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Mediterranean Investments North and South Company v. 2000 Linwood Avenue Owners, Inc.

A-5218-02T5 (N.J. Super. App. Div. 2004) (Unpublished)

CONTRACTS—When the terms of a contract are clear, a court will enforce it as written and will not make a better contract for either of the parties.

Developers constructed a high-rise apartment building. To enhance their rate of return on their investment, the developers decided to convert the building from rentals into cooperative apartments. To do so, the property was conveyed to an investor, who in turn conveyed it to a cooperative corporation. As a result of the conversion, the investor acquired blocks of unsold shares representing ownership of many apartment units in the building. Those shares were pledged to the developers as security for a purchase money note. At the time of the conversion, the investors prepared a Public Offering Statement that summarized the basic terms of the conversion. It gave the investors the right to sublet or sell the allocated unsold apartments to third parties without seeking the consent of the cooperative corporation or its shareholders.

In 1985, the cooperative corporation filed suit against the investors, alleging various causes of action relating to the conversion. In 1987, the parties settled and the investors agreed to make substantial payments to the cooperative corporation. Ten years later, the developers sued the investors to collect monies due under the purchase money note. The settlement of this litigation required the investors to liquidate all of their remaining unsold apartments over a three-year period and pay a release price for each apartment to the developer. However, the cooperative corporation refused to allow the investors to rent or sell its unsold apartments or to access the apartments for routine maintenance, contending that all of the investors’ contractual rights with regard to the apartments had been terminated as a result of earlier litigation. Alleging that the cooperative corporation’s actions were interfering with their ability to fulfill their obligations under the settlement, the investors filed a complaint and sought declaratory and injunctive relief that would permit the apartment sales to move forward.

The cooperative corporation moved to have the assigned judge recuse himself, arguing that the judge’s recusal was mandatory because he had been a partner in the firm which had represented the investors in the prior litigation between the parties, and because as a former partner he was receiving a payout from that law firm. The judge disagreed. The parties then entered into a settlement agreement that recognized the investors’ right to sell the unsold apartments, subject to specified procedures and criteria for prospective buyers. These rules remained in effect for about a year when the cooperative corporation attempted to unilaterally change the criteria for prospective buyers.

In response, the investors filed a motion to enforce litigant’s rights, claiming that the cooperative corporation violated the previous settlement. The cooperative corporation contended that the previous settlement agreement required the parties to arbitrate any disputes, thus depriving the lower court of jurisdiction. The lower court rejected that argument, and then found that the cooperative corporation had violated the previous settlement.

On appeal, the Appellate Division first affirmed the lower court’s decision to refuse the motion for recusal. The judge had no personal involvement in the litigation in question, which had occurred over fifteen years earlier, and his former firm had not been involved with either party for more than a decade. Therefore, even though the judge was receiving payments from the law firm, those payments were not contingent on the outcome of the matter before him. In addition, it was not likely that the judge would have been called upon to hear testimony from his former partners to interpret the terms of the 1987 settlement agreement. Although the 1985 litigation involved the same parties, it addressed a significantly different subject matter. Thus, it was unlikely that the 1987 settlement agreement would be relevant. In addition, the 1987 settlement agreement was straightforward and no testimony would be needed for its interpretation. Therefore, the Court concluded that the connection between the judge and the investors was nonexistent and the connection between his former firm and the investors was too remote to call for the judge’s recusal.

The Appellate Division also rejected the owner’s claim that the dispute had to be arbitrated. Rather than indicating a general intention to arbitrate any and all disputes arising between the parties, the arbitration clause of the agreement set forth specific types of disputes that were to be arbitrated. And, since this cause of action was not listed as being within the scope of the arbitration clause, the lower court had jurisdiction to hear the dispute.

The Court also held that the owner had violated the previous settlement agreement. The parties had clearly agreed to the qualification criteria for potential buyers. When the terms of a contract are clear, courts must enforce them as written and may not make a better contract for either of the parties. Therefore, because the Court found the original agreement to be unambiguous, it held that the cooperative corporation did not have the power to unilaterally change its terms.

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