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Lautek Corp. v. Image Business Systems Corp.

Decided: October 18, 1994.


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

Before Judges J.h. Coleman, Dreier and Wefing.*fn1


The opinion of the court was delivered by DREIER, J.A.D.

Plaintiff, Lautek Corporation, by its assignee, Lambda Financial Service Corp., appeals from four aspects of a final judgment entered in its favor in the amount of $85,588.41 after a bench trial. Defendant, Image Business Systems Corporation (IBS), has cross-appealed from a discovery order entered by an earlier motion Judge (not the eventual trial Judge) and from the arithmetic calculation of the judgment entered by the trial Judge. We remand for the entry of a modified increased judgment in favor of plaintiff and affirm on the issues raised in defendant's counterclaim.

Lautek supplied and serviced computer hardware and software manufactured by other companies, principally IBM. IBS assembled items from Lautek and various other vendors into computer products with imaging retrieval capabilities. The former president of IBS, David Sarna, initially dealt with Lautek because the former principal of Lautek was a close friend. After the friend left Lautek, Sarna continued to deal with Lautek whose remaining staff provided the same services. Although many companies could supply IBS with the IBM and other technology and warranty service, apparently Lautek did not require the return of the hardware to its offices. Rather it did on-site repairs and supplied loaner replacements if computers or other hardware had to be taken out of service rather than merely adjusted.

The business relationship was an unusual one in that although the companies did two to three million dollars business each year, there were no written contracts. Orders were placed and revised and complaints adjusted by telephone. Practically the only written communications between the companies were billing invoices and payments. IBS assured itself of Lautek's services by constantly remaining approximately ten percent behind in its payments, so that at any one time $200,000 or more was owed by IBS to Lautek. IBS determined that by this practice it could insure that Lautek would address any problems that arose concerning the products it had sold.

In the fall of 1989, Lautek was experiencing financial difficulties and began laying off some employees. IBS also was experiencing cash flow problems, and some friction developed between the companies concerning Lautek's understanding that IBS would pay its outstanding bills to Lautek. Since IBS was beginning to be dissatisfied with the servicing of the products due to Lautek's personnel reductions, IBS commenced purchasing products elsewhere and refused to pay invoices even beyond the usual hold-back period that had developed in the parties' relationship. IBS finally demanded $280,307.74, but IBS sent a check for merely $51,224.83. The invoices referred to on the payment check reconciled with very few of the items for which IBS was billed.

Lautek started suit in December 1989 for the then-claimed balance due of $235,597.29. In early 1990, Lautek filed for reorganization in the bankruptcy court, and IBS removed the Superior Court action to the Bankruptcy Court. The bankruptcy Judge, however, permitted the action to proceed in the Superior Court through Lambda Financial Service Corp. as assignee, with the bankruptcy court retaining ultimate jurisdiction. In the summer of 1990, the reorganization proceeding was converted to a Chapter 7 straight bankruptcy.

Difficulties with discovery in this case is a basis for the cross-appeal and also affects plaintiff's claims of the mistaken admission and use of evidence at trial. We, therefore, will discuss the discovery in some detail.

Lautek initially served IBS with interrogatories and document requests. IBS responded on January 8, 1991 and amended its response on March 28, 1991. On August 23, 1991, the first motion Judge granted Lautek's motion to compel defendant to provide more specific answers to interrogatories. IBS submitted a second amended response to plaintiff's interrogatories on October 9, 1991. On January 27, 1992, the court granted Lautek's motion to compel the deposition of an IBS representative, William Kirshner, who had signed the interrogatory answers, after Lautek had requested the deposition since June 5, 1991. Lautek requested additional documents from IBS on February 1, 1992 and served notice to compel the deposition of IBS's former president, David Sarna, on March 6,1992, after being informed that he possessed the relevant information.

Following a three-month lapse in the case while settlement was pursued in the bankruptcy court, Lautek deposed Mr. Sarna in February 1993. He admitted that IBS had failed to produce relevant documents for a few years. Finally on March 16, 1993, after some additional documents were supplied after the first deposition of David Sarna, Lautek moved to foreclose consideration of these documents and to bar further production of IBS's documents. A second motion Judge heard the motion to preclude admission of further documents from the defense. The Judge acknowledged that the defense presented the new documents after the March 11, 1993 initial trial date, and had failed to give the plaintiff adequate opportunity to examine the documents. However, the Judge permitted the introduction of the documents submitted on March 16, 1993, provided that the defense paid for an additional deposition of Mr. Sarna by Lautek. No further documents were permitted from IBS.

The remarks of the motion Judge are telling. He first notes the long history of demands for documents by plaintiff and the production of documents by defendant in 1990 and 1991. The Judge recognized that after the deposition of Mr. Sarna, when he could have been questioned concerning the documents, and on the eve of trial, defendant produced additional documents. Relating to the deposition, the Judge stated:

The documents that are now presented to the plaintiff were not presented at that time, so they had no opportunity to cross-examine the former president as to how they relate to the case. Those documents don't surface until after the trial date of March 11th. And it indicates here that there was subsequent oral [communication] and correspondence with defense counsel regarding discovery.

There are allegations of lost profits by the defense. Frankly, I tend to agree with the plaintiff in this case, that . . . discovery . . . should have been over two and [a] half years ago, but it's still flying about. The -- well, let's say that the course of conduct by the defense [in] this case is not commendable. The discovery should have been handed over long before this stage.

The Judge realized that plaintiff was put "at a severe disadvantage" by defendant coming "to court with a package of discovery that should have been handed over two and a half years ago and expect[ing plaintiff] to litigate [with] those papers." The Judge stated clearly "there will be no further documents admitted." This provision was carried into his order of March 26, 1992.*fn2

This matter came to trial before still a different Judge and was heard on June 9 and 10 and July 6 and 7, 1993. At the trial, additional documents that should have been produced in discovery were offered in evidence by defendant. The trial Judge, aware of the prior discovery order, denied admission to some of the documents, admitted others, and permitted some to be used to refresh Mr. Sarna's recollection on the witness stand. The documents offered were both additional invoices and agreements which were substantive evidence of defendant's various counterclaims. Since, however, the trial Judge disallowed all but three of these counterclaims, we will analyze only the matters that affected the final judgment.

Plaintiff claims two errors in admission of documents, an allegedly unwarranted personnel expense, and an error relating to the disallowance of prejudgment interest. First, Lautek claims that it should not have been charged with a $30,168.50 offset for late delivery or servicing problems on the First National Bank of Chicago's conversion to IBS's imaging system. The amount allegedly lost by IBS was actually approximately double this amount, but the trial Judge awarded one-half of the loss as Mr. Sarna admitted that other vendors and IBS's own problems occasioned at least some of the loss. The percentages, however, were never quantified. Second, the Judge awarded IBS a $40,000 credit for Lautek's alleged failure to ship certain memory boards to the State Board of Insurance of Texas. Third, Mr. Sarna testified that IBS was required to retain in-house servicing personnel to make up for the failure of Lautek's personnel to service customer products in accordance with its prior practices. He quantified the amounts spent at $90,000, $60,000 of which was allowed by the court. Finally, the trial Judge determined that under the circumstances of this case there was no reason to award prejudgment interest.

We approach the analysis of each of these four claims with the understanding that in our review of the results of a bench trial the factual findings of the trial Judge, his assessments of credibility, and the discretionary decisions he may have made are entitled to great deference. See Rova Farms Resort v. Investors Ins. Co., 65 N.J. 474, 484, 323 A.2d 495 (1974). If, however, we are certain from the record that findings were undoubtably mistaken, we may "appraise the record as if we were deciding the matter at inception and make our own findings and Conclusions." Pioneer Nat'l Title Ins. Co. v. Lucas, 155 N.J. Super. 332, 338, 382 A.2d 933 (App. Div.), aff'd o.b., 78 N.J. 320 (1978).

Initially, we note that some of the disputed documents were used in cross-examination of plaintiff's principal witness, Mr. Alvarez. As plaintiff's total affirmative claims were allowed by the court, subject only to the two offsets, the charge for service personnel, and the denial of interest noted ...

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