter of credit to secure the liquidated damages.
Chapin Hill's transfer of the beds back onto its license did not
cure the breach. As Ben-Aviv testified, R.B. Realty was entitled
to damages for the violation of the lease terms caused by the
unauthorized transfer. Thus, the court did not err in finding
that Chapin Hill's failure to pay R.B. Realty $100,000 per
transferred bed constituted a default of the lease.
We conclude that the January 12, 2011 notice was sufficient.
The court's findings of default based on Chapin Hill's transfer
of the beds should be affirmed.
35 A-1132-14T3
III.
We agree with the trial court's conclusion that the August
21, 2006 lease was the controlling agreement entered into by the
parties. It ultimately rejected the testimony of Jozefovic and
Farkas as not credible and for that reason found that the August
21, 2006, lease represented the true agreement between the parties.
Its evaluation of witness credibility is entitled to substantial
deference, Cesare, supra, 154 N.J. at 412, and its findings
concerning the August 21, 2006 lease will be affirmed if supported
by competent, relevant, and credible evidence in the record, Rova
Farms Resort, supra, 65 N.J. at 484.
Lichtman, upon whose testimony the judge relied, testified
that the negotiations were essentially complete when the February
23, 2006 draft of the lease was distributed. Significantly, it
is undisputed that both parties signed the February 23, 2006,
draft. The August 21, 2006, lease was identical to the February
23, 2006 draft, except that the blanks for the amount of rent and
the annual rent increase, which are not in dispute, had been filled
in. The lease term renewal periods had also been filled in, but
the initial lease term had not. Given that Jozefovic signed the
February 23, 2006 draft and that the court disbelieved his
unsupported testimony that Klurman capitulated on several key
provisions during a single, last-minute phone call, it follows
36 A-1132-14T3
that the August 21, 2006 lease reflected the true agreement between
the parties. The decision was reached based on credibility
findings, and is further supported by other evidence in the record.
While it is accurate that the court did not address Chapin
Hill's argument concerning Jozefovic's signature on the August 21,
2006 lease, this does not detract from the court's finding of the
lease's authenticity. The signatures on every document produced
after February 23, 2006, were problematic. Even Lichtman was
unsure whether Klurman had actually signed the August 21, 2006
lease. The parties' practice of simply faxing signature pages to
their out-of-state attorneys, who then attached the pages to
documents as required, contributed to the uncertainty.
The signature pages attached to the August 21, 2006 lease may
well have been duplicates of other signature pages produced at
other times during the negotiations. When considered in the
context of the course of dealings between the parties, utilization
of that practice does not mean that the attorneys were not
authorized to attach those papers. It is undisputed that at no
time during these negotiations did the parties and their attorneys
assemble at the same time in the same place to sign a fully
completed document.
The court was called upon to determine which agreement
controlled when Chapin Hill took possession of the premises on
37 A-1132-14T3
September 1, 2006. Its conclusion that that agreement was the
August 21, 2006 lease is strongly supported by the evidence and
should be affirmed.
Chapin Hill's argument that the court's credibility calls and
other factual findings are conclusions of law to which we should
give plenary review lacks merit. The judge, given the
circumstances of the transaction between these parties, carefully
drew the sequence of events from those witnesses whom she found
worthy of belief, and then only if corroborated by other
circumstances. Therefore, contrary to Chapin Hill's argument, her
conclusions were not conclusions of law which we review de novo,
but rather, conclusions of fact based on credibility
determinations which we review deferentially.
The court's decision to credit R.B. Realty's handwriting
expert, and not Chapin Hill's, was a reasonable exercise of
discretion. See Torres v. Schripps, Inc., 342 N.J. Super. 419,
430 (App. Div. 2001) (internal citations omitted) ("[E]xpert
testimony need not be given greater weight than other evidence nor
more weight than it would otherwise deserve in light of common
sense and experience. The factfinder may accept some of the
expert's testimony and reject the rest."). R.B. Realty's expert
examined the signatures on the August 31, 2006 lease and the OTA
with the aid of a microscope, as opposed to Chapin Hill's expert,
38 A-1132-14T3
who enlarged a previously reduced signature for a side-by-side
comparison. Of the two procedures, only one did not potentially
distort the item viewed. Accordingly, we find the trial judge's
decision that the August 21, 2006 lease controlled was reasonable,
based on credibility determinations and other substantial support
in the record.
