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Kartzman v. Newark Community Health Centers


July 25, 2007


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-006523-00.

Per curiam.


Argued June 6, 2007

Before Judges A. A. Rodríguez and Sabatino.

Defendant, Newark Community Health Centers, Inc. ("NCHC"), appeals a $67,371.48 money judgment entered by the Law Division on April 28, 2006 in favor of plaintiff, Steven P. Kartzman, Chapter 7 Trustee of the Estate of O.K. Toilet & Towel Supply, Inc. ("OK Towel"). The judgment was predicated on alleged sums contractually owed by NCHC for certain goods and services that OK Towel had provided to NCHC more than a decade earlier. We reverse.

The procedural history of this matter is extraordinarily complicated, spanning more than ten years and involving two separate lawsuits and a bankruptcy proceeding. Although we have considered the intricate and contentious record in its entirety, we only discuss in this opinion the events and circumstances that are most germane to our analysis.

Prior to going out of business in 2003, OK Towel rented and cleaned towels, uniforms and linen items for institutional customers. NCHC is a not-for-profit corporation that operates a community health care facility in Newark. In 1994, OK Towel entered into four related contracts with NCHC to supply it with an ongoing supply of clean towels, linens and uniforms. The contracts, which had a term of five years, were form agreements drafted by OK Towel.

Over time NCHC apparently became dissatisfied with OK Towel's services, and found a different vendor. OK Towel determined that NCHC still owed it $16,249.19 in unpaid invoices, plus additional sums for liquidated damages and counsel fees. This led OK Towel to sue NCHC in the Law Division in a book account action. The complaint (Docket No. ESX-L-6584-96) was filed on June 7, 1996, and sought recovery of $55,297.50, plus interest and costs.

In August 1996, the clerk entered default judgment of $57,509.40 in OK Towel's favor. That judgment was entered in spite of an apparently-improper certification of the sums due by OK Towel's collection attorney, which was not based upon personal knowledge as required by R. 1:6-6.*fn1

In December 1996 OK Towel moved for leave to file an amended complaint, seeking an additional $12,000 in damages. The Law Division granted that motion, despite the existence of a final judgment in favor of OK Towel on the original complaint. In December 1997 NCHC was granted leave to answer the amended complaint out of time. Although it is not documented to us, the amended complaint was dismissed for lack of prosecution in either 1998 or 1999.*fn2 Nonetheless, the 1996 default judgment somehow remained on the court's docket.

Notwithstanding the continued existence of the first judgment, in July 2000 OK Towel filed a second book account action against NCHC in the Law Division (Docket No. ESX-L-6523-00). The second lawsuit alleged the same underlying facts as the previously-dismissed amended complaint, but this time sought a slightly different sum, $69,982.40, in damages.

NCHC timely answered the second complaint, denying the allegations and reciting various affirmative defenses. NCHC included with its answer a R. 4:5-1 certification, which incorrectly stated that the matter was not the subject of any other action.

In March 2001, the clerk dismissed OK Towel's second lawsuit for lack of prosecution, pursuant to R. 1:13-7. OK Towel subsequently moved to restore its complaint under R. 4:50-1(d). Notably, OK Towel did not advise the motion judge that it continued to have a docketed judgment against NCHC based on the same facts. The motion to restore was granted in June 2001. However, OK Towel's second lawsuit was again dismissed for lack of prosecution in August 2001.*fn3 This time, OK Towel did not file a motion to restore the second action.

In November 2001, OK Towel filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code. The bankruptcy case was converted to a Chapter 7 liquidation in January 2003, and plaintiff's present attorney was appointed as OK Towel's trustee.*fn4

In October 2004, the bankruptcy trustee served an information subpoena upon NCHC, predicated on the still-docketed 1996 judgment from the first lawsuit. When NCHC did not respond to the subpoena and the trustee's collection efforts, plaintiff moved in April 2005 to enforce the subpoena. NCHC opposed the motion, attaching a letter dated May 11, 2005 from OK Towel's former collection attorney to NCHC's counsel.

Significantly, OK Towel's former collection attorney acknowledged that there had been a prior oral understanding between him and NCHS' attorney dating back to 2000. Through that mutual arrangement, the parties had agreed to have OK Towel file a "warrant to satisfy judgment" on the 1996 judgment and proceed with a new collection action, in exchange for NCHC agreeing to waive a statute-of-limitations defense to the new lawsuit. However, a warranty to satisfy judgment was not filed, despite that agreement. As OK Towel's collection attorney explained:

Under docket number ESX-L-6584-96, default judgment was entered on August 7, 1996.

Thereafter, we were in receipt from your office of an Order entered December 19, 1997 permitting the late filing of an Answer and a copy of an Answer dated December 30, 1997. We then treated this matter as contested and proceeded with discovery.

Sometime in March 2000, after not receiving a trial date for an extended period of time, and checking the Court's file, it became apparent that the default Judgment had not been vacated. Enclosed with the pleadings that were mentioned is a copy of my letter of February 25, 2000 in which I indicate it appears that the default judgment was never actually vacated and my letter of March 20, 2000 in which I recommend[ed] a Warrant To Satisfy Judgment be filed under that docket number, with the understanding that defendant would agree to waive any Statute of Limitations defense in a new suit that would be filed. [NCHC's attorney] agreed to that, but it appears that the Warrant to Satisfy Judgment was never filed.

OK Towel does not disavow this understanding, as set forth by its former attorney.

Relying upon this correspondence, NCHS cross-moved to vacate the 1996 judgment, nunc pro tunc, and, redundantly, to also have the court direct OK Towel to file a warrant to satisfy judgment. OK Towel, in response, took the position that it was still entitled to pursue its claims.

The Law Division considered these competing motions on June 24, 2005. In an effort to solve the procedural problems, the motion judge decided, sua sponte, to revive OK Towel's previously-dismissed second lawsuit (ESX-L-6523-00), while simultaneously extinguishing the 1996 judgment. The judge reasoned that the 1996 judgment was a nullity founded upon a defective attorney's certification, and that the merits of the claims should have been litigated in the second lawsuit. Over NCHC's objection, the judge vacated, sua sponte, the August 2001 order dismissing the second lawsuit for lack of prosecution. A conforming order accomplishing all of this was entered on September 29, 2005. NCHC moved for reconsideration, which was denied as untimely because the motion had not been filed within twenty days of the September 29, 2005 order.

OK Towel then moved for summary judgment in the revived second lawsuit. NCHC cross-moved for summary judgment, arguing, among other things, that OK Towel's claims were barred by laches, that the rental contracts in question were not authenticated, and that the liquidated damages provisions in those contracts (which comprised the bulk of plaintiff's monetary claims) were unreasonable.

As part of its arguments, NCHC stressed that its former representatives who would have personal knowledge of OK Towel's performance in 1996 have either died or long since left the organization, and that documents that might shed light on the matter have been destroyed. NCHC argues it was thereby prejudiced in being unable in 2006 to oppose OK Towel's claims without having access to competing factual certifications and proofs.

The cross-motions for summary judgment were heard by another Law Division judge*fn5 in April 2006. That judge granted plaintiff's motion and denied NCHC's cross-motion, entering final judgment in favor of OK Towel on April 28, 2006 in the sum of $67,371.48.

NCHC appeals. It raises the following issues: (1) the Law Division erred in vacating, sua sponte, the August 2001 dismissal of the second lawsuit, thereby allowing OK Towel to repudiate its former counsel's agreement, and compounded its error in denying NCHC reconsideration; (2) the court subsequently erred in refusing to consider a laches defense; (3) the court misapplied the law in granting summary judgment, including its enforcement of a punitive, and thereby invalid, contract clause for liquidated damages; and (4) opposing counsel acted in bad faith. After giving due consideration to these issues as well as OK Towel's extensive opposition, we conclude that the judgment must be reversed.

The essential precursor to the April 28, 2006 final judgment against NCHC now on appeal was the Law Division's September 29, 2005 interlocutory order. That September 2005 ruling attempted a solution, developed by the motion judge sua sponte, to the messy procedural circumstances presented to him. At bottom, this case concerns what should have been relatively uncomplicated book account claims. Those claims were pursued, then not pursued, then pursued again, by OK Towel over a decade, in various fits and starts.

In view of the erratic background of the two separate but overlapping lawsuits before him, we surely appreciate the motion judge's desire in September 2005 to put the matter on a solid footing. The judge thus devised a means to have the dispute disposed of on its merits. Unfortunately, however, in doing so the motion judge at that time overly indulged OK Towel for its failure to prosecute this modest case expeditiously, and unduly prejudiced NCHC.

We agree with the September 2005 motion judge that a "warrant to satisfy judgment," as had been proposed by OK Towel's former counsel in 2000, was not a proper filing to revive OK Towel's claims, because such a warrant would have discharged the alleged debt as well as the 1996 judgment. The judge's ruling attempted, in essence, to carry out the spirit of the agreement once reached between counsel in 2000 but never implemented.

However, the motion judge's revival of the 2000 lawsuit unfortunately overlooked the significance of the two subsequent involuntary dismissals of that action in 2001 for lack of prosecution. After the 2000 agreement was reached between counsel, OK Towel clearly did not pursue its claims thereafter with dispatch. OK Towel's second lawsuit was dismissed for lack of prosecution in March 2001, and, after it was restored at the OK Towel's urging, was again dismissed under R. 1:13-7 in August 2001.

OK Towel offers us no reason why the August 2001 involuntary dismissal should be treated as invalid. Nor does OK Towel offer any excuse as to why no timely motion to restore the case, once again, was not filed within the time frames specified by R. 1:13-7. The court's September 2005 ruling deprived NCHC of the benefit of the August 2001 dismissal, and allowed OK Towel to revive its very old claims four years later without good cause being shown.*fn6 Moreover, the ruling deprived NCHC of the true benefits of the bargain struck between its counsel and OK Towel's counsel in 2000. Counsel's agreement surely did not envision OK Towel waiting five more years until 2005 to litigate the merits of its claims.

Given this uniquely protracted context, we believe it is fundamentally unfair to impose this alleged liability upon NCHC now, more than a decade after the operative facts occurred, especially since witnesses have since died or moved on and documents have been lost.*fn7 The only case that could have been viable after counsel's mutual agreement in 2000, the second lawsuit, was long ago dismissed in 2001 for lack of prosecution. That dismissal should now be honored, both in the interests of justice and in the interests of encouraging litigants to pursue their claims with reasonable diligence.*fn8 As we have observed in an analogous context under R. 4:4-1, our rules of court are "designed to keep the plaintiff's interest in the case active and to require the plaintiff to do more than deposit a pleading in the clerk's office." Czepas v. Schenk, 362 N.J. Super. 216, 223 (App. Div.), certif. denied, 178 N.J. 374 (2003). OK Towel fails to advance any persuasive reason why the 2001 dismissal should have been, in effect, nullified under R. 4:50-1 four years later.

Accordingly, we reverse the April 28, 2006 judgment in favor of OK Towel, and direct the entry of judgment for NCHC by the Law Division, consistent with this opinion and without costs.*fn9

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