NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ."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-3056-23
445 YYH LLC,
Plaintiff-Appellant,
v.
BLUE MOON LOUNGE, LLC, KAMINI SHAH, and HARSH DESAI,
Defendants-Respondents. ____________________________
Submitted May 29, 2025 – Decided June 6, 2025
Before Judges Natali and Vinci.
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-3427-23.
Brach Eichler LLC, attorneys for appellant (Thomas Kamvosoulis and Aladekemi Omoregie, on the briefs).
Micci J. Weiss Law, LLC, attorney for respondents (Micci J. Weiss, on the brief).
PER CURIAM Plaintiff 445 YYH LLC appeals from the April 26, 2024 order dismissing
with prejudice its complaint against defendants Blue Moon Lounge, LLC (Blue
Moon), Kamini Shah, and Harsh Desai for failure to state a claim upon which
relief can be granted pursuant to Rule 4:6-2(e). Because plaintiff's complaint
adequately set forth the fundaments of viable causes of action, we reverse and
remand.
We summarize the facts alleged, giving plaintiff the benefit of every
reasonable inference. See Baskin v. P.C. Richard & Son, LLC, 246 N.J. 157,
171 (2021). In early 2023, the parties began discussions concerning the
formation of a joint venture whereby they would apply for and obtain a license
from the New Jersey Cannabis Regulatory Commission (CRC) to sell
recreational cannabis and related products (the dispensary) in Paterson. Shah
and Desai induced plaintiff to take certain steps on their behalf, including
making initial expenditures on behalf of the joint venture and undertaking the
effort and expense to obtain the required municipal approval for CRC licensure.
To induce plaintiff to take these steps, Shah and Desai made material
misrepresentations to plaintiff that were false, deceptive, and misleading. These
included that defendants would: (1) enter a lease to rent property from plaintiff
from which they would operate the dispensary and make all payments under the
A-3056-23 2 lease; (2) reimburse plaintiff for all expenses it incurred in connection with the
joint venture, including costs associated with seeking municipal approval for the
dispensary; and (3) grant plaintiff a twenty-five percent stake in the business.
Plaintiff took certain steps in reliance on defendants' representations, including
applying for municipal approval and incurring substantial expenses in
furtherance of the joint venture.
On July 7, 2023, plaintiff, as landlord, and Blue Moon, as tenant, entered
into a lease agreement (the Lease) for a premises located at 445 East 16th Street
in Paterson to operate the dispensary. The Lease provides the payment of rent
to plaintiff "shall commence on the first day after the expiration of fourth month
following the [c]ommencement [d]ate."
"Commencement [d]ate means the date on which [Blue Moon] receives
the [m]unicipal [a]pproval." "Municipal [a]pproval means approval from the
applicable government authorities in the City of Paterson . . . to grant [Blue
Moon] the [c]annabis [l]icenses." "Cannabis [l]icenses means any licenses,
permits, certifications, registrations, accreditations, approvals, waivers,
variances[,] and other authorizations issued by any governmental authority to
allow [Blue Moon] to operate a lawful Class 5 cannabis dispensary from the
[p]remises."
A-3056-23 3 The Lease provides Blue Moon is obligated to pay plaintiff rent in the
amount of $40,000 per month beginning on the commencement date. It also
provides Blue Moon shall reimburse plaintiff $60,000 for the municipal
approval application fee and pay a $160,000 security deposit within three days
of the date Blue Moon receives municipal approval.
The Lease contains a "municipal approval contingency" that provides:
Notwithstanding anything to the contrary contained herein, the parties acknowledge and agree that in order for the [c]ommencement [d]ate to commence[, Blue Moon] must obtain the [m]unicipal [a]pproval (the "[m]unicipal [a]pproval [c]ontingency") within two . . . months after the date hereof (the "[m]unicipal [a]pproval [c]ontingency [o]utside [d]ate"). [Blue Moon] agrees to use diligent good faith efforts to obtain the [m]unicipal [a]pproval as soon as reasonably practicable[,] and [Blue Moon] shall promptly submit written evidence to [plaintiff] of the issuance of the [m]unicipal [a]pproval as soon as the [m]unicipal [a]pproval is obtained by [Blue Moon]. If for any reason the [m]unicipal [a]pproval [c]ontingency has not been satisfied by the [m]unicipal [a]pproval [c]ontingency [o]utside [d]ate, then [plaintiff] or [Blue Moon] may terminate this Lease by written notice to the other party, in which event this Lease shall terminate, [plaintiff] promptly shall return to [Blue Moon] the [s]ecurity [d]eposit paid by [Blue Moon] to [plaintiff] under this Lease (if any), and the parties shall thereafter have no further obligations to each other except for those obligations that expressly survive the termination of this Lease. Following satisfaction of the [m]unicipal [a]pproval [c]ontingency, [Blue Moon] shall at all times thereafter during the Term of this Lease maintain
A-3056-23 4 the required [m]unicipal [a]pproval and any other State mandated approvals and licenses in full force and effect. [Blue Moon] shall be obligated to reimburse [plaintiff] for the [m]unicipal [a]pproval [a]pplication [f]ee within three . . . days after [Blue Moon] receives [m]unicipal [a]pproval.
On July 18, 2023, plaintiff obtained the required municipal approval by way of
a resolution for Blue Moon to operate the dispensary at the premises from the
City of Paterson (the Resolution). In relevant part, the Resolution provides:
BE IT RESOLVED BY THE MUNICIPAL COUNCIL OF THE CITY OF PATERSON that to the best of the knowledge of the Council operating a Class 5 Retailer at the said location would violate no local Ordinance if (i) the City Code were to be amended to relax or eliminate the requirement of three hundred . . . foot distance from residences, or (ii) the location were to be moved to comply with the said requirement, or (iii) the nearby residences were to be converted to non-residential use; and
BE IT FURTHER RESOLVED approval would [not] exceed our limit of three . . . retailers; and
BE IT FURTHER RESOLVED, that the Municipal Council accordingly expresses support for the application of Blue Moon . . . to utilize the said location for cannabis retail sales; and
BE IT FURTHER RESOLVED that the said finding of suitability shall not substitute for local planning and zoning approvals, nor shall the said expression of support substitute for a Resolution to authorize a local license, each of which shall be duly considered and independently determined.
A-3056-23 5 STATEMENT OF PURPOSE
This Resolution of Support, which an applicant for State cannabis licensing must submit to the State as part of the licensing process, is adopted in support of the application of Blue Moon . . . to utilize the aforesaid location for cannabis retail sales.
On July 26, the director of the Paterson Office of Economic Development
confirmed "[c]annabis retail facilities are allowed in the I-1 Industrial Districts"
where the premises is located. Specifically, he wrote:
Blue Moon . . . has requested a zoning guidance for [445 East 16th Street]. The commercial site . . . is located in the I-1 Industrial District and thus conforms to allowable zoning. Cannabis retail facilities are allowed in I-1 Industrial Districts as a Conditional Use per § 500-5.38.
Plaintiff "confirmed with the CRC that the Resolution is the required
[m]unicipal [a]pproval to submit to the CRC to obtain the necessary license to
operate a retail cannabis facility." Plaintiff notified defendants it obtained
municipal approval as required by the Lease.
On September 11, defendants purported to terminate the Lease contending
the required municipal approval was not obtained. On December 11, plaintiff
discovered "that in July 2023, Shah and Desai began shopping the cannabis
license to other potential locations in an effort to defraud [p]laintiff and cut
[plaintiff] out of the deal." Plaintiff's claim is based on a letter dated December
A-3056-23 6 8, 2023, addressed to Shah in which Paterson's Department of Economic
Development wrote:
Please accept this letter as confirmation of your notification to the City of Paterson regarding the relocation of your proposed Class 5 Cannabis Retail Dispensary, Blue Moon . . . . As per Blue Moon's notification, address of the dispensary is amended from 445 E[ast] 16th Street to 72 2nd Avenue.
[Paterson] herby makes the aforementioned amendment to Blue Moon's application. This action is consistent with the City of Paterson['s] Resolution Supporting the State Application of Blue Moon . . . to Operate a Class 5 Canabsis Retail Facility . . . .
On December 12, plaintiff filed its complaint in this action asserting
causes of action for: (1) breach of contract; (2) breach of the covenant of good
faith and fair dealing; (3) declaratory judgment that the approval it obtained was
the municipal approval required by the Lease; and (4) fraudulent inducement
against Shah and Desai.
Defendants moved to dismiss for failure to state a claim pursuant to Rule
4:6-2(e). After hearing oral argument, the court entered an order granting the
motion and dismissing plaintiff's complaint with prejudice, supported by a
written opinion. It determined:
While [p]laintiff has provided ample evidence that a retail cannabis facility could be operated at the subject property, no license was ever acquired as was
A-3056-23 7 required by the [L]ease. The July 18, 2023 Resolution explicitly stated that it was not a license. The letter from [the] Director . . . was also not a license but was given as zoning guidance. Thus, based upon the Resolution and the zoning guidance, [d]efendants would have had to get conditional use approval or would have had to move the location of the cannabis retailer to an area that was further from residential property to obtain a license. That did not occur within two months from the [L]ease being signed, therefore [d]efendants had a right . . . to terminate the Lease.
The court did not address plaintiff's causes of action for a declaratory
judgment, breach of the covenant of good faith and fair dealing, or fraudulent
inducement.
On appeal, plaintiff contends the court improperly dismissed its breach of
contract and declaratory judgment claims because it clearly alleged the
necessary elements of those claims. Plaintiff also asserts the question of whether
the Resolution satisfied its obligation to obtain municipal approval under the
Lease presents a factual dispute subject to discovery. It claims the parties have
a "fundamental disagreement over whether [p]laintiff satisfied the [m]unicipal
[a]pproval requirement[]," which "presents a substantial controversy between
the parties that is ripe for declaratory relief."
Plaintiff argues the court misinterpreted the Lease when it found plaintiff
failed to obtain a "license" as required by the Lease. It contends the court
A-3056-23 8 improperly equated obtaining municipal approval with obtaining a cannabis
license. The Lease "expressly recognizes that the requisite [m]unicipal
[a]pproval is obtained from 'the applicable government authorities in the City of
Paterson,'" while a cannabis license can only be obtained from the CRC.
Plaintiff argues "obtaining [m]unicipal [a]pproval is a requisite interim step in
the broader cannabis licensing process." The Lease obligated plaintiff to obtain
municipal approval, not a cannabis license.
"Rule 4:6-2(e) motions to dismiss for failure to state a claim upon which
relief can be granted are reviewed de novo." Baskin, 246 N.J. at 171 (citing
Dimitrakopoulos v. Borrus, Goldin, Foley, Vignuolo, Hyman & Stahl, P.C., 237
N.J. 91, 108 (2019)). In considering a Rule 4:6-2(e) motion, "[a] reviewing
court must examine 'the legal sufficiency of the facts alleged on the face of the
complaint,' giving the plaintiff the benefit of 'every reasonable inference of
fact.'" Ibid. (quoting Dimitrakopoulos, 237 N.J. at 107).
A complaint must be searched "in depth and with liberality to ascertain
whether the fundament of a cause of action may be gleaned even from an obscure
statement of claim, opportunity being given to amend if necessary." Printing
Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989) (quoting Di
Cristofaro v. Laurel Grove Mem'l Park, 43 N.J. Super. 244, 252 (App. Div.
A-3056-23 9 1957)). "At this preliminary stage of the litigation[,] the [c]ourt is not concerned
with the ability of [the] plaintiff[] to prove the allegation[s] contained in the
complaint." Ibid. (citing Somers Constr. Co. v. Bd. of Educ., 198 F. Supp. 732,
734 (D.N.J. 1961)). "Nonetheless, if the complaint states no claim that supports
relief, and discovery will not give rise to such a claim, the action should be
dismissed." Dimitrakopoulos, 237 N.J. at 107.
We are convinced the court improperly granted defendants' motion to
dismiss. Plaintiff alleged a viable cause of action for breach of contract. To
sufficiently plead its breach of contract claim, plaintiff was required to show (1)
"the parties entered into a contract containing certain terms"; (2) "plaintiff[] did
what the contract required [it] to do"; (3) "defendant[] did not do what the
contract required [it] to do"; and (4) "defendant['s] breach, or failure to do what
the contract required, caused a loss to . . . plaintiff[]." Goldfarb v. Solimine,
245 N.J. 326, 338-39 (2021) (quoting Globe Motor Co. v. Igdalev, 225 N.J. 469,
482 (2016)).
Here, plaintiff alleged it satisfied its obligation to obtain municipal
approval as required by the Lease by obtaining the Resolution, and defendant
failed to satisfy its obligations under the Lease causing plaintiff to suffer a loss.
A-3056-23 10 Those allegations are sufficient to survive a motion to dismiss for failure to state
a claim.
Likewise, plaintiff set forth a viable claim for a declaratory judgment.
Pursuant to N.J.S.A. 2A:16-53, the New Jersey Declaratory Judgment Act,
[a] person interested under a . . . written contract . . . whose rights, status[,] or other legal relations are affected by a . . . contract[,] . . . may have determined any question of construction or validity arising under the instrument, . . . and obtain a declaration of rights, status[,] or other legal relations thereunder.
"A declaratory action . . . is proper provided [(1)] there is a justiciable
controversy, [(2)] the party claiming the relief has standing, and [(3)] there are
no adequate or appropriate alternative remedies." Amato v. Twp. of Ocean Sch.
Dist., 480 N.J. Super. 239, 252 (App. Div. 2024) (quoting Lab. Ready Ne., Inc.
v. Dir., Div. of Tax'n, 25 N.J. Tax 607, 612 (2011)). "A court should liberally
construe and administer the [Declaratory Judgment] Act to accomplish this
general purpose." ML Plainsboro Ltd. P'ship v. Twp. of Plainsboro, 316 N.J.
Super. 200, 204 (App. Div. 1998) (citing N.J. Home Builders Ass'n v. Div. on
Civ. Rights, 81 N.J. Super. 243, 251 (Ch. Div. 1963)).
Plaintiff alleged a justiciable controversy over the interpretation and
construction of the Lease. Specifically, whether the Resolution satisfied its
A-3056-23 11 obligation to obtain municipal approval. Those allegations are sufficient to set
forth a viable claim for a declaratory judgment.
We are persuaded the court mistakenly conflated the requirement to obtain
municipal approval with a cannabis license. The New Jersey Cannabis
Regulatory, Enforcement Assistance, and Marketplace Modernization Act
(CREAMMA), N.J.S.A. 24:6I-31 to -56, vests the CRC with "all powers
necessary or proper" to execute its duties, including:
(1) To regulate the purchase, sale, cultivation, production, manufacturing, transportation, and delivery of cannabis or cannabis items . . . ;
(2) To grant, refuse, suspend, revoke, cancel, or take actions otherwise limiting licenses or conditional licenses for the sale . . . . of cannabis items, or other licenses in regard to cannabis items, and to permit, in the [CRC's] discretion, the transfer of a license between persons.
[N.J.S.A. 24:6I-34(b)(1) to (2).]
CREAMMA provides a business intending to sell cannabis must obtain a
cannabis retailer license (CRL) issued by the CRC to operate a premises where
cannabis is sold. N.J.S.A. 24:6I-42. CREAMMA's corresponding regulatory
framework, N.J.A.C. 17:30-1.1 to -8.3, sets forth the documentation a
prospective business must submit to the CRC in their application.
A-3056-23 12 To receive a CRL license, an applicant must submit to the CRC, among
other things:
9. Proof of local support, which shall be demonstrated by a resolution adopted by the municipality's governing body, or where the municipality has no governing body, a written letter of support from the municipality's executive.
[N.J.A.C. 17:30-7.10(b)(9).]
"'Proof of local support' is embodied in a municipal governing body's
resolution." Big Smoke LLC v. Twp. of W. Milford, 478 N.J. Super. 203, 219
(App. Div. 2024) (citing N.J.A.C. 17:30-7.10(b)(7) to (9)).
The court's determination plaintiff failed to satisfy the municipal approval
requirement in the Lease because it did not obtain a "license" was incorrect.
Plaintiff was obligated to obtain municipal approval from Paterson, not a license
from the CRC. In fact, Paterson is not authorized under CREAMMA to issue a
cannabis license.
There is at least a plausible argument, as plaintiff contends, the municipal
approval contemplated by the Lease was limited to "[p]roof of local
support . . . demonstrated by a resolution adopted by the municipality's
governing body" as required by CREAMMA. It was improper, on a motion to
dismiss, for the court to delve into the parties' intent and then determine plaintiff
A-3056-23 13 failed to satisfy its obligations under the Lease despite a genuine dispute over
the interpretation of the terms of the contract.
The court did not address plaintiff's claims for breach of the covenant of
good faith and fair dealing, or fraudulent inducement against Shah and Desai.
To sufficiently plead a fraudulent inducement claim, a plaintiff must
demonstrate: "(1) a material misrepresentation of a presently existing or past
fact; (2) knowledge or belief by the [party asserting fraud] of its falsity; (3) an
intention that the other [party] rely on it; (4) reasonable reliance thereon by the
other [party]; and (5) resulting damages." Gennari v. Weichert Co. Realtors,
148 N.J. 582, 610 (1997) (citing Jewish Ctr. of Sussex Cnty. v. Whale, 86 N.J.
619, 624-25 (1981)). Plaintiff alleged the elements of a viable fraudulent
inducement claim against Shah and Desai.
Defendants' argument plaintiff's fraudulent inducement claim is barred by
the economic loss doctrine is unpersuasive. The economic loss doctrine
prohibits the "recover[y] in tort economic losses to which their entitlement only
flows from a contract." Bracco Diagnostics, Inc. v. Bergen Brunswig Drug Co.,
226 F. Supp. 2d 557, 562 (D.N.J. 2002) (quoting Duquesne Light Co. v.
Westinghouse Elec. Co., 66 F.3d 604, 619 (3d Cir. 1995)). Fraud in the
inducement is fraud that induces another party to enter a contract. Walid v.
A-3056-23 14 Yolanda for Irene Couture, 425 N.J. Super. 171, 186 (App. Div. 2012). The
economic loss doctrine does not apply to fraud in the inducement claims. E.g.,
Bracco Diagnostics, Inc., 226 F. Supp. 2d at 563-64; G&F Graphic Servs., Inc.,
v. Graphic Innovators, Inc., 18 F. Supp. 3d 583, 590-91 (D.N.J. 2014).
The obligation of good faith and fair dealing exists in every contract,
"including those contracts that contain express and unambiguous provisions
permitting either party to terminate the contract without cause." Sons of
Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 421 (1991). The implied covenant
of good faith and fair dealing means 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. at 420 (quoting Palisades Props., Inc. v.
Brunetti, 44 N.J. 117, 130 (1965)).
Here, plaintiff alleges defendants improperly refused to perform and
intentionally, willfully, and maliciously breached their obligations under the
Lease. Plaintiff supports this claim with evidence defendants were
surreptitiously attempting to transfer the municipal approval plaintiff obtained
to another location at the same time they were seeking to terminate the Lease.
Those allegations are sufficient to set forth a viable cause of action.
A-3056-23 15 The court improperly granted defendants' motion to dismiss with
prejudice. On a motion to dismiss, "the [c]ourt is not concerned with the ability
of [the] plaintiff[] to prove the allegation[s]." Printing Mart-Morristown, 116
N.J. at 746. Rather, the test is "whether the fundament of a cause of action may
be gleaned even from an obscure statement of claim." Ibid. Plaintiff plainly
satisfied that standard and is entitled to conduct discovery on its claims.
Reversed and remanded.
A-3056-23 16