TARTA LUNA PROPERTIES, LLC VS. HARVEST RESTAURANTS GROUP, LLC (C-000101-16, UNION COUNTY AND STATEWIDE) ( 2021 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4994-18T3
TARTA LUNA PROPERTIES,
LLC, a New Jersey Limited
Liability Company, and
125 ELM STREET, LLC,
a New Jersey Limited APPROVED FOR PUBLICATION
Liability Company, January 28, 2021
APPELLATE DIVISION
Plaintiffs-Respondents/
Cross-Appellants,
v.
HARVEST RESTAURANTS
GROUP LLC, a New Jersey
Limited Liability Company,
CHESTER GRABOWSKI,
and ROBERT J. MOORE,
Defendants-Appellants/
Cross-Respondents.
___________________________
Argued November 9, 2020 – Decided January 28, 2021
Before Judges Currier, Gooden Brown and
DeAlmeida.
On appeal from the Superior Court of New Jersey,
Chancery Division, Union County, Docket No. C-
000101-16.
Joseph P. LaSala argued the cause for
appellants/cross-respondents (McElroy, Deutsch,
Mulvaney & Carpenter, LLP, attorneys; Joseph P.
LaSala, of counsel and on the briefs; George C. Jones,
on the briefs).
Sheppard A. Guryan argued the cause for
respondents/cross-appellants (Lasser Hochman, LLC,
attorneys; Sheppard A. Guryan and Bruce H. Snyder,
of counsel and on the briefs).
The opinion of the court was delivered by
CURRIER, J.A.D.
This litigation arises out of the lease of a building in Westfield in which
defendants intended to open a restaurant. The lease agreement contemplated
an extensive rebuilding and repair of the premises. During the renovations,
plaintiffs raised numerous issues regarding the quality of the construction.
They eventually instituted suit seeking the termination of the lease and
imposition of a forfeiture as well as an increase in rent. After a bench trial, the
Chancery court entered judgment in favor of defendants, finding plaintiffs'
claims meritless. However, in determining an award of fees was warranted by
principles of equity, the court awarded plaintiffs nearly $1,000,000 in counsel
and expert fees.
Defendants appeal from the order granting fees. Plaintiffs appeal from
the order denying their request to impose forfeiture and from the calculation of
the fee award. Because the fee award was not supported by a contract
provision, statutory authority or court rule nor the equities of the
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circumstances, we conclude the court mistakenly exercised its discretion in its
award of fees to plaintiffs – the non-prevailing party. We affirm the denial of
forfeiture.
I.
A.
Plaintiff Tarta Luna is the owner of premises located at 115 Elm Street,
Westfield. Plaintiff 125 Elm is the owner of premises located at 125 Elm
Street, which adjoins 115 Elm. The two premises share a common wall. The
managing partners of the two entities, Norman and Carol Greco respectively,
are married to one another.
Defendant Harvest Restaurants Group LLC (Harvest) owns and operates
several restaurants. 1 On October 15, 2013, Harvest entered into an agreement
with Tarta Luna to lease the premises at 115 Elm Street for a twenty-year term.
Harvest intended to make extensive renovations to the premises, including the
reconstruction of the rear annex with a new basement, alteration of the ground
floor layout, and the addition of a new second floor with a gable roof f or
dining space and an outdoor herb garden.
1
Defendant Chester Grabowski is the managing member of the LLC. He and
defendant Robert J. Moore personally guaranteed Harvest's obligations under
the lease agreement.
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3
After executing the lease agreement, Harvest retained the services of a
licensed architect and licensed structural engineer to develop the renovation
plans. Norman Greco, on behalf of Tarta Luna, authorized Harvest to present
the plans to the Westfield Planning Board. The preliminary and final major
site plans were approved by the Planning Board in October 2014.
Construction began in February 2015.
Grabowski testified that after the Planning Board approved the plans, he
met with the Grecos and Moore to discuss Harvest's interest in extending the
lease an additional five years. Carol suggested the rent increase as of the
twenty-first year should be based on the market value of the premises at that
time, accounting for the renovations and increased square footage. Grabowski
agreed and asked his attorney to prepare a lease extension reflecting the new
terms. Although plaintiffs' attorney forwarded the new document, there was
no response from the Grecos and the agreement was never signed. Grabowski
stated he wished to extend the lease so Harvest would not lose the building
after investing so deeply in the extensive renovations.
Pursuant to the lease agreement, the monthly rent was scheduled to
increase every five years. However, Grabowski testified that in the summer of
2015, Norman Greco wanted to immediately increase the monthly rent – from
$10,600 to $28,625 – to reflect the increased square footage due to the
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renovations. When Grabowski refused to agree to the proposed increase, he
stated that Norman threatened to "make his life miserable."
In September 2015, Carol Greco raised concerns about the construction
of the new second story wall, specifically that it was being bolted to the
existing common wall between 115 and 125 Elm Street. She discussed the
issue with Grabowski and the Westfield construction official.
In May 2016, Carol retained a local architect – George Sincox. After
reviewing the filed permit plans, Sincox sent several emails to the New Jersey
Department of Community Affairs (DCA), informing it of his concerns with
the construction of the common wall. Sincox advised the DCA that the
common wall was not comprised of concrete masonry units as shown on the
plans, but the builder was using hollow core terracotta instead, creating a less
stable structure. He also queried the fire rating of the common wall and said
that defendants were not complying with the applicable building codes. The
DCA forwarded the emails to the Town construction official, asking him to
address Sincox's concerns with defendants' architect.
Grabowski testified that he informed Harvest's architect, engineer, and
attorneys of the Grecos' complaints. He stated that he relied on his
"professionals," as well as the Westfield construction official, to perform the
renovations in a satisfactory manner.
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In June 2016, defendants' architect addressed Sincox's concerns with the
construction official. In his letter, the architect stated that prior to demolition
the "exact composition of the common wall was not visible . . . hence an
assumption was made as to its construction type based on other parts of the
building . . . ." The architect further explained:
This assumption was that the wall has been
constructed of concrete masonry units, to be verified
in field and that the wall will provide for a three-hour
fire resistance. In fact, based on field dimensions and
the surveys of the property we had reason to believe
that there were two walls adjacent to each other. It
was not [until we were] well into the interior
demolition when we discovered the wall is in fact a
common wall.
During construction I was not notified that field
conditions varied from assumed and that this wall was
in fact not constructed from concrete masonry units.
It was not until recently that it became clear that the
wall is made of terracotta blocks.
Defendants' architect then discussed several fire rating manuals and
determined that the wall had a three-hour rating as recommended by the
National Institute of Building Sciences.
Although the Town construction official initially issued a stop
construction order in May 2016 in response to the Grecos' concerns, he
rescinded the order shortly thereafter. The June 1, 2016 Notice of Abatement
stated "5/31/16 – Upon State inspection, no sign of structural damage to
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adjoining building. Wall construction is complete in accordance with the
approved plans (protection of adjoining building is applicable during
construction)." The official added a handwritten note, stating he had advised
the DCA that "the party wall in question has already been built. No problem
with the wall or the next[-]door property."
Plaintiffs were not satisfied with defendants' response to the issues they
had raised with the renovations. Therefore, in addition to Sincox, they
retained Anthony J. Pagnotta as an engineering expert, and legal counsel. On
June 17, 2016, Pagnotta conducted a structural review of the premises and,
among other things, highlighted the issue with the composition of the walls.
Plaintiffs' counsel sent a letter to Harvest on June 23 detailing Pagnotta's
findings. A similar letter was sent in late July to the Town construction
official.
Defendants' engineer responded to counsel's letter in July, advising he
would construct a structurally independent load-bearing wall, rather than
anchoring to the existing terracotta wall. New construction drawings were
submitted. In a certification dated October 25, 2016, the Town construction
official stated he "personally inspected the structurally independent bearing
wall to confirm that it was constructed in accordance with the drawings." The
official concluded that the construction "was performed in accordance with all
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plans and drawings submitted, conformed with all permits issued, and was in
compliance with all applicable Codes." 2
B.
On August 17, 2016, plaintiffs applied for an order to show cause,
supported by their Verified Complaint and certifications from Pagnotta and
Sincox. Plaintiffs sought: (1) a preliminary and permanent injunction barring
Harvest from continuing renovation activities or opening the premises as a
restaurant to the public until all of the issues identified by plaintiffs were fully
addressed and resolved; (2) relief for defendants' breach of the lease
agreement; and (3) a recalculation of defendants' monthly rent obligation based
on the new square footage of the premises.
On August 30, 2016, the Chancery court ordered defendants to respond
to the questions raised by plaintiffs' professionals, provide relevant
documentation related to the premises, and allow plaintiffs access to the
premises. The order also prevented defendants from opening the premises to
the public.
