S. H. ALTON NEFF, SRV MARINE ENGINES, INC., et al. v. GEORGE COATES a/k/a GEORGE J. COATES, COATES INTERNATIONAL, LTD.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NOS. A-5193-06T15193-06T1

A-5268-06T1

H. ALTON NEFF, SRV MARINE

ENGINES, INC., and 1107 NORTH

WEST CENTRAL AVENUE, INC.,

Plaintiffs-Appellants,

v.

GEORGE COATES a/k/a GEORGE J.

COATES, COATES INTERNATIONAL, LTD.,

Defendants/Third-Party

Plaintiffs-Respondents,

and

WELL TO WIRE ENERGY, INC.,

Defendant-Respondent,

and

COATES ENTERPRISES, LTD., COATES

PRECISION ENGINEERING, LTD., COATES

AUTOMOTIVE, LTD., COATES ENGINE

MANUFACTURING, LTD., COATES

TECHNOLOGIES, LTD., COATES TRUSTS,

a Trust duly organized pursuant to the

laws of the State of New Jersey,

BERNADETTE COATES, YVONNE MURPHY,

SEAN MURPHY, MICHAEL PANABIANCO,

DR. RICHARD EVANS, GREGORY M. COATES,

PAUL V. SHERIDAN, GUS SUCKOW, PAUL

CASAGRANDE, THOMAS TAYLOR, WILLIAM

CAVANAUGH, HENRY R. CARTER, SHIGERU

WAKABAYASHI, SHIRLEY NAIDEL, JOHN

NICHOLSON, LAWRENCE J. SCHMERTZER,

JOSEPH TOMASEK,

Defendants,

v.

GARY SOMMER,

Third-Party

Defendant-Appellant.

_______________________________________

 

Argued April 8, 2008 - Decided

Before Judges Skillman, Yannotti and LeWinn.

On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-977-04.

Peter A. Ouda argued the cause for appellant H. Alton Neff (Mr. Neff and Mr. Ouda, on the brief).

Donald E. Taylor argued the cause for appellants SRV Marine Engines, Inc., 1107 North West Central Avenue, Inc. and Gary Sommer (Wilentz, Goldman & Spitzer, P.A., attorneys; Mr. Taylor, on the brief).

William J. Wolf argued the cause for respondents Coates International, Ltd. and George Coates (Bathgate, Wegener & Wolf, P.C., attorneys; Mr. Wolf, on the brief).

John F. Gelson argued the cause for respondent Well to Wire Energy, Inc. (McLaughlin, Gelson, D'Apolito & Stauffer, LLC, attorneys; Mr. Gelson, of counsel; Richard J. Shaklee, on the brief).

PER CURIAM

Plaintiffs H. Alton Neff (Neff), SRV Marine Engines, Inc. (SRV), and 1107 North West Central Avenue, Inc. (1107) appeal from an order entered on February 13, 2007, and thereafter amended, which dismissed their complaint and suppressed their answers and defenses to the counterclaim filed by defendants Coates International, Ltd. (CIL) and George J. Coates (Coates). Third-party defendant Gary Sommer appeals from the provisions of the February 13, 2007 order suppressing his answer and defenses to CIL's and Coates' third-party complaint. Neff, SRV, 1107 and Sommer also appeal from an order entered on April 30, 2007, which denied their motions for reconsideration. We affirm in part, reverse in part, and remand for further proceedings.

I.

This matter commenced on March 29, 2004, when Neff filed a pro se complaint against CIL, Coates, Well to Wire Energy, Inc. (Well to Wire), Joseph Tomacek (Tomacek), and numerous other defendants. The complaint later was amended to include SRV and 1107 as plaintiffs. The claims set forth in the complaint arose from contracts dated March 22, 2002, between 1107 and CIL, relating to the Coates Spherical Rotary Valve (CSRV) combustion engine that was invented by Coates and his family members.

According to the complaint, CIL agreed to sell and 1107 agreed to purchase, an exclusive license to market the CSRV technology to Ford Motor Company for use by Ford in the manufacture and sale of its automobiles throughout the world. CIL also agreed to sell, and 1107 agreed to purchase, an exclusive license to sell the CSRV technology for use in the manufacture of certain marine craft. 1107 agreed to pay CIL $25 million for each license. 1107 paid CIL a total of $500,000 as down payments on the licenses and transferred its rights in the agreements to SRV. SRV subsequently "assigned all of those rights" to Neff.

Because CIL allegedly failed to tender the final licenses and related escrow agreements, SRV demanded the return of the deposits, but CIL refused to return the money. Plaintiffs alleged, among other things, that 1107 entered the agreements, and others provided monies for the deposits made by 1107, in reliance upon certain false and misleading statements made by Coates and others concerning the CSRV technology and CIL's agreements related thereto.

Based on these allegations, plaintiffs asserted various causes of actions, specifically claims for consumer fraud in violation of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20; fraud and misrepresentation; negligent misrepresentation; negligence; breach of contract; breach of the implied covenant of good faith and fair dealing; and legal malpractice. Plaintiffs sought rescission of the agreements, compensatory damages, treble damages pursuant to the CFA, punitive damages, attorneys' fees, costs of suit, and "[s]uch other relief as may be just and proper."

On December 27, 2004, Coates, CIL, Tomacsek, and certain other defendants filed an answer in which they generally denied plaintiffs' allegations, and asserted cross-claims for indemnification against all of the other defendants. In addition, CIL and Coates asserted counterclaims against Neff, SRV and 1107, and third-party claims against Sommer for tortious interference with current and prospective business relationships, trade disparagement, and defamation.

The trial judge entered a case management order on March 10, 2005, which established a discovery end date of December 30, 2005. The order required the parties to serve additional interrogatories by March 30, 2005, plaintiffs to answer interrogatories and a demand for the production of documents by March 30, 2005, CIL to answer interrogatories by April 15, 2005, and the completion of depositions of the parties and fact witnesses by September 30, 2005.

Thereafter, Coates, CIL, Tomacek, and certain other defendants filed a motion for partial summary judgment. The trial judge entered an order on March 17, 2005, which granted in part, and denied in part, the relief sought. The order essentially provided that Neff could pursue his contractual claims against CIL and Coates, and 1107 could pursue certain tort claims against Well to Wire, CIL and Coates. Plaintiffs' legal malpractice claim against Tomacek was dismissed with prejudice.

Although the March 17, 2005 order dismissed certain claims asserted by SRV and 1107 without prejudice, and allowed SRV and 1107 to file an amended complaint with more specific allegations, it appears that they did not do so. Nevertheless, SRV remained in the case because it had been named in CIL's and Coates' counterclaim.

SRV and 1107 did not file an answer to the counterclaim, and Sommer did not answer the third-party complaint. Accordingly, default was entered against them. Thereafter, SRV, 1107 and Sommer moved to vacate the default, allow SRV and 1107 to file an answer to the counterclaim, allow Sommer to answer the third-party complaint, and permit Sommer to file a counterclaim against Coates and CIL. Apparently, the proposed answers and counterclaim were submitted to the court with the motion papers.

On February 15, 2006, the trial judge heard argument on the motion. The judge granted the motion to vacate the default. The judge allowed SRV and 1107 to file an answer to the counterclaim, and Sommer to answer the third-party complaint. However, the judge stated on the record that Sommer's counterclaim against Coates and CIL did not "add anything" and Sommer's motion for leave to file the counterclaim would be denied. Despite the judge's statement that Sommer would not be permitted to file his counterclaim, the court entered an order on February 27, 2006, which declared that the answer and the counterclaim had been filed.

By letter dated March 21, 2006, William J. Wolf, counsel for CIL and Coates, advised Angela White Dalton, who was counsel for plaintiffs and Sommer at the time, that the court's February 27, 2006 order erroneously stated that Sommer's counterclaim was filed. However, it appears that neither Ms. Dalton nor Mr. Wolf brought the matter to the court's attention or otherwise took any action to correct the error.

The judge entered another case management order on June 16, 2005, which established a new discovery schedule. The parties thereafter engaged in some discovery. The parties exchanged answers to interrogatories, and plaintiffs produced certain documents. In addition, Mr. Wolf endeavored to schedule depositions for Neff and Sommer; however, the depositions were not scheduled.

On February 16, 2006, the judge entered another case management order, which established a new discovery end date of September 30, 2006. The order required plaintiffs to serve additional discovery requests by February 24, 2006, and included a schedule for the depositions of Neff, Coates, Sommer and other fact witness. The order additionally provided that plaintiffs' expert could pick up at Coates's "establishment" a Ford Mustang with an engine, a "disassembled V-8 engine," and a V-6 engine "found in a Mercedes-Benz vehicle" for examination and testing. The order required plaintiffs to return the vehicles and engines immediately "upon completion of the testing." The order also required the parties to produce their expert reports by specified dates, and mandated the completion of the experts' depositions by August 31, 2006.

In response to this order, the parties engaged in additional discovery. Plaintiffs' expert picked up CIL's automobiles and engines for inspection; however, they were not returned to CIL as required by the order. Neff was deposed in March and April 2006 but his deposition was not completed. Sommer and Coates were not deposed. Depositions were scheduled for certain third-party witnesses but the depositions were cancelled and not rescheduled. Plaintiffs did not produce their expert reports by April 15, 2006, and the experts' depositions were not completed within the time mandated by the court.

The judge entered an order on September 26, 2006, which required plaintiffs to produce certain documents and materials by October 4, 2006. The judge entered another order on September 26, 2006, which required plaintiffs to return the Ford Mustang to CIL by October 15, 2006. This order also provided that, in the event plaintiffs wanted to test the Mercedes-Benz, they were to advise defendants and the court by October 4, 2006 "whether or not [plaintiff's expert] is able to test the vehicle and what specific mechanical devices he needs to complete testing of the vehicle." Thereafter, plaintiffs did not inform the court or defendants that they wanted to conduct further tests of the Mercedes-Benz.

The judge entered an order on September 29, 2006, which required, among other things, that Neff be deposed by October 16, 2006 and Sommer be deposed by October 31, 2006. Plaintiffs were ordered to return the Mercedes-Benz to CIL within fifteen days. Plaintiffs also were ordered to furnish their expert reports by October 30, 2006. In addition, defendants were required to provide their expert reports by December 15, 2006, and the depositions of all experts were to be completed by January 15, 2007. The order designated February 15, 2007 as the new discovery end date.

On October 31, 2006, Coates and CL moved pursuant to Rule 4:23-2 to dismiss plaintiffs' complaint and suppress Sommer's answer and defenses to the third-party complaint with prejudice. In a certification submitted in support of the motion, Mr. Wolf stated that he had attempted to schedule depositions for Neff and Sommer on various dates in October 2006 but counsel for Neff and Sommer did not respond, and Neff and Sommer did not appear for their depositions. In addition, Mr. Wolf asserted that the court had ordered plaintiffs to produce certain documents by October 4, 2004, and plaintiffs had not done so. Mr. Wolf also stated that CIL's automobiles and engines had not been returned by October 15, 2006, as required by the court's order.

The judge heard argument on the motion on January 19, 2007, and filed a letter opinion dated January 22, 2007, in which he noted that Mr. Wolf's assertions were uncontroverted. The judge stated that plaintiffs and Sommer had not explained why they did not comply with the court's orders. The judge stated:

The Case Management Orders were specific in nature and were intended to accommodate the needs of both the [p]laintiff[s] and the [d]efendant. More importantly, the discovery Orders of February 16, 2006, September 26, 2006 and September 29, 2006 were prepared by the Court to emphasize to the attorneys the necessity of complying with discovery orders. A comparison of the February 16, 2006 Case Management Order and the September 26 and 29, 2006 Case Management Orders reflect that very little was accomplished in that period of time and nothing was accomplished between September 29, 2006 and January 19, 2007, the date of oral arguments.

The judge stated that an evidentiary hearing was required to determine the appropriate sanctions for the discovery violations. The judge noted that it was necessary to determine "the full extent of" the parties' failure to comply with the court's orders. The judge stated that defendants had been prejudiced because they had been required to incur legal fees to defend the "substantial" claims asserted against them. The judge also stated that, although imposition of counsel fees was an available remedy, without a hearing, he could not determine whether such a remedy would "ameliorate" the prejudice to defendants.

The judge conducted the evidentiary hearing on February 5, 2007. Mr. Rihacek, who represented plaintiffs and Sommer in September and October 2006, testified at the hearing. Neff also testified. The judge filed another letter opinion on February 13, 2007, in which he stated the following:

Subsequent to the Court's Case Management Orders of September 26, 2006 and September 29, 2006, [p]laintiff's attorney, Mr. John T. Rihacek, notified his client, and more particularly, Mr. H. Alton Neff, of the requirements contained within the Case Management Orders. He specifically advised Mr. Neff to return the vehicles as per the Court Order. Mr. Neff disregarded instructions not only of the Court, but that of his own counsel.

On October 4, 2006, [Mr. Wolf] notified the Plaintiff's counsel of available dates for the taking of the deposition of Mr. Neff and Mr. Sommer. No response was provided to Mr. Wolf and no explanation was given as to why the depositions had not been completed. In fact, as of the date of the plenary hearing, the Plaintiff has failed to abide by the terms of the Orders, or provide an explanation that justifies disregarding the Court's Orders. I find that the actions of the Plaintiff were, in fact, deliberate and contumacious.

The judge noted that dismissal with prejudice is the most severe sanction that could be imposed for a discovery violation but he concluded that no lesser sanction would suffice. The judge wrote that the sanction would properly penalize the parties who had "caused the difficulty[,]" but also deter others "who might be tempted" to violate court orders. The judge accordingly entered an order dated February 13, 2007, which granted the motion to dismiss plaintiffs' complaint and suppress Sommer's answer and defenses to the third-party complaint.

On March 8, 2007, SRV and Somer filed a motion for reconsideration. In a certification submitted in support of the motion, Sommer said that his attorney had never advised him that the court had entered the case management orders in September 2006. Sommer stated that he was not aware of the orders until January 2007. Neff also submitted a supplemental certification, in which he stated that Sommer had not been involved in the handling of the litigation. Neff asserted that he had not discussed "any aspects of the litigation" with Sommer.

On March 30, 2007, the judge heard argument on the reconsideration motion and placed his decision on the record. The judge rejected Sommer's assertion that he was unaware of the court's September 2006 orders. The judge stated:

. . . [Neff] and [Sommer] do have a relationship here. [Neff] is, in fact, a principal in the plaintiff corporation. . . . I know he's a principal. There aren't a lot of principals in that [company]. He's a substantial investor in that company, and I am convinced there were communications between [Neff] and [Sommer] as to the status of the litigation. I can't for the life of me believe that that never happened. . . . [T]here's nothing before me that would indicate that I should change my ruling . . . .

On April 30, 2007, the judge entered an order denying the motion for reconsideration. The judge also filed an order dated April 30, 2007, which amended the February 13, 2007 order to state that "the motion to dismiss the complaint and suppress the answer and defenses of [the] Third-Party Defendant and the answer and defenses to the counterclaim is hereby granted."

Neff filed a notice of appeal on June 12, 2007. SRV, 1107, and Sommer filed a notice of appeal on June 14, 2007. We entered an order on August 13, 2007, consolidating the appeals.

II.

We first consider whether the orders entered on February 13, 2007 and April 30, 2007 are final orders that may be appealed pursuant to Rule 2:2-3(a)(1). Under that rule, appeals may be taken to the Appellate Division "as of right" from a "final judgment" of the trial court. Janicky v. Point Bay Fuel, Inc., 396 N.J. Super. 545, 549 (App. Div. 2007). "To be a final judgment, an order generally must 'dispose of all claims against all parties.'" Ibid. (quoting S.N. Golden Estates, Inc. v. Cont'l Cas. Co., 317 N.J. Super. 82, 87 (App. Div. 1998)).

As stated previously, the orders entered on February 13, 2007 and April 30, 2007 dismissed plaintiffs' complaint, suppressed plaintiffs' answer and defenses to the counterclaim, and suppressed Sommer's answer and defenses to the third-party complaint. On May 11, 2007, the parties filed a stipulation of dismissal, which states that the counterclaim and third-party complaint are dismissed without prejudice "subject to being reasserted only" if the order "dismissing [plaintiffs'] complaint and suppressing the answer and defenses to the counterclaim and/or [the] third-party complaint is reversed on appeal[.]" The parties apparently assumed that this stipulation disposed of all claims as to all parties in the action.

However, Sommer's counterclaim against CIL and Coates remained pending in the trial court. As noted previously, the judge had entered an order on February 27, 2006, which declared that Sommer's counterclaim was "filed." The judge had inadvertently signed that order despite his statement on the record on February 15, 2006 that he would not permit Sommer to file the counterclaim.

We are satisfied that although Sommer's counterclaim was technically filed in this action, the pleading was filed in error. Thus, the May 11, 2007 stipulation of dismissal disposed of the claims that were pending in the trial court.

The question remains, however, as to whether the May 11, 2007 stipulation represents the sort of manufactured finality criticized in Ruski v. City of Bayonne, 356 N.J. Super. 166 (App. Div. 2002). In that case, the trial court granted summary judgment to two defendants, the City of Bayonne and the Bayonne Police Department. Id. at 167. Previously, the court had granted summary judgment to other public entity defendants. Id. at 168. The court entered a consent order dismissing without prejudice the one remaining claim against a non-public-entity defendant. Ibid. The consent order stated that the complaint could be reinstated upon completion of "all appeals of or involving the other defendants/co-defendants to the within action previously joined." Ibid.

In Ruski, we stated that the consent order was "manifestly an improper maneuver to evade the rule against interlocutory appeals in the absence of leave granted." Ibid. We said:

A conditional dismissal in these terms creates only the illusion of finality. The literal terms of the consent order would permit plaintiff, after failing on the merits of this appeal, to refile the complaint against the remaining defendant. This would confirm, after the fact, that the appeal was interlocutory all along. In the face of the condition contained in the consent order, plaintiff's attempt to couch this appeal as from a final order can only be seen as an effort to circumvent the standards governing appellate procedure. It violates the spirit and intent of the court rules, and it interferes with this court's ability to manage its docket.

A trial court may be tempted to enter a dismissal order of this type because it would dispose of a case at least temporarily, but case disposition for disposition's sake is not the goal of our system. A trial judge should not encourage or participate in such tactics. After the last summary judgment order was entered, the remaining parties had a choice of settling the issues between them, obtaining a dismissal with prejudice, or proceeding to trial. They were not entitled to craft a mechanism that manipulated the provisions of the court rules governing eligibility to appeal to this court as of right. See R. 2:2-3.

[Id. at 168-69.]

Although there are some similarities between the stipulation of dismissal filed in this case and the consent order involved in Ruski, there is a difference. The stipulation filed in this matter dismissed the counterclaim and third-party complaint without prejudice and allows the re-filing of those pleadings only if the order "dismissing the complaint and suppressing the answer and defenses to the counterclaim and/or the third-party complaint is reversed on appeal[.]"

In any event, even if we were to conclude that the May 11, 2007 stipulation only created an illusion of finality, we would grant leave to appeal nunc pro tunc pursuant to Rule 2:4-4(b)(2). The parties have fully briefed the issues raised in these appeals and the interest of justice warrants their resolution at this time. R. 2:2-4.

III.

We next consider whether Sommer's and SRV's appeals are moot. It is well-established that New Jersey courts will not consider an action "when a controversy no longer exists and the disputed issues have become moot." DeVesa v. Dorsey, 134 N.J. 420, 428 (1993) (citing Oxfeld v. N.J. State Bd. of Educ., 68 N.J. 301, 303-04 (1975)). An issue is "technically moot when the original issue presented has been resolved[.]" Ibid.

The trial court's March 17, 2005 order essentially dismissed all of SRV's affirmative claims, and thereafter SRV remained in the case only because it had been named in the counterclaim. The dismissal of the counterclaim did not make SRV's appeal from the suppression of its answer to that pleading moot because the counterclaim may be re-filed, depending on the outcome of SRV's appeal. Similarly, the dismissal of the third-party claim against Sommer did not render his appeal from the suppression of his answer to that pleading moot. The third-party claim may be re-filed if Sommer prevails on his appeal.

Indeed, the stipulation of dismissal filed in this matter does not preclude SRV and Sommer from pursuing their appeals. The stipulation recognizes that the appeals will go forward and provides that if the February 13, 2007 and April 30, 2007 orders are reversed, CIL and Coates may reinstate their claims. Clearly, the stipulation of dismissal did not resolve the controversy between these parties regarding the suppression of SRV's and Sommer's pleadings. Therefore, we conclude that Sommer's and SRV's appeals are not moot.

IV.

We turn to Neff's appeal from the order dismissing his claims and suppressing his answer and defenses to the counterclaim.

Rule 4:23-2(b) authorizes a trial court to impose sanctions when "a party or an officer, director, or managing or authorized agent of a party . . . fails to obey an order to provide or permit discovery[.]" The rule provides that, in these circumstances, the judge may entered such orders "as are just," including:

(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, 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 except an order to submit to a physical or mental examination.

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.

The Supreme Court has stated that the "ultimate sanction" of dismissal of a complaint with prejudice should be imposed "only sparingly." Zaccardi v. Becker, 88 N.J. 245, 253 (1982). 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 whether the refusal to comply is deliberate and contumacious.'" Abtrax Pharm., Inc. v. Elkins-Sinn, Inc., 139 N.J. 499, 514 (1995) (quoting Lang v. Morgan's Home Equip. Corp., 6 N.J. 333, 339 (1951)). In addition, because "'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.'" Ibid. (quoting Zaccardi, supra, 88 N.J. at 253).

The standard that applies to our review of an order dismissing or suppressing pleadings for "discovery misconduct is whether the trial court abused its discretion[.]" Id. at 517. We may not intervene "unless an injustice appears to have been done." Ibid.

Moreover, we must defer to the trial court's findings of fact and conclusions of law "'unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.'" Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (quoting Fagliarone v. Twp. of No. Bergen, 78 N.J. Super. 154, 155 (App. Div.), certif. denied, 40 N.J. 221 (1963)).

We are convinced that the trial judge did not abuse his discretion by ordering the dismissal with prejudice of Neff's claims and suppressing his answer and defenses to the counterclaim. The trial judge found that Neff failed to appear for a deposition as required by the September 26, 2006 order, and failed to return CIL's property as required by the court's September 26 and September 29, 2006 orders. The judge additionally found that Neff's failure to comply with the court's orders was deliberate and contumacious. In our view, there is sufficient credible evidence in the record to support the judge's findings.

As we stated previously, Mr. Rihacek was the attorney for the plaintiffs and Sommer at the time the court entered the September 2006 orders. Mr. Rihacek also represented these parties in October 2006. Mr. Wolf, who was counsel for CIL and Coates, wrote to Mr. Rihacek and attempted to scheduled Neff's deposition within the time required by the September 29, 2006 order. According to Mr. Wolf, Mr. Rihacek did not respond to his letter, and Neff never appeared for his deposition.

At the February 5, 2007 hearing, Mr. Rihacek stated that Neff did not appear for the deposition because Neff "was sick at the time." In addition, Neff testified that he had surgery in December 2005 to remove certain "stones." Neff also had prostate surgery in January 2006. Neff asserted that after the January 2006 surgery, he was on "doctor's orders to be on a very reduced schedule." Neff said that he had a recurrence of his medical problems in November 2006, and he had additional prostate surgery in January 2007.

Although Neff's testimony indicates that he experienced medical problems at various times in 2006, Neff failed to establish that he was too ill to appear for a deposition in October 2006 as ordered by the court. Indeed, in his testimony at the February 5, 2007 hearing, Neff conceded that he continued to practice law after the January 2006 surgery, and his practice included real estate closings and engaging in litigation as a sole practitioner.

Even if Neff had been on a "very reduced schedule" as he claimed, he failed to explain why he could not fit a deposition in this "reduced schedule." Furthermore, Neff's claim that he was too sick to appear for a deposition in October 2006 is inconsistent with his assertion at the hearing that he would have appeared for his deposition "if someone had scheduled it[.]" The record therefore supports the judge's finding that Neff failed to appear for his deposition as required by the court's order and his failure to do so was deliberate and contumacious.

The record also supports the judge's finding that Neff deliberately and contumaciously failed to comply with the court's orders requiring the return of CIL's automobiles and engines. At the hearing, Mr. Rihacek testified that he advised Neff to comply with the court's orders but Neff refused to do so, insisting instead that Mr. Rihacek prepare a motion to sequester CIL's property based on a claim of spoliation of evidence. The motion was never filed and CIL's automobiles and engines were not returned to CIL until March 2007.

The evidence establishes that Neff knew about the court's orders requiring that plaintiffs return CIL's property and chose not to comply. The record also establishes that neither Neff nor his attorney ever advised the court that they had objections to the return of the property. The record therefore supports the judge's finding that Neff failed to comply with the court's orders requiring the return of CIL's property and his non-compliance with those orders was deliberate and contumacious.

Neff argues, however, that the judge abused his discretion by imposing the "ultimate sanction" of dismissal with prejudice for his discovery violations. Neff contends that defendants were not prejudiced by his failure to comply with the court's orders. We disagree.

As Coates pointed out in his certification filed on February 1, 2007, this litigation has placed a significant burden upon CIL and the employees of that company. CIL has incurred counsel fees in endeavoring to have Neff and the other plaintiffs comply with the court's orders. Moreover, Coates asserted that CIL has been harmed by what he views as groundless allegations. Coates says that the delay in resolving plaintiffs' claims has harmed the company and impaired its ability to raise capital. In our view, Coates' assertions are credible and they provide sufficient support for the judge's finding that CIL and Coates were prejudiced by the discovery violations.

Neff also argues that, even if CIL and Coates were prejudiced, any such prejudice could have been fully addressed by monetary sanctions. Again, we disagree. Even if CIL and Coates had not been prejudiced by Neff's failure to comply with the court's orders, dismissal with prejudice can be ordered "when the litigant rather than the attorney was at fault." Zaccardi, supra, 88 N.J. at 253. Because Neff's failure to comply with the court's orders was his fault, and not the fault of his attorney, dismissal of Neff's pleadings with prejudice was not an abuse of discretion, regardless of whether defendants suffered any prejudice.

Accordingly, we affirm the provisions of the February 13, 2007 order, as amended, dismissing Neff's claims and suppressing his answer and defenses to the counterclaim with prejudice.

V.

We next consider the appeals by SRV, 1107 and Sommer. These parties maintain that the judge abused his discretion by dismissing and/or suppressing their pleadings. SRV, 1107 and Sommer argue that they could not have deliberately or contumaciously violated the court's September 2006 discovery orders because they were not aware of those orders. SRV and 1107 further maintain that the judge made no specific findings that Sommer, either individually or as president of the corporations, deliberately or contumaciously failed to comply with the court's orders.

We agree with SRV, 1107 and Sommer that the judge mistakenly exercised his discretion by dismissing and/or suppressing their pleadings with prejudice. It is clear from the record that plaintiffs and Sommer violated the court's orders. However, while the record supports a finding that Neff deliberately and contumaciously violated the orders, the evidence does not support similar findings regarding SRV, 1107 or Sommer. The evidence also does not justify imputing Neff's wrongful conduct to SRV or 1107.

At the February 5, 2007 evidentiary hearing, Mr. Rihacek testified that Neff was his primary contact in handling the litigation. Although Sommer did not testify at the hearing, he submitted a certification in support of the motion for reconsideration of the February 13, 2007 order. In his certification, Sommer stated that he was never advised about the court's September 2006 discovery orders. Sommer also asserted that he did not know about the court's orders until sometime late in January 2007, when he learned about the motion to dismiss plaintiffs' complaint for failure to comply with those orders.

In a supplemental certification dated March 23, 2007, Neff stated that Sommer was not in court when the September 2006 orders were entered. Neff asserted that after Mr. Rihacek took over as counsel for plaintiffs and Sommer, Sommer was not involved in the handling of the case. Neff stated that he did not discuss the litigation with Sommer "at any time".

Neff additionally asserted that Mr. Kennedy, the attorney who replaced Mr. Rihacek, provided Sommer with a copy of the court's September 2006 orders. However, Mr. Rihacek did not withdraw from the case until November 2006. Therefore, if Mr. Kennedy had provided the orders to Sommer, that would have occurred after the deadlines established by the court's September 2006 orders.

The trial judge found that, despite Sommer's assertions to the contrary, Neff and Sommer had a close relationship during the litigation and that Neff and Sommer had communicated with each other as to the status of the litigation. Although the record suggests there may have been some communication between Neff and Sommer regarding the litigation, there is no direct evidence which establishes that Sommer had specific knowledge of the court's September 2006 discovery orders and deliberately chose not to comply with them.

In addition, the evidence does not warrant a finding that Sommer deliberately violated the court's orders. Neff was the party who directed Mr. Rihacek not to comply with the court's order requiring the return of CIL's property. There is no evidence that Sommer instructed Mr. Rihacek to disregard the judge's orders. There also is no evidence that Sommer deliberately refused to appear for a deposition, or instructed Neff not to appear for his deposition.

Furthermore, there is insufficient evidence to justify imputing Neff's wrongful conduct to SRV and 1107. Although Neff may have been a principal of the corporations, and Neff may have been Mr. Rihacek's primary contact person for the litigation, there is no direct evidence that the corporations delegated any binding decision-making authority to Neff for the handling of the case. Even if the corporations had delegated some decision-making responsibility to Neff for the lawsuit, there is no evidence that the corporations authorized Neff to deliberately and contumaciously disregard the court's discovery orders.

We therefore conclude that the judge mistakenly exercised his discretion by dismissing SRV's and 1107's claims, suppressing their answer and defenses to the counterclaim, and suppressing Sommer's answer and defenses to the third-party complaint.

We add, however, that while the trial judge erred by imposing the "ultimate sanction" of dismissal with prejudice upon SRV, 1107 and Sommer, that does not preclude the judge from considering on remand whether monetary sanctions are warranted in this matter. Although the failure by SRV, 1107 and Sommer to comply with the court's September 2006 discovery orders was not deliberate and contumacious, the fact remains that these parties did not comply with the court's orders and their failure to comply prejudiced defendants by causing them to incur costs and expenses that they would not have otherwise incurred.

Rule 4:23-2(b) permits a trial court to order a delinquent party to pay the reasonable expenses, including attorneys' fees, caused by the party's failure to comply with a court's discovery order, "unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust." Ibid. On remand, the trial judge may consider whether SRV, 1107 and Sommer should be required to bear the costs and expenses incurred by defendants due to the failure by SRV, 1107 and Sommer to comply with the court's orders. The judge also may consider whether Neff should bear some part of those expenses. The rule permits the court to impose monetary sanctions upon a delinquent party in addition to the dismissal of the party's pleadings with prejudice. Ibid.

Affirmed in part, reversed in part, and remanded for further proceedings in conformance with this opinion. We do not retain jurisdiction.

We note that Neff submitted certain doctor's notes to substantiate his assertions regarding his medical problems. The notes do not state that Neff was too ill to appear for a deposition in October 2006.

(continued)

(continued)

30

A-5193-06T1

May 9, 2008