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Business Litigation - Real Estate Transactions - Enforcement of Lease - Award of Attorney Fees

Civil Action No. 09-02792 (SRC)
CHESLER, District Judge
This matter comes before the Court on motion for summary judgment by Defendant
Banco do Brasil, S.A. (“Banco”) [docket entry 57] pursuant to Federal Rule of Civil Procedure
56(a). Banco also seeks to recover attorneys’ fees. Plaintiffs have opposed the motion. The
Court has opted to rule based on the papers submitted and without oral argument, pursuant to
Federal Rule of Civil Procedure 78. For the reasons expressed below, the Court grants Banco’s
motion for summary judgment and grants Banco’s motion for attorneys’ fees.
On June 27, 2008, Armur Realty, LLC (“Armur”) and Banco entered into a retail lease
agreement for rentable space located at 158-160 Ferry Street, Newark, New Jersey (“Premises”).
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agreed upon by both Armur and Banco, for Banco’s use as a tenant on the ground floor.
According to the lease, Armur was to deliver the Premises to Banco by December 1, 2008
(“Delivery Date”). Additionally, the lease provides that Banco would receive one free day of rent
for every day Armur delayed delivery past the Delivery Date for a period of up to thirty days. If
Armur still did not deliver the Premises to Banco within thirty days of the Delivery Date, Banco
would thereafter receive an additional two free days of rent for every one day of delay. The lease
also stipulates that Banco “shall have the right, starting on March 1, 2009 (the “Outside Delivery
Date”), to terminate the lease and [Armur] and [Banco] shall have no further obligations to each
other arising from th[e] lease.” (Lease Agreement ¶ 1.5, June 27, 2008.)
By letter dated April 15, 2009, Banco terminated the lease agreement. Armur had not
delivered the Premises to Banco by that time. Thereafter, on June 8, 2009, Plaintiffs filed a
Complaint, alleging Banco improperly ended the lease, resulting in a breach of contract.
Defendant Banco moves for summary judgment and for attorneys’ fees.
A. Standard of Review
Summary judgment is appropriate under FED. R. CIV. P. 56(a) when the moving party
demonstrates that there is no genuine issue of material fact and the evidence establishes the
moving party’s entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S.
317, 322-23 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for
the non-movant, and it is material if, under the substantive law, it would affect the outcome of
the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “In considering a motion
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for summary judgment, a district court may not make credibility determinations or engage in any
weighing of the evidence; instead, the non-moving party’s evidence ‘is to be believed and all
justifiable inferences are to be drawn in his favor.’” Marino v. Indus. Crating Co., 358 F.3d 241,
247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).
“When the moving party has the burden of proof at trial, that party must show
affirmatively the absence of a genuine issue of material fact: it must show that, on all the
essential elements of its case on which it bears the burden of proof at trial, no reasonable jury
could find for the non-moving party.” In re Bressman, 327 F.3d 229, 238 (3d Cir. 2003)
(quoting United States v. Four Parcels of Real Property, 941 F.2d 1428, 1438 (11th Cir. 1991)).
“[W]ith respect to an issue on which the nonmoving party bears the burden of proof . . . the
burden on the moving party may be discharged by ‘showing’ – that is, pointing out to the district
court – that there is an absence of evidence to support the nonmoving party’s case.” Celotex, 477
U.S. at 325.
Once the moving party has satisfied its initial burden, the party opposing the motion must
establish that a genuine issue as to a material fact exists. Jersey Cent. Power & Light Co. v.
Lacey Township, 772 F.2d 1103, 1109 (3d Cir. 1985). The party opposing the motion for
summary judgment cannot rest on mere allegations and instead must present actual evidence that
creates a genuine issue as to a material fact for trial. Anderson, 477 U.S. at 248; Siegel Transfer,
Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1130-31 (3d Cir. 1995). “[U]nsupported allegations .
. . and pleadings are insufficient to repel summary judgment.” Schoch v. First Fid.
Bancorporation, 912 F.2d 654, 657 (3d Cir. 1990). “A nonmoving party has created a genuine
issue of material fact if it has provided sufficient evidence to allow a jury to find in its favor at
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trial.” Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 138 (3d Cir. 2001).