2
The Westfield official later indicated, during his February 7, 2017
deposition, that he inspected the structurally independent load-bearing wall
during a February 2016 framing inspection, before it was designated as a load -
bearing wall.
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Defendants subsequently applied to the court for an order permitting
them to open the restaurant for business. After hearing argument on the order
to show cause and defendants' motion, and relying on the construction
official's certifications, 3 the court denied plaintiffs' application and granted
defendants permission to open the premises upon the issuance of a Certificate
of Occupancy (CO) from the town. On November 11, 2016, Westfield issued
the CO and defendants opened the restaurant.
Several days later, plaintiffs challenged the issuance of the CO. The
Union County Construction Board of Appeals failed to act within the time
limit prescribed by N.J.S.A. 52:27D-127(b), resulting in an automatic denial of
plaintiffs' claim.
On December 8, 2016, defendants filed their answer and counterclaims
in the Chancery Division action. Defendants alleged, among other things, that
plaintiffs' true motivation for initiating proceedings was to "extort additional
rent[.]"
Several days later, plaintiffs' counsel served Harvest with a notice of
termination that sought to terminate the lease agreement based on Harvest's
failure to remedy the violations raised in plaintiffs' June 23, 2016 letter.
3
The official submitted the October 25, 2016 certification referred to above in
which he stated that the construction had passed all final inspections and the
property was safe for its intended use and occupancy.
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Plaintiffs also filed a Complaint in Lieu of Prerogative Writs in the Superior
Court, Law Division, Union County, against the Town of Westfield, its
building inspector, and Harvest, seeking to rescind and vacate the CO. The
action was transferred to the Chancery Division for management with the
pending action. 4
In February 2017, plaintiffs moved to dismiss defendants' counterclaims
and for leave to file and serve a supplemental complaint alleging the lease
agreement had been terminated and seeking possession, damages, and holdover
rent. The court granted plaintiffs' motion, permitting them to file a
supplemental complaint and dismissed some of defendants' counterclaims
based on the litigation privilege. 5
C.
On March 16, 2017, plaintiffs moved for an order requiring the closing
of the restaurant or, in the alternative, for an immediate evidentiary hearing.
Plaintiffs challenged defendants' compliance with the applicable building
codes. Each side presented certifications from their respective experts. After
argument, the court denied the motion, finding plaintiffs had not met their
4
The complaint was dismissed as moot after the Chancery court issued its
December 12, 2017 order.
5
The remaining counterclaims were dismissed under a May 15, 2017 order.
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burden to obtain injunctive relief. The court noted the parties had agreed to
the appointment of an independent engineering expert to review the
construction work and address the issue of the safety of the structure.
When the parties failed to reach a consensus, the court appointed Glenn
Kustera, P.E., to serve as the third-party expert. While Kustera was
conducting his investigation, plaintiffs' engineer produced sketches showing
the second story wall was anchored to the terracotta wall with a type of screw
only meant for use with concrete block. As a result, plaintiffs requested a
court order to cease all construction. On August 16, 2017, the court granted
plaintiffs' request to open and inspect a portion of the area between the rear
wall of the restaurant and the terracotta common wall. The parties and their
experts, including Kustera, were permitted to attend the inspection.
On August 22, 2017, Kustera issued his report, addressing whether the
structural design of the building complied with the applicable building codes.
The expert concluded that "the building addition is not code compliant and has
potentially serious structural deficiencies particularly with regard to the lateral
stability of the building." He recommended a "comprehensive architectural
and structural review" "to determine the extent of the improvements required
to attain code compliance."
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Two days later, defendants informed plaintiffs and the court that they
had asked "two new, independent structural engineering firms to consider the
[Kustera] report and provide recommendations." On August 30, defendants
told the court that "[i]n light of the [Kustera] report, the goal of all concerned
should be the immediate remediation of [the restaurant]. Defendants are
dedicated to that result." Thereafter, defendants retained a new structural
engineering firm, 6 architects, New Jersey building code specialists, and a fire
engineering consultant to design and implement code-compliant plans for the
reconstruction of the restaurant.
In late October 2017, the court held a status conference to ascertain the
parties' progress. After hearing from counsel and Kustera, the court ordered
the parties' experts to meet the following week to discuss a plan for getting the
premises code-compliant and scheduled a follow-up conference for November
8, 2017.
During the November 8 conference, the court questioned Kustera
whether the restaurant needed to be closed immediately due to safety concerns.
