ALL STATE INVESTIGATIONS, INC v. JERRY PANICO

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0407-14T4

ALL STATE INVESTIGATIONS, INC.,

Plaintiff-Appellant,

v.

JERRY PANICO, LAWRENCE O'LEARY,

CHRIS HILLIER, NANCY O'LEARY,

JOSELLE NARDELLA, A2Z INVESTIGATIONS,

a corporation of the State of

New Jersey,

Defendants,

and

DAVID'S CHECK CASHING,

Defendant-Respondent.

February 12, 2016

Argued January 21, 2016 Decided

Before Judges Fuentes, Koblitz and Gilson.

On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-4741-09.

Elliot H. Gourvitz argued the cause for appellant (Gourvitz & Gourvitz, LLC, attorneys; Ari H. Gourvitz, on the brief).

Kenneth K. Lehn argued the cause for respondent (Winne, Banta, Hetherington, Basralian & Kahn, P.C., attorneys; Mr. Lehn, on the brief).

PER CURIAM

Plaintiff All State Investigation, Inc. (All State), appeals from the August 19, 2014 order denying its motion for sanctions against defendant David's Check Cashing (DCC) and its counsel pursuant to Rule 1:4-8 and N.J.S.A. 2A:15-59.1(a), based upon its assertion that DCC failed to withdraw its answer despite lacking a viable defense. All State maintains on appeal that the motion judge abused her discretion by not granting sanctions. We affirm, substantially for the reasons expressed by Judge Jamie S. Perri in her cogent and thorough oral opinion.

Based on the incomplete record submitted to us,1 it appears that between 2005 and 2007, Jerry Panico, All State's employee, cashed seventeen checks made out to All State at DCC without the required written authorization. All State filed a complaint in 2009 alleging that DCC was complicit in Panico's forgery and theft. Panico entered a guilty plea admitting to the theft at about the same time.

In October 2010, All State's first summary judgment motion was denied.2 At his deposition C.I.,3 a shareholder of DCC, stated that Panico told him that All State's compliance officer, P.C.,4 had given DCC verbal permission to cash the checks. Also, a document apparently sent from P.C. to Panico, and found among Panico's files at All State, indicated that a corporate resolution may have been requested by DCC.

DCC entered into a consent order with the New Jersey Department of Banking and Insurance on December 16, 2010. The order states that DCC "may have violated" N.J.S.A. 17:15A-47(a), which describes a prohibited transaction as

[cashing] a check which is made payable to a payee which is other than a natural person unless the licensee has on file a corporate resolution or other appropriate documentation indicating that the corporation, partnership or other entity has authorized the presentment of a check on its behalf and the federal taxpayer identification number of the corporation, partnership or other entity.

The order indicated that DCC had voluntarily waived the right to a hearing on the matter "without making any admission of liability with respect to the apparent violations cited in [the] Consent Order" and agreed to pay $5000 in administrative penalties. A day after this consent order was signed, All State's second summary judgment motion was denied.

In February 2011, Panico testified at his deposition that he was collecting unemployment while working at All State, with All State's shareholder, A.D., paying Panico the difference between unemployment payments and Panico's salary. Panico also stated he was authorized to cash All State's checks, and had returned money received from cashing the checks to A.D.

In June 2011, All State made an offer to take judgment in the amount of $62,019.59. R. 4:58-1. In March 2012, plaintiff moved for summary judgment a third and final time, which was again denied.5 On February 21, 2014, DCC made an offer to allow judgment in the amount previously offered by All State, which All State then accepted.

All State then moved for sanctions, and Judge Perri denied the motion, stating

In early 2005, Panico, an employee of [All State], came to DCC for the purpose of cashing checks payable to his employer. Evidence was presented in this matter that Panico made oral representations to DCC employee [P.C.] that he had check cashing authorization from [A.D.], [All State]'s de facto operator. [P.C.] now deceased, placed a phone call to [A.D.] and confirmed that Panico was in fact authorized to cash checks for [All State].

Additionally by fax dated April 11, 2005, [P.C.] wrote to [All State] requesting that a duly executed corporate resolution be provided as a condition of DCC's cashing the checks payable to [All State]. According to [P.C.], a duly signed resolution was subsequently provided.

In discovery a letter was produced from [P.C.] to Panico which states, "here is a copy of this corporate resolution"

Judge Perri found that DCC's defenses had merit. The judge found that Panico was an employee of All State and that the fax sent to All State by P.C. alerted All State that Panico was cashing checks. Based on the foregoing, the judge ultimately found that "DCC raised defenses[6] that had some basis in fact and were legitimate in terms of their presentation," and, as such, the defenses presented were not frivolous despite the fact that they may have proved unsuccessful had the litigation proceeded to trial.

Our review of a trial court's decision on whether to award sanctions is conducted under an abuse of discretion standard. United Hearts, L.L.C. v. Zahabian, 407 N.J. Super. 379, 390 (App. Div.), certif. denied, 200 N.J. 367 (2009). "An 'abuse of discretion is demonstrated if the discretionary act was not premised upon consideration of all relevant factors, was based upon consideration of irrelevant or inappropriate factors, or amounts to a clear error of judgment.'" Ibid. (quoting Masone v. Levine, 382 N.J. Super. 181, 193 (App. Div. 2005)). A defense that has survived summary judgment multiple times is not frivolous. See United Hearts, L.L.C., supra, 407 N.J. Super. at 394 (holding that a "pleading cannot be deemed frivolous as a whole nor can an attorney be deemed to have litigated a matter in bad faith where . . . the trial court denies summary judgment on at least one count in the complaint and allows the matter to proceed to trial"). Judge Perri did not abuse her discretion in denying sanctions against DCC and its counsel.

Affirmed.

1 Plaintiff refers to depositions not included in its appendix.

2 Six months earlier, plaintiff sent DCC a "safe harbor letter" pursuant to Rule 1:4-8(b), demanding that DCC withdraw its answer and defenses.

3 We use initials to preserve the confidentiality of witnesses not otherwise involved in this litigation.

4 P.C. was deceased by the time DCC filed their answers to All State's interrogatories.

5 A June 27, 2014 certification of defense counsel states that the third motion was denied by the court. Neither party has provided the order.

6 These defenses included the U.C.C. "faithless employee" defense. N.J.S.A. 12A:3-405. "The statute . . . permit[s] [a] plaintiff to recover against the party who paid the instrument only if that party failed to exercise ordinary care when doing so and that failure substantially contributed to the loss." Distrib. Label Prods., Inc. v. Fleet Nat'l Bank, 401 N.J. Super. 345, 352 (App. Div. 2008). "This statute was designed to place the loss from the activities of a typical 'faithless employee' upon the employer rather than upon" the person paying the instrument. Brighton, Inc. v. Colonial First Nat'l Bank, 176 N.J. Super. 101, 112 (App. Div. 1980), aff d o.b., 86 N.J. 259 (1981).