Opinion
DOCKET NO. A-2402-14T2
12-08-2016
HARTZ MOUNTAIN INDUSTRIES, INC., and 2001 LOWER ROAD CORP., Plaintiffs-Appellants, v. MERCK SHARP & DOHME CORP., f/k/a MERCK & CO., INC., Defendant-Respondent, and NRG MANAGEMENT, L.L.C., and F. DANIEL RYAN, Defendants.
D. Mark Leonard argued the cause for appellants (Horowitz, Rubino & Patton, attorneys; Mr. Leonard, on the brief). Christopher John Stracco argued the cause for respondent (Day Pitney, L.L.P., attorneys; Mr. Stracco and Jennifer Gorga Capone, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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. Before Judges Yannotti, Kennedy, and Gilson. On appeal from Superior Court of New Jersey, Law Division, Union County, Docket No. L-1219-10. D. Mark Leonard argued the cause for appellants (Horowitz, Rubino & Patton, attorneys; Mr. Leonard, on the brief). Christopher John Stracco argued the cause for respondent (Day Pitney, L.L.P., attorneys; Mr. Stracco and Jennifer Gorga Capone, on the brief). PER CURIAM
Plaintiffs Hartz Mountain Industries, Inc. and 2001 Lower Road Corp. (collectively, Hartz) appeal from a final judgment dismissing all their claims against defendants Merck Sharp & Dohme Corp. (Merck), NRG Management, LLC (NRG), and F. Daniel Ryan, a principal of NRG. We affirm because the trial court's findings of fact, which were made after a bench trial, are supported by substantial credible evidence and the trial court's legal conclusions are correct.
I.
The background to this action involves Merck's attempt to negotiate a favorable contract for the supply of natural gas to one of its facilities. The facts were developed at a bench trial, during which the judge heard testimony from eight witnesses and considered numerous documents submitted into evidence.
Merck is a pharmaceutical company and it operates one of its production facilities in Rahway and Linden, New Jersey (the Rahway Facility). The Rahway Facility uses natural gas, which Merck annually spends about $50,000,000 to purchase.
Historically, Merck purchased its natural gas from Elizabethtown Gas Company (ETG). In 2006, ETG informed Merck that it planned to substantially increase the price of the natural gas. Merck, therefore, hired NRG, a consulting company, to help develop strategies to reduce the cost of its natural gas. Merck and NRG devised two related strategies: (1) negotiate rate reductions with ETG, or (2) Merck would build its own pipeline to purchase natural gas from another source. Merck hoped that its potential plan to build its own pipeline would help it negotiate a better long-term deal with ETG. If Merck was not successful in that regard, it would build its own pipeline.
To pursue these dual strategies, Merck needed to obtain the right to construct its own pipeline. Merck's contemplated pipeline would run from an existing intercontinental natural gas pipeline through five properties to Merck's Rahway Facility. Two of the properties were owned by Hartz, and the other three properties were owned by Tanroc Enterprises, LLC (Tanroc), Seigel Associates of NJLP (Seigel), and Turtle & Hughes, Inc. (T&H). With NRG's assistance, Merck approached the owners of the five properties to negotiate options for easements to construct its pipeline.
Initially, Merck proposed options, under which it would pay for the future right to purchase easements. Merck entered into options to purchase easements from Tanroc, Seigel, and T&H.
Merck's negotiation with Hartz took a different course. Beginning in mid-2007, Merck and Hartz spent approximately six months negotiating an easement to build the pipeline. The early discussions involved an option to purchase the easement. In January 2008, however, Merck proposed to purchase the easement itself, rather than an option.
Ultimately, in January 2008, Merck and Hartz entered into a final agreement and deed of easement that were effective on January 31, 2008. In the agreement, Hartz granted to Merck "a right of way and easement (the "Easement") for the construction and operation of an underground natural gas transmission line across and under a portion of [Hartz' properties.]" In the "Terms of Grant," the agreement provided:
Merck shall pay to Owner [Hartz] the sum of Twenty Thousand and 00/100 Dollars ($20,000.00) per year for the Easement (the "Annual Payment"). The first $20,000.00 payment shall be payable on the date the Easement is executed by Owner and delivered to Merck. Thereafter, Merck shall make the Annual Payment of $20,000.00 to Owner, which payments shall be made on or before the anniversary date of the execution of the Easement. The Annual Payment shall be increased on each anniversary date of the execution of the Easement, but not decreased, by the percentage increase in the CPI from the CPI in effect on the date which is one (1) year prior to such anniversary date.
. . . .
In the event that Merck fails to make any Annual Payment for a period of fifteen (15) days after written notice that same is past due, Owner shall have the right, at its
option, to terminate the Easement by giving Merck fifteen (15) days written notice of cancellation. Upon the expiration of said thirty (30) days if Merck has not cured any such default, [Owner] shall have the right to record an agreement terminating the Easement.The deed of easement granted Merck a "permanent, non-exclusive easement" across and under Hartz' properties. Merck made its first payment of $20,000 for the easement in January 2008.
Thereafter, however, Merck and ETG negotiated and entered into a long-term contract for the supply of natural gas to Merck's Rahway Facility. Under that contract, ETG gave Merck substantial reductions on the cost of the transmission of natural gas to the Rahway Facility. Merck estimated that the contract would save it approximately $2,000,000 per year, and approximately $40,000,000 over the twenty-year life of the agreement. Thereafter, the Board of Public Utilities approved the special contract between ETG and Merck.
On January 15, 2009, Merck sent Hartz the second annual payment of $21,620.40 for the easement. The accompanying letter from Merck identified its payment as the second annual payment "extending the term of the Easement for one additional year." Hartz countersigned that letter, and in an internal memo Hartz described the payment as "the fee for an extension of the Easement Agreement for the [Hartz] Property."
In August 2009, Merck decided not to maintain its rights to construct a pipeline. Thus, Merck notified Tanroc, Seigel, and T&H that it would not exercise its options to obtain the easements on their properties. Each of those property owners accepted that decision and termination of the options to purchase the easements on those three properties were recorded.
In September 2009, Merck notified Hartz that it would terminate its easement on Hartz' properties. In providing that notification, Merck noted that it had never exercised its rights under the easement and no work had been done to construct a pipeline. Hartz responded by demanding $650,000 to terminate the "permanent" easement. Thereafter, Merck and Hartz were unable to reach an agreement. Merck took the position that it had the right to terminate the easement without any payment penalty. Hartz, in contrast, asserted that the easement was permanent and it was entitled to perpetual annual payments.
On January 5, 2010, Merck gave Hartz written notice that it was terminating the easement effective immediately. That same day, Merck filed and recorded a release of the easement. Hartz responded by reiterating its position that the easement was "perpetual," that Merck had no unilateral right to terminate the easement, and that Merck needed to continue to make the annual payments.
In March 2010, Hartz filed a complaint against Merck, NRG, and F. Daniel Ryan. Over the next two years, Hartz amended its complaint four times. In its third amended complaint, Hartz proposed to add claims for breach of the implied covenant of good faith and fair dealing against Merck, and for unjust enrichment against all defendants. In an order dated February 24, 2012, the trial court granted Hartz' motion to add the breach of the implied covenant claim, but denied the request to add a claim for unjust enrichment.
The matter was litigated for over four years. During that time, the parties filed numerous motions and Merck filed a counterclaim. In March 2014, the trial court entered a final pretrial order directing that the matter would proceed to trial without a jury to determine (1) whether Merck had the right to terminate or abandon the easement; and (2) whether or not Merck had the right to stop making the annual payments to Hartz under the agreement.
The trial was conducted over ten non-consecutive days between May and July 2014. After considering the testimony and documents submitted into evidence, the trial court rendered a verdict of no cause of action in favor of Merck. The court detailed its findings of fact and conclusions of law in an eighteen-page written opinion filed on November 24, 2014. On December 9, 2014, the trial court entered an order and judgment dismissing with prejudice all of Hartz' claims against Merck. The court also vacated a previous default against NRG and Ryan for failing to appear at trial, and dismissed all of Hartz' claims against NRG and Ryan with prejudice. Finally, the court dismissed with prejudice Merck's counterclaim as moot.
II.
Hartz now appeals the December 9, 2014 judgment and the February 24, 2012 order denying its motion to amend its complaint to add a claim of unjust enrichment. On appeal, Hartz argues that the trial court erred because (1) the easement was perpetual and Merck had no right to terminate the easement under the agreement and deed of easement; (2) Hartz established that Merck had breached its implied covenant of good faith and fair dealing; and (3) Hartz had a valid claim of unjust enrichment. We disagree with all of Hartz' arguments and affirm.
