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Fotinos v. Apothotia


October 12, 2007


On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, L-444-05.

Per curiam.


Submitted September 17, 2007

Before Judges Parrillo and Sabatino.

Plaintiff Peter Fotinos appeals the Law Division's dismissal of his action for breach of contract against defendants, Apothotia, Inc., Vasilios N. Diamantis and Maria Diamantis. The dismissal was based upon plaintiff's failure to list his claims against defendants as a potential asset in Chapter 7 bankruptcy filings in advance of the trial date in the Law Division. As part of his appeal, plaintiff also seeks review of the Law Division's subsequent orders declining to restore his lawsuit after he had reopened the bankruptcy case and had amended his petition to include these contract claims. We reverse and remand for the disposition of plaintiff's contractual claims on their merits, but on appropriate terms and conditions.

Defendants own*fn1 and operate a diner in Egg Harbor Township. The individual defendants are husband and wife. According to plaintiff's complaint, he performed various renovations and construction work at the diner at defendants' request, as well as home improvements at the individual defendants' residence. Plaintiff claims that defendants did not pay him in full for his work, breaching their alleged promises to do so.

In January 2005, plaintiff filed a one-count complaint for breach of contract against defendants, seeking a balance due of $88,006.37. Defendants filed an answer and counterclaim. Defendants admitted in their pleadings that plaintiff had provided "a few, very small and very minor repairs" to their diner and their residence, but that they had paid him in full, with the possible exception of services having a value of no more than about $100. The counterclaim alleged that plaintiff's persisting demands for payment constituted fraud.

The discovery period in the litigation ended in October 2005, and the case was arbitrated in November 2005. Defendants rejected the arbitration award, and the matter was consequently listed for a trial de novo on February 21, 2006. The record does not reflect that defendants ever questioned plaintiff's standing during the discovery phase of the case or at the arbitration. Their affirmative defenses did not raise such a defense or make any reference to bankruptcy proceedings.

In any event, it is undisputed that prior to bringing the instant lawsuit, plaintiff and his wife had filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of New Jersey in July 2003. The schedules attached to their petition omitted this claim against defendants as a potential account receivable.*fn2 The bankruptcy resulted in the discharge of the debts of plaintiff and his wife on October 31, 2003, without any reference to plaintiff's potential recovery from defendants.

Shortly before the present case was called for trial, defendants' counsel obtained a copy of plaintiff's Chapter 7 petition and learned that plaintiff's contractual claims against his clients were not listed in the attached schedules. This revelation prompted an oral application by defense counsel on the day of trial to dismiss plaintiff's claims with prejudice. Defendants argued that plaintiff's claims were barred because they all related to alleged services that had predated the October 2003 bankruptcy discharge date.

The Law Division judge granted the defendants' application, signing an order that same day, February 21, 2006, dismissing the complaint with prejudice.*fn3 The judge ruled that plaintiff could not proceed with his lawsuit because he lacked an order from the Bankruptcy Court authorizing him to proceed with the claim, and that he should have obtained such an order prior to the Law Division trial date. In the absence of such an order, the judge reasoned, the claim would have belonged to the former bankruptcy trustee, not to plaintiff individually, and any recovery would have had to be included in plaintiff's bankruptcy estate for possible distribution to creditors.

Sixteen days after the lawsuit was dismissed, plaintiff's counsel wrote the Law Division judge a letter on March 9, 2006. The letter informed the judge that plaintiff's bankruptcy counsel was attempting to reopen the bankruptcy case and amend the petition to include the omitted claim against defendants. The letter further requested that the judge revise his February 21, 2006 order and delete its "with prejudice" language. Counsel stated that it was his understanding from the February 21, 2006 court session*fn4 that the judge was not foreclosing plaintiff's right to attempt to reopen the petition and pursue his claims against defendants "to the extent permitted under the Bankruptcy Code and authorized by the trustee." The judge responded to plaintiff's counsel in a short letter on March 13, 2006, which stated:

Thank you for your letter of March 9, 2006. My recollection is that I indicated [on February 21, 2006] should your client's position change, that you can avail yourself of the Rules of Court [,] using R. 4:49-2 [or] R. 4:50-1.

The court will not be amending the Order. It states exactly what I intended it to say.

