ROBERT BENJAMIN AND DLC SERVICES CORP v. GARDEN OPERATIONS CORP GARDEN OPERATIONS LIMITED PARTNERSHIP THIRD TORO FAMILY LIMITED PARTNERSHIP HELMER TORO BAGELS AMY TORO

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Superior Court of New Jersey, Appellate Division.

ROBERT BENJAMIN AND DLC SERVICES CORP., Plaintiffs–Respondents, v. GARDEN OPERATIONS CORP., GARDEN OPERATIONS LIMITED PARTNERSHIP, THIRD TORO FAMILY LIMITED PARTNERSHIP, HELMER TORO, and H & H BAGELS, Defendants–Appellants, AMY TORO, Defendant.

DOCKET NO. A–2315–11T2

-- December 13, 2013

Before Judges Reisner, Alvarez and Ostrer. Miller, Meyerson & Corbo, attorneys for appellants (Gerald D. Miller, of counsel and on the briefs;  Savio D. Figaro, on the briefs). Friedrich & Friedrich, LLC, attorneys for respondents (Jay Joseph Friedrich, on the brief).

Defendants Garden Operations Corporation, Garden Operations Realty Limited Partnership (GOR), Third Toro Family Limited Partnership (Third Toro),1 Helmer Toro (Toro), H & H Bagels and Sixth Toro Family Limited Partnership (Sixth Toro LP), appeal four orders:  an April 15, 2011 order denying defendants' motion for summary judgment;  a June 10, 2011 order granting plaintiffs Robert Benjamin and DLC Services Corp.'s (DLC) cross-motion to strike defendants' answer and counterclaims and suppress their affirmative defenses;  the August 5, 2011 order denying reconsideration of the June 10, 2011 order;  and the December 2, 2011 final judgment holding Toro personally liable for certain outstanding sums due plaintiffs.   For the reasons that follow, we affirm.

Preliminarily, we note that multiple motions were made in this case, decided by several judges, and defendants have not provided the complete record regarding these applications.   While the appeal was pending, defendants failed to comply with several requests for items that were missing from their appendix, in violation of Rule 2:6, and which were necessary to our consideration of the issues raised on appeal.

In any event, for twenty-five years, Benjamin, DLC's principal, negotiated leases with Toro for bakery equipment used in the production of bagels.   When Toro and his various business entities failed to make payment on account of twenty-two separate leases, Benjamin and DLC filed suit.   After a two-day proof hearing that ended on December 2, 2011, judgments were entered as follows:  $1,280,047 against Sixth Toro LP; 2  $131,892 against GOR; 3  $1,411,939 against Toro;  and, against all active defendants, $163,037.48 in attorney's fees.4

The dismissal with prejudice of defendants' pleadings resulted from their failure to comply with discovery orders.   Despite the dismissal, Toro, by consent, was permitted to fully participate in the proof hearing, effectively converting it to something akin to a trial.   Toro was permitted to cross-examine Benjamin, he testified on defendants' behalf, and moved documents into evidence.

At the proof hearing, the parties established that when the leases at issue were first signed, Sixth Toro LP operated a retail bagel store in New York. It leased its equipment from DLC, and sold its merchandise under the trade name, “H & H Bagels.”

It was not disputed that twenty-one of the twenty-two leases in dispute, all dated between December 2005 and June 2009, were between DLC as lessor and Sixth Toro LP as lessee.   The twenty-second lease was between DLC and GOR.

Each lease consisted of the actual rental agreement, a schedule of equipment, an option to purchase rider, and a bill of sale.   Every agreement included this choice of law provision:

25.  This lease shall be construed under the laws of the State of New York and shall not become effective until accepted by LESSOR at its above office and upon such acceptance shall, subject to Paragraph 16 thereof, inure to and bind the parties, their successors, legal representatives and assigns.   No provision hereof which may be construed as unenforceable shall in any way invalidate any other provision hereof, all of which shall remain in full force and effect.

The leases consist of three-page preprinted forms, bearing signature lines at the end of the document for the “lessor” and “lessee.”   A signature line is stamped on the bottom of the first page as follows:

LESSOR:  DLC SERVICES CORP LESSEE:  THE SIXTH TORO FAMILY LTD PTR

_ _

by:  Robert L Benjamin, by:  Sixth Toro Corp, GP Helmer Toro,

Pres Pres

The twenty-second lease provides:

LESSOR:  DLC SERVICES CORP LESSEE:

_ _

by:  Robert L Benjamin, by:  GARD OPER CORP, GP Helmer Toro,

Pres Pres

Generally, following the first three pages of each lease, a schedule of the items covered by the lease in letter form was inserted between the first three pages and the guaranty.   Following that is an additional page containing a “guaranty,” which calls for signature by either Sixth Toro Corp., or GOR, and “Helmer Toro, President” of the relevant entity and “INDIVIDUALLY and as an OFFICER of THE SIXTH TORO FAMILY LIMITED PARTNERSHIP.”   The twenty-second lease contains a guaranty which calls for signature in a slightly modified fashion:  “GARD OPER CORP GP, [GOR] Helmer Toro, President, AND INDIVIDUALLY.”   To illustrate, the guaranty for Lease No. 71217 states:

GUARANTY

This guarantee is made a part of the Lease Agreement between

DLC SERVICES CORP., AS LESSOR AND THE SIXTH TORO FAMILY LIMITED PARTNERSHIP, AS LESSEE, dated

02/01/07

In consideration of the Leasing of Equipment listed in the face of the Lease Agreement or upon any Schedule Attached Thereto of a Lease Agreement No. 71217, to the above named:

THE SIXTH TORO FAMILY LIMITED PARTNERSHIP

We (I) hereby guarantee the punctual payment of the rental stipulated and the performance of the covenants set forth in the foregoing to be paid and/or performed by the said:

THE SIXTH TORO FAMILY LIMITED PARTNERSHIP

Dated:  02/01/07

By:  SIXTH TORO CORP., GP, Helmer Toro, President, INDIVIDUALLY and as an OFFICER of THE SIXTH TORO FAMILY LIMITED PARTNERSHIP

Toro signed all the guaranties which, like the leases, were prepared by Benjamin.

The twenty-second lease, in which GOR was the lessee, was signed, as we have said, by Toro as the President of Garden Operations Corporation, general partner, “Helmer Toro, Pres.” Toro signed his name on the guaranty signature line indicating he was doing so as the president of Garden Operations Corporation, general partner, and “individually.”   The corporate structure of GOR was similar to that of Sixth Toro LP and Toro's other business entities.   Toro was the president of the general partner, Garden Operations Corporation, which owned a five percent interest in GOR. Toro's wife owned the remaining ninety-five percent of the partnership as a limited partner.

Benjamin testified that he designated GOR as the lessee on the twenty-second lease on Toro's instruction, assuming it correlated in some unspecified fashion with Toro's removal of all the leased equipment from New York to New Jersey.   In every other respect, this lease mirrored the leases with Sixth Toro.

By letter dated January 1, 2009, to Benjamin, Toro had purported to “assign [ ] and transfer[ ]” all the leases between Sixth Toro LP and DLC to GOR, which was located in Secaucus.   Neither party signed the letter.

From approximately June 2009 to December 2010, Toro manufactured bagels concurrently in New Jersey and New York. Bagel dough was manufactured in New Jersey and the bagels were cooked and sold in New York. At some point, all bagel production was transferred to New Jersey.

In July 2009, Sixth Toro stopped making its payments under the lease agreements, despite Benjamin's demands.   The unpaid sums totaled $1,303,189.   Initially, Toro told Benjamin to bill Garden Operations Corporation for the outstanding balances.

In August 2009, Benjamin's Florida bank accounts 5 were frozen.   Toro's New York City retail bagel stores were threatened with closure by city authorities, who were conducting a criminal investigation against Toro related to his failure to pay employee withholding taxes.   Benjamin's accounts were frozen incidental to the investigation.   When Benjamin contacted Toro to obtain an explanation, Toro asked him for a loan of $100,000.   Benjamin agreed, and Toro executed a promissory note at eighteen percent interest.

Toro signed that document twice, once on his own behalf and once on behalf of Sixth Toro LP. Benjamin actually only loaned $75,000 to Toro:  $50,000 to the Third Toro Family Limited Partnership and $25,000 paid directly to the New York City taxing authorities.   No additional sums were advanced.   Neither principal nor interest was ever paid on account of this indebtedness.

