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SWH Funding Corp. v. Walden Printing Co.

March 17, 2008


On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-7215-03.

The opinion of the court was delivered by: Fuentes, J.A.D.



Argued October 10, 2007

Before Judges Coburn, Fuentes and Chambers.

Defendants Walden Printing Company, Walden Merchants, Merchants Associates, Merchants Building, and Daniel Churchill appeal from the order of the Law Division denying their motion to vacate a monetary judgment entered against them. The matter originally came before the court on plaintiff SWH Funding Corporation's ("SWH") complaint seeking damages in a breach of contract case.*fn1 After reviewing the record, and in light of prevailing legal standards, we affirm the order denying the motion to vacate; reverse the order fixing the amount of damages; and remand for the court to enter judgment in the amount reflected in the original arbitration award.

Defendants filed a responsive pleading denying liability and asserting failure to state a cause of action and lack of subject matter jurisdiction as affirmative defenses. The matter was thereafter scheduled for court-ordered arbitration on September 14, 2004. Defendants obtained an adjournment of the September arbitration, and the hearing was rescheduled for November 16, 2004.

On November 15, 2004, defense counsel sought to adjourn the arbitration a second time. After obtaining plaintiff's counsel's oral consent to the adjournment, defense counsel telephoned the Bergen County Arbitration Administrator to request the adjournment. The Administrator denied the adjournment request on November 15, 2004.

Arbitration proceeded on November 16, 2004. Defense counsel did not appear, nor did any individual representing defendants' business interests. After confirming that the arbitration was going forward, plaintiff's counsel appeared and presented the case on behalf of his client. The arbitrator entered an award for plaintiff and against defendants in the amount of $326,534.37.

On December 15, 2004, plaintiff filed a motion to confirm the arbitration award. Defendants opposed the motion and the parties had oral argument before the Law Division on February 4, 2005.*fn2 On February 15, 2005, the motion judge entered an order:

(1) requiring defendants to post a surety bond in the amount of $200,000; (2) stating that failure to post the bond would result in an immediate judgment confirming the November 16 arbitration award; and, (3) restraining defendants from transferring or encumbering any asset pending a further order by the court. Defendants failed to post the bond. On March 10, 2005, the Law Division entered a default judgment against defendants in the amount of $343,746.76.*fn3

The court denied defendants' motion for reconsideration, and ordered a plenary hearing on damages to modify the amount of the award. Pursuant to evidence presented by plaintiff at the plenary hearing, the court entered an order increasing the amount of the original arbitration award to $416,508.54.

The Underlying Factual Contentions

Before addressing the legal issues raised by defendants, we will briefly describe the salient facts. Plaintiff SWH Funding Corporation held a mortgage over property owned by Straight Course, LLC, located in Poughkeepsie, New York. Defendants Merchants Building, LLC, leased the premises from Straight Course. Defendant Merchants Associates, Inc. was the operating entity at the premises. Plaintiff alleges that defendants Walden Printing Company and Walden Merchants are successors in interest to Merchants Building and Merchants Associates. Defendant Daniel Churchill is an owner of Merchants Building and Merchants Associates.

During the summer of 2001, plaintiff sought to foreclose on Straight Course's mortgage on the premises. In light of defendants' desire to remain on the premises, the parties entered a settlement agreement on August 1, 2001, whereby plaintiff agreed not to foreclose on the premises during two forbearance periods. During these forbearance periods, defendants would pay rent and real estate taxes on the premises and could either perform due diligence to acquire the premises or enter into a long-term lease for the premises. The first forbearance period ended February 28, 2002. The second forbearance period ended May 31, 2002.

As part of the settlement agreement, defendant Daniel Churchill signed a personal guaranty. By the terms of the guaranty, Churchill assumed personal liability for any and all obligations of the corporate defendants arising under the settlement agreement.

According to plaintiff, defendants remained in possession of the premises until on or about August 2003, and failed to make the required monthly rental payments for the premises for the months of March, April, May, June, July, and August 2003. Plaintiff also alleges that defendants failed to make certain required payments in real estate taxes and assessments.

The Arbitration

In the days immediately preceding the November 16, 2004, arbitration hearing, defense counsel of record asserts that he developed a "flu-like illness." The day before the hearing, at defense counsel's request, plaintiff's counsel agreed to adjourn the arbitration. Immediately thereafter, defense counsel instructed his legal assistant to call the Bergen County Arbitration Administrator to make a formal request for the adjournment. Defense counsel and his assistant both left the office before receiving the Administrator's response to the request for adjournment.

Later that same day, the Administrator left defense counsel a voicemail message denying the adjournment request, and advising counsel that the arbitration would proceed the following day at 11:00 a.m. as scheduled. Mistakenly assuming that the arbitration had been adjourned, defense counsel did not report to work on November 16, 2004, nor did he make any arrangements to have another attorney in his firm appear on his behalf.

On November 16, 2004, the defense counsel's assistant retrieved the Administrator's voicemail message denying the request. At approximately 9:30 a.m., by telephone call, the assistant informed the Administrator that defense counsel could not appear at the arbitration, but that the law firm could send another attorney in his stead. The assistant advised the Administrator, however, that given the time and distance, substitute counsel would probably not make it to the arbitration until early afternoon. According to the assistant, the Administrator told her that the arbitration would not be delayed and would proceed at 11:00 a.m. as scheduled.

The record does not indicate what steps, if any, defense counsel's firm took either to renew its request for an adjournment, or to dispatch a substitute attorney as soon as possible. According to the assistant, however, she did inform plaintiff's counsel that no one from the defense firm would be able to appear at the arbitration.

In her certification in support of the motion to vacate the default, the assistant indicated that plaintiff's counsel told her that he would not pursue an arbitration award by default, and would allow defense counsel to restore his responsive pleading by stipulation. In his certification opposing the motion, plaintiff's counsel denied having made any such representation. Indeed, ...

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