STEWART TITLE GUARANTY COMPANY v. SONIA D. HARRIS, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1957-04T21957-04T2

STEWART TITLE GUARANTY COMPANY,

Plaintiff-Respondent,

v.

SONIA D. HARRIS, GEORGE SCOTT,

ACE MANAGEMENT, INC., SHAMOND SCOTT,

GEORGE ROSS, FIRST CHOICE MORTGAGE CORP.,

KENNETH N. DUBE, JAVEENA HARRIS,

21ST CENTURY MORTGAGE CORP., YANKO

AMENDOLA, and FIRST FINANCIAL TITLE

AGENCY OF NEW JERSEY, INC.,

Defendants,

and

SONIA D. HARRIS,

Third-Party Plaintiff,

v.

21ST CENTURY MORTGAGE CORP.,

YANKO AMENDOLA (Individually and

Agent of 21ST Century Mortgage Corp.),

FIRST CHOICE MORTGAGE CORP., KEN DUBE,

JAVEENA HARRIS (Individually and Agents

of First Choice Mortgage Corp.), and

U.S. MORTGAGE CORPORATION,

Third-Party Defendants,

and

RICE'S TITLE AGENCY, INC.,

Third-Party Defendant-

Respondent,

and

FIRST FINANCIAL EQUITIES, INC.,

Third-Party Defendant-

Fourth-Party Plaintiff-

Appellant,

v.

FIRST FINANCIAL TITLE AGENCY OF

NEW JERSEY, INC.,

Fourth-Party Defendant-

Respondent,

and

ANDREW S. O'CONNELL, NICHOLAS

CEVERA, ALBERT DONALD and

EXPRESS AMERICA,

Fourth-Party Defendants.

__________________________________

 

Argued September 11, 2006 - Decided October 18, 2006

Before Judges Lintner, Seltzer and C.L. Miniman.

On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-9087-99.

William N. Dimin argued the cause for appellant First Financial Equities, Inc. (Spector & Dimin, attorneys; Michelle Joy Munsat, of counsel and on the brief).

Jeffrey A. Grabowski argued the cause for respondent First Financial Title Agency of New Jersey, Inc.

Frederick W. Alworth argued the cause for respondent Stewart Title Guaranty Company (Gibbons, Del Deo, Dolan, Griffinger & Vecchione, attorneys; Kevin McNulty and Mr. Alworth, on the brief).

PER CURIAM

Third-party defendant/fourth-party plaintiff, First Financial Equities, Inc. (First Financial), appeals from the dismissal with prejudice of its claims against plaintiff Stewart Title Guaranty Co. (Stewart) and fourth-party defendant First Financial Title Agency of New Jersey, Inc. (Title Agency), for failure to provide discovery. We reverse.

Stewart instituted this action against Sonia D. Harris, Esquire, and others, alleging various fraudulent mortgage transactions for which Stewart had been duped into issuing title insurance. First-party defendant Harris was indicted, convicted, and is now incarcerated in connection with her fraudulent activities. Another first-party defendant, Yanko Amendola, died after fleeing the jurisdiction of our courts. First Financial is one of the defrauded mortgage companies to which Stewart issued title insurance. First Financial has a claim against Stewart for about $1.5 million of worthless mortgages. It also has a claim against the Title Agency for its role in the fraudulent transactions. The record on appeal does not reflect any claims made by Stewart and the Title Agency against First Financial. Thus, the issue in this litigation is which entities, Stewart, the Title Agency, or First Financial, shall bear the loss occasioned by the fraud.

Stewart and the Title Agency both served discovery requests upon First Financial in 2001. Although First Financial supplied information to its counsel at the time, counsel failed to provide the discovery to Stewart and the Title Agency. On August 27, 2001, on application of Stewart, the motion judge dismissed First Financial's claim against Stewart without prejudice under R. 4:23-5(a)(1). A similar order was filed on March 18, 2002, with respect to the Title Agency's subsequent motion to dismiss. The discovery end date was March 29, 2002.

Dissatisfied with the responsiveness of its initial counsel, First Financial retained different counsel to represent it. The new counsel substituted into the litigation on August 2, 2002, and, by the end of the month, had provided discovery responses. Stewart and the Title Agency had never moved to convert the dismissal into one with prejudice, even though the ninety-day waiting period under R. 4:23-5(a)(2) had long since passed. As a consequence, First Financial moved in mid-October to have its pleadings restored. Stewart and the Title Agency cross-moved for dismissal with prejudice, contending that First Financial had not fully and completely responded to their discovery requests.

Rather than resolving this dispute, on November 14, 2002, the judge entered three orders denying the motion and cross-motions pending before her and directed the following letter to the parties:

I enclose herewith three (3) Orders I have signed with regard to the status of First Financial Equities, Inc. All have been denied. The motion to restore by First Financial Equities, Inc. fails to explain the long delay and has not established full and complete compliance with the discovery requests made of it. The cross-motion[s] to dismiss First Financial Equities, Inc.['s] pleadings with prejudice are also denied. I am not completely satisfied the asserted prejudice has been demonstrated.

Because it is this Court's desire to have cases litigated on the merits and because this matter is being mediated, I am directing that First Financial Equities, Inc. comply with the outstanding discovery requests to the "letter" by December 20, 2002. If that is not done, adverse counsel may resubmit their motions.

The judge did not explain what she considered to be deficient nor did she enter an order compelling more specific discovery responses, specifying what was to be supplied.

In December 2002 First Financial provided additional discovery to Stewart and the Title Agency, but on January 7, 2003, Stewart moved again for dismissal with prejudice. The Title Agency followed suit one week later. First Financial then cross-moved seeking restoration of its pleadings. At the time of the March 21, 2003, oral argument on these motions, the parties disputed the sufficiency of the discovery responses. Counsel for First Financial represented that his client had supplied everything, "lock, stock and barrel." Counsel for Stewart contended that, logically, there had to be more documentation than what was supplied by First Financial.

In discussing the issue with counsel for Stewart, the court pointed out that First Financial responded to the discovery by saying that they did not have personal knowledge of certain things and could not provide the information. The judge told counsel for Stewart that it was Stewart's obligation to prove that First Financial was wrong, but that the judge could not make First Financial "do something that's inappropriate."

Counsel for the Title Agency also argued that First Financial might have more information than it supplied and complained that the First Financial files lacked documents that should have been in them. The judge told the Title Agency's attorney to take the deposition of First Financial.

Counsel for First Financial protested, saying that, since he had been in the case, he had not been standing idly by and that he had done everything that he possibly could do. The judge assured him that nobody was criticizing him but, rather, was criticizing his client before he got into the case. First Financial's counsel then said: "I could assure you that my client did not know the position that it was in until I got into the case." The court responded, "Oh baloney . . . that is unmitigated nonsense." The court went on to say, "I'm going to tell you something, if that's how stupid they are, then you know what? They had no right to have licenses to loan . . . money to . . . write title, to . . . do whatever they do." The court then stated:

Guess what. You know, . . ., you've talked yourself out of the case. You want to know what? I've been trying to work this out. We've been trying to do it. This is no disrespect to you. This is my disposition. The three of you are going to leave now. I have a full morning. Your client delayed. While the other counsel may have had an obligation to do certain other discovery, [that] your clients willfully disregarded court rules is egregious. . . . Your relief is denied. Their's is granted. Good morning.

The court continued, saying "Your client has just pushed too many buttons. You know what, I . . . just don't like clients who are going to do this. They get a good lawyer to come in and make excuses for them."

First Financial then moved for reconsideration on April 23, 2003. At the oral argument on May 23, 2003, counsel for the parties continued to dispute the sufficiency of the discovery responses. Again, rather than resolve the dispute, the court ordered First Financial to appear for deposition and permitted the attorneys for Stewart and the Title Agency to examine First Financial with respect to the sufficiency of the document production and interrogatory answers. Disposition of the motion was held in abeyance until after the depositions were completed.

The parties returned to court on July 11, 2003, after depositions were concluded. First Financial's counsel pointed out that the issue before the court was whether or not First Financial produced everything it had in its possession or under its control. The attorneys on both sides continued to dispute the sufficiency of the discovery responses and the judge reserved decision. The entirety of her written decision of August 12, 2003, follows:

The issue to be resolved is whether or not First Financial Equities, Inc. ("FFEI") has satisfactorily (albeit very late in time) responded to the discovery requests of Stewart Title Guaranty Co. ("Stewart") and First Financial Title Agency of New Jersey, ("FFTA") entitling it to a restoration of its pleadings. This is an extremely important issue in that it impacts directly on the interests of these three parties in this litigation. This discovery issue has been a continuing problem and this court finds that the delays and insufficient responses to both interrogatory and document demands has been the fault of the client and not counsel (at least present counsel). FFEI was given a third bite at compliance with discovery requests and was faced with the ultimate sanction of [d]ismissal/ [s]uppression with prejudice. In spite of that looming sanction, good faith discovery was and continues not to be forthcoming. As set forth in great detail in the opposition papers by Stewart and FFTA there has been a cavalier attitude. It is not as is argued by FFEI that all the discovery sought could have been obtained from other sources. By way of specifics, but not by way of limitation is their failure to retrieve crucial documents from non-party IndyMac Bank which documents are clearly all important proofs. Furthermore, all deponents on behalf of FFEI were clearly unprepared and not interested in full disclosure and made no attempt to obtain information necessary to be considered meaningful discovery.

Regrettably, this court must deny FFEI's request for reinstatement.

Messrs. Alworth and Grabowski are to submit a form of Order.

This appeal followed the resolution of all other claims.

Generally, the determination of a motion to dismiss with prejudice for failure to provide discovery is governed by R. 4:23-5(a)(2). It provides that "[t]he motion to dismiss or suppress with prejudice shall be granted unless a motion to vacate the previously entered order of dismissal or suppression without prejudice has been filed by the delinquent party and either the demanded and fully responsive discovery has been provided or exceptional circumstances are demonstrated." Ibid. However, as Judge Pressler has commented, this

rule is inapplicable where the issue is not a failure to answer but rather a bona fide dispute as to the adequacy of the answers. In the latter case a dismissal is inappropriate. Rather the court must adjudicate the dispute and, if appropriate, enter an order compelling more specific answers.

[Pressler, Current N.J. Court Rules, comment 1.5 on R. 4:23-5(a)(2) (2007) (citation omitted).]

We addressed this issue in Zimmerman v. United Servs. Auto. Ass'n, 260 N.J. Super. 368 (App. Div. 1992). There, Zimmerman's complaint was dismissed without prejudice for failure to answer interrogatories. Id. at 372. Zimmerman then answered the interrogatories and simultaneously moved to restore his complaint. Ibid. Defendant cross-moved for dismissal with prejudice, asserting that the answers given were not adequately responsive. Ibid. The judge granted the cross-motion and Zimmerman moved for reconsideration, asserting that the original answers were adequate. Ibid. The judge did not address the dispute over the adequacy of the answers, concluding in general terms only that they did not appear to be adequate. Id. at 373. We reversed, holding "that the dismissal with prejudice should not have been ordered at all in view of the unresolved dispute, raised by the motion papers then before the court, as to whether or not plaintiff had indeed cured the default . . . ." Id. at 376.

First, we observed that the 1990 revisions to R. 4:23-5 were "designed to elicit answers rather than to punish the offender by the loss of his cause of action or defense." Id. at 374. This purpose is furthered by the requirement of R. 4:23-5(a)(2) that the attorney for the delinquent party must notify his client of an impending dismissal with prejudice. Id. at 375.

The problem before us is, of course, exacerbated by the unresponsive-answer problem. We recognize that in order to cure the default, R. 4:23-5(a)(1) requires the defaulting party to serve "fully responsive answers." We also appreciate that what the answering party in good faith may regard as responsive under the circumstances is not necessarily congruent with the propounder's view of the matter. There is a broad area for bona fide dispute between answers which are patently inadequate and a set of answers which fully meets the propounder's expectations. We are also satisfied that this much at least is clear. If the set of answers, considered in the context of the specific cause of action and the progress of discovery to date would have been sufficient to withstand a motion for dismissal without prejudice under R. 4:23-5(a)(1), then it is also sufficient to withstand a motion for dismissal with prejudice under R. 4:23-5(a)(2). And if the real contour of the dispute is defendant's request for more specific answers, then the judicial obligation is to adjudicate that dispute, not to dismiss the action with prejudice.

[Id. at 377.]

We concluded that "when the real discovery dispute is not a failure to answer but rather an alleged failure to answer in a 'fully responsive' manner, it is the dismissal with prejudice that is inappropriate unless the answering party has been ordered to answer more fully and fails to do so." Id. at 378. Finally, we pointed out that

it is clear that if the answering party has provided sufficient information at least to withstand summary judgment, he may be bound in his trial presentation by his inadequate answers. Thus his inadequate answers constitute his risk, not his opponent's, since the trial proofs may be limited by the content of the interrogatory answers.

[Ibid. (citation omitted).]

The facts of this case are identical to those in Zimmerman. When the motion judge, on November 14, 2002, denied the motion to restore and the cross-motions to dismiss with prejudice, she failed to comply with the holding in Zimmerman. At that point she was obligated to determine whether there was a bona fide dispute over the sufficiency of the discovery responses and, if so, to resolve that dispute by ordering more specific responses. That duty was not discharged by a mere instruction to "comply with the outstanding discovery requests to the letter" because the judge did not explain what she found deficient. This general instruction left First Financial without the benefit of specific findings and a specific order as to each and every discovery dispute.

This error was compounded by the dismissal with prejudice on March 21, 2003. We are at a loss to understand the basis for the judge's conclusions. We have repeatedly reminded trial courts about the critically important obligation to find the facts and state their conclusions. Ronan v. Adely, 182 N.J. 103, 111 (2004) ("We emphasize that it is imperative that the trial court make clear its findings of fact . . . ."); Cameco, Inc. v. Gedicke, 157 N.J. 504, 509-10 (1999); Curtis v. Finneran, 83 N.J. 563, 570 (1980) (court must clearly state its factual findings); Bennett v. Lugo, 368 N.J. Super. 466, 478 (App. Div.), certif. denied, 180 N.J. 457 (2004); Raspantini v. Arocho, 364 N.J. Super. 528, 532-33 (App. Div. 2003) ("findings and conclusions [must] be set forth with sufficient attention and analysis to permit our review").

Here, the judge stated conclusions without any fact findings at all. Indeed, it seems that the real basis for the dismissal with prejudice was an unwarranted irritation with First Financial. Although the judge evidently felt that First Financial was playing games, there was no record support for this conclusion. The record does not contain any certification from the initial counsel who represented First Financial averring that he complied with R. 4:23-5(a)(1) by serving a copy of the order of dismissal or suppression without prejudice upon First Financial by regular and certified mail, return receipt requested, accompanied by a notice in the form prescribed by Appendix II-F of the Rules of Court. Thus, there was no proof that First Financial was aware of the failure to provide discovery or the dismissal without prejudice. It is counsel's representation to the court that his client was unaware of the state of the litigation before he was substituted for the first counsel stood unrefuted. Even if it were true that First Financial, rather than its first counsel, had been derelict, the ultimate sanction of dismissal with prejudice was as unwarranted as the judge's irritation.

Even in ruling on the motion for reconsideration, the judge stated only conclusions and failed to find any facts other than that First Financial failed to retrieve documents from IndyMac Bank. Although that "fact" was undisputed, the judge did not find any facts to support any duty on the part of First Financial to obtain such documents. Parties under our civil practice are only required to produce documents in their custody, possession, or control. R. 4:18-1(a); see D'Agostino v. Johnson & Johnson, 242 N.J. Super. 267, 273 (App. Div. 1990). There is no record evidence that documents in the possession of non-party IndyMac Bank were in First Financial's custody, possession, or control. Although it was undisputed that First Financial had sold the worthless mortgages to IndyMac Bank and, in doing so, had transferred First Financial's original files to it, there was no evidence that First Financial retained control of those documents.

The orders dismissing the claims of First Financial with prejudice are vacated and the matter is remanded for entry of an order reinstating First Financial's pleadings, without prejudice to the rights of Stewart and the Title Agency to move for more specific discovery responses. First Financial is to pay the $300 restoration fee mandated by R. 4:23-5(a)(1). The trial court is to reopen discovery for a reasonable period of time to permit the parties to complete same.

 
Reversed and remanded for proceedings consistent with this opinion.

Harris was convicted of first-degree money laundering, first- and second-degree conspiracy, second-degree theft by deception, and second-degree misapplication of entrusted property.

Amendola was indicted on multiple counts of money laundering, criminal conspiracy, theft by deception, and identity theft.

(continued)

(continued)

15

A-1957-04T2

October 18, 2006