IV.
Chapin Hill further contends that even if the August 21, 2006
lease is the true lease, the court should not have terminated the
leasehold. In support of the argument, it points out that
forfeitures are disfavored in law, and the equities of the case
mitigate against forfeiture, including the company's timely
payments throughout the tenancy.
"Foreclosure is a harsh remedy and equity abhors a
forfeiture." Brinkley v. W. World, Inc., 275 N.J. Super. 605, 610
(Ch. Div. 1994), aff'd, 292 N.J. Super. 134 (App. Div. 1996). For
that reason, "[a] court of equity may invoke its inherent equitable
powers to . . . deny the remedy of foreclosure." Ibid.
Nevertheless, termination of the leasehold can be an appropriate
remedy when a tenant violates the express terms of its lease
contract. N.J.S.A. 2A:18-53.
In Dunkin' Donuts of America v. Middletown Donut Corp., 100
N.J. 166, 186 (1985), the Court held that the Chancery Division
39 A-1132-14T3
had erred by invoking its equitable powers to preserve the rights
of a franchisee that had willfully breached its contract agreement
with the franchisor. The Court wrote:
We focus first on the contention that
strict adherence to contractual remedies in
the circumstances before us will impose a
forfeiture on the franchisee. Although it is
true that equity abhors a forfeiture, equity's
jurisdiction in relieving against a forfeiture
is to be exercised with caution lest it be
extended to the point of ignoring legal
rights. Thus if parties choose to contract
for a forfeiture, a court of equity will not
interfere with that contract term in the
absence of fraud, accident, surprise, or
improper practice. Although the Chancery
Division did find fraud, to be sure, the
fraudulent misconduct was committed by the
franchisee, who benefitted from the court's
invocation of equity. The only sound
conclusion to draw is that equitable relief
against forfeitures should not be granted to
a party whose own knowing fraudulent conduct
is itself the cause of the forfeiture. See
Faustin v. Lewis, 85 N.J. 507, 511 (1981),
repeating the equitable principle that a court
should not grant relief to one who is a
wrongdoer with respect to the subject matter
in suit.
[Id. at 182-83 (emphasis in original)
(citations omitted).]
This reasoning applies to the matter at hand. R.B. Realty
did not engage in misconduct, Chapin Hill did by decertifying beds
contrary to the lease agreement. It breached the clear terms of
the lease the day after the transaction closed by transferring
thirty beds off license. It failed to maintain Jozefovic as the
40 A-1132-14T3
facility's manager despite covenanting to do so. There was also
evidence that Chapin Hill may have used Farkas's position of trust
with Avante to its own advantage during contract negotiations.
Because Chapin Hill's own knowing conduct laid the groundwork for
the forfeiture, the court did not err by refusing to use its
equitable powers to grant it relief.
None of the cases cited by Chapin Hill suggest otherwise.
For example, Mandia v. Applegate, 310 N.J. Super. 435 (App. Div.
1998), is distinguishable in several ways. In Mandia, the trial
court refused to declare a forfeiture of a leasehold interest
where the tenant, a Seaside Park merchant, had continued using the
boardwalk outside its store to display merchandise despite
warnings from the landlord that the use violated the lease. Id.
at 447-49. We noted that the relevant lease provision followed
the warning that the tenant's breach of "any of its obligations
hereunder" would trigger a forfeiture, suggesting that the breach
of that provision would not result in a default. Id. at 448.
