SALLY C. SUTHERLAND v. PETER L. CHESSON

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A- 4545-04T5 4545-04T5

SALLY C. SUTHERLAND,

Plaintiff-Respondent,

v.

PETER L. CHESSON,

Defendant-Appellant,

and

EDWARD GETZ and HAYWARD F. DAY, JR.,

Defendants-Respondents,

IN THE MATTER OF THE IRREVOCABLE TRUST

AGREEMENT OF HAROLD W. CHESSON, deceased.

_______________________________________________________________

 

Argued February 27, 2006 - Decided April 18, 2006

Before Judges Parrillo and Holston, Jr.

On appeal from Superior Court of New Jersey, Chancery Division, Probate Part, Somerset County, Docket No. 02-00981.

James J. Ross argued the cause for appellant (Carroll, McNulty & Kull, attorneys; Mr. Ross and Kenneth E. Bellani, on the brief).

Stephen R. Long argued the cause for respondent Sally C. Sutherland (Drinker, Biddle & Reath, attorneys; Richard E. Brennan and Mr. Long, on the brief).

Thaddeus J. Hubert, III, argued the cause for respondent Edward L. Getz (Hoagland, Longo, Moran, Dunst & Doukas, attorneys; Mr. Hubert, of counsel; Ryan K. Brown, on the brief).

Hayward F. Day, Jr., pro se, has not filed a brief.

PER CURIAM

Appellant, Peter L. Chesson (P. Chesson), a trustee and beneficiary of the Irrevocable Trust Agreement (Trust) of Harold W. Chesson (H. Chesson), appeals the April 26, 2005 order of the Chancery Division. The order declared and adjudged that a settlement agreement entered into between the trustees of the Trust and beneficiary, Sally C. Sutherland (Sutherland), during the July 15, 2004 court-ordered mediation, was binding and enforceable as of July 15, 2004. We reverse and remand the matter to the trial court for further proceedings in accordance with this opinion.

The subject of this appeal is the Trust established in 1985 by H. Chesson, now deceased. Sutherland, one of H. Chesson's three children, filed a five-count complaint in the Chancery Division, Probate Part on August 12, 2002, against the Trust's three trustees, P. Chesson, H. Chesson's son and Sutherland's brother, Edward L. Getz, a certified public accountant, and Hayward F. Day, Jr. a New Jersey attorney.

The first count sought an accounting of all transactions in the Trust. The second count sought a distribution of income and accumulated income from the Trust to Sutherland because of her chronic medical condition. The third count sought damages against the three trustees based upon alleged breaches of their fiduciary duties. The fourth count demanded the removal of the current trustees and the appointment of new trustees. The fifth count demanded that the Trust be liquidated and terminated.

On November 21, 2002, a case management order was filed, ordering an accounting of the Trust dating back to its inception. Accordingly, the accounting was performed and filed with the court on February 14, 2003, and a revised version was filed on July 28, 2003.

On March 26, 2004, the court referred the matter to mediation before retired Superior Court Judge C. Judson Hamlin, which was held on July 15, 2004. That day a settlement was reached between Sutherland and the trustees, in which a lump sum of $350,000 was to be paid to Sutherland, in return for dismissing all counts of the complaint and renouncing any further interest in the Trust. The settlement was conditioned upon obtaining the approval of the trust beneficiaries not present at the mediation who were also not parties to Sutherland's complaint, in an attempt to limit future liability of the trustees.

On February 9, 2005, an order to show cause was entered. The beneficiaries who had not responded in any way to the settlement agreement were ordered by the court to show why an order should not be entered 1) enforcing the settlement agreement entered into between the parties during the July 2004 mediation, 2) adjudicating that the trustees' decision to settle this matter was not an abuse of discretion, and 3) awarding Sutherland counsel fees incurred in connection with enforcement of the settlement agreement. The court heard oral argument on April 11, 2005 and enforced the settlement, which was memorialized in the April 26, 2005 order. P. Chesson's notice of appeal was filed on May 6, 2005.

H. Chesson is survived by his wife, Margaret Chesson, currently ninety years old, daughters Susan Terry and Sutherland, his son P. Chesson, and six grandchildren. P. Chesson is one of the three original trustees, along with Getz, the settlor's accountant, and Carroll A. Boynton, the settlor's attorney, who has since been replaced by Day.

The Trust was established as a "generation-skipping" trust and while the trustees were given discretion to provide income to the three children of H. Chesson in certain circumstances, the settlor's children were not granted specific distributions. Upon the death of the longest living of H. Chesson's children, the existing assets were to be paid to H. Chesson's then-living grandchildren, per stirpes. The primary beneficiary of the Trust, during her lifetime, is H. Chesson's wife Margaret.

The original corpus of the Trust consisted of two pieces of real estate: one, a four-family residential apartment house located in Gladstone, and the other a commercial automobile repair garage in Bernardsville. The automobile repair garage is operated by P. Chesson.

Sutherland's complaint against the trustees was prompted by a medical condition she had been suffering from, leaving her with approximately $30,000 in unreimbursed medical expenses. She claimed that she was suffering from a debilitating and incurable disease and that, despite her illness, the trustees failed to provide her with a distribution from the Trust for her "health and maintenance." Specifically, she claimed that in November 2001 she was diagnosed with ulcerative interstitial cystitis after a cystoscopy and bladder biopsies performed under anesthesia. She further asserted that she was unable to function and that her pain was "out of control."

The complaint sought redress from what she alleged was the chronic abuse of the trustees' power in violation of their fiduciary duties to her and the other beneficiaries of the Trust. The principal allegation of wrongdoing involved the conduct of her brother, P. Chesson. It was asserted by Sutherland that he used Trust assets in his self-interest, violating his duties to the beneficiaries.

Robert Vance was appointed to appraise the Trust's real estate to determine the fair market value. Vance's report revealed that the trustees had leased the Trust properties at levels well below fair market value, including the lease to P. Chesson's automobile repair business.

After settlement was reached at the court-ordered mediation on July 15, 2004, the beneficiaries were sent letters informing them of the terms of the settlement. The letter provided a space for them to sign at the bottom evidencing their consent to the settlement. Margaret, Susan Terry, and Terry's two children executed and returned their consent to settlement. However, P. Chesson and P. Chesson's four children, Elizabeth, Peter, Jr., Timothy and James, never responded to the request to execute the consent forms.

As a result of the trustees' failure to carry out the terms of the settlement, Sutherland sought an order to show cause (OSC) directed to the beneficiaries who had not signed off on the settlement, in order to obtain an order enforcing the July 15, 2004 settlement. On February 9, 2005, an OSC was entered by the Somerset County Deputy Surrogate containing the following provisions:

ORDERED that Respondent and Trustee, Peter L. Chesson, and his children, Elizabeth Chesson, Peter L. Chesson, Jr., Timothy Chesson, and James Chesson, all of whom are contingent beneficiaries under the Irrevocable Trust Agreement of Harold W. Chesson, shall appear and show cause before the [court] . . . on the 11th day of April, 2005, at 10:00 a.m. . . . why an Order should not be entered:

(a) Enforcing the settlement agreement entered into between the parties during the July 15, 2004 mediation in the presence of the Honorable C. Judson Hamlin, J.S.C. (Ret.); and

(b) Adjudicating that the Trustees' decision to settle this matter on July 15, 2004 was not an abuse of discretion; and

(c) Awarding Petitioner counsel fees incurred by her in connection with the enforcement of the settlement agreement.

The certification of Hamlin attached to the OSC in applicable part stated:

2. On July 15, 200[4], I presided over the mediation in this matter. . . .

3. The mediation session was spirited with all counsel actively participating. Mr. Chesson was present for all discussions and took an active part in the discussions as well as his attorney. At the conclusion of the mediation, the parties agreed to the settlement terms. Respondents and Trustees Messrs. Chesson and Getz agreed that the Trust would pay Petitioner the sum of $350,000 in satisfaction of the claims asserted by her in this lawsuit. In return, Petitioner agreed that she would dismiss this case with prejudice, release the Respondents and Trustees from any and all liability arising out of the claims asserted herein, and renounce any and all rights as a beneficiary to future distributions from the Trust.

4. The parties conditioned the settlement on the approval of the beneficiaries who were not a party to the lawsuit and were not present during the mediation. That final resolution was reached only after Mr. Chesson conferred privately with Petitioner, Sally Sutherland, outside the presence of counsel and the mediator. That condition arose in order to limit possible Trustees' exposure to potential claims from non-party beneficiaries that might assert that the Trustees abused their discretion in reaching this settlement. . . .

. . . .

8. It was clearly understood that Mr. Chesson's consent was complete and unequivocal. He made no affirmative reservation as to his status as either Trustee or beneficiary. . . .

The OSC came before the trial court on April 11, 2005, and three of the four Chesson children appeared before the court on that date. They had been ordered by the court to show why they had not either consented to or rejected the settlement. Although no precise reason was offered by the Chesson children as to why they had not signed the consent, James Chesson and Elizabeth Chesson addressed the court as follows:

JAMES CHESSON: We were kind of weighing the options as to what were our options other than settling or not settling. And from what I hear today, apparently we might not have a say at all. I don't know. . . .

. . . .

ELIZABETH CHESSON: Yes, your Honor. I think . . . that we do not feel that the Trust should be broken into the way that it is at the moment, and it's our inheritance as well that we're thinking of the future, and if something happens to one or the other beneficiar[ies], which is my grandmother or my other aunt, or father, what is left there? And that is our concern.

THE COURT: Can you explain to me why you haven't expressed that concern since July of 2004 until today.

. . . .

ELIZABETH CHESSON: For all of us to get together and decide upon these things is difficult in itself because we all continue in our different lives, and if the truth be known, I have not read through the paperwork that comes through. It's in piles and piles and piles and it is so overwhelming for myself, and I'm sure I can speak for my brothers, that we didn't understand that today we'd have to come up with counsel and tell you our reasoning, and obviously now we understand that, and that's why we're here today to say that.

The judge decided that the adult children had the benefit of counsel (the children had consulted an attorney before the return date of the OSC but appeared without counsel), and that they had received timely notice of the settlement. The court then concluded that the children were estopped by the doctrine of laches from taking any steps to preclude the enforcement of the settlement due to their inaction. He further held that they were also barred from any future litigation against the trustees based on the settlement with Sutherland.

P. Chesson presents the following arguments for our consideration:

POINT I

THE POST-SETTLEMENT CONSENT OF NON-PARTY TRUST BENEFICIARIES WAS A CONDITION PRECEDENT TO THE FORMULATION OF THE SETTLEMENT AGREEMENT AND ANY OBLIGATION ON THE PART OF THE TRUSTEES TO PAY THE SETTLEMENT AMOUNT.

POINT II

THE CHESSON CHILDREN WERE INDISPENSABLE PARTIES TO THE ACTION BELOW AND AS SUCH, THE TRIAL COURT ERRED IN RULING THAT THEY WERE ESTOPPED FROM OBJECTING TO THE PROPOSED SETTLEMENT BASED ON THE DOCTRINE[S] OF LACHES, ESTOPPEL OR ACQUIESCENCE.

I

It is undisputed that the parties did, in fact, enter into a settlement agreement in July 2004. Also undisputed is that the contract was "conditioned" upon the approval and written consent of the Trust beneficiaries who were not parties to the lawsuit and did not participate in the mediation resulting in the settlement. The four adult children of Peter Chesson, whose consent was required, never approved or disapproved the settlement. They did not respond at all to the letter requesting consent until they appeared before the court on April 11, 2005. The trial court nonetheless ruled that the settlement agreement was binding notwithstanding the lack of approval by the four beneficiaries.

"An integral part of the increasingly prevalent practice of alternative dispute resolution (ADR), mediation is designed to encourage parties to reach compromise and settlement." State v. Williams, 184 N.J. 432, 446 (2005). It is well settled in the State of New Jersey that "A settlement agreement between parties to a lawsuit is a contract." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). "For nearly forty-five years, New Jersey courts have found that the "'[s]ettlement of litigation ranks high in [the] public policy'" of this State." Puder v. Buechel, 183 N.J. 428, 437 (2005) (quoting Nolan, supra, 120 N.J. at 472 (quoting Jannarone v. W.T. Co., 65 N.J. 472, 476 (App. Div.), certif. denied, 35 N.J. 61 (1991))).

Sutherland contends that a valid settlement was created and argues that P. Chesson breached the covenant of good faith and fair dealing that is implicitly included in all contracts. Specifically, she argues that the silence of P. Chesson's four children should not be able to indefinitely prevent the settlement from being enforced, as this would provide for an inequitable and unreasonable result.

Thaddeus J. Hubert, III, the attorney representing the interests of trustee Getz, stated on the return date of the OSC that it was his idea at the mediation to create the condition of beneficiary approval, so as to avoid "trading in one lawsuit for another" in the future. The following reasons were offered by P. Chesson for conditioning the settlement: (1) Sutherland had less than $30,000 in unreimbursed medical expenses, so giving her $350,000 could be viewed as a breach of the trustees' fiduciary duties; (2) the $350,000 settlement would deplete virtually all of the liquid assets of the Trust, compromising the financial stability of the Trust and leaving only the income-producing properties to be sold or mortgaged; and (3) assets need to remain available to provide for the potential medical care of Margaret Chesson.

We are satisfied that the approval of the Trust beneficiaries operated as a valid condition precedent. The function and purpose of a condition precedent as it relates to a contract has been described as follows:

A condition precedent in a contract is the typical kind [of condition]. It must be performed or happen before a duty of immediate performance arises on the promise which the condition qualifies. A condition precedent is either an act of a party that must be performed or a certain event that must happen before a contractual right accrues or contractual duty arises.

One may also speak of a condition precedent to the existence of a contract. "A condition precedent may relate either to the formation of contracts or to liability under them."

[13 Williston on Contracts 38:7 (4th ed. 2000) (footnotes omitted).]

In determining whether or not the language of a transaction creates a condition precedent that needs to be satisfied, Professor Farnsworth explained:

If a party to an agreement asserts that it was not required to perform a duty because a condition of that duty did not occur, two questions of interpretation arise. First, was that party's duty conditional or not? Second, if the duty was conditional, what is the event on which it was conditioned? (Whether the condition was a promissory condition, so that the other party was under a duty to cause the event to occur, is yet a third question.)

The process of interpretation by which these questions are resolved is essentially the same as that by which other questions of interpretation are resolved. The same emphasis is put on purpose, maxims, prior negotiations, usage of trade, course of dealing, and course of performance.

[2 Farnsworth on Contracts 8.4 (3d ed. 2004) (footnotes omitted)(emphasis added).]

Here, it is undisputed that a condition was agreed-to and placed on the settlement at the July 2004 mediation. Hamlin, the presiding mediator, confirmed its existence in his certification to the trial court, which was attached to the OSC. Hubert's statement to the court explaining the reason for the condition precedent at the hearing on the OSC corroborated Hamlin's certification.

In P. Chesson's certification to the court, he "emphatically den[ies]" the assertion of Sutherland that he enlisted his adult children to withhold their consent in order to facilitate a personal goal of "scuttling the deal." He stated that his children have all reached the age of majority and make their own decisions. The statements of James and Elizabeth Chesson to the court corroborate P. Chesson's contention.

Our decision in Mosley v. Femina Fashions, Inc., 356 N.J. Super. 118, 125-26 (App. Div. 2002), certif. denied, 176 N.J. 279 (2003), supports the unenforceability of the purported settlement. The plaintiff in Mosley agreed to settle the litigation, but the defendant's counsel confirmed that the settlement was "contingent upon your client's execution of a general release and a Settlement Agreement which contains a strict confidentiality provision, a non-cooperating clause, a non-disparagement provision, and a non-admission of liability by my client, among other things." Id. at 125. In Mosley, we stated

The court found that while the money portion of the proposed settlement was clear, the offer of settlement was contingent upon plaintiff executing a settlement agreement containing various terms including a non-admission of liability clause. The court concluded because the contingencies were never drafted or approved, the settlement was unenforceable.

. . . .

Before a settlement agreement may be enforced, however, there must be an agreement to the essential terms of the agreement. Here, the defendant listed several contingencies in the offer of settlement. The contingencies were never realized because the parties failed to execute a settlement agreement consistent with the required contingencies.

[Id. at 126.]

The judge in this case first noted in his decision that he did find a condition precedent to the settlement:

I find that the condition alleged to be a condition precedent to the settlement as set forth in the certification of C. Judson Hamlin to be what he says it was intended to be, as counsel for Mr. Getz has said, in all-embracing, encompassing language, to insulate the trustees from any action by the non-named beneficiaries, Peter Chesson's children.

He went on to determine, however, that

having had the benefit of counsel, having received a notice of the settlement, they (P. Chesson's adult children) even stand before this court today having filed nothing previous to this date, and I find as a result laches has attached and they're estopped from asserting any claims to preclude this court from enforcing the settlement.

The court's decision to enforce the settlement notwithstanding the condition precedent not being satisfied is in direct opposition to its previous assertion that a condition precedent to the settlement existed. The judge erroneously applied case law that applies when a valid settlement has been entered into. The judge stated in his decision approving the settlement and compelling its enforcement:

Settlement agreements are to be enforced by the courts of this state absent compelling circumstances. . . .

Before a court should attempt to vacate a settlement agreement there must be established clear and convincing proof that the settlement should be vacated. How I could find clear and convincing proof in light of the certification submitted by the mediator, in light of the failure to act by the non-named beneficiaries, in light of their statements here this morning is beyond me.

. . . .

I'm satisfied . . . that material and substantial issues must exist to preclude a court from enforcing a settlement agreement. I'm satisfied that it is the other way. There is clear and convincing evidence to this court that compels the court to enforce the settlement agreement.

The trial judge stated that he did not find by clear and convincing evidence that the settlement agreement should be vacated. However, we are convinced that no valid settlement agreement was enforceable, because the condition precedent to settlement was never satisfied.

Sutherland asserts that since satisfying the condition was not within her control and because she did not assume the risk that P. Chesson's children would not agree to the settlement, setting aside the settlement should be disfavored by this court. Sutherland contends that it was not within her control to ensure that the Chesson children would ultimately agree to the proposed settlement. While it may be true that Sutherland was not in a position to obtain the consent of her niece and nephews, she did assume the risk that the children would not approve the settlement when she agreed to condition the settlement on their approval. "If parties make a contract under which neither has a duty to perform until the occurrence of some event, . . . that event is a condition of the duty of each party. Both parties are bound by the contract, although neither will have to perform if the event does not occur." Farnsworth, supra, 8.2 (footnote omitted).

The terms of the condition precedent are clear and they were clear at the time of the mediation. The beneficiaries whose consent was necessary never granted their approval, leaving the condition unfulfilled. As such, the settlement failed because the condition precedent was not satisfied.

II

P. Chesson argues that his four children were indispensable parties to this action, and as such the doctrines of laches, estoppel and acquiescence, cited by the trial judge, should not be deemed applicable to them. Specifically, he asserts that since they had not been joined as parties to the litigation, they were under no legal obligation to express their consent or rejection of the proposed settlement, and the court had no authority to bar them from future action regarding this settlement.

In Day v. Grossman, 44 N.J. Super. 28 (App. Div. 1957), the primary beneficiary under a testamentary trust sought to increase her annual disbursements from the corpus of the trust. Id. at 32. We determined that "in an action of this object and nature implicating a reduction in the corpus of the trust, the remaindermen . . . are necessary and indispensable parties in interest. A determination of the action in favor of the plaintiff would likely affect their interests in the trust estate." Id. at 32-33. We concluded that the omission of the remaindermen was improper and leave was granted to the plaintiff to amend the complaint by adding the omitted parties. Id. at 33, 37.

We agree that Day makes clear that unless the P. Chesson children were parties before the court, it was error for the court to have barred the children as contingent beneficiaries from asserting any claims either now or in the future against the trustees based on the settlement. See Pressler, Current N.J. Court Rules, comment on R. 4:28-1 (2006) ("But the court can make a legally binding adjudication only between the parties actually joined in the action."); see also Gerhard v. Traveler's Ins. Co., 107 N.J. Super. 414, 420-21 (Ch. Div. 1969).

Sutherland argues, however, that since the issue of the Chesson children not being added as indispensable parties was not brought before the court by P. Chesson either in his answer or by way of affirmative defense, that the issue is not cognizable on appeal. Sutherland contends that "not only was the issue not raised in the pleadings but there is nothing in the briefs or oral argument before [the court] dealing with the issue of indispensable parties. Nor did [P.] Chesson take any steps to implead his children as additional parties." We agree.

In Nieder v. Royal Indemnity Insurance- Co., 62 N.J. 229 (1973), our Supreme Court stated, "It is a well-settled principle that our appellate courts will decline to consider questions or issues not properly presented to the trial court when an opportunity for such a presentation is available 'unless the questions so raised on appeal go to the jurisdiction of the trial court or concern matters of great public interest.'" Id. at 234 (quoting Reynolds Offset Co., Inc. v. Summer, 58 N.J. Super. 542, 548 (App. Div. 1959), certif. denied, 31 N.J. 554 (1960)). See also Pressler, Current N.J. Court Rules, comment 2 on R. 2:6-2 (2006).

We are convinced that the court erred in entering an order approving the settlement and providing for its enforcement. A condition precedent to the formation of a valid settlement agreement was that the non-party beneficiaries approve. Since the four Chesson children never submitted their approval, the condition precedent was never satisfied. It follows, therefore, that the settlement agreement cannot be enforced, and the trustees are not obligated to pay Sutherland $350,000. It was error for the trial judge to disregard the lack of a fulfilled condition precedent to settlement and declare the settlement agreement valid. In addition, the Chesson children could not be bound by the April 26, 2005 order because they were never made parties to the action. As no party has ever moved to have the Chesson children joined as indispensable parties, the issue of joinder is not properly before this court.

The April 26, 2005 order of the Chancery Division is reversed and the matter is remanded to the trial court for proceedings consistent with this opinion. We do not retain jurisdiction.

Reversed.

 

(continued)

(continued)

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A-4545-04T5

April 18, 2006