HARMON et al v. BOROUGH OF BELMAR et al

Filing 106

MEMORANDUM AND ORDER denying Defendants' 96 and 100 Motion to Dismiss Counts X and XI; Defendants shall file answers to the remaining claims within thirty (30) days of this Order. Signed by Judge Peter G. Sheridan on 2/02/2020. (jem)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
TIMOTHY HARMON, et al.,
Plaintiffs,

Civil Action No.: 17-cv-02437 (PGS)(ZNQ)

v.
BOROUGH OF BELMAR, et al.,

MEMORANDUM
AND ORDER

Defendants.

SHERIDAN, U.S.D.J.
This matter comes before the Court on Defendants’ motion to dismiss Counts
X and XI of
Plaintiffs’ Fourth Amended Complaint for failure to state a claim upon
which relief can be
granted.’

(ECF Nos. 96, 100). Tn the Fourth Amended Complaint, Plaintiffs assert
two new

claims: (i) Breach of the Redevelopment Agreement (Count X); and (ii) Breach
of the Implied
Covenant of Good Faith and Fair Dealing (Count XI). In the instant motion
, Defendants seek
dismissal of those new Counts on the grounds that Plaintiffs are not third-party
beneficiaries of the
subject Redevelopment Agreement and therefore lack standing to bring
these claims.

In the

alternative, Defendants argue that dismissal is warranted because there was
no breach of the
Redevelopment Agreement and no bad faith. For the reasons stated herein, Defend
ants’ motions
to dismiss are denied.

Defendants also seek an extension of time to file an answer to any remaining claims until
such time that
Defendants’ motion to dismiss is ruled upon by the Court. (Id.) That request is granted
. Defendants
shall file an answer to any remaining claims within thirty (30) days of this Memorandum
and Order.

BACKGROUND

The Court presumes that the parties are familiar with the factual context and the procedural
history of this action, which are set forth at length in the Court’s prior Memorandum and Order
dated November 20, 2018 (ECF No. 63). Accordingly, in the interest of judicial economy, the
Court will recapitulate only those facts integral to resolving the instant motion.
Plaintiffs Timothy and Matthew Harmon (“Plaintiffs”) maintain restaurants and bars in the
Borough of Belmar, New Jersey. (Fourth Amended Complaint (“FAC”) ¶91 2-3). The Defendant
Borough of Belmar (the “Borough”) is a resort community located along the Jersey Shore. (Id.
¶
5).
The northern boundary of the Borough is marked by the Shark River Inlet and the Shark
River. (Id. ¶ 6). The Borough created a redevelopment area along and near its boundary with the
Shark River, including the property Plaintiffs refer to as the “Salt property” or the “Loko property.”
(IdJJ[7).
In January 2014, the Borough entered into the subject Redevelopment Agreement with real
estate developer Loko, LLC (“Loko”). (Id. ¶ 8). The Redevelopment Agreement provided for a
two-phase redevelopment of the Loko property; the first phase provided for the construction and
operation of an outdoor café and bar; and the second phase provided for the construction of
residential condominium units in which the first floor would contain commercial space. (Id. 91 10).
Throughout the course of Loko’s negotiations with the Borough concerning the
Redevelopment Agreement, Loko was engaged in discussions, consultations, and negotiations
with Plaintiffs in a purported effort to induce Plaintiffs to own and operate the outdoor café and
bar on the Loko property. (Id. ¶ 11). Plaintiffs allege that the Borough, the Mayor, and others
were aware that Loko intended to have Plaintiffs operate the outside café and bar. (Id.).

2

On or about March 20, 2015, Plaintiffs entered into a lease agreement with Loko to
construct and operate the outdoor bar and café on the Loko property. (Id. ¶ 13). Thereafter,
Plaintiffs engaged contractors, obtained construction permits, and began the process of
constructing the outdoor bar or café, which is referred to by Plaintiffs as the “Salt facility” or
“Salt.” (Id. ¶ 14).
In this version of the complaint, Plaintiffs allege, however, that they were ultimately
prevented from opening and operating the Salt facility as result of Defendant’s breach of the
Redevelopment Agreement.

