Court Opinion

ID: 7802393
Source: CourtListenerOpinion
Date Created: 2022-08-22 14:08:32.913133+00
Date Added: 2024-06-11T16:29:27.634340
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE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-1840-20

APERION ENTERPRISES, INC.,

           Plaintiff-Appellant,

v.

GOTHAM BEVERAGE, INC.,
GEORGE MATTHEWS,
HARAMBOS TSOTSOS,
HELEN MATTHEWS,
JOANNE MATTHEWS and
STEVEN MATTHEWS,

     Defendants-Respondents.
___________________________

                    Submitted January 20, 2022 – Decided August 22, 2022

                    Before Judges Haas and Mitterhoff.

                    On appeal from the Superior Court of New Jersey, Law
                    Division, Bergen County, Docket No. L-5307-19.

                    O'Brien Thornton LLC, attorneys for appellant (Merrill
                    M. O'Brien, on the briefs).

                    The Levine Law Firm, LLC, attorneys for respondents
                    (Kenneth T. Gallo, on the brief).
PER CURIAM

      In this commercial landlord-tenant dispute, plaintiff Aperion Enterprises,

Inc. appeals a February 2, 2021 judgment of the Law Division dismissing its

claims for underpayment of rent under a lease agreement with defendant Gotham

Beverage, Inc.    The judgment also dismissed defendant's counterclaim for

overpayments of rent. We conclude the judge impermissibly modified the terms

of the contract between the parties and thereby deprived plaintiff of rent to which

it was entitled under the clear rent escalation provision in the lease.

Accordingly, we reverse.

      Aperion owns and leases the land and building located at 39-10 Broadway,

Fair Lawn, N.J. (the property). On March 27, 1998, plaintiff entered into a

thirty-five-year lease with non-party Quo Non Ascendet, Inc. (QNA).                In

consideration of QNA's $2,000,000 capital investment spent constructing a diner

on the premises, plaintiff agreed to a below-market rent for the first fifteen years

of the lease term, with a fixed monthly rent subject to a $150 per month rent

increase each year for the first fifteen years. These terms are explicitly set forth

in Lease Rider ONE B and are not in dispute. Lease Rider ONE C provided that

in the fifteenth year of the lease, the parties would work to agree upon a new

base rent, representing the fair market value, to be effective in the sixteenth year.

                                                                              A-1840-20
                                         2
      On November 13, 2007, defendant assumed the lease. During the fifteenth

year of the lease – April 1, 2012 to March 31, 2013 – the parties could not agree,

as provided for in the lease and rider, on which appraisers would assess fair

market rent.   The parties therefore agreed to submit the issue to binding

arbitration through the American Arbitration Association (AAA). The sole issue

submitted to AAA for resolution was the fair market rental value of the demised

premises in March 2013. In a May 31, 2017 award, the arbitrator determined

that "[t]he fair market value of the first floor of the Premises as of March 2013

is $25.50 [per square foot] (PSF) for 5146 square feet[,]" and "[t]he fair market

value of the basement of the Premises as of March 2013 is $9.00 PSF for 3339

square feet." Based on the arbitrator's calculations, the March 2013 fair market

annual rent for the property was $161,274. Defendant's pre-arbitration annual

rent was $82,200.

      Arbitration took four years to complete. During that time, defendant

continued to pay below-market rent over plaintiff's objection.         After the

arbitration award, plaintiff sent defendant a calculation of the underpayment ,

which he reached by applying cumulative yearly increases to the base rent

starting in 2013. Defendant paid the requested amount with funds that cleared

on June 23, 2017.      Thereafter, defendant continued to pay, and plaintiff

                                                                            A-1840-20
                                        3
continued to accept, rent based on the calculations used to determine

underpayment for the years 2014-2017.

      When calculating the rent increase that was scheduled to begin April 1,

2019, plaintiff realized it had made an alleged mistake in the retroactive

calculation of the additional rent owed for 2014-2017.          On May 2, 2019,

plaintiff's counsel sent a letter informing defendant of the mistake and seeking

an additional $41,217. Defendant disputed plaintiff's application of the rent

escalation formula in Lease Rider ONE D, and refused to pay the additional rent.

