On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-314-02.
The opinion of the court was delivered by: Skillman, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Skillman, Lisa and Grall.
The trial court interrupted the cross-examination of the primary defendant in this case to warn him that continuation of his testimony could result in the court referring the matter to the appropriate prosecuting authority and suggested that defendants give further consideration to settlement. Following receipt of this warning, defendants agreed to settle the case for a substantial amount of money. Shortly thereafter, defendants moved to vacate the settlement on the ground that their agreement had been coerced by the threat of criminal prosecution. Although the trial court expressed the opinion that its warning had enabled plaintiff to extract a settlement that exceeded what could have been obtained from a jury verdict, the court nevertheless ruled that defendants' agreement to the settlement had not been coerced. We conclude that the trial court erred in interrupting the primary defendant's cross-examination to warn him that continuation of his testimony could result in the court referring the matter to the appropriate prosecuting authority. We also conclude that the trial court took too restrictive a view of the issue of voluntariness in denying defendants' motion to vacate the settlement. Therefore, we reverse the denial and remand to the trial court.
Defendant William Hecksteden was employed by plaintiff All Modes Transport as its chief operating officer under an employment contract that required him to devote his entire working time and best efforts to the performance of the duties of his employment. After Hecksteden resigned, All Modes brought this action alleging that Hecksteden during the course of his employment by All Modes had secretly formed and operated defendant Vendor Management Integrity (VMI), which conducted a business that competed with All Modes. All Modes asserted claims against Hecksteden for breach of contract, fraud, breach of fiduciary duty and conspiracy. All Modes' complaint also named VMI and Hecksteden's wife Deborah, who allegedly participated with him in operating VMI, as defendants.
At a settlement conference, All Modes' counsel advised the court and Hecksteden's counsel that he planned to cross-examine Hecksteden with documentary evidence that would show Hecksteden had claimed deductions on his tax returns for VMI business expenses that were identical to expenses for which he had received reimbursement from All Modes. All Modes' counsel showed Hecksteden's counsel the documents he planned to use in this cross-examination and told him "his client was taking an enormous risk" in failing to settle. However, no settlement was reached before trial.
After All Modes completed its case, Hecksteden testified for the defense. On cross-examination, All Modes' counsel began questioning Hecksteden about the expense vouchers he had submitted to All Modes and the expenses he had claimed as deductions on his tax returns in connection with VMI's business operations, to show that All Modes had reimbursed Hecksteden for the same expenses.
Shortly after the beginning of this cross-examination, the trial court declared a recess and asked to see counsel in chambers. In a letter submitted to this court pursuant to Rule 2:5-1(b), the trial court explained the reason for declaring this recess and what occurred in chambers:
At the beginning of the cross-examination of defendant William Hecksteden, the court noticed a stack of papers approximately 12 to 20 inches high on plaintiff's counsel table. In using the first one or two of those documents on cross-examination of defendant William Hecksteden, plaintiff's counsel made it apparent that Mr. Hecksteden had received reimbursement for approximately $1,800 worth of expenses from his employer and had deducted those same expenses on the tax return of his "side company" [VMI] as business expenses. Sensing that the remaining foot of documents related to further and similar transgressions, the court asked counsel to confer in chambers and gave the jury a break.
In chambers, the court told counsel that it did not consider the testimony already rendered as substantial enough to warrant a Sheridan*fn1 letter. The court did indicate, however, that counsel should confer and that if the remaining documents and further testimony were to reveal similar, and more material transgressions, counsel should be aware that the court was going to write the Sheridan letter: if defendants' counsel was assured that further testimony would not so reveal, he could proceed on that basis. If, however, the former scenario was to be the operative scenario, the court suggested that counsel attempt to settle the matter, indicating to them that there was not a single doubt in the court's mind that a Sheridan letter would follow if material violations of federal or state tax law were testified to by Mr. Hecksteden. Plaintiff's counsel had in his briefcase a copy of the Sheridan case, which he gave to defense counsel.
The court told counsel to discuss the case for ten minutes and advise as to where they were heading. Counsel had been out of the courtroom for approximately 45 minutes, according to the bench report, when they informed chambers that they ...