PETER ARROYO v. INVESTORS ONE CORP

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

PETER ARROYO and NADUA

ARROYO, husband and wife,

Plaintiffs-Respondents,

v.

INVESTORS ONE CORP., and

ESMERALDA CABEZAS,

Defendants-Appellants.

July 8, 2014

Before Judges Sapp-Peterson and Hoffman.

On appeal from Superior Court of New Jersey, Law Division, Special Civil Part, Bergen County, Docket No. DC-028666-11.

Joshua G. Curtis, attorney for appellants.

Shapiro, Croland, Reiser, Apfel & Di Iorio, LLP, attorneys for respondents (Manuel A. Arroyo, on the brief).

PER CURIAM

Defendants, Investor's One Corp. and its sole shareholder Esmeralda Cabezas, appeal from the default judgment entered by the Special Civil Part following an order striking defendants' answer and dismissing their counter-claim without prejudice due to their attorney's failure to provide discovery. Rule 4:23-5(a)(3), which governs the dismissal and suppression of pleadings with prejudice for failure to provide discovery, requires a motion judge to take action to obtain compliance with the requirements of the rule. Despite plaintiffs' failure to comply with the rule's requirements, the court allowed plaintiffs to proceed to a final default judgment without taking any action to secure compliance. Under the facts of this case, we conclude it was an abuse of discretion to allow plaintiffs to proceed to a proof hearing and, consequently, it was error to deny the motion to vacate the default judgment and reinstate defendants' answer and counterclaim. We therefore reverse and remand.

I.

Plaintiffs, Peter and Nadua Arroyo, were defendants' landlord under a two-year lease. Prior to the end of the lease term in July 2011, defendants allegedly sent a text message to plaintiffs notifying them of their intent to extend the lease term until August 31, 2011. However, after plaintiffs allegedly accepted the extension of the lease, defendants notified plaintiffs they intended to leave as originally provided under the lease and failed to pay rent for August.

On September 22, 2011, plaintiffs filed a complaint in the Bergen County Special Civil Part against defendants demanding judgment for $12,377.50 plus interest arising from the unpaid August rent and alleged damage to the property. After defendants timely filed their answer and counter-claim, plaintiffs served defense counsel with interrogatories and requests for admissions. Counsel for defendants, Daniel Hediger, received the discovery demands on December 15, 2011. On that date, plaintiffs' counsel requested an adjournment of the trial date, previously scheduled for January 10, 2012, to give defendants sufficient time to respond to plaintiffs' discovery demands prior to trial. The court granted the adjournment until February 14, 2012.

On January 6, 2012, before defendants' time to respond to the interrogatories had expired, plaintiffs' counsel sent a letter requesting an immediate response to the discovery demands to avoid motion practice.1 The letter further stated if plaintiffs did not receive the discovery responses by January 13, 2012, plaintiffs will "make a prompt application to the Court without further notice to you." On January 19, 2012, plaintiffs filed a motion to strike defendants' answer and dismiss their counter-claim without prejudice for failing to provide discovery, pursuant to Rule 4:23-5(a)(1).

On February 1, 2012, the motion judge entered an order striking defendants' answer and dismissing their counterclaim without prejudice for failure to provide answers to interrogatories. On May 3, 2012, plaintiffs filed a "request to enter final judgment by default against defendants," pursuant to Rule 6:6-3(a). Plaintiffs requested a proof hearing, which was scheduled for June 14, 2012, and then rescheduled to July 26, 2012, at the request of plaintiffs' counsel.

The day before the rescheduled proof hearing, Hediger requested an adjournment to file a motion to vacate the dismissal of defendants' pleadings. The court denied his request. After the proof hearing, the judge issued a written decision finding defendants' owed plaintiffs $5070. On August 14, 2012, the judge entered a final judgment by default awarding plaintiffs $5070 in damages and $1837.50 in attorneys' fees.

On November 14, 2012, defendants moved to vacate the default judgment,2 which the court denied despite acknowledging that "[Rule] 4:43-1 is very clear as to when default can enter. The defendant[s] [are] correct in concluding that default should not have [been] entered." The court instead focused on the inactions of Hediger, and what it perceived as his "indifference." The court denied the motion without addressing plaintiffs' failure to comply with Rule 4:23-5(a).

This appeal followed with defendants arguing the default judgment should be vacated due to plaintiffs' failure to comply with the two-step procedure required by Rule 4:23-5(a). Because plaintiffs failed to comply with the two-step procedure, and the court otherwise failed to require compliance with the safeguards of Rule 4:23-5(a)(3), we agree plaintiffs' default judgment must be vacated and the matter remanded for further proceedings.

II.

Our decision is guided by well-established principles. The determination whether to grant a motion to vacate a default judgment is "left to the sound discretion of the trial court, and will not be disturbed absent an abuse of discretion." Mancini v. EDS ex rel. N.J. Auto. Full Ins. Underwriting Ass'n, 132 N.J. 330, 334 (1993); see also US Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449, 467 (2012) (stating a decision on a motion to vacate default judgment "should not be reversed unless it results in a clear abuse of discretion"). The Supreme Court has described the abuse-of-discretion standard as asking whether a lower court's decision was made "without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis." Flagg v. Essex County Prosecutor, 171 N.J. 561, 571 (2002) (citation and internal quotation marks omitted). Additionally, the movant bears the burden of demonstrating its entitlement to relief. Jameson v. Great Atl. & Pac. Tea Co., 363 N.J. Super. 419, 425-26 (App. Div. 2003), certif. denied, 179 N.J. 309 (2004).

We first turn to the court's entry of the default judgment and the denial of the motion to vacate the judgment. On appeal, defendants contend the trial court should have vacated the default judgment because plaintiffs circumvented the entire Rule 4:23-5(a)(2) procedure, thus stripping defendants of their essential due process rights. In our view, reversal is necessary here because the trial court abused its discretion and rendered a decision prejudicial to defendants by failing to adhere to the requirements of Rule 4:23-5(a)(2).

"A complaint dismissed under Rule 4:23-5 involves a two-step process. First, the aggrieved party may move for dismissal for non-compliance with discovery obligations and, if the motion is granted, the complaint is dismissed without prejudice." Sullivan v. Coverings & Installation, Inc., 403 N.J. Super. 86, 93 (App. Div. 2008) (citing R. 4:23-5).3 Thus, Rule 4:23-5(a)(1) provides the designated pathway for obtaining relief under the court rules for a party's failure to answer interrogatories.

If a delinquent party fails to cure its discovery delinquency, thereby restoring the complaint that was dismissed without prejudice under Rule 4:23-5(a)(1), then "'the party entitled to the discovery may, after the expiration of 60 days from the date of the order, move on notice for an order of dismissal . . . with prejudice.'" Sullivan, supra, 403 N.J. Super. at 93 (quoting R. 4:23-5(a)(2)). Furthermore, the rule

does not provide for the automatic conversion of a dismissal without prejudice into a dismissal with prejudice when there is a continued failure to provide the outstanding discovery. Rather, the rule expressly provides that restoration of the complaint may occur at any time prior to dismissal of the complaint with prejudice, provided the delinquent party has cured the delinquency and paid the requisite reinstatement fee, as well "as sanctions or counsel fees and costs, or both," that the court may order as a condition of reinstatement.

[Id. at 94 (quoting R. 4:23-5(a)).]

The main objective of Rule 4:23-5(a), after all, is to compel answers to interrogatories, not to dismiss the case with prejudice. Adedoyin v. Arc of Morris Cnty. Chapter, Inc., 325 N.J. Super. 173, 180 (App. Div. 1999). That objective is in line with a basic "tenet of our jurisdiction that resolution of disputes on the merits [is] to be encouraged rather than resolution by default for failure to comply with procedural requirements." Saint James AME Dev. Corp. v. City of Jersey City, 403 N.J. Super. 480, 484 (App. Div. 2008). "Rule 4:23-5 advances this goal, while affording an aggrieved party a remedy to compel production of the outstanding discovery and the right to seek final resolution through a dismissal process." Ibid.; see A&M Farm & Garden Ctr. v. Am. Sprinkler Mech. L.L.C., 423 N.J. Super. 528, 534 (App. Div. 2012) (noting "[i]t is well-established that the main objective of the two-tier sanction process in Rule 4:23-5 is to compel discovery responses rather than to dismiss the case"); see also Sullivan, supra, 403 N.J. Super. at 96 (stating "the rule affords a party aggrieved by dilatory discovery tactics a remedy to compel production of the outstanding discovery and the right to seek final resolution through the two-step dismissal process").

