Larry Schwartz & NJ 322, LLC v. Menas
| Docket Number | A-54/55 September Term 2020,085184 |
| Decision Date | 17 August 2022 |
| Citation | 251 N.J. 556,279 A.3d 436 |
| Parties | Larry SCHWARTZ and NJ 322, LLC, Plaintiffs-Appellants, v. Nicholas MENAS, Esq., Cooper, Levenson, April, Niedelman & Wagenheim, PA, Eric Ford and Pulte Homes, Defendants-Respondents, and Brad Ingerman and MBI Development Company, Inc., Defendants. Larry Schwartz, Plaintiff-Appellant, v. Nicholas T. Menas, Esq. and Cooper, Levenson, April, Niedelman & Wagenheim, PA, Defendants-Respondents. |
| Court | New Jersey Supreme Court |
Bruce D. Greenberg argued the cause for appellants (Lite DePalma Greenberg and De Pierro Radding, attorneys; Bruce D. Greenberg, Jonathan M. Carrillo, Newark, Giovanni De Pierro, Alberico De Pierro, and Davide De Pierro, on the briefs).
Trevor J. Cooney argued the cause for respondents Eric Ford and Pulte Homes (Archer & Greiner, attorneys; Trevor J. Cooney, Voorhees, and Andrew T. Fede, Hackensack, on the brief).
John L. Slimm argued the cause for respondents Nicholas Menas, Esq. and Cooper, Levenson, April, Niedelman & Wagenheim, PA (Marshall, Dennehey, Warner, Coleman & Goggin and Cooper Levenson, attorneys; John L. Slimm, Jeremy J. Zacharias, Mount Laurel, and Fredric L. Shenkman, Atlantic City, on the briefs).
These consolidated appeals arise from two actions. In the first, plaintiffs Larry Schwartz and NJ 322, LLC sued their former legal counsel, two real estate developers, and executives employed by the developers, alleging that the defendants’ tortious conduct deprived plaintiffs of the opportunity to construct an affordable housing complex. In the second, Schwartz sued his former counsel for legal malpractice and breach of contract arising from another proposed residential development. It is undisputed that neither Schwartz nor NJ 322 had ever financed or built a residential development before they sought to construct the housing at issue.
In both cases, defendants moved to bar the testimony of plaintiffs’ damages expert on the ground that plaintiffs had no experience in residential construction and thus were not entitled to seek lost profits damages. Citing Weiss v. Revenue Building & Loan Association, 116 N.J.L. 208, 182 A. 891 (E. & A. 1936), defendants argued that New Jersey courts apply the "new business rule," which imposes a per se ban on a new business's claims for lost profits on the ground that no such claim can be proven with reasonable certainty.
The trial court deemed the real estate ventures at issue in both cases to constitute new businesses, barred the testimony of plaintiffs’ expert on damages, and granted summary judgment to defendants. The Appellate Division affirmed the trial court's determinations. We granted plaintiffs’ petitions for certification.
We join the majority of jurisdictions that reject a per se ban on claims by new businesses for lost profits damages, and we decline to follow Weiss to the extent that it bars any claim by a new business for such damages. Claims for lost profits damages are governed by the standard of reasonable certainty. A trial court should undertake a fact-sensitive analysis of the evidence offered by a new business when it determines a motion to bar such a claim.
We recognize, however, that it is substantially more difficult for a new business to establish lost profits damages with reasonable certainty than it is for an established business to do so. See Restatement (Second) of Contracts § 352, cmt. b (Am. L. Inst. 1981). A trial court should carefully scrutinize a new business's claim that a defendant's tortious conduct or breach of contract prevented it from profiting from an enterprise in which it has no experience and should bar that claim unless it can be proven with reasonable certainty.
So that the trial court may decide defendants’ motions to bar plaintiffs’ evidence of lost profits damages and their motions for summary judgment in accordance with the proper standard, we reverse the Appellate Division's determination and remand these matters for further proceedings.
Schwartz has owned and operated a dry cleaning business on Staten Island for more than twenty years. He testified that the dry cleaning business is the only business he has ever owned, that he is not certified in any professional discipline, and that he has never taken any courses on real estate, land development, or finance. When asked to describe his real estate experience, Schwartz testified that he purchased his own home, that he bought and rehabilitated ten homes in Newark, and that he inherited and sold a small commercial building. Schwartz admitted that he had never acted "as a developer."
In 2006, defendant Nicholas Menas, then a member of defendant Cooper, Levenson, April, Niedelman & Wagenheim, P.A., alerted a developer whom Schwartz knew, Salvatore Surace, about a property in Monroe Township. Schwartz claims that Menas proposed that Surace and Schwartz develop the property as a market-rate rental and commercial development and then sell it to defendant Pulte Homes. Surace and Schwartz formed NJ 322, LLC, a limited liability company, and NJ 322 acquired the property.
Schwartz and NJ 322 allege that in the course of multiple transactions over several years, Menas, Cooper Levenson, Pulte Homes, and Pulte Homes's Vice President, defendant Eric Ford, deprived them of the profits that they would otherwise have gained by developing the property. They contend that defendants arranged to have NJ 322's property rezoned so that only affordable housing could be built on it, thus enabling Pulte Homes to develop a different property in Monroe Township with little or no affordable housing obligation. Plaintiffs assert that as a result of the rezoning, Surace withdrew from the project, leaving Schwartz as the sole member of NJ 322.
As Schwartz conceded, he had no experience with or knowledge of the requirements imposed on developers of affordable housing by the Fair Housing Act, N.J.S.A. 52:27D-301 to -329. He admitted that when the Monroe Township property was rezoned for affordable housing, he had never heard of the Council on Affordable Housing (COAH). See N.J.S.A. 52:27D-304(a) (). He nonetheless asserts that he intended to act as the affordable housing project's developer.
According to Schwartz, defendants impeded his contemplated project so that defendant MBI Development Company, Inc. and another developer could acquire the property from NJ 322 and build the proposed affordable housing. Schwartz contended that he had no alternative but to sell the property to the experienced developers. MBI eventually developed a 132-unit affordable housing complex on the property.
Defendants deny plaintiffs’ allegations. They point to evidence that Monroe Township rezoned the property owned by NJ 322 to meet its affordable housing obligation under the Fair Housing Act, not at defendants’ behest. Defendants assert that Schwartz and NJ 322, with neither the experience nor the resources to construct an affordable housing development, nonetheless gained a substantial profit from the sale of the Monroe Township Property and suffered no lost profits as a result of any conduct by defendants.
In 2009, Schwartz became involved in the proposed development of two properties in Egg Harbor Township. He testified that Menas apprised him of the opportunity to invest in the two properties and formed LLCs, with Schwartz as the managing member, to purchase the properties.
Schwartz claims that Menas advised him to abandon a previously approved age-restricted development proposed for one of the Egg Harbor properties in favor of a different project that required new approvals, and that Menas persuaded him to accept another individual as an additional member of the LLCs and the financing source for the proposed projects. Schwartz maintains that, unbeknownst to him, Menas arranged for the other member of the LLCs to replace Schwartz as the managing member, and that he was thus deprived of the opportunity to develop the two properties. He also contends that Menas negligently advised him on several aspects of the proposed Egg Harbor Township projects.
According to Menas and Cooper Levenson, Schwartz had neither the expertise nor the funding to purchase two undeveloped properties, secure the necessary permits, retain contractors to build the housing, and construct homes, roads, and infrastructure. They assert that they had no role in the failure of Schwartz's planned development of those properties.
In the first action, Schwartz and NJ 322 sued Menas, Cooper Levenson, Pulte Homes, and Ford for damages arising from the Monroe Township affordable housing project.1 They asserted claims for legal malpractice, violations of the Rules of Professional Conduct, and breach of contract against Menas and Cooper Levenson, a fraud claim against Menas, and claims for tortious interference with contract and prospective economic advantage against all defendants.
Schwartz and NJ 322 named as their damages expert Dr. Robert Powell, Jr., who opined on "the profits that would likely have been earned by [p]laintiffs in the event that their development goals and objectives in connection with the development of the Project had not been frustrated" by defendants’ alleged conduct.
In his expert report, Powell presented two lost profits damages models for the Monroe Township development. First, Powell calculated that had Schwartz and NJ 322 constructed a 100-unit mixed-use market-rate development as Schwartz originally contemplated, their profit would have been $5,135,804, and that Schwartz's personal share of that profit would have been $2,567,902. Powell opined that this calculation reflected the profits that "could reasonably have been achieved by a development group led by [Schwartz]," and that it was based on profit margins "consistent with customary profit results for builders of this type of product."
Second, Powell opined that had...
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...is reviewed de novo, subject to the Rule 4:46-2 standard that governs a . . . ruling on a summary judgment motion." Schwartz v. Menas, 251 N.J. 556, 570 (2022) Nicholas v. Mynster, 213 N.J. 463, 477-78 (2013); R. 4:46-2(c)). That standard requires us to "determine whether 'the pleadings, de......