W.L. RIFE, INC. v. THEODORE A. BARTO

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

W.L. RIFE, INC. and KATHLEEN

RIFE WHITE,

Plaintiffs-Respondents,

v.

THEODORE A. BARTO and 3RD

GENERATION MECHANICAL SERVICES,

LLC,

Defendants-Appellants.

___________________________________

August 26, 2015

Argued November 5, 2014 Decided

Before Judges Messano and Ostrer.

On appeal from the Superior Court of New Jersey, Chancery Division, Burlington County, Docket No. C-062-13.

Michael Confusione argued the cause for appellants (Hegge & Confusione, LLC, attorneys; Mr. Confusione, of counsel and on the briefs).

Whitney E. Weinlein argued the cause for respondents (Parker McCay P.A., attorneys; Stacy L. Moore, Jr., of counsel; David R. Dahan, on the brief).

PER CURIAM

Defendants Theodore Barto and his business, 3rd Generation Mechanical Services, LLC (3rd Generation), appeal from the trial court's November 15, 2013, order enforcing an alleged oral agreement, reached in mediation, to settle litigation commenced by plaintiffs W.L. Rife, Inc. (Company) and Kathleen Rife White. Having reviewed the record in light of applicable principles of law, we conclude there exist genuine issues of fact regarding whether the parties reached an agreement. Consequently, we reverse and remand for a hearing.

I.

The underlying lawsuit arises out of a dispute among family members in a closely-held corporation that operated a heating and oil business. White is Barto's mother. According to the allegations in White's June 2013 verified complaint, the Company was incorporated in 1959. Its original shareholders and board members were Wayne L. Rife, his wife Estelle Rife, and his daughter, White. After Wayne Rife died, and Estelle Rife retired, White assumed the principal managerial role. However, as the Company operated on land owned by Estelle, it paid her monthly rent of $3000.

In January 2001, White retired as well. The Company agreed to pay her "deferred compensation" of $2500 a month for life. In the meantime, White had begun gifting stock in the Company to Barto. After his mother retired, Barto "predominately operated the Company." As of the filing of the verified complaint, the shareholders and their respective ownership shares were: White, fourteen percent; Barto, thirty-six percent; and John Edward Rife, fifty percent. Between 2001 and 2010, the Company's board consisted of Estelle Rife, John Edward Rife, White, and Barto. Estelle Rife was president, secretary, and treasurer; and White, John Edward Rife, and Barto were vice-presidents.

White alleged in her complaint that Barto mismanaged the Company, which declined financially as a result. In October 2010, White resumed active involvement in the Company's management, and allegedly restored it to financial health. On September 21, 2011, a new board was elected consisting of Estelle Rife, John Edward Rife, and White. Barto was no longer an officer or board member. He resigned as an employee, effective "after 'his business commitments are completed' [in] . . . approximately one month" according to the meeting minutes.

Plaintiffs alleged that in the months preceding the September 2011 meeting, Barto planned to leave the Company, and actively worked to establish a competing business. Although Barto established 3rd Generation after his resignation, he remained a shareholder of the Company. Plaintiffs alleged he traded on the Company's good will, utilized a corporate phone number, and poached over 100 of the Company's customers.

During 2012, counsel on both sides engaged in fruitless efforts to settle their clients' differences. The parties presented drastically different proposals. Alleging the home oil heating business was in decline, Barto proposed to buy out White's interests by paying her $2500 a month for nine years; under other terms, Barto would assume $400,000 of Company debt, Estelle Rife would reduce her ground rent to $1500, and waive a Company debt to her of $200,000, which Barto disputed. In response, White proposed that Barto pay her $300,000, and Estelle Rife $200,000 up front; hold the two women harmless with respect to any Company debt or environmental claims; and operate the business from a new location. Barto's counsel alleged in January 2013 that the Company had ceased servicing its own customers and had subcontracted its work to another firm.

Plaintiffs' June 2013 complaint alleged breach of fiduciary duty; unfair competition; unjust enrichment; and tortious interference with the Company's current and prospective contractual relationships, among other claims. Plaintiffs sought damages and various forms of equitable relief.

Before defendants filed an answer, the parties and their respective counsel attended mediation. After three sessions in June and July, the mediator reported to the court by letter on July 17, 2013, that the "parties have settled their differences." The mediator wrote to counsel the same day, expressing his understanding that plaintiffs' counsel would draft the settlement agreement. Based on the mediator's report of settlement, the court dismissed plaintiffs' complaint, without prejudice, by order entered July 31, 2013.

Plaintiffs' counsel transmitted the draft agreement and exhibits to Barto's counsel, but Barto refused to sign it. In an email to plaintiffs' counsel, Barto's attorney did not expressly deny that an oral settlement was reached in mediation. Rather, Barto's attorney wrote that Barto "advised me that based upon the penalties and potential taxes he faces with the stock give back as well as other personal issues, he will not sign a doc[ument] that includes a non-compete clause." Further, Barto's attorney stated, "I have explained the ramifications and [h]e understands all of the possibilities." Plaintiffs' counsel responded that Barto had agreed to the non-compete and other terms incorporated in the draft agreement.

In the face of Barto's refusal to execute the agreement, plaintiffs filed a notice of motion to enforce the settlement agreement as drafted. According to its alleged terms, Barto agreed to surrender his stock in the Company, yet he was to remain a guarantor of the Company's $200,000 revolving line of credit, which then had an outstanding balance of $135,000. He was to pay $30,000 upon execution to defray plaintiffs' attorney's fees, secured by a mortgage on Barto's home. Barto allegedly agreed to a restrictive covenant that permanently barredhim frominterfering with the Company's business, and using Company information, including customer lists or requirements. He also agreed to cease competing with the Company for five years, within fifty miles of the Company's location; however, he was permitted to complete jobs commenced for three customers. He was also required to notify all his customers that he was closing 3rd Generation, purportedly because of health issues related to his back, and urge them to use the Company instead.

In a certification in support of the motion to enforce, White alleged that the parties agreed to the essential terms of the settlement at the final session on July 12, 2013. Responding to Barto's reported dissatisfaction with the non-compete, White asserted that Barto expressly agreed to it. She contended that his agreement was evidenced by his disclosure of the three customers, who were carved out of the provision.

Plaintiffs' counsel also submitted a certification, alleging that he was present at the mediation sessions, and the draft agreement accurately incorporated the terms of the settlement reached. Plaintiffs' counsel asserted that Barto's attorney represented that Barto would sign the agreement, although Barto never did.

Represented by new counsel, Barto filed a certification denying that a settlement was reached. He pointed to the one-sided nature of the claimed agreement as evidence that he did not accept those terms.

3. I never agreed to settle the matter. There were discussions and proposals and certainly things that were taken into consideration but at no time did I ever agree to settle this matter.

4. If my attorney at the time communicated to anyone that I had "settled the matter" than [sic] he had done so without any authority from me to make that representation. In any event, I never agreed to settle the case nor did I sign any documents or take any actions that would indicate that the matter was, in fact, settled.

5. During the Mediations there were times that the attorneys met with the Mediator without me or the other litigants being present. I don't know what occurred during those occasions.

6. On a number of those occasions my attorney came out and spoke with me about proposals and I rejected those proposals.

7. If the court looks at the "proposed agreement" it is the most one-sided unconscionable document that could possibly be prepared and would, in fact, bankrupt me. Why would anyone sign an agreement such as that?

8. As I have indicated, I have taken no action and I don't believe any actions have been taken in furtherance of any alleged agreement.

9. As a result of things that were occurring and not occurring with my prior attorney where I felt that my interests were not being properly represented[,] I retained new counsel.

10. I never told my attorney that I would sign any agreements and, in fact, didn't sign any agreements.

11. The "alleged agreement" required me to forfeit my stock in the family business, pay $30,000.00 to the Plaintiff for her legal fees, close my business, and stay on as a guarantor for loans against the business that I was giving up my stock in. Why would anyone in their right mind do that? Those proposals were made and rejected by me at every instance.

In a reply certification, White controverted her son's claims. She insisted that she, Barto, and their respective attorneys orally confirmed the settlement in detail in the presence of the mediator. She claimed that the non-compete was an essential term; and the reference to Barto's back issues was suggested by Barto's attorney. Barto left for vacation after the mediation, and his attorney stated Barto would be unable to sign the agreement until his return. Plaintiffs' counsel also replied that "the parties and counsel clearly and unequivocally agreed to the terms of a settlement" contained in the draft.

While the litigation continued, the Company sold all its customer accounts and customer relationships to an independent third-party, effective January 1, 2014, contingent on the third-party's success in retaining these accounts. The Company also assigned to this third-party all restrictive covenants incorporated in the purported settlement.

Following oral argument on November 15, 2013, the trial court granted plaintiffs' motion. The court found that Barto entered an enforceable oral agreement to settle, notwithstanding his refusal to execute the writing

[D]efendant [Barto] says that he never authorized his attorney to settle. He was there during the mediations. That's clear. That's not disputed because he doesn't take issue with the fact that when the terms were being gone over . . . he was present and then left after that . . . . He left before there was a written document to sign and a lot of his certification . . . but he never says that he wasn't there when the terms were reviewed and he doesn't say that the terms were not reviewed. So that's not disputed. In other words, those terms were reviewed, he was there, he says he didn't settle because he didn't sign a document. But, of course, that's not the test. And he says, well, I didn't settle.

The court also ordered that defendants pay $4,500 in attorney's fees, plus $30 in court costs.

Defendants filed their notice of appeal the following month. The trial court declined to stay its order. In response to plaintiffs' subsequent motion to enforce litigant's rights, the court asked the parties to address whether the alleged oral agreement was unenforceable based on the Supreme Court's holding in Willingboro Mall, LTD. v. 240/242 Franklin Ave., L.L.C., 215 N.J. 242, 245 (2013). The Court stated in that case that "going forward, parties that intend to enforce a settlement reached at mediation must execute a signed written agreement." Ibid. The trial judge ultimately concluded that Willingboro Mall did not apply, because it was decided after the agreement was allegedly reached.

II.

Defendants renew their argument that Willingboro Mall governs, and bars enforcement of an oral settlement agreement arising out of a mediation. In any event, defendants contend that there exist genuine issues of material fact regarding whether a settlement was reached, and the trial court should have conducted an evidentiary hearing to resolve them.

We begin with our standard of review. We generally defer to a trial court's findings of fact that are supported by adequate, substantial, and credible evidence. Rova Farms Resort, Inc. v Investors Ins. Co., 65 N.J. 474, 484 (1974). If the fact of an agreement to settle litigation is genuinely disputed, a hearing must be held.

On a disputed motion to enforce a settlement, as on a motion for summary judgment, a hearing is to be held to establish the facts unless the available competent evidence, considered in a light most favorable to the non-moving party, is insufficient to permit the judge, as a rational fact-finder, to resolve the disputed factual issue in favor of the non-moving party.

[Amatuzzo v. Kozmiuk, 305 N.J. Super. 469, 474-75 (App. Div. 1997).]

Where a court does not hold an evidentiary hearing, we review de novo the court's determination that a settlement agreement was reached or not, just as we would a decision on a motion for summary judgment. See Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010) (stating that appellate court reviews grant of summary judgment de novo, applying the same standards as does the trial court). We also review de novo the trial court's legal determinations. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

We first dispatch defendants' argument that this case is governed by Willingboro Mall, in which the Court declared that settlements reached in mediation must be embodied in signed writings in order to be enforceable. The Court expressly stated that its holding would apply "going forward." Willingboro Mall, supra, 215 N.J. at 263. The Court thereby clearly indicated that its holding would apply only to future cases in which parties could conform their behavior to the Court's ruling; and not to cases such as this, involving a mediation that preceded the Court's decision.

The issue in this case is, simply, whether the parties reached an oral agreement. "A settlement agreement between parties to a lawsuit is a contract." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). "[G]eneral principles of contract law apply." N.J. Mfrs. Ins. Co. v. O'Connell, 300 N.J. Super. 1, 7 (App. Div.), certif. denied, 151 N.J. 75 (1997). "A settlement agreement usually involves the payment of money by one party in consideration for the dismissal of a lawsuit by the other party." Thompson v. City of Atlantic City, 190 N.J. 359, 379 (2007). Putting Willingboro Mall aside, there is no doubt that parties could orally agree to settle a dispute. See, e.g., Harrington v. Harrington, 281 N.J. Super. 39, 46-47 (App. Div.), certif. denied, 142 N.J. 455 (1995). An oral agreement will be enforced even if the "writing does not materialize because a party later reneges." Lahue v. Pio Costa, 263 N.J. Super. 575, 596 (App. Div.), certif. denied, 134 N.J. 477 (1993). Although we strongly value the settlement of litigation, and "strain to give effect to the terms of a settlement wherever possible," Brundage v. Estate of Carambio, 195 N.J. 575, 601 (2008) (internal quotation marks and citation omitted), we shall not bend basic contract principles in pursuit of that public policy goal.

It was plaintiffs' burden, as the proponent of the contract, to establish that there was mutual assent to the essential terms of the settlement agreement. See generally, id. at 475; Willingboro Mall, supra, 215 N.J. at 259-60. As the Court recognized in Willingboro Mall, the proponent of a settlement agreement reached in mediation may face a high hurdle to marshal proofs that do not run afoul of the mediation privilege, absent a waiver. "In the absence of a signed settlement agreement or waiver, it is difficult to imagine any scenario in which a party would be able to prove a settlement was reached during the mediation without running afoul of the mediation-communication privilege." Willingboro Mall, supra, 215 N.J. at 259. Although each side in this dispute "disclose[d] or [made] a representation about a mediation communication that prejudice[d]" the other side, as other "person[s] in a proceeding," N.J.R.E. 519(b)(b), we leave it to the trial court to ascertain the scope of the waiver, if any, and the consequences thereof, in light of N.J.R.E. 519 and Willingboro Mall, supra, 215 N.J. at 259-62.

We recognize that plaintiffs have identified substantial direct, and circumstantial evidence tending to demonstrate that the parties reached a settlement, assuming for argument's sake that the mediation privilege does not bar its admission. Notably, the mediator reported a settlement; plaintiffs' counsel confirmed it; defendants' counsel at the time did not deny it; and White asserted that Barto affirmatively consented to specific provisions. Circumstantial evidence includes the carve-out of Barto's three existing customers. Barto's alleged disclosure of three customers tends to demonstrate the parties at least discussed the scope of a possible non-competition agreement.

On the other hand, Barto presented more than bare conclusions in his denial of an agreement. Cf. Puder v. Buechel, 183 N.J. 428, 440-41 (2005) (stating that "conclusory and self-serving assertions by one of the parties are insufficient to overcome the motion" for summary judgment). He describes, albeit without great detail, the mediation process, his consultations with his attorney, and his rejection of specific proposals.

More importantly, Barto asserts that the alleged settlement's terms were so one-sided that it would defy logic for him to have accepted them. In response, plaintiffs provide only conclusory assertions that they gave up viable claims for substantial damages by settling. Under the alleged agreement, Barto who apparently was pushed out of the Company because of his alleged managerial shortcomings agreed to close his competing business; accept an onerous non-competition clause; direct his customers to the Company (regardless of whether they were Company customers before); forfeit his stock in the Company yet continue to guaranty its debt up to $200,000; pay $30,000 to the Company, secured by a mortgage on his home; and agree broadly to indemnify and hold plaintiffs harmless for any other damages caused by actions alleged in the verified complaint.

In sum, we are convinced there is a genuine issue of material fact as to whether Barto orally accepted the terms set forth in the draft agreement. We therefore reverse the trial court's order enforcing the agreement, and remand for an evidentiary hearing.

Reversed and remanded. We do not retain jurisdiction.