(Id. ¶91 184-98).

Specifically, Plaintiffs allege that Defendants

breached Article 5.27 of the Redevelopment Agreement, which provides, in pertinent part:
5.27. Borough Cooperation. The Borough shall cooperate with
and assist the Redeveloper [or, Loko] so as to enable [Lokol to
implement, develop and complete the Project in accordance with the
Concept Plan and to otherwise perform [Loko’s] obligations and
responsibilities under this Redevelopment Agreement.
This
cooperation shall include, but not be limited to, (a) causing all
construction and building permits over which the Borough or any of
its agencies or offices has jurisdiction to be granted to [Loko]
provided the applications for same comply with applicable law,
[and] (b) assisting [Loko] in obtaining Governmental Approvals, in
expediting required action by the Board in connection with site plan
and subdivision applications filed by [Loko] in connection with this
Redevelopment Agreement
Nothing herein, however, shall
constitute a guaranty or a warranty by the Borough that [Loko] will
obtain site plan approval from the Planning Board, or any other
Governmental Approvals, that may be required from any
governmental or quasi-governmental entity.
.

.

.

.

(Id. 91 189; see also Defendants’ Moving Br., Ex. A, Redevelopment Agreement, Article 5.27 at
19, ECF No. 96-3). Rather than “cooperating and assisting” in the construction of the two-phase
project set forth in the Redevelopment Agreement, which included Plaintiffs’ Salt facility, the
Borough allegedly “interfered with and disrupted the construction of Salt and, inter alia, delayed,

3

denied, or refused to issue permits for Salt despite its having been approved by the Borough
Planning Board.” (Id.

¶ 190).

In particular, Plaintiffs contend that Defendants breached Article 5.27 of the
Redevelopment Agreement by: (i) filing a false Coastal Area Facility Review Act (“CAFRA”)
claim with the New Jersey Department of Environmental Protection in an effort to stop the project
(Id.

¶ 191); (ii) issuing stop-work orders based upon erroneous correspondence indicating that

construction on the Salt facility failed in numerous ways to comply with the plans approved by the
Borough Planning Board (id.

¶91 192-93); (iii) appearing before the Borough Planning Board to

object to the approval of an amended site plan for the Salt facility (id.

¶ 194); (iv) and voting

against Plaintiffs’ liquor license transfer application despite knowing that the Borough Council
had previously approved the Redevelopment Agreement that provided for such an outdoor
establishment to be located on the premises (id.

¶

195).2

Plaintiffs do not purport to be parties to the Redevelopment Agreement. Rather, Plaintiffs
contend that they are third-party beneficiaries of the Redevelopment Agreement because the
Agreement provided for the construction of the outdoor café and bar at the Loko property—Salt—-in which Plaintiffs agreed to operate. (Id.

¶91 185-88).

Defendants oppose Plaintiffs’ contention that they are third-party beneficiaries because
Article 3.02 of the Redevelopment Agreement did not permit Loko to lease any part of the Loko
property to Plaintiffs without the express written consent of the Borough, which Loko did not
obtain. Article 3.02 provides, in relevant part:

3.02. Description of Covenants. The covenants to be imposed
upon the Redeveloper [or, Loko], his successors and assigns, and
recorded in the form of a Declaration of Covenants and Restrictions
2

The facts surrounding each of these purported breaches are set forth at length in the prior Memo.
(Memorandum at 2-6, ECF No. 63).
4

(“Exhibit D”), shall set forth that [Loko] and his successors and
assigns shall:
*

