Not honoring commercial property leases entered into by predecessor Wachovia proved an expensive decision for Wells Fargo.
For breaking contracts connected to two Wyckoff properties, the bank was ordered on June 25 to hand over $2.73 million in damages and about $200,000 in attorney fees and costs.
As part of a nationwide expansion, Wachovia entered into two lease agreements in December 2007 for construction of a bank branch on two adjacent parcels at the corner of Franklin and Godwin avenues in Wyckoff.
The leases provided for a 90-day inspection period, during which Wachovia could terminate for any reason, followed by a one-year approval period, during which the bank had to make a good-faith effort to obtain necessary building permits and approvals.
If Wachovia failed to obtain those approvals, it would get another chance to void the agreements.
Wachovia announced, before the end of the 90-day inspection period, that it intended to move forward, and subsequently had plans drawn up that it later amended in accordance with input from the township.
During this process, Wells Fargo agreed to acquire Wachovia — a deal that ultimately went through.
A Wells Fargo attorney sent a letter in September 2008 advising property owners Kenneth Delmonico, Theresa Delmonico and Frank Defino that the lease would be terminated as of that Oct. 29.
The attorney referred to section 15.6 of the agreement, which laid out the one-year approval period.
In June 2011, the property owners filed a complaint alleging breach of contract.
Both sides moved for summary judgment and Bergen County Superior Court Judge Alexander Carver III, in a written opinion last Jan. 25, granted the plaintiffs’ motion, finding it factually undisputed that Wells Fargo breached the lease terms.
It’s “unmistakable that Wells Fargo decided not to follow through with the implementation of Wachovia’s business plan after the acquisition and simply abandoned the Wyckoff branch application,” Carver held in Defino v. Wachovia, BER-L-5308-11.
Carver called Wells Fargo’s reliance on section 15.6 “at best misplaced and at worst facile” and “merely a disingenuous attempt to justify its wrongful termination of the contract bolstered only after litigation commenced by legal obfuscation and claimed justification.”
The provision gave Wells Fargo no termination rights unless its building application failed, but the bank did not make a good-faith effort to complete the process as required, the judge said.
Wells Fargo also breached the implied covenant of good faith and fair dealing by “curiously attributing its bald breach of the Lease to the very contractual obligation it was breaching,” Carver said.
Carver noted that the plaintiffs were entitled to compensatory damages and attorney fees.
The matter was reassigned to Bergen County Judge Charles Powers Jr., apparently because of a scheduling issue with Carver.
Powers conducted a two-day damages trial in May that included expert testimony from two appraisers.
In his June 25 opinion, Powers said that to determine damages, he calculated the difference in valuation of the properties “as is” compared with what they would be worth if the leases were in place.
He took greater stock in the plaintiffs’ expert, Donald Helmstetter, than Wells Fargo’s, Leonard Sussman. Sussman’s comparison of the parcels to a vastly different property in Ridgefield adversely affected his credibility, the judge said.
Powers accepted Helmstetter’s valuation of the Delmonico and Defino properties without the benefit of the lease at $520,000 and $1.175 million, respectively. Sussman had urged valuation of $530,000 and $1.875 million.
The judge set the values, with the benefit of the leases, at $750,000 for the Delmonico property and $4.25 million for the Defino property. That meant losses of $230,000 on the former and $2.5 million on the latter, for total damages of $2.73 million.
Powers, however, declined to award pre- or post-judgment interest because the plaintiffs failed to segregate past and future economic loss.
He said he “cannot merely infer these calculations without the benefit of expert testimony.”
As for fees, Powers awarded $157,293 for the hours billed, plus a 20 percent enhancement above the lodestar ($31,459) for a total award of $188,751, plus $12,436 in costs.
The plaintiff lawyers’ acceptance of the case on a contingency fee basis entitled them to the 20 percent enhancement, but the issues were not particularly difficult or requisite of an attorney with a specific expertise, the judge said.
Wells Fargo spokesman Kevin Friedlander says the bank plans to appeal, but declines further comment.
The plaintiff lead counsel, Hackensack solo Gary Stern, says his clients are entitled to interest of at least $450,000 — an issue he might challenge at the next level if Wells Fargo follows through with its appeal.
“They [the bank] in essence were retaining some $2.7 million in value,” he says.
As for Wells Fargo’s position about the leases, “[i]t struck me a sophistry,” Stern adds. “They held true to that argument right to the end, but fortunately it didn’t win the day.”
Stern’s co-counsel, Robert Margulies of Margulies Wind in Jersey City, who argued the summary judgment motion and the damages trial, declines comment.
Wells Fargo’s lawyer, John North of Greenbaum, Rowe, Smith & Davis in Woodbridge, defers comment to Friedlander.