During the proof hearing, Benjamin testified that he believed that Toro's signature constituted a personal guarantee of the obligations of his business entities.   Moreover, Benjamin said, based on their long history of business dealings, that Toro “knew that he couldn't lease the equipment without a personal guarantee.”

In contrast, Toro testified that the word “individually” underneath his signature did not make him individually liable.   He considered himself responsible only in his capacity as an officer of the business entity, based on his understanding that unless he signed a document twice, once as an officer and once as an individual, he did not assume personal liability.

On appeal, defendants raise the following points:

POINT I

THE TRIAL COURT ERRED WHEN IT SUPPRESSED WITH PREJUDICE THE ANSWER, AFFIRMATIVE DEFENSES AND COUNTERCLAIM OF THE DEFENDANT HELMER TORO, GARDEN OPERATIONS CORPORATION, GARDEN OPERATION LIMITED PARTNERSHIP, AND THIRD TORO FAMILY LIMITED PARTNERSHIP.

POINT II 6

THE COURT ERRED WHEN IT FAILED TO APPLY NEW YORK USURY LAW AND DISMISS THE COMPLAINT AS THE AGREEMENTS WERE INVALID AND UNENFORCEABLE AGAINST THE INDIVIDUAL AND LIMITED PARTNERSHIP.

A. The court should have applied New York Usury [sic] Law.

B. If New York usury law is applied, the leases between the parties should be invalidated.

POINT III

JUDGMENT SHOULD NOT HAVE BEEN ENTERED AGAINST HELMER TORO BECAUSE HE DID NOT PERSONALLY SIGN THE GUARANTEES.

POINT IV

THE COMPLAINT SHOULD HAVE BEEN DISMISSED BECAUSE THE PLAINTIFF, A FOREIGN CORPORATION, FAILED TO OBTAIN A CERTIFICATE OF AUTHORITY FROM THE SECRETARY OF STATE.

I

Rule 2:6 specifies the items to be included in appellate briefs and appendices.   The rule states the obvious — that transcripts must also be provided in order for us to fairly assess claims of error raised on appeal.   When such items are not provided, we may decline to address the issues raised.   Cmty. Hosp. v. Blume Goldfaden, 381 N.J.Super. 119, 127 (App.Div.2005);  Soc'y Hill Condo. v. Soc'y Hill Ass'n, 347 N.J.Super. 163, 177–78 (App.Div.2002).   It is self-evident that appellate review cannot be accomplished without consideration of the underlying facts and circumstances which resulted in the decision being appealed.   Consideration of claims of error is circumscribed by the record on appeal, generally the material admitted into evidence and the trial transcripts.

In this case, as we have said, our clerk's office repeatedly contacted appellants' counsel in writing to obtain the items necessary, pursuant to rule and common sense, for appellate review of the April 2011 denial of summary judgment.   Defendants claimed they did not have those documents, therefore the clerk's office requested them from plaintiffs, who were equally unresponsive.   After these requests, defendants produced only the notice of motion itself and the April 15, 2011 order.

We observe that the necessity for a proper record is particularly acute when reviewing a motion for summary judgment.   In those appeals, we apply the same standard as does the trial court.  Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J.Super. 162, 167 (App.Div.), certif. denied, 154 N.J. 608 (1998).   This means that we must decide if “the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law.”   R. 4:46–2.   We cannot accomplish that review, any more than the trial court could have issued a decision in the first instance on summary judgment, without the appropriate submissions by the parties.   It was defendants' obligation to perfect this appeal as to each issue they chose to raise.   They did not do so as to this issue.

As a result, we have no alternative but to decline to consider on the merits defendants' fourth point on appeal — that the complaint should have been dismissed on their summary judgment motion because plaintiff was a New York corporation that did not obtain a certificate of authority to do business in New Jersey from the Secretary of State.7

II

Turning to defendants' first appellate point, they contend that the trial court erred by suppressing their answer, affirmative defenses, and counterclaim, without first employing the two-step procedure detailed in Rule 4:23–5(a).   The rule requires a “without prejudice” dismissal before a “with prejudice” dismissal.   On this issue, defendants did not provide a complete record, and the record we have is confusing.

Plaintiffs filed multiple motions to compel discovery, including motions regarding Toro's failure to appear at deposition and his failure to produce documents at deposition.   We are uncertain, however, if the information we have is complete.   Despite numerous requests for additional documentation and contrary to Rule 2:6–1(a)(1), the actual record the trial court relied upon prior to dismissing defendants' pleadings was not supplied.   We are therefore unable to fairly review that claim of error either.   See Cmty. Hosp., supra, 381 N.J.Super. at 127;  Johnson v. Schragger, 340 N.J.Super. 84, 87 n.3 (App.Div.2001).

The transcript of oral argument we were provided on the motion for dismissal of defendants' pleadings included the judge's decision, which states:

In the case at hand, defendants have defaulted on numerous discovery requests, namely failing to provide more specific answers to interrogatories, producing documents requested by plaintiff, and failing to appear for depositions, and that applies to Mr. Toro and Mr. Hoffman, Mr. Toro being one of the named defendants, Mr. Hoffman being the controller.

These actions are in direct violation of this Court's previous order directing all discovery to be complied with, and all depositions to be taken, specifically the order signed by this Court, dated December 17, 2010, to which this Court dedicated hours.   That order extended the discovery end date to allow the parties to complete the very many discovery items that were outstanding.   That order, among other orders that were signed, clearly and specifically set forth those discovery items that needed to be accomplished and the specific date by which those items needed to be in and completed.   That order specifically set forth those dates that Mr. Toro should have been deposed on and Mr. Hoffman should have been deposed on.

Again, the Court spent hours working with the part[ies] to develop a schedule, a discovery schedule, built into the order, which would be suitable to both parties while still achieving the Court's goals of having the parties complete discovery.

Plaintiff produced the documents and individuals he was responsible for producing and remained in compliance with the Court's order.   Defendants, however, completed none of those items for which the defendant was responsible.   The fact remains that plaintiff has not been able to depose Mr. Toro and Mr. Hoffman, two key witnesses in this matter, and has not been privy to many of the documents to which he's entitled.

Depositions of Mr. Toro and Mr. Hoffman ․ should have taken place before January 17[, 2011]․  [T]he defendants [ ] did not appear, as set forth in the moving papers and Robert Benjamin's certification.   At no point thereafter did the defendants make ․ [the] two deponents available.

The discovery period in this matter ended on January 17, 2011, and no extensions have been granted.

The order denying reconsideration of the order dismissing defendants' answer and counterclaim suppressing their affirmative defenses is included on the notice of appeal but not mentioned in a separate point heading, or discussed in the legal argument in defendants' brief.   When our clerk's office requested the entire record submitted to the judge on that application, defendants only provided their moving papers, not plaintiffs' opposition.   Plaintiffs did not supply their papers either.   Clearly, portions of the record are missing as to this motion as well.

The reconsideration motion was decided by a different judge than the one who dismissed defendants' pleadings with prejudice in the first instance.   The reconsideration judge reasoned that under Rule 4:23–2(b)(3), a court has the discretion to dismiss, with or without prejudice, for a party's failure to obey discovery orders.   We agree with the analysis.   A court is not limited to dismissals without prejudice on the rare occasion where a party has, without justification, repeatedly violated discovery orders and repeatedly failed to comply with discovery deadlines.

At oral argument on the motion, defendants went so far as to assert that the initial order striking their pleadings with prejudice was signed as a result of an unintended and innocent mistake by the prior judge.   The reconsideration judge rejected that argument, and specifically found that the dismissal order with prejudice was signed purposefully, and was not the product of any oversight by the prior judge.

It is well-established that suppressing pleadings for failure to comply with discovery orders is the “last and least favorable option,” Il Grande v. DeBenedetto, 366 N.J.Super. 597, 623 (App.Div.2004), available to a trial court but, “a party invites this extreme sanction by deliberately pursuing a course that thwarts persistent efforts to obtain the necessary facts.”  Abtrax Pharm., Inc. v. Elkins–Sinn, Inc., 139 N.J. 499, 515 (1995).

It is similarly well-established that Rules 4:23–2(b)(3) and 4:23–4 authorize dismissals with prejudice.   Defendants' failures to appear at specially scheduled depositions, produce documents, answer interrogatories, and comply with orders requiring them to do so was an ongoing problem which, some might say, bordered on contempt.

Accordingly, in our view, neither judge abused his or her discretion in dismissing defendants' pleadings with prejudice, or failing to reconsider the decision.   See R. 4:23–2(b) and 4:23–4.

III

Defendants also contend that the judgment against Toro was issued in error because a corporate officer becomes individually liable only if he or she signs a guaranty twice.   This argument lacks merit.

The judge who conducted the proof hearing said:

[J]ust as a matter of common sense, it would make little sense for a person signing a guarant[y] to a lease, to be required to sign twice, when the guarant [y] is to a lease signed by the corporation to which they're an officer.   In other words, why have a guarant[y] which merely repeats the obligation of the same obligor under the lease?   Then the guarant[y] would have no purpose.   It just makes no sense.

We agree with this conclusion.   Toro signed the lease terms and conditions as a corporate officer on the first and third pages of the document.   But his signature on the separate guaranty page was called for as an individual, not just in his capacity as a corporate officer as indicated on the earlier pages.

Additionally, the judge found Benjamin's statement credible that he and Toro understood the purpose of the guaranty was to make Toro personally liable, and that Toro's execution thereof had that effect.   The judge found Benjamin's testimony overall to be credible while Toro's testimony was incredible.   He observed:

[I]n viewing this transaction in its entirety, and in reading the terms of the guarant[y] in the light of commercial reality, and in accordance with reasonable expectations of persons in the business community ․ the guarant[y] and the circumstances surrounding them demonstrate that Mr. Helmer Toro intended to be personally responsible for guarant[y]ing all the leases.

Contract interpretation “is a matter of law for the court subject to de novo review.”  Fastenberg v. Prudential Ins. Co., 309 N.J.Super. 415, 420 (App.Div.1998).   But a judge's credibility determinations are entitled to deference.  Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974).

“Under a guaranty contract, the guarantor, in a separate contract with the obligee, promises to answer for the primary obligor's debt on the default of the primary obligor.”  Cruz–Mendez v. ISU/Ins.   Servs., 156 N.J. 556, 568 (1999).  “Generally, a guarantor is a different person from the maker or, if the same person, signs in different capacities when signing as maker and guarantor (e.g., an individual may sign as an officer of a corporate maker and also sign individually as a guarantor of the corporate obligation).”   Ligran, Inc. v. Medlawtel, Inc., 86 N.J. 583, 589 (1981).  “The purpose of requiring an individual guarantee from the owner of a corporat[ion] ․ is to have security greater than the corporation's gossamer assurances of payment.”   Shelter Sys. Grp. Corp. v. Lanni Builders, Inc., 263 N.J.Super. 373, 376 (App.Div.1993).

When interpreting contracts of guaranty, courts typically look “to the rules governing construction of contracts generally.”  Ctr. 48 Ltd. P'ship v. May Dep't Stores Co., 355 N.J.Super. 390, 405 (App.Div.2002).  “Courts are generally obligated to enforce contracts based on the intent of the parties, the express terms of the contract, surrounding circumstances and the underlying purpose of the contract.”  Caruso v. Ravenswood Developers, Inc., 337 N.J.Super. 499, 506 (App.Div.2001) (internal citations omitted).

In addition, guaranty agreements “should be strictly construed and their language interpreted most strongly against the party at whose insistence such language was included.”  Ctr. 48 Ltd. P'ship, supra, 355 N.J.Super. at 405.   Thus, any ambiguities are construed in favor of the guarantor and “the agreement should be interpreted according to its clear terms so as to effect the objective expectations of the parties.”  Id. at 406.

Rather than addressing the issue as dependent upon the intent and reasonable expectation of the parties, defendants cite precedent that they argue stands for the proposition that in order for personal liability to be imposed upon Toro, he needed to sign the guaranty twice.   We consider the cases they cite to be inapposite.

In City of Millville v. Rock, 683 F.Supp.2d 319, 322 (D.N.J.2010), for example, the plaintiffs moved for summary judgment on the guaranty claim asserted against Kenneth C. Rock and Leonard K. Nave. The court was asked to determine whether Rock and Nave personally guaranteed promissory notes executed between the parties.  Ibid. The first note stated, in pertinent part:  “The borrower shall personally guarantee the repayment of all funds borrowed.”   Id. at 323.   The second note contained a clause stating that “[t]he undersigned ․ hereby [personally] guarantee[s] the repayment of this loan made to the aforesaid corporation.”  Ibid. The word “personally” was crossed out, and the word “trusts” was put in its place.  Ibid. Both notes were signed on behalf of The Glass Group, Inc. by Rock, the Chairman & CEO, and Nave, the Vice–Chairman and General Counsel.  Ibid.

In reasoning that neither Rock nor Nave was personally liable, the court noted that neither promissory note contained separate signature lines indicating the intent to create individual liability.  Id. at 328.

Significantly the court found that there was independent evidence, beyond the notes themselves, that Rock and Nave did not intend to become personally obligated on the notes.  Ibid. Specifically, when deposed, the drafter of the notes testified that neither Rock nor Nave wanted to assume personal liability on the notes.  Ibid. Hence the court concluded “that the promissory notes and the circumstances surrounding them do not demonstrate that Rock and/or Nave intended to be personally responsible for guarantying either promissory note.”  Ibid.

In this case, in contrast with City of Millville, Toro executed all the leases on behalf of the limited partnership which was the lessee, by signing as president of the corporate general partner, each of which were guarantors.   Hence he signed as president of the relevant corporations, an officer of the limited partnership, and individually.   This is an important distinction from City of Millville.

Additionally, Benjamin, whom the trial court found to be a credible witness, testified that Toro intended to assume personal liability because he, Benjamin, had required it as a condition of leases the parties entered into over many years.   In other words, the evidence established that at the time Toro signed each guaranty, both parties assumed his signature would have the effect of constituting a personal guaranty of the lease payments, as had been the practice over many years of doing business.

This was not a scenario in which the language purporting to make a corporate officer individually responsible was buried in small print in the middle of the text.   Rather, the language was in large print, and placed prominently below the signature line.

Undoubtedly, Toro signed the $100,000 promissory note twice.   Only one document — the promissory note — called for him to do so, once in his corporate capacity and a second time in his individual capacity.   That this document was structured in a different fashion does not nullify Toro's personal obligation on the leases he signed in three separate places on the documents.

Affirmed.

FOOTNOTES

1.  FN1. No judgment was entered against Third Toro as it was in bankruptcy and inactive subsequent to the filing of the complaint.

2.  FN2. The trial judge allowed, post-proof hearing, an amendment to the pleadings to name Sixth Toro LP as an additional defendant.   The judge concluded it was the real party in interest that benefitted from the transactions, and that, as will be discussed later, there was a factual and legal basis for the amendment and imposition of liability.   Plaintiffs had previously unsuccessfully filed at least one motion attempting to amend their complaint to name Sixth Toro LP. The proof hearing judge was unable to discern from the record the reasons that this relief was not previously granted.

3.  FN3. That partnership filed for bankruptcy in February 2011.

4.  FN4. Amy Dukoff Toro, Toro's wife and business associate, was dismissed on summary judgment and is not involved in this appeal.

5.  FN5. Although not entirely clear from the record, it appears Benjamin essentially retired to Florida at age seventy-seven not long before the rental arrears began to accumulate.

6.  FN6. In their initial appellate brief and reply brief, defendants contended that the trial court erred in denying their July 2010 and/or January 2011 motions for summary judgment by its failure to enforce the New York choice of law clause in the lease agreement.   They claimed application of New York law would have resulted in the dismissal of the amended complaint because the leases, in defendants' view, were unenforceable usurious loans under New York law.   By letter dated November 19, 2012, defendants have abandoned those arguments.

7.  FN7. We note in passing, that we have nothing in the record that provides support for the proposition that plaintiffs failed to obtain such a certificate, although plaintiffs do not deny it.   Plaintiffs take the position, also without record support, that they filed New Jersey corporate tax returns, and were therefore effectively authorized to conduct business and maintain this lawsuit.   See Bonnier Corp. v. Jersey Cape Yacht Sales, Inc., 416 N.J.Super. 436, 440 (App.Div.2010).

PER CURIAM

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