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Cardoso v. Goldberg

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


November 19, 2007

MANUEL CARDOSO, A/K/A MANUEL CARDOSO, JR., PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
IRA GOLDBERG, INDUSTRIAL REALTY, LLC, A LIMITED LIABILITY COMPANY OF THE STATE OF NEW JERSEY, A/K/A INDUSTRIAL REALTY INV., LLC; AND BOMANITE OF NEW JERSEY, INC., A NEW JERSEY CORPORATION, DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS/CROSS-APPELLANTS,
v.
NOVA CRETE, INC., THIRD-PARTY DEFENDANT.

On appeal from Superior Court of New Jersey, Chancery Division, Middlesex County, Docket No. C-196-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 19, 2007

Before Judges Cuff, Lihotz and Simonelli.

Plaintiff Manuel Cardoso, Jr. appeals from summary judgment entered on March 6, 2006, as modified by an order dated May 10, 2006, which had been entered prior to the completion of discovery. Defendants/third-party plaintiffs cross-appealed from a May 8, 2006 order denying their request for an award of counsel fees and sanctions pursuant to Rule 1:4-8 and N.J.S.A. 2A:15-59.1. Plaintiff and defendant Ira Goldberg were shareholders in defendant Bomanite of New Jersey, Inc. (Bomanite) and defendant Industrial Realty, LLC (IR). Bomanite installs decorative concrete systems and flooring. Bomanite is the sole tenant in the realty owned and operated by IR.

Cardoso filed a Chancery Division complaint seeking rescission of a settlement agreement that allowed Goldberg to purchase Cardoso's thirty-five percent interest in Bomanite for $75,000, and to release him from any obligations under a restrictive covenant agreement. Cardoso asserts he signed the agreement because he mistakenly believed the restrictive covenant was enforceable. Cardoso also challenged the enforcement of a provision structuring Goldberg's purchase of plaintiff's fifty percent interest in IR. Cardoso argues that genuine issues of material fact were presented on these two issues precluding summary judgment.

In their cross-appeal, defendants assert the motion judge abused her discretion in denying the motion for attorney's fees and sanctions. We disagree with the arguments advanced by plaintiff and defendants, and we affirm.

I.

The facts, viewed in the light most favorable to Cardoso, follow. Coyne v. N.J. Dep't of Transp., 182 N.J. 481, 491 (2005). Goldberg incorporated Bomanite in 1984. In 1988, Cardoso commenced employment with Bomanite performing decorative concrete masonry work. On October 1, 1990, Goldberg gave Cardoso a thirty-five percent ownership interest in the corporation. In addition to Goldberg and Cardoso, the third shareholder, Jerome M. Selvers, owned ten percent of the Bomanite stock. In 1999, to raise operating capital, the shareholders sold a ten percent stock interest to Lars Anderssen. The four shareholders subsequently executed a Shareholder's Agreement, and Cardoso, Goldberg, and Anderssen also executed Executive Employment Agreements that contained the following non-compete covenants:

4. COVENANTS . . . .

(b) During the term of his employment and for three years thereafter (or, if longer, until expiration of the initial term of employment hereunder), the Executive shall not, directly or indirectly, engage in or be interested in (as owner, partner, shareholder, employee, director, officer, agent, consultant, or otherwise), with or without compensation, any business located or which markets its goods or services in New Jersey, New York, Eastern Pennsylvania or Connecticut and which is competitive with the business being conducted by the Company at any time during the term of the Executive's employment.

(c) During the term of his employment and for three years thereafter, the Executive shall not, directly or indirectly, solicit or contact any employee of the Company, with a view to inducing or encouraging such employee to leave the employ of the Company for the purpose of being hired by the Executive, an employer affiliated with the Executive or any competitor of the Company.

(d) The Executive acknowledges that the provisions of the Section 4 are reasonable and necessary for the protection of the Company and that the Company will be irrevocably damaged if such covenants are not specifically enforced. Accordingly, the Executive agrees that, in addition to any other relief to which the Company may be entitled in the form of actual or punitive damages, the Company shall be entitled to seek and obtain injunctive relief from a court of competent jurisdiction for the purposes of restraining the Executive from any actual or threatened breach of such covenants.

Cardoso and Goldberg formed IR in 1999. The entity purchased a one-acre parcel located at 36 Industrial Drive, Old Bridge, on which a single-tenant industrial building consisting of approximately 2,300 square feet of office space and 5,000 square feet of warehouse space was constructed. Bomanite was the sole tenant.

Cardoso resigned from Bomanite effective June 30, 2003. He formed third-party defendant Nova Crete, Inc., located at 62 Morris Court, Sayreville, approximately 3.13 miles from Bomanite, and which directly competed with Bomanite in the decorative masonry business.

After their split, the parties commenced negotiation of Goldberg's purchase of Cardoso's interests in Bomanite and IR. Plaintiff maintains Goldberg gave him a choice either to: receive $300,000 for his thirty-five percent equity interest in Bomanite and Goldberg could pursue enforcement of the non-compete covenant or accept $75,000 for the business interest and the restrictive covenant obligations would be voided.

Goldberg, Cardoso, Bomanite and IR executed an agreement on August 25, 2004. Cardoso states he "reluctantly agreed to accept Goldberg's offer of only $75,000 [for his shares in Bomanite] in exchange for a release from the obligations of that covenant." Further, the agreement obligated Goldberg to purchase Cardoso's fifty percent interest in IR based on the following procedure:

Cardoso and Goldberg shall each select one (1) neutral MAI Certified Appraiser who, in turn shall select one (1) neutral MAI Certified Appraiser who shall appraise the property. In the event the valuation set forth in the appraisal is $1.1 million or less, Goldberg shall be obligated to purchase Cardoso's interest in the LLC for an amount equal to fifty (50%) percent of the appraised value less six (6%) percent which would have otherwise been payable as real estate broker commission, less the value of all liens, mortgage(s) and encumbrances . . . .

In the event the valuation set forth in the appraisal is in excess of $1.1 million, then Goldberg, at his sole discretion may, within thirty (30) days purchase the Cardoso interest at the appraised value less six (6%) percent, less the value of all mortgage(s), liens and encumbrance . . . .

Goldberg paid Cardoso $75,000 for his interest in Bomanite and Cardoso executed a general release. In compliance with the structure specified in the agreement, the parties' respective appraisers selected Robert Gagliano, MAI, as the "neutral MAI appraiser." Gagliano's March 30, 2005 report appraised the IR property for $650,000, which was less than both the $700,000 outstanding mortgage encumbering the realty and the 2004 tax assessment, after consideration of the equalization ratio, that yielded an estimated value of $942,190. Cardoso refused to transfer his interest in IR to Goldberg.

Cardoso filed a complaint in the Chancery Division on July 7, 2005, seeking: (1) rescission of the January 14, 1999 employment agreement and the August 25, 2004 settlement agreement based on mutual or unilateral mistake; (2) invalidation of Gagliano's appraisal because it deviated from recognized appraisal standards, failed to rely on appropriate facts and data, and included an erroneous analysis of value; and (3) relief pursuant to N.J.S.A. 14A:12-7, as an oppressed minority shareholder. Defendants filed an answer, counterclaim, and a third-party complaint against Nova Crete asserting: (1) breach of contract and enforcement of the buy-out agreement; (2) breach of the employment agreement; (3) breach of the implied covenant of good faith and fair dealing; (4) unfair competition; (5) tortious interference with prospective economic advantage and contractual relations; (6) breach of fiduciary duty and duty of loyalty; (7) misappropriation of proprietary information; and (8) sanctions for filing frivolous litigation.

Defendants' motion for summary judgment was granted on March 6, 2006. Judge Chambers amended that order to require plaintiff to transfer his interest in IR to Goldberg, and to dismiss defendants' counterclaim and third-party complaint. A separate order denied defendants' motion for attorney's fees, costs, and sanctions pursuant to Rule 1:4-8 and N.J.S.A. 2A:15-59.1.

On appeal, Cardoso argues the court inappropriately dismissed his complaint because: (1) pretrial discovery had not been conducted and genuine issues of material fact existed; (2) rescission was an appropriate available relief; and (3) the opportunity to challenge the results of the flawed appraisal were wrongfully denied. Defendants' cross-appeal seeks an award of sanctions and attorney's fees.

II.

Summary judgment should be granted when the moving party shows that no genuine issue as to any material fact exists, and the proponent is entitled to judgment as a matter of law. R. 4:46-2(c). In deciding whether to grant summary judgment, the motion judge must engage in a weighing process and decide "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). When a party appeals a trial court's grant of summary judgment, our function is to review de novo whether summary judgment was proper. Simonetti v. Selective Ins. Co., 372 N.J. Super. 421, 427 (App. Div. 2004). Accordingly, we must first decide whether there was a genuine issue of fact, and then, if there was not, decide whether the trial court's ruling on the law was correct. Prudential Prop. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).

Generally, summary judgment is not appropriate before the party resisting the motion has had an opportunity to complete discovery, which is relevant and material to defend the motion. Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 193 (1988); In re Ocean County Comm'r of Registration, 379 N.J. Super. 461, 478 (App. Div. 2005). An objection to summary judgment on the basis that it is premature due to incomplete discovery requires a party to show, with some specificity, the nature of the discovery sought and its materiality. Ibid.; Auster v. Kinoian, 153 N.J. Super. 52, 56 (App. Div. 1977).

Although Cardoso asserts summary judgment was prematurely considered because discovery had not commenced, he does not articulate what was sought and its materiality. He states that evidence revealing the parties' state of mind, prior to the execution of the settlement agreement, should have been developed to show the parties' belief regarding the restrictive covenant's enforceability. We determine plaintiff has not shown that any further discovery would likely uncover additional material facts necessary to resolve this dispute. J. Josephson, Inc. v. Crum & Forster Ins. Co., 293 N.J. Super. 170, 203 (App. Div. 1996). Accordingly, we reject his challenge to the entry of summary judgment on this basis.

III.

Plaintiff additionally argues that summary judgment should not have been granted because a genuine issue of material fact existed regarding the enforceability of the restrictive covenant. Cardoso maintains he must be permitted to present facts showing the covenant is not enforceable as a material part of his request for rescission of the settlement agreement based on mutual or unilateral mistake.

In considering the agreement between the parties, we note that "[a] settlement agreement between parties to a lawsuit is a contract." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). This principle equally applies to an adjustment of differences to avoid suit. The goal of this policy is "'the notion that the parties to a dispute are in the best position to determine how to resolve a contested matter in a way which is least disadvantageous to everyone.'" Peskin v. Peskin, 271 N.J. Super. 261, 275 (App. Div.) (quoting Dep't of Pub. Advocate v. N.J. Bd. of Pub. Utils., 206 N.J. Super. 523, 528 (App. Div. 1985)), certif. denied, 137 N.J. 165, (1994). "'Consequently, courts 'strain to give effect to the terms of a settlement wherever possible,'" Jennings v. Reed, 381 N.J. Super. 217, 227 (App. Div. 2005) (quoting Dep't of Pub. Advocate, supra, 206 N.J. Super. at 528), and parties will be bound by the contracts they make for themselves. Ctr. 48 Ltd. P'ship v. May Dep't Stores Co., 355 N.J. Super. 390, 412 (App. Div. 2002).

After his departure from Bomanite, plaintiff engaged counsel to advance his interests. A letter from Cardoso's attorney dated January 26, 2004, expressed plaintiff's intention "to resolve these matters without the necessity of litigation." Negotiations were conducted over several months, culminating in the agreement reached on August 25, 2004. That resolution addressed not only the price to be paid by Goldberg for Cardoso's interest in Bomanite, but also ended the question of Goldberg's prospective efforts to enforce the restrictive covenant. It is not necessary to determine whether Goldberg's efforts to enforce the covenant, if pursued, would be successful; such a determination would abide an airing of the disputed facts. It is sufficient that Cardoso was aware of Goldberg's intention to seek enforcement, which is amply supported by the record.

We determine that no evidence supports mistake. As the motion judge noted, "[p]laintiff was represented by counsel when he entered into the Settlement Agreement and all of the information and law that leads him to his current conclusion . . . [was] available to him at that time." Cardoso accepted the certain course, intentionally avoiding the risks of litigation and any disruption to his newly established business. Accordingly, we conclude Cardoso presents no legal basis to rescind or reform the agreement. See Dillett v. Kemble, 25 N.J. Eq. 66, 67 (Ch. Div. 1874) ("Equity will not assist a man whose condition is attributable to his failure to exercise that diligence, which may be fairly expected from a reasonable person.")

IV.

Lastly, Cardoso argues the motion judge erred in denying his request to invalidate the appraisal used to fix the value of his interests in IR. Cardoso asserts the appraiser used a flawed methodology to ascertain the realty's value. In his certification in opposition to summary judgment he stated:

Prior to the initiation of this lawsuit, I consulted with a professional appraiser who gave me his opinion that the appraiser preparing [t]he Gagliano Appraisal deviated from recognized appraisal standards, failed to rely on appropriate facts and data and made inappropriate or erroneous analyses.

The motion judge rejected plaintiff's claim, determining "absent a showing of fraud, corruption or similar wrongdoing which is not alleged by plaintiff, the appraisal provision in the Settlement Agreement must be enforced," citing Cap City Prods. Co., Inc. v. Louriero, 332 N.J. Super. 499, 504 (App. Div. 2000). Plaintiff challenges that determination, as Cap City involved an arbitration, and submits that the standard of review for this appraisal matter is found in Elberon Bathing Co. v. Ambassador Ins. Co., 77 N.J. 1, 17 (1978).

