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Lucas Development, LLC v. Lucas Brothers


June 9, 2008


On appeal from the Superior Court of New Jersey, Chancery Division, Monmouth County, Docket No. C-350-06.

Per curiam.


Argued May 7, 2008

Before Judges Wefing, Parker and Koblitz.

Defendant Lucas Brothers, Inc. (Lucas Brothers) appeals from an order entered on July 6, 2007 granting plaintiff's motion to enforce a settlement agreement set forth in the draft settlement agreement and release dated May 16, 2007. We reverse and remand.

Defendant Lucas Brothers is a construction company that was owned in equal shares by three brothers, Antonio, Joao and Luis Lucas. Plaintiff Lucas Development, LLC (Lucas Development) is a real estate holding company that was also owned by the three brothers.

In April 2006, the brothers decided to restructure the corporate entities. At the time, defendant was engaged in public bid pavement work. Plaintiff had substantial real estate holdings and was involved in various development projects. In April 2006, the brothers entered into a Stock Purchase and Sale Agreement (Agreement) in which Antonio agreed to pay $1,500,000 and give three parcels of real estate to Joao and Luis, who would then own defendant Lucas Brothers. Antonio was to receive full ownership of plaintiff Lucas Development and fourteen parcels of real estate. The real estate was all located in Marlboro Township.

During negotiations, all parties recognized that plaintiff intended to construct a commercial building on its property, and the sewer system servicing the building on plaintiff's property would have to be connected to a sewage pump station and sewer line located on defendant's property. Accordingly, the Agreement required defendant to record an easement granting plaintiff "complete access to [the existing] sewerage pump station for the purpose of connecting to and using [the existing] sewer line."

In December 2005, prior to entering the Agreement, plaintiff sought approval from the Marlboro Township Planning Board (Board) for construction of the commercial building, associated parking and site amenities. In approving plaintiff's plans, the Board noted "that the [proposed] concrete curb extends well onto [defendant's property], which is not part of this application. According to the property owner list[,] both parcels are currently owned by the same entity, however an access shall be provided."

On June 16, 2006, at the closing of the Agreement, defendant executed in favor of plaintiff a sewer easement (Sewer Easement), the purpose of which was "to provide access for maintenance to the existing 2 inch sanitary sewer line and use of the existing sewer line [located on defendant's property]."

Subsequently, a dispute over the permitted use of defendant's property arose, prompting plaintiff to file a Verified Complaint against defendant on November 3, 2006, seeking to enforce certain rights that it claimed existed under the Sewer Easement. Plaintiff alleged that defendant violated the Sewer Easement by denying plaintiff access to defendant's property to connect the new building on plaintiff's property to the pump station and sewer line located on defendant's property. Along with the complaint, plaintiff submitted an application for an order to show cause seeking a preliminary injunction directing defendant to provide access to the pump station and sanitary sewer line on its property.

On November 6, 2006, the trial court directed defendant to show cause why a preliminary injunction should not be granted. On November 20, 2006, defendant answered, denying plaintiff's allegations, and counterclaimed for alleged breach of the Sewer Easement by using the property for an unauthorized purpose and by constructing improvements on the property which were not permitted. Defendant further alleged that plaintiff owed it money for certain post-closing adjustments and sought an order preventing plaintiff from using the Sewer Easement for any purpose other than to access the sewer line and requiring plaintiff to remove all improvements, including the curbing that it had installed.

On December 1, 2006, the trial court entered two orders: one directed defendant to grant plaintiff access to that portion of defendant's property subject to the Sewer Easement to allow plaintiff to connect its building to the pump station and sewer line on defendant's property; the other prohibited plaintiff from using defendant's property subject to the Sewer Easement for any reason other than to install, connect or maintain the sewer line. Defendant's application for relief concerning the improvements was adjourned to February 2, 2007.

Meanwhile, in an effort to resolve their dispute, the parties engaged in settlement discussions concerning the various issues. During the course of those negotiations, the parties agreed to arbitrate the monetary issues related to the post-closing adjustments. The parties further agreed that defendant's application for relief would be adjourned until March 2, 2007 allowing them additional time for settlement discussions.

In a letter dated February 23, 2007, defendant's attorney indicated that defendant "has no objection to the curbing remaining in place, based on [plaintiff's] representation that the [Township] required the curbing to control soil erosion." The letter stated that defendant's "major issue" concerned a pump station plaintiff built on defendant's property which defendant objected to, claiming it was impermissible under the Sewer Easement.

After further settlement negotiations, in a letter to plaintiff's attorney dated March 2, 2007, defendant's attorney confirmed that the "hearing was cancelled because the parties had reached an agreement." The parties agreed that plaintiff would "honor[] the requests made" in defendant's letter of February 23, 2007 regarding the "easement area issues." Accordingly, plaintiff's attorney drafted a Settlement Agreement and Release stating, in part, that the parties agreed "[p]laintiff shall not be required to remove the curbing installed in the Easement[] at Marlboro Township's request."

On April 27, 2007, in a letter to plaintiff's attorney, defendant's attorney responded to the draft agreement indicating that there were a "few minor issues to be addressed." Two of the three issues involved a reference to two easements instead of one and a concern regarding breakaway fencing. The third "minor issue" involved the curbing:

[Defendant] has found that the curbing, which for some reason was constructed approximately 15 feet into the easement area rather than at your client's property line, makes it difficult for trucks and other large vehicles to navigate the turn from [the street] into the easement area. [Defendant] wants the curbing moved back toward your client's property line for about the first 30 feet, so that a turn can be navigated without disturbing the curbing. [Defendant] can not subject itself to claims of damage to the curbing or grass.

I appreciate the fact that [defendant] did not previously state that the curbing was an issue. However, and as reflected in my February 23, 2007 letter, [defendant's] acceptance of the curbing was based upon [plaintiff's] representation that the curbing as constructed was required by the local officials. [Defendant] believes this is not the case, and that the curbing could have and should have been installed closer to your client's property line.

In response, plaintiff's attorney sent a letter dated May 16, 2007 accusing defendant of "reneg[ing] on the deal by seeking to change a key component . . . namely, keeping the existing curbing in place." Plaintiff informed defendant that it would not accept that change. "In one last effort" to execute the settlement agreement, however, plaintiff's attorney revised the draft to include the two other proposed changes. The revised settlement agreement did not incorporate the change with respect to the existing curbing.

In a letter dated May 22, 2007, defendant's attorney disputed that the parties ever agreed the curbing could remain in place. Rather, defendant's attorney advised plaintiff that defendant had not objected to the curbing based on plaintiff's representation that the Township required it to control soil erosion. Defendant's attorney wanted plaintiff to provide documentation from the municipality to support this representation.

On June 5, 2007, plaintiff filed a motion to clarify and enforce the settlement agreement in an effort to compel defendant to abide by its terms. In support of its motion, plaintiff submitted a certification by its attorney who stated that, to his knowledge, the representation that the curbing was required by the Township engineer was correct.

On June 20, 2007, defendant filed its opposition, including a certification by its Chief Operating Officer, Robert Lucas, attesting that he "made the decision that the curbing could remain in place based on this representation," even though he questioned why plaintiff "had constructed the curbing well into the easement area."

In reply, plaintiff filed a certification by its principal, Antonio Lucas, attaching a letter dated June 11, 2007, from the Assistant Township Engineer concerning the curbing. (Engineer's Letter). The Engineer's Letter confirmed that the curbing which was installed along the south side of the driveway adjacent to [plaintiff's property], which leads to [defendant's property], rear of [plaintiff's property,] had been discussed at a field meeting at the time of onsite curb installation in August-September 2006. The curb was agreed to as a way to improve the stabilization of the grass slope along the south side of [plaintiff's property].

On July 6, 2007, after hearing the parties' arguments, the trial court granted plaintiff's motion and entered an order enforcing the Settlement Agreement and ordering the parties to binding arbitration on the the issues the parties had agreed to arbitrate.

The tape recording of the motion argument before the trial court was "inadvertently destroyed," thus, a transcript could not be made. Upon a joint application of the parties, we permitted the use of an agreed upon summary of the motion argument. The summary stated the following:

On July 6, 2007, the parties appeared for argument on [plaintiff's] motion to enforce the settlement.

[The trial court] started by giving a factual history of what had taken place up to the motion hearing date. [The trial court] then noted that the parties' Settlement Agreement included an agreement to allow the existing curbing to remain in place based upon representation that the municipality required that the curbing be installed.

In response, [plaintiff's counsel] pointed . . . to the June 11, 2007 letter attached to Antonio Lucas' Reply Certification. This letter had been recently written by the Marlboro Township Engineer and, as argued by [plaintiff's counsel], established that Marlboro Township required that the curbing be installed.

After reading the letter into the record, [the trial court] asked for [defendant's] position. [Defendant's counsel] argued that the letter did not prove that Marlboro Township had required the curbing where it was actually installed, but that the letter did no more than establish that Antonio Lucas and the Township Engineer had discussed installing the curbing at that location.

[The trial court] ruled that the letter proved that Marlboro Township had required the curbing be installed. He therefore found that [plaintiff's] representation was true and that the settlement was enforceable.

Defendant appealed and argues that "the trial court erred in concluding that the letter constituted proof that the curbing was mandated by the municipality and that there had been no misrepresentation by [plaintiff]."

Defendant contends that "there was no enforceable settlement on the curbing issue because its consent to the curbing remaining in place was based upon [plaintiff's] misrepresentation" that the Township mandated the curbing be built at its installed location. Defendant maintains the Engineer's Letter "did not support the representation" and "was sufficiently vague that the trial court should have ordered further discovery." Moreover, defendant argues that the trial court's ruling is not entitled to deference because it was not based upon witness testimony.

"[S]tate courts are invested with general jurisdiction that provides expansive authority to resolve myriad controversies brought before them." Thompson v. City of Atlantic City, 190 N.J. 359, 378-79 (2007). "'[A] settlement between parties to a lawsuit is a contract like any other contract, which may be freely entered into and which a court, absent a demonstration of fraud or other compelling circumstances, should honor and enforce as it does other contracts.'" Impink ex rel. Baldi v. Reynes, 396 N.J. Super. 553, 559-60 (App. Div. 2007) (quoting Jennings v. Reed, 381 N.J. Super. 217, 227 (App. Div. 2005)); accord Nolan ex rel. Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). "'[A]n agreement to settle a lawsuit, voluntarily entered into, is binding upon the parties, whether or not made in the presence of the court and even in the absence of a writing.'" Pascarella v. Bruck, 190 N.J. Super. 118, 124 (App. Div.), certif. denied, 94 N.J. 600 (1983) (quoting Green v. John H. Lewis & Co., 436 F.2d 389, 390 (3rd Cir. 1971)); see also, Lahue v. Pio Costa, 263 N.J. Super. 575, 596 (App. Div. 1993) (holding that "[w]here the parties agree upon the essential terms of a settlement, so that the mechanics can be 'fleshed out' in a writing to be thereafter executed, the settlement will be enforced notwithstanding the fact the writing does not materialize because a party later reneges.").

Moreover, New Jersey has a strong public policy favoring settlement of litigation between the parties. Nolan, supra, 120 N.J. at 472; accord Jannarone v. W.T. Co., 65 N.J. Super. 472, 476 (App. Div.), certif. denied, 35 N.J. 61 (1961). Thus, "[o]ur courts have refused to vacate final settlements absent compelling circumstances." Ibid. Generally, "settlement agreements will be honored 'absent a demonstration of fraud or other compelling circumstances.'" Ibid. (quoting Pascarella, supra, 190 N.J. Super. at 125). There must be "clear and convincing proof" to vacate a settlement agreement. Ibid.

"[W]hen a settlement is obtained by fraud, the injured party may seek rescission," based upon either legal or equitable fraud. Nolan, supra, 120 N.J. at 472; accord Jewish Center of Sussex Cty. v. Whale, 86 N.J. 619, 624 (1981). "[L]egal fraud consists of a material representation of a presently existing or past fact, made with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance by that party to his detriment." Jewish Center, supra, 86 N.J. at 624. Equitable fraud consists of "(1) a material misrepresentation of a presently existing or past fact; (2) the maker's intent that the other party rely on it; and (3) detrimental reliance by the other party." Liebling v. Garden State Indem., 337 N.J. Super. 447, 453 (App. Div.), certif. denied, 169 N.J. 606 (2001) (citing Jewish Center, supra, 86 N.J. at 624). Unlike legal fraud, "a party seeking rescission based on equitable fraud need not prove 'knowledge of the falsity and an intention to obtain an undue advantage therefrom.'" Ibid. (quoting Jewish Center, 86 N.J. at 624-25). The party claiming equitable fraud, however, must prove the required elements by clear and convincing evidence. Stochastic Decisions, Inc. v. DiDomenico, 236 N.J. Super. 388, 395 (App. Div. 1989), certif. denied, 121 N.J. 607 (1990).

Here, because defendant is not seeking damages, it need only establish equitable fraud, not legal fraud. See Nolan, supra, 120 N.J. at 472. Defendant argues that there is no enforceable settlement as to the curbing because its consent was based upon plaintiff's misrepresentation that "the Town[ship] required the curbing to control soil erosion." Defendant contends that "[a]bsent testimony from the Engineer himself, the trial court should not have accepted the self-serving interpretation of the letter offered by [plaintiff], especially since nothing in the letter supported the specific representation made to induce [defendant] to allow the curbing to remain in place." We agree.

The Engineer's Letter is ambiguous and does not expressly state that the curbing was required in the exact place plaintiff located it, fifteen feet into the Sewer Easement. The Engineer's Letter indicates that the curbing was "agreed to as a way to improve the stabilