COSTANZA BUILDERS OF NEW JERSEY, INC. v. WATERFRONT HOMES, LLC, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4426-03T24426-03T2

COSTANZA BUILDERS OF NEW JERSEY,

INC.,

Plaintiff-Appellant,

v.

WATERFRONT HOMES, LLC, A.W. MEYER

COMPANY, INC., EASTERN CONCRETE

MATERIALS, INC., UNITED DIVERSIFIED,

LLC, MICHAEL GALELLA, DIANE GALELLA,

JOSEPH ZINGALE, DESPINA ZINGALE,

JOSEPH M. LUCARELLI, AND LANCE

LUCARELLI,

Defendants,

and

ASTEROID PROPERTIES, INC.,

Defendant-Respondent.

____________________________________

 

Argued October 11, 2005 - Decided

Before Judges Cuff, Lintner and Gilroy.

On appeal from the Superior Court of New Jersey, Law Division, Hudson County,

L-6428-02.

Bruce D. Meller argued the cause for appellant (Peckar & Abramson, attorneys; Mr. Meller, of counsel; Alan Winkler and Michael C. Delaney, on the brief).

Frederick W. Alworth argued the cause for respondent (Mr. Alworth, of counsel; Joseph A. Deer, on the brief).

PER CURIAM

Plaintiff, Costanza Builders of New Jersey, Inc., (Costanza) appeals from an October 17, 2003, Law Division grant of defendant Asteroid Properties, Inc.'s (Asteroid) Order to Show Cause (OTSC). The Order set aside a default judgment entered in favor of Costanza against Waterfront Homes, LLC (Waterfront) and levied sanctions in the amount of $23,349 against Costanza to cover Asteroid's counsel fees. We affirm the Order imposing sanctions but reverse and remand for reconsideration of the amount of reasonable counsel fees actually incurred by Asteroid that were necessitated by Costanza's egregious conduct.

Costanza entered into a construction contract with Waterfront on October 12, 2001, as general contractor to construct condominiums on Waterfront's property. Waterfront defaulted on payment and Costanza sought to enforce its construction lien on Waterfront's property in the amount of $1,199,729.38. At the time Waterfront entered the construction contract, its property was encumbered with a $2,050,000 mortgage held by Asteroid's assignor, Provident Savings Bank (Provident).

The dispute between the parties to this appeal arises out of Costanza's rush to obtain a default judgment and Writ of Execution on Waterfront's property without notice to Asteroid, while Asteroid was in the process of answering Costanza's complaint in the Law Division and foreclosing on its mortgage in a separate Chancery Division action. In March 2004, Costanza settled its priority dispute with Asteroid and entered into a stipulation dismissing its Law Division suit as to "Asteroid only." The stipulation, however, reserved Costanza's right to appeal from the October 17 Order awarding counsel fees.

On appeal, Costanza challenges Asteroid's standing and entitlement to vacate the default judgment entered against Waterfront. Costanza also asserts that its conduct was not sufficiently egregious to justify sanctions. Alternatively, it contends that if sanctions are warranted the judge failed to perform the necessary analysis to substantiate the reasonableness of the fees assessed. The issues of Asteroid's standing to vacate the default judgment and any substantive error committed in setting aside the default is rendered moot by Costanza's settlement with Asteroid. We, therefore, turn our attention to the propriety of Costanza's conduct, the entry of sanctions, and reasonableness of the counsel fees awarded.

The following relevant procedural history illustrates the conduct giving rise to the imposition of sanctions. Costanza's initial complaint, filed on October 7, 2002, asserted that Waterfront breached its contract with Costanza and named two additional parties, Meyer Company, Inc. and Eastern Concrete Material, Inc., both of which had recorded construction liens against Waterfront's property. In a Second Amended Complaint, filed on November 7, 2002, Costanza added Provident as a defendant. On November 29, 2002, Asteroid's counsel acknowledged proof of service, advised Costanza that Asteroid was Provident's assignee, and requested copies of all pleadings. On December 13, 2002, Asteroid's counsel wrote Costanza's counsel confirming their conversation and sending a stipulation extending time for Asteroid, "as assignee of defendant, Provident Savings Bank," to answer. In December 2002, Asteroid commenced its foreclosure action in the Chancery Division, naming Costanza as a necessary defendant.

On January 15, 2003, Asteroid's counsel wrote Costanza's counsel reminding him that pursuant to their earlier discussions Costanza would amend its complaint to name Asteroid as the proper party and dismiss Provident. One day later, Costanza filed a Request for Entry of Default, R. 4:43-1, against Waterfront. Costanza did not copy Asteroid's counsel with the request to enter default. On January 23, 2004, Asteroid's counsel circulated a proposed consent order to amend Costanza's complaint to include Asteroid and delete Provident as a defendant. A Third Amended Complaint naming Asteroid was filed on March 21, 2003.

Meanwhile, unbeknownst to Asteroid, Costanza applied for default judgment against Waterfront, filing an attorney's certification in support of its application. Final Judgment by default was entered in the full amount of Costanza's lien, plus interest and costs, by the Hudson County Deputy Clerk on February 26, 2003. Again, counsel did not forward copies to Asteroid. On April 7, 2003, Costanza filed a Writ of Execution, which was signed and issued four days later. Asteroid's counsel was not advised of the filing or copied with the Writ of Execution.

On May 28, 2004, Asteroid's counsel wrote Costanza's counsel explaining that his client had learned for the first time that day that Costanza had been issued a Writ of Execution and was attempting to levy on Waterfront's property that was the subject matter of their ongoing priority dispute. The letter requested that Costanza "withdraw the levy on the property and vacate this default judgment voluntarily." Asteroid's OTSC was filed on June 3, 2003.

At a hearing held on August 28, 2003, the judge vacated Costanza's default judgment, finding that Asteroid had a meritorious defense and satisfied the requirements of R. 4:50-1. She also found that R. 4:43-1 and R. 4:43-2(a) required Costanza to notify Asteroid that it had requested entry of default and final judgment.

On appeal, Costanza asserts that the judge erred in imposing sanctions because R. 4:43-1 and R. 4:43-2 only require that notice be sent to the defaulting party. Costanza also maintains sanctions should not have been imposed because only the party against whom a judgment is entered may move to vacate that judgment under R. 4:50-1. Costanza points out that the entry of both default and default judgment against Waterfront did not affect Asteroid's priority rights. Finally, it argues that the judgment only gave it the right to execute on Waterfront's property and that in the event it had moved to enforce the Writ of Execution, the purchaser at a sheriff's sale would obtain the property subject to Asteroid's mortgage.

R. 4:43-3 permits a court to set aside either the entry of default or judgment by default in accordance with R. 4:50. R. 4:50-1, by its expressed wording is designed to allow a trial court to "relieve a party or the party's legal representative from a final judgment or order" for the various listed reasons. R. 4:43-1 permits a party to request entry of default against a non-answering defendant, without the necessity of filing a motion, if the request is made within 6 months of the actual default. R. 4:43-1 directs the attorney obtaining default to send a copy of the default, by ordinary mail, to the address where the defendant was served with process. R. 4:43-2 provides for notice to the defaulting party if a proof hearing is required or deemed necessary by the court or the application for final default judgment is made after expiration of 6 months following entry of default.

We agree with Costanza that R. 4:50-1 is intended to provide a manner for the party against whom a judgment is entered to obtain relief. We also agree that R. 4:43-1 and R. 4:43-2 does not provide for notice to be sent to a codefendant. In reaching her decision, however, the judge did not rely solely on R. 4:50-1 or R. 4:43-1 and -2. She also pointed out that at the time Costanza applied for the Writ of Execution, Costanza was a party in Asteroid's Chancery Division case specifically dealing with the parties' priorities and the marshalling of available funds. The judge then found:

. . . Costanza's failure to notify Asteroid was intentional. It was not simply an oversight. And again I say that that is well supported, this court finds procedurally. Costanza knew about Provident. They knew that Asteroid was the successor in interest by assignment, and intentionally did not notify Asteroid of any actions against Waterfront Homes.

Again I say intentionally because they acknowledged in their second and third amended complaint[s] the interest of Asteroid--of Provident and then Asteroid in this property, and although Costanza suggests in its pleadings or argues . . . that Asteroid and Provident's interest was subordinate, they knew that there was an interest that had to be or should have been disposed of in order for them to have a clear . . . right to take Waterfront['s] Propert[y] is what it basically boils down to.

They were asking the Court to order that Waterfront['s] Propert[y] be liquidated and they be paid first, and then they . . . somehow accidentally forgot to notify Asteroid? No, it wasn't an accident because Asteroid didn't answer.

The applicable rules are R. 1:5-1 and R. 1:6-8. R. 1:5-1 provides in pertinent part:

(a) Civil Actions. In all civil actions, unless otherwise provided by rule or court order, orders, judgments, pleadings subsequent to the original complaint, written motions (not made ex parte), briefs, appendices, petitions and other papers except a judgment signed by the clerk shall be served upon all attorneys of record in the action and upon parties appearing pro se; but no service need be made on parties who have failed to appear except that pleadings asserting new or additional claims for relief against such parties in default shall be served upon them in the manner provided for service of original process. The party obtaining an order or judgment shall serve it as herein prescribed within 7 days after the date it was signed unless the court otherwise orders therein. (emphasis added)

Costanza received notification from Asteroid's attorney of record as early as November 29, 2002, when it received counsel's acknowledgment of service of process. Two weeks later, Asteroid's counsel's forwarding of a Stipulation Extending Time to Answer further confirmed his appearance as attorney of record. Accordingly, although not required by R. 4:43-1 and -2, Costanza was obligated to notify Asteroid's attorney of any "petitions and other papers" filed with the court from November 29, 2002, onward. R. 1:5-1. Likewise, the April 7, 2003, issuance of the Writ of Execution, the equivalence of a court order, was required by R. 1:5-1 to be served on Asteroid's counsel. The judge correctly decided that Asteroid was entitled to copies of the challenged filings.

R. 1:6-8 permits application to the court to rescind orders grantable by the clerk as a matter of course for good cause. Accordingly, although not authorized by R. 4:50-1, Asteroid had standing under R. 1:6-8 to attack both the entry of default and final judgment by default and the issuance of the Writ of Execution on either procedural or substantive grounds.

The judge's factual findings that Costanza's counsel's failure to give the required notice was an intentional violation of the court rules and done to gain an unfair advantage is supported by sufficient credible evidence in the record, Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). We agree, on this record, that counsel's failure to provide notice to adverse counsel of record represented a blatant disregard of rules and was intended to conceal Costanza's ex-parte attempts to levy on property it knew was the subject matter of a priority controversy in two separate lawsuits. See Horowitz v. Weishoff, 318 N.J. Super. 196, 207 (App. Div. 1999). The judge properly concluded that Asteroid was entitled to attorneys' fees for the legal services necessary to extricate itself from the potential prejudice caused by Costanza's improper conduct. R. 1:4-8(a)(2) and (c).

Costanza argues that the judge erred in determining that Asteroid's counsel fees, totaling $23,349 with costs, were reasonable. R. 1:4-8(d)(2) permits a trial court to direct payment of reasonable attorneys' fees and costs incurred indirectly as a result of the violation warranting the imposition of sanctions. Costanza contends that Asteroid's counsel's billings "were excessive and replete with entries for work unrelated to the prosecution of the OTSC, for arguments that were not accepted by the Court, and for work that was duplicative of other entries."

An application for attorneys' fees "requires the trial court to evaluate carefully and critically the aggregate hours and specific hourly rates advanced by counsel for the prevailing party to support the fee application." Kluczyk v. Tropicana Prods., Inc., 368 N.J. Super. 479, 499 (App. Div. 2004) (quoting Rendine v. Pantzer, 141 N.J. 292, 335 (1995)). "Whether the hours the prevailing attorney devoted to any part of a case are excessive ultimately requires a consideration of what is reasonable under the circumstances." Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 22-23 (2004).

