TAX WORKS, INC. v. BARBAGALLO AND COMPANY P.C.

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

TAX WORKS, INC., and

ROBYN KELLEY,

Plaintiffs,

v.

BARBAGALLO AND COMPANY, P.C.,

JOSEPH BARBAGALLO,

Defendants-Appellants,

and

FRANK J. DOUGHERTY,

Defendant-Respondent,

and

KAREN MARTIN and CHERRY, KRASSAN &

ASSOCIATES,

Defendants.

_______________________________________

June 17, 2014

Argued May 7, 2014 Decided

Before Judges Waugh, Nugent and Accurso.

On appeal from Superior Court of New Jersey, Law Division, Camden County, Docket No.

L-1285-02.

William P. Rubley argued the cause for appellants (Subranni Zauber, LLC, attorneys; Mr. Rubley, on the brief).

Thomas B. O'Connell argued the cause for respondent (Saldutti, LLC, attorneys; Mr. O'Connell, on the brief).

PER CURIAM

Defendants Joseph Barbagallo and Barbagallo and Company, P.C. (collectively, defendants) appeal from a June 28, 2013 order denying their motion to vacate a default judgment entered against them on August 16, 2004. Because plaintiff Frank J. Dougherty failed to prove that he served defendants with his complaint, we reverse.

In 1998, Dougherty sold his tax accounting business, Frank J. Dougherty, Enrolled Agent, to Barbagallo and Company, P.C. of New Jersey, trading as Barbagallo and Company (Barbagallo New Jersey), a New Jersey corporation. In 2000, Barbagallo New Jersey in turn sold its accounting practice to Tax Works, Inc. and Robyn Kelley (collectively, Tax Works). Two years later, Tax Works sued defendants Barbagallo and Barbagallo and Company, P.C., a Pennsylvania corporation (Barbagallo Pennsylvania) and Dougherty for breach of contract. Dougherty answered and filed a third-party complaint against defendants alleging breach of the 1998 asset purchase agreement with Barbagallo New Jersey.1 Neither Barbagallo nor Barbagallo Pennsylvania was a party to that 1998 agreement.

Although Tax Works apparently did not pursue a judgment against defendants, Dougherty did. Dougherty's counsel filed a request to enter default against defendants in June 2002. Counsel certified that defendants had been served on April 30, 2002, "as appears from the attached Affidavit of Process Server." The attached affidavit by process server John Palmieri, stated that service was completed "in accordance with R. 4:4-3(a)" by Palmieri having personally delivered a copy of the summons and complaint to Barbagallo at 828 Newtown-Yardley Road, Suite 301 in Newtown, Pennsylvania at eight-thirty in the morning on April 30, 2002. Although service was made outside the State, no affidavit of diligent inquiry was ever filed.

See R. 4:4-4(b)(1)(A); R. 4:4-5(b). Following an ex parte proof hearing in August 2004, the court entered judgment against defendants in the sum of $126,614.

Dougherty docketed the judgment in Pennsylvania in May 2005. He made no other effort to collect the judgment until 2012 when he levied on Barbagallo and his wife's personal bank account in Pennsylvania. Defendants thereafter moved to vacate the default judgment and to dismiss the complaint for lack of service and failure to state a claim.

The Law Division judge held an evidentiary hearing on the motion. Barbagallo testified that he was never served with either the Tax Works complaint or Dougherty's third-party complaint. He also testified that he maintained offices in Stone Harbor and Mays Landing in 2002 but was no longer renting the suite in Newtown when Dougherty claims to have served him with process. Barbagallo maintained that the first he learned of the judgment was when Dougherty levied on his account in 2012.

On cross-examination, Dougherty confronted Barbagallo with the "green card" receipt for certified mail of the Tax Works complaint signed by Joan Feyhl on behalf of Barbagallo Pennsylvania at an address on State Street in Newtown. Barbagallo testified that he was unfamiliar with Feyhl and never employed anyone by that name. Feyhl also signed for a demand letter to Barbagallo sent by Dougherty's attorney, prior to the filing of the third-party complaint, to a different address for Barbagallo. Barbagallo could not explain who Feyhl was or why she would be signing for documents on behalf of Barbagallo at two different Pennsylvania addresses in 2002.

Dougherty presented the testimony of the attorney who docketed the judgment in Pennsylvania. That lawyer testified that Dougherty retained him in 2005. He detailed the various tasks he undertook to collect the judgment on Dougherty's behalf, including meeting with Barbagallo, before abandoning the effort after a few months.

Dougherty also presented the process server, Palmieri, whose affidavit provided the basis for the entry of default and default judgment against defendants. Palmieri testified he did not prepare either the affidavit of service or the corresponding invoice and that the signature on the affidavit of service was not his signature. Based on that testimony, the judge refused to admit either the affidavit of service or the invoice for the service into evidence. Although testifying that Newtown, Pennsylvania was within his service territory, and that he had served process in the building in which Barbagallo once had an office, Palmieri estimated that he served process more than 60,000 times since 1999, and had no recollection of serving Barbagallo. Palmieri, thus, could not testify that he served the process at issue.

After hearing the testimony, the judge noted that the judgment was against Barbagallo and Barbagallo Pennsylvania, neither of which was a party to the contract on which Dougherty sued, thus suggesting that there was no basis for entry of the judgment against defendants. The judge found, however, that "[Barbagallo has] had eight years to do something about it." The judge further acknowledged that the process server, although "appear[ing] to recall the location, . . . [had] no specific recollection of serving Mr. Barbagallo." Nonetheless, the judge determined that "Mr. Barbagallo was, in fact, served and

. . . his testimony before this [c]ourt, though sincere, was not the least bit credible." Accordingly, the judge denied defendants' motion to vacate the judgment. This appeal followed.

Although we ordinarily defer to the trial court's factual findings, we cannot do so here as they lack adequate support in the record. See D'Agostino v. Maldonado, 216 N.J. 168, 182 (2013). Once the process server testified that he did not sign the affidavit of service upon which entry of the judgment was predicated, the presumption of service provided by that document evaporated. See R. 4:4-7; Garley v. Waddington, 177 N.J. Super. 173, 180-81 (App. Div. 1981) (explaining that a facially valid return of service provides a presumption of service that may be rebutted only by clear and convincing evidence). Because the process server could not otherwise testify that he served Barbagallo with the third-party complaint, Dougherty was left with no proof of actual service. The trial court's finding that Barbagallo was not credible did not relieve Dougherty of his obligation to affirmatively prove that Barbagallo was served. See Jameson v. Great Atl. & Pac. Tea Co., 363 N.J. Super. 419, 425-29 (App. Div. 2003) (explaining the parties' burdens of proof on a motion to vacate default judgment), certif. denied, 179 N.J. 309 (2004).

Dougherty's failure to prove service of the third-party complaint renders the judgment void. Rosa v. Araujo, 260 N.J. Super. 458, 462 (App. Div. 1992), certif. denied, 133 N.J. 434 (1993); Berger v. Paterson Veterans Taxi Serv., 244 N.J. Super. 200, 204-05 (App. Div. 1990). Even if the trial judge concluded that Barbagallo had timely, actual notice of Dougherty's third-party action such that lack of service could not be deemed violative of the Due Process Clause, see Peralta v. Heights Med. Ctr., Inc., 485 U.S. 80, 84-87, 108 S. Ct. 896, 898-900, 99 L. Ed. 2d 75, 80-82 (1988), a somewhat dubious proposition on this record, the substantial defects in service here would necessarily void the judgment. See Sobel v. Long Island Entm't Prods., Inc., 329 N.J. Super. 285, 293 (App. Div. 2000) (holding that even absent a violation of due process, a default judgment will be set aside for a substantial deviation from the service of process rules).

Dougherty's failure to file an affidavit of diligent inquiry as required by Rules 4:4-4(b)(1)(A) and 4:4-5, under the circumstances here, constitutes the sort of substantial deviation from the service rules that would render an ensuing judgment void.2 Barbagallo testified that he continued to maintain offices in New Jersey at the time Dougherty filed his third-party complaint. Had Dougherty undertaken the diligent inquiry required by Rule 4:4-5, he could have discovered that Barbagallo was amenable to service within the State, thus rendering resort to personal service outside the State inappropriate and unnecessary. Cf. N.J. Tpk. Auth. v. Tootle, 59 N.J. 308, 313 (1971) (discussing inappropriateness of substituted service by publication under Rule 4:4-5 in absence of diligent inquiry required by the rule).

The substantial defects in service, coupled with the trial judge's acknowledgment that there appeared no basis for the entry of judgment against defendants, convince us that the trial judge abused his discretion in denying defendants' motion to vacate the default judgment. See Marder v. Realty Constr. Co., 84 N.J. Super. 313, 318-19 (App. Div.), aff'd, 43 N.J. 508 (1964). That Dougherty provided no proof that he provided Barbagallo effective notice of the proof hearing which followed entry of default further supports this conclusion. See R. 4:43-2(b).

Reversed and remanded for further proceedings consistent with this opinion.

1 The parties have provided no explanation of why this pleading was styled as a third-party complaint instead of a cross-claim as contemplated by Rule 4:7-5.

2 We do not view Goldhaber v. Kohlenberg, 395 N.J. Super. 380, 390-91 (App. Div. 2007), to the contrary. We declined to find the failure to file an affidavit of diligent inquiry fatal in that case because such an inquiry would have revealed only what the defendant asserted, that is, that he was not amenable to service of process in New Jersey. Here, defendants assert, and the facts suggest, that they were amenable to service in New Jersey.