Although Hartz sought to add a claim of unjust enrichment against all defendants, NRG and Ryan did not participate in this appeal. --------
Final determinations of a trial court following a non-jury trial are subject to a limited scope of review. Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011). Accordingly, "we do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice[.]" D'Agostino v. Maldonado, 216 N.J. 168, 182 (2013) (alteration in original) (quoting Seidman, supra, 205 N.J. at 169). "An appellate court should disregard those findings only when a trial court's findings of fact are clearly mistaken." State v. Hubbard, 222 N.J. 249, 262 (2015). The question for the appellate court, therefore, is whether "there is substantial evidence in support of the trial judge's findings and conclusions." Seidman, supra, 205 N.J. at 169 (quoting In re Trust Created By Agreement Dated December 20, 1961, ex rel. Johnson, 194 N.J. 276, 284 (2008)).
"Deference is especially appropriate when the 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." Seidman, supra, 205 N.J. at 169 (quoting Cesare v. Cesare, 154 N.J. 394, 412 (1998)). To the extent that the trial court's decision constitutes a legal determination, that legal decision is entitled to no special deference and is reviewed de novo. D'Agostino, supra, 216 N.J. at 182 (citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)).
1. The Easement and the Right of Termination
Hartz contends that the agreement it signed with Merck and the deed of easement were unambiguous and established that the easement was permanent, Merck had a perpetual obligation to make annual payments for the easement, and Merck had no right to terminate the easement.
An easement is a non-possessory interest in another's possessory estate in land that entitles the easement holder to make use of the other's property. Borough of Princeton v. Bd. of Chosen Freeholders of Mercer, 333 N.J. Super. 310, 324 (App. Div. 2000), aff'd, 169 N.J. 135 (2001). The land benefitting from the easement is known as the dominant tenement, while the land burdened by the easement is known as the servient tenement. State, Comm'r of Transp. v. Dikert, 319 N.J. Super. 310, 316-17 (App. Div.), aff'd, 161 N.J. 150 (1999). An easement may be modified or terminated by an agreement between the parties, or by other actions such as abandonment. See Restatement (Third) of Property: Servitudes § 7.1 comment a (2000). Furthermore, a court can terminate an easement if it becomes impossible as a practical matter to accomplish the purpose for which the easement was created. Citizens Voice Ass'n v. Collings Lake Civic Ass'n, 396 N.J. Super. 432, 446 (App. Div. 2007).
When the language granting an easement is ambiguous or in dispute, "the primary rule of construction is that the intent of the conveyor is normally determined by the language of the conveyance read as an entirety and in light of the surrounding circumstances." Poblette v. Town of Historic Smithville Cmty. Ass'n, Inc., 355 N.J. Super. 55, 63 (App. Div. 2002) (quoting Hammett v. Rosensohn, 26 N.J. 415, 423 (1958)). In determining the parties' intent, "the surrounding circumstances, including the physical conditions and character of the servient tenement, and the requirements of the grantee, play a significant role[.]" Rosen v. Keeler, 411 N.J. Super. 439, 451 (App. Div. 2010) (quoting Khalil v. Motwani, 376 N.J. Super. 496, 503 (App. Div. 2005)). The interpretation should "accord with justice and common sense." Borough of Princeton, supra, 333 N.J. Super. at 325 (quoting Krosnowski v. Krosnowski, 22 N.J. 376, 387 (1956)).
Generally, New Jersey law does not favor perpetual contracts. In re Estate of Miller, 90 N.J. 210, 218 (1982). A court will avoid a construction affirming a right in perpetuity absent a clear manifestation that the parties intended such a perpetual right. Ibid. "Absent an almost overwhelming showing that the parties to a contract intended such a one-sided, unreasonable construction, courts will not construe a contract as providing some perpetual right or option which one side can exercise against the other at any time in the future." Home Props. of N.Y. v. Ocino, 341 N.J. Super. 604, 613 (App. Div. 2001).
Here, the trial court found that Hartz had failed to prove a breach of contract by Merck. In that regard, the trial court found that the agreement and deed of easement were silent as to Merck's right of termination and, therefore, those documents were ambiguous as to Merck's termination right. Thus, the court relied on the testimony of the witnesses and found that Merck believed it had a right to terminate the easement.
The trial court also found that Hartz "failed to prove by a preponderance of the credible evidence that the parties agreed that Merck would pay until the end of time for an easement it had no continuing intention to use." In support of that finding, the court found credible the testimony of the Merck witnesses that they did not believe the agreement required a perpetual payment obligation and that they had not obtained authority for such a perpetual obligation.
We agree with the trial court's conclusion that the agreement and deed of easement are ambiguous as to Merck's right to terminate the easement. Neither document specifically states whether or not Merck had the right to terminate the easement. Given that ambiguity, we turn to the testimony and other evidence before the trial court.
There is ample substantial credible evidence supporting the trial court's findings that Merck believed it had a right to terminate the easement and that Merck had not agreed to a perpetual payment obligation. All of the Merck witnesses testified to those understandings and the trial court found that testimony to be credible. The testimony was also supported by the documents that were exchanged concerning the second annual payment. When Merck sent Hartz the second annual payment for the easement in January of 2009, the letter from Merck identified its payment as "extending the term of the Easement for one additional year." An executive for Hartz countersigned that letter acknowledging that Hartz "agreed" with the letter. The executive for Hartz then sent an internal memo describing the payment as "the fee for an extension of the Easement Agreement for the [Hartz] Property." While we agree with the trial court that these documents are not determinative, they do reflect that Merck believed it could terminate the easement and that Hartz had not definitively negotiated an agreement that provided otherwise.
In short, we agree with the trial court's interpretation of the governing agreement and defer to the trial court's fact findings because they are supported by substantial credible evidence.
2. The Implied Covenant of Good Faith and Fair Dealing
Every contract in this state contains an implied covenant of good faith and fair dealing under which "neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract[.]" Wilson v. Amerada Hess Corp., 168 N.J. 236, 245 (2001) (quoting Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 421 (1997)); see also Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88, 109-10 (2007). To establish a violation of the covenant of good faith and fair dealing, a party must offer proof of a bad motive. Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assoc., 182 N.J. 210, 226 (2005).
"Without bad motive or intention, discretionary decisions that happen to result in economic disadvantage to the other party are of no legal significance." Wilson, supra, 168 N.J. at 251. "Contract law does not require parties to behave altruistically toward each other; it does not proceed on the philosophy that I am my brother's [or sister's] keeper." Ibid. (quoting Original Great Am. Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd., 970 F.2d 273, 280 (7th Cir. 1992)). As a consequence, the implied covenant does not require "either side in negotiations to reveal any and all information that might help the adversary and hurt his or her own client." Brundage v. Estate of Carambio, 195 N.J. 575, 609 (2008).
Here, the trial court found that Merck had not acted in bad faith and, thus, had not violated the implied covenant of good faith and fair dealing. Hartz simply disagrees with that fact finding. The fact finding, however, is supported by ample substantial credible evidence in the record. Thus, we find no basis for disturbing the trial court's fact finding.
3. Unjust Enrichment
The trial court's decision to allow or deny a motion to amend a pleading is subject to an abuse of discretion standard of review. Franklin Medical Assocs. v. Newark Public Schools, 362 N.J. Super. 494, 506 (App. Div. 2003). A trial court does not abuse its discretion if it denies a motion to amend because it "is satisfied that the newly asserted claim is not sustainable as a matter of law[.]" Hansen v. Hansen, 339 N.J. Super. 128, 141 (App. Div. 2001) (citing Interchange State Bank v. Rinaldi, 303 N.J. Super. 239, 256-57 (App. Div. 1997)).
Unjust enrichment requires that a plaintiff prove that the defendant "received a benefit, and that retention of that benefit without payment therefor would be unjust." Assocs. Commercial Corp. v. Wallia, 211 N.J. Super. 231, 243 (App. Div. 1986) (quoting Callano v. Oakwood Park Homes Corp., 91 N.J. Super. 105, 109 (App. Div. 1966)). A plaintiff must show that "it expected remuneration from the defendant at the time it performed or conferred a benefit on defendant and that the failure of remuneration enriched defendant beyond its contractual rights." VRG Corp. v. GKN Realty Corp., 135 N.J. 539, 554 (1994) (citing Assocs. Commercial Corp., supra, 211 N.J. Super. at 244).
Hartz and Merck had been involved in protracted litigation that had gone on for over four years. During that time, the trial court allowed Hartz to amend its complaint four times. In addressing the proposal to amend the complaint for the third time, the trial court permitted Hartz to assert a breach of the implied covenant of good faith and fair dealing claim, but denied its request to add a claim for unjust enrichment. The trial court found that Hartz had failed to plead facts demonstrating that it expected remuneration if Merck negotiated reduced rates with ETG as a result of the easement.
The trial court reasoned that an amendment to include a claim of unjust enrichment would be futile. We find no abuse of discretion in that decision. We note in that regard that Hartz was paid over $41,000 for an easement that was never used. Moreover, Hartz made no showing that it had any justifiable expectation to share in Merck's potential savings from renegotiating its natural gas contact with ETG. Therefore, the court correctly determined that Hartz failed to plead sufficient facts to support a claim of unjust enrichment.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION