On appeal from Superior Court of New Jersey, Law Division, Monmouth County, L-2755-01.
The opinion of the court was delivered by: Payne, J. A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted November 28, 2007
Before Judges Axelrad, Payne and Messano.
In this appeal, we are called upon to determine whether attorneys' fees incurred in setting aside a judgment against a partnership on its note secured by a mortgage, improperly procured by the son of a partner through a corporation he had established to accept assignment of the note and mortgage, constitute recoverable compensatory damages that would serve as a foundation for a further claim of entitlement to punitive damages.
The facts of the matter are somewhat complex. Plaintiffs Frank DiMisa, Judy Morris, Beth Thomas-Edwards, and defendant Ronald Acquaviva were general partners in 61 East Main Street, a partnership formed in 1986 to take title to property at that address, located in Holmdel, New Jersey, for use in the operation of a real estate business. At the time of purchase, a loan in the amount of $350,000, secured by a mortgage and note, was obtained from United Jersey Bank. Thereafter, in violation of Article VIII(b)10 of the partnership agreement, precluding the transfer of a partnership interest to a non-partner, Ronald Acquaviva secretly transferred his partnership interest first to his daughter-in-law, Marsha Acquaviva, and then to his son, defendant Christopher Acquaviva. On November 27, 1998, Christopher, in turn, obtained an assignment of the note and mortgage by the Bank to defendant R.E. Investors Ltd. (REI) by payment of the discounted sum of $83,251.*fn1 However, the certificate of incorporation for REI, listing Christopher as its sole shareholder and officer, was not filed until January 6, 1999. Funds for the purchase of the note and mortgage assigned to REI were obtained from the estate of Christopher's grandfather with the consent of Christopher's father, Ronald, although it does not appear that either was a beneficiary under the grandfather's will, but only served as co-executors.
In 1998, plaintiffs contacted Summit Bank, successor in interest to United Jersey Bank, to obtain information regarding the payoff amount on the mortgage, and they learned at that time that the Bank no longer held the mortgage to the property. After acquiring the partnership checkbook from Ronald Acquaviva, its possessor, plaintiffs learned that mortgage payments were being made on the partnership's behalf to REI, which plaintiffs were led to believe was an independent corporation, only later learning of Christopher Acquaviva's interest in it through examination of corporate documents ordered from the New Jersey Secretary of State. Payments on the mortgage were made by the partnership to REI from December 1998 through January 2000.
By letter dated January 4, 1999, Christopher Acquaviva informed the partnership that he had been advised "by the holder of the mortgage on 61 East Main Street, that same matured on October 1, 1998 and is now due in full," Christopher further advised the partnership that the mortgage was in default, and although the mortgage holder had accepted payments for November and December 1999, payment in full of a principal balance of $143,131.25 plus interest from December 1, 1998 was now expected. A deadline of February 15, 2000 was set for payment.
In a letter addressed to plaintiffs and Christopher Acquaviva, dated March 20, 2000, counsel for REI informed the partners of a default in loan payments. An ex parte default judgment on the note in the amount of $154,535.95 was obtained on April 18, 2000 in foreclosure proceedings instituted by REI.
In a separate action, on May 2, 2000, plaintiffs filed an application for an order to show cause, supported by a verified complaint against defendants Ronald and Christopher Acquaviva and REI, claiming fraud, breach of fiduciary duty, breach of the partnership agreement, and conspiracy, and seeking an accounting as well as injunctive relief in the foreclosure action. On June 4, 2001, Judge Clarkson Fisher, Jr. granted plaintiff's motion for partial summary judgment, vacating the judgment of foreclosure, dismissing the foreclosure action and declaring the mortgage extinguished.*fn2 Remaining issues "concerning the monetary relief to which either the plaintiffs or defendants may be entitled" were transferred to the Law Division for resolution. In a September 26, 2001 opinion addressing motions for reconsideration by plaintiffs and by defendants Christopher Acquaviva and REI, Judge Fisher addressed plaintiffs' claim that the partnership should be dissolved, determining that the issue properly should be resolved by arbitration as required by Article XIII of the parties' partnership agreement. Additionally, in a January 25, 2002 order, Judge Fisher required plaintiffs to pay REI the sum of $40,852.19 plus interest at a rate of $9.40 per day, commencing on November 30, 2001, which sum represented the plaintiffs' pro rata share of the balance of the purchase price of the note and mortgage.
Arbitration then occurred before retired Appellate Division judge John Keefe. In a decision dated September 22, 2003, the arbitrator expelled Christopher Acquaviva from the partnership and dissolved it as originally constituted, as of November 27, 1998, awarded Christopher the value of his partnership interest as of that November date together with interest at the rate specified in Rule 4:42-11, and permitted the partnership to be reconstituted and continued in the same name with plaintiffs as partners. The arbitration award was confirmed by order of April 8, 2004, entered by Judge Quinn. When reaching his decision in the matter, Judge Quinn observed:
There remains therefore to be litigated the issues of both compensatory and punitive damages. I am satisfied first of all that based on Judge Keefe's arbitration ruling, that at least a prima facie case has been shown and demonstrated ...