Even if the forfeiture clause applied to obstruction of the
boardwalk, the tenant's display of merchandise, when viewed in
light of the prior business and personal relationship between the
parties, constituted only a minor breach. Id. at 449. Citing to
49 American Jurisprudence 2d Landlord and Tenant § 339 (1995), we
observed that equity may be invoked to avoid a forfeiture of a
41 A-1132-14T3
lease when clearly necessary to prevent an unduly oppressive result
or to prevent an unconscionable advantage to the lessor. Mandia,
supra, 310 N.J. Super. at 449.
Here, the language of section 13.3 is not ambiguous. Section
13.3(c) states that "a breach of this provision in any way will
constitute a material breach of the Lease." Thus, the parties
clearly contemplated that a violation of section 13.3 would
constitute a default under the lease. The default was classified
as material and not the minor, non-permissible use that was at
issue in Mandia. Moreover, imposing a forfeiture here is not
oppressive or unconscionable where it resulted from Chapin Hill's
own knowing misconduct. For these reasons, the court did not
abuse its discretion in failing to invoke an equitable remedy to
preserve Chapin Hill's leasehold.
V.
We do not address Chapin Hill's statute of frauds argument.
It was not raised below, and is therefore not properly before us.
See Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973).
Additionally, such a claim is an affirmative defense that must be
timely raised in a responsive pleading. Lahue v. Pio Costa, 263
N.J. Super. 575, 597-98 (App. Div.), certif. denied, 134 N.J. 477
(1993). That was not done in this case.
42 A-1132-14T3
VI.
Chapin Hill further contends that the court erred in finding
that the OTA did not convey the bed rights. It argues the evidence
overwhelmingly established that the certificate of need referenced
in section 9.3 of the August 21, 2006 lease pertained to the
building, not the operating licenses, the OTA unambiguously
conveyed the bed rights to Chapin Hill, Chapin Hill paid over $2
million in consideration for those bed rights, R.B. Realty never
owned the bed rights for the nursing home operation, and Jozefovic
offered a reasonable explanation for the retransfer of fifty beds
from the holding company to Chapin Hill. We do not agree.
First, it is clear from the drafts of leases presented during
the trial that Chapin Hill's efforts to purchase the bed rights
were unequivocally rejected in the early stages of negotiations.
Lichtman wrote "no" next to such a request on a copy of a July 20,
2005 email from Zafrin.
Negotiations surrounding the OTA established that the name
of the document was altered for the very reason that no assets
were being conveyed. Additionally, language stating that the
licenses being sold related to ownership of the operations was
removed from section 2(iii).
Nowhere in any version of the lease exchanged between the
parties were the improvements made to the physical plant, which
43 A-1132-14T3
Chapin Hill alleges were worth $1.5 million, mentioned as an
obligation on the purchaser, or a portion of the purchase price.
There is simply no evidence that the renovations were other than
a business decision Chapin Hill made unrelated to purchase of bed
rights.
Chapin Hill's expert's testimony regarding the bed rights,
and references in the OTA as being about the bed rights,
interpreted the contract. The court was obligated to disregard
those opinions concerning the meaning of the contract. Boddy v.
Cigna Prop. & Cas. Cos., 334 N.J. Super. 649, 659 (App. Div. 2000)
(citing Healy v. Fairleigh Dickinson Univ., 287 N.J. Super. 407,
413 (App. Div.), certif. denied, 145 N.J. 372, cert. denied, 519
U.S. 1007, 117 S. Ct. 510, 136 L. Ed. 2d 399 (1996)). The
interpretation of that document is also subject to de novo review
on appeal. See Kieffer, supra, 205 N.J. at 222.
As an aside, the expert also testified, based on his review
of DOH historical documents, that ownership of the bed rights
still appeared to be in Avante, and was never conveyed by that
entity. Avante, the corporate entity, no longer exists. We were
advised at oral argument that since judgment was entered, the bed
rights were conveyed, with DOH approval, by R.B. Realty to an
outside group which now operates the nursing home. Regardless of
whether DOH was aware of the title problem, or the expert simply
44 A-1132-14T3
overlooked records establishing a transfer, or that such records
were simply missing, the nursing home is currently fully
operational and the issue is essentially moot.
