Opinion
DOCKET NO. A-2968-14T4
06-17-2016
MILL STREET PARTNERS, LLC, a New Jersey Limited Liability Company, Plaintiff-Appellant, v. COTTON MILL ASSOCIATES, LLC, a New Jersey Limited Liability Company, Defendant-Respondent.
Michael J. Gruccio argued the cause for appellant (Tedesco, Gruccio & Reuss, attorneys; Mr. Gruccio, on the brief). Tracey Goldstein argued the cause for respondent (Feinstein, Raiss, Kelin & Booker, L.L.C., attorneys; Ms. Goldstein and Gary D. Gordon, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Fisher, Espinosa and Rothstadt. On appeal from the Superior Court of New Jersey, Chancery Division, Atlantic County, Docket No. C-71-13. Michael J. Gruccio argued the cause for appellant (Tedesco, Gruccio & Reuss, attorneys; Mr. Gruccio, on the brief). Tracey Goldstein argued the cause for respondent (Feinstein, Raiss, Kelin & Booker, L.L.C., attorneys; Ms. Goldstein and Gary D. Gordon, on the brief). PER CURIAM
Plaintiff Mill Street Partners, LLC (the seller) appeals the dismissal, by way of summary judgment, of its action against defendant Cotton Mill Associates, LLC (the buyer), whose predecessor, in 2006, purchased real estate in Atlantic County from the seller, for a minimum amount of $3,000,000 to be paid at closing. The contract allowed for additional payments to the seller dependent upon how — in the sole discretion of the buyer — the real estate was developed. After years of inactivity on the property, the seller commenced this action, seeking, among other things, an order compelling the buyer to pursue the development of the property.
In considering whether the chancery judge properly entered summary judgment in favor of the buyer, we make the following observations about the parties' contract. First, the contract's "estimated" purchase price was $7,000,000, to be "calculated by multiplying the number of [d]wellings approved for the [p]remises by $32,000." But, because of uncertainties about what might be developed on the property, the contract declared that "the [p]urchase [p]rice shall never be less than" $3,000,000. At closing, the buyer paid $3,017,000, subject to the potential adjustment mentioned above.
Of further relevance is the fact that the contract provided the buyer with discretion about how to develop the property:
[The buyer] agrees to act in a reasonably commercial manner in designing the Project with the understanding that the ultimate
decision as to project density will always be the sole discretion of the [buyer].As can be seen, the contract's language imposes no requirement on the buyer to develop the property, nor does it specify a time frame by which the buyer was required to develop the property, although there is no dispute the seller's right to further payment upon further development "runs with the land" and will continue to bind the buyer or its heirs and assigns. The contract also declares that all the parties' promises, conditions, agreements and understandings are contained in the contract, and there exists no agreement or condition, expressed or implied, other than those contained in the contract.
[Emphasis added.]
In September 2007, a fire at the site "destroyed buildings that were contemplated to be utilized as base structures for the development of some of the condominium units," the real estate bubble burst soon thereafter, and the Atlantic City casino business severely declined; there is no dispute that these circumstances were not within the parties' contemplation when they contracted. Notwithstanding these changed circumstances, the record reveals the buyer expended approximately $1,800,000 in seeking concepts for the development of the property and in studying the feasibility of the property's development. And, in 2010, the buyer applied for the development of 173 dwellings for low to moderate owners but ultimately did not further pursue that application because it felt the project was economically unfeasible. The buyer has since taken no action while incurring approximately $700,000 in carrying costs on the property.
To put the issues in perspective, there is no genuine dispute about the express terms of the parties' contract. The contract called for a minimum contract price, which was paid. And the timing and manner of further development (upon which the seller would potentially obtain further compensation) rested in the sole discretion of the buyer. There is also no dispute there has been no further development that would trigger the buyer's obligation to pay anything further to the seller at the present time.
