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Neff v. Coates

May 9, 2008

H. ALTON NEFF, SRV MARINE ENGINES, INC., AND 1107 NORTH WEST CENTRAL AVENUE, INC., PLAINTIFFS-APPELLANTS,
v.
GEORGE COATES A/K/A GEORGE J. COATES, COATES INTERNATIONAL, LTD., DEFENDANTS/THIRD-PARTY PLAINTIFFS-RESPONDENTS, AND WELL TO WIRE ENERGY, INC., DEFENDANT-RESPONDENT, AND COATES ENTERPRISES, LTD., COATES PRECISION ENGINEERING, LTD., COATES AUTOMOTIVE, LTD., COATES ENGINE MANUFACTURING, LTD., COATES TECHNOLOGIES, LTD., COATES TRUSTS, A TRUST DULY ORGANIZED PURSUANT TO THE LAWS OF THE STATE OF NEW JERSEY, BERNADETTE COATES, YVONNE MURPHY, SEAN MURPHY, MICHAEL PANABIANCO, DR. RICHARD EVANS, GREGORY M. COATES, PAUL V. SHERIDAN, GUS SUCKOW, PAUL CASAGRANDE, THOMAS TAYLOR, WILLIAM CAVANAUGH, HENRY R. CARTER, SHIGERU WAKABAYASHI, SHIRLEY NAIDEL, JOHN NICHOLSON, LAWRENCE J. SCHMERTZER, JOSEPH TOMASEK, DEFENDANTS,
v.
GARY SOMMER, THIRD-PARTY DEFENDANT-APPELLANT.



On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-977-04.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 8, 2008

Before Judges Skillman, Yannotti and LeWinn.

Plaintiffs H. Alton Neff (Neff), SRV Marine Engines, Inc. (SRV), and 1107 North West Central Avenue, Inc. (1107) appeal from an order entered on February 13, 2007, and thereafter amended, which dismissed their complaint and suppressed their answers and defenses to the counterclaim filed by defendants Coates International, Ltd. (CIL) and George J. Coates (Coates). Third-party defendant Gary Sommer appeals from the provisions of the February 13, 2007 order suppressing his answer and defenses to CIL's and Coates' third-party complaint. Neff, SRV, 1107 and Sommer also appeal from an order entered on April 30, 2007, which denied their motions for reconsideration. We affirm in part, reverse in part, and remand for further proceedings.

I.

This matter commenced on March 29, 2004, when Neff filed a pro se complaint against CIL, Coates, Well to Wire Energy, Inc. (Well to Wire), Joseph Tomacek (Tomacek), and numerous other defendants. The complaint later was amended to include SRV and 1107 as plaintiffs. The claims set forth in the complaint arose from contracts dated March 22, 2002, between 1107 and CIL, relating to the Coates Spherical Rotary Valve (CSRV) combustion engine that was invented by Coates and his family members.

According to the complaint, CIL agreed to sell and 1107 agreed to purchase, an exclusive license to market the CSRV technology to Ford Motor Company for use by Ford in the manufacture and sale of its automobiles throughout the world. CIL also agreed to sell, and 1107 agreed to purchase, an exclusive license to sell the CSRV technology for use in the manufacture of certain marine craft. 1107 agreed to pay CIL $25 million for each license. 1107 paid CIL a total of $500,000 as down payments on the licenses and transferred its rights in the agreements to SRV. SRV subsequently "assigned all of those rights" to Neff.

Because CIL allegedly failed to tender the final licenses and related escrow agreements, SRV demanded the return of the deposits, but CIL refused to return the money. Plaintiffs alleged, among other things, that 1107 entered the agreements, and others provided monies for the deposits made by 1107, in reliance upon certain false and misleading statements made by Coates and others concerning the CSRV technology and CIL's agreements related thereto.

Based on these allegations, plaintiffs asserted various causes of actions, specifically claims for consumer fraud in violation of the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -20; fraud and misrepresentation; negligent misrepresentation; negligence; breach of contract; breach of the implied covenant of good faith and fair dealing; and legal malpractice. Plaintiffs sought rescission of the agreements, compensatory damages, treble damages pursuant to the CFA, punitive damages, attorneys' fees, costs of suit, and "[s]uch other relief as may be just and proper."

On December 27, 2004, Coates, CIL, Tomacsek, and certain other defendants filed an answer in which they generally denied plaintiffs' allegations, and asserted cross-claims for indemnification against all of the other defendants. In addition, CIL and Coates asserted counterclaims against Neff, SRV and 1107, and third-party claims against Sommer for tortious interference with current and prospective business relationships, trade disparagement, and defamation.

The trial judge entered a case management order on March 10, 2005, which established a discovery end date of December 30, 2005. The order required the parties to serve additional interrogatories by March 30, 2005, plaintiffs to answer interrogatories and a demand for the production of documents by March 30, 2005, CIL to answer interrogatories by April 15, 2005, and the completion of depositions of the parties and fact witnesses by September 30, 2005.

Thereafter, Coates, CIL, Tomacek, and certain other defendants filed a motion for partial summary judgment. The trial judge entered an order on March 17, 2005, which granted in part, and denied in part, the relief sought. The order essentially provided that Neff could pursue his contractual claims against CIL and Coates, and 1107 could pursue certain tort claims against Well to Wire, CIL and Coates. Plaintiffs' legal malpractice claim against Tomacek was dismissed with prejudice.

Although the March 17, 2005 order dismissed certain claims asserted by SRV and 1107 without prejudice, and allowed SRV and 1107 to file an amended complaint with more specific allegations, it appears that they did not do so. Nevertheless, SRV remained in the case because it had been named in CIL's and Coates' counterclaim.

SRV and 1107 did not file an answer to the counterclaim, and Sommer did not answer the third-party complaint. Accordingly, default was entered against them. Thereafter, SRV, 1107 and Sommer moved to vacate the default, allow SRV and 1107 to file an answer to the counterclaim, allow Sommer to answer the third-party complaint, and permit Sommer to file a counterclaim against Coates and CIL. Apparently, the proposed answers and counterclaim were submitted to the court with the motion papers.

On February 15, 2006, the trial judge heard argument on the motion. The judge granted the motion to vacate the default. The judge allowed SRV and 1107 to file an answer to the counterclaim, and Sommer to answer the third-party complaint. However, the judge stated on the record that Sommer's counterclaim against Coates and CIL did not "add anything" and Sommer's motion for leave to file the counterclaim would be denied. Despite the judge's statement that Sommer would not be permitted to file his counterclaim, the court entered an order on February 27, 2006, which declared that the answer and the counterclaim had been filed.

By letter dated March 21, 2006, William J. Wolf, counsel for CIL and Coates, advised Angela White Dalton, who was counsel for plaintiffs and Sommer at the time, that the court's February 27, 2006 order erroneously stated that Sommer's counterclaim was filed. However, it appears that neither Ms. Dalton nor Mr. Wolf brought the matter to the court's attention or otherwise took any action to correct the error.

The judge entered another case management order on June 16, 2005, which established a new discovery schedule. The parties thereafter engaged in some discovery. The parties exchanged answers to interrogatories, and plaintiffs produced certain documents. In addition, Mr. Wolf endeavored to schedule depositions for Neff and Sommer; however, the depositions were not scheduled.

On February 16, 2006, the judge entered another case management order, which established a new discovery end date of September 30, 2006. The order required plaintiffs to serve additional discovery requests by February 24, 2006, and included a schedule for the depositions of Neff, Coates, Sommer and other fact witness. The order additionally provided that plaintiffs' expert could pick up at Coates's "establishment" a Ford Mustang with an engine, a "disassembled V-8 engine," and a V-6 engine "found in a Mercedes-Benz vehicle" for examination and testing. The order required plaintiffs to return the vehicles and engines immediately "upon completion of the testing." The order also required the parties to produce their expert reports by specified dates, and mandated the completion of the experts' depositions by August 31, 2006.

In response to this order, the parties engaged in additional discovery. Plaintiffs' expert picked up CIL's automobiles and engines for inspection; however, they were not returned to CIL as required by the order. Neff was deposed in March and April 2006 but his deposition was not completed.

Sommer and Coates were not deposed. Depositions were scheduled for certain third-party witnesses but the depositions were cancelled and not rescheduled. Plaintiffs did not produce their expert reports by April 15, 2006, and the experts' depositions were not completed within the time mandated by the court.

The judge entered an order on September 26, 2006, which required plaintiffs to produce certain documents and materials by October 4, 2006. The judge entered another order on September 26, 2006, which required plaintiffs to return the Ford Mustang to CIL by October 15, 2006. This order also provided that, in the event plaintiffs wanted to test the Mercedes-Benz, they were to advise defendants and the court by October 4, 2006 "whether or not [plaintiff's expert] is able to test the vehicle and what specific mechanical devices he needs to complete testing of the vehicle." Thereafter, plaintiffs did not inform the court or defendants that they wanted to conduct further tests of the Mercedes-Benz.

The judge entered an order on September 29, 2006, which required, among other things, that Neff be deposed by October 16, 2006 and Sommer be deposed by October 31, 2006. Plaintiffs were ordered to return the Mercedes-Benz to CIL within fifteen days. Plaintiffs also were ordered to furnish their expert reports by October 30, 2006. In addition, defendants were required to provide their expert reports by December 15, 2006, and the depositions of all experts were to be completed by January 15, 2007. The order designated February 15, 2007 as the new discovery end date.

On October 31, 2006, Coates and CL moved pursuant to Rule 4:23-2 to dismiss plaintiffs' complaint and suppress Sommer's answer and defenses to the third-party complaint with prejudice. In a certification submitted in support of the motion, Mr. Wolf stated that he had attempted to schedule depositions for Neff and Sommer on various dates in October 2006 but counsel for Neff and Sommer did not respond, and Neff and Sommer did not appear for their depositions. In addition, Mr. Wolf asserted that the court had ordered plaintiffs to produce certain documents by October 4, 2004, and plaintiffs had not done so. Mr. Wolf also stated that CIL's automobiles and engines had not been returned by October 15, 2006, as required by the court's order.

The judge heard argument on the motion on January 19, 2007, and filed a letter opinion dated January 22, 2007, in which he noted that Mr. Wolf's assertions were uncontroverted. The judge stated that plaintiffs and Sommer had not explained why they did not comply with the court's orders. The judge stated:

The Case Management Orders were specific in nature and were intended to accommodate the needs of both the [p]laintiff[s] and the [d]efendant. More importantly, the discovery Orders of February 16, 2006, September 26, 2006 and September 29, 2006 were prepared by the Court to emphasize to the attorneys the necessity of complying with discovery orders. A comparison of the February 16, 2006 Case Management Order and the September 26 and 29, 2006 Case Management Orders reflect that very little was accomplished ...


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