*

*

(b) [Loko] shall not sell, lease or otherwise transfer all or any portion
of the Property (other than to individual residential or retail tenants)
without the written consent of the Borough, provided however that
the issuance of a Certificate of Completion for the Property shall
constitute written approval for such sale or lease.
(Redevelopment Agreement, Article 3.02 at 10 (emphasis supplied)). As emphasized, however,
the Redevelopment Agreement exempts leases to “retail tenants” from Loko’ s obligation to seek
the express written consent of the Borough. The Redevelopment Agreement does not define the
term “retail tenant,” nor do Defendants.
Defendants also contend that other Articles of the Redevelopment Agreement demonstrate
no contractual intent to recognize the rights of any third party to enforce the Agreement, including
Plaintiffs. For example, Defendants point to Article 5.03 which expressly allocates to Loko the
sole responsibility for the construction of the project. Article 5.03 provides, in pertinent part:

5.03.

Redeveloper Undertakings. In addition to any other
obligation, responsibility, condition or undertaking set forth herein,
or as set forth in an approval that may be granted for the Project by
the Planning Board, or any other Governmental Approvals, the
Redeveloper [or, Loko] agrees to undertake the following at the
[Loko’s] sole cost and expense:
*

*

*

(c) Complete the Riverwalk [or, the Loko property]
in
accordance with the Concept Plan and the Site Plan at [Loko’s] sole
cost and expense.
.

.

.

(Redevelopment Agreement, Article 5.03 at 13). Based on the foregoing, among other reasons,
Defendants seek dismissal of Counts X and XI for failure to state a claim upon which relief can be
granted.

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LEGAL STANDARD

On a motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6), the
Court is required to accept as true all allegations in the Fourth Amended Complaint and all
reasonable inferences that can be drawn therefrom, and to view them in the light most favorable
to the non-moving party. See Jordan v. Fox, Rothschild, O’Brien & Frankel, 20 F.3d 1250, 1261
(3d Cir. 1994). “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.” Ashcroft v. Jqbal, 556
U.S. 662, 678 (2009) (quoting Bell All. Corp.

ij’.

Twombly, 550 U.S. 544, 570 (2007)). While a

court will accept well-pleaded allegations as true for the purposes of the motion, it will not accept
bald assertions, unsupported conclusions, unwarranted inferences, or sweeping legal conclusions
cast in the form of factual allegations. Iqbal, 556 U.S. at 678-79; see also Morse v. Lower Merion
School District, 132 F.3d 902, 906 (3d Cir. 1997). A complaint should be dismissed only if the
well-pleaded alleged facts, taken as true, fail to state a claim. See In re Warfarin Sodium, 214 F.3d
395, 397-98 (3d Cir. 2000). The question is whether the claimant can prove any set of facts
consistent with his or her allegations that will entitle him or her to relief, not whether that person
will ultimately prevail. Semerenko v. Cendant Corp., 223 F.3d 165, 173 (3d Cir. 2001). “The
pleader is required to ‘set forth sufficient information to outline the elements of his claim or to
permit inferences to be drawn that these elements exist.” Kost v. Kozakewicz, 1 F.3d 176, 183
(3d Cir. 1993) (citation omitted). “While a complaint attacked by a Rule 12(b)(6) motion to
dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the ‘grounds’
of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation
of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (internal quotation
marks and citation omitted). “Factual allegations must be enough to raise a right to relief above

6

the speculative level,
if doubtful in fact)

.

.

.

on the assumption that all the allegations in the complaint are true (even
Id.

In deciding motions under Rule 12(b)(6), courts may consider “document[s] integral to or
explicitly relied upon in the complaint may be considered without converting the motion
[to
dismiss] into one for summary judgment.” In re Burlington Coat Factory Sec. Litig., 114
F.3d
1410, 1426 (3d Cir. 1997) (emphasis in original) (citation and quotation marks omitted).
“The
rationale underlying this exception is that the primary problem raised by looking to documents
outside the complaint—lack of notice to the plaintiff—is dissipated ‘[w]here plaintiff has
actual
notice.. and has relied upon these documents in framing the complaint.” Id. (citation omitted);
.

see also In reAsbestos Prod. Liab. Litig. (No. VI), 822 F.3d 125, 134 (3d Cir. 2016). Accordingly,
for purposes of resolving the instant motion, the Court will consider only documents “integral
to
or explicitly relied upon in the complaint,” such as, for example, the Redevelopment Agreement
and any amendments thereto.