Because Rule 4:23-5(a) provides for the dismissal of a party's action with prejudice, we have previously recognized that the "achievement of the salutary scheme of the . . . rule requires meticulous attention to its critical prescriptions, and particularly to those provisions which are intended to afford a measure of protection to the party who is faced with the ultimate litigation disaster of termination of his [or her] cause." Zimmerman v. United Servs. Auto. Ass'n, 260 N.J. Super. 368, 376-77 (App. Div. 1992); accord A & M Farm & Garden Ctr. v. Am. Sprinkler Mech., LLC, 423 N.J. Super. 528, 535 (App. Div. 2012); Adedoyin, supra, 325 N.J. Super. at 180 ("[A]chievement of the rule's goals requires meticulous attention to its prescriptions.").

Such "meticulous attention" necessarily means that parties seeking to compel answers to interrogatories under Rule 4:23-5(a) must comply with the "technical" requirements of that rule. Sullivan, supra, 403 N.J. Super. at 94-96. "That Rule 4:23-5 contemplates technical compliance with its two-step process, at least by the moving party, is confirmed in the very language of the rule." Id. at 95.

Additionally, we have previously noted that "'client notification . . . is at the heart of the dismissal with prejudice practice'" set out in Rule 4:23-5(a)(2). Klajman v. Fair Lawn Estates, 292 N.J. Super. 54, 59 (App. Div.), (quoting Zimmerman, supra, 260 N.J. Super. at 375), certif. denied, 146 N.J. 569 (1996). Additionally, in A & M Farm & Garden Center, supra, 423 N.J. Super. at 540, we reversed an order issued pursuant to Rule 4:23-5(a)(2), that dismissed the plaintiff's action with prejudice. Basing its reversal on a failure to adhere to the notice requirements of that rule, the court held that

when a court considers a motion to dismiss or suppress a pleading with prejudice, and there is nothing before the court showing that a litigant has received notice of its exposure to the ultimate sanction, the court must take some action to obtain compliance with the requirements of the rule before entering an order of dismissal or suppression with prejudice. Further, the court must set forth what effort was made to secure compliance on the record or on the order.

[Id. at 539.]

In the present case, nothing suggests defendants were aware their pleadings were at risk, which is the purpose of the rule. Indeed, Hediger certified he never responded to the motion to dismiss and never served defendants with a copy of the February 1, 2012 order striking their answer and dismissing their counterclaim without prejudice. Moreover, the judge did nothing to ensure that the notice requirements of Rule 4:23-5(a)(2) were met before entering the default judgment; indeed, the default judgment was entered despite plaintiffs' failure to obtain an order of dismissal with prejudice.

Furthermore, affirming the default judgment without compliance with the two-step process would only harm a party for the negligent and careless work of their attorney. Plaintiffs' argument to affirm the default judgment based on Hediger's inactions which, according to the judge did not amount to "excusable neglect," fails to consider the underlying policy and purpose of Rule 4:23-5(a). The purpose of the rule is to ensure parties receive notice of the motion for dismissal, not just their attorney. The very essence of the rule is its refusal to assume the client is responsible for the discovery delinquency and its refusal to assume the clients are aware of their attorney's failure to comply with discovery. Here, Hediger, not defendants, failed to comply. Moreover, the purpose of the rule is to resolve disputes on the merits rather than resolving a dispute for failure to comply with procedural rules. See Saint James AME Dev. Corp., supra, 403 N.J. Super. at 484. Therefore, because plaintiffs failed to comply with Rule 4:23-5(a), we vacate the default judgment and remand for further proceedings.

Reversed and remanded.

1 According to Rule 6:4-3(a), a recipient of requests for discovery is required to serve a response within thirty days of receipt. Furthermore, Rule 1:3-1 provides that when a thirty day period of Rule 6:4-3(a) expires on a Saturday or Sunday, the period to respond extends to the following Monday; thus, Hediger was required to respond by Monday, January 16, 2012. However, because Rule 1:3-3 allows three days for postal transit when sent by ordinary mail, responses were not due for receipt to plaintiffs' attorney until January 19, 2012.

2 In support of the motion, Hediger filed a certification explaining his father suffered a stroke on January 15, 2012 and then died eleven days later. In April 2012, his wife filed for divorce. Defendants also filed their discovery responses.

3 This rule applies to demands for interrogatories pursuant to Rule 4:17. Kwiatkowski v. Gruber, 390 N.J. Super. 235, 236 (App. Div. 2007).