OTIS ELEVATOR COMPANY v. EASTERN ELEVATOR SERVICES, INC.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-2454-07T32454-07T3

OTIS ELEVATOR COMPANY,

Plaintiff-Respondent,

v.

EASTERN ELEVATOR SERVICES, INC.,

ROBERT RAUCH and JACQUELINE RAUCH,

Defendants-Appellants.

________________________________________________________

 

Argued January 5, 2009 - Decided

Before Judges R. B. Coleman and Sabatino.

On appeal from the Superior Court of New Jersey, Chancery Division, Gloucester County, C-96-05.

Nicola G. Suglia argued the cause for appellants (Fleischer, Fleischer & Suglia, attorneys; Mr. Suglia, on the brief).

Michael J. O'Mara argued the cause for respondents (Mayfield, Turner, O'Mara, Donnelly & McBride, P.C., attorneys; Christine D. McGuire, on the brief).

The opinion of the court was delivered by

R. B. COLEMAN, J.A.D.

Defendants, Eastern Elevator Services, Inc. (Eastern), Robert Rauch (President of Eastern) and Jacqueline Rauch (100 percent shareholder of Eastern), appeal from a default judgment entered against them in the amount of $610,297.64. Defendants argue that their settlement agreement is unenforceable because there was never a meeting of minds, and that the matter should be scheduled for trial. They alternatively argue that if the settlement agreement is found enforceable, reinstatement of default awarding plaintiff Otis Elevator Company (Otis) liquidated damages was improper. Defendants further claim that because the judge did not mention Mrs. Rauch's name at the motion hearing on December 7, 2007, the portion of the order entering judgment as to Jacqueline Rauch should be vacated. For the reasons that follow, we reverse and remand.

On July 14, 2005, Otis and Eastern executed an agreement for Otis to purchase Eastern's contracts related to its elevator business, maintenance, and repair. This agreement was effective on the closing date of September 1, 2005. Shortly thereafter, Otis discovered discrepancies in the projected revenue and number of active contracts represented by Eastern. The result was a total reduction of $26,534.68 in the anticipated monthly revenue. On November 10, 2005, Otis filed a verified complaint against defendants alleging equitable fraud - rescission (count one); legal fraud - damages (count two); and, breach of contract - damages (count three).

After completing discovery, trial was scheduled for April 2, 2007, and then subsequently for May 30, 2007. In both instances trial was adjourned due to ongoing settlement discussions. Trial was then scheduled for July 9, 2007.

On or around June 1, 2007, the attorney-client relationship between defendants and their attorney became strained. On June 26, 2007, defense counsel submitted a motion to withdraw for in-camera review. That motion was subsequently granted. Defendants did not obtain a new attorney before the scheduled trial date. Thus, on July 9, 2007, plaintiff appeared in court; defendants did not. On July 30, 2007, an order for default was entered against defendants.

Mr. Rauch then filed for bankruptcy in Florida, effectively staying this matter, however, on August 10, 2007, Mr. Rauch's bankruptcy application was dismissed. Plaintiff moved for entry of judgment by default against defendants. On September 24, 2007, defendants cross-motioned to vacate default, arguing excusable neglect and that meritorious defenses existed. On October 5, 2007, the Law Division judge denied plaintiff's motion to enter default judgment and granted defendants' motion to vacate default.

Trial was scheduled for October 29, 2007, but before that date, the parties reported they had reached a settlement. Thereafter, on November 7, 2007, the terms of the settlement were stated on the record before the court. Defendants were not present at the settlement hearing; however, defense counsel represented to the court that he had authority to place the settlement agreement on the record on behalf of defendants.

The stated settlement agreement provided that Otis should receive a total of $350,000 plus interest. Specifically, the parties agreed that: (a) effective immediately, Otis would retain the full amount of the $202,907.40 holdback from the original closing date in 2005; (b) defendants would wire transfer $30,000 to their attorney's trust account and that defense counsel would deliver a $30,000 check to plaintiff counsel on November 19, 2007; (c) the remaining $117,092.60 would be delivered by defendants on or before March 18, 2008 at the interest rate of seven percent per annum beginning to run on November 19, 2007; and, (d) as assurance that Otis would receive the $117,092.60, defendants were obligated to place a mortgage on their Florida property executed in favor of Otis, provide documentation of the Florida property's ownership, to cooperate in securing either title or a duplicate title for an Astro van acquired as part of the sale, and to provide documentation of all Internal Revenue Service (IRS) liens. At the settlement hearing, the parties stated their plan to execute a "more formal agreement" consistent with the terms placed on the record.

On November 19, 2007, defendants failed to deliver the $30,000 to their attorney. In turn, a more formal settlement agreement was never memorialized in writing as anticipated. On November 26, 2007, the court entered an order demanding that defendants show cause why judgment should not be entered against them in the full amount of damages, $610,297.64. Defendants' attorney then filed an in-camera motion to withdraw as counsel.

On December 7, 2007, the court reinstated the previous default and entered a judgment in favor of plaintiff for liquidated damages. The judge reasoned that:

On the day of the trial there was a settlement agreement that was placed on the record. As [plaintiff's counsel] asserts, it appears that Mr. Rauch is in a delay mode.

I think that it would be appropriate under the peculiar circumstances of this case, and the fact that Mr. Rauch is in Florida and you are here as his counsel, . . . and . . . you're here primarily because of your ethical obligation to be here, not necessarily because Mr. Rauch paid you to come in here today to oppose this.

. . . .

Under all those circumstances . . . . I think the default can be reinstated.

I also think that I did ask the question as to whether or not this claim constitutes liquidated damages . . . . [B]ased on the prior certifications that were filed, . . . and based on the claims that were made and the nature of those contracts, as well as the deposition testimony . . . it's appropriate . . . [to] reinstate the default and enter a judgment on liquidated damages . . . .

Defense counsel's motion to withdraw was also granted. On December 11, 2007, the judge issued an order "in favor of the plaintiff, . . . and against the defendants, [Eastern], Robert Rauch and Jacqueline Rauch in the amount of $610,297.64 with interest and cost of suit." On January 23, 2008, defendants filed their notice of appeal.

First, the trial judge's failure to state Mrs. Rauch's name in his ruling on December 7, 2007, does not warrant absolving her from involvement in this case. Not only did the judge reinstate an entry of default against all defendants, including Mrs. Rauch, but also, the December 11, 2007 order specifically includes Mrs. Rauch among the defendants against whom judgment was entered.

Our review as to whether re-entry of default was proper is de novo. Manalapan Realty v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). We adjudicate this controversy in the light of the applicable law, State v. Steele, 92 N.J. Super. 498, 507 (App. Div. 1966), and the "trial court's interpretation of the law and the consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, supra, 140 N.J. at 378.

We hold that the settlement agreement between plaintiff and defendants is enforceable because defense counsel had the apparent authority to settle the agreement on defendants' behalf; hence, there was a meeting of minds in reaching the agreement. "The general rule is that unless an attorney is specifically authorized by the client to settle a case, the consent of the client is necessary." Amatuzzo v. Kozmiuk, 305 N.J. Super. 469, 475 (App. Div. 1997) (citing City of Jersey City v. Roosevelt Stadium Marina, Inc., 210 N.J. Super. 315, 327 (App. Div. 1986), certif. denied, 110 N.J. 152 (1988)). However, "it is the clear policy of our courts to recognize acts by the attorneys of the court as valid and presumptively authorized and, unless the contrary appears, it will be presumed that a stipulation was duly authorized." Jennings v. Reed, 381 N.J. Super. 217, 231 (App. Div. 2005). A "party asserting the lack of authority must sustain 'a heavy burden to establish that [the] attorney acted without any kind of authority in agreeing to the entry of judgment in the trial court[.]'" Jennings, supra, 381 N.J. Super. at 231 (quoting Sur. Ins. Co. v. Williams, 729 F.2d 581, 583 (8th Cir. 1984)). Defendants failed to meet this burden.

"[I]n private litigation, where the client by words or conduct communicated to the adverse attorney, engenders a reasonable belief that the attorney possesses authority to conclude a settlement, the settlement may be enforced." Amatuzzo, supra, 305 N.J. Super. at 475-76. See also R.P.C. 1.2 (while a lawyer must "abide by a client's decision whether to settle a matter," that lawyer may take action within the agreed upon scope of representation "on behalf of the client as impliedly authorized to carry out the representation.").

On November 7, 2009, defense counsel expressly represented to the court that he had authority to act on defendants' behalf when he stated the following:

[M]aybe it's best that I do place it on the record, I did speak to my client, Robert Rauch, extensively on Monday and Tuesday. I do have full authority to be here today [and] place this matter on the record.

He opted to cancel his flight, which had been scheduled actually for yesterday, in light of the fact that the settlement was reached.

Further, although an "attorney's words or acts alone are insufficient to cloak the attorney with apparent authority" to settle on behalf of a client, in this case, defendants' conduct and actions also indicated that defense counsel had such authority. Amatuzzo, supra, 305 N.J. Super. at 476. The undisputed evidence shows that defense counsel made all negotiations and court appearances on behalf of defendants while Mr. and Mrs. Rauch, chose to remain in Florida. By remaining unseen and unheard throughout the course of the litigation, defendants communicated that defense counsel had authority to negotiate and reach a settlement on their behalf. See id. at 475-76. Beyond this, defendants' claim that their attorney unclearly communicated the terms of the settlement is unsupported by the record. We find the settlement agreement between plaintiff and defendants enforceable.

It is well settled "that there are strong public policy considerations favoring the enforcement of settlement agreements." Jersey City Redevelopment Agency v. Clean-o-Mat Corp., 289 N.J. Super. 381, 404 (App. Div.), certif. denied, 147 N.J. 262 (1996); Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). Such policy recognizes that "the parties to a dispute are in the best position to determine how to resolve a contested matter in a way which is least disadvantageous to everyone." Jennings, supra, 381 N.J. Super. at 226 (quoting Peskin v. Peskin, 271 N.J. Super. 261, 275 (App. Div.), certif. denied, 137 N.J. 165 (1994)). "Consequently, courts 'strain to give effect to the terms of a settlement whenever possible.'" Jennings, supra, 381 N.J. Super. at 227 (quoting Dep't of Pub. Advocate v. N.J. Bd. of Pub. Util., 206 N.J. Super. 523, 528 (App. Div. 1985)).

"A settlement agreement between parties to a lawsuit is a contract. . . . In general, settlement agreements will be honored 'absent a demonstration of 'fraud or other compelling circumstances.'' Before vacating a settlement agreement, our courts require 'clear and convincing proof' that the agreement should be vacated." Nolan, supra, 120 N.J. at 472 (citations omitted). See also Pascarella v. Bruck, 190 N.J. Super. 118, 124-25 (App. Div.), certif. denied, 94 N.J. 600 (1983).

Aside from claiming that the original entry of default should not have been vacated, plaintiff has offered no evidence "of fraud or other compelling circumstances" concerning the settlement agreement itself. Ibid. Indeed, plaintiff asks us to find that defendants were bound by the terms of this agreement, but that re-entry of default was a more appropriate course of action than enforcing the agreement. This conclusion conflicts with New Jersey law.

Absent a "showing of 'artifice or deception, lack of independent advise, abuse of confidential relation, or similar indicia generally found in the reported instances where equity has declined to enforce . . . an agreement voluntarily executed by the parties,' [a settlement] agreement should be enforced." Pascarella, supra, 190 N.J. Super. at 125 (quoting DeCaro v. DeCaro, 13 N.J. 36, 44 (1953)). In the instant case, there is nothing in the record evincing such inadequacy in the formation or terms of the settlement agreement in question. Further, the fact "[t]hat the agreement was to be memorialized in writing makes it no less a contract where, as here" the parties orally stated the terms of the agreement on the record before a judge. Id. at 126.

Therefore, the order of the Law Division effectively vacating the settlement, reinstating default and entering a judgment on liquidated damages in the amount of $610,297.64, is reversed and vacated. This matter is remanded with instructions that the court enter an order enforcing the settlement agreement, as recited in open court on November 7, 2007. So far as we can ascertain from the record, plaintiff already has $202,907.40 of the $350,000 settlement from the original closing holdback. This means defendants, pursuant to the settlement agreement, now owe plaintiff the $30,000 that was never transferred plus the $117,092.60 that has been accruing interest at a rate of seven percent per annum since November 19, 2007.

Reversed and remanded.

(continued)

(continued)

2

A-2454-07T3

February 4, 2010