      On July 18, 2018, plaintiff filed a two-count complaint. Count one alleged

a breach of the lease by failure to pay the full amount of rent due under its terms.

Count two alleged that the failure to pay the rent also breached the five personal

guarantees of the rent and that the guarantors each breached the guarantees by

failing to provide a certification that the guaranty was unmodified and in full

force and effect.1

1
   The trial judge did not address whether there was a breach of the personal
guarantees. As defendants noted, however, a condition precedent for a breach
of the guarantees was not shown, and thus the claims could not succeed as a
matter of law. Specifically, each guarantee stated:

            Guarantor agrees that it will, at any time and from time
            to time, within five (5) days following written request
            by Landlord and without charge therefor, execute,

                                                                              A-1840-20
                                         4
      On August 26, 2019, defendant and defendant-guarantors filed an answer

and three-count counterclaim alleging breach of the lease (count one), breach of

the lease's covenant of good faith and fair dealing (count two), and equitable

fraud (count three). As part of its counterclaim, defendant sought return of

$1,969.21 it claims to have overpaid in retroactive rent for 2014-2018.2

      A February 8, 2021 bench trial occurred via Zoom and consisted of the

testimony of two witnesses. The first witness was George Konstantinitis, the

President of Aperion, who testified for the plaintiff, and the second was George

Matthews, the President and co-founder of Gotham, who testified for defendant.

            acknowledge and deliver to Landlord a statement
            certifying that this Guaranty is unmodified and in full
            force and effect (or if there have been modifications,
            that the same is in full force and effect as modified and
            stating such modification). Guarantor agrees that such
            certificates may be relied upon by anyone holding or
            proposing to acquire any interest in the building (of
            which the demised premises is a part) from or through
            Landlord or by any mortgagee or prospective
            mortgagee of said building or any interest therein.

Because plaintiff produced no evidence it made the required written request, we
conclude the breach-of-guarantee claim must fail notwithstanding the trial
court's silence on the issue.
2
 Defendant did not file a cross-appeal of the dismissal of its counterclaims and
we deem the issues waived.
                                                                           A-1840-20
                                       5
      In his testimony, Konstantinitis explained that Lease Rider ONE D, the

primary subject of this appeal, provides that the base rent for each year

beginning in 2014 and concluding in 2022 would be calculated using the

Consumer Price Index 3 (CPI) for New York and Northeastern New Jersey for

"urban wage earners and clerical workers." Specifically, Lease Rider ONE D

provides:

            D. The rent thereafter [after February 28, 2014] shall
            be computed, for years 2014 through 2022, by
            multiplying that base rent by a factor determined by
            comparing the [CPI] for New York – Northeastern New
            Jersey as published by the U.S. Department of Labor,
            Bureau of Labor Statistics (BLS) for urban wage
            earners and clerical workers, or if not available, any
            similar statistical cost of living study customarily
            utilized to determine the [CPI] shall be used, as noted
            in F. below, utilizing that index for January of the pre-
            increase year, with January of the year of increase and
            converting that factor to a percentage, said percentage
            to be multiplied by a new base rent, and the resultant to
            be the increase for the then current year, commencing
            March 1, 2014 and, in the same manner, annually
            through the [twenty-fifth] year of the term. The rent so
            computed shall not be less than the monthly rent for the
            prior year, nor more than an increase of four percent
            (4%) over the prior year's rent.

3
   The Consumer Price Index is a measure of the average change over time in
the prices paid by urban consumers for a market basket of consumer goods and
services. Indexes are available for the U.S. and various geographic areas.
Average price data for select utility, automotive fuel, and food items are also
available. Consumer Price Index, U.S. BUREAU OF LABOR STATISTICS,
https://www.bls.gov/cpi/.
                                                                         A-1840-20
                                       6
             [i.e.] If the rent for the year 2013 to 2014 is $6850, and
             the CPI for January 2012 is 156.3, and the[] CPI for
             January 2013 is 158.2, the difference of 1.9 shall be
             deemed as a percentage, and the prior year's rent ($6850
             x 12 = $82,200) shall be multiplied by 1.9% (=$1561.80
             ÷ 12 = 130.15) so that the monthly rent commencing on
             March 1, 2014 will[] be $6980.15 per month, through
             February 28, 2015.