Kustera responded that there was "a real safety risk[]" as "[n]obody knows
when there's going to be a significant loading event, an earthquake, a high
6
Defendants had to retain a third structural engineer when the second firm
advised they did not have enough time to devote to the project.
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wind event, act of . . . nature and for that reason, . . . it's not safe." As a result,
the court determined it needed to address plaintiffs' application to close the
restaurant for the duration of the remedial reconstruction.
D.
The Chancery court heard testimony over three days in November 2017
from Kustera, as well as experts from both sides. In a comprehensive
December 12, 2017 written opinion, the court noted that all of the experts
agreed that the building was not compliant with the applicable building code.
The court found that defendants' original structural engineer applied the wrong
code when he designed the building and that the "error was compounded when
the Township of Westfield's Building inspector also applied the wrong code
and granted a [CO] for the building."
The court further found it was necessary to grant a preliminary
injunction. Because the construction proceeded under the wrong building
code, the court found there was damage to the joint wall of 115 and 125 Elm
Street. As a result, the court was "convinced there [was] an immediate risk to
the general public and the employees of 115 Elm Street." Therefore, there was
irreparable harm if the building was not closed.
The court also weighed the hardship which would be incurred by the
parties. The judge stated that:
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[t]he hardships the defendant will face will be harm to
the Harvest Group and [the restaurant's] good name,
loss of revenue from being shut down and fifty-five
employees being unemployed during the holiday
season and into the New Year. Harvest has been on
notice of the structural issues at least since [p]laintiffs
began the suit on August 17, 2016. A plan to repair
the deficiencies has yet to be developed. The hardship
that [p]laintiff[s] will face include danger to their
building and the danger to the public at large. Public
safety is of utmost importance and causes the balance
of hardships to weigh in favor of [p]laintiff[s].
Therefore, the court granted plaintiffs' application for a preliminary
injunction and enjoined defendants from "engaging in any activities,
occupying, operating any business, or opening to the public in any manner any
portion of the [p]remises." The order was effective December 15, 2017 and
prohibited the restaurant from opening without further order from the court.
In the following weeks, defendants' design professionals met with
plaintiffs' professionals to review defendants' plans to bring the premises into
code compliance. The plans, which included the installation of steel columns,
beams, and supports inside the premises and the construction of a new concrete
wall adjacent to the shared wall, were approved by plaintiffs' professionals in
early April 2018. The parties also agreed that the remedial construction would
be overseen by the Mountainside Construction Department.
On April 13, 2018, defendants submitted the plans to Mountainside
officials for review and approval. The plans were approved on April 26 and
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Mountainside indicated it was prepared to issue construction permits.
Plaintiffs, however, refused to consent to the issuance of the permits because
of issues related to handicap access and drainage. Defendants then moved for
the court's authorization to begin the construction. The motion was granted on
June 11, 2018.
On December 3, 2018, the court permitted the restaurant to reopen upon
the completion of all necessary inspections and the issuance of a CO. More
than five years had passed since the execution of the lease for the premises.
During that time, despite long periods of closure, defendants complied with its
obligation to pay rent, real estate taxes, insurance, and other costs associated
with the tenancy in addition to spending nearly $3,000,000 in renovation and
remedial construction costs.
E.
The court conducted a second bench trial, in August 2018, to resolve
plaintiffs' claims of forfeiture of the property, request for increased rent, and
for attorneys' fees. On October 12, 2018, the court issued a written opinion
and order.
In denying plaintiff's application for forfeiture, the court stated "[t]here
[was] no doubt that the addition, as originally constructed, was not in keeping
with applicable building codes." However, the court noted that defendants
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relied upon engineering and architectural professionals for the design and
construction of the building as well as the Westfield construction official who
issued a CO. The court refused to "find fault with defendant[s] for fo llowing
their professionals' advice." The judge noted that defendants "were relying on
properly credentialed experts[,]" and "had no legal requirement to ignore their
experts' advice . . . until . . . the court heard evidence from the various experts,
held a hearing, and determined that the building did not comply with code."
She found defendants "[could not] be faulted for believing their plans were
proper since they had been approved by the Building Inspector."
In denying plaintiffs' claim for forfeiture, the judge reasoned:
Defendants leased an older building in need of
substantial improvements. Defendants invested
7
$2,000,000 in improving the building to a point
where it is one of, if not the nicest, restaurant in
Westfield, NJ. Defendants added a second floor and
forty new seats. If [p]laintiffs were to be successful in
this request for forfeiture it would greatly and unjustly
enrich [Tarta Luna]. [Tarta Luna] has received
monthly rent and has not suffered any harm, save
attorney fees and expert fees. [Plaintiffs] have
received the monthly rent. [They] [are] in the same
position [they] would have been if the forfeiture had
not occurred. Fed[.] Deposit Ins[.] Corp. v. Rosen[,]
188 N.J. S[uper]. 230 ([App. Div.]1983). The
application for forfeiture is denied.
7
An additional $800,000 was spent on repairs but there is no way for the court
to ascertain the cost had the building been constructed correctly the first time.
(footnote in original).
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The court then turned to plaintiffs' request for increased rent. Plaintiffs
contended they were entitled to additional rent because of the addition of a
second floor, which increased the original square footage figure used to
calculate the rent obligation in the lease. The judge rejected plaintiffs' request,
noting that the lease did not provide for an increase in rent if the square
footage were to be enlarged, and she would not make a better contract for the
parties than they had made for themselves. She further reasoned that it was
not the intent of the parties to increase the rent, stating plaintiffs' requested
increase would "be patently unfair . . . when defendants have expended
considerable funds to build the second floor."
Lastly, the court addressed the issue of attorneys' fees. Plaintiffs
contended that the court could award fees under several provisions of the lease
agreement. The court disagreed, finding there was no contractual basis for the
award of fees. The judge stated: "The court cannot find any statute, court rule,
or contract provision that supports the granting of legal and expert fees to
[plaintiffs]."
However, given her findings that "the renovations, as originally
constituted were dangerous to people[,]" "severe damage could have been done
to the building[,]" and "[t]o bring this action before the court it was necessary
[for plaintiffs] to incur approximately $1,000,000 in attorneys' fees[,]" the
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judge concluded that an equitable remedy was warranted. She ordered
plaintiffs to submit a certification of services, permitted defendants to respond,
and scheduled oral argument.
Plaintiffs submitted certifications from counsel, Pagnotta, Sincox, and
Carol Greco. They sought attorneys' fees in the amount of $1,052,341.50, and
disbursements and costs, including expert fees, in the amount of $170,968.17,
for a total of $1,223,309.67. Defendants, in response, submitted a certification
from counsel along with an expert certification from Dennis J. Drasco, Esq.
Drasco represented he was a New Jersey attorney who "specializ[ed] in the
litigation and trial of complex, commercial, construction . . . cases[.]" He
submitted a certification in which he opined as to the reasonableness of the
attorneys' fees request based on his review of plaintiffs' certifications and the
court's orders.
After oral argument on the fee application, the judge issued an opinion
on June 20, 2019, awarding plaintiffs attorneys' fees and costs in the amount of
$930,710.33. The judge reasoned that the award of attorneys' fees was "based
on equitable principles as a result of this court's determination that the safety
of the public had been compromised by the decision to open [the restaurant]."
She then clarified that the award was limited in scope and did not include fees
for items unrelated to the renovations.
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The judge did not consider Drasco's expert certification. Although she
recognized him as "a well-qualified professional," the judge disregarded his
certification because its content did not concern "a subject beyond the ken of
the factfinder[.]"
The judge then turned to a consideration of the reasonableness of the
amount of the counsel fee request. She concluded plaintiffs' counsel's hourly
rates were reasonable, a concession also made by defendants. The court went
through the billing entries carefully, making deductions where she found the
time billed was excessive or unnecessary or where there was no explanation of
the task.
In further explaining her award and its calculations, the judge described
her "feel for the case" she had developed during the proceedings. She stated
that defendants were convinced plaintiffs' claims were simply an attempt to
extort higher rent and thus did not appropriately weigh their concerns. On the
other hand, the judge said plaintiffs were "not any better[,]" as they leased
defendants an old building, knowing "extensive renovations" were required
and were somewhat obstinate in permitting defendants to perform such work.
"Against this background," the judge concluded that,
[p]laintiffs' litigious approach to the case increased
attorneys' fees in a manner which is not easily shown
on the timesheets. From the beginning, [p]laintiffs
argued everything was a great injustice and danger. A
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good example of this would be their insistence on
drainage studies where the town did not require them
and the court ruled were unnecessary.