The Court will not consider, however, any documents or

correspondences filed by Defendants in support of their motion that are extraneous to the FAC
(see Certification of Certification of Counsel in Support of Motion to Dismiss Plaintiffs’ Fourth
Amended Complaint, ECF No. 96-2); nor will it consider the deposition transcript accompanying
Plaintiffs’ opposition papers (Certification of Richard K. Shaklee, Esq. in Opposition
to
Defendants’ Motion to Dismiss Counts X and XI of Plaintiffs’ Fourth Amended Complaint,
Ex.
2, ECF No. 99-1).

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ANALYSIS

I.

STANDING

A threshold issue is whether Plaintiffs have standing to enforce the terms of the
Redevelopment Agreement as third-party beneficiaries. Under New Jersey law, the right to thirdparty beneficiary status is reflected by statute in N.J.S.A.

§

2A:15-2, which provides:

A person for whose benefit a contract is made, either simple or
sealed, may sue thereon in any court and may use such contract as a
matter of defense in an action against him although the consideration
of the contract did not move from him.
Id. New Jersey courts have long recognized and enforced contracts on behalf of third-party
beneficiaries. See Edwin J. Dobson, Jr., Inc. v. Rutgers, State Univ., 157 N.J. Super. 357, 408
(Law. Div. 1978), aff’d sub nom. Broadway Maim’. Corp. v. Rutgers, State Univ., 180 N.J. Super.
350, 434 A.2d 1125 (App. Div. 1981), aff’d, 90 N.J. 253, 447 A.2d 906 (1982). A third-party
beneficiary is entitled to enforce the terms of the contract, including the implied covenant of good
faith and fair dealing. See Cargill Glob. Trading v. Applied Dev. Co., 706 F. Supp. 2d 563, 579
(D.N.J. 2010) (collecting cases).
The test for determining whether a third-party has an actionable right under a contract is
whether the parties to the contract intended that a third party receive and have a right to the benefit
of the contract. Hojnowski ex rel. Hojnowski v. Vans Skate Park, 375 N.J. Super. 568, 576, 868
A.2d 1087, 1092 (App. Div. 2005), aff’d sub

noin.

Hojnowski v. Vans Skate Park, 187 N.J. 323,

901 A.2d 381(2006). “The [parties’] contractual intent to recognize a right to performance in the
third person is the key. If that intent does not exist, then the third person is only an incidental
beneficiary, having no contractual standing.” Broadway Maint. Corp. v. Rutgers, State Univ., 90
N.J. 253, 259, 447 A.2d 906, 909 (1982) (citing Standard Gas Power Corp. v. New England Cas.
Co., 90 N.J.L. 570, 573-74 (E. & A. 1917)); see also Smith v. Boyd, 272 N.J. Super. 186, 198 (Law.
8

Div. 1993); Rieder Communities, Inc. v. Twp. of N. Brunswick, 227 N.J. Super. 214, 222 (App.
Div. 1988); Gold Mills, Inc. v. Orbit Processing Corp., 121 N.J. Super. 370, 373 (Law. Div. 1972).
Where, as here, the contract is silent, New Jersey case law instructs that it is necessary for
a reviewing court to (1) examine the pertinent provisions in the agreement and (2) the surrounding
circumstances, in order to ascertain whether the parties intended to confer a legally enforceable
right in a third-party. Broadway Maint., 90 N.J. at 260 (citing James Talcott, Inc. v. H. Corenzwit
& Co., 76 N.J. 305, 3 12(1978)); Rieder, 227 N.J. Super. at 223.
In this case, discovery is required to determine the intent of the parties with respect to
whether Plaintiffs were third-party beneficiaries, and, as such, this motion is premature; but the
allegations in the complaint sufficiently set forth a plausible cause of action. For example, the
Redevelopment Agreement requires the Borough to “facilitate [the] development

.