In addition to the lack of consideration supporting the
transfer of ownership of the beds, there were other circumstances
that supported R.B. Realty's ownership. Among them we number
Chapin Hill's attorneys writing to R.B. Realty stating that their
client was not asserting ownership over the beds. Although he was
no doubt aware of the contents of those letters, Jozefovic never
made any effort to correct those statements. The issue regarding
ownership and licensing rights did not even arise until after the
second amended complaint was filed in November 2012, almost a full
year after R.B. Realty filed eviction proceedings against Chapin
Hill.
Finally, the language of section 9.3 of the August 21, 2006
lease is dispositive. It provides that all licenses issued by any
government entity that were related to the premises were vested
exclusively in the lessor, and that the lessee would have no right
or interest in any of the licenses, except as expressly provided
in the lease. At the same time, section 2(iii) of the OTA states
that the seller would convey to buyer "to the extent assignable,
all licenses and permits held by Seller relating to the operations
of the Assets." In section 8(D), the seller warrants that
45 A-1132-14T3
"[e]xcept to the extent held by the Landlord, Seller holds and has
the right to assign (to the extent the same are assignable) to
Buyer . . . all licenses . . . required to be held by Seller . . .
to conduct and operate the Nursing Home." Thus, the lease vests
all licenses in the landlord and the OTA exempts licenses held by
the landlord from those being sold.
VII.
Chapin Hill disputes the trial court's $653,454.34 counsel
fee award for several reasons. First, it attacks R.B. Realty's
certification regarding services in that it does not allocate
entries to the dismissed liquidated damages claim, has duplicative
entries, and entries related to other cases. R.B. Realty responds
that section 15.2 of the August 21, 2006 lease requires the tenant
to pay legal fees for recovery of the facility, the trial judge
had the discretion to award an equitable remedy, and did so in
this case by requiring Chapin Hill to pay legal fees in lieu of
liquidated damages. R.B. Realty also asserts no vague or
duplicative entries were submitted, and that Chapin Hill fails to
specifically identify any such entries.
Section 15.2 of the lease requires the lessee to pay "all
reasonable legal costs and charges, including counsel fees,
incurred by Lessor in obtaining possession of the demised premises
after Lessee's default." Initially, the court was not relying on
46 A-1132-14T3
that clause, rather, was awarding counsel fees as an equitable
remedy in lieu of liquidated damages. Subsequently, however, the
court stated that it would award fees based not as an equitable
remedy in lieu of liquidated damages, but on section 15.2 of the
lease.
The judge did review the counsel fee certification, finding
it complied with Rule 4:42-9(b) and RPC 1:5(a), deleting certain
entries made for work she did not consider strictly relevant to
the litigation. The court noted that this case involved
substantial motion practice, pretrial discovery, travel, and a
nineteen-day trial.
The difficulty we have with the counsel fee award is that the
language in section 15.2 does not include the dispute regarding
ownership of the nursing home beds. Section 15.2 includes the
work necessary regarding possession of the premises, not
reacquiring the bed rights. Those items should therefore be
deleted, to the extent possible, from the certification as not
encompassed by section 15.2.
Although the court found the certification complied with
applicable rules, it did not specifically find that the attorneys'
fees were reasonable. No lodestar was established. See Furst v.
Einstein Moomjy, Inc., 182 N.J. 1, 21 (2004) (citing Rendine v.
