JET STAR REALTY, LLC VS. FRESH FOOD DIRECT, LLC (L-1306-16, BERGEN COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE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-4392-16T1
JET STAR REALTY, LLC,
Plaintiff-Appellant,
v.
FRESH FOOD DIRECT, LLC and
JUNE POWERS,
Defendants-Respondents.
_________________________________
Submitted February 14, 2018 – Decided July 11, 2018
Before Judges Nugent and Currier.
On appeal from Superior Court of New Jersey,
Law Division, Bergen County, Docket No. L-
1306-16.
Waldman, Renda & McKinney, PA, attorneys for
appellant (Thomas A. McKinney, on the brief).
Meyner & Landis LLP, attorneys for respondents
(Matthew P. Dolan, on the brief).
PER CURIAM
Plaintiff, Jet Star Realty, LLC, appeals from an order that
denied its motion to enter judgment on a settlement agreement
arising out of a dispute over rent due under a commercial lease.
The trial court denied Jet Star's motion because Jet Star sought
to enforce a clause the trial court deemed an unenforceable
penalty. We affirm.
Defendant June Powers is the managing member of defendant
Fresh Fruit Direct, LLC, Jet Star's former tenant. After Fresh
Food terminated the commercial lease before its term's end, the
parties disputed the amount of rent Fresh Food owed Jet Star under
the lease terms. Jet Star filed suit against defendants. The
parties resolved their dispute, signed a Stipulation of
Settlement, and filed a Stipulation of Dismissal.
The Stipulation of Settlement required defendants to pay Jet
Star $20,000 in six monthly installments of $3333.33, due the
first of each month beginning November 2016. The Stipulation of
Settlement included a provision that if any installment payment
was not received by the fifth business day of the month it was
due, Jet Star's attorneys were required to notify defendants they
were in default. If defendants did not cure within ten days after
the default notice was sent, Jet Star would have the right to
enter a judgment. The provision stated:
In the event that [defendants] do not
cure the default within ten (10) days after
the required notice is sent by [Jet Star's
attorneys, Jet Star] shall have the right to
file a certification, on notice to
[defendants' attorneys], setting forth the
default . . . the amount paid to date and the
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balance due under this Agreement and shall be
entitled to a [j]udgment against [defendants]
in the sum of $25,000 less credit for any
payments made.
Defendants' final installment payment was due April 1, 2017.
In a letter dated April 11, 2017, Jet Star's attorneys wrote
defendants' attorneys informing defendants they were in default.
Counsel for Jet Star followed up with an email on April 18, 2017,
and a second email April 26, 2017. In the latter email, Jet Star's
counsel wrote, "[w]ill payment be made or should I start the
default proceedings?"
Defendants made the final payment on Friday, May 5, 2017.
According to the trial court's opinion, defendants filed the motion
to enter judgment on the settlement three days later, Monday, May
8, 2017. According to Jet Star, it prepared a motion for entry
of judgment on Thursday, May 4, 2017, and mailed it to defendants
the same day. Defendants averred they made the final payment
before receiving Jet Star's motion. The trial court denied Jet
Star's motion to have judgment entered in the amount of the final
payment plus $5000. The court explained:
[I]t is undisputed that all payments under the
[s]ettlement agreement were made and received
and accepted by [Jet Star]. In fact, it is
undisputed that the last payment made on May
5, 2017 was submitted prior to the filing of
the within motion. The final payment
satisfied [d]efendant's obligations under the
[s]ettlement agreement.
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The court further determined that the entire settlement
having been paid, the additional $5000 was excessive, contrary to
the interests of justice, and an inappropriate penalty. The court
concluded that imposing an additional $5000 penalty after the
settlement had been paid in full would be inequitable.
On appeal, Jet Star argues it is entitled to enforce the
settlement agreement. Defendants contend the trial court
correctly refused to enforce what amounted to an unenforceable
penalty. We agree.
Indisputably, "[a]n agreement to settle a lawsuit is a
contract which, like all contracts, may be freely entered into and
which a court, absent a demonstration of 'fraud or compelling
circumstances,' should honor and enforce as it does other
contracts." Pascarella v. Bruck, 190 N.J. Super. 118, 124-25
(App. Div. 1983) (quoting Honeywell v. Bubb, 130 N.J. Super. 130,
136 (App. Div. 1974)). While contractual provisions for liquidated
damages are enforceable, penalty clauses are unenforceable.
Wasserman's, Inc. v. Middletown, 137 N.J. 238, 248 (1994).
Liquidated damages are those "a party . . . agrees to pay if
he breaks some promise, and which, having been arrived at by a
good faith effort to estimate in advance the actual damage that
will probably ensue from the breach, [are] legally recoverable as
agreed damages if the breach occurs." Westmount County Club v.
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Kameny, 82 N.J. Super. 200, 205 (App. Div. 1964) (citation
omitted). In contrast, "[a] penalty is the sum a party agrees to
pay in the event of a breach, but which is fixed, not as a pre-
estimate of probable actual damages, but as a punishment, the
threat of which is designed to prevent the breach." Ibid."[L]iquidated damages provisions in a commercial contract between
sophisticated parties are presumptively reasonable and the party
challenging the clause bears the burden of proving
unreasonableness." Metlife Capital Fin. Corp. v. Wash. Ave.
Assoc., LP, 159 N.J. 484, 502 (1999) (citing Wassermans, 137 N.J.
at 251-52).
The distinction between an enforceable liquidated damage
clause and an unenforceable penalty clause is not always clear.
"New Jersey courts have viewed enforceability of stipulated
damages clauses as depending on whether the set amount 'is a
reasonable forecast of just compensation for the harm that is
caused by the breach' and whether that harm 'is incapable or very
difficult of accurate estimate.'" Wassermans, 137 N.J. at 250(quoting Westmount Country Club, 82 N.J. Super. at 206). "The
reasonableness of a stipulated damages clause can be assessed "at
the time the contract is made or when it is breached." Metlife
Capital Fin. Corp. v. Wash. Ave. Assoc., LP, 159 N.J. 484, 502
(1999) (citing Wassermans, 137 N.J. at 251-52). The issue of
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"whether a stipulated damages clause is enforceable is a question
of law for the court." Wassermans, 137 N.J. at 257.
Here, evaluating the $5000 damages clause as of the time of
the breach, the trial court concluded the clause was an
unenforceable penalty. We agree. Defendants made their final
$3333.33 payment fifteen days past the default date. When they
made this final payment, defendants had not received Jet Star's
motion, and Jet Star's motion had not been filed with the court.
Jet Star accepted the payment. Jet Star does not explain, and we
cannot discern, how under these circumstances $5000 constitutes
just compensation for a fifteen-day late payment of $3333.33. In
short, the $5000 is unreasonable and hence an unenforceable
penalty.
Affirmed.
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