83 WILLOW AVENUE APARTMENTS, LLC VS. 83 WILLOW, LLC (L-2903-16, HUDSON COUNTY AND STATEWIDE) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0460-18T1
83 WILLOW AVENUE
APARTMENTS, LLC,
Plaintiff-Respondent,
v.
83 WILLOW, LLC,
Defendant-Appellant,
and
89-91 WILLOW AVENUE
CONDOMINIUM ASSOCIATION,
INC., REALTY EXPRESS
LABARBERA PROPERTY
MANAGEMENT, LLC, WILLOW
NEWARK, LLC, JASON LOWNEY
and JENNIFER LOWNEY, h/w,
ROBERT TAINSKY and HARRIET
TAINSKY, h/w, DANIELLE
D'ESPOSITO, ESQUIRE
PROPERTIES, LLC, SUKHBIR GILL,
OREN KNISHINSKY and JENNIFER
KNISHISKY, h/w, EDWARD
LAGOMARSINO and DEBORAH
LAGOMARSINO, h/w, KARTHIK
RAMACHANDRAN and S. CAWLA
RAMACHANDRAN, h/w, STUDIO
HOBOKEN, LLC, ALAN FISCHER,
JEFF WHITE, JEFF WHITE, LLC,
and WILLOW & NEWARK, LLC,
Defendants-Respondents.
__________________________________
Submitted December 16, 2019 – Decided January 16, 2020
Before Judges Fasciale and Moynihan.
On appeal from the Superior Court of New Jersey, Law
Division, Hudson County, Docket No. L-2903-16.
Varcadipane & Pinnisi, PC, attorneys for appellant
(Jeffrey William Varcadipane, on the brief).
Bogart Kean Ryan, LLC, attorneys for respondent 83
Willow Avenue Apartments, LLC (James F. Ryan, Jr.,
on the brief).
PER CURIAM
In this civil action, defendant-seller 83 Willow, LLC appeals from an
August 29, 2018 order awarding $267,500 to plaintiff-buyer 83 Willow Avenue
Apartments, LLC. Following a bench trial, the judge rendered a thirteen-page
decision finding defendant committed legal fraud by failing to disclose the
existence of a long-term lease of nine parking spaces on the Property sold to
plaintiff. On appeal, defendant argues that the judge made numerous erroneous
factual and legal conclusions warranting reversal. We disagree and affirm.
A-0460-18T1
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I.
This case arises from three parcels of commercial property located at 83
Willow Avenue, 307 Newark Street, and 89 Willow Avenue in Hoboken. All
three of these properties were parking lots. In 2003, Willow & Newark, LLC
(Willow & Newark), acquired the properties from a bank trust. At the time of
the purchase, Willow & Newark was aware of deed restrictions on the properties
regarding parking for a neighboring condominium, the Jefferson Trust building.
Specifically, residents of the Jefferson Trust building were entitled to use the
parking lot at 307 Newark Street and any overflow parking at the 83 Willow
Avenue parking lot. After acquiring the properties, Willow & Newark conveyed
307 Newark Avenue to 307 Newark, LLC and 83 Willow Avenue to 83 Willow,
LLC. Willow & Newark remained the owner of 89 Willow Avenue.
In 2005, Willow & Newark sold the 89 Willow Avenue property to Jeff
White, LLC (White), along with approvals that Willow & Newark obtained for
the construction of a condominium (the 89 Willow Avenue Condominium
Association). As part of that transaction, Willow & Newark leased nine parking
spaces on the 307 Newark Street property (the parking lease) to White. The
parking lease provided nine parking spaces at the to-be-built parking garage at
307 Newark Street for the residents of the condominium that White intended to
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build. The parking lease also provided a back-up plan: the nine parking spaces
would be located at 83 Willow Avenue in the event that the garage at 307
Newark Street was not completed by the time White obtained a certificate of
occupancy.