Here, the judge stated:

The actions taken by Asteroid had to be taken in order to resolve this matter, the Court finds. I find nothing in the record to suggest that Asteroid just tacked on some optional actions just because they could or wanted to. It is clear from the record that Asteroid -- counsel for Asteroid and Asteroid did what they had to do to preserve their interest in this property and to keep this property from being sold and being lost and there being further impact on Asteroid as a first -- as the holder of the primary mortgage in this matter, that as to Asteroid.

And the Court has reviewed the submissions by [Asteroid's counsel] and finds that the fees were necessary. The Court finds that they were reasonable. [Plaintiff is] suggesting that there may have been overlap. That's acknowledged, but the Court in reviewing this does not find that there has been any charging for anything that was not appropriate, was not necessary in the coordination of this matter. At no point before the resolution of this matter did [plaintiff] back off. At no point . . . I don't have any recollection of [plaintiff] at any time saying, look, let's work this out, we're wrong, you're right, you have the first mortgage. It had to play out in its entirety and that's what it did, and as a result of it a great deal of time was spent that has been, the Court finds, substantiated in [Asteroid's counsel's] submission. (emphasis added)

The time records submitted by Asteroid's counsel appropriately span the period from May 28, 2003, when Costanza's attorneys refused to withdraw the Writ of Execution in response to Asteroid's request, until the judge's entered her ruling on notice on August 28, 2003. The judge, however, apparently arrived at the amount to be awarded in part by considering the intentional nature of Costanza's conduct and Costanza's refusal to settle the case even though it knew Asteroid's lien had priority. Although wrongful conduct is considered in determining whether to impose sanctions, it should not enter into the amount to be awarded for counsel fees. The court is required to direct payment only for those "reasonable attorneys' fees and other expenses incurred as a direct result of the violation." R. 1:4-8(d)(2).

Costanza correctly points out that its applications for entry of default, default judgment, and a Writ of Execution did not adversely affect Asteroid's priority interest. The entry of default and default judgment simply established Costanza's right to recover against Waterfront, as a non-answering party, and its measure of damages. Neither had any effect on Asteroid's interest in the property. By contrast, however, the issuance of the Writ of Execution to Costanza gave Costanza the immediate right to levy on Waterfront's property, thus potentially interfering with the manner in which Asteroid chose to effectuate its priority interest in the property. Thus, the legal services necessary to extricate Asteroid from potential prejudice caused by Costanza's failure to provide notice should have been limited to the time spent to vacate the Writ of Execution, not the entry of default or the default judgment. The judge should not have considered the intentional nature of Costanza's conduct, its failure to settle, or the time Asteroid's counsel spent in challenging the entry of default and the default judgment in assessing the amount to be awarded.

Moreover, the judge did not make any specific findings regarding the reasonableness of the hourly entries for the work performed or the reasonableness of the rate charged. We note by way of illustration that the brief preparation, which took up several entries, totaled approximately 19.2 hours with an additional 17.9 hours spent on the reply brief. There were also several block entries reflecting more than one event without itemization of the time spent on each.

Accordingly, we affirm the Order imposing sanctions but reverse the counsel fees award and remand for the judge to reevaluate the reasonableness of Asteroid's counsel fees. On remand, consideration should be limited to the actual time spent by Asteroid's counsel to vacate the Writ of Execution along with a careful and critical examination of the type of services performed and the specific hourly rates for those services.

Affirmed in part; reversed and remanded in part.

 

Provident's mortgage was recorded on January 22, 2002.

At oral argument on appeal, Costanza advised that the remainder of its complaint has been dismissed, thus rendering the October 17, 2003, order final.

Provident's current counsel was substituted on January 3, 2003.

At oral argument on appeal, Costanza's counsel represented that he executed the Stipulation Extending Time to Answer and returned it to Asteroid's counsel.

(continued)

(continued)

14

A-4426-03T2

October 28, 2005