RUBY PACHECO v. DOROTHY BONANNO

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3792-04T23792-04T2

RUBY PACHECO,

Plaintiff,

v.

DOROTHY BONANNO,

Defendant-Respondent/

Third-Party Plaintiff,

v.

JOSEPH C. BONANNO,

Third-Party Defendant/

Appellant,

and

ASHLEY NORTH,

Third-Party Defendant.

____________________________________

A-3871-04T2

RUBY PACHECO,

Plaintiff-Appellant,

v.

DOROTHY BONANNO,

Defendant-Respondent/

Third-Party Plaintiff,

v.

JOSEPH C. BONANNO and

ASHLEY NORTH,

Third-Party Defendants.

___________________________________

 

Argued March 29, 2006 - Decided July 21, 2006

Before Judges Wefing, Fuentes and Graves.

On appeal from Superior Court of New

Jersey, Law Division, Essex County,

No. ESX-L-4147-01.

Evelyn R. Storch argued the cause for

appellant Joseph C. Bonanno in A-3792-04T2

(Podvey, Meanor, Catenacci, Hildner,

Cocoziello & Chattman, and Elchanan I.

Dulitz, attorneys; Ms. Storch and Mr.

Dulitz, on the brief).

Karen A. Ermel argued the cause for appellant

Ruby Pacheco in A-3871-04T2.

Keith McKenna argued the cause for respondent

Dorothy Bonanno in both appeals (McKenna, Mulcahy

& McKenna, attorneys; Mr. McKenna, on the brief).

PER CURIAM

These two appeals, involving related parties and issues, were calendared before us back-to-back. We now consolidate them for purposes of this opinion. In A-3871-04, Ruby Pacheco appeals from trial court orders entered on June 24, 2004, August 6, 2004, October 14, 2004, February 18, 2005, and April 28, 2005. In A-3792-04, Joseph C. Bonanno appeals from those same orders. After reviewing the record in light of the contentions advanced on appeal, we affirm in part, reverse in part, and remand for further proceedings.

This is the second time these parties have been before this court. In order to understand the present dispute, it is necessary to summarize briefly some of the prior history among these parties.

Joseph C. Bonanno was married to defendant Dorothy Bonanno for more than thirty years. The couple had five daughters, all of whom are emancipated. In 1990 the two were divorced and, in connection with the divorce proceedings, executed a comprehensive Property Settlement Agreement that was annexed to the judgment of divorce.

Paragraph 19(A) of that Property Settlement Agreement provided as follows:

Wife and Husband acknowledge that there are five children of the marriage: Lori Bonanno Hofstetter, Lisa Marie Bonanno Bertran; Linda Joy Bonanno, Leslie Dee Bonanno and Lenora Beth Bonanno, all of whom are emancipated. Wife and Husband hereby expressly agree that by their Last Will and Testament, and subject to any statutorily required minimum share which may be given for any future spouse of either party, each will leave one-half of his or her entire estate to the survivor of Wife and Husband with the remainder to be held in trust for the life of said survivor with said survivor receiving all income from said trust and upon the death of said survivor, said trust, together with any accrued, accumulated or undistributed income therefrom, shall be paid over, conveyed and distributed in equal shares to the children of Wife and Husband; and, in the event that there is no survivor as to Wife and Husband, each will leave his or her entire estate in equal shares to the children of Wife and Husband. In the event a child does not survive the testator, her share shall be distributed in equal shares to her surviving children. If there are no surviving children of the deceased child, such share shall be left to the surviving issue of the testator in equal shares, per stirpes and not per capita. Notwithstanding what either of them may do in his or her Last Will and Testament, this Paragraph is enforceable and binding in accordance with its terms. Thus, their children are third party beneficiaries of this provision and shall be entitled to enforce this Paragraph in accordance with its terms.

Joseph C. Bonanno subsequently married plaintiff Ruby Pacheco and that marriage has produced one son. As we noted in our earlier opinion, the parties have been engaged in "nearly continuous litigation" since the execution of that Property Settlement Agreement. Pacheco v. Bonanno, No. A-005577-02 (App. Div. February 18, 2004) (slip op. at 2). That litigation has not been confined to these three parties but has embroiled other entities in which the parties had business interests. In addition, the litigation has, unfortunately, touched the five Bonanno daughters, three of whom have allied themselves with their father, two of whom have sided with their mother.