If the nonmoving party has failed “to make a showing sufficient to establish the existence
of an element essential to that party’s case, and on which that party will bear the burden of proof
at trial, . . . there can be ‘no genuine issue of material fact,’ since a complete failure of proof
concerning an essential element of the nonmoving party’s case necessarily renders all other facts
immaterial.” Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992) (quoting Celotex,
477 U.S. at 322-23).
B. Motion for Summary Judgment
Defendant Banco moves for summary judgment, contending that it properly exercised its
right to terminate the lease as set forth by the plain, unambiguous terms of the agreement. Banco
argues that, because the Premises were not delivered by the Outside Delivery Date, it acted in
accordance with the contract when it sent written notice of the lease cancellation on April 15,
New Jersey substantive law governs the question of contract interpretation in this matter.
See Mayfair Supermarkets, Inc. v. Acme Mkts., Inc., No. 87-3994, 1989 U.S. Dist. LEXIS 3466,
at **18-19 (D.N.J. Apr. 3, 1969) (“New Jersey law construes lease agreements under the same
guidelines employed to interpret contracts.”) In New Jersey, “[t]he construction of the terms of a
written lease is a matter of law for the courts.” Barclays Bank P.C. v. 865 Centennial Ave.
Assocs. Ltd. P’Ship,, 26 F. Supp. 2d 712, 718 (D.N.J. 1998). It is well-settled law that “where
the terms of the contract are clear and unambiguous there is no room for interpretation or
construction and the courts must enforce those terms as written.” In re Cendant Corp. Sec.
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Litig., 569 F. Supp. 2d 440, 443 (D.N.J. 2008). Indeed, “[t]he law will not make a better contract
for parties than they themselves have seen fit to enter into, or alter it for the benefit of one party
and to the detriment of another. The judicial function of a court of law is to enforce the contract
as it is written.” Gahney v. State Farm Ins. Co., 56 F. Supp. 2d 491, 495 (D.N.J. 1999).
Banco’s right to end the lease upon Armur’s’s failure to deliver the Premises by March 1,
2009, is set forth in the lease agreement in clear terms. Specifically, Section 4.2 states: “[i]f for
any reason the Delivery Date does not occur on or before the Outside Delivery Date, [Banco]
may thereafter, at any time before the Delivery Date occurs, elect to terminate this Lease
effective upon the giving of written notice to [Armur] and the parties shall have no further
obligations to one another.” (Lease Agreement at ¶ 4.2.) (Emphasis added). Armur expressly
granted Banco an unconditional right to discontinue the lease if Armur failed to meets its
delivery obligations. Armur and Banco, both sophisticated parties, were represented by counsel
of their choice during the negotiation and execution of the lease and included numerous
provisions to induce Armur to deliver the Premises in a timely manner. As of April 15, 2009,
Armur had failed to deliver the Premises and Banco exercised the right to terminate that had been
discussed and incorporated into the contract.
Plaintiffs do not dispute that Banco could end the lease if the Premises was not delivered
by March 1, 2009; that the Premises was not delivered by April 15, 2009; and that Banco duly
served a termination notice in the manner specified in the lease. (Pls.’ Opp’n Br. 2-3, Jan. 26,
2011.) Instead, in their opposition, Plaintiffs allege that Banco should be precluded from
terminating the contract because of: (1) Banco’s bad faith conduct; (2) Armur’s substantial
performance of its contractual obligations; and (3) unforeseen circumstances that warrant an
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extension of time for delivery. However, none of these arguments succeed.
1. Bad Faith
Plaintiffs allege that Banco breached the implied covenant of good faith when it “caus[ed]
delays by giving inconsistent plans,” preventing Armur from being able to deliver the Premises
by the promised date. (Pls.’ Opp’n Br. at 7.) The parties do not dispute the facts relating to this
claim. Defendant simply contends that its actions do not support a breach of the covenant of
good faith and fair dealing as a matter of law.
Every contract in New Jersey contains an implied covenant of good faith and fair dealing.
Black Horse Lane Assoc., L.P. v. Dow Chem. Corp., 228 F.3d 275, 288 (3d Cir. 2000). “The
implied covenant is an independent duty and may be breached even where there is no breach of
the contract’s express terms.” Emerson Radio Corp. v. Orion Sales, Inc., 80 F. Supp. 2d 307,
311 (D.N.J. 2000). The covenant requires that “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.” Id. (“[t]he Restatement and the [New Jersey] cases note a state of mind or malice-like
element to breach of good faith and fair dealing, holding that the duty excludes activity that is
unfair, not decent or reasonable, nor dishonest.”) “The implied duty of good faith and fair
dealing does not operate to alter the clear terms of an agreement and may not be invoked to
preclude a party from exercising its express rights under such an agreement.” Fleming Cos., Inc.
v. Thriftway Medford Lakes, Inc., 913 F. Supp. 837, 846 (D.N.J. 1995). So, where the terms of a
contract are not specific, the implied covenant of good faith and fair dealing may fill in the gaps
where necessary to give efficacy to the contract as written. Fields v. Thompson Printing Co., 363
F.3d 259, 272 (3d Cir. 2004). But where the terms of the parties’ contract are clear, the implied
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covenant of good faith and fair dealing will not override the contract’s express language. Id.
Plaintiffs contend that Banco’s delay of construction substantially interfered with
Armur’s ability to perform its contractual obligations, thereby violating the implied covenant of
good faith and fair dealing. (Pls.’ Opp’n Br. at 7.) However, the express terms of the lease state
that its termination is permissible if the Premises are not delivered “for any reason.” Armur
explicitly granted Banco an unconditional right to end the lease if Armur failed to meets its
delivery obligations. We cannot read the implied covenant of good faith and fair dealing to
essentially alter the express terms of the contract. Because Armur did not include a proviso that
would give it relief from delivery for architectural disputes, unforeseen mishaps, accidents or
significant errors by Banco, we will not read that language into the lease. Thus, Plaintiffs cannot
assert this implied duty as a means of preventing Banco from exercising its clear right to
terminate under the lease agreement.
2. Substantial Performance
Plaintiffs additionally claim that Armur had substantially completed its work on the
Premises by the March 1, 2009 deadline, foreclosing Banco from being able to terminate the
contract. (Pls.’ Opp’n Br. at 9.) While it is true that a party may be deemed to have substantially
performed its contractual obligations, “even though he has failed in some minor particulars,”
Defendant has met its burden at summary judgment by pointing to the absence of evidence to
support Plaintiffs’ claim. In response, Plaintiffs make conclusory statements that Armur
substantially completed the construction work by March 1, 2009 but neglect to point to a scintilla
of evidence to support their proposition. Plaintiffs fail to point to anything in the record that
would substantiate Armur’s near-completion of the construction work or compliance with the
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lease’s delivery requirements. See R. Krevolin & Co., Inc. v. Brown, 89 A.2d 255, 258 (N.J.
Super. Ct. App. Div. 1952). In contrast, in their opposition brief, Plaintiffs admit that the shell
was not ready for delivery on March 16, 2009 but “could have been readied to be occupied
within a reasonable time [thereafter].” (Pls.’ Opp’n Br. at 5.) Accordingly, Plaintiffs’
unsupported contention is insufficient to defeat a motion for summary judgment.
3. Impossibility of Performance
Lastly, Plaintiffs contend that it was impossible for Armur to deliver the Premises by
December 1, 2009 due to the unforeseen circumstances of “[a]sbestos contamination” and “[the]
collapse of a wall of an adjacent building,” justifying an extension of the delivery date. (Pls.’
Opp’n Br. at 5.) There is no dispute about any material fact here. The question before the Court
is whether these facts support a claim for impossibility of performance as a matter of law.
New Jersey courts recognize the contract doctrine of impossibility of performance as a
defense to breach of contract claims. Warren Distrib. Co. v. InBev USA LLC, No. 07-1053, 2010
U.S. Dist. LEXIS 55542, at *20 (D.N.J. June 7, 2010); Levesque v. Becton, No. 08-632, 2009
U.S. Dist. LEXIS 7895, at *8-9 (D.N.J. Feb. 4, 2009) (citing 30 Richard A. Lord, Williston on
Contracts § 77:6 (4th ed.)) (“[i]n a contract action, impossibility or impracticability of
performing a contract should be raised as an affirmative defense in the first responsive
pleading”). Impossibility of performance of a contract is “[t]he principle that a party may be
released from a contract on the ground that uncontrollable circumstances have rendered
performance impossible.” Black’s Law Dictionary 772 (8th ed. 2004). As such, even if the
Court is to hold that it was impossible for Armur to deliver the Premises by the Outside Delivery
Date, Plaintiffs would be released from the contract, not granted an extension of time to meet its
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construction and delivery obligations.
Furthermore, impossibility of performance only offers relief from the performance of
contractual obligations where: (1) the impossibility arises by operation of law; (2) a thing
necessary to perform is destroyed; or (3) the contract calls for personal services, and the party to
perform or receive performance dies. J. Fitzpatrick & Co., Inc. v. Solna, Inc., No. 89-2668, 1990
U.S. Dist. LEXIS 17571, at *5-6 (D.N.J. Dec. 6, 1990); Edwards v. Leopoldi, 89 A.2d 264, 269
(N.J. Super. Ct. App. Div. 1952). Plaintiffs have failed to demonstrate the applicability of this
doctrine to this case.
In addition, “this [C]ourt may not invoke the doctrine to provide relief against hardship
arising from bad judgment, miscalculation or from a change in circumstances or the result of
subsequent events, where these should have been in the contemplation of the parties as possible
contingencies when they entered the contract.” J. Fitzpatrick, 990 U.S. Dist. LEXIS 17571 at *6.
In the lease agreement, Armur made an affirmative representation that the Premises was free
from asbestos, that Armur would be responsible for any asbestos removal needed, and that Banco
would be “harmless from and against any loss, cost, liability or damage relating to [asbestos] on
or in the building.” (Lease Agreement at ¶ 8(ix).) Therefore, Plaintiffs can not invoke the
impossibility doctrine to provide relief where the presence of asbestos had clearly been
contemplated by the parties and Armur assumed responsibility for its removal in the contract.
Plaintiffs also allege that Armur was prevented from working on the Premises for approximately
two months due to the collapse of a wall of an adjacent building. (Pls.’ Compl.¶ 50, 57, June 8,
2009.) However, Plaintiffs fail to offer any argument or evidence as to how a mere eight-week
construction delay made it impossible to deliver the Premises within the nineteen weeks past the
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Delivery Date that it had remained undelivered. As such, Plaintiffs cannot prevail on their
impossibility of performance claim as a matter of law.
Therefore, Plaintiffs have failed to carry their summary judgment burden, as the
nonmovant with the burden of proof at trial, of pointing to sufficient evidence for a jury to find in
their favor at trial. No issue as to any material fact precludes the entry of judgment as a matter of
law. As such, Defendant’s motion for summary judgment will be granted.
C. Attorneys’ Fees
Having found that Defendant is entitled to summary judgment, the Court will also grant
Defendant’s application for attorneys’ fees. Banco bases its application on the lease agreement
which provides that: “[i]f either party brings an action to enforce the terms hereof or declare
rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to his
reasonable attorneys’ fees to be paid by the losing party as fixed by the court.” (Lease
Agreement at ¶ 24.10.) Plaintiffs brought this action to declare their rights under the lease.
Banco has proven, consistent with the foregoing discussion, that it adhered to the terms of the
agreement and did not breach the contract. Therefore, the Court will accept a supplemental
submission from Defendant, in accordance with Local Civil Rule 54.2, supporting its application
for fees.
For the foregoing reasons, the Court will grant Defendant’s motion for summary
judgment. In addition, having determined that Defendant is entitled to an award of attorneys’
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fees, the Court will accept an application for attorneys’ fees, properly supported by documents
demonstrating fees incurred defending the suit. An appropriate form of Order will be filed.
s/Stanley R. Chesler
United States District Judge
DATED: April 5, 2011