.

.

of the

Project,” which included the outdoor café and bar. (Redevelopment Agreement at 2; see also id.,
Lx. B. at 37; FAC ¶91 11, 187). Moreover, Article 3.02(b) expressly provided that the Redeveloper
could sell or lease the subject property to retail tenants (see Redevelopment Agreement, Article
3.02(b) at 10); and, in Article 5.27, the Borough covenanted that it would cooperate with and assist
in obtaining permits and governmental approvals for all phases of the Project. (See id., Article
5.27 at 19).
Moreover, Plaintiffs allege that throughout Loko’s negotiations of the Redevelopment
Agreement with the Borough, Loko was simultaneously in discussions with Plaintiffs to induce
them to own and operate the outdoor café and bar. (FAC ¶ 11). As such, the “Borough and the
Mayor, Council and Administrator” were all allegedly aware that the outdoor café and bar was to
be operated by Plaintiffs. (Id.; see also P1.

Opp. Br. at 7-8, 9,

9

10, 14, 15).

In short, the provisions of the Redevelopment Agreement, together with surrounding
circumstances alleged in the FAC, raise at least a plausible claim for relief. Iqbal, 556 U.S. at 678
Accordingly, dismissal of Counts X and XI at this preliminary stage of the litigation would be
premature. Id. Rather, the facts and allegations presented to the Court more appropriately suggest
that consideration of a fully developed record is warranted. See, e.g., J. V. ex ret. Valdez v. Macy ‘s,
inc., No. CIV. 13-5957 KSH CLW, 2014 WL 4896423, at *3 (D.N.J. Sept. 30, 2014); Anthem
Worldwide Lines, Inc. v. Colgate-Palmolive Co., No. CV 04-6243 (JLL), 2005 WL 8175119, at
*3 (D.N.J. Sept. 30, 2005); see also Dunkin’ Donuts
Franchised Restaurants, LLC v. Claudia I,
LLC, No. CIV.A. 12-2010, 2013 WL 3716525, at *5 (E.D. Pa. July 15, 2013). Accordingly, the
Court will not dismiss Counts X and XI for lack of standing at this time.
II.

BREACH OF THE REDEVELOPMENT AGREEMENT AND BREACH OF THE IMPLIED
COVENANT OF GOOD FAITH AND FAIR DEALING (COUNTS X, XI)

In Count X, Plaintiffs allege that Defendants breached Article 5.27 of the Redevelopment
Agreement. (FAC ¶91 185-96). In order to sustain a claim of breach of contract under New Jersey
law, a plaintiff must plausibly allege four elements: “(1) a contract between the parties; (2) a breach
of that contract; (3) damages flowing therefrom; and (4) that the party stating the claim performed
its own contractual obligations.” Frederico v. Home Depot, 507 F.3d 188, 203 (3d Cir. 2007);
Video Pipeline, Inc. v. Buena Vista Home Entm’t, Inc., 210 F. Supp. 2d 552, 561 (D.N.J. 2002);
see also Pollack v. Quick Quality Restaurants, Inc., 452 N.J. Super. 174, 188 (App. Div. 2017).
Here, Plaintiffs set forth a short and plain statement of a cause of action for breach of the
Redevelopment Agreement. Fed. R. Civ. P. 8(a). Specifically, Plaintiffs sufficiently allege: that
they were third-party beneficiaries of the Redevelopment Agreement (FAC
¶91 185-88); that
Defendants breached Article 5.27 of said Redevelopment Agreement by undertaking in several
measures to interfere and disrupt in the construction of Salt, including by, inter alia, delaying,
10

denying, or refusing to issue permits for Salt (id.
damages (id.

¶91 189-96); that Plaintiffs thereby suffered

¶91 197-98); and that Plaintiffs performed its own contractual obligations (see id. ¶91

13-16, 190-94).

