AMERICAN ZURICH INSURANCE COMPANY v. SRC CONSTRUCTION CORP. OF NEW JERSEYAnnotate this Case
(NOTE: The status of this decision is published.)
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
DOCKET NO. A-1075-07T21075-07T2
AMERICAN ZURICH INSURANCE
SRC CONSTRUCTION CORP. OF
Submitted October 16, 2008 - Decided
Before Judges Stern and Payne.
On appeal from Superior Court of New Jersey,
Law Division, Bergen County, L-11700-04.
Nicholas R. Perrella, attorney for appellant.
Marino, Mayers & Jarrach, LLC, attorneys for
respondent (Joseph A. Marino and Patricia L.
Jarrach, on the brief).
Defendant, Scott Caridi, the former president of defendant, SRC Construction Corp., appeals from a trial court order (1) denying his motion, filed pursuant to Rule 4:50-1(f), to vacate a default judgment in the amount of $100,146.99 entered on September 27, 2007 against him and SRC and in favor of plaintiff, American Zurich Insurance Company (Zurich), and (2) ordering discovery of assets. SRC, an insolvent company, did not seek to vacate the default judgment or contest the discovery order.
The procedural history of this matter is relatively lengthy. The claim by Zurich arises out of the failure by SRC to remit payment for workers' compensation insurance coverage provided to it by Zurich in the policy period extending from October 12, 2001 to October 12, 2002 and from October 12, 2002 to February 13, 2003. Zurich's suit against SRC and Caridi as its president was filed on August 27, 2004. The complaint contained no allegations supporting personal liability on the part of Caridi.
Service was effected on October 18, 2004. Defendants failed to answer the complaint, and on December 29, 2004, a final default judgment in the amount of $98,382.73 was entered against them. The judgment and an information subpoena were served on defendants on January 11, 2005. After the judgment had been recorded and a writ of execution had been issued and filed, on April 13, 2005, Zurich moved to enforce its litigant's rights. Two days later, defendants, represented by legal counsel, moved to vacate the default judgment entered against them. Following oral argument of the motion, the motion judge granted the relief sought in an order dated May 19, 2005, but conditioned that relief upon the posting of a supersedeas bond in the amount of the judgment. Because, contrary to Rule 2:5-4, a transcript of the hearing was not provided on appeal, we are unable to determine whether defendants resisted the requirement that a bond be posted or to determine the reasons stated by the judge for imposing that requirement. In any event, defendants did not seek reconsideration of the issue or leave to appeal from the judge's order.
At some point, an answer on behalf of SRC and Caridi was filed. However, because a copy of the answer was not included in the record on appeal as required by Rule 2:6-1(a)(1)(A), we are unable to determine whether Caridi asserted the absence of liability on his part as a defense to the claim. No bond was posted. As a consequence, on August 4, 2005, Zurich moved to dismiss defendants' answer and to enforce the May 19, 2005 default judgment. On August 19, 2005, the judge entered an order dismissing defendants' answer with prejudice and ordering that a default be entered against SRC and Caridi. Although Zurich has stated that oral argument on its motion occurred, the order states that the motion was unopposed. Again, no transcript of proceedings, if any, has been provided on appeal. On October 18, 2005, the judge signed an order for final judgment by default in the amount of $100,146.99 plus costs against SRC and Caridi. No proof hearing took place.
Following recordation of the judgment, service upon defendants of the judgment and an information subpoena, and issuance of an alias writ of execution, on April 18, 2006, Zurich again moved to enforce its litigant's rights. A copy of the motion was sent to the business address of SRC, located at 325 Sylvan Avenue, Englewood Cliffs, New Jersey. Following an unsuccessful effort in September 2006 to re-serve an information subpoena upon defendants, Zurich engaged a private investigator, who located the residence of Caridi in Norwood, New Jersey, and determined that he was employed by Accubuild Construction, a company located at the Englewood Cliffs address previously occupied by SRC.
