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Izzo v. Izzo Realty Associates


December 11, 2007


On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-2086-04.

Per curiam.


Submitted: October 3, 2007

Before Judges Axelrad and Payne.

Plaintiff Paul Izzo appeals from the August 4, 2006 order vacating a writ of execution entered on a default judgment which he obtained against Izzo Realty Associates, L.P. ("Associates"), and the September 8, 2006 order denying his motion for reconsideration. We affirm.

The record discloses that Associates owned a parcel of commercial real estate ("property" or "partnership property") located in Old Bridge. The limited partnership was formed in 1991 by Louis A. Izzo and Concetta Izzo. Upon their deaths, their four children, Carol Gutterman, Louis Izzo, Eleanor Edelman, and appellant, each became 25% owners and the general partners of Associates. On March 23, 2004, appellant filed suit against the partnership and his three siblings, seeking payment of management fees in the amount of $44,610, allegedly due him with respect to the property under the partnership agreement for the years 1998 to 2001, based on theories of breach of contract and unjust enrichment. Service was made upon the general partners, who all appeared and filed counterclaims and cross-claims. Service on the partnership itself was made upon Edelman's husband, who was neither a general partner nor a registered agent. Although the complaint is framed in a manner that would suggest liability on the part of the partnership entity, and service on the partnership appeared to be deficient under Rule 4:4-4(a)(5), no motion to dismiss or answer was ever filed on Associates' behalf.

The suit proceeded against the three individuals. At trial before Judge Happas on February 15, 2005, with all parties represented by counsel, a settlement was reached between appellant and his three general partners. The terms, placed upon the record, required the appointment of a management company to serve as real estate manager for the partnership property, payment of profits on an equal basis to the partners, and payment to each of the general partners of specified amounts at the earlier of the sale of the property or by January 15, 2006, including "a fee classified as a manager's fee, in the amount of $7,500" to appellant. All claims, counterclaims and cross-claims were to be dismissed with prejudice. There was a specific reservation of rights, however, by the parties "with respect to other partnership matters, including the sale of the partnership property to the current proposed buyer."

Gutterman and Louis Izzo, through counsel, subsequently moved to enforce the settlement agreement. Following oral argument on May 13, 2005, in which appellant and Edelman appeared pro se, Judge Pullen granted the motion to enforce the settlement. In January 2006, appellant received the $7500 management fee payment.

Unbeknownst to any of his three siblings or their attorneys, appellant, through counsel, had been moving forward with default proceedings against the partnership contemporaneous with his litigation against the general partners. He filed a request for the entry of default against Associates on September 24, 2004, obtained default judgment on February 1, 2005 in the amount of $44,610, and docketed the judgment on February 7, 2005. On May 25, 2006, after appellant received payment of the management fee pursuant to the settlement agreement, he obtained a writ of execution on his default judgment and sought to levy upon funds of the partnership.

Gutterman and Louis Izzo then moved to enforce the settlement agreement and vacate the writ of execution, arguing the partnership claim and undisclosed judgment had merged into the settlement and the reservation of rights did not apply to the management fee claim but to other issues, such as partition. The matter apparently proceeded as uncontested because appellant's papers were not received by the court, and defendants' motion was granted by order of August 4, 2006.

Appellant moved for reconsideration, asserting that he had a valid judgment against the partnership because default and default judgment had been properly entered upon which he could execute and there was no basis for vacating the judgment. He further argued that defendants' motion sought to have the court rewrite the settlement agreement by inserting a new term that would vacate his judgment, when the settlement agreement did not encompass appellant's claims against Associates but only claims and counterclaims against the individual partners, did not reference the judgment, and explicitly contained a reservation of rights that he contended entitled him to proceed against the partnership. In opposition to defendants' motion, appellant certified, in pertinent part, as follows:

6. When the Settlement Agreement involving the individual partner claims was agreed to, no one requested that I agree to vacate the judgment against the partnership as part of the settlement.

7. . . . The Settlement Agreement did not require that I give up any rights to the Judgment against the Partnership.

Furthermore, according to appellant, the reservation of rights provision "was inserted because of the Judgment as well as other partnership issues." Appellant further stated, "[i]f the other parties had insisted that [he] give up a judgment for over $40,000 against the partnership, [he] would not have agreed to the Settlement."

After hearing oral argument, the court denied appellant's reconsideration motion, memorialized in an order of September 8, 2006. In concluding that appellant was not entitled to enforce the default judgment against the partnership and was bound by the settlement, Judge Pullen found as a compelling fact that appellant and his attorney had withheld the existence of this significant monetary judgment from the general partners and their counsel, as well as from Judge Happas and herself, during negotiations and the entry of the February 15, 2005 settlement agreement and the May 2005 enforcement proceeding. The court believed that it and the parties were being "hoodwinked" by appellant who withheld this material fact that affected the partnership and would have significantly impacted the settlement, from the other partners who had vigorously contested and, in good faith, settled all of the issues in the litigation. The court found this presumably intentional omission during the settlement was "part and parcel" of appellant's conduct during the entire litigation. Based on its review of the settlement transcript and its own observations during the subsequent proceedings, the court was satisfied there was ample basis to enforce the parties' settlement; and that such settlement encompassed all of the issues in the litigation, including appellant's claim and undisclosed default judgment against the partnership for management fees.

On appeal, appellant renews the arguments he made in his motion for reconsideration. We find them equally unavailing.

In order to protect the partnership's interest and avoid a situation such as occurred here, responsive pleadings or a motion to dismiss should have been filed on Associates' behalf following service of the complaint on Edelman's husband. Failure to do so under the circumstances of this case, however, is not fatal. Appellant's sole claim was for payment of a $44,610 management fee allegedly due him pursuant to the partnership agreement, which he asserted jointly against the partnership and individual partners. The individuals filed responsive pleadings, including counterclaims, reasonably assuming the "management fee" issue was being addressed in the pending litigation. No one could have contemplated that appellant would have surreptitiously obtained a default judgment against the partnership while the other partners were vigorously contesting the identical claim, and that he would have continued to withhold this information from them while settling that claim.

The record supports the finding that the settlement was not limited to the general partners' individual claims but, rather, disposed of all claims in the litigation, which included appellant's claim for management fees against the partnership. Although not expressly stated, it is clear the general partners, who were negotiating in good faith, expected that the $7500 payment being made to appellant for management fees from the partnership property was in full satisfaction of his $44,610 claim, and appellant never stated otherwise. Under the terms of the settlement in which the parties agreed to dismiss all claims, counterclaims, and cross-claims with prejudice, the default judgment against the partnership was thus implicitly merged into the settlement and dismissed with prejudice.

Neither the plain language of the reservation of rights nor any evidence in the record supports appellant's argument that his default judgment was preserved by this provision. The reservation of rights references "other partnership matters, including the sale of the partnership property to the current proposed buyer" (emphasis added), which means different issues than involved in the litigation. Moreover, it strains credulity that in litigation in which there were counterclaims asserted against appellant, the individual partners would have allowed him to reserve his right to collect from the partnership the full amount of claimed management fees ($44,610) while agreeing to pay him an additional $7500 management fee from partnership assets on the identical claim -- in essence, a bonus. If that had been the intent of the parties, we are certain it would have been clearly expressed in the settlement agreement.

Contrary to appellant's sworn statement, the reservation of rights provision was not inserted "because of the Judgment." We glean from the record the reason the settlement agreement did not reference the default judgment or expressly require it be vacated was because appellant was the only party who was aware of its existence and he chose not to disclose this salient fact. As Judge Pullen noted, the February and May 2005 transcripts are devoid of any mention of any action taken against the partnership, let alone the existence of a substantial monetary judgment. The most glaring omission from appellant's certification is any statement that he informed any of the partners of the judgment. Nor is there any reference in the record before us indicating service of the February 7, 2005 default judgment on Associates as required by the Court Rules. See R. 4:43-2(c) (the proponent must serve an order for final judgment by default upon the defaulting defendant under Rule l:5-2 by ordinary mail within seven days of its entry).

The settlement of litigation "ranks high in our public policy." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990); see also Bor. of Haledon v. Bor. of N. Haledon, 358 N.J. Super. 289, 305 (App. Div. 2003). We have consistently noted that the settlement of lawsuits is favored not because of the salutary consequence of relieving "our overtaxed judicial and administrative calendars" but because of 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. In recognition of this principle, courts will strain to give effect to the terms of a settlement whenever possible. It follows that any action which would have the effect of vitiating the provisions of a particular settlement agreement and the concomitant effect of undermining public confidence in the settlement process in general, should not be countenanced. [Isetts v. Bor. of Roseland, 364 N.J. Super. 247, 254 (App. Div. 2003) (quoting Dep't of Pub. Advocate v. N.J. Bd. of Pub. Util., 206 N.J. Super. 523, 528 (App. Div. l985)).]

Under the circumstances of this case, it would be a miscarriage of justice to overturn a settlement entered into by three of the four parties in good faith and reward the party who negotiated in bad faith. Our conclusion is reinforced by the fact that appellant failed to disclose the existence of a default judgment against the partnership when settling an identical claim against the other general partners paid from partnership assets, failed to preserve his right to collect on that judgment from additional partnership assets, and received full satisfaction of all of his claims for management fees against the partnership pursuant to the settlement agreement.

We affirm the trial court's order enforcing defendants' settlement agreement and vacating appellant's writ of execution against the partnership assets. Although there was no formal motion filed by Associates, the trial court's ruling may have implicitly vacated the default judgment against the partnership as being merged into the partners' settlement agreement. However, in order to avoid any confusion and any future action taken by appellant seeking to enforce this judgment, for the reasons set forth in this opinion, we expressly vacate the default judgment against Associates pursuant to the following provisions of Rule 4:50-1: (c) fraud, misrepresentation, or other misconduct of an adverse party; (e) the judgment or order has been satisfied, released or discharged, or a prior judgment or order has been reversed or otherwise vacated, or it is no longer equitable that the judgment or order should have prospective application; and (f) any other reason justifying relief from the operation of the judgment or order.

Affirmed; default judgment sua sponte vacated.


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