News & Noteworthy

Authored - NJ Contract Law Update - Must-Read Real-Estate Cases Involving Contract-Substitute Claims
JANUARY 24, 2014 | Windels Marx - Commercial Litigation

Fourteen Florence Street Corporation v. Armenia Coffee Corp., ___ N.J.Super. __, 2013 WL 3466540 (App.Div. July 11, 2013), is a weighty and informative Opinion arising in a real estate context, which should be studied from various perspectives. Most pertinently for this series of Articles, Fourteen Florence is illuminating as to the following "contract-substitute" claims, as referenced in prior articles in this series1:

  1. Fraudulent conveyance, including transfers with fraudulent intent even if there is an argument that the 'balance sheet' was not violated.
  2. Successor company liability.
  3. Alter ego liability.
  4. Insiders' alleged preference of their own interests over those of creditors, in the face of insolvency.
  5. Fiduciary duty, even to creditors.
  6. Civil conspiracy.
  7. Punitive damages.
  8. Recoverability of attorney's fees in same or related litigation.

Interestingly, however, the Court refused to allow consideration of an unsigned lease to calculate damages.

The main practice pointers to be derived from Fourteen Florence are: (1) landlords faced with traditional rent arrearages, or more complex arrangements (involving real estate development, business transactions, and the like) that have defaulted, should consider all avenues, including contract-substitute claims, in addition to the more obvious lease remedies; and (2) in order to be able to identify issues, the practitioner's analysis of a set of facts should include contemporaneous reference to informative cases such as Fourteen Florence.

There are, however, limits to the exposure that third parties may have on leasehold obligations. In Magna Fabrics, Inc. v. New York Art & Shipping, LLC, 2013 N.J.Super. Unpub.LEXIS 2016 (App.Div. August 8, 2013), the Appellate Division reversed a finding that an individual party had orally guaranteed a lease; and also reversed (for a new trial) a finding that an alter ego relationship existed between the tenant and that individual. The facts of the case are complex; but it is sufficient to note that an oral guarantee will require special factual findings; and that alter ego liability may require personal involvement in specified misconduct, if the Magna Fabrics test is correct.

Both Fourteen Florence and Magna Fabrics should be consulted when faced with a significant rent arrearage or the like.

Contact & Legal Disclaimer

Clark Alpert is the author of Guide to New Jersey Contract Law, published by the New Jersey Institute for Continuing Legal Education and now in its third edition. His updates on New Jersey contract law are based on recent issues and practical methods for addressing similar situations in your practice or business. They are not intended to serve as legal advice. Clark welcomes your questions and comments.

1 Many of which are commonly referred to as "business torts".

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