On June 20, 2007, Zurich moved for entry of an order for execution against the wages paid by Accubuild to Caridi and to enforce its litigant's rights. On August 17, 2007, Caridi, represented by new counsel, moved pursuant to Rule 4:50-1(f), to vacate the second default judgment against him entered almost two years earlier. In support of his motion, Caridi argued that the judgment should be vacated because there was no factual or legal basis to hold him personally liable for the obligations of SRC, and that Zurich had not sought to pierce its corporate veil. He claimed that to "strap" him with a $100,000 judgment in this circumstance would be a grave injustice. Upon receipt of Caridi's motion, Zurich cross-moved for an order compelling post-judgment discovery, for appointment of a receiver in aid of execution and for retention of counsel to the receiver.
Following argument, the motion judge denied Caridi's motion to vacate the default judgment, stating in a thoughtful oral opinion that he had failed to demonstrate the exceptional circumstances required by Rule 4:50-1(f). Defendant Caridi has appealed.
Rule 4:50-1 permits relief from a final judgment if the movant can satisfactorily demonstrate "(a) mistake, inadvertence, surprise, or excusable neglect; . . . or (f) any other reason justifying relief from the operation of the judgment or order. Rule 4:50-2 requires that a motion to vacate pursuant to (a) must be brought within one year of the entry of judgment, whereas a motion pursuant to (f) need only be brought within a "reasonable" time. Rule 4:50-1 "is designed to reconcile the strong interests in finality of judgments and judicial efficiency with the equitable notion that courts should have authority to avoid an unjust result in any given case." Baumann v. Marinaro, 95 N.J. 380, 392 (1984) (quoting Manning Eng'g, Inc. v. Hudson County Park Comm'n, 74 N.J. 113, 120 (1977)).
In the case of default judgments, it has been firmly established that judges should view motions to vacate them with "great liberality" and should tolerate "every reasonable ground for indulgence . . . to the end that a just result is reached." Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.), aff'd, 43 N.J. 508 (1964). Whether a default judgment should be vacated is left to the sound discretion of the motion judge, whose decision cannot be disturbed in the absence of evidence of an abuse of discretion. Court Inv. Co. v. Perillo, 48 N.J. 334, 341 (1966).
"Generally, a defendant seeking to reopen a default judgment must show that the neglect to answer was excusable under the circumstances and that he has a meritorious defense." Marder, supra, 84 N.J. Super. at 318. Our review of the record in this case compels the conclusion that the evidence of excusable neglect presented by Caridi was weak, at best. Caridi does not claim that he failed to receive notice of the multiple proceedings in this matter or of the default judgments entered against him and his company. He asserts no inability to retain counsel, and he offers no evidence of negligence on his former attorney's part. Rather, Caridi's conduct suggests a lengthy pattern of ignoring legal proceedings until such time as execution against his assets appeared to be imminent.
Caridi's only argument with respect to excusable neglect, founded upon no evidence in the record, is that neither he nor SRC (if it still existed at the time) was financially able to remit the percentage payment required to post the supersedeas bond ordered by the motion judge as a condition of vacating the first default judgment entered in this matter. Caridi contends that the motion judge abused his discretion in conditioning the vacation of the first default judgment on posting such a bond, arguing "the requirement of posting the bond was so severe and unjust as to constitute a sanction against Caridi, and was punitive in nature given the complete absence of liability on the part of Caridi." Because we have not been furnished any materials that relate to the imposition of the bond requirement, including briefing, certifications and transcripts of argument, and because we cannot determine whether Caridi's claim of lack of liability or financial circumstances were brought to the motion judge's attention at the time the bond was ordered to be posted, we have no basis upon which to evaluate this argument, and therefore decline to address it.
On appeal, as before the motion judge, Caridi argues additionally that an officer of a corporation cannot be held liable for the corporation's debts, and that the insurance premium in this case constituted a corporate debt. See Zeiger v. Wilf, 333 N.J. Super. 258, 277 (App. Div.), certif. denied, 165 N.J. 676 (2000). The absence of any liability on his part, Caridi contends, constitutes the exceptional circumstances that Rule 4:50-1f requires.