Pantzer, 141 N.J. 292, 335 (1995)). "[T]he court should evaluate
47 A-1132-14T3
the rate of the prevailing attorney in comparison to rates 'for
similar services by lawyers of reasonably comparable skill,
experience, and reputation.'" Id. at 22 (quoting Rendine, supra,
141 N.J. at 337); see also Litton Indus., Inc. v. IMO Indus.,
Inc., 200 N.J. 372, 387 (2009) (applying the test for reasonable
attorney's fees in a contract case). Additionally, the hourly
rate should be calculated according to the prevailing market rates
in the relevant community. Rendine, supra, 141 N.J. at 337 (citing
Rode v. Dellarciprete, 892 F.2d 1177, 1183 (3d Cir. 1990)); see
also R.M. v. Supreme Court of N.J., 190 N.J. 1, 10 (2007) (noting
that market rate analysis incorporates equitable considerations).
That process did not occur.
Accordingly, we vacate the award of attorneys' fees and remand
the matter so that fees and charges related to the bed rights
claim can be deleted, and the court can address the reasonableness
of R.B. Realty's hourly rate and time expended to secure possession
of the premises.
VIII.
Finally, Chapin Hill contends the court erred in entering the
March 12, 2015 enforcement order requiring it to cooperate with
R.B. Realty in turning over the business and related documents.
Chapin Hill's objection includes Medicare and Medicaid
48 A-1132-14T3
certifications, which it avers did not in any way relate to license
transfers or the smooth transition of operations.
R.B. Realty responds in a footnote in its merits brief that
the enforcement order is within the trial court's equitable
discretion and that, in any event, the court was merely "fleshing
out" the final judgment order. Further, it states that Chapin
Hill failed to address its logistical arguments in a timely fashion
with the court below.
The March 12, 2015 order directs Chapin Hill to "provide all
information R.B. Realty requests in order to assume operations of
the Chapin Hill nursing home" and to "execute all documents
requested by R.B. Realty to assume operations of the nursing home
including but not limited to all documents related to the transfer
of Chapin Hill's Medicare and Medicaid Certifications." 6 No oral
or written statement explaining the court's reasoning are included
in the record.
Nonetheless, because Chapin Hill's arguments are vague and
unsupported by facts in evidence, they warrant little
consideration on appeal. See Weiss v. Cedar Park Cemetery, 240
6
The order also requires Chapin Hill to vacate the nursing home
upon notice that R.B. Realty has been approved by DOH to provide
services to nursing home residents. It also required Chapin Hill
to pay $4663.22 in counsel fees; Chapin Hill does not challenge
that aspect of the order.
49 A-1132-14T3
N.J. Super. 86, 102 (App. Div. 1990) (failure to adequately brief
issue requires it to be dismissed as waived); D'Ercole v. Mayor &
Council of Norwood, 198 N.J. Super. 531, 542 (App. Div. 1984).
Other than Chapin Hill's bald assertion that the documents
requested by R.B. Realty relate to business valuation and not the
transfer of operations, there is nothing in the record to identify
the materials or how Chapin Hill will be damaged if it provides
them. The trial court, thoroughly familiar with the matter
following weeks of trial, was in a better position than this court
to evaluate the propriety of R.B. Realty's requests. Moreover,
an overriding consideration in the court's calculus likely was the
continuation of care for the nursing home residents. The court's
order, which requires cooperation between the parties, furthers
that end.
Concerning the Medicare and Medicaid certifications, there
is no basis to consider Chapin Hill's arguments now. Although
Chapin Hill provides a certification from Fogg, it is not clear
whether that certification was timely submitted to the court or
whether the court even considered it. Since the damages Chapin
Hill claims will ensue from sharing the certifications are
monetary, Chapin Hill can file an action at a later date requesting
reimbursement for any receivables that were improperly collected
by R.B. Realty.
50 A-1132-14T3
A trial court retains the discretionary power to make
equitable determinations to achieve a just result. McNair v.
McNair, 332 N.J. Super. 195, 198 (App. Div. 2000). Nothing in the
record suggests that the trial court abused that discretion by
ordering Chapin Hill to cooperate with R.B. Realty in the transfer
of the nursing home operations.
Affirmed in part; reversed and remanded as to the award of
counsel fees. We do not retain jurisdiction.
51 A-1132-14T3