539 Absecon v. Shan Enterprises

• Decision Date: 26 March 2009
• Docket Number: DOCKET NO. A-2250-06T1.
• Citation: 406 N.J. Super. 242,967 A.2d 845
• Parties: 539 ABSECON BOULEVARD, L.L.C., a New Jersey Limited Liability Company, and Bhudev Sharma, Plaintiffs-Respondents/Cross-Appellants, v. SHAN ENTERPRISES LIMITED PARTNERSHIP, a New Jersey Limited Partnership; Suniti Corp., a New Jersey Corporation; Shan Realty Associates, L.P., a New Jersey Limited Partnership; Shan Realty Corp., a New Jersey Corporation; Sunil J. Shah; Nimesh Shah; Swati Shah; Jashvant Shah; and HJS Funding, L.L.C., a New Jersey Limited Liability Company, Defendants-Appellants/Cross-Respondents.
• Court: New Jersey Superior Court

967 A.2d 845

406 N.J. Super. 242

539 ABSECON BOULEVARD, L.L.C., a New Jersey Limited Liability Company, and Bhudev Sharma, Plaintiffs-Respondents/Cross-Appellants, v. SHAN ENTERPRISES LIMITED PARTNERSHIP, a New Jersey Limited Partnership; Suniti Corp., a New Jersey Corporation; Shan Realty Associates, L.P., a New Jersey Limited Partnership; Shan Realty Corp., a New Jersey Corporation; Sunil J. Shah; Nimesh Shah; Swati Shah; Jashvant Shah; and HJS Funding, L.L.C., a New Jersey Limited Liability Company, Defendants-Appellants/Cross-Respondents.

DOCKET NO. A-2250-06T1.

Superior Court of New Jersey, Appellate Division.

Argued January 5, 2009.

Decided March 26, 2009.

William J. Hughes, Jr., Atlantic City, argued the cause for appellants/cross-respondents (Cooper Levenson April Niedelman & Wagenheim, P.A., attorneys; Mr. Hughes, of counsel; Howard E. Drucks, on the brief).

Andrew J. Kyreakakis, Bloomfield, argued the cause for respondents/cross-appellants.

Before Judges R.B. COLEMAN, SABATINO and SIMONELLI.

The opinion of the court was delivered by

SABATINO, J.A.D.

After a non-jury trial, the Chancery Division ruled that defendants violated the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -106 (the "CFA" or "the Act") in their sale to plaintiffs of a motel in Absecon and certain related land. The court awarded plaintiffs treble damages and counsel fees under the CFA, but rejected their separate common-law claims. The court also granted defendants' counterclaims against plaintiffs on certain promissory notes relating to the transaction.

Defendants appeal the adverse judgment under the CFA, and plaintiffs cross-appeal the court's ruling on the promissory notes. Both parties appeal the court's computation of damages.

We reverse the judgment in favor of plaintiffs because we conclude, as a matter of law, that the CFA does not apply to this sale of an ongoing business. We also sustain the dismissal of plaintiffs' common-law claims and reject their cross-appeal concerning the promissory notes.

I.

This litigation was brought in the Chancery Division by plaintiffs, 539 Absecon Boulevard, L.L.C. ("plaintiff" in the singular or "the LLC"), and Bhudev Sharma, against defendants Shan Enterprises Limited Partnership ("Shan Enterprises"), Suniti Corp., Shan Realty Associates, L.P. ("Shan Realty"), Shan Realty Corp. ("Shan Corp."), Sunil J. Shah ("Sunil"), Nimesh Shah ("Nimesh"), Swati Shah ("Swati"), Jashvant Shah ("Jashvant"), and HJS Funding, L.L.C. ("HJS"). The complaint alleged common-law fraud, fraud in the inducement, fraudulent concealment, violation of the CFA, negligent misrepresentation, wrongful concert of action, conspiracy, breach of the implied covenant of good faith and fair dealing, unjust enrichment, unilateral mistake, and piercing of the corporate veil. The allegations arise out of the sale to plaintiffs in 2002 of an ongoing motel business and the real property where the motel was located.

Events Leading to the Purchase

Plaintiff Bhudev Sharma is a cardiologist. His sole business investment before 2002 consisted of a partnership share in a Kentucky Fried Chicken franchise. Through a patient, Sharma was introduced to a real estate broker, Babu Patel ("Patel"). In turn, Patel introduced Sharma to the Shah family. The family owned and operated the Comfort Inn located on Absecon Boulevard in Absecon ("the Inn"). The Inn is a seven-story building with 204 guest rooms.

Jashvant, a certified public accountant, was the patriarch of the Shah family. His son Sunil was also an accountant. Another son Nimesh lived and worked at the Inn and also worked as a bookkeeper in Sunil's office. The various family members, including Jashvant's wife, Hansa (who is not a named defendant), and Sunil's wife (defendant Swati), had ownership interests in several businesses throughout the years, both before and after 2002. These businesses included the Gloucester Inn; a Ramada Inn in Woodbridge; a Days Inn in Lancaster, Pennsylvania; a hotel in Dover, Delaware; and several Dunkin' Donuts stores.

Shan Enterprises, a limited partnership, operated the Inn. Suniti Corp. was the general partner of Shan Enterprises. Shan Realty was a limited partnership that owned the parcel of property adjacent to the Inn. Shan Corp. was the general partner of Shan Realty. Although the Shah family originally had other partners with them in the Inn, as of 1996, Hansa, Nimesh, and Swati owned 100% of Shan Enterprises. Hansa and Swati did not actively participate in operating the Inn.

In 2002 the Shah family decided to sell the Inn. Through Patel, they were introduced to Sharma as a prospective buyer. Jashvant and Sunil gave Sharma the Inn's profit and loss statements and tax returns for the years 1999, 2000, and 2001.

In considering the potential purchase, Sharma looked at the Inn's net income and profitability. The Inn's tax returns showed net income of $129,000 in 1999; $139,000 in 2000; and $236,000 in 2001. According to Sharma, he focused on the line on the tax return that reflected "ordinary income (loss) from trade or business activities." Sharma also looked at both the Inn's profit and loss statements and schedule of expenses for each of these three years. Having examined these documents, Sharma made the decision to buy the Inn.

Jashvant maintained that the combined asking price for the Inn, the property on which it was situated, and the adjacent parcel of land, was always $6 million; he contended that he never agreed to a lower figure. However, according to draft contracts dated May 29, 2002, prepared by defendants' attorney, the specified combined sales price for both parcels and the Inn was shown as $5,675,000. Another draft contract, dated June 26, 2002, showed a purchase price, solely for the Inn, of $5.4 million. In addition, Jashvant sent an e-mail to Patel on June 21, 2002, stating that a price adjustment had been made from $5.9 million to a lower amount.

Jashvant claimed that he never reviewed these drafts before his attorney sent them out, that he never approved lower prices, and that the drafts did not constitute offers. Rather, he maintained that they were merely for discussion purposes only. Jashvant also contended that his June 21 e-mail to Patel was not true or complete. He insisted that plaintiffs had taken the e-mail out of context, although he could not say in what context he had written it.

The Sale Contracts and Other Related Documents

Two contracts of sale were executed on July 18, 2002. One was for the adjoining parcel (Block 225, Lot 8), and designated the seller as Shan Realty and the buyer as Sharma. It specified a purchase price for that lot of $275,000. The companion contract was for the Inn and the land at 539 Absecon Boulevard (Block 225, Lots 9 and 10) ("the Inn contract"), and designated the seller as Shan Enterprises and the buyer as Sharma. The purchase price for this portion of the transaction was $5,725,000, allocated as follows: $2,300,000 for the premises and improvements; $175,000 for personal property; and $3,250,000 for good will. Under these two contracts, the combined purchase price for the transaction was $6 million.

With respect to the Inn contract, Sharma paid a deposit of $100,000. The parties contemplated that at closing Sharma would pay an additional $5,050,000 by check and that he would also sign two notes, one for $250,000 and one for $325,000. Both notes were to be subordinate to a first mortgage on the property, in an amount not to exceed $3,900,000.

The "due diligence" section of the Inn contract referred to environmental and engineering due diligence. It also provided that the transfer of the Inn's franchise agreement was a condition of the sale.

Section 9.06 of the Inn contract, entitled "Buyer's Acknowledgments," provided as follows:

EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, BUYER ACKNOWLEDGES THAT BUYER HAS MADE OR HAS CAUSED TO BE MADE A THOROUGH PHYSICAL AND ENVIRONMENTAL EXAMINATION AND INSPECTION OF THE PROJECT AND IS NOW FAMILIAR WITH THE PHYSICAL AND ENVIRONMENTAL CONDITION THEREOF AND HAS INDEPENDENTLY INVESTIGATED, ANALYZED AND APPRAISED THE VALUE AND PROFITABILITY OF THE PROJECT. BUYER ACKNOWLEDGES AND AGREES THAT BUYER HAS ENTERED INTO THIS AGREEMENT WITHOUT ANY REPRESENTATIONS AND WARRANTIES HAVING BEEN MADE BY SELLER, ANY AGENT OR EMPLOYEE OF SELLER OR ANY BROKER, IF ANY, ACTING FOR SELLER OR ANY OTHER PERSON OR PERSONS, AS TO THE PRESENT OR FUTURE PHYSICAL OR ENVIRONMENTAL CONDITION OF THE PROJECT, THE STATUS OF TITLE, INCOME, LEASES, EXPENSES, OPERATION, SIZE, ZONING OR ANY OTHER MATTER OR THING WHOSOEVER [sic] AFFECTING OR RELATING TO THE PROJECT, EXCEPT TO THE EXTENT, IF ANY, SPECIFICALLY SET FORTH IN THIS AGREEMENT. EXCEPT AS MAY OTHERWISE BE EXPRESSLY SET FORTH IN THIS AGREEMENT, BUYER FURTHER AGREES TO ACCEPT THE PROJECT "AS IS, WHERE IS" IN THE CONDITION ON THE DATE OF THIS AGREEMENT, SUBJECT TO NORMAL WEAR AND TEAR AND DAMAGE

BY THE ELEMENTS FROM THE DATE HEREOF TO THE CLOSING DATE.

[(Emphasis added).]

In addition, the Inn contract contained a "Disclaimer" provision at Section 11.04, which provided as follows:

A. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, BUYER ACKNOWLEDGES THAT IT HAS EXAMINED THE PROJECT AND IS BUYING ALL OF THE PROJECT "AS IS, WHERE IS", WITHOUT WARRANTY OR REPRESENTATION OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF FITNESS OF THE PROJECT FOR A PARTICULAR USE, WHETHER BY SELLER, OR BY ANY AGENT, BROKER, EMPLOYEE OR OTHER REPRESENTATIVE OF SELLER, NOT EXPRESSLY STATED HEREIN. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT ALL UNDERSTANDINGS AND AGREEMENTS HERETOFORE AND BETWEEN THE PARTIES HERETO ARE MERGED IN THIS AGREEMENT, WHICH ALONE FULLY AND COMPLETELY EXPRESSES THEIR AGREEMENT.

B. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, BUYER ACKNOWLEDGES THAT BUYER HAS HAD AN ADEQUATE OPPORTUNITY TO INSPECT THE PROJECT AND TO...