In or around 2011, 83 Willow, LLC (defendant), was approached by 83
Willow Avenue Apartments, LLC (plaintiff), through its representative Seth
Martin (Martin), as a potential purchaser of the 83 Willow Avenue property (the
Property), along with approvals to build a condominium. In August 2011, the
parties entered into a contract for the sale of 83 Willow Avenue for $3,930,000
(the Purchase Contract). However, defendant was unable to secure building
approvals for the Property. Accordingly, defendant attempted to cancel the
Purchase Contract. Plaintiff sued for specific performance (the specific
performance action). During discovery in that litigation, plaintiff discovered
that there were deed restrictions on approximately forty-two parking spaces for
residents of the Jefferson Trust building. Plaintiff requested an abatement of the
purchase price due to the Property's undisclosed restrictions.
In August 2014, the parties engaged in mediation and entered into a
settlement agreement (the Settlement Agreement). The Settlement Agreement
required that defendant sell the Property to plaintiff for $3,540,000—a $390,000
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reduction in the original purchase price. The Settlement Agreement also
provided "[t]itle to be marketable title as per contract, subject to deed
restrictions re[garding] Jefferson Trust." Paragraph five of the Settlement
Agreement provided that plaintiff "assume any and all parking obligations for
the subject property."
In November 2014, the properties closed with an exchange of purchase
price monies, a Deed, and an Affidavit of Title. The Affidavit of Title, signed
by Alan Fischer, defendant's managing member, indicated that there were no
tenants or other occupants of the Property. The Deed was provided to plaintiff
and contained the following standard provision:
Promises by Grantor. The Grantor promises that the
Grantor has done no act to encumber the Property. This
promise is called a "covenant as to grantor's acts"
(N.J.S.A. 46:4-6). This promise means that the Grantor
has not allowed anyone else to obtain any legal rights
which affect the Property (such as by making a
mortgage or allowing a judgment to be entered against
the Grantor).
Shortly after the closing, Martin placed notices on the vehicles parked on
the Property asking for the drivers' information so that he could prepare new
leases. Thereafter, he received a letter from an attorney indicating that there
were nine parking spaces for residents of the 89 Willow Avenue Condominium
Association who had long-term leases for parking on the Property. The lease
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for the nine parking spaces was between Willow & Newark and the 89 Willow
Avenue Condominium Association, and dated September 29, 2005, after Willow
& Newark had conveyed its interest in the Property to 83 Willow, LLC. The
term of the lease was for two consecutive ninety-nine-year periods. The lease
was signed by Fischer on behalf of the lessor, Willow & Newark.
In January 2015, plaintiff filed this action against defendant, and a single
count remained at the time of the trial⸺reformation of a contract based upon
fraud and/or misrepresentation. Defendant filed a pre-answer motion, alleging
that plaintiff's claim was moot because defendant unconditionally offered full
rescission of the Settlement Agreement and Purchase Contract, and it would take
back the Property and refund plaintiff the full purchase price. Plaintiff rejected
defendant's offer and pursued the action seeking reformation of the contract and
a reduction of the purchase price by the loss in the Property's value due to the
nine undisclosed parking restrictions.
The bench trial was conducted over four days in 2018. At the outset of
trial, defendant made a motion to bar plaintiff's expert's testimony and for the
trial judge to take judicial notice of defendant's offer to rescind the contract after
defendant received plaintiff's second lawsuit. The judge heard argument on the
motions and reserved decision.
A-0460-18T1
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At trial, plaintiff called several witnesses: John. J. Curley, plaintiff's
attorney; Martin, plaintiff's managing member; and Anthony F. Lama, plaintiff's
expert and realty appraiser. Defendant called one witness: Fischer, defendant's
managing member. At the close of plaintiff's proofs, the judge granted Fischer's
motion to dismiss, pursuant to Rule 4:37-2(b).
On August 29, 2018, the judge issued a written decision making factual
and credibility findings, and concluding that plaintiff established, by clear and
convincing evidence, that "defendant[] committed legal fraud." The judge
awarded plaintiff $267,500 in damages, representing the diminution in the
Property's value due to the undisclosed lease for nine parking spaces.
II.
We begin by noting our limited review of a trial judge's fact-finding in a
non-jury case. Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011).
