Court Opinion

ID: 4586117
Source: CourtListenerOpinion
Date Created: 2020-11-13 15:05:50.596439+00
Date Added: 2024-06-11T08:48:24.596902
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NOT FOR PUBLICATION WITHOUT THE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-1813-18T1

STEVEN BATITSAS, and
DIANE SARAHWATI,

          Plaintiffs-Respondents,

v.

PARK POINT INVESTORS,
LLC,

     Defendant-Appellant.
__________________________

                   Argued July 15, 2020 – Decided November 13, 2020

                   Before Judges Suter and Natali.

                   On appeal from the Superior Court of New Jersey, Law
                   Division, Ocean County, Docket No. L-3156-16.

                   Andrew J. Kelly argued the cause for appellant (The
                   Kelly Firm, PC, attorneys; Andrew J. Kelly, of counsel;
                   Katherine B. Galdieri, on the briefs).

                   Joseph J. Dochney argued the cause for respondents
                   (Joseph J. Dochney, LLC, attorneys; Jeff Thakker, of
                   counsel; Daniel S. Popovitch, on the brief).

PER CURIAM
      Defendant Park Point Investors, LLC, appeals the November 15, 2018

Law Division judgment for $439,626 entered against it in favor of plaintiffs

Steven Batitsas and his spouse, Diane Sarahwati. We affirm the judgment,

concluding defendant breached the duty of loyalty owed to plaintiffs in

connection with their joint venture and breached the duty of good faith and fair

dealing implied in their contract.

                                     I.

      We relate the facts based on the evidence from the bench trial. In 2007,

plaintiffs signed a note for $505,000 and a first mortgage to acquire a

commercial property in the Borough of Palisades Park (the Palisades property).

The next month, plaintiffs signed a note for $675,000 and executed a first

mortgage for another piece of commercial property, this one located in the

Borough of Point Pleasant (the Point Pleasant property).

      In 2010, plaintiffs defaulted on both notes. The lender filed foreclosure

complaints in Bergen and Ocean Counties where the properties are located.

Plaintiffs were not successful in their efforts to refinance or market these

properties as there were several other judgments recorded against the properties.

The original lender transferred the notes and assigned the mortgages while the

foreclosure actions progressed.

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      In 2014, Steven Batitsas (plaintiff) was introduced to Mendy Pollack

through a mutual friend who was a real estate agent. Plaintiff testified that

Pollack told him he had a proposal where "you'll make some money and I'll

make some money." The proposal was that Park Point Investors, LLC

(defendant) would be formed and it was "going to buy [the property] back from

the banks . . . and [plaintiff] would owe them 1.4 [million]." Pollack advised

that plaintiff "could sell the properties or keep the properties, so long as we get

[$]1.4 [million], doesn't matter where you got it from."

      Pollack denied telling plaintiff he could retain the properties. He testified

"[t]he restrictions were that the properties needed to be sold to a bona fide third

party, and any excess above $1.4 million would be [plaintiffs'] . . . . [Plaintiffs]

were not allowed to retain the properties or refinance or anything like that."

Rather, the properties were to be sold in twelve months because defendant had

investors who wanted their money back. The properties were to be sold to

someone other than plaintiffs so that the junior lienholders did not accuse

defendant of collusion.

      Pollack testified that defendant was "a single purpose entity[]" formed for

the purpose of acquiring these properties and selling them. He testified this "was

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the first type of deal we did in this nature." It was "very unique" because it was

made through a mutual friend.

      The parties entered into a Forbearance and Settlement Agreement

(Forbearance Agreement) on September 3, 2014.           Under the Forbearance

Agreement, defendant agreed to "forebear from proceeding with the

commencement of a commercial collection action against [plaintiffs] in the

Superior Court of New Jersey, Law Division (the 'Forbearance Period')." During

this period, defendant would foreclose on the properties "on an uncontested

basis." The agreement contemplated that defendant would gain title to the

properties and the deeds through a sheriff's sale. Plaintiffs agreed to sign

individual guaranties. They also agreed to provide defendant with a first

mortgage in the amount of $300,000 on a property they owned in Florida.

      Under the Forbearance Agreement, plaintiffs agreed to pay defendant

$9500 per month as a "monthly interest payment," which was to be applied by

defendant to the interest accrued on the loans, but not to the principal amount.

Plaintiffs could retain "any additional income or rents generated by the

[p]roperties in excess of $9,500 per month after covering taxes, insurance,

maintenance and repairs to the [p]roperties and other carrying costs."

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      The parties agreed that plaintiffs could manage the properties. Once

defendant obtained title "through the delivery and recording of [s]heriff's

[d]eeds for the [p]roperties," plaintiffs had the option to have a separate

management agreement with defendant.           Relevant here, the Forbearance

Agreement provided:

             [u]nder the proposed [m]anagement [a]greement,
             [plaintiffs], as managers of the [p]roperties, would have
             a period of twelve (12) months from the date of the
             sheriff sale in which [defendant] acquires title to the
             [p]roperties (the "[m]anagement [p]eriod"), to list,
             market and close on the sale of both [p]roperties in an
             amount that generates [t]otal [n]et [s]ale [p]roceeds (as
             defined herein) of $1,400,000 payable to [defendant].

      Defendant also agreed that if the total amount from the sales exceeded

$1,400,000 "that any excess sale proceeds above $1,400,000 shall be paid to and

belong solely to the [plaintiffs]."    Defendant could approve or reject the

plaintiffs' proposed listing prices. If plaintiffs did not close on the properties

and pay defendant $1.4 million, "by the end of the [m]anagement [p]eriod, the

[m]anagement [a]greement shall automatically terminate and [defendant] shall

have no further obligations to the [plaintiffs] . . . ." Plaintiffs would no longer

manage the properties "and shall no longer be entitled to any proceeds of the

sale of the [p]roperties."

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      The parties never entered into a written management agreement although

it was not disputed that they managed the properties based on an oral agreement.

Pollack testified that under the oral agreement, plaintiffs were to collect the rents

and sell the properties in twelve months.

      Defendant acquired the note and mortgage for the Point Pleasant property

in October 2014 and for the Palisades property in November 2014. Defendant

foreclosed on the Palisades property on January 30, 2015, and obtained the

sheriff's deed on February 9, 2015, which was recorded on March 10, 2015.

Defendant foreclosed on the Point Pleasant property on March 24, 2015, and

obtained the sheriff's deed on April 6, 2015, which was recorded on May 11,

2015. The record does not disclose the amount defendant paid to acquire the

mortgages.

      The Point Pleasant property was sold within five months, closing on

October 15, 2015, and netting $1,179,000 for defendant. This left an amount

due to defendant under the Forbearance Agreement of $221,000, which was the

difference between the net proceeds from this sale and $1.4 million.

      The Palisades property was listed by plaintiffs for $1.2 million but did not

sell during 2015. Pollack testified that he discussed with plaintiff that the

deadline to sell the Palisades property was January 30, 2016. On January 19,

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2016, defendant's attorney advised plaintiffs that their option to sell the

Palisades property would expire on January 30, 2016 because "[t]he [twelve]

month management period began to run from the date of the [s]heriff's [s]ale of

the Palisades Park property on January 30, 2015 . . . ." Counsel advised that

after January 30, 2015, it would "be entitled to assume full management of the

Palisades Park property and keep all of the rental proceeds with no distribution

to you."

      Counsel for plaintiffs responded on January 25, 2016, that his "client is

aware that his rights under the Forbearance . . . Agreement expire on [January

30, 2016]." He asked that plaintiffs have a twenty-five-day extension of the

deadline because the sale of their bagel business would close on February 16,

2016, and it could then "pay off the balance due to Park Point." Plaintiffs

suggested that a friend might have the money to buy the property. Pollack

testified that he denied making any offer to plaintiffs to extend the January 30,

2016 deadline because of the other investors.

      Defendant terminated the Forbearance Agreement on February 3, 2016

and requested information about the tenants in order to take over management

of the property. On April 7, 2016, counsel for plaintiffs advised that they were

in a position to redeem the properties. As an alternative, they offered to "turn

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over" another property "in exchange for" a release of the Palisades property.

Counsel argued the Forbearance Agreement did not expire until May 11, 2015,

because that was when the sheriff's deed for the Point Pleasant property was

recorded. He told defendant that plaintiffs wanted a credit because the $9500

per month payment should have been reduced after the Point Pleasant property

was sold. Counsel for defendant disputed the deadline and demanded plaintiffs

turn over any security deposit from the tenant at the Palisades property.

      Defendant sold the Palisades property in July 2016 for $700,000, netting

$660,626.26.    Therefore, defendant was paid $1,839,626.26 for the two

properties ($1,179,000 plus $660,626.26), which was $439,626.26 more than the

$1.4 million set forth in the Forbearance Agreement.

      In September 2016, plaintiffs filed an order to show cause and verified

complaint against defendant. As subsequently amended, the first count alleged

a breach of the Forbearance Agreement by its early termination. Count Two

asked to compel an accounting for the proceeds from the sale of the Point

Pleasant property and the monthly payments of $9500.               Count Three

characterized the Forbearance Agreement as an equitable mortgage and alleged

that defendant deprived plaintiffs of their right to redemption. Count Four

requested a release of the security provided by their Florida property.

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      Defendant's Answer included a three-count counterclaim seeking a

declaratory judgment that plaintiffs violated the Security Deposit Act, N.J.S.A.

46:8-19 to -26 (Count One); a judgment ordering plaintiffs to turn over the

security deposit (Count Two); and a judgment that plaintiffs were liable for

conversion (Count Three).

      A bench trial was conducted. The trial court entered a judgment on

November 15, 2018 in favor of plaintiffs against defendant for $439,626 plus

interest but deducted the amount of the security deposit that was disputed.

      In its written decision, the trial court found "incredulous" the claim that

other creditors might claim collusion if plaintiffs could purchase the Palisades

property because no one disputed that the junior lien holders had been paid by

the sale of plaintiffs' bagel business. The trial court concluded the transaction

between the parties was a joint venture. The court found that the payment of

$1.4 million and the monthly interest payments "was the objective of

[d]efendant[] as its share of joining with [p]laintiffs."

      The trial court found defendant violated its duty of loyalty to plaintiffs.

"Defendant's actions were clearly intended to allow the joint venture to fail so

that [d]efendant could then take the full profits of the sale of the properties and

leave [p]laintiff[s] with nothing." Pollack acknowledged he did not advise

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plaintiffs to lower the asking price for the Palisades property. This was not in

the best interest of the joint venture. Defendant would not accept payment of

$220,000 from plaintiffs. The court rejected defendant's argument about its

investors, finding it to be "pretextual." Had defendant accepted a payment from

plaintiffs, the building still could have been sold by plaintiffs at arms-length to

a third party, the investors would have been paid on time and plaintiffs could

have achieved their "expected benefit" of selling the property and keeping the

profits. The court found defendant would not have been prejudiced by an

extension.

      The trial court also found that defendant breached the implied covenant

of good faith and fair dealing implied in every contract. The intent of the parties

was for defendant to receive $1.4 million upon the sale of the properties and for

plaintiffs to obtain clear title and additional profits, if any.      By refusing

plaintiffs' suggestions to carry out the intent of the contract, defendant violated

the duty of good faith and fair dealing.

      The court found plaintiffs substantially performed under the contract.

Defendant received a significant portion of the $1.4 million, had other collateral

and was being paid interest. Defendant could have lowered the offering price

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for a quicker sale. There would have been little or no risk if defendant permitted

an extension of time.

      The court found defendant never proved that plaintiffs were paid an

additional $60,000 on the Palisades property. The court addressed the security

deposit claim by ordering its deduction from the judgment awarded to plaintiffs.

      The trial court found an ambiguity in the Forbearance Agreement

regarding commencement of the twelve month time frame, which it then

construed against defendant as the drafter, finding the "[one] year time period

should [not] have run until April 6, 2016 or at least March 24, 2016" and that

defendant prematurely terminated the contract.       The language was at best

confusing entitling plaintiffs to additional time.

      On appeal, defendant argues that the trial court erred by finding defendant

breached the implied covenant of good faith and fair dealing because it failed to

find defendant had a bad faith motive and the trial court improperly added other

terms to the Forbearance Agreement. Defendant argues that the court erred by

finding there was a joint venture or fiduciary relationship between the parties.

                                      II.

      We afford a deferential standard of review to the factual findings of the

trial court on appeal from a bench trial. Rova Farms Resort, Inc. v. Inv'rs Ins.

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Co., 65 N.J. 474, 483-84 (1974). These findings will not be disturbed unless

they are "so manifestly unsupported by or inconsistent with the competent,

relevant and reasonably credible evidence as to offend the interests of justice."
Id. at 484 (quoting Fagliarone v. Twp. of N. Bergen, 78 N.J. Super. 154, 155

(App. Div. 1963)). We discern no basis based on our review of the record to

disturb the court's fact finding.

      Our review of a trial court's legal determinations is plenary. D'Agostino

v. Maldonado, 216 N.J. 168, 182 (2013) (citing Manalapan Realty, L.P. v. Twp.

Comm. of Manalapan, 140 N.J. 366, 378 (1995)). We review de novo whether

the facts satisfy the applicable legal standard for a joint venture.

      "[A] joint adventure is an undertaking usually in a single instance to

engage in a transaction of profit where the parties agree to share profits and

losses." Wittner v. Metzger, 72 N.J. Super. 438, 444 (App. Div. 1962) (quoting

Kurth v. Maier, 133 N.J. Eq. 388, 391 (E. & A. 1943)). It generally "refers to a

particular kind of partnership—one for a limited purpose or for a limited

duration . . . ." Fliegel v. Sheeran, 272 N.J. Super. 519, 524 (App. Div. 1994).

"[A] common element is a fiduciary relationship." Wittner, 72 N.J. Super. at

444. Whether a joint venture is created "depends upon [the parties'] intention in

accordance with the ordinary rules governing the interpretation and construction

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of contracts." Id. at 445 (citing 2 Williston on Contracts § 318A (3d. ed. 1959)).

It is "the voluntary agreement of the parties to form a relationship with the intent

to create a joint venture." Sullivan v. Jefferson, Jefferson & Vaida, 167 N.J.

Super. 282, 290 (App. Div. 1979).

      A joint venture includes "some or all" of these elements: 1) a contribution

by the parties of money, property, effort, knowledge, skill or other assets to a

common undertaking; 2) a joint property interest in the subject matter of the

venture; 3) a right of mutual control or management of the enterprise; 4) an

expectation of profit; 5) the right to participate in profits; and 6) limitation of

the objective to a single undertaking. Wittner, 72 N.J. Super at 444 (citing

Williston, § 318A, at pp. 563-565).

      The record shows that the elements of a joint venture were present. The

contract contemplated a contribution from both parties. Defendant paid to

purchase the defaulted mortgages.       Plaintiffs posted additional security by

mortgaging its property in Florida and signing personal guarantees. They also

agreed not to contest the foreclosure action once defendant purchased the

defaulted mortgages, allowing their property to be foreclosed. Then, as the

undertaking unfolded, defendant gained ownership of the commercial

properties, but plaintiffs managed them and collected rents, keeping what

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exceeded $9500 per month. "A joint adventurer may entrust actual control of

the operation to his coadventurer and it still remains a joint venture." Wittner,
72 N.J. Super. at 446.

      Plaintiffs' understanding was that they would retain the net proceeds from

the sales which exceeded $1.4 million. Both parties had control over aspects of

the venture. Defendant could have adjusted the sale price had it chosen to do

so. Plaintiffs managed the properties that defendant owned.

      There was an expectation of profits for both parties. Plaintiff testified that

Pollack proposed this as a venture where "you'll make some money and I'll make

some money."       Defendant purchased the defaulted mortgages with the

expectation of a profit if the $1.4 million was paid. Plaintiffs had an expectation

of profit if the properties sold for more than $1.4 million. Both parties stood to

lose if the properties could not be sold for substantial amounts. The venture was

a single undertaking.    Defendant was formed for the sole purpose of this

undertaking.

      Parties in a joint venture owe each other a fiduciary duty. Silverstein v.

Last, 156 N.J. Super. 145, 152 (App. Div. 1978). They are liable for the harm

stemming from a breach of that duty. F.G. v. MacDonell, 150 N.J. 550, 564

(1997).

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      We agree with the trial court that defendant breached this duty. The goal

of paying defendant $1.4 million was nearly reached once plaintiffs sold the

Point Pleasant property. Plaintiffs offered defendant various alternatives to pay

the remaining $221,000. Plaintiffs also asked for an extension of time on the

deadline. Defendant rejected this, terminating the contract at its earliest possible

date. Although defendant claimed this was based on the need to repay its

investors, the trial court's analysis—we think correct—concluded that the

investors could have been satisfied. This would not have precluded a third-party

sale or payment of the investors while preserving plaintiffs' ability to benefit

from the sale. The record supported that defendant chose to protect its interests

and those of its investors to the detriment of plaintiffs. Therefore, the breach of

duty was established.

      Every contract includes the implied covenant of good faith and fair

dealing. Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001) (citing Sons

of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 420 (1997)). A party breaches

this covenant when it "exercises its discretionary authority arbitrarily,

unreasonably, or capriciously, with the objective of preventing the other party

from receiving its reasonably expected fruits under the contract." Id. at 251.

"Bad motive or intention is essential . . . ." Ibid.

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      Defendant argues the trial court did not find defendant had a bad faith

motive. However, the trial court found defendant never lowered the asking price

for the Palisades property even though it had information the asking price was

too high. It did not consider an extension of time for plaintiffs. In fact,

defendant chose to terminate the contract on the earlier date—January 30—

arguing that was when the twelve months commenced, even though the language

of the contract was ambiguous and could have allowed for later commencement

dates. These findings by the trial court were supported by the record and

satisfied the requirement of bad faith necessary for a finding that the duty of

good faith and fair dealing was violated.

      After carefully reviewing the record and the applicable legal principles,

we conclude that defendant's further arguments are without sufficient merit to

warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

      Affirmed.

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