We have held in the context of a case in which a proof hearing was held following default: "Where either the defendant's application to re-open the judgment or the plaintiffs' proofs presented at the proof hearing raise sufficient question as to the merits of plaintiffs' case, courts may grant the application even where defendant's proof of excusable neglect is weak." Siwiec v. Financial Resources, Inc., 375 N.J. Super. 212, 220 (App. Div. 2005) (citing Morales v. Santiago, 217 N.J. Super. 496, 504-05 (App. Div. 1987) and T & S Painting & Maint., Inc. v. Baker Residential, 333 N.J. Super. 189, 193 (App. Div. 2000)). The Supreme Court's decision in Mancini v. EDS, 132 N.J. 330, 334-38 (1993) provides another graphic example of lenience in this regard.
In Morales, review of the record of a proof hearing held in the case disclosed evidence that suggested that the binder upon which the plaintiff property purchasers based their cause of action against the sellers did not constitute a contract upon which an actionable claim for breach could be based. Further, plaintiffs presented no evidence at the hearing to support the judge's award of benefit-of-the-bargain damages. Morales, supra, 217 N.J. Super. at 501-03. In that circumstance, we observed: "Our primary concern is that sellers have suffered a substantial judgment that appears to be undeserved on the merits." Id. at 505. We continued:
At the proof hearing, "ordinarily the decision of whether to require . . . proof [of liability], where there appears to be some question of that right, should be left to the discretion of the judge." Douglas v. Harris, 35 N.J. 270, 276-277 (1961). For instance, a judge might properly not require a plaintiff to prove liability in a case where the defaulting defendant exclusively controls key evidence. . . .
However, where in the exercise of discretion, the trial judge at a proof hearing concludes that justice requires the plaintiff to prove liability, if the evidence, even when viewed indulgently, demonstrates that the defendant is not liable, upon timely motion a default judgment entered on that evidence must be vacated under R. 4:50-1(f).
We have also held, in a case in which the plaintiff was asserting a novel theory against the defendant, based upon vicarious liability arising from a gratuitous agency relationship, that "it would constitute an abuse of discretion for the court not to require [the plaintiff] to demonstrate legal grounds supporting his claim of a right to relief against [the defendant]. Newman v. Isuzu Motors Am., Inc., 367 N.J. Super. 141, 146 (App. Div. 2004); see also Siwiec, supra, 375 N.J. Super. at 218-19.
In the present case, it appears that the trial judge, in an exercise of his discretion, determined not to hold a proof hearing, viewing Zurich's complaint as merely setting forth an action on a book account for which no hearing was required. It can be argued by analogy to Newman and Siwiec that because Zurich sought recovery from Caridi, as well as from SRC, it presented a "novel" theory of liability, or at least a potentially legally unfounded one, proof of which required a hearing. However, we are mindful of the fact that the law permits a plaintiff, under specified circumstances, to pierce the corporate veil that otherwise would shield Caridi from liability. See, e.g., Richard A. Pulaski Constr. Co. v. Air Frame Hangars, Inc., 195 N.J. 457, 472-73 (2008). We presume that Caridi was named as a defendant by Zurich as a precautionary measure, with a view to asserting a claim against him on that basis, despite the absence of existing evidence to support that theory of liability. Up to the time of its action, Zurich had no reason to question the corporate status of SRC or to examine the financial relationship between SRC and Caridi, and it essentially lacked the power to obtain significant evidence of these matters. Once suit was filed, Zurich could have determined through discovery whether a basis for a cause of action against Caridi existed or not. However, because defendants defaulted, that discovery opportunity was lost. Thus, the case was one in which, from the trial court's perspective, he could properly decline to require Zurich to prove Caridi's liability, since he as a defaulting defendant controlled all the key evidence. Morales, supra, 217 N.J. Super. at 505. Viewed in this light, we do not find the judge's determinations not to hold a proof hearing and not to, once more, vacate the default judgment entered against Caridi to constitute an abuse of his discretion.
We recognize in this regard that the first default judgment had been vacated more than two years earlier and that Caridi did not seek to vacate the second default judgment, entered on October 18, 2005, until August 17, 2007. We do not regard this delay as reasonable in the circumstances presented.
November 13, 2008