We are required to "defer to a judge's factual findings in a non-jury matter when
those findings are supported by adequate, substantial and credible evidence."
Kas Oriental Rugs, Inc. v. Ellman, 394 N.J. Super. 278, 284 (App. Div. 2007)
(citing Rova Farms Resort, Inc. v. Inv'rs Ins. Co. of Am., 65 N.J. 474, 483-84
(1974)). We owe "deference to those findings of the trial judge [that] are
substantially influenced by [the judge's] opportunity to hear and see the
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witnesses and to have the 'feel' of the case, which a reviewing court cannot
enjoy." State v. Locurto, 157 N.J. 463, 471 (1999) (quoting State v. Johnson,
42 N.J. 146, 161 (1964)). But a trial judge's "interpretation of the law and the
legal consequences that flow from established facts are not entitled to any
special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140
N.J. 366, 378 (1995). Our review of a trial judge's legal conclusion is de novo.
30 River Court E. Urban Renewal Co. v. Capograsso, 383 N.J. Super. 470, 476
(App. Div. 2006).
III.
Defendant contends that the trial judge made a "multitude of factual
findings that are devoid of support in the record" or are contradicted by the judge
in his opinion. First, defendant argues that the trial judge contradicted himself
with respect to Exhibit A of the Affidavit of Title. Exhibit A would normally
contain a list of exceptions to the representations made in the affidavit.
Defendant asserts that the trial judge noted in two separate points of the written
decision that there was a factual dispute as to whether the Affidavit of Title
included an Exhibit A, but then the judge concluded that there was no dispute
that the exhibit was not in fact attached to the Affidavit of Title.
A-0460-18T1
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At trial, Fischer, who was not present at the closing, testified that he
signed the Affidavit of Title prior to the closing and that there was an attached
addendum listing the parking tenants on the Property. Curley, who was present
at the closing, testified that he relied upon the Affidavit of Title at the time of
the closing, and seeing no attachment, believed that there were no exceptions to
the title. Accordingly, as the judge correctly noted, there was a dispute as to
whether Exhibit A was attached to the Affidavit of Title. Exhibit A however
was not produced at trial, and no witness testified as to what happened to the
exhibit. The judge found both Fischer and Curley credible, but because there
was no exhibit nor explanation for the absence of such, the judge resolved the
factual dispute against Fischer. The judge concluded that "the Affidavit of Title
speaks for itself[,]" and "[i]t indicates there are no tenants or other occupants of
the [P]roperty." Thus, he found that there was no dispute that an exhibit was
not given at the time of the closing. We decline to disturb the judge's finding as
it was supported by adequate, substantial and credible evidence.
Next, defendant argues that the trial judge erroneously found that Curley
learned of the nine additional parking spaces approximately one week after the
closing, not during the settlement of the prior litigation. During cross-
examination, Curley testified that after requesting a list of all the Property's
A-0460-18T1
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parking tenants, defendant's attorney provided a list at the closing just before
the title closed. The list contained the names, addresses, security deposits and
rent for each tenant. One entry names Realty Express Labarbera as the tenant
and designates "[nine] spaces" in parentheses. Defendant asserts that these are
the nine additional spaces rented by Willow & Newark to the 89 Willow Avenue
Condominium Association.
In his recitation of Curley's testimony, the trial judge stated that when the
Property closed, Curley requested a list of any tenants occupying the Property
from defendant's attorney, and "[i]t was [Curley's] testimony that he was never
given a list and was told that the tenants were month-to-month." Although the
judge's recitation of the testimony may be mistaken⸻that is, Curley testified
that he received a list of the tenants at the closing⸺it does not change the judge's
conclusion. Curley was aware of the parking tenants for the Jefferson Trust
building because that issue was resolved in specific performance action. Curley
also testified that he was not aware of, or provided with, any parking leases
besides the deed restrictions favoring the Jefferson Trust residents. Curley and
Martin also testified that they learned of the nine additional parking spaces about
a week after the closing when Martin put notices on the vehicles parked on the
Property to advise the parkers that he now owned the Property and that the
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parkers' monthly rent would be paid to him thereafter. He assumed the leases
were month-to-month because that is what defendant told them at the closing.
Accordingly, the trial judge noted that the Affidavit of Title affirms there
are no tenants or other occupants of the Property, and the prior litigation
resolved the issue of the deed restrictions for the Jefferson Trust residents and
reduced the purchase price. The judge stated, "[t]his would lead the [c]ourt to
believe that the sellers, notwithstanding the prior litigation, had an obligation to
disclose approximately [twenty][1] parking spaces that had two [ninety-nine]-
year leases. The representation of the Affidavit of Title was false." Therefore,
although the judge may have been mistaken in his recitation of Curley's
testimony, his ultimate finding⸻that plaintiff and Curley learned of the nine
parking spaces after closing⸺is supported by adequate, substantial and credible
evidence.
Next, defendant contends that the trial judge committed legal error by
failing to impute plaintiff with inquiry notice regarding tenants in possession.
In Carteret Properties v. Variety Donuts, Inc., 49 N.J. 116, 128 (1967), the Court
stated,
1
It appears the judge referred to twenty parking spaces, when he meant the nine
parking spaces.
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[w]hen an intending purchaser of property knows that a
lessee is in occupancy, he must inquire of the tenant as
to the nature and scope of his tenancy. Knowledge of
the tenancy charges the new owner with notice of all
information he would obtain by inquiry of the tenant
with respect to the character of his occupancy. It is
settled that possession of a tenant amounts to notice of
his rights, not merely under the lease itself, but
resulting from modifications of it and collateral
agreements. If the successor in title fails to make the
necessary inquiry, he is estopped to deny any of the
existing rights of the tenant.
Moreover, in Schnakenberg v. Gibraltar Savings & Loan Ass'n, 37 N.J. Super.
150, 157 (App. Div. 1955), this court further explained,
it is the duty of a purchaser to inquire of the person in
possession of the premises and ascertain the rights
under which he holds, and if this duty of inquiry be
disregarded, the purchaser is chargeable with notice of
such facts as the inquiry, if it had been in fact made[.]
Here, plaintiff had notice of tenants in possession of the parking lot. But
the issue is whether plaintiff had notice of the long-term lease between Willow
& Newark and the 89 Willow Avenue Condominium Association for nine
parking spaces on the Property. Martin testified that he was aware of the parking
tenants from the Jefferson Trust building, but that he was not aware of the lease
for the 89 Willow Avenue Condominium Association. Curley testified that he
first learned that the 89 Willow Avenue Condominium Association also had
parkers on the Property after Martin distributed the notices on the vehicles.
A-0460-18T1
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Notably, there was already a dispute over the Property's parking restrictions in
the specific performance action, but the nine parking spaces for the 89 Willow
Avenue Condominium Association were not disclosed at any time during that
action.
Moreover, in addition to and in light of the prior litigation, Curley took
reasonable actions to inquire into the leaseholds. He reviewed two current title
binders, which did not show any other recorded leases. He relied on the
Affidavit of Title, which he testified did not contain an attachment with
exceptions. He also relied on the Deed, which contained a promise that the
grantor did not take any action to encumber the Property. According to Curley,
at the closing, he asked defendant's attorney to confirm that any other parking
on the Property, other than the Jefferson Trust residents, was there only on a
month-to-month basis. Curley testified that defendant's attorney left the room
to make a phone call and when he returned, he confirmed that all of the spaces
were on a month-to-month basis and no one had a written lease, except for the
Jefferson Trust residents.
Therefore, in light of the prior litigation and the subsequent acti ons taken
by plaintiff and Curley, we conclude that the trial judge did not err by declining
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to impute plaintiff with inquiry notice of the lease of the nine parking spaces for
residents of the 89 Willow Avenue Condominium Association.
IV.
Furthermore, defendant contends that the judge erroneously found that
plaintiff proved legal fraud by clear and convincing evidence based on the
Affidavit of Title and the Deed.