Accordingly, the Court will not dismiss Plaintiffs’ claim for breach of the

Redevelopment Agreement. Thus, Defendants’ motion to dismiss Count X is denied.
In Count XI, Plaintiffs allege that Defendants breached the implied covenant of good faith
and fair dealing. Under New Jersey law, in every contract there is an implied covenant that
“neither party shall do anything which will have the effect of destroying or injuring the right of
the other party to receive the fruits of the contract; in other words, in every contract there exists an
implied covenant of good faith and fair dealing.” Wade v. Kessler Inst., 343 N.J. Super. 338, 345
(App. Div. 2001) (citations and quotation marks omitted), aff’d as modified, 172 N.J. 327, 798
A.2d 1251 (2002); see also Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 420 (1997). “To
recover for breach of the implied covenant, a plaintiff must prove that: (1) a contract exists between
the parties; (2) the plaintiff performed under the terms of the contract; (3) the defendant acted in
bad faith with the purpose of depriving the plaintiff of rights or benefits under the contract; and
(4) the defendant’s actions caused the plaintiff to sustain damages.” Luongo v. Viii. Supermarket,
Inc., 261 F. Supp. 3d 520, 531—32 (D.N.J. 2017) (collecting cases).

The Court has already

established that Plaintiffs have plausibly alleged the first, second, and fourth elements of their
claim with respect to their breach of contract cause of action. Accordingly, only the third element,
or whether Defendants acted in bad faith with the purpose of depriving Plaintiffs of the fruits of
the Redevelopment Agreement, requires scrutiny.
Here, Plaintiffs have pled enough facts to allow the Court to draw a reasonable inference
that Defendants may have acted in bad faith in preventing Plaintiffs from owning and operating
the outdoor bar and café at the Salt property. Iqbal, 556 U.S. at 678. The FAC is replete with

11

allegations that Defendants engaged in bad faith conduct motivated to deprive Plaintiffs of the
right to operate Salt (see, e.g., FAC ¶91 17-60, 70-72), which the Court must consider to be true for
purposes of this motion. McDermott v. Clondalkin Grp., Inc., 649 F. App’x 263, 269 (3d Cir.
2016). Accordingly, since Plaintiffs have set forth a short and plain statement of the claim under
Fed. R. Civ. P. 8(a), Defendants’ motion to dismiss Count XI is also denied.
At oral argument, counsel for Defendant Matthew Doherty argued for the first time that
Counts X and XI should be dismissed as interposed against Doherty in his individual capacity
because Doherty was not a party to the Redevelopment Agreement. Since this argument was not
raised in Doherty’s limited briefing (ECF No. 100) and Plaintiffs were not afforded an opportunity
to respond to same, the Court will not dismiss the claims against Doherty at this time. Doherty
will have an opportunity to appropriately move for dismissal on these grounds later in the litigation,
if he so wishes.
CONCLUSION

For all of the foregoing reasons, Defendants’ motions to dismiss (ECF Nos. 96, 100) are
denied. Defendants shall have thirty (30) days from this Memorandum and Order to answer the
remaining claims (Counts IX, X, and XI).

12

ORDER

THIS MATTER having come before the Court on Defendants’ motion to dismiss
Counts X and XI of Plaintiffs’ Fourth Amended Complaint for failure to state a claim upon
which relief can be granted (ECF Nos. 96, 100); and the Court having carefully reviewed and
taken into consideration the submissions of the parties, as well as the arguments advanced; and
for good cause shown; and for the foregoing reasons;
IT IS on this ?° day of February, 2020,
ORDERED that Defendants’ motion to dismiss Counts X and XI (ECF Nos. 96, 100) is
DENIED; and it is further
ORDERED that Defendants shall file answers to the remaining claims (Counts IX, X,
and XI) within thirty (30) days of this Order.

PETER G. SHERIDAN, U.S.D.J.

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