April 22, 2008
WOODHAVEN LUMBER AND MILLWORK, INC., PLAINTIFF-APPELLANT,
KATHLEEN A. CASPER, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, L-4588-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted April 10, 2008
Before Judges S.L. Reisner and Baxter.
Plaintiff Woodhaven Lumber & Millwork appeals from a May 25, 2007 order entered by the Law Division denying plaintiff's motion for reconsideration of an earlier order entered April 16, 2007, granting only partial relief on plaintiff's motion to enforce a settlement. We reverse and remand for entry of an order enforcing the settlement in full.
These are the most pertinent facts. Plaintiff filed a complaint (the collection action) against defendant Kathleen A. Casper seeking to collect a book account in the amount of $35,266*fn1 plus interest, costs and counsel fees. The claim was based on a signed agreement in which defendant bought goods on credit. As part of the written "terms of credit", defendant agreed that if she did not pay any invoice within thirty days, plaintiff could charge eighteen percent interest on the unpaid invoice. She also agreed in writing that if plaintiff had to sue to collect the debt, she would pay costs plus a counsel fee of thirty percent of the unpaid debt.
Defendant, who was represented by counsel, filed an answer to the complaint. However, the parties eventually settled the case at mediation. The written settlement agreement provided that defendant would pay plaintiff a total of $38,465, "plus continuing interest at the contractual rate of 18%." That sum included $21,733 in principal, $8726 in interest, and $7710 in "contractual Attorney's Fees," as well as $254 in costs and statutory counsel fees of $40. However, plaintiff agreed to accept $32,000 in full settlement of the claim, provided that defendant adhered to a stated payment schedule. According to the settlement agreement, if defendant failed to make a payment when due, plaintiff had the right to enter judgment against her for "the entire amount" demanded in the complaint plus costs, interest, late fees and attorney's fees, minus credit "for any payments made prior to the default." Thus, although defendant agreed that she owed at least $38,465, including counsel fees, plaintiff was willing to forgo $6465 of that amount if defendant promptly paid the agreed-upon smaller sum of $32,000.
After defendant paid $13,000 of the settlement amount and then failed to make further payments, plaintiff filed a motion, on notice to defendant's counsel, to enforce the settlement agreement and collect the balance of the agreed-upon debt plus continuing interest of eighteen percent on the unpaid debt. At the time the motion was filed, defendant was $2000 in arrears in paying the first $15,000 of the settlement amount. However, because she defaulted, plaintiff was entitled to collect the balance of the entire $38,465 debt, plus interest.
Although the motion was unopposed, in an order dated April 16, 2007, the motion judge awarded only $9028, consisting of $8733 in principal, $254 in costs, and $40 in statutory counsel fees. A notation on the motion indicated that the court found the interest rate "unfair and unconscionable" and that contract attorneys' fees were denied. On notice to defendant's counsel, plaintiff filed a motion for reconsideration, which was also unopposed. In the motion, plaintiff's counsel certified that he and his staff had already spent more than thirty hours trying to collect the debt, that at his usual rate of $200 per hour this would already amount to $6000, and that he anticipated having to expend more time having to collect the judgment.
In an oral opinion placed on the record on May 25, 2007, the motion judge reaffirmed his earlier order. He reasoned that the default was based on defendant's failure to pay $2000 after paying $13,000 on the settlement. Based on that default, plaintiff was calling in the remainder of the principal but then [was] tacking on in accordance with the terms of credit, $12,185.34 in interest and contractual attorney's fees of $7,710.77, bringing the total claimed by counsel on the $8,733.92 debt to a total debt of $28,630.03. That was what the Court found to be unfair and unconscionable.
The court also did not find credible the claim that plaintiff's counsel had spent thirty hours trying to collect the debt.
On this appeal, which defendant has not opposed, plaintiff contends that the trial court abused its discretion in declining to enforce the settlement agreement. While we understand the trial court's reasoning and its undoubted concern for possible overreaching by creditors, we are constrained to agree with plaintiff in this case.
Our courts encourage litigants to settle cases and ordinarily will enforce those settlements.
A settlement agreement between parties to a lawsuit is a contract. Pascarella v. Bruck, 190 N.J. Super. 118, 124 (App. Div.), certif. denied, 94 N.J. 600 (1983). "Settlement of litigation ranks high in our public policy." Jannarone v. W.T. Co., 65 N.J. Super. 472 (App. Div.), certif. denied, 35 N.J. 61, 171 (1961). Consequently, our courts have refused to vacate final settlements absent compelling circumstances. In general, settlement agreements will be honored "absent a demonstration of 'fraud or other compelling circumstances.'" Pascarella, supra, 190 N.J. Super. at 125 (quoting Honeywell v. Bubb, 130 N.J. Super. 130, 136 (App. Div. 1974)). Before vacating a settlement agreement, our courts require "clear and convincing proof" that the agreement should be vacated. DeCaro v. DeCaro, 13 N.J. 36 (1953). [Nolan v. Lee Ho, 120 N.J. 465, 472 (1990).]
"Absent unusual circumstances, the courts should enforce executory agreements to settle litigation." Hagrish v. Olson, 254 N.J. Super. 133, 137 (App. Div. 1992).
Moreover, while parties to litigation normally bear their own counsel fees, a party can recover counsel fees pursuant to a contract. See Packard-Bamberger Co. v. Collier, 167 N.J. 427, 440 (2001). Such an agreement may provide for recovery of a counsel fee as a percentage of the debt to be recovered.
A contractual provision in a note requiring payment of counsel fees in the event of default "is not against public policy and is valid and enforceable." Under the HEAA's agreement with counsel, the attorney is to receive 30% of the amount he recovers on defaulted loans. Counsel must first obtain a judgment in favor of the HEAA. Then, he must undertake collection efforts in order to receive payment. Counsel's payment is dependent upon recovery and the HEAA is not billed on an hourly basis. It is thus inappropriate to view the reasonableness of the fee only up until the date of the judgment without any consideration of future collection problems. Under these circumstances, we find nothing unreasonable in the amount of attorneys' fees the HEAA requested. [New Jersey Higher Educ. Assist. Auth. v. Martin, 265 N.J. Super. 564, 568-69 (App. Div. 1993)(citations omitted).]
See also Alcoa Edgewater No. 1 Fed. Credit Union v. Carroll, 44 N.J. 442, 449-50 (1965). Further, a party may agree to pay interest on an overdue debt, and eighteen percent is not an unusual default interest rate. See North Bergen Rex Transport v. TLC, 158 N.J. 561, 575 (1999). In light of the foregoing legal discussion, we conclude that the trial court's decision was a mistaken exercise of discretion.
We also note that in denying interest and counsel fees, the trial court mistakenly focused on the credit agreement rather than the settlement agreement. Plaintiff's initial motion was based on the settlement agreement and not on the underlying credit agreement or the collection action. Defendant was represented by counsel in the collection action, in which she agreed to pay a stipulated amount in settlement in return for a significant reduction in her debt. In settling the case, she agreed to pay a lump sum of $32,000, on a stated payment schedule, and she agreed that if she did not make the payments timely, she would owe $38,465 plus interest. When she defaulted, plaintiff was entitled to enforce the settlement agreement as written, without having to defend the reasonableness of the components making up the $38,465 total. This was particularly the case where defendant was not opposing the enforcement motion and hence was not challenging the debt or any of its components.
Accordingly, we reverse the order denying reconsideration and remand for entry of an order for judgment enforcing the settlement agreement in full. On remand, plaintiff's counsel shall provide the court with a separate statement of the interest claimed and how it was calculated.