By February 2002, nearly twelve years after the divorce, at least six separate lawsuits were pending, and repeated efforts to settle them had been unsuccessful. In February 2002, however, the parties agreed upon the terms and structure of a global settlement intended to dispose of all the pending litigation. There were many aspects to this global settlement, only one of which is pertinent to these appeals.

As part of the 2002 global settlement, the parties agreed to modify paragraph 19(A) of the property settlement agreement Joseph and Dorothy had executed in 1990. They further agreed to implement this modification through the technique of Dorothy creating a trust funded by certain commercial properties located on Audrey Place and Commerce Road, all in Fairfield, and a residence located at 540 Normandy Drive in Normandy Beach. Dorothy had received the commercial properties, subject to their existing mortgages under the 1990 Property Settlement Agreement.

The 2002 settlement agreement called for Joseph to pay off the existing encumbrances on these commercial properties. The record before us contains a joint letter from the parties' attorneys dated May 3, 2002, estimating those encumbrances to total in excess of $800,000. The 2002 settlement agreement further provided that Dorothy would receive the income from this trust for life and that upon her death, the corpus would be divided in equal shares among the five daughters, all of whom were to serve as trustees. Further, in recognition of the division among the siblings, the settlement required that any increase in mortgage indebtedness on the commercial properties (which in any event could only be incurred for "necessary and reasonable capital improvements" on the properties) have the approval of four of the five trustees. In return, Joseph was to be relieved of his obligation under the 1990 Property Settlement Agreement to maintain a Last Will and Testament in favor of Dorothy or his five daughters.

Because of the complexity of this 2002 settlement, which not only encompassed complicated property issues but also affected the rights of non-parties, numerous drafts were required to reduce the agreement to a satisfactory written form. Dorothy's attorney prepared the first such draft on February 21, 2002. It conformed in certain essentials to the outline we have set forth above, but it also differed in certain regards; in particular, this initial draft omitted mention of the Normandy Beach property and required unanimity among the trustees, as opposed to a supermajority of four out of five. A number of drafts and revisions were thereafter exchanged among counsel before an agreement was ultimately reached in May 2002.

Because this 2002 settlement agreement affected the rights granted to the five daughters under their parents' 1990 Property Settlement Agreement, it was drafted so as to be signed by each of them despite the fact that none of the Bonanno daughters were then parties to any of the outstanding suits. On May 3, 2002, the attorneys sent a joint letter to the daughters, advising them of the terms of this settlement and asking each to sign, to indicate her approval of this settlement. Only two, however, agreed to sign.

In June 2002, Dorothy's attorney wrote to the trial court to inform it of this apparent impasse. In the course of that letter, he referred to an irrevocable grantor's trust established by Dorothy, which held the commercial properties that had been envisioned as part of the corpus of the trust to be created under the 2002 settlement agreement. Further, according to the attorney's letter, certain provisions of the 2002 settlement agreement, the terms of which had just been apparently finalized, conflicted with the terms of the irrevocable trust created by Dorothy. According to the record before us, this letter was the first notification to Joseph and Ruby of the existence of this trust.

It developed that this trust was created by Dorothy on February 20, 2002, the date of the apparently successful settlement conference and one day before her attorney created the first draft of a settlement agreement. One day earlier, on February 19, 2002, Dorothy conveyed the Audrey property and one of the Commerce properties to limited liability companies and twelve days later, on March 3, 2002, she assigned the stock in these limited liability companies to this irrevocable trust, thus funding it.

The provisions of this irrevocable trust differed in significant respects from the agreed-upon terms set forth in the 2002 settlement agreement. The irrevocable trust, for instance, named only the two daughters aligned with Dorothy as trustees, rather than naming all five. The two serving as trustees would thus have the opportunity to earn income commissions, which their sisters would not. In addition, the irrevocable trust contained no restrictions on the ability of the trustees to mortgage trust assets as did the trust terms contained in the settlement agreement. Further, the irrevocable trust specifically reserved to Dorothy "the power to name other descendants of the grantor as additional beneficiaries of the trust and to change the interests of the grantor's children as rema[i]ndermen as amongst themselves." Thus, the equality of treatment of the five daughters envisioned under the 2002 settlement agreement was no longer assured.

Not surprisingly, the discovery of the existence of this irrevocable trust led to a flurry of meetings, followed by motion practice, with Joseph and Ruby seeking to enforce the terms of the settlement agreement, Dorothy seeking to modify the settlement agreement to conform to the terms of the irrevocable trust she had created. In addition, Dorothy took the position that she was unable to convey the Normandy Beach property to the settlement trust because it had been earlier conveyed to her daughter Lori Hofstetter, who, according to Dorothy, refused to cooperate with the envisioned transfer. Joseph and Ruby had known that title to the Normandy Beach house had been transferred to Lori Hofstetter. They understood the transfer, which had occurred some years earlier, had been made allegedly to shield the property from creditors. Joseph and Ruby maintained, however, that Dorothy still had effective control of the property, such that she was able to direct that it be transferred to the trust envisioned under the 2002 settlement agreement.

That their view in this regard was not unreasonable is indicated by a letter from Dorothy's counsel dated July 24, 2002, to Joseph's attorney. In this letter, he set forth certain revisions he contended had to be made to the settlement agreement; he included the deletion of any reference to the Normandy Beach property. This letter states:

In a final attempt to settle the matter, Mrs. Bonanno advises that if the Bonanno Daughters are eliminated from the Settlement Agreement and the provisions with respect to the trust established to hold title to the commercial properties have also been eliminated, she will ensure, within 10 days of the execution of the Settlement Agreement, that title to the Normandy Beach Property will be held by a qualified residential trust for the benefit of the Bonanno Daughters in a similar matter [sic] to the trust established for the commercial properties.

Clearly, Dorothy could give no such assurance if she did not have effective control of the Normandy Beach property. Subsequently, faced with motions by Joseph and Ruby seeking to enforce the 2002 settlement, Dorothy retreated from that position as stated by her attorney, and asserted she was powerless to do anything further with regard to the Normandy Beach property.

In early 2003, Joseph filed a motion seeking to enforce the 2002 settlement agreement without the signatures of his daughters, it having become clear that there was no realistic possibility that all five would sign the document. Dorothy filed a cross-motion, seeking to enforce a modified version of that settlement agreement; in her cross-motion she referred to the irrevocable trust she had created but did not enclose a copy of the document and did not provide a complete description of all of its terms.

The trial court entered an order dated May 15, 2003, in which it declared that the 2002 settlement agreement was enforceable in the absence of the signatures of the Bonanno daughters. Dorothy appealed and we affirmed in an unpublished opinion entered February 18, 2004. Pacheco, supra, No. A-5577-02T2 (slip op. at 6).

Following issuance of our opinion, counsel for Joseph and Ruby wrote to Dorothy's attorney, advising him of the steps they proposed to take to satisfy their obligations under the 2002 settlement agreement and asking for a copy of the trust document conforming to the terms of the settlement this court found enforceable, with the corpus including the Normandy Beach property. After an exchange of correspondence did not result in resolution, Joseph and Ruby filed a motion with the trial court seeking leave to file an amended complaint, joining as parties Lori Hofstetter, Linda Bonanno and Dorothy's irrevocable trust. Dorothy filed a cross-motion, seeking to compel Joseph and Ruby to take the required steps toward satisfying the encumbrances.

Those motions were heard in May 2004. The trial court noted that, procedurally, Joseph and Ruby were seeking not enforcement of the settlement agreement but leave to amend a complaint in an action which the trial court deemed settled. It denied the motion to file an amended complaint and granted Dorothy's cross-motion. The order which the trial court entered at the time, however, only dealt with Dorothy's cross-motion; it did not memorialize the denial of the motion to amend.

Promptly upon the trial court's denial of their motion to amend the complaint, Joseph and Ruby filed a motion to enforce litigant's rights. Dorothy filed a cross-motion, seeking to hold Joseph and Ruby in contempt for not satisfying the liens on the Audrey and Commerce properties. Those motions were argued in June 2004. In the course of its decision, the trial court noted that neither side had fully complied with its obligations under the 2002 settlement agreement, and thus neither was entitled to an order of enforcement. The trial court entered an order on June 24, 2004, directing all parties to comply with the settlement agreement within ten days, and if they were unable to do so, to supply written notice of the particular item and the reason for the delay. That is the first order which is before us on appeal.

The following month, the parties again filed motions, each asserting the other had not complied with his or her respective obligations. The motions were argued in August 2004. The trial court denied Dorothy's motion in light of the fact that by that time, Joseph and Ruby had satisfied the outstanding encumbrances. Dorothy maintained that because she did not own the Normandy Beach property, she could not effectuate its transfer to a trust as was called for under the 2002 settlement agreement. The trial court, indicating some uncertainty as to the nature of the relief Joseph and Ruby were seeking with respect to the Normandy Beach property, denied their motion. That is reflected in the order of August 6, 2004, the second of the orders on appeal before us.

The parties returned to the trial court in October 2004, after Joseph and Ruby filed a motion seeking either enforcement of the 2002 settlement agreement or its rescission. That motion resulted in the order of October 14, 2004, which denied the request to compel the production of certain documents relating to Dorothy's irrevocable trust and further directed Dorothy to produce "a certification of good faith effort to have deed to Normandy property conveyed to trust by daughter and documentation sufficient to verify the existence of the trust." That is the third order on appeal before us.

In response to that order, Dorothy submitted a certification to the trial court dated November 10, 2004, in which she stated that she had requested her daughter to convey the Normandy Beach property to the trust, that her daughter had refused, and that she (i.e., Dorothy) had "made repeated good faith efforts to have the deed to the Normandy Beach property conveyed to the Trust by Ms. Hofstetter." She also supplied the federal tax identification number for the irrevocable trust, redacted copies of the trust's tax return, together with certain other documentation.

Not surprisingly, Joseph and Ruby were not satisfied by Dorothy's conclusory statement that she had made "repeated good faith efforts," and they filed yet another motion with the trial court seeking relief. This led to the order of February 18, 2005, which, inter alia, denied Joseph's motion to declare void ab initio Dorothy's irrevocable trust and further declined to direct Dorothy to fund a comparable trust in accordance with the settlement agreement. That is the fourth order on appeal before us.

Finally, on April 28, 2005, the trial court entered an order incorporating its earlier decision denying the motion of Joseph and Ruby for leave to file an amended complaint. That is the fifth order on appeal before us.

Having reviewed the record, we understand the reluctance of the trial court to permit further litigation between these parties. Nonetheless, we have concluded that the orders of the trial court leave Joseph and Ruby in an entirely untenable position. Joseph and Ruby have complied with their obligation to satisfy the encumbrances upon the Audrey and Commerce properties. Joseph and Ruby, however, have not received what they bargained for in exchange: a trust that would protect all five Bonanno daughters and treat all equally and an end to litigation.

We consider it to be fundamentally inequitable to permit Dorothy to receive the benefit of their payments and excuse her from her concomitant obligations. It strikes us that this is particularly so in light of the chronology that we set forth earlier, from which it is inferable that Dorothy was agreeing to settlement terms when she knew she had already taken steps to prevent those terms from coming to fruition. In addition, the present posture of the case strikes us as anomalous in light of our 2004 decision finding the 2002 settlement agreement fully enforceable and the trial court's own orders to that effect.

Other aspects of the record before us demonstrate as well Dorothy's retreat from the 2002 settlement, with its aim of equality of treatment for the five daughters. Because the terms of that settlement would affect their rights, the settlement agreement was drafted, as set forth above, so that each of the daughters would sign it. Dorothy's agreement with that aspect of the settlement is reflected in the May 3, 2002, letter from her attorney and the attorney for Joseph and Ruby to the Bonanno daughters enclosing the final version of the 2002 settlement agreement. That letter states, "Both parents recommend that you execute the enclosed document so as to effectuate the settlement."

The record also includes, however, letters written in October 2002 to Dorothy's attorney from the two daughters aligned with Dorothy--Lori Hofstetter and Linda Bonanno. Each woman states in her respective letter that Dorothy has advised her, contrary to her attorney's letter, that the settlement agreement should not include the Bonanno daughters. The record also includes Dorothy's certification dated January 30, 2003, in which she recites her objection to the daughters being signatories to the 2002 settlement agreement.

In our judgment, Dorothy's protestations about her inability to comply with all the terms of the 2002 settlement agreement do not merit serious consideration in light of the fact that her inability springs from her own actions. Further, we do not consider Dorothy's certification of November 10, 2004, as providing any basis to relieve her of her obligations with regard to the Normandy Beach property under the 2002 settlement agreement. As we have noted, that certification is wholly conclusory. It contains not one factual detail about her alleged efforts to persuade Ms. Hofstetter to transfer the Normandy Beach property. Nor does it make any effort to explain Dorothy's previous representation that if Joseph and Ruby would accede to her demands, she would ensure that the Normandy Beach property was transferred to a qualified residential trust.

We turn now to the question of the nature of the relief to which Joseph and Ruby are entitled. They argue before us for alternate forms of relief: that the irrevocable trust created by Dorothy should be declared void and Dorothy ordered to transfer the properties in trust, conforming to the terms of the settlement agreement; that the settlement agreement should be rescinded and the parties returned to the status quo ante; and that they should be permitted to file the amended complaint.

Before analyzing each of these, we set forth certain fundamental principles. New Jersey has "a strong public policy favoring settlement of litigation." Borough of Haledon v. Borough of N. Haledon, 358 N.J. Super. 289, 305 (App. Div. 2003). The public policy in favor of settlement is especially strong in family disputes. Puder v. Buechel, 362 N.J. Super. 479, 488 (App. Div. 2003), rev'd. on other grounds, 183 N.J. 428 (2005).

Nowhere is this policy more imperative than in the ever-burgeoning field of family law. There is no force more destructive to the sane resolution of the myriad and complex aspects of family dissolution than a trial whereby inter-personal relationships and all things flowing from them become polarized. There is no area of the law which brings such basic, emotional feelings to the fore. Where once love lived, hate now abounds.

[Davidson v. Davidson, 194 N.J. Super. 547,

550 (Ch. Div. 1984).]

We are especially cognizant of that public policy in a context such as this: litigation involving family members that has spanned sixteen years and consumed enormous resources, financial, psychological and emotional, of the parties, not to mention the effect upon the judicial system. Litigation should be invoked as a tool to achieve rights or benefits to which one is entitled, not to serve the psychological needs of disgruntled parties. "Courts will therefore 'strain to give effect to the terms of a settlement wherever possible.'" Bistricer v. Bistricer, 231 N.J. Super. 143, 147 (Ch. Div. 1987) (quoting Dep't of the Pub. Advocate v. N.J. Bd. of Pub. Utils., 206 N.J. Super. 523, 528 (App. Div. 1985)).

In our judgment, each of the alternate forms of relief proposed by Joseph and Ruby is flawed in certain regards.

With respect to Joseph and Ruby's first suggestion, that we void Dorothy's irrevocable trust, the trial court did not make a finding that the trust was the product of fraud, the grounds upon which they urge its voiding. While we acknowledge that the chronology we have set forth within this opinion is suspect in several regards, we are also satisfied that it would be inappropriate for us to exercise original jurisdiction and find that fraud occurred. This is particularly so in light of the fact that fraud must be established by clear and convincing evidence. Barsotti v. Merced, 346 N.J. Super. 504, 520 (App. Div. 2002).

Further, we are reluctant to order such relief in a vacuum. We do not know the nature of the transactions, if any, in which this trust has engaged since its creation and funding and whether any statement on our part declaring this trust void would have an impact upon innocent third parties.

Joseph and Ruby propose, as an alternative, that Dorothy be ordered to fund a trust in an amount equal to the appraised amount of the properties intended to fund the trust under the settlement agreement. From this vantage, it strikes us that this may be the fairest solution to all: it creates a trust with terms and assets equivalent to those settled upon by the parties in 2002, and provides an income stream to Dorothy, with an equal division of corpus among the five Bonanno daughters upon her death.

As with the first form of requested relief, however, we are reluctant to order it in a vacuum. The record before us is silent as to Dorothy's financial status and resources. Were we to issue an order to such effect only to discover that Dorothy, whether by her own efforts or not, lacked the necessary funds, we would not be achieving anything for the litigants or the court system.

Because we have concluded, with great reluctance, that we must remand this matter, we deem it appropriate to discuss briefly the alternate remedies proposed by Joseph and Ruby in the eventuality that the trial court determines that, indeed, Dorothy has insufficient assets to permit the creation of such a conforming trust.

Joseph and Dorothy contend that if the settlement agreement is not enforced, it should be rescinded. Although grounds may exist upon which a court could order rescission of this settlement agreement, see, e.g., Herbstman v. Eastman Kodak Co., 68 N.J. 1, 9 (1975) (noting that a material breach of contract may warrant rescission) and Giumarra v. Harrington Heights, Inc., 33 N.J. Super. 178, 190 (App. Div. 1954), aff'd, 18 N.J. 548 (1955) (noting that failure of consideration may entitle the other party to rescission), in our judgment rescission should be the remedy of last resort. The result of rescission would be to ensure continued litigation, with positions even more hardened. Just as courts should "'strain to give effect to the terms of a settlement wherever possible,'" Bistricer, supra, 231 N.J. Super at 147 (quoting Dep't of the Pub. Advocate, supra, 206 N.J. Super. at 528), courts should also strain not to achieve a result that would guarantee continued strife. If, however, it develops that there is no practical alternative that would afford Joseph and Ruby the fair exchange they envisioned when they agreed to these settlement terms, they should not be compelled to perform and receive nothing in return, for the sake of a surface appearance of resolution.

The final argument put forth by Joseph and Ruby is that the trial court erred in denying their motion to file an amended complaint. Within their amended complaint, Joseph and Ruby sought to bring within the jurisdiction of the court Dorothy's irrevocable trust, the two named trustees of that trust, and Lori Hofstetter, the record owner of the Normandy Beach property. Granting leave to amend the complaint is, in our judgment, akin in some respects to rescission; that is, it should be resorted to only in the event no other alternative is viable. While it has the benefit of placing all parties needed to effectuate a complete settlement before the court, it has the detriment of assuring that litigation will continue unabated.

This case is a tragedy on many levels. We have no way of knowing what has led these parties to this juncture. Our obligation is to review the record before us in the light of acknowledged legal principles. We cannot let a desire to bring this matter to a close (no matter how desirable that goal may be) lead us to leave in place a result that does not treat all sides fairly.

We are aware that we are placing a significant burden upon the trial court by remanding this matter, and we do not do so lightly. With this in mind, we have outlined the available remedies voiding of the irrevocable trust and creation of a new trust by Dorothy; that Dorothy fund an alternative trust in an amount equal to the appraised amount of the properties intended to fund the trust under the settlement agreement; rescission of the settlement agreement altogether; and, the granting of permission to file an amended complaint. We are confident that the trial court will proceed firmly and decisively to impose the fairest, swiftest, and most equitable of these potential results.

Reversed and remanded for further proceedings in accordance with this opinion. We do not retain jurisdiction.

 

 

For ease of understanding we shall refer to the parties in the balance of this opinion by their first names only.

Joseph and Ruby did not learn all of these details at the outset. Indeed, they did not even obtain a copy of the irrevocable trust agreement until the spring of 2004. They were thus confronted with demands to modify the 2002 settlement agreement in order to conform with terms of a document that had not been provided to them.

We stress that we have not held that Joseph and Ruby are entitled to rescission, only that it is, at this juncture, an apparently viable theory. We have not addressed, for example, whether it is possible to return the parties' to their original positions, an element of rescission. Ctr. 48 Ltd. P'ship v. May Dep't Stores Co., 355 N.J. Super. 390, 412 (App. Div. 2002).

(continued)

(continued)

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A-3792-04T2

July 21, 2006