             The same computation shall be made annually, through
             the [twenty-fifth] year of the term, to arrive at a
             monthly rent.

      Simply put, the CPI for January of the pre-increase year is deducted from

the CPI for the then current year, commencing March 1, 2014 and the resulting

difference is deemed the percentage rent increase for that year, capped at four

percent. Although it is unclear precisely how plaintiff misapplied the formula,

no one seriously disputes that he did not apply the plain language of the lease. 4

4
  Defendant's theory at trial was that the lease formula was not the "standard in
the industry." It preferred a "sample" formula provided online by the (BLS) in
response to a frequently asked question. Defendant's "preference," however, is
not evidence that the method agreed to in the lease is illegal or otherwise
prohibited, nor was any competent evidence presented that the BLS suggestion
is, in fact, standard in rent escalation contracts. To the contrary, the posting itself
notes it merely provides factors to consider in developing an escalation contract,
many or most of which were considered in the subject lease. Further, the agency
posting states it "can neither develop certain wording for contracts, nor mediate
legal or interpretive disputes" that arise between parties to an escalation
contract.
                                                                                A-1840-20
                                          7
      At the conclusion of the bench trial, the judge delivered an oral opinion

finding that plaintiff calculated the underpayment of the rent based initially on

the March 2013 fair market value and then "offered" that rate to defendant,

which was accepted. The judge reasoned that plaintiff's claim that it made a

mistake

            is of no moment because of the fact that the landlord
            themselves knew that there was . . . a rent dispute.
            Submitted it to arbitration. And then, pursuant to that
            arbitration award, calculated what the rent should be.
            Offered that rent to the tenant. And the tenant accepted
            that . . . from the landlord as the proper formulation for
            CPI increases.

                   That is the undisputed testimony. The concept
            that they could now relate back to a lease that this
            tenant had signed when there, in fact, was a new offer
            and acceptance made by the landlord which the tenant
            accepted based on a CPI formula which seems clear and
            certain, and which is, in fact, what the tenant still says
            should be the formula that is in place, is uncontradicted
            as to being what the parties had agreed to. That was the
            meeting of the minds that occurred after the Triple A
            arbitration.

                   And the CPI relationship to the rent increases
            again seems to be what was offered by the landlord and
            accepted by the tenant, and is still being maintained by
            the tenant as the proper calculation. And the tenant has
            put forth D-6 which the Court finds again coincides
            with the landlord's calculation.

                 Now, again, back to offer and acceptance, while
            D-6 may show a little bit less than what the landlord

                                                                           A-1840-20
                                        8
            promulgated, that is what the tenant agreed would be
            the new rent. . . . The landlord, therefore, has not
            proved that there has been a breach of the lease, and is,
            therefore, not entitled to legal fees nor any rent
            increases, other than what is promulgated under the
            appropriate CPI increase that he offered and that the
            defendant accepted.

      On February 22, 2021, the judge entered final judgment and dismissed the

plaintiff's claims and the defendant's counterclaims in full with prejudice. The

judge also ordered "that all past rent increases from March 1, 2014 to present

and all future rent increases, other than base rent increases pursuant to Section

[ONE] E of the Rider to Lease, shall be made in accordance with the standard

CPI escalation calculation" subject to the four-percent cap provided in the lease.

      On appeal, plaintiff presents the following arguments for our

consideration:

            POINT I

            THIS COURT SHOULD REVERSE THE COURT
            BELOW AND ENFORCE THE LEASE AS WRITTEN
            BECAUSE THE TRIAL COURT'S CONCLUSION
            THAT THE PARTIES ENTERED INTO A NEW
            AGREEMENT          IS    NOT     SUPPORTED         BY
            SUBSTANTIAL EVIDENCE. (No party raised the
            issue that they had signed or agreed to a new lease or
            lease modification. The Court below introduced it sua
            sponte . . . .).

                  A.    The June 1, 2017 Calculation               of
                  Underpayment Was Not An Offer.

                                                                            A-1840-20
                                        9
      B. There Was No Rent Dispute After Landlord
      Sent The First Mistaken Increase Calculation
      And Before Landlord Sent the Corrected
      Calculation.

      C. The Defendant's Counterclaim Disproves
      There Was a Meeting Of the Minds.

      D. There Was No Consideration To Support The
      Purported New Agreement.

POINT II

THIS COURT SHOULD REVERSE THE LOWER
COURT AND ENFORCE THE LEASE AS WRITTEN
BECAUSE THE LOWER COURT'S SUA SPONTE
INSERTION OF AN OFFER AND ACCEPTANCE
VIOLATED DUE PROCESS BECAUSE NO PARTY
EVEN PLEADED OR OTHERWISE CLAIMED THE
EXISTENCE OF A NEW AGREEMENT. (No party
raised the issue that they had signed or agreed to a new
lease or a lease modification. The Court below
introduced it sua sponte . . . .).

POINT III

THE COURT BELOW COMITTED REVERSIBLE
ERROR BECAUSE THE STATUTE OF FRAUDS
RENDERS UNENFORCEABLE A MOIFICATION
OF A LEASE FOR LONGER THAN THREE YEARS
WHERE THE MODIFICATION IS NOT IN A
SIGNED WRITING. (No party raised the issue that
they had signed or agreed to a lease modification. The
Court below introduced it sua sponte . . . .).

                                                           A-1840-20
                          10
POINT IV

THE COURT BELOW COMMITTED REVERSIBLE
ERROR BY NOT ENFORCING THE LEASE AS
WRITTEN. (The Court below acknowledged the
annual rent increase method which is included in the
Lease Rider Section D, Ex. JE1, but failed to enforce it
. . . .).

      A. The Rational Meaning Of The Actual Lease
      Rider ONE D Formula Is To Determine The
      Annual Percentage Rent Increase By Subtracting
      The CPI Number Of Two Successive Januarys
      And To Attach The Percentage Sign To That
      Resulting Difference So As To Provide The
      Landlord With Above-Market Rent Increases For
      Lease Years [sixteen to thirty five].

      B. This Court Should Reverse The Lower Court
      And Enforce The Lease As Written Because The
      Trial Court's Modification Of The Lease Does
      Not Identify Which Month's CPI Is To Determine
      Annual Increases And Because The Calculation
      Methods "Presented At Trial" Were Not
      Sufficiently Clear to Comply with the Statute of
      Frauds.

POINT V

THE TRIAL COURT ERRED BY OMITTING A
REQUIREMENT     IN  THE  FINAL   ORDER
ENFORCING     THE   GUARANTEE    WHICH
REQUIRES THE GUARANTORS TO DELIVER A
SIGNED    REPRESENTATION    THAT   THE
GUARANTEES REMAIN IN EFFECT AND
INSTEAD SIMPLY TRUSTING DEFENDANTS TO
PROVIDE     THE    LEGALLY    REQUIRED
DOCUMENT.

                                                           A-1840-20
                          11
            POINT VI

            THE TRIAL COURT ERRED BY DENYING AN
            AWARD OF ATTORNEY'S FEES TO APERION,
            WHICH SHOULD BE REVERSED AND THE
            MATTER REMANDED TO THE TRIAL COURT
            FOR AN AWARD OF REASONABLE ATTORNEY'S
            FEES AND COSTS TO APERION PURSUANT TO
            [RULE] 4:42-9.

      Appellate review of a judge's decision following a bench trial is limited.

Our standard of review requires that we uphold the trial judge's factual findings,

provided they are "supported by adequate, substantial and credible evidence."

Rova Farms Resort, Inc. v. Invs. Ins. Co. of Am., 65 N.J. 474, 484 (1974). Thus,

"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[.]" Seidman v. Clifton Sav. Bank, S.L.A., 205

N.J. 150, 169 (2011) (alteration in original) (quoting In re Tr. Created By

Agreement Dated Dec. 20, 1961, 194 N.J. 276, 284 (2008)). "A trial court'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.

Comm. of Manalapan, 140 N.J. 366, 378 (1995). When construing contract

terms, "unless the meaning is both unclear and dependent on conflicting

                                                                            A-1840-20
                                       12
testimony," its interpretation is a matter of law subject to de novo review.

Celanese Ltd. v. Essex Cnty. Improvement Auth., 404 N.J. Super. 514, 528

(App. Div. 2009) (quoting Bosshard v. Hackensack Univ. Med. Ctr., 345 N.J.

Super. 78, 92 (App. Div. 2001)).

      "The polestar of contract construction is to discover the intention of the

parties as revealed by the language used by them." Karl's Sales & Serv., Inc. v.

Gimbel Bros., 249 N.J. Super. 487, 492 (App. Div. 1991). Courts "should not

torture the language of [contracts] to create ambiguity." Nester v. O'Donnell,

301 N.J. Super. 198, 210 (App. Div. 1997) (quoting Stiefel v. Bayly, Martin &

Fay, Inc., 242 N.J. Super. 643, 651 (App. Div. 1990)). Courts may not re-write

a contract or grant a better deal than that for which the parties expressly

bargained. See Solondz v. Kornmehl, 317 N.J. Super. 16, 21 (App. Div. 1998).

      With these guiding principles in mind, we conclude that the judge erred

in determining that there was a new offer and acceptance between the parties at

the conclusion of arbitration which had the effect of altering the rent escalation

formula.5 At the time the parties resorted to arbitration, the sole dispute was the

fair market rental of the property in March 2013. The arbitrator was not charged

5
  It is not clear that the issue of whether there was a new offer and acceptance
or modification was properly before the judge. Neither party raised the issue
directly in the pleadings or before the judge, who raised the issue sua sponte.
                                                                             A-1840-20
                                       13
with determining the rent escalation formula, which was clearly spelled out in

the lease.

      Once the parties completed arbitration, plaintiff sent defendant a

calculation of the amount of rent underpaid for the period of 2014-2017 which

defendant proceeded to pay. Against the backdrop of defendant's preexisting

obligation to pay rent established in the lease, the parties would have had to

modify the contract at this juncture to implement a new rent escalation formula.

"A proposed modification by one party to a contract must be accepted by the

other to constitute mutual assent to modify" and it "must be based upon new or

additional consideration." Cnty. of Morris v. Fauver, 153 N.J. 80, 100 (1998).

"Such modification can be proved by an explicit agreement to modify , or, . . .

by the actions and conduct of the parties, so long as the intention to modify is

mutual and clear." Id. at 99. Additionally, "[u]nilateral statements or actions

made after an agreement has been reached or added to a completed agreement

clearly do not serve to modify the original terms of a contract, especially where

the other party does not have knowledge of the changes, because knowledge and

assent are essential to an effective modification." Id. at 100. We discern nothing

in the record that suggests the parties were consciously modifying the lease in a

                                                                            A-1840-20
                                       14
manner that made their intention to modify mutual and clear. We further

observe that there was no additional consideration to support a modification.

      Next, in the absence of a properly modified contract, the fact that plaintiff

accepted less rent than it was entitled to under the lease is not evidence of an

intention to modify. See id. at 101 (citing favorably the conclusion of the court

in Walker v. Associated Dry Goods Corp., 231 Md. 168, 180 (1963), that "mere

acceptance by [a plaintiff] for several years of payments in less amounts than

they were entitled to under the lease does not evidence an intention on their part

to modify the terms of the lease."). Additionally, lease paragraph twenty-two

states: "[t]he various rights, . . . of the Landlord, expressed herein, are

cumulative, and the failure of the Landlord to enforce strict performance by the

Tenant of the . . . covenants of this lease, . . . shall not be construed or deemed

to be a waiver . . . by the Landlord of any such conditions and covenants . . . ."

As a result, by the clear terms of the parties' agreement, plaintiff is entitled to

collect the rent plaintiff is owed, regardless of plaintiff's past performance.

      Finally, because defendant owes plaintiff rent under the lease, plaintiff

may be entitled to attorney's fees. Lease Rider Article Twelve provides that the

costs and attorneys' fees incurred in this action will be paid by the losing party.

                                                                             A-1840-20
                                       15
The judge short-circuited an analysis of fees by improperly concluding that there

had not been a breach of the lease.

      To the extent we have not addressed them, any remaining contentions

raised by the parties lack sufficient merit to warrant discussion in a written

opinion. See R. 2:11-3(e)(2).

      Reversed and remanded for entry of judgment in plaintiff's favor in

accordance with the terms of the lease, and for a determination of attorney's fees.

We do not retain jurisdiction.

                                                                             A-1840-20
                                       16