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Regional Construction Corp. v. Ray

December 11, 2003

REGIONAL CONSTRUCTION CORP., C&L CONTRACTING CORP. AND DITCH MILL CONSTRUCTION, LLC, PLAINTIFFS-RESPONDENTS,
v.
LAWRENCE V. RAY, DEFENDANT-APPELLANT.



On appeal from Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-687-02.

Before Judges Skillman, Wells*fn1 and Fisher.

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

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued November 5, 2003

Defendant Lawrence V. Ray (Ray) moved to have a default judgment vacated one month after its entry. His motion was granted on the condition that a bond be posted in an amount in excess of the judgment. Because such a condition was neither justified by the circumstances nor proportionate to any prejudice suffered by plaintiffs, we reverse and remand.

The complaint in this matter was filed by plaintiffs C&L Contracting Corp., Ditch Mill Construction Co., and Regional Construction Co. (plaintiffs) on April 22, 2002. Plaintiffs alleged that they performed work on Ray's home, and on another project for the benefit of Ray, and sought judgment for the amount allegedly due. When no responsive pleading was timely filed, plaintiffs requested the entry of default on July 10, 2002 and a default judgment was entered against Ray for $861,251 on August 15, 2002. On September 19, 2002, Ray moved to vacate the default judgment.

In seeking relief, Ray submitted a certification describing his proposed defenses and the reasons why he did not file a timely responsive pleading. Ray described the relationship between he and non-party Dominick Caruso (Caruso), a principal of the plaintiffs, as well as his relationship to the plaintiffs themselves. Ray claimed he was misled by Caruso with regard to the financial condition of plaintiff C&L Contracting Corp. (C&L), resulting in Ray loaning money and purchasing an equity position in C&L in late 1998 or early 1999. As a result of this transaction, both Ray and Caruso held 35% interests in C&L, the other 30% being held by Michael LaPenna (LaPenna).

Ray claims that he executed an indemnification agreement for C&L's benefit as a result of his obtaining an interest in C&L and that he now faces potential liability because C&L allegedly defaulted on certain contracts, as demonstrated by the suit for damages brought by the surety against him, Caruso, LaPenna and the plaintiffs. Universal Bonding Co. v. C & L Construction Co., et al., Docket No. BER-L-4865-02 (the surety's action). Caruso and the plaintiffs asserted cross-claims against Ray in the surety's action and Ray also asserted cross claims against C&L and Caruso. The cross-claims of Caruso and the plaintiffs in the surety's action allege that Ray diverted corporate funds and, as a result, sought contribution and indemnification. In response, Ray filed a cross-claim and third party complaint against the plaintiffs and Caruso, alleging fraud, misrepresentation, breach of contract and common law indemnification.

Ray's moving certification also referred to another pending suit wherein Commerce Bank, N.A. has sought to foreclose upon Caruso's property; Caruso filed a third party complaint against Ray, making allegations similar to those in his cross-claim in the surety's action. Commerce Bank, N.A. v. Caruso, Docket No. F-17778-01 (the foreclosure action).

In seeking relief from the default judgment in this action, Ray referred to these other suits and claimed that when he forwarded the summons and complaint to attorneys he had previously retained to represent him in the surety's action and the foreclosure action, he"assumed [his] interests were being protected through the filing of answers or by obtaining extensions of time to answer." Ray asserted that he was unaware he was not being protected and did not discover that a default judgment had been entered until he retained new counsel.

As for the existence of a meritorious defense, Ray contended that the claims are"baseless" and that

[t]here is no contract for any work performed by C&L at my home or at the LR Family Holdings property. Any work that was performed at those locations was in consideration for my having assisted the company by providing loan guarantees and collateral for C&L obligations. Further, such work was generally done at a time when it was necessary to keep the company's union workers employed during the downtimes on other projects. Finally, the work done was worth nowhere near the amount claimed in the Complaint, probably not one-tenth of that amount.

Ray also asserted that he has"significant indemnification and subrogation claims against C&L and Caruso" giving rise to"significant set-off rights."

The motion judge observed that, notwithstanding Ray's avowed belief that counsel would take appropriate action, Ray should bear responsibility for the failure to file a timely responsive pleading, citing Philippe v. Anderson, 227 N.J. Super. 251, 256 (Law Div. 1988). However, the motion judge also recognized the vast differences between these circumstances and Philippe. In Philippe, more than four years passed between the entry of default and the motion to vacate, strongly suggesting the lack of excusable neglect, whereas, in the present case, only one month elapsed. Because of the ...


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