The question, instead, turns on whether the implied covenant of good faith and fair dealing, which is contained in all New Jersey contracts, Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88, 109 (2007 ); Sons of Thunder v. Borden, Inc., 148 N.J. 396, 420 (1997), has been breached by the buyer's inactivity since 2010. As we observed in Seidenberg v. Summit Bank, 348 N.J. Super. 243, 257 (App. Div. 2002), this implied covenant may apply in three general situations: (1) it may supply terms to a contract that the parties "must have intended . . . because they are necessary to give business efficacy" to the contract, N.J. Bank v. Palladino, 77 N.J. 33, 46 (1978); (2) it may "allow redress for the bad faith performance of an agreement even when the defendant has not breached any express term," Seidenberg, supra, 348 N.J. Super. at 257 (referring to Sons of Thunder, supra, 14 8 N.J. at 424-25); and (3) it may "permit inquiry into a party's exercise of discretion expressly granted by a contract's terms," ibid. (citing Wilson v. Amerada Hess Corp., 168 N.J. 236, 250 (2001)).
This implied covenant cannot be eliminated through a contract's contrary language. Pierce v. Int'l Ins. Co., 671 A.2d 1361, 1366 (Del. Sup. Ct. 1996); see also N.J.S.A. 12A:1-302(b) (prohibiting disclaimer of this implied covenant in contracts governed by the Uniform Commercial Code). Consequently, the contract's disclaimer of any other expressed or implied covenants is of no moment.
In considering whether there is merit to the seller's appeal of the grant of summary judgment, we recognize, as did the chancery judge, that the contract clearly and unambiguously provided the buyer with the sole discretion to control the development of the property, although it also imposed a duty on the buyer to proceed in a "commercially reasonable manner." In light of these unambiguous declarations, the first type of claim that might emanate from the implied covenant of good faith and fair dealing is inapplicable. The parties' summary judgment submissions leave no doubt that the contract contained all those provisions necessary to effectuate their intentions.
In turning to the second and third potential applications of the implied covenant, which seem to converge here, the record presented by the moving and opposing submissions does not present an arguable claim that the buyer has acted in bad faith or abused its discretion in choosing not to go forward with the 2010 application or otherwise proceed with development of the property. In the final analysis,
[t]he guiding principle in the application of the implied covenant of good faith and fair dealing emanates from the fundamental notion that a party to a contract may not unreasonably frustrate its purpose:
[W]here a party alleges frustration of its expectation or fundamental purpose in entering the contract, the question of what interest will be protected by the implied duty answers itself; the plaintiff's interest is internal to the understanding of the parties and good faith requires the defendant not exercise such discretion as it may have under the literal terms of the contract to thwart plaintiff's expectation or purpose.
[Id. at 259 (quoting Emerson Radio Corp. v. Orion Sales, Inc., 80 F. Supp. 2d 307, 314 (D.N.J. 2000), rev'd in part on other grounds, 253 F.3d 159 (3d Cir. 2001)).]
To be sure, the seller's hopes and aspirations of greater compensation have yet to be fulfilled, and it is conceivable that they might not be fulfilled in the foreseeable future. But that is also true of the aspirations of the buyer, which gains nothing from shelving its plans for the development of the property. The buyer's assertions of the present economic unfeasibility of any development of the property were not disputed. In these circumstances, we cannot conclude there is any evidence that the buyer has acted arbitrarily, unreasonably or capriciously in exercising its discretion to hold off on development of the property at this time. Wilson, supra, 168 N.J. at 251. Neither the contract's terms nor the implied covenant of good faith and fair dealing obligated the buyer to proceed with development of the property in these circumstances.
We neither express nor intimate any view of when or if the seller might have a viable, similar cause of action as economic circumstances change going forward. In addition, because, as we have held, the seller's request for judicial intervention into the parties' contractual undertaking is at best premature, we need not decide whether the buyer would be in breach if it developed the property in a manner that would not ostensibly obligate the payment of additional compensation to the seller. --------
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION