JET STAR REALTY, LLC VS. FRESH FOOD DIRECT, LLC (L-1306-16, BERGEN COUNTY AND STATEWIDE)

• Court: New Jersey Superior Court Appellate Division
• Decided: July 11, 2018
• Docket: A-4392-16T1
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court."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-4392-16T1

JET STAR REALTY, LLC,

Plaintiff-Appellant,

v.

FRESH FOOD DIRECT, LLC and JUNE POWERS,

Defendants-Respondents. _________________________________

Submitted February 14, 2018 – Decided July 11, 2018

Before Judges Nugent and Currier.

On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L- 1306-16.

Waldman, Renda & McKinney, PA, attorneys for appellant (Thomas A. McKinney, on the brief).

Meyner & Landis LLP, attorneys for respondents (Matthew P. Dolan, on the brief).

PER CURIAM

Plaintiff, Jet Star Realty, LLC, appeals from an order that

denied its motion to enter judgment on a settlement agreement

arising out of a dispute over rent due under a commercial lease. The trial court denied Jet Star's motion because Jet Star sought

to enforce a clause the trial court deemed an unenforceable

penalty. We affirm.

Defendant June Powers is the managing member of defendant

Fresh Fruit Direct, LLC, Jet Star's former tenant. After Fresh

Food terminated the commercial lease before its term's end, the

parties disputed the amount of rent Fresh Food owed Jet Star under

the lease terms. Jet Star filed suit against defendants. The

parties resolved their dispute, signed a Stipulation of

Settlement, and filed a Stipulation of Dismissal.

The Stipulation of Settlement required defendants to pay Jet

Star $20,000 in six monthly installments of $3333.33, due the

first of each month beginning November 2016. The Stipulation of

Settlement included a provision that if any installment payment

was not received by the fifth business day of the month it was

due, Jet Star's attorneys were required to notify defendants they

were in default. If defendants did not cure within ten days after

the default notice was sent, Jet Star would have the right to

enter a judgment. The provision stated:

In the event that [defendants] do not cure the default within ten (10) days after the required notice is sent by [Jet Star's attorneys, Jet Star] shall have the right to file a certification, on notice to [defendants' attorneys], setting forth the default . . . the amount paid to date and the

2 A-4392-16T1 balance due under this Agreement and shall be entitled to a [j]udgment against [defendants] in the sum of $25,000 less credit for any payments made.

Defendants' final installment payment was due April 1, 2017.

In a letter dated April 11, 2017, Jet Star's attorneys wrote

defendants' attorneys informing defendants they were in default.

Counsel for Jet Star followed up with an email on April 18, 2017,

and a second email April 26, 2017. In the latter email, Jet Star's

counsel wrote, "[w]ill payment be made or should I start the

default proceedings?"

Defendants made the final payment on Friday, May 5, 2017.

According to the trial court's opinion, defendants filed the motion

to enter judgment on the settlement three days later, Monday, May

8, 2017. According to Jet Star, it prepared a motion for entry

of judgment on Thursday, May 4, 2017, and mailed it to defendants

the same day. Defendants averred they made the final payment

before receiving Jet Star's motion. The trial court denied Jet

Star's motion to have judgment entered in the amount of the final

payment plus $5000. The court explained:

[I]t is undisputed that all payments under the [s]ettlement agreement were made and received and accepted by [Jet Star]. In fact, it is undisputed that the last payment made on May 5, 2017 was submitted prior to the filing of the within motion. The final payment satisfied [d]efendant's obligations under the [s]ettlement agreement.

3 A-4392-16T1 The court further determined that the entire settlement

having been paid, the additional $5000 was excessive, contrary to

the interests of justice, and an inappropriate penalty. The court

concluded that imposing an additional $5000 penalty after the

settlement had been paid in full would be inequitable.

On appeal, Jet Star argues it is entitled to enforce the

settlement agreement. Defendants contend the trial court

correctly refused to enforce what amounted to an unenforceable

penalty. We agree.

Indisputably, "[a]n agreement to settle a lawsuit is a

contract which, like all contracts, may be freely entered into and

which a court, absent a demonstration of 'fraud or compelling

circumstances,' should honor and enforce as it does other

contracts." Pascarella v. Bruck, 190 N.J. Super. 118, 124-25

(App. Div. 1983) (quoting Honeywell v. Bubb, 130 N.J. Super. 130,

136 (App. Div. 1974)). While contractual provisions for liquidated

damages are enforceable, penalty clauses are unenforceable.

Wasserman's, Inc. v. Middletown, 137 N.J. 238, 248 (1994).

Liquidated damages are those "a party . . . agrees to pay if

he breaks some promise, and which, having been arrived at by a

good faith effort to estimate in advance the actual damage that

will probably ensue from the breach, [are] legally recoverable as

agreed damages if the breach occurs." Westmount County Club v.

4 A-4392-16T1 Kameny, 82 N.J. Super. 200, 205 (App. Div. 1964) (citation

omitted). In contrast, "[a] penalty is the sum a party agrees to

pay in the event of a breach, but which is fixed, not as a pre-

estimate of probable actual damages, but as a punishment, the

threat of which is designed to prevent the breach." Ibid.

"[L]iquidated damages provisions in a commercial contract between

sophisticated parties are presumptively reasonable and the party

challenging the clause bears the burden of proving

unreasonableness." Metlife Capital Fin. Corp. v. Wash. Ave.

Assoc., LP, 159 N.J. 484, 502 (1999) (citing Wassermans, 137 N.J.

at 251-52).

The distinction between an enforceable liquidated damage

clause and an unenforceable penalty clause is not always clear.

"New Jersey courts have viewed enforceability of stipulated

damages clauses as depending on whether the set amount 'is a

reasonable forecast of just compensation for the harm that is

caused by the breach' and whether that harm 'is incapable or very

difficult of accurate estimate.'" Wassermans, 137 N.J. at 250

(quoting Westmount Country Club, 82 N.J. Super. at 206). "The

reasonableness of a stipulated damages clause can be assessed "at

the time the contract is made or when it is breached." Metlife

Capital Fin. Corp. v. Wash. Ave. Assoc., LP, 159 N.J. 484, 502

(1999) (citing Wassermans, 137 N.J. at 251-52). The issue of

5 A-4392-16T1 "whether a stipulated damages clause is enforceable is a question

of law for the court." Wassermans, 137 N.J. at 257.

Here, evaluating the $5000 damages clause as of the time of

the breach, the trial court concluded the clause was an

unenforceable penalty. We agree. Defendants made their final

$3333.33 payment fifteen days past the default date. When they

made this final payment, defendants had not received Jet Star's

motion, and Jet Star's motion had not been filed with the court.

Jet Star accepted the payment. Jet Star does not explain, and we

cannot discern, how under these circumstances $5000 constitutes

just compensation for a fifteen-day late payment of $3333.33. In

short, the $5000 is unreasonable and hence an unenforceable

penalty.

Affirmed.

6 A-4392-16T1