Opinion
DOCKET NO. A-1733-13T4
12-16-2014
STEVEN P. KARTZMAN, CHAPTER 7 TRUSTEE FOR STATELINE RESTAURANT CONSTRUCTION, INC., d/b/a STATELINE CONSTRUCTION, Plaintiff-Respondent, v. RANDOLPH REALTY, LLC; Defendant-Appellant, and MEADOW WOOD MANOR COMPANY; GROWTH RESTAURANTS, INC.; JEFF BEERS, Defendants.
Stuart Gold argued the cause for appellant (Mandelbaum, Salsburg, Lazris & Discenza, P.C., attorneys; Mr. Gold, of counsel and on the brief). Adam G. Brief argued the cause for respondent (Mellinger, Sanders & Kartzman, LLC, attorneys; Steven P. Kartzman and Mr. Brief, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Reisner, Koblitz and Haas. On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-2423-10. Stuart Gold argued the cause for appellant (Mandelbaum, Salsburg, Lazris & Discenza, P.C., attorneys; Mr. Gold, of counsel and on the brief). Adam G. Brief argued the cause for respondent (Mellinger, Sanders & Kartzman, LLC, attorneys; Steven P. Kartzman and Mr. Brief, on the brief). PER CURIAM
In this breach of contract case, defendant Randolph Realty, LLC appeals from the October 29, 2013 order of the Law Division granting plaintiff Steven Kartzman's second motion for reconsideration, and vacating a September 4, 2013 order that permitted defendant to present evidence at a limited new trial in support of its set-off defense. Because we conclude the trial judge mistakenly exercised his discretion in granting plaintiff's motion for reconsideration and in reinstating discovery sanctions against defendant, when lesser sanctions would have been sufficient to level the playing field, we reverse and remand for further proceedings.
The judge initially excluded this evidence at the November 2012 trial because certain checks supporting the set-off defense were not provided to plaintiff until shortly after the discovery end date.
The procedural history and facts of this litigation are well known to the parties and we therefore summarize only the portions of the record pertinent to the discovery sanction rulings. Plaintiff is the Trustee in Bankruptcy for the estate of Stateline Restaurant Construction, Inc. (Stateline), a company that "was engaged in the business of providing general contracting and construction management services."
On June 26, 2007, Stateline "filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. . . . On October 20, 2007, [Stateline's] Chapter 11 case was converted to a case under Chapter 7 of the Bankruptcy Code."
Defendant owned property where it wished to operate a catering facility. In July 2003, defendant entered into a contract with Stateline for the construction of a catering facility on the property. Under the contract, Stateline would serve as the general contractor and defendant agreed to pay Stateline $6.2 million for completing the project.
Over the course of the contract, plaintiff alleged the parties entered into "change orders" which increased the costs of the goods and services Stateline provided to defendant during the construction of the catering facility by $1,206,927.35. Defendant disputed this figure, and argued it and its architect never approved many of the change orders.
The change orders state they are "NOT VALID UNTIL SIGNED BY THE OWNER, CONSTRUCTION MANAGER, ARCHITECT AND CONTRACTOR."
As construction progressed, Stateline's financial woes increased and it did not always pay its subcontractors on a timely basis. In order to keep the project moving forward, defendant paid a number of Stateline's subcontractors directly, rather than making those payments to Stateline. Stateline was aware of these payments, although it disputed defendant's claim that it paid hundreds of thousands of dollars to the subcontractors.
By the time the project was completed, defendant had paid Stateline the full contract price of $6.2 million, plus additional funds for approved change orders. Defendant had also made direct payments of additional amounts to Stateline's subcontractors. However, upon reviewing Stateline's financial records, plaintiff asserted that defendant only paid Stateline $507,109 of the $1,206,927.35 in change orders the parties allegedly agreed upon during the project.
On July 26, 2010, plaintiff filed a complaint against defendant, its treasurer, and their related companies to recover the balance due. Plaintiff raised breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment, and quantum meruit claims. In its answer, defendant generally denied liability for further payments and, as an affirmative defense, asserted that because it made payments directly to Stateline's subcontractors, "[p]laintiff's claims are barred, in whole or part, and/or its recovery of damages should be reduced, based upon the doctrines of setoff and/or recoupment."
Discovery ensued. In its April 22, 2011 response to plaintiff's Interrogatory No. 21, defendant asserted that it paid $596,206.26 for approved change order work. In its response to Interrogatory No. 22, defendant admitted that it did not pay Stateline $185,025 due on nineteen other change orders. The specific change orders, and the amounts due, were set forth in the response.
In support of its set-off claim, defendant asserted in its response to Interrogatory No. 19 that it "paid $459,649 to subcontractors, either who had not been paid by Stateline or to complete work at the Project that fell within Stateline's scope of work." Defendant's response identified each payment it allegedly made to the subcontractors.
Defendant did not specify whether its payments to the subcontractors were for work attributable to change orders or for work performed pursuant to the basic contract.
Discovery continued. In November 2011, defendant asserts it advised plaintiff that its "documents were available for review[,]" including copies of some of the checks defendant used to pay the subcontractors. Plaintiff's counsel reviewed defendant's documents later that month, but subsequently claimed that only four of the relevant checks were made available for inspection at that time.
On January 26, 2012, defendant e-mailed plaintiff "lists of payments made for work under the Stateline contract" that it allegedly made to the subcontractors. These lists identified the check number, the amount of the check, and the payee. In its e-mail, defendant's attorney stated that defendant was "having a difficult time getting copies of the checks." In a February 29, 2012 e-mail, defendant's attorney advised plaintiff "that the bank is contending that it does not have records that far back" and that she "may have to issue a subpoena for the checks" because "[i]t seems that we are not getting cooperation from the bank[]."
On March 8, 2012, the trial court entered the last of a series of consent orders and set April 20, 2012 as the discovery end date. Defendant's attorney was still attempting to obtain copies of the checks for plaintiff. On April 16, 2012, she served a subpoena on the bank for copies of the checks. The bank responded and, on May 1, 2012, defendant's attorney provided plaintiff with copies of twenty-three checks allegedly verifying defendant's direct payments to plaintiff's subcontractors.
On July 26, 2012, the parties participated in arbitration. In preparation for the arbitration, plaintiff alleged defendant provided him with copies of eight more checks purporting to evidence additional direct payments to subcontractors. However, defendant asserted that it had already provided these checks to plaintiff. Defendant claimed that all of the checks it gathered for plaintiff demonstrated that it made almost $400,000 in direct payments to plaintiff's subcontractors and that it was entitled to a set-off in this amount for any obligations it might still owe to Stateline under the terms of the contract. The arbitration did not produce an amicable resolution of the matter.
On September 18, 2012, plaintiff filed an in limine motion to exclude the checks from evidence because defendant failed to obtain and provide plaintiff with the checks prior to the April 20, 2012 discovery end date. The judge who was then managing the litigation advised the parties that the motion would not be heard until a trial judge was assigned. The matter was scheduled for trial beginning November 13, 2012.
The trial continued on November 14, and concluded on November 15, 2012.
On the first day of trial, plaintiff renewed his motion to exclude the checks from evidence. The trial judge reserved decision on the motion and stated, "We'll deal with it . . . at the time the issue arises."
Plaintiff presented the testimony of Stateline's president and of its project manager. Although both witnesses asserted defendant failed to pay for expenses set forth in the disputed change orders, neither was able to demonstrate that defendant or the architect ever agreed to these change orders. They were also unable to provide competent testimony concerning the reasonable value of any of the work Stateline allegedly performed pursuant to the change orders which had not been approved by defendant.
Accordingly, at the conclusion of plaintiff's case, the judge granted defendant's motion to dismiss the bulk of plaintiff's claims. The judge stated:
With respect to the change orders[,] they are perfectly clear on their face. If you want them to be a contract they have to be signed by both sides. The terms are absolutely clear. So as to any change orders that were not signed, particularly by the defendant, that does not give rise to an action for breach of contract.
So that leaves quantum meruit, unjust enrichment, and the problem there is the plaintiff has to prove the reasonable value with respect to each of the items, and this is not a matter of weighing the evidence. There is no testimony about the reasonable value of each of the items. . . . So there can be no recovery with respect to any of the unsigned change orders.
The judge then turned to the admission defendant made in its response to plaintiff's Interrogatory No. 22 that it did not pay Stateline $185,025 due on nineteen approved change orders. The judge found defendant was bound by this admission. With regard to the $185,025 set forth in the nineteen orders, however, the judge further found that Stateline's president testified at trial that: Stateline never worked on the elevator door panels as alleged in a $2,178 change order; defendant paid a subcontractor $17,250 for trees referred to in another order; and defendant was entitled to a $50,000 "hardware allowance." The judge subtracted these sums from the $185,025 set forth in the nineteen change orders and concluded that plaintiff had demonstrated that defendant was potentially liable to him for $115,597 "not by any proof, but by admission[.]"
The judge then asked defendant's attorney, "Now what do you want to do?" The attorney replied that she intended to call defendant's treasurer "to address the amounts that he paid for third parties that were part of the contract[.]" After the treasurer began to testify, plaintiff renewed his motion to exclude the checks defendant had produced to support its claim that it was entitled to a set-off against the $115,597 the judge found was due under the nineteen change orders. Plaintiff argued that, because the checks were not produced prior to the expiration of the discovery period, they could not be entered in evidence, even though plaintiff received the checks months before trial. The judge again reserved decision on plaintiff's motion, and stated, "I'm going to take the testimony and then I'll decide whether to admit it. I'll take the testimony as an offer of proof, at least at this time, and then I'll rule on whether it's admissible." The treasurer testified defendant paid the subcontractors over $320,000 during the life of the contract and, therefore, defendant was seeking a set-off in this amount from the $115,597 it owed.
After some brief argument on the motion, and without considering any lesser sanctions, the judge sustained the objection and refused to consider the treasurer's testimony or any of the checks defendant proffered. The judge made this ruling even though he observed that the treasurer "appears to be a credible witness," as opposed to Stateline's president, about whom the judge commented he "wouldn't believe anything other than his name. The contradictions in his testimony were remarkable, to say the least." The judge stated that judgment would be entered against defendant and "for the plaintiff in the amount of $115,597 plus costs." However, the December 11, 2012 judgment did not mention costs and, instead, stated that plaintiff was entitled to "post-judgment interest as authorized by the New Jersey Rules of Court."
The judge dismissed plaintiff's claims against defendant's treasurer and the related entities named as defendants in the complaint.
On December 21, 2012, plaintiff filed a motion for reconsideration, raising issues concerning pre-judgment interest and the personal liability of defendant's treasurer. On January 16, 2013, defendant filed a cross-motion for reconsideration, arguing that the judge erred by excluding the checks from evidence and failing to consider its set-off defense.
Following oral argument on February 8, 2013, the judge granted defendant's motion for reconsideration. The judge found that defendant's attorney should have applied for an extension of the discovery period, so that the checks could have been obtained prior to the close of discovery. However, the judge stated that, based on the treasurer's credible testimony,
The judge granted plaintiff's request for pre-judgment interest and denied his motion for reconsideration of the court's prior ruling that defendant's treasurer was not personally liable for the judgment entered against defendant. On September 24, 2013, the judge entered an amended judgment against defendant for "the principal amount of $115,597, plus contractual interest at the rate of 10% from September 24, 2004 to December 11, 2012 on the sum of $93,000."
it [was] highly unlikely that the checks in question were not all used to pay [plaintiff's] subcontractors . . . out of necessity. . . . [I]f that is so, we are confronted with a monumental injustice because the plaintiff, who is the trustee in bankruptcy for . . . the company, Stateline, would be extracting hundreds of thousands of dollars in the circumstances that would be extraordinarily unjust.
And [defendant] would be suffering simply not because of anything that [it] did . . . but what was done by [its] counsel or not done.
The judge found that defendant's attorney provided plaintiff with the checks as soon she received them from the bank and there was no "design to mislead" or "surprise" plaintiff. The judge further found that plaintiff would suffer no prejudice by the admission of the checks in evidence "if appropriate conditions are directed." The judge stated:
I was distressed by what I thought was my obligation to exclude the evidence, very distressed. Distressed because the polestar of our legal system is justice, and the whole point of the rules is to get to a just result and not to allow a victory on some technicality, particularly where defense — plaintiff's counsel is aware of and seeking to take advantage of a technicality. Not that he was — I'm not ruling that he was wrong to do that, but it is a factor.
People dealing straight with each other would bring this to the attention of the other side. The law may not always require straight dealing, but it ought to.
In any case, I'm not going to let this injustice stand. Therefore, I am going to permit a reopening or a new trial of this aspect of the case. I am also going to reopen the period of discovery. I am also going to require that the plaintiff reimburse the defendant for all legal costs related to taking the discovery, and to the cost of coming back, getting ready for this aspect of the case, and trying this aspect of the case.
Based upon these findings, the judge granted defendant's motion for reconsideration "to allow a new trial solely as to the reduction of the [$115,597 in] damages previously determined by the [c]ourt based on payments made by or on behalf of defendant[.]" The court ordered that discovery be "reopened for an initial period of 60 days" to give plaintiff time, if needed, to take depositions concerning the checks. The court also directed defendant to reimburse plaintiff for any legal fees plaintiff incurred in conducting discovery, preparing for trial, and appearing at the new trial. The court ordered that defendant put $20,000 in escrow to cover these expenses.
For reasons that are not clear from the record, the order setting forth the rulings made by the judge at oral argument on February 8, 2013, was not signed and filed by the judge until September 4, 2013. Plaintiff then filed a second motion for reconsideration. Plaintiff argued that, because defendant had not filed a motion for a new trial within the time permitted by Rule 4:49-1(b), the judge lacked the authority to order a new trial when he granted defendant's motion for reconsideration to allow consideration of the checks.
Following oral argument, the judge granted plaintiff's second motion for reconsideration and vacated his prior order granting a new trial on the issue of defendant's set-off defense. In a brief written statement accompanying the October 29, 2013 order, the judge stated that, under Rule 4:49-1(b), "a motion for a new trial must be filed within 20 days of the decision, not the judgment, if one has been filed." Defendant did not file a motion for a new trial within twenty days of the judge's initial decision on November 15, 2013. Because defendant did not make a timely motion for a new trial, the judge ruled that he lacked the authority to order a new trial to address his prior ruling barring defendant from presenting the checks supporting its set-off defense. In so ruling, however, the judge stated that he "remain[ed] convinced that the order [directing a new trial and permitting further discovery at defendant's expense] was necessary for there to be a just resolution of this case[.]" He also "reiterate[d] [his] view that defendant ought to get its day in court on retrial. Otherwise, justice will not be done." This appeal followed.
On appeal, defendant argues the trial judge "erred in excluding the evidence [it] proffered . . . to prove its set-off defense[.]" Defendant also argues that, after the judge corrected this error by ordering a limited new trial together with additional discovery, the judge erred by granting plaintiff's motion for reconsideration and again barring defendant from presenting its set-off defense. Because we agree that the judge mistakenly exercised his discretion in excluding the evidence supporting defendant's set-off defense, we reverse and remand for further proceedings.
"A trial court has inherent discretionary power to impose sanctions for failure to make discovery, subject only to the requirement that they be just and reasonable in the circumstances." Abtrax Pharm., Inc. v. Elkins-Sinn, Inc., 139 N.J. 499, 513 (1995) (quotation marks and citation omitted). A decision to impose discovery sanctions is reviewed under the abuse of discretion standard. Id. at 517.
Rule 4:23-2(b) provides for various remedies available to the court to address a party's failure to comply with discovery orders. According, a court may execute
(1) An order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order;
(2) An order refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting the introduction of designated matters in evidence;
(3) An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or proceeding or any part thereof with or without prejudice, or rendering a judgment by default against the disobedient party;
(4) In lieu of any of the foregoing orders or in addition thereto, an order treating as a contempt of court the failure to obey any orders.
In lieu of any of the foregoing orders or in addition thereto, the court shall require the party failing to obey the order to pay the reasonable expenses, including attorney's fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust.
[Ibid.]
The Supreme Court has provided guidance in determining the appropriate sanction under this rule:
In respect of the ultimate sanction of dismissal, this Court has struck a balance by instructing courts to impose that sanction only sparingly. The dismissal of a party's cause of action, with prejudice, is drastic and is generally not to be invoked except in those cases in which the order for discovery goes to the very foundation of the cause of action, or where the refusal to comply is deliberate and contumacious. Since dismissal with prejudice is the ultimate sanction, it will normally be ordered only when no lesser sanction will suffice to erase the prejudice suffered by the non-delinquent party, or when the litigant rather than the attorney was at fault. Moreover, the imposition of the severe sanction of dismissal is imposed not only to penalize those whose conduct warrant it, but to deter others who [might] be tempted to violate the rules absent such a deterrent.
[Abtrax, supra, 139 N.J. at 514-15 (alteration in original) (citations and internal quotation marks omitted).]
We have also repeatedly held that the sanction of dismissal is the sanction of last resort, to be imposed only when no lesser penalty would be sufficient in view of the nature of noncompliance and the prejudice caused to the other parties. See e.g., Rabboh v. Lamattina, 312 N.J. Super. 487, 492-93 (App. Div. 1998), certif. denied, 160 N.J. 88 (1999); Irani v. K-Mart Corp., 281 N.J. Super. 383, 387 (App. Div. 1995). Indeed, "[a]ny discretionary exercise of the extreme remedy of enjoining or conditioning a litigant's ability to present his or her claim to the court must be used sparingly; it is not a remedy of first or even second resort." Parish v. Parish, 412 N.J. Super. 39, 54 (App. Div. 2010).
In the case of a discovery violation, the selection of the remedy "that is appropriate under the circumstances must be guided by the essential purposes that all of the sanctions are designed to achieve." Robertet Flavors, Inc. v. Tri-Form Constr., Inc., 203 N.J. 252, 273 (2010). One of these goals is to make the aggrieved party "'whole, as nearly as possible[.]'" Ibid. (quoting Rosenblit v. Zimmerman, 166 N.J. 391, 401 (2001). If the prejudice against a party by the failure to timely make discovery can be eliminated, and the parties again placed on an equal playing field, sanctions other than dismissal of claims or defenses to specific counts of a complaint should be imposed. Id. at 273-74.
Applying these principles to the circumstances of this case, we conclude the judge mistakenly exercised his discretion by excluding the checks from evidence solely because defendant did not obtain them prior to April 20, 2012. As the judge noted when he subsequently granted defendant's motion for reconsideration, defendant did not intend to mislead or surprise plaintiff when it provided the checks to plaintiff eleven days after the discovery end date. At that point, plaintiff had already reviewed some of the checks and, from defendant's detailed answers to plaintiff's interrogatories, knew the specific amounts defendant claimed it paid to Stateline's subcontractors. Plaintiff was also aware of the difficulties defendant's attorney was having in procuring the checks from the bank. Nothing in the record indicates that defendant or its treasurer were responsible for the delay in producing the checks.
All of the checks were available by the time of the July 2012 arbitration and well in advance of the November 2012 trial. Thus, the judge's original sanction of barring defendant's set-off defense was not warranted. We agree with the judge's subsequent finding that, in this bench trial, neither party would be prejudiced by a brief adjournment to give plaintiff the opportunity to conduct any necessary depositions concerning the checks. In addition, the judge required defendant to reimburse plaintiff for some or all of the costs necessitated by the additional discovery. Thus, any possible prejudice to plaintiff was clearly ameliorated by the conditions the judge placed on defendant's presentation of the set-off evidence.
We presume that, if the checks demonstrate that defendant made payments for any change orders that were not allowed by the trial judge because they were not signed by the parties, plaintiff would have the opportunity to make an argument to the trial court that the payments evidenced by those checks should not be viewed as a set-off.
--------
Plaintiff argues that the judge was prohibited from reconsidering his prior decision barring defendant from presenting its set-off defense because defendant did not file a timely motion for a new trial. This argument lacks merit. A trial court on a motion for reconsideration under Rule 4:49-2 clearly has the authority to vacate, amend, or modify a prior judgment. Baumann v. Marinaro, 95 N.J. 380, 390 (1984). Once the judge determined he had incorrectly prevented defendant from presenting its set-off defense, the December 11, 2012 judgment could no longer stand. In order to give both parties their day in court, the judge properly ordered that discovery be reopened in advance of a new trial, limited to the consideration of defendant's set-off defense.
Almost sixty years ago, our Supreme Court observed that "justice is the polestar" of our judicial system "and our procedures must ever be mo[]lded and applied with that in mind." N.J. Highway Auth. v. Renner, 18 N.J. 485, 495 (1955). As the judge repeatedly stated during his subsequent rulings, the remedy he fashioned was the only means of preventing "a monumental injustice." Under the circumstances presented in this case, we concur that justice will best be served by remanding this matter for discovery and a new trial limited to the issue of defendant's set-off defense.
Reversed and remanded. We do not retain jurisdiction. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION