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Chattin v. Cape May Greene Inc.

Decided: January 30, 1987.

WAYNE E. CHATTIN, ET UX, FRANK J. INGARGIOLA, ET UX; JOSEPH MARTELLA, ET UX; ANTHONY BUCCANFURNI AND PATRICK SMITH ON BEHALF OF THEMSELVES AND ON BEHALF OF A CLASS OF HOMEOWNERS, PLAINTIFFS-RESPONDENTS,
v.
CAPE MAY GREENE, INC., A NEW JERSEY CORPORATION, DEFENDANT-APPELLANT, AND CAPITOL PRODUCTS CORPORATION, DEFENDANT



On appeal from Superior Court of New Jersey, Law Division, Atlantic County.

Michels, Skillman and Landau. The opinion of the court was delivered by Skillman, J.A.D.

Skillman

In the mid-1970's defendant, Cape May Greene (CMG), constructed and sold approximately 80 moderately priced homes in a Ventnor development called Kings Bay West. Aluminum windows and doors manufactured by Capitol Products (Capitol) were installed in the homes. These windows and doors proved to be unsatisfactory. The homeowners complained that condensation collected on them, causing damage to the window sills and woodwork, and that the windows and doors were not airtight.

Some 35 homeowners filed claims for arbitration pursuant to a homeowners' warranty agreement (HOW) which CMG had entered into with each of them. The arbitrator decided in favor of the homeowners and ordered CMG to install ventilation systems in the homes and to repair the damage already caused by the condensation. If this work was not completed within 60 days, CMG was ordered by the arbitrator to pay each homeowner $350 "in full settlement of all claims."

CMG filed suit to enjoin enforcement of the arbitration award. The remaining homeowners in the development -- those who had never gone to arbitration -- were joined as parties to the action. The homeowners filed a counterclaim against CMG asserting claims of negligence, breach of warranty and violations of the Consumer Fraud Act, N.J.S.A. 56:8-1 et seq. Capitol, the Home Owners Warranty Corporation, and the insurer under the HOW program, American Bankers Insurance Company of Florida, were joined as third-party defendants.

On a pretrial motion the trial judge dismissed CMG's complaint, thereby rejecting its attack on the arbitration award, and redesignated the homeowners as plaintiffs and CMG and Capitol

as defendants.*fn1 The trial judge also ruled that the homeowners who had arbitrated were barred from seeking any additional recovery against CMG but that they could pursue their claims against Capitol. The case was certified as a class action, the plaintiff class being composed of two subclasses -- homeowners who had arbitrated claims against CMG (the arbitrating subclass) and those who had not arbitrated (the nonarbitrating subclass).

On the eve of trial plaintiffs settled their claims against Capitol for $200,000. Since the claims against the other third party defendants had been dismissed previously, the case was tried against CMG only. Furthermore, since the claims of the arbitrating subclass had been barred by pretrial motion, only the claims of the nonarbitrating class were presented at trial.

At the close of all evidence, the trial judge entered a directed verdict in favor of plaintiffs on their consumer fraud claims. The negligence and breach of warranty claims against CMG were submitted to the jury, which returned verdicts in favor of plaintiffs. The jury also found that Capitol had been negligent in constructing the windows and doors.*fn2 It attributed 25% negligence to Capitol and 75% to CMG. In accordance with the trial judge's instructions, the jury limited its determination of damages to the replacement costs of each defective window, which was determined to be $533, and of each defective door, which was determined to be $676.

The trial judge molded the verdict of compensatory damages by reducing the replacement costs of the windows and doors by the 25% negligence which the jury attributed to Capitol and multiplying these figures by the total number of windows and doors in the homes of the nonarbitrating subclass. These

calculations resulted in the entry on December 20, 1984 of a judgment in favor of plaintiffs of $181,642.50.

The trial judge determined that the only plaintiffs entitled to damages pursuant to the Consumer Fraud Act were ones who had purchased their homes from CMG and relied on a written brochure which the judge found to violate the Act. The thirteen plaintiffs found to qualify under these criteria were awarded additional "punitive damages" of $156,702, representing double the full replacement cost of their windows as determined by the jury (the consumer fraud claims relate solely to the windows and not to the doors), counsel fees of $112,781.50 and costs of $16,463.69. Accordingly, a molded judgment in the total amount of $467,589.69 was entered on April 15, 1985.*fn3

CMG has appealed and plaintiffs have cross-appealed.*fn4 CMG argues the trial judge committed the following errors: (1) not enforcing a settlement agreement which had been negotiated among all counsel before trial, (2) not dismissing the claims of the nonarbitrating plaintiffs based upon their breach of a contractual obligation to arbitrate, (3) directing a verdict in favor of plaintiffs on their consumer fraud claims, (4) prejudicial

evidence and other rulings during trial, and (5) molding the jury verdict incorrectly. Plaintiffs argue that the trial judge committed the following errors: (1) barring the arbitrating subclass from seeking any additional recovery from CMG, (2) barring some members of the nonarbitrating subclass from the recovery of damages under the Consumer Fraud Act, and (3) not awarding prejudgment interest. We affirm the part of the judgment awarding compensatory damages in all respects. However, we conclude that the trial judge erred in granting a directed verdict in favor of plaintiffs on their consumer fraud claims. Therefore, we reverse the part of the judgment awarding damages for consumer fraud and remand for a new trial on this part of the case.

I

According to certifications submitted by CMG and co-defendant Capitol, plaintiffs' counsel stated at a settlement conference conducted in the trial judge's chambers that the case could be settled for $120,000 if his offer were accepted by 4:30 p.m. on December 20, 1983. Prior to the deadline defendants accepted the offer. CMG argues that this acceptance created a binding settlement agreement.

In response to a motion to enforce this alleged settlement, plaintiffs' counsel submitted a certification which stated that he had informed counsel for defendants that any settlement agreement would be contingent upon a majority vote of the members of the class. The only commitment made at the settlement conference, according to plaintiffs' counsel, was that he would recommend the $120,000 settlement figure if defendants agreed to it by December 20th. He further stated that he recommended the settlement but the members of the class refused to approve it.

Counsel for CMG submitted a certification which asserted that plaintiffs' counsel never informed him that any settlement would be subject to a confirmatory vote by the members of the

class. Similarly, counsel for Capitol submitted a certification which asserted that plaintiffs' counsel had advised the trial judge and counsel for defendants that he would recommend, and the class representatives would accept, $120,000 to settle the case.

No testimony was taken on the motion to enforce the settlement and hence the trial judge did not have a full record upon which to resolve counsels' conflicting versions of their settlement discussions. Rather, the trial judge concluded that he had the responsibility to determine "what is fair and just under the circumstances." He found that the members of the class had rejected the settlement unanimously. The trial judge also found that the members of the class "were of the belief that no one would bind them or even could bind them to any settlement or compromise without a majority vote of the class." Therefore, he concluded that "an appropriate exercise of judicial discretion" would not permit enforcement of the alleged settlement.

There is a strong public policy favoring the settlement of litigation. Jannarone v. W.T. Co., 65 N.J. Super. 472, 476-477 (App.Div.1961), certif. den. 35 N.J. 61 (1961). Accordingly, settlement agreements are judicially enforceable. DeCaro v. DeCaro, 13 N.J. 36, 44 (1953). Indeed, a court ordinarily will enforce a settlement without reviewing the reasonableness of its terms. Honeywell v. Bubb, 130 N.J. Super. 130, 136 (App.Div.1974). However, where fraud, mutual mistake or other compelling circumstances are shown, a court has the discretion to deny enforcement of a settlement agreement. Honeywell v. Bubb, supra, 130 N.J. Super. at 136.

This is a class action. Settlements of class actions are treated differently from other settlements. Although most types of litigation can be settled without the involvement of the court, see Pascarella v. Bruck, 190 N.J. Super. 118, 124 (App.Div.1983), certif. den. 94 N.J. 600 (1983), R. 4:32-4 requires notice of any proposed settlement of a class action to be given

to the members of the class and for the settlement to be approved by the court. See Morris Cty. Fair Housing Council v. Boonton Tp., 197 N.J. Super. 359, 368-370 (Law Div.1984), aff'd o.b. 209 N.J. Super. 108 (App.Div.1986); see generally Manual for Complex Litigation, (2 ed. 1985) § 30.41, § 30.212; 3B J. Moore and J. Kennedy, Moore's Federal Practice, (2 ed. 1985) § 23.80.

The evident purpose of these requirements is to protect class members from a settlement which is not in their best interests. While an individual litigant can protect his own interests by refusing to agree to a settlement which he conceives to be inadequate, most class members ordinarily are not involved in settlement negotiations. Furthermore, class members may take differing views on whether to agree to a settlement. Therefore, court approval serves as a substitute for consent to a settlement by members of the class.

The basic test for court approval of a settlement of a class action is whether it is fair and reasonable to the members of the class. City of Paterson v. Paterson General Hospital, 104 N.J. Super. 472 (App.Div.1969), aff'd 53 N.J. 421 (1969); cf. Morris Cty. Fair Housing Council v. Boonton Tp., supra, 197 N.J. Super. at 370. If the settlement is fair and reasonable, it may be approved even though individual members of the class refuse to consent. City of Paterson v. Paterson General Hospital, supra; Kincade v. General Tire & Rubber Co., 635 F.2d 501, 507 (5th Cir.1981). Indeed, a settlement of a class action may be approved even in the face of a majority vote by members of the class to disapprove the settlement. See TBK Partners, Ltd. v. Western Union Corp., 675 F.2d 456, 462-463 (2nd Cir.1982). Nevertheless, since court approval is a substitute for the usual right of litigants to determine their own best interests, the overwhelming opposition of members of a class to a proposed settlement is a significant consideration militating against court approval. See Pettway v. American Cast Iron Pipe Co., 576 F.2d 1157, 1215-1218 (5th Cir.1978), cert. den. 439 U.S. 1115,

99 S. Ct. 1020, 59 L. Ed. 2d 74 (1979). Furthermore, if it is shown that members of the class have been treated unfairly by a class representative or counsel for the class, this too may be an important consideration militating against approval of the settlement. Cf. Saylor v. Lindsley, 456 F.2d 896, 899-901 (2nd Cir.1972).

We are satisfied that the trial judge did not abuse his discretion in refusing to enforce the alleged settlement in this case. Regardless of what plaintiffs' counsel may have communicated to defendants' counsel, the members of the class had been given the impression that no settlement would be consummated except by a majority vote of their members. Furthermore, the vote on the settlement reflected overwhelming opposition. The trial judge concluded that the imposition of the settlement upon the members of the class under these circumstances would not be fair and just. In our view this was a proper exercise of his discretionary power pursuant to R. 4:32-4.

Furthermore, whatever plaintiffs' counsel may have said during settlement negotiations, defendants' counsel could not have understood that they had a final settlement as of December 20, 1983. Rather, they had to have been aware that the proposed settlement was subject to court approval pursuant to R. 4:32-4. And even if defendants were under the impression that the trial judge probably would approve the settlement since he had suggested the settlement figure, they also should have been aware that he might reconsider his position if overwhelming opposition to the proposed settlement was expressed by members of the class.

II

CMG argues that the jury verdict should be set aside because the parties in whose favor it was entered (the nonarbitrating subclass) should have been required to arbitrate before bringing suit. On ...


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