"A misrepresentation amounting to actual legal fraud consists of a
material representation of a presently existing or past fact, made with knowledge
of its falsity and with the intention that the other party rely thereon, resulting in
reliance by that party to his detriment." Suarez v. E. Int'l Coll., 428 N.J. Super.
10, 28 (App. Div. 2012) (quoting Jewish Ctr. of Sussex Cty. v. Whale, 86 N.J.
619, 624 (1981)). The five essential elements of a common law fraud claim are:
"(1) a material misrepresentation of a presently existing or past fact; (2)
knowledge or belief by the defendant of its falsity; (3) an intention that the other
person rely on it; (4) reasonable reliance thereon by the other person; and (5)
resulting damages." Ibid. (quoting Gennari v. Weichert Co. Realtors, 148 N.J.
582, 610 (1997)). "One who engages in fraud, however, may not urge that one's
victim should have been more circumspect or astute." Jewish Ctr., 86 N.J. at
626 n.1.
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Defendant raises a number of issues to suggest that plaintiff's reliance on
the Affidavit of Title and Deed was unreasonable, and therefore, plaintiff cannot
prove a claim of legal fraud. First, defendant points to the Second Restatement
of Torts for the proposition that reliance on a misrepresentation is not reasonable
or justifiable if the recipient "knows that it is false or its falsity is obvious to
him." Restatement (Second) of Torts § 541 (Am. Law Inst. 1997); see also
Walid v. Yolanda for Irene Couture, 425 N.J. Super. 171, 182 (App. Div. 2012)
(stating that "[t]he principles set forth in the Restatement accurately reflect the
law in New Jersey"). Defendant argues that plaintiff knew that representations
in the Affidavit of Title and Deed⸻that there were no tenants or occupants on
the Property⸺were inaccurate.
Here, plaintiff obviously knew about the Jefferson Trust residents parking
on the Property because that was the subject of the specific performance action.
In light of the prior litigation and plaintiff's undisputed knowledge of the
Jefferson Trust encumbrance, plaintiff reasonably relied on the Deed's promises
by the grantor provision, which provided that the grantor did not take any action
to encumber the Property. It was understood that this did not include the
Jefferson Trust residents parking encumbrance because that issue was res olved
in the Settlement Agreement in 2014, several months before the closing.
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Likewise, plaintiff reasonably relied on defendant's counsel's representation at
the closing that any other parking on the Property was on a month-to-month
basis, except those from the Jefferson Trust building.
Defendant also argues that plaintiff did not establish the second element
of fraud⸻that the party committing the fraud has knowledge of the falsity.
Defendant asserts that there was no evidence that Fischer intended to mislead
plaintiff regarding the parking lease. According to defendant, Fischer
reasonably believed that the parking lease was recorded and that plaintiff
therefore would have, and should have, discovered it.
The judge found that this element was met and stated, "[t]he [c]ourt is
convinced that there is clear and convincing evidence that . . . Fischer knew of
the leases, as the leases in question were the subject of a recorded [l]ease on
September 29, 2005, which was recorded with the Hudson County Register of
Deeds in September of that same year[.]" Although the issue regarding the title
search was not part of this litigation, the judge noted that the lease for the nine
parking spaces was granted by Willow & Newark and signed by Fischer. Willow
& Newark had already deeded its interest in the Property to 83 Willow, LLC at
the time it entered into the lease agreement with the 89 Willow Avenue
Condominium Association. Thus, the judge "surmised" that the title insurer's
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title search "did not pick up the notice of the recorded long[-]term parking leases
as it was outside the chain of title." The judge's finding is supported by
adequate, substantial and credible evidence.
V.
Defendant contends that the trial judge erred by not enforcing the
Purchase Contract, as modified by the Settlement Agreement, according to its
plain and ordinary meaning. Generally, "courts should enforce contracts as
made by the parties." Vasquez v. Glassboro Serv. Ass'n, 83 N.J. 86, 101 (1980).
"[I]t is a basic rule of contractual interpretation that a court must discern and
implement the common intention of the parties." Pacifico v. Pacifico, 190 N.J.
258, 266 (2007). "The court's role is to consider what is written in the context
of the circumstances at the time of drafting and to apply a rational meanin g in
keeping with the 'expressed general purpose.'" Ibid. (quoting Atl. N. Airlines,
Inc. v. Schwimmer, 12 N.J. 293, 302 (1953)). Moreover, it is the court's "task .
. . to enforce the contract according to its terms, giving those terms 'their plain
and ordinary meaning.'" GMAC Mortg., LLC v. Willoughby, 230 N.J. 172, 186
(2017) (quoting Kieffer v. Best Buy, 205 N.J. 213, 223 (2011)). "A settlement
agreement between parties to a lawsuit is a contract." Nolan v. Lee Ho, 120 N.J.
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465, 472 (1990) (citing Pascarella v. Bruck, 190 N.J. Super. 118, 124 (App. Div.
1983)).
First, defendant argues that the trial judge should have interpreted and
enforced paragraph five of the Settlement Agreement pursuant to its plain and
ordinary meaning. Paragraph five states that plaintiff is "to assume any and all
parking obligations." Defendant however fails to address paragraph three of the
Settlement Agreement, which states, "[t]itle to be marketable title as per
contract, subject to deed restrictions re[garding] parking Jefferson Trust."
Paragraph five cannot be read in isolation to suggest that plaintiff was assuming
all parking obligations. Plaintiff was unaware of the nine parkers from the 89
Willow Avenue Condominium Association.
Moreover, the Settlement Agreement arose from litigation relating to the
deed restrictions for parking for Jefferson Trust residents. Accordingly, when
considering "the circumstances at the time of drafting," and applying a "rational
meaning," we conclude that paragraph five did not imply that plaintiff was to
assume parking obligations that it did not know about and were not the subject
of litigation at the time. See Pacifico, 190 N.J. at 266. Under the circumstances
at the time of the Settlement Agreement, the parties intended plaintiff to assume
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the parking obligations for the Jefferson Trust Building, as that was the subject
of the litigation.
Further, defendant contends plaintiff agreed to limit the remedies
available in the event that the Property was not delivered in compliance with the
contract, and accordingly, plaintiff's recovery violates the limitations.
Paragraph thirty of the Purchase Contract provides, "[i]n the event the [seller]
fails or refuses to close title to the [property] in accordance with this Contract,
[buyer's] sole remedy is termination of the Contract with a return of deposit or
a suit for specific performance." Defendant argues that because Martin brought
the prior action for specific performance, he was prohibited from filing the
instant action.
Defendant's argument is unconvincing. It is not an issue that defendant
failed or refused to close title to the Property in accordance with the contract.
Title had already closed. This action is a post-performance action for damages
for the value of the nine parking spaces leased to the 89 Willow Avenue
Condominium Association. Thus, we conclude that the trial judge correctly
enforced the Purchase Contract, as modified by the Settlement Agreement.
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VI.
Defendant contends that the trial judge erred by awarding plaintiff
monetary damages based upon a claim for reformation of a contract.
When a contract cannot be rescinded because it was already performed,
"reformation may still be available as an equitable remedy." Dugan Constr. Co.
v. N.J. Tpk. Auth., 398 N.J. Super. 229, 242 (App. Div. 2008). "The traditional
grounds justifying reformation of an instrument are either mutual mistake or
unilateral mistake by one party and fraud or unconscionable conduct by the
other." Id. at 242-43 (quoting St. Pius X House of Retreats, Salvatorian Fathers
v. Diocese of Camden, 88 N.J. 571, 577 (1982)). Both rescission and
reformation are available remedies in an action for equitable fraud. See Bonnco
Petrol, Inc. v. Epstein, 115 N.J. 599, 611 (1989). Courts view reformation of a
contract as an "extraordinary remedy," requiring "[c]lear, convincing proof of
facts pertinent to the remedy." Martinez v. John Hancock Mut. Life Ins. Co.,
145 N.J. Super. 301, 312 (App. Div. 1976).
The Court has distinguished equitable fraud from legal fraud:
A misrepresentation amounting to actual legal fraud
consists of a material representation of a presently
existing or past fact, made with knowledge of its falsity
and with the intention that the other party rely thereon,
resulting in reliance by that party to his detriment. The
elements of scienter, that is, knowledge of the falsity
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and an intention to obtain an undue advantage
therefrom, are not essential if plaintiff seeks to prove
that a misrepresentation constituted only equitable
fraud. Thus, [w]hatever would be fraudulent at law will
be so in equity; but the equitable doctrine goes farther
and includes instances of fraudulent misrepresentations
which do not exist in the law.
[Jewish Ctr., 86 N.J. at 624-25 (alteration in original)
(internal quotation marks and citations omitted).]
Thus, unlike legal fraud, equitable fraud does not require knowledge of the
falsity and an intent to obtain an undue advantage. Baldasarre v. Butler, 254
N.J. Super. 502, 521 (App. Div. 1992), aff'd in part, rev'd in part, 132 N.J. 278
(1993).
In a situation where reformation is appropriate, its purpose is "to restore
the parties to the status quo ante and prevent the party who is responsible for the
misrepresentation from gaining a benefit." Bonnco, 115 N.J. at 612. Moreover,
"[i]n an action for equitable fraud, the only relief that may be obtained is
equitable relief, such as rescission or reformation of an agreement and not
monetary damages." Daibo v. Kirsch, 316 N.J. Super. 580, 591-92 (App. Div.
1998) (quoting Enright v. Lubow, 202 N.J. Super. 58, 72 (App. Div. 1985)).
However, legal fraud may give rise to money damages. Id. at 588.
Here, the judge correctly found that plaintiff established a claim for fraud.
The judge acknowledged that plaintiff claimed that the Deed and the Affidavit
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of Title exchanged at the closing made misrepresentations, and therefore,
plaintiff sought a reformation of the contract by a reduction in the purchase
price. The judge went through each factor of legal fraud, and determined
plaintiff satisfied each factor by clear and convincing evidence.
Accordingly, the judge properly found that plaintiff established a claim
for legal fraud. As noted by the Court, "[w]hatever would be fraudulent at law
will be so in equity[.]" Jewish Ctr., 86 N.J. at 625 (first alteration in original)
(internal quotation marks and citation omitted). In light of the fact that the
closing already took place, the judge determined that the appropriate remedy
was to reform the contract's purchase price. The judge awarded plaintiff
$267,500—the loss in the Property's value due to the nine leased parking spaces.
Essentially, the judge reformed the purchase price by awarding plaintiff money,
since payment had been made and the Property closed.
Alternatively, even if the judge improperly awarded money damages
based on plaintiff's claim for reformation, as defendant contends, it was in his
discretion to amend the pleadings. We conclude the judge did not abuse his
discretion. Rule 4:9-2 provides:
When issues not raised by the pleadings and pretrial
order are tried by consent or without the objection of
the parties, they shall be treated in all respects as if they
had been raised in the pleadings and pretrial order. Such
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amendment of the pleadings and pretrial order as may
be necessary to cause them to conform to the evidence
and to raise these issues may be made upon motion of
any party at any time, even after judgment; but failure
so to amend shall not affect the result of the trial of
these issues.
Defendant did not object to the establishment of the fraud claim at trial. The
judge conducted the bench trial, considered the evidence, and determined that
plaintiff established legal fraud, which required an additional element (scienter)
than equitable fraud. The judge essentially amended the pleadings to provide a
claim for legal fraud and an award of money damages. Based on his finding of
fraud, the judge awarded plaintiff the value of the parking spaces, as that value
represented the loss in the total property value.
Furthermore, defendant asserts that the trial judge erred by rejecting,
without explanation, its argument that plaintiff failed to mitigate its damages.
By way of a motion in limine, defendant requested the trial judge take judicial
notice, pursuant to N.J.R.E. 201, of its offer to rescind the contract upon
plaintiff's filing of the instant action. Specifically, defendant requested the
judge take judicial notice of its court filing at the outset of litigation that
contained an unconditional offer to fully rescind the transaction, which plaintiff
rejected. In his written decision, the judge did not address defendant's
mitigation argument.
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It is well-settled that parties injured by a breach of contract have a
common law obligation to take reasonable steps to mitigate their damages.
McDonald v. Mianecki, 79 N.J. 275, 299 (1979). "Damages will not be
recovered to the extent that the injured party could have avoided his losses
through reasonable efforts without undue risk, burden or humiliation."
Ingraham v. Trowbridge Builders, 297 N.J. Super. 72, 82-83 (App. Div. 1997)
(internal quotation marks and citation omitted). "[T]he burden of proving facts
in mitigation of damages rest[s] upon the party breaching the contract." Id. at
83 (second alteration in original) (quoting Cohen v. Radio-Elecs. Officers
Union, 275 N.J. Super. 241, 262 (App. Div. 1994)).
Defendant's argument is unavailing. First, even if the judge took judicial
notice of defendant's unconditional offer to rescind the transaction, that fact does
not prove that plaintiff failed to mitigate its damages. Plaintiff purchased the
Property, and the closing already occurred. Defendant wanted to rescind the
transaction and get the Property back so that it could sell it at a higher price.
Plaintiff however was entitled to the Property. Defendant cannot now assert that
plaintiff failed to mitigate its damages because it rejected defendant's offer to
rescind the transaction, give back the Property, and get its money back. Second,
plaintiff did mitigate its damages by giving defendant credit for the income
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generated by the nine parking spaces. At trial, plaintiff's expert testified to the
value of the parking spaces, and then reduced that number by the income that
could be generated from those parking spaces. Thus, plaintiff mitigated its
damages, and defendant, the breaching party, failed to prove otherwise.
Lastly, defendant maintains that plaintiff's expert testimony was a net
opinion and not based on facts in the record. Defendant asserts that plaintiff's
expert "conclusively asserted" an opinion that there was a loss in the Property's
value due to the undisclosed parking restrictions for nine parking spaces.
Defendant argues that plaintiff's expert did not explain how he reached the
amount of loss in value.
The net opinion rule "forbids the admission into evidence of an expert's
conclusions that are not supported by factual evidence or other data." State v.
Townsend, 186 N.J. 473, 494 (2006). An expert is required to "give the why
and wherefore that supports the opinion, rather than a mere conclusion."
Townsend v. Pierre, 221 N.J. 36, 54 (2015) (internal quotation marks and
citations omitted). An appellate court must apply the abuse of discretion
standard when assessing whether a trial judge properly admitted expert
testimony. In re Accutane Litig., 234 N.J. 340, 391 (2018).
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Here, the testimony of plaintiff's expert, Anthony F. Lama, was based on
factual evidence, and thus, it was not a net opinion. Lama was qualified as an
expert in property appraisal field without objection from defendant. During
trial, Lama explained that there are three primary approaches to evaluate and
appraise property: the cost approach, the sales comparison approach, and the
income approach. He testified that he considered all three approaches and
determined that two methods were applicable: the sales comparison approach
was the applicable method in determining the value of the parking spaces, and
the income approach was the applicable method in determining the value of the
lease. Lama provided various comparisons of similarly situated properties in
the area. He concluded that the market value of one parking space, if sold in fee
simple, would be $47,500. Because there are nine parking spaces, the total
market value of the spaces would be $427,500. Lama concluded that the nine
parking spaces would produce $160,000 in income. Lama explained plaintiff's
loss is the difference between selling the nine spaces in fee simple and leasing
the nine spaces at the rental amount agreed to in the Settlement Agreement.
Accordingly, Lama deducted the income from the leases ($160,000) from the
total value of the nine spaces ($427,500), equaling $267,500.
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We conclude plaintiff’s expert explained the "why and wherefore" in
support of his opinion. Pierre, 221 N.J. at 54 (internal quotation marks and
citations omitted). Therefore, this court should conclude that the judge did not
abuse his discretion in admitting the expert testimony.
To the extent that we have not addressed the parties' remaining arguments,
we conclude that they lack sufficient merit to warrant discussion in a written
opinion. R. 2:11-3(e)(1)(E).
Affirmed.
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