On appeal from the Superior Court of New Jersey, Chancery Division, Morris County, C-79-97.
Before Judges Petrella, Lintner and Parker.
The opinion of the court was delivered by: Parker, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
In these consolidated appeals, defendants Martin Bercaw and his three companies, American Landscape Supply, Inc. (ALS), Bercaw Landscape Supply, Inc. (BLS) and Organic Landscape Supply, Inc. (OLS), appeal from a grant of partial summary judgment awarding $172,064.86 in damages and interest to plaintiffs, Advanced Enterprises Recycling, Inc. (AERI) and American Supplies Sales Group, Inc. (ASSG), and dismissal of defendants' counterclaim and third-party complaint. Defendants also appeal from a separate order, entered on March 27, 2003, in which plaintiffs were awarded approximately $200,000 in counsel fees. In their complaint, plaintiffs sought to recover amounts defendants allegedly failed to pay for mulch that plaintiffs had supplied to ALS. Defendants counterclaimed, alleging breach of contract, fraud and misrepresentation, and filed a third-party complaint against Agro Products, Inc., a subsidiary of AERI, and KTI, an alleged successor to AERI and ASSG.
The relationship between plaintiffs and defendants began in 1988, when AERI sold wood mulch products to ALS for ALS's landscaping business. AERI manufactured the wood mulch product. A few years later, ASSG was formed to market and sell the mulch manufactured by AERI. ALS sold plaintiffs' mulch to end users, such as nurseries and landscape suppliers, usually on a C.O.D. basis. Bercaw was the sole shareholder and founder of all three defendant companies.
Because the principals of the companies knew each other personally since 1988, they operated without a written agreement. Plaintiffs invoiced ALS for each shipment. Each Monday, ALS remitted monies on sales of the mulch that it had made during the week past. By virtue of that arrangement, plaintiffs were paid when ALS was paid by its customers. As Bercaw stated: "When I got paid, they got paid." The parties had agreed that ALS would pay interest at the rate of 1.5 percent per month, or eighteen percent per annum, on all unpaid amounts starting thirty days after the date of the invoice for the sale of mulch to ALS.
Frank Peterpaul, a principal of AERI and ASSG, testified in his deposition that ALS was formed as a marketing strategy by AERI to promote its new recycled, decorative landscape and wood mulch. Peterpaul claimed that he and Bercaw had agreed that ALS would sell AERI's wood mulch products exclusively. The parties adhered to that agreement for seven years. Bercaw, on the other hand, claimed in his certification that ALS was an entirely independent entity and that he had established ALS's customers for the mulch products on the basis of his expertise and knowledge of the industry. Nevertheless, Peterpaul claimed that he and his brother "controlled in every respect the business and sales functions of ALS," and allowed Bercaw very little leeway in the range of his commissions. Although ALS billed its customers on ALS invoices, Peterpaul asserted that orders were placed through AERI's offices and the product was delivered directly to ALS customers by AERI.
The arrangement between the parties worked without a problem until 1994, when ALS began receiving complaints from its customers regarding the quality of AERI's mulch. When Bercaw related these complaints to AERI, no action was taken. Bercaw claimed that the creation of ASSG around 1993 caused name confusion among ALS customers because the word "American" was in the names of both entities. In February 1995, Bercaw claimed that AERI's in-house comptroller attempted to download ALS customer information, along with invoicing and payment information, from Bercaw's computer. When Bercaw asked the accountant what he was doing, the accountant replied that he was just doing what he was told. After this incident, problems between the parties escalated.
Bercaw began receiving reports that plaintiffs were offering lower prices for the mulch directly to ALS customers and he claimed that AERI became "secretive" about delivery of mulch to ALS customers. Early in 1996, Bercaw discovered that AERI, through ASSG, had hired two mulch salesmen who were approaching ALS customers, asking them to buy directly from AERI. In that same year, 1996, ALS began distributing mulch products other than AERI's and selling in new geographic areas. Bercaw attested that he sought new products because his customers were dissatisfied with AERI's mulch. Bercaw claimed that Peterpaul was aware of these changes, but Peterpaul denied that Bercaw had told him ALS was selling mulch from other manufacturers.
Bercaw formed OLS in February 1996 to conduct business in an unrelated sector of the landscaping industry: clearing trees and manufacturing new, rather than recycled, mulch from the trees. Within a year, however, Bercaw learned of another company in New York using the name "organic." In order to avoid name confusion, Bercaw formed BLS in March 1997 to undertake the OLS business. OLS was dissolved in September 1997.
When Peterpaul learned in late 1996 that ALS was selling other products, AERI terminated its relationship with ALS, claiming a "material breach" of their agreement. On December 31, 1996, Peterpaul told Bercaw that AERI would no longer honor ALS's sales of AERI's mulch and would not make any more deliveries to ALS customers. Shortly thereafter, AERI, through its subsidiary, Agro Products, sent letters to ALS's customers informing them that ALS was no longer authorized to sell AERI's products.
Bercaw claimed that representatives of AERI began disparaging ALS to its customers and that AERI attempted to interfere with ALS's suppliers in an effort to cut off ALS's supply of mulch. According to Bercaw, he learned in the spring of 1997 that AERI personnel were talking with ALS's suppliers. He further claimed that plaintiffs misled ALS customers as to the quality of ALS products. Defendants alleged that they suffered damages as a result of AERI's direct sales to ALS's customers, and AERI's refusal to supply mulch through the end of ALS's winter sale in 1997. Peterpaul stated, however, that AERI's and ASSG's representatives were instructed not to approach any of ALS's customers.
In April 1997, ALS ceased invoicing customers and BLS took over the sale of wood mulch products, in part because of Bercaw's concern over customer confusion between ALS and the plaintiff companies. ALS was not dissolved, however, although after September 1997, ...