Upon receiving the judge's correspondence, plaintiff's counsel responded with another letter, dated March 15, 2006. That letter enclosed a copy of plaintiff's motion to reopen the bankruptcy case, which his bankruptcy attorney had filed on March 6, 2006, and had served on the former bankruptcy trustee. The bankruptcy motion sought, as anticipated, to amend the Chapter 7 petition to include the omitted claim against defendants. The amended petition also asserted an exemption for the potential asset from distribution.

In his March 15 letter, plaintiff's counsel reiterated his request that the Law Division judge revise the dismissal order to "reflect that the matter may be potentially relisted on this court's calendar if so permitted by the Bankruptcy Court." The judge apparently did not respond in writing to this second letter.

On April 3, 2006, the Bankruptcy Court reopened plaintiff's case, as requested. Concurrently, plaintiff moved in the Law Division for reconsideration of the dismissal of his contract claims. The Law Division judge denied that motion on May 12, 2006. The judge treated plaintiff's request, in essence, as premature. In his memorandum decision ruling on the motion, the judge stated that [t]he court will not grant any relief at this time as plaintiff's petition for bankruptcy has been re-opened for amendment.

As such, the court is divested of jurisdiction in this matter until [the] bankruptcy proceedings are closed or there is relief granted by the bankruptcy court from the automatic stay. [Emphasis added.]

Soon thereafter, the Bankruptcy Court issued a final decree, confirming that the reopened estate of plaintiff and his wife had been fully administered, that the trustee was again discharged, and that the case was again closed. Plaintiff's counsel supplied a copy of the final decree to the Law Division judge in a letter dated June 3, 2006, contending that the impediment to plaintiff's contractual claims had been removed.

Defendants, however, rejected that contention. Their counsel wrote a letter to the Law Division judge on June 7, 2006, asserting that it was still up to the bankruptcy trustee, Douglas Stanger, Esq., to decide what to do concerning the alleged account receivable. Plaintiff's counsel then wrote Stanger, on June 8, 2006, and again on July 19, 2006, requesting confirmation that he would allow the contract claims to proceed in the Law Division.

Stanger responded to these inquiries in a letter dated July 20, 2006. Stanger clarified that he was no longer trustee in the case because he had not been reappointed by the Bankruptcy Court when the case was reinstated in April 2006. He therefore had no present ability to "sell, collect or abandon the alleged accounts receivable" against defendants. In that vein, Stanger made the following request:

Once the [Law Division] matter is resolved, please notify our office immediately of the settled amount the Debtors will be awarded, if any. At that time I will determine if the [bankruptcy] matter needs to be [again] reopened and I [should] be reappointed as Trustee to administer the alleged asset in question.

Following these developments, plaintiff filed a second motion for reconsideration in the Law Division, seeking to revive his lawsuit against defendants. On October 20, 2006, the Law Division denied that application.

In his written statement of reasons dated October 20, 2006, the judge reviewed the procedural history of the litigation and the related bankruptcy proceedings. Given that history, the judge determined that "[t]he policies of expedition and finality that underlie time limitations [in the Superior Court] would be defeated" if plaintiff were allowed to revive his lawsuit eight months after the original trial date. The judge found "no basis in equity" to vacate the dismissal order, faulting plaintiff for not being in a position to try the case when it was first listed. The judge also noted that plaintiff's second reconsideration motion, which had not been filed until October 4, 2006, was out of time. The judge further observed that "defendants should not be subjected to further expense to defend this claim especially since the beneficiaries of it would be creditors of the bankruptcy estate for which no trustee has been appointed and the bankruptcy case [is] closed."

On appeal, plaintiff urges that the Law Division should have permitted him to pursue his contractual claims against defendants on the merits once their omission from bankruptcy petition had been corrected. Although we agree with many of the sentiments expressed by the Law Division judge concerning the importance of finality and the need for parties to be ready to try their cases on the dates scheduled by the court, we nonetheless conclude that this particular case should be relisted for trial, subject to the imposition of appropriate potential sanctions short of dismissal.

Our system of justice favors the fair disposition of cases on their merits. Viviano v. CBS, Inc., 101 N.J. 538, 547 (1986), Stanley v. Great Gorge Country Club, 353 N.J. Super. 475, 486 (Law Div. 2002). We also seek to make litigation "expeditious and efficient." Leitner v. Toms River Reg'l Sch., 392 N.J. Super. 80, 91 (App. Div. 2007). The Rules of Court are designed to achieve those and other important goals. As part of that design, we strive for certainty in trial dates. Ibid. As we have recognized, however, exceptional circumstances can arise, where trial dates or other litigation deadlines should be extended in the interests of justice and to avoid punishing litigants unfairly. Id. at 91-94.

Bearing in mind these principles, we fully concur with the Law Division judge's observation that plaintiff's counsel should have been ready to try this case on its original scheduled date. We also agree that the impediment to plaintiff's ability to proceed on February 21, 2006, because of his incomplete bankruptcy petition, should have been cured before that date. However, we are also mindful of plaintiff's unrefuted sworn assertion that he had left this particular claim against defendants out of his petition at a time when he was recovering from a stroke. We further recognize that plaintiff's lack of standing to sue was not the subject of any pleading or objection by the defense until it surfaced on the eve of trial, more than three months after discovery had closed and the case had already been arbitrated.

Additionally, we note that the Law Division judge's assumption that plaintiff's creditors would be the sole beneficiaries of any recovery from defendants in this case is tempered by the non-committal language of the former trustee's July 20, 2006 letter. We read that letter differently than the trial judge, as it appears to leave open the possibility that the former trustee might not take any further action in attempting to distribute a recovery from defendants to plaintiff's former creditors.*fn5 In short, we do not presume that a trial on the merits would be a wasted effort for plaintiff.

Nor do we discern that defendants would have been substantially prejudiced by the additional delay in the trial for a few months while plaintiff's bankruptcy filings were corrected. There is no certification in the record alleging that material witnesses have died or have left the jurisdiction, or that critical documents have been lost in the interim. Rather, this appears to be a relatively simple book account case, involving, on the one hand, a small contractor, and, on the other hand, a married couple who operate the diner and own the house that the contractor renovated.

Considering the totality of circumstances, see In re Guardianship of J.N.H., 172 N.J. 440, 473-74 (2002), we are persuaded that there are substantial equitable reasons to afford plaintiff relief from judgment under R. 4:50-1. We consequently vacate the orders of the Law Division denying him such relief.

Although the Law Division judge correctly ruled that plaintiff's second motion for reconsideration, which he filed in October 2006 more than twenty days after the court's prior orders, was untimely under R. 4:49-1, that motion would have been timely had it been denominated, as the judge himself had alternatively suggested in his earlier correspondence to counsel, as a motion for relief from judgment under R. 4:50-1. That latter Rule allows, as is warranted here, relief from a judgment within one year of its entry based upon a party's excusable neglect, see R. 4:50-1(a)-4:50-2, or for other equitable reasons even after a full year has elapsed. See R. 4:50-1(f).

Moreover, we observe that plaintiff's counsel promptly and persistently raised with the court his objections to the "with prejudice" aspects of the February 21, 2006 order of dismissal. We also note that plaintiff rapidly sought and obtained the intervention of his bankruptcy attorney after the omission from his petition was identified. Plaintiff's counsel kept the court and his adversary reasonably abreast of the status of those efforts.

For these various reasons, we vacate the Law Division's orders of February 21, May 12, and October 20, 2006, and remand this case for further proceedings on the merits. As a condition of such a remand, however, we invite the Law Division to consider imposing intermediate sanctions, less drastic than the sanction of dismissal, that might fairly address plaintiff's failure to be ready to proceed with his case on its original trial date. Among other things, the court may consider shifting some or all of the costs that defendants will incur in having to prepare to try this case twice because of plaintiff's oversight. See Leitner, supra, 392 N.J. Super. at 94 (noting that in reopening a case, a trial court may impose appropriate "terms and conditions" as a sanction for a party's failure to comply with the Rules); see also R. 4:50-1 (allowing relief from judgment "upon such terms as are just"). We defer to the Law Division in fashioning such equitable terms and conditions of restoration.

We have considered the remaining arguments for affirmance presented by defendants, and conclude that they lack sufficient merit to be addressed in this written opinion. R. 2:11-3(e)(1)(E).

Reversed and remanded.

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