Elberon involved the appropriate measure of an insured's recovery for a partial loss under the replacement cost provision of a fire policy. The umpire chosen by the parties' appraisers issued an award. Defendant challenged whether the term "actual cash value," as used in N.J.S.A. 17:36-5.20, was the replacement value less depreciation, which had not been considered by the umpire. Id. at 7. The Court concluded that the appraisers' failure to deduct depreciation from replacement cost constituted sufficient cause to set aside the umpire's award because it was a question of law and "[a]n appraiser . . . can make no legal determinations." Id. at 15. The Court additionally determined that the appraisers engaged in "legal misconduct . . . justif[ing] vacation of the award." Id. at 16.

Here, Cardoso advances no facts to support a contention that Gagliano misapplied the law or failed to consider relevant factual evidence. He suggests nothing to sustain a finding of fraud or other legal excuse to set aside Gagliano's appraisal.

Accordingly, we determine that contract principles apply inasmuch as parties are bound by the intentions that they express in a written agreement, absent evidence of fraud or other legal excuse. MacKenzie v. N.J. Auto Ins., 299 N.J. Super. 112, 119 (App. Div.), certif. denied, 151 N.J. 71 (1997).

In Cap City, we found that the parties intended to be bound by the valuation performed by the third-party evaluator and this intention was evinced by their written agreement. Cap City, supra, 332 N.J. Super. at 508-09. We recognized that "the binding nature of the parties' agreement . . . rests also on a firmly settled, strong principle of New Jersey law . . . that settlements are favored and will be enforced whenever voluntarily agreed to by the parties." Id. at 508.

Here, the terms of the parties' agreement "are clear and unambiguous [so] there is no room for interpretation or construction." Levison v. Weintraub, 215 N.J. Super. 273, 276 (App. Div.), certif. denied, 107 N.J. 650 (1987). The courts must enforce those terms as written. Ibid. Therefore, we conclude that Judge Chambers' determination that the parties intended to be bound by an appraisal completed pursuant to procedures set forth in their settlement agreement is supported by adequate, substantial, and credible evidence. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). Had the parties intended to preserve the right to challenge the opinion of the single appraiser, such a provision could have been inserted in the agreement. Mt. Hope Dev. Assoc. v. Mt. Hope Waterpower Project, L.P., 154 N.J. 141, 149 (1998).

V.

In the cross-appeal, defendants argue that the motion judge misapplied her discretion in denying the request to award attorney's fees consistent with N.J.S.A. 2A:15-59.1b(2), and to impose sanctions pursuant to N.J.S.A. 2A:15-59.1b(1). The statute addressing frivolous litigation serves a dual purpose. "On the one hand, 'the statute serves a punitive purpose, seeking to deter frivolous litigation.' On the other hand, the statute serves a compensatory purpose, seeking to reimburse 'the party that has been victimized by the party bringing the frivolous litigation.'" Toll Bros., Inc. v. Twp. of W. Windsor, 190 N.J. 61, 67 (2007) (quoting Deutch & Shur, P.C. v. Roth, 284 N.J. Super. 133, 141 (Law Div. 1995)).

The decision to award attorney's fees rests within the discretion of the trial court and must be reviewed using an abuse of discretion standard. Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 443-44 (2001). "[A] claim will be deemed frivolous or groundless when no rational argument can be advanced in its support, when it is not supported by any credible evidence, when a reasonable person could not have expected its success, or when it is completely untenable." Belfer v. Merling, 322 N.J. Super. 124, 144 (App. Div.), certif. denied, 162 N.J. 196 (1999).

In denying defendants' motion, Judge Chambers stated:

With respect to the appraisal, the fact that the plaintiff attempted to set aside this appraisal, although it failed, is not unexpected, that appraisal, surprisingly, found the property was worth less than the mortgage. An effort to challenge such an unusual result is not demonstrative of bad faith, even though a dispassionate look at the facts [and] the law indicates that there was no basis to do so. "When the plaintiff's conduct bespeaks an honest attempt to press a perceived, though ill[-]founded and perhaps misguided claim . . . [he] should not be found to have acted in bad faith." Belfer v. Merling, [supra, 322 N.J. Super. at 144].

Accordingly, this Court finds no bad faith in the challenge to the appraisal. Plaintiff also argued that he accepted a lesser amount for his interest in the corporation in exchange for a release from his restrictive covenan[ts]. In this lawsuit[,] he sought to set aside the settlement agreement on the basis that the restrictive covenan[ts] were unenforceable. While this argument failed, the Court is not convinced that it was asserted in bad faith, or for the purpose of harassment.

While the Court did not find the argument legally sound, it appears that plaintiff's counsel, in good faith, believed otherwise. For these reasons, this Court finds that counsel fees are not warranted under either rule or statute. Accordingly, the motion is denied.

We discern no abuse of discretion and conclude no basis to alter Judge Chambers' determination.

Affirmed.

20071119

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