NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0207-06T50207-06T5
SWH FUNDING CORP.,
A New Jersey Corporation,
Plaintiff-Respondent,
v.
WALDEN PRINTING CO., INC., A
New York Corporation, WALDEN
MERCHANTS, An unincorporated entity,
MERCHANTS ASSOCIATES, INC., A New
York Corporation, MERCHANTS
BUILDING, LLC, A New York
Limited Liability Company, and
DANIEL CHURCHILL, An individual,
Defendants-Appellants.
______________________________________________
Argued October 10, 2007 - Decided
Before Judges Coburn, Fuentes and Chambers.
On appeal from Superior Court of New Jersey,
Law Division, Bergen County, Docket No.
L-7215-03.
Michael A. Saffer argued the cause for appellants
(Mandelbaum, Salsburg, Gold, Lazris & Discenza,
attorneys; Mr. Saffer and Stuart Gold, of counsel
and on the brief).
Cory Mitchell Gray argued the cause for
respondent (Greenberg Traurig, attorneys;
Mr. Gray, of counsel and on the brief).
The opinion of the court was delivered by
FUENTES, J.A.D.
Defendants Walden Printing Company, Walden Merchants, Merchants Associates, Merchants Building, and Daniel Churchill appeal from the order of the Law Division denying their motion to vacate a monetary judgment entered against them. The matter originally came before the court on plaintiff SWH Funding Corporation's ("SWH") complaint seeking damages in a breach of contract case. After reviewing the record, and in light of prevailing legal standards, we affirm the order denying the motion to vacate; reverse the order fixing the amount of damages; and remand for the court to enter judgment in the amount reflected in the original arbitration award.
Defendants filed a responsive pleading denying liability and asserting failure to state a cause of action and lack of subject matter jurisdiction as affirmative defenses. The matter was thereafter scheduled for court-ordered arbitration on September 14, 2004. Defendants obtained an adjournment of the September arbitration, and the hearing was rescheduled for November 16, 2004.
On November 15, 2004, defense counsel sought to adjourn the arbitration a second time. After obtaining plaintiff's counsel's oral consent to the adjournment, defense counsel telephoned the Bergen County Arbitration Administrator to request the adjournment. The Administrator denied the adjournment request on November 15, 2004.
Arbitration proceeded on November 16, 2004. Defense counsel did not appear, nor did any individual representing defendants' business interests. After confirming that the arbitration was going forward, plaintiff's counsel appeared and presented the case on behalf of his client. The arbitrator entered an award for plaintiff and against defendants in the amount of $326,534.37.
On December 15, 2004, plaintiff filed a motion to confirm the arbitration award. Defendants opposed the motion and the parties had oral argument before the Law Division on February 4, 2005. On February 15, 2005, the motion judge entered an order: (1) requiring defendants to post a surety bond in the amount of $200,000; (2) stating that failure to post the bond would result in an immediate judgment confirming the November 16 arbitration award; and, (3) restraining defendants from transferring or encumbering any asset pending a further order by the court. Defendants failed to post the bond. On March 10, 2005, the Law Division entered a default judgment against defendants in the amount of $343,746.76.
The court denied defendants' motion for reconsideration, and ordered a plenary hearing on damages to modify the amount of the award. Pursuant to evidence presented by plaintiff at the plenary hearing, the court entered an order increasing the amount of the original arbitration award to $416,508.54.
The Underlying Factual Contentions
Before addressing the legal issues raised by defendants, we will briefly describe the salient facts. Plaintiff SWH Funding Corporation held a mortgage over property owned by Straight Course, LLC, located in Poughkeepsie, New York. Defendants Merchants Building, LLC, leased the premises from Straight Course. Defendant Merchants Associates, Inc. was the operating entity at the premises. Plaintiff alleges that defendants Walden Printing Company and Walden Merchants are successors in interest to Merchants Building and Merchants Associates. Defendant Daniel Churchill is an owner of Merchants Building and Merchants Associates.
During the summer of 2001, plaintiff sought to foreclose on Straight Course's mortgage on the premises. In light of defendants' desire to remain on the premises, the parties entered a settlement agreement on August 1, 2001, whereby plaintiff agreed not to foreclose on the premises during two forbearance periods. During these forbearance periods, defendants would pay rent and real estate taxes on the premises and could either perform due diligence to acquire the premises or enter into a long-term lease for the premises. The first forbearance period ended February 28, 2002. The second forbearance period ended May 31, 2002.
As part of the settlement agreement, defendant Daniel Churchill signed a personal guaranty. By the terms of the guaranty, Churchill assumed personal liability for any and all obligations of the corporate defendants arising under the settlement agreement.
According to plaintiff, defendants remained in possession of the premises until on or about August 2003, and failed to make the required monthly rental payments for the premises for the months of March, April, May, June, July, and August 2003. Plaintiff also alleges that defendants failed to make certain required payments in real estate taxes and assessments.
The Arbitration
In the days immediately preceding the November 16, 2004, arbitration hearing, defense counsel of record asserts that he developed a "flu-like illness." The day before the hearing, at defense counsel's request, plaintiff's counsel agreed to adjourn the arbitration. Immediately thereafter, defense counsel instructed his legal assistant to call the Bergen County Arbitration Administrator to make a formal request for the adjournment. Defense counsel and his assistant both left the office before receiving the Administrator's response to the request for adjournment.
Later that same day, the Administrator left defense counsel a voicemail message denying the adjournment request, and advising counsel that the arbitration would proceed the following day at 11:00 a.m. as scheduled. Mistakenly assuming that the arbitration had been adjourned, defense counsel did not report to work on November 16, 2004, nor did he make any arrangements to have another attorney in his firm appear on his behalf.
On November 16, 2004, the defense counsel's assistant retrieved the Administrator's voicemail message denying the request. At approximately 9:30 a.m., by telephone call, the assistant informed the Administrator that defense counsel could not appear at the arbitration, but that the law firm could send another attorney in his stead. The assistant advised the Administrator, however, that given the time and distance, substitute counsel would probably not make it to the arbitration until early afternoon. According to the assistant, the Administrator told her that the arbitration would not be delayed and would proceed at 11:00 a.m. as scheduled.
The record does not indicate what steps, if any, defense counsel's firm took either to renew its request for an adjournment, or to dispatch a substitute attorney as soon as possible. According to the assistant, however, she did inform plaintiff's counsel that no one from the defense firm would be able to appear at the arbitration.
In her certification in support of the motion to vacate the default, the assistant indicated that plaintiff's counsel told her that he would not pursue an arbitration award by default, and would allow defense counsel to restore his responsive pleading by stipulation. In his certification opposing the motion, plaintiff's counsel denied having made any such representation. Indeed, counsel claimed that he told the assistant that his client was anxious to proceed with the arbitration.
The arbitration ultimately proceeded at 1:15 p.m. on November 16, 2004. Defendants made no appearance. Plaintiff submitted documentary evidence of the terms of the settlement agreement, including defendants' agreement to pay rent, the forbearance clauses, and the guaranty. This evidence established that defendants performed through February 2003, when they ceased performance but maintained occupancy of the premises.
Based on plaintiff's presentation, the Arbitrator entered an award for plaintiff and against defendants. The award reflected damages in the form of: (1) unpaid real estate taxes; (2) six months of unpaid rent; (3) unpaid telephone bills; and, (4) equipment subject to third parties' security interests.
On December 15, 2004, twenty-nine days after the arbitrator entered his decision, plaintiff filed a motion to confirm the arbitration award pursuant to R. 4:21A-6(b)(3). Defendants opposed the motion, and the matter came before the Law Division on February 4, 2005.
In his certification filed in opposition to the motion to confirm the arbitration award, defense counsel raised only the following defenses: (1) "lack of jurisdiction" based on the guaranty's "Jurisdiction, Venue, Service of Process" clause; and, (2) that any action against Walden Merchants was automatically stayed by that defendant's involuntary bankruptcy. Although defendants did not raise any substantive defenses as to liability, defense counsel noted a general objection to the amount of damages awarded by the arbitrator.
The Law Division entered an order dated February 15, 2005, providing as follows:
ORDERED that the Defendant shall have until 5:00 pm on February 17, 2005 to post a bond in the amount of $200,000.00 on terms satisfactory to the Court, or in the alternative, to deposit in the trust account of Mandelbaum Salzburg, or such other New Jersey counsel as Defendants may engage to represent their interests in this case, the sum of $200,000.00 in cash, to serve as security for Plaintiff until further order of this Court; and it is
FURTHER ORDERED, that in the event Defendants fail to post a bond or deposit said cash collateral as security for Plaintiff's claims herein on or before 5:00 p.m. on February 17, 2005, this Court shall, on February 18, 2005 and without further hearing, enter an Order and Judgment in favor of Plaintiff and against Defendants, confirming the arbitration award entered in Plaintiff's favor on November 16, 2004, and entering the amount of said arbitration award as a Judgment, jointly and severally, against Defendants, and it is
FURTHER ORDERED, that until further order of this Court, or until a judgment is entered by this Court, Defendants and each of them are hereby restrained and prohibited from selling, transferring, encumbering, or alienating any asset owned by any of them, or in which any have any interest, other than in the ordinary course of business . . . .
When defendants failed to post the $200,000 bond, the court entered default judgment on March 10, 2005. The court denied defendants' motion for reconsideration and to vacate the arbitration award. By order dated August 10, 2005, the court further ordered a plenary hearing on damages to modify the amount of the award.
The plenary hearing on damages took place on November 28, 2005. At the hearing, the court heard testimony from Churchill and from Sanford Herrick, principal of plaintiff SWH. Thereafter, the court issued a supplemental opinion, making findings of fact as to damages from the record developed at the hearing. On August 2, 2006, the court entered a final judgment increasing the damages reflected in the arbitration award by $89,974.17. The final amount of the judgment was then fixed at $416,508.54.
Legal Analysis
Defendants argue that the trial court abused its discretion: (1) by not vacating the arbitration award under R. 4:21A-4(f); and, (2) by not vacating the February 15, 2005, order and March 10, 2005, judgment under R. 4:50-1. In order to properly address defendants' arguments, we first need to identify and clarify the different standards for relief available under each of the Rules cited.
Relief from a default judgment entered pursuant to an arbitration award is ordinarily found in R. 4:21A-4(f). Our conclusion in this respect is buttressed by the Rule's clear language.
(f)