The opinion
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3884-21
COOLEST REFRIGERATION, LLC,
Plaintiff-Respondent,
v.
ZINA'S SALADS, INC.,
Defendant-Appellant.
______________________________
Submitted December 11, 2023 – Decided December 27, 2023
Before Judges Marczyk and Chase.
On appeal from the Superior Court of New Jersey, Law
Division, Morris County, Docket No. L-1852-20.
Levine DeSantis LLC, attorneys for appellant (Peter L.
Nichols, on the briefs).
Shawki & Associates, LLC, attorneys for respondent
(Marco Mamdouh Shawki, on the brief).
PER CURIAM
Defendant Zina's Salads, Inc. ("Zina's") appeals from a May 16, 2022
judgment, subsequent to a bench trial, where the trial court determined plaintiff
Coolest Refrigeration, LLC ("Coolest") breached its contract with Zina's but
awarded no damages. We affirm.
I.
We glean these facts from the record. Coolest is a licensed heating,
ventilation, air conditioning, and refrigeration ("HVACR") contractor owned by
Samuel Sidhom. Zina's is a manufacturer and wholesaler of food products,
namely salads and side dishes. In March 2019, Sidhom presented Zina's with
an estimate totaling $29,400 for the installation of two custom walk -in
refrigeration units at Zina's warehouse in East Hanover. This estimate explicitly
outlined the requirement for the units to maintain a target temperature of thirty-
five degrees Fahrenheit, and it expressly acknowledged the need for the
refrigeration units to compensate for products entering at room temperature.
Installation began sometime in the middle of April 2019. In June, an electrician
connected the coolers to power.
The parties agree the second cooler was never able to achieve the target
temperature. As part of his efforts to diagnose the problem, Sidhom sent a
customer questionnaire to Zina's Chief Executive Officer ("CEO"), Valentin
Chelnokov. The questionnaire asked, "Please describe what is going into the
Walk In," to which Chelnokov responded, "hot/warm product 85-90°F, 15000
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lbs a day in 5 lbs tubs[.]" The questionnaire also asked, "How soon should the
product get down to target temperature?" to which Chelnokov responded, "[four]
hours." Sidhom explained the unit would require additional equipment to reach
target temperature within the specified time.
Subsequently, Sidhom provided Zina's with an estimate to add an
additional ten-horsepower condenser to the existing system, which Sidhom
offered at half-price. Believing that the original job had not been completed,
Zina's opted not to install the additional ten-horsepower condenser, and instead
agreed to the addition of a five-horsepower unit at no cost. Sidhom informed
Zina's the five-horsepower unit would not be sufficient for the unit to reach
target temperature within the specified time. Nevertheless, this additional
installation was completed by the end of August.
Zina's made three payments according to the payment schedule on the
estimate, but did not pay the final amount due of $6,400. Throughout September
and October, Sidhom contacted Zina's for payment of the final amount. In
response, Zina's Chief Financial Officer ("CFO"), Alex Chenakal, informed
Sidhom that the cooler still failed to reach the target temperature, stating, "Your
work is not complete. Please fix it." Sidhom explained the failure to reach
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target temperature was due to Zina's decision not to include the additional
capacity as Sidhom recommended.
Coolest subsequently initiated suit. Coolest's amended complaint alleged
breach of contract and unjust enrichment and demanded payment of the balance
due on the contract plus fees. Zina's answered the complaint and asserted
counterclaims for breach of contract, common law fraud, and consumer fraud
under N.J.S.A. 56:8-1 to -227. Zina's also successfully moved to transfer the
matter to the Law Division.
A bench trial began in March 2022. After Sidhom testified on behalf of
plaintiff, Zina's called three witnesses. An HVACR expert testified to why the
system did not work. CEO Chelnokov testified as to his conversations with
Coolest to diagnose and attempt to fix the problem. CFO Chenakal testified
when the problems first arose, Zina's did not reach out to any other contractor
because, in his experience, it was difficult to find HVACR professionals during
the summer when they were in high demand. Further, he testified Zina's did not
agree to the installation of the additional condenser because he and Chelnokov
believed Sidhom should have completed the job as contracted without imposing
additional charges.
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Chenakal also testified to Zina's business losses. He presented a loss of
revenue analysis for the summer of 2019 that he prepared, estimating $711,000
in lost revenue from one client, Stop & Shop, and $176,000 in lost revenue from
another client, NetCost. He supported the NetCost estimate with a letter of
intent and supported the Stop & Shop estimate with evidence of a shipment
rejected in May 2019 due to incorrect product temperature. He testified that in
2021, Zina's gross profits were approximately 27.9% of total revenue.
Therefore, he calculated the lost revenue of $887,000 would have generated a
gross profit of $249,000. He testified it was unnecessary to deduct any fixed
expenses from the gross profits estimate because the company's administrative,
production, and real estate expenses would have already been paid for by
existing business. Therefore, according to Chenakal, the lost gross profits were
equal to lost net profits.
On May 16, 2022, the court ordered an entry of judgment in Zina's favor
on the complaint and count one of the counterclaim and dismissed counts two
and three. In its written opinion, the court concluded Coolest failed to fulfill its
contractual obligation to Zina's because the refrigeration system did not work as
promised.
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However, the court also found that while Zina's was relieved of its
obligation to pay the outstanding balance of $6,400, it failed to prove its lost
profits damages and would receive no award from Coolest. The court found
Zina's claim for damages was not supported by adequate credible evidence.
Specifically, the court found the lost profits analysis presented by Chenakal
could not be used to determine damages. The court noted the purported loss of
Stop & Shop business was not supported by any documentation, Chenakal's
decision to exclude fixed costs from estimated lost profits was erroneous, and
the report did not account for any other clients or the effects of the COVID -19
pandemic on sales. The court also found Zina's failed to mitigate its damages
by "failing to make other arrangements promptly to complete the installation."
On June 3, 2022, Zina's moved for reconsideration and amendment of the
court's order. On July 29, 2022, the court denied Zina's motion. The court stated
Chenakal's testimony raised several credibility issues. The court found failing
to deduct fixed costs from estimated gross profits was "fundamentally wrong
. . . a fundamental principle of accounting and financial analysis that this alleged
expert simply missed." The court said any attempt on its part to make an
adjustment to the calculated damages would be too speculative and would
involve "pulling numbers out of the air." The court found Zina's had not met its
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burden to establish the quantity of the loss. The court found Chenakal, as an
employee of Zina's, was not an independent witness and "lost all credibility in
[the court's] mind when he didn't understand the fundamental principle that all,
all profits bear some responsibility for being offset by direct, as well as indirect
costs." The court reiterated there was no evidence Zina's tried, but was
unsuccessful, in mitigating damages, and they had done "very little once they
knew they had this fundamental problem . . . ."
On appeal, Zina's raises the following points:
POINT I
THE TRIAL COURT ERRED IN DENYING [ZINA'S]
DAMAGES ON THE BASIS OF CHENAKAL'S
EVIDENCE, WHEN IT WAS CLEAR THAT
DAMAGES RESULTED FROM [COOLEST'S]
BREACH OF CONTRACT.
POINT II
THE TRIAL COURT ERRED IN FINDING THAT
CHENAKAL WAS UNQUALIFIED TO GIVE
DAMAGES EVIDENCE.
POINT III
THE TRIAL COURT ERRED IN ITS FINDING THAT
[ZINA'S] HAD FAILED TO MITIGATE ITS
DAMAGES.
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II.
Zina's first argues the court should not have denied relief for insufficiency
of evidence because lost profits damages are, by nature, always speculative to
some extent. Relying on Totaro, Duffy, Cannova & Co. v. Lane, Middleton &
Co. 191 N.J. 1 (2007), Zina's argues uncertainty in the amount of damages
cannot preclude recovery where it is certain that a breach resulted in loss. Zina's
compares its method of estimating damages to that used in V.A.L. Floors, Inc.
v. Westminster Communities, Inc., 355 N.J. Super. 416 (App. Div. 2002), which
allowed evidence of prior business to form a reasonable basis to estimate lost
profits. Zina's argues the estimates put forth by Chenakal for the lost revenues
from NetCost and Stop & Shop, along with the profit margins from 2021,
provided enough definiteness to permit the court to award damages. Zina's
maintains that even if the failure to reduce the estimated gross profits by fixed
costs was an error, that error is "hardly a basis for negating the entire amount of
lost profit calculated."
In response, Coolest emphasizes the court's decision rested on the
credibility of Chenakal's testimony and analysis, which must be respected "but
for a clear case where there is no doubt the trial court erred." Coolest argues
"mere opinion" and "mere speculation" are not sufficient to determine damages.
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A non-breaching party seeking compensatory damages in a contract action
is "obligated to prove, by a preponderance of the evidence, that the losses it
sought to recover were 'a reasonably certain consequence of the breach.'"
Totaro, 191 N.J. at 15 (quoting Donovan v. Bachstadt, 91 N.J. 434, 445 (1982)).
This burden also requires the non-breaching party "to demonstrate the
appropriate method for quantifying that loss." Totaro, 191 N.J. at 15. A trial
court may not rely on "wholly speculative" information to determine damages.
Pomerantz Paper Corp. v. New Cmty. Corp., 207 N.J. 344, 375 (2011).
The cases on which Zina's relies do not support its position. Totaro
involved a dispute where an accountant solicited business from a former
employer in an established violation of a non-solicitation agreement. 191 N.J.
at 17. The Supreme Court reduced the damages awarded by the trial court
because the record supported the loss of only one year's profits, not the three
years remaining on the agreement. Ibid. This outcome undermines Zina's
request for this court to award damages despite a lack of competent, credible
evidence and an appropriate method for quantifying them.
V.A.L. addressed whether estimates of lost profits were sufficient to
survive summary judgment, a determination different from a factfinder's
assessment of credibility. 355 N.J. Super. at 419. While the V.A.L. court
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acknowledged a factfinder is afforded great latitude to speculate as to the precise
amount of damages, estimated lost profits still needed to be "based on sound
fact and not on mere opinion evidence without factual support . . . ." Id. at 425
(quoting Rempfer v. Deerfield Packing Corp., 4 N.J. 135, 144 (1950)). Here,
the trial court rejected the evidence before it not for imprecision, but for lack of
credibility and for Zina's failure to provide the court with a reliable method to
calculate the award.
While Zina's is correct that an inability to prove damages with absolute
precision does not automatically preclude recovery, it still had an evidentiary
burden to meet. Evidence of the damages did not need to be precise, but it did
need to be competent and credible. Here, the trial court found the testimony and
financial analysis put forward by Chenakal to be flawed, not based on sufficient
underlying data, and not credible. Given the highly deferential standard
afforded to a trial court's assessment of witness credibility and evidentiary
matters, there is no reason to disturb the trial court's conclusion. L.M.F. v.
J.A.F., Jr., 421 N.J. Super. 523, 533 (App. Div. 2011) (citing Rova Farms Resort,
Inc. v. Invs. Ins. Co. of Am., 65 N.J. 474, 484 (1974)).
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III.
Zina's next argues the court, in both its original judgment and its denial of
the motion for reconsideration, "strongly suggested that Chenakal was not
qualified to testify as to [Zina's] damages because he was an officer of the
company and not an independent expert witness." Zina's points to Totaro and
V.A.L. as examples in which parties were permitted to testify as to their own
lost profits.
Coolest responds the trial court did not, in fact, find Chenakal unqualified
to give damages evidence. Coolest notes Chenakal's testimony was admitted
over Coolest's objection, raised in limine, which argued that expert testimony
was necessary. Coolest argues the court's assessment of the testimony was "not
due to Mr. Chenakal's position, experience or knowledge, but was solely due to
his failure to provide adequate basis for his conclusions."
Unless offered as experts, witnesses may testify only if they have
"personal knowledge of the matter." N.J.R.E. 602. A non-expert witness may
also offer opinion or inference testimony if the testimony "(a) is rationally based
on the witness' perception; and (b) will assist in understanding the witness'
testimony or determining a fact in issue." N.J.R.E. 701. "The fact that a person
with personal knowledge of facts relevant to a dispute may also qualify as an
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expert in the particular field associated with those facts does not convert his or
her testimony based on personal knowledge of specific facts into expert
testimony . . . ." E&H Steel Corp. v. PSEG Fossil, LLC, 455 N.J. Super. 12, 26
(App. Div. 2018).
Even though the trial court did refer to Chenakal as "this alleged expert,"
Zina's never tendered Chenakal as an expert witness. When denying Coolest's
motion in limine, the court allowed Chenakal to testify about Zina's business
because he had personal knowledge through his work as CFO. The testimony
was admitted "subject to [the court's] ruling as to relevance and sufficient basis
to the issue." Apart from a sustained objection to hearsay testimony, Coolest
did not raise, and the court did not rule on, any challenge to Chenakal's
testimony as not being adequately based on his own personal knowledge.
Chenakal was therefore permitted to testify as a fact witness and give lay opinion
testimony on the material fact of damages, subject to the requirements of
N.J.R.E. 701.
The trial court's assessment of Chenakal's testimony and financial analysis
was clearly an evaluation not of Chenakal's qualifications, but of his credibility,
which the court found lacking due to errors in the report and Chenakal's "vested
interest in the outcome." This does not mean the court deemed Chenakal
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unqualified to give either factual or lay opinion testimony. Indeed, both types
of evidence were introduced through his testimony.
IV.
Finally, Zina's argues due to the seasonal demands of its business and the
scarcity of refrigeration professionals in the summer, mitigation was not
realistic. Zina's argues, Coolest, as the breaching party, bore the burden of
demonstrating it was possible for Zina to mitigate its damages. Coolest
emphasizes it offered to install additional equipment, which Coolest maintains
could have mitigated Zina's damages, but Zina's refused the offer.
An injured party's duty to take reasonable steps to mitigate damages is
"well settled." Nelson v. Elizabeth Bd. of Educ., 466 N.J. Super. 325, 344 (App.
Div. 2021) (quoting McDonald v. Mianecki, 79 N.J. 275, 299 (1979)).
Once a party has reason to know that performance by
the other party will not be forthcoming, he is ordinarily
expected . . . to take such affirmative steps as are
appropriate in the circumstances to avoid loss by
making substitute arrangements or otherwise . . . . The
amount of loss that he could reasonably have avoided
by . . . making substitute arrangements . . . is simply
subtracted from the amount that would otherwise have
been recoverable as damages.
[Ingraham v. Trowbridge Builders, 297 N.J. Super. 72,
83 (App. Div. 1997) (quoting Restatement (Second) of
Conts., § 350, cmt. b (Am. L. Inst. 1981)).]
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While an injured party may "urge the [breaching] party to perform[,]" such
efforts do not constitute mitigation, but are taken into account to determine the
reasonableness of the time actual mitigation begins after a breach is discovered.
Ibid. Whether a non-breaching party made "reasonable efforts to mitigate its
damages [is] a question for the trier of fact." State v. Ernst & Young, L.L.P.,
386 N.J. Super. 600, 616 (App. Div. 2006) (citing Ingraham, 297 N.J. Super. at
84). The breaching party has "the burden of proof . . . as to actual or potential
mitigation and the amount thereof." Sandler v. Lawn-A-Mat Chem. & Equip.
Corp., 141 N.J. Super. 437, 455 (App. Div. 1976) (citing Roselle v. La Fera
Contracting Co., 18 N.J. Super. 19, 28 (Ch. Div. 1952)).
Zina's is correct that as the breaching party, Coolest bore the burden to
prove the possibility of mitigation, Zina's failure to mitigate, and the value of
any corresponding reduction of damages. However, the court found factual
support for its conclusion through Zina's own evidence. Zina's employees
testified they took little, if any, action to contact other refrigeration professionals
during the peak summer months, and they could not identify when another
professional eventually was contacted. To the extent the trial court might have
placed the burden of proving the facts of mitigation on Zina's, that was an error.
However, because factual support for the court's conclusion was introduced by
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Zina's anyway, and because there are no compensatory damages to be reduced
by a purported failure to mitigate, any such error does not rise to an error clearly
capable of producing an unjust result. R. 2:10-2.
Affirmed.
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