The court continued,
Perhaps the best example is the incident with the "hot
wall." An employee of [the restaurant] discovered a
wall was "hot." The Fire Department was called and
all customers were asked to leave the building. The
Department of Health and Fire Department allowed
the restaurant to reopen shortly thereafter. Despite
Harvest taking all the proper steps, [p]laintiffs
overreacted by filing an Order to Show Cause. The
court has not allowed these fees but cites to the event
as an example of the dynamics of the case.
The court certainly does not find [d]efendant[s]
blameless. They continued to build without
authorization, thus requiring monitoring by the
plaintiff. But in balance, the court believes
[p]laintiff[s'] actions inflated the legal work required.
Accordingly, the judge reduced the overall award to plaintiffs by five percent.
The result was an award to plaintiffs of $930,710.33 in attorneys' and expert
fees.
II.
Defendants appeal from the award of attorneys' fees, calculation of the
award, and the exclusion of the Drasco expert certification. In a cross-appeal,
plaintiffs contend the trial court erred in denying their claim for forfeiture and
in its calculation of the attorneys' fees award.
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A Chancery judge has broad discretion "to adapt equitable remedies to
the particular circumstances of a given case." Marioni v. Roxy Garments
Delivery Co. Inc., 417 N.J. Super. 269, 275 (App. Div. 2010) (citations
omitted); see also Salorio v. Glaser, 93 N.J. 447, 469 (1983) (noting equitable
remedies "are distinguished by their flexibility, their unlimited variety," and
"their adaptability to circumstances"). In reviewing an equitable remedy, we
consider three specific components. Marioni, 417 N.J. Super. at 275.
First, the facts the judge adopts in an equity case are entitled to
deference "when supported by adequate, substantial[,] and credible evidence."
Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974).
Second, in drawing conclusions from those facts, the Chancery judge i s
required to apply accepted legal and equitable principles; no deference is
afforded in this regard. Manalapan Realty, L.P. v. Twp. Comm. of Twp. of
Manalapan, 140 N.J. 366, 378 (1995). And third, we will decline to intervene
absent an abuse of discretion, or where the judge's conclusions prove
inconsistent with her own findings of fact. Marioni, 417 N.J. Super. at 275-76.
A court abuses its discretion "when a decision is made without a rational
explanation, inexplicably departed from established policies, or rested on an
impermissible basis." Pitney Bowes Bank, Inc. v. ABC Caging Fulfillment,
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440 N.J. Super. 378, 382 (App. Div. 2015) (citing Flagg v. Essex Cnty.
Prosecutor, 171 N.J. 561, 571 (2002)).
A.
Here, despite concluding that plaintiffs did not prevail on any of their
claims, the court awarded them counsel fees and expert expenses. Defendants
assert the court abused its discretion because there was no basis in law or
equity to support the award.
Generally, we will only disturb an award of attorneys' fees upon a clear
abuse of discretion. J.E.V. v. K.V., 426 N.J. Super. 475, 492 (App. Div.
2012). Despite the significant discretion a trial court has in awarding
attorneys' fees, "such determinations are not entitled to any special deference i f
the judge misconceives the applicable law, or misapplies it to the factual
complex." Porreca v. City of Millville, 419 N.J. Super. 212, 224 (App. Div.
2011) (citations omitted).
New Jersey is an "American Rule" jurisdiction, reflecting a "strong
public policy against shifting counsel fees from one party to another." In re
Estate of Stockdale, 196 N.J. 275, 307 (2008). The American Rule prohibits
recovery of attorneys' fees "by the prevailing party against the losing party."
Ibid. A few exceptions, not applicable here, are authorized under Rule 4:42-
9(a).
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Our Supreme Court has also recognized several "exceptions to the
American Rule that are not otherwise reflected in the text of Rule 4:42-9" and
are not allowed pursuant to a statute, court rule, or contract. In re Estate of
Vayda, 184 N.J. 115, 120-21 (2005). This category of common law fee-
shifting arises out of fiduciary breaches in certain settings, for example the
attorney-client relationship or attorneys acting as escrow agents. See In re
Estate of Folcher, 224 N.J. 496, 507 (2016).
Here, the Chancery court correctly concluded that no provision in the
lease agreement authorized attorneys' fees either expressly or impliedly. The
court properly rejected plaintiffs' reliance on four specific paragraphs of the
lease for an award. Paragraphs five, six (b), and twenty-two were silent as to
attorney's fees and it would be error for the court to construe the provisions
any differently than how they were written. See N. Bergen Rex Transp., Inc.
v. Trailer Leasing Co., a Div. of Keller Sys. Inc., 158 N.J. 561, 570 (1999)
(noting courts will strictly construe a contract provision in light of the general
policy disfavoring the award of attorneys' fees). Paragraph fourteen does
permit the recovery of attorneys' fees, but only in the context of
indemnification for damages to property or persons caused by defendants or
their agents. This clause did not apply under the circumstances present here.
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Therefore, there was no statutory or contractual basis for an award of
fees. Nor was there a breach of a fiduciary relationship as occurred in Folcher.
Although the Chancery judge also concluded there was no established
basis to support a fee award, she nevertheless found that equitable principles
demanded the remedy, because "the safety of the public had been
compromised by the decision to open [the restaurant]." The general concept of
public safety has not previously been recognized as an exception to the policy
preventing fee-shifting, and although it might support an award under certain
egregious circumstances, those circumstances were not present here.
Plaintiffs contend there is precedent for the court's award under Red
Devil Tools v. Tip Top Brush Co., 50 N.J. 563, 575 (1967). We disagree. In
Red Devil, the Chancery court found the defendants had wrongfully
appropriated the plaintiff's trademark and had infringed upon it, and their
appropriation and infringement had been "conscious and deliberate, having
been carried out to take advantage of plaintiff's mark and established
reputation for the purpose of selling more brushes with greater benefits to
defendants than would have been possible without the use of plaintiff's mark."
Id. at 566.
The Supreme Court agreed that the plaintiff was entitled to injunctive
relief. Id. at 572. In addition, the plaintiff sought an accounting of the
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24
defendants' profits. However, because the plaintiff had not demonstrated
damage to its business or goodwill through the sale of the brushes, the Court
did not grant the accounting.
The Court stated that the grant of additional relief beyond an injunction
was not "automatic for the true judicial goal is a just decree which satisfies 'the
equities of the case.'" Id. at 573. Any additional relief was dependent "on the
particular circumstances as they appear from the totality of the evidence
presented." Ibid. Because the defendants had engaged in "shenanigans," and
their conduct was "wrongful," "conscious and deliberate," the Court
determined a deterrent was warranted. As a result, the plaintiff was awarded
litigation fees, including a reasonable counsel fee. Id. at 575.
In explaining the grant of relief, the Court stated that it protected "the
plaintiff for the future[,] [took] care of its actual damage to date, . . . cut into
any unjust enrichment of the defendants" and served a deterrent purpose. Ibid.The Court concluded:
Here the plaintiff's claim was for equitable relief by
way of injunction and accounting. Although the trial
court granted such relief in full, it appears to us that
the equities would be better fulfilled and the
administration of justice better served by substituting
an award of litigation costs for an ill-suited and more
burdensome accounting. This course furnishes a fair
measure of compensation in lieu of rather than in
addition to the plaintiff's claimed right of recovery on
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25
its substantive cause of action, and, viewed
realistically, does not transgress on the safeguards
contemplated by the court rules.
[Id. at 576.]
Therefore, the counsel fee award was substituted as a more applicable measure
of damages than the accounting originally sought.
We see no similarity between the circumstances in Red Devil and those
presented here. Conspicuously lacking in this matter is evidence of any
"willful and calculated" misconduct that the Court found existed in Red Devil
and warranted the deterrence of a fee award. Id. at 574. To the contrary, the
Chancery court here specifically concluded that defendants had not engaged in
any intentional misconduct. Instead, they had relied on the advice of their
professional architectural and engineering experts as well as the approval and
issuance of the requisite permits from the municipality and its construction
officials. Defendants had no cause or obligation to ignore their own
professionals and municipal officials until an independent expert uncovered
deficiencies in the renovation construction.
Defendants agreed to the appointment of an independent expert. Within
two days of receipt of the expert's report, defendants informed plaintiffs and
the court of its retention of a new structural engineering firm. Defendants also
replaced its architectural firm and added additional experts to its team,
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26
including firewall and building code specialists. Finally, defendants agreed
that a different town should be responsible for overseeing and approving the
construction and the issuance of required permits and eventually a CO.
Moreover, defendants here were not unjustly enriched. To the contrary,
despite the prolonged closure of the business, defendants complied with their
contractual obligations and paid plaintiffs the required rent during the five
years of renovations and construction remediation despite only being open for
business for one year during that time. Plaintiffs also cannot identify any
deterrent value an award of fees might have under these circumstances.
Defendants leased the building from plaintiffs with expectations of opening a
restaurant. Both parties understood the extensive renovations needed in light
of the age of the building. Under the triple net lease, defendants agreed to
shoulder all of the expenses even though at the termination of the lease,
plaintiffs would remain the owners of the much-improved space.
Moreover, the facts here did not warrant an alternate remedy as the
Court found necessary in Red Devil. Plaintiffs were not successful on their
primary causes of action for termination of the lease and additional rent. The
Chancery court responded to plaintiffs' claims of construction deficiency by
closing the restaurant until the construction issues were resolved and the
building was compliant with the building codes. In addition, if the building
A-4994-18T3
27
inspector had properly inspected the premises (as he certified was done)
defendants would have been put on notice of defects with their renovations and
litigation might have been avoided altogether. Finally, as the court noted,
plaintiffs have greatly benefitted from the renovations resulting in a much -
improved building.
Therefore, for the reasons stated, the Chancery court's award of
attorneys' and expert fees was a mistaken exercise of discretion as it d eparted
from well-established precedent and was not founded on any statute, court
rule, or contract provision. Nor was the award supported by equitable
principles in the absence of any willful misconduct. We reverse the court's
order granting counsel and expert fees.
B.
In its cross-appeal, plaintiffs contend the Chancery court abused its
discretion in denying the motion to terminate the lease and to impose a
forfeiture on defendants. Plaintiffs rely on Dunkin' Donuts of Am., Inc. v.
Middletown Donut Corp., 100 N.J. 166 (1985), and assert they were deprived
of a bargained-for remedy under the lease agreement. Because we find the
court's decision denying forfeiture was supported by the credible evidence in
the record and did not constitute a misapplication of the relevant law, we
affirm.
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28
As the Supreme Court stated in Dunkin' Donuts, "the settled precedent is
that in the absence of fraud, accident, or mistake, a court of equity cannot
change or abrogate the terms of a contract." Id. at 183. Moreover, the Court
"recognize[d] that although ordinarily equity will not divest legal rights, this
maxim must yield if 'extraordinary circumstances' or 'countervailing equities'
call for such relief." Id. at 184. (quoting Monmouth Lumber Co. v. Indem. Ins.
Co. of Am., 21 N.J. 439, 451 (1956)); see also Mandia v. Applegate, 310 N.J.
Super. 435, 449 (App. Div. 1998) (citing 49 Am. Jur. 2d Landlord and Tenant
§ 339 (1995)) (holding court may deny forfeiture to prevent unduly oppressive
result, unconscionable advantage to landlord, or unconscionable disadvantage
to tenant).
As the Chancery court concluded, plaintiffs properly served the notice to
cure required under paragraph twenty-nine of the lease agreement. And, as
described above, defendants' renovations did not comply with the applicable
building codes, causing the independent expert Kustera to opine that the
premises posed a safety risk. However, the Chancery court also found that
defendants could not be faulted for relying on their own professionals,
particularly because the municipality, through its construction official,
approved defendants' plans and issued the required permits and a CO.
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29
The matter before us is readily distinguishable from Dunkin' Donuts. In
that case, the Court imposed a forfeiture and terminated the defendant's lease
of two Dunkin' Donuts franchise locations. 100 N.J. at 185-86. The Court
noted forfeiture was an extreme remedy but imposed it because there were
"insufficient countervailing equities" where the defendant "was guilty of
unconscionable cheating[]" in the form of a "substantial, intentional, and long -
continued underreporting of gross sales[]" to underpay franchise fees. Id. at
172, 182-86. Here, defendants did not intentionally violate the building codes,
but rather relied upon their professionals and approval from the governing
authorities.
Moreover, as the Chancery court noted, imposing a forfeiture on
defendants would "greatly and unjustly enrich" plaintiffs. Defendants spent
nearly $3,000,000 to transform the premises into an upscale attractive
restaurant. Defendants paid rent, property taxes and all of the expenses
associated with the lease. A termination of the lease following defendants'
substantial investment in the premises would result in a windfall for plaintiffs.
Therefore, the court did not abuse its discretion in its determination not to
impose a forfeiture.
A-4994-18T3
30
In light of our determination regarding the counsel fee award, we need
not address the arguments regarding the award calculation or the admiss ibility
of defendants' expert report.
We reverse the order granting counsel and expert fees. The cross-appeal
is affirmed.
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31