Opinion
DOCKET NO. A-3568-11T4
03-05-2013
MEADOWBROOK INDUSTRIES, LLC, Plaintiff-Respondent, v. WALKER MANAGEMENT SYSTEMS, INC., Defendant-Appellant, and LORI WALKER-VANCE and MICHAEL VANCE, Defendants.
John T. Ambrosio argued the cause for appellant (Ambrosio & Tomczak, attorneys; Mr. Ambrosio, on the briefs). James G. Aaron argued the cause for respondent (Ansell Grimm & Aaron, P.C., attorneys; Mr. Aaron, of counsel and on the brief; Lynne Petillo, on the brief).
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
Before Judges Graves, Espinosa and Guadagno.
On appeal from Superior Court of New Jersey, Chancery Division, Union County, Docket No. C-119-09.
John T. Ambrosio argued the cause for appellant (Ambrosio & Tomczak, attorneys; Mr. Ambrosio, on the briefs).
James G. Aaron argued the cause for respondent (Ansell Grimm & Aaron, P.C., attorneys; Mr. Aaron, of counsel and on the brief; Lynne Petillo, on the brief). PER CURIAM
Defendant Walker Management Systems, Inc. (Walker) appeals from a judgment against it arising from its alleged breach of a contract that, it argued, should have been declared void ab initio. We affirm.
In March 2009, plaintiff, Meadowbrook Industries, LLC (Meadowbrook) and Walker, both licensed solid waste collection utilities, entered into an Asset Purchase Agreement (APA) in which Meadowbrook acquired substantially all of Walker's solid waste collector assets. Walker entered into the APA against the advice of counsel and later elected to proceed without independent counsel.
The APA describes defendants, Walker; its principal, Lori Walker-Vance; and her husband, Michael Vance; collectively, as the Seller and Meadowbrook as the Purchaser. Section 1.01 of the APA states the Seller agrees
Walker-Vance and Vance did not appeal.
to sell, convey, transfer, assign and deliver to Purchaser, and Purchaser agrees to purchase from the Seller:
A. Vehicles. All of Seller's right, title and interest in, a 1999 Freightliner, . . . and a 2003 Mack front end loader . . . free and clear of all liens and encumbrances.
B. Containers. All of Seller's right, title and interest in, all of its containers of various sizes, free of all liens and encumbrances . . . .
C. Introduction to Customers. A personal introduction to all of Seller's commercial customers (excluding roll-off customers) located in Monmouth and Ocean Counties.
On May 11, 2009, the parties entered into an Amendment to the APA (Amendment), in which they acknowledged that circumstances had changed since the execution of the APA. Like the APA, the Amendment was drafted by counsel for Meadowbrook.
The Amendment stated, "Seller is unable to continue servicing its commercial customers, and the Purchaser is willing to commence servicing said commercial customers as of May 11, 2009[.]" The APA was amended to effect not only the change for servicing Walker's commercial customers but all its State and federal contracts as well. However, there were significant differences in how the change in service was communicated to customers. As for the commercial customers, Walker-Vance and Vance agreed to "accelerate the process . . . of personally introducing" Meadowbrook representatives "to the remaining commercial customers for the purpose of negotiating the terms of service and inventorying the containers." Meadowbrook would place its identifying decals on all containers used to service the commercial customers and begin billing all commercial customers directly as of May 1. Rather than introduce Meadowbrook to these customers so that it might directly negotiate the terms of service, Walker agreed to "subcontract" with Meadowbrook to perform the State and federal contracts. As for these government contracts, Meadowbrook would not place any company-identifying decals or its DEP decals on any of the containers used to service the State and federal contracts. In addition, while Meadowbrook would begin billing all commercial customers as of May 1, Walker would continue to bill the government customers and was then required to "immediately" turn over all payments received.
The closing for the transaction occurred on July 10, 2009. Walker was unable to deliver its containers free of liens and encumbrances because title to the containers was held by various creditors and Walker lacked the funds to satisfy $119,695.00 in outstanding debts to the creditors. The parties agreed that Meadowbrook would assume the debt and indemnify Walker against any claims made by the creditors. The parties also agreed that, as of the date of closing, Walker owed Meadowbrook $43,767.36 in "introduction fees" pursuant to the terms of the APA. Approximately one week after the closing, Meadowbrook advised Walker that it was disqualified from taking the assignment of the State contracts because of restrictions under the "pay to play" law.
On September 1, 2009, Meadowbrook initiated this litigation against defendants, alleging breach of contract and violation of restrictive covenant provisions of the APA. Meadowbrook also sought equitable relief.
On September 17, 2009, Walker filed a Chapter 11 petition for relief in the United States Bankruptcy Court. In its petition, Walker listed the APA as an executory contract that it was entitled to reject pursuant to the Bankruptcy Code, 11 U.S.C.A. § 365(a). Walker contended that the Agreement should be voided ab initio because the parties had failed to obtain approval from the New Jersey Department of Environmental Protection (DEP) for the transaction. The Bankruptcy Court issued an order in November 2009, declaring the APA was not an executory contract and therefore could not be rejected by Walker.
In December 2009, Walker filed an answer and counterclaim in this action, alleging that Meadowbrook had breached the contract and the covenant of good faith and fair dealing and fraudulently induced defendants to enter into the contract.
Meadowbrook filed a motion for summary judgment on the issue of liability. In opposition, Walker argued that the APA was unenforceable without the approval of the DEP pursuant to N.J.S.A. 48:3-7(c). At the motion judge's request, the parties submitted supplemental briefs addressing Walker's contention that DEP approval was required for the transaction and the effect of the parties' failure to obtain such approval. The motion judge concluded that DEP should have been notified of the transaction and that the obligation to give such notice was borne by both parties, but that the failure to obtain DEP approval did not render the contract illegal, unenforceable or void. The court granted summary judgment to Meadowbrook on liability and, following a trial on damages, entered judgment in favor of Meadowbrook and against Walker in the amount of $38,166.50.
In its appeal, Walker presents the following arguments for our consideration:
POINT I
GIVEN THE HIGHLY REGULATED NATURE OF THE SOLID WASTE INDUSTRY AS A WHOLE, THE TRANSACTION WAS SUBJECT TO THE APPROVAL OF THE NJDEP
A. BECAUSE WALKER TRANSFERRED ITS CUSTOMER LIST TO MEADOWBROOK, NJDEP APPROVAL WAS REQUIRED
B. GIVEN THE EXPANSIVE AUTHORITY OF THE NJDEP TO SUPERVISE THE SOLID WASTE INDUSTRY, BUYER AND SELLER ARE BOTH RESPONSIBLE FOR OBTAINING NJDEP APPROVAL PRIOR TO CONSUMMATING THE TRANSACTION
POINT II
BECAUSE THE TRANSFER OF ASSETS WAS NOT APPROVED BY THE NJDEP, THE CONTRACT IS RENDERED ILLEGAL, AGAINST PUBLIC POLICY, AND IS THUS, UNENFORCEABLE
The facts in this matter are essentially undisputed. Walker's arguments raise purely legal questions that were resolved by the trial court in granting summary judgment. In our review, we apply the same standard as the trial court, Coyne v. N.J. Dep't of Transp., 182 N.J. 481, 491 (2005); R. 4:46-2(c). We review issues of law de novo and accord no deference to the motion judge's conclusions on issues of law. Zabilowicz v. Kelsey, 200 N.J. 507, 512-13 (2009).
As licensed solid waste collectors, Meadowbrook and Walker are public utilities, N.J.S.A. 48:2-13, and subject to the "Prohibitions, Restrictions and Exemptions" set forth in Article I, Chapter 3 of Title 48. The statutory mandate to obtain DEP approval is set forth in N.J.S.A. 48:3-7(c), which states in pertinent part:
[N]o solid waste collector . . . shall, without the approval of the Department of Environmental Protection:See also N.J.A.C. 7:26H-1.17.
(1) sell, lease, mortgage, or otherwise dispose of or encumber its property, including customer lists; or
(2) merge or consolidate its property, including customer lists, with that of any
other person or business concern, whether or not that person or business concern is engaged in the business of solid waste collection or solid waste disposal.
Walker argues that the APA is not enforceable because DEP approval was required under N.J.S.A. 48:3-7 and concedes that both parties were responsible for obtaining approval from DEP. Meadowbrook denies that approval was necessary but argues that, if necessary, Walker was "primarily responsible for the application and petition process."
Although the APA described the sale of a "personal introduction" to Walker's customers, this was clearly a euphemism for the sale of Walker's customer list. We are satisfied that DEP approval was required for the transaction. Under those circumstances, it is not disputed that at least Walker had an obligation to seek approval from DEP. The statute bears this out. The prohibition in N.J.S.A. 48:3-7(c)(1) is directed at the solid waste collector who "sell[s] . . . or otherwise dispose[s] of or encumber[s] its property, including customer lists[.]" Although it would appear to be prudent for a purchaser to require a seller to obtain DEP approval, there is no conduct by Meadowbrook that falls within the plain language of this prohibition.
The prohibition in N.J.S.A. 48:3-7(c)(2) is not so limited. Under that subsection, "no solid waste collector . . . shall . . . merge or consolidate its property, including customer lists, with that of any other person or business concern[.]" Because the act of merging or consolidating property allows for more than one actor to fall within the scope of the prohibition, it could be argued that Meadowbrook bore an obligation to seek approval under this subsection. Further, it would appear to be contrary to the spirit of the extensive regulatory scheme regarding solid waste collection for a licensed solid waste collector to participate in a transaction requiring DEP approval, knowing that no approval was forthcoming.
N.J.S.A. 48:2-51 provides that any public utility company "which shall . . . do any act or thing prohibited or forbidden by . . . section[] 48:3-7 . . . or which shall neglect, fail or omit to do or perform any act or thing thereby required to be done by it, shall be guilty of a misdemeanor." Although the parties' participation in this transaction would appear to subject them to enforcement penalties, N.J.S.A. 48:3-7(c)(1) is silent as to the enforceability of any transaction completed without the required approval. More to the point, the statute does not declare that any contract entered into without approval is illegal. And it appears that, because Meadowbrook is a licensed solid waste collector, it was not legally barred from performing the services that were the subject of the APA.
In Borough of Princeton v. Bd. of Chosen Freeholders of Mercer, 169 N.J. 135 (2001), the Supreme Court stated "[t]he essence" of the doctrine of unclean hands is that
[a] suitor in equity must come into court with clean hands and he must keep them clean after his entry and throughout the proceedings. In simple parlance, it merely gives expression to the equitable principle that a court should not grant relief to one who is a wrongdoer with respect to the subject matter in suit.See also Potomac Ins. Co. of Ill. ex rel. OneBeacon Ins. Co. v. Pa. Mfrs. Ass'n Ins. Co., 425 N.J. Super. 305, 328 (App. Div.), certif. denied, 212 N.J. 105 (2012). The application of the doctrine lies within the court's discretion. Heuer v. Heuer, 152 N.J. 226, 238 (1998).
[Id. at 158 (internal citation and quotation marks omitted).]
Here, having failed to discharge its obligation to comply with the requirements of N.J.S.A. 48:3-7(c)(1), Walker seeks to exploit that failure, arguing that the APA should be declared illegal, unenforceable and against public policy precisely because there was no compliance with that statute. Moreover, as the trial court observed, Walker obtained a substantial benefit of the bargain it now seeks to have declared void ab initio:
Ms. Vance came to the closing with debt. She had liens and encumbrances on the property. She didn't have the money to pay it. She said it then, she said it in her deposition. . . . What was the solution reached at the time of the closing? The plaintiff assumed the debt, agreed to proceed with the closing, to take full responsibility for the debt and to hold Ms. Vance harmless from . . . those debts.
In sum, we are satisfied that the agreements between the parties were not rendered illegal or unenforceable due to the failure to obtain DEP approval under the circumstances in this case, and further, that Walker's argument to the contrary is appropriately barred under the doctrine of unclean hands. To the extent we have not addressed any issues raised by appellant, we have not done so because they lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). Meadowbrook also argues that the doctrine of issue preclusion bars Walker from arguing the APA is voidable because the Bankruptcy Court adjudicated this question. In light of our conclusion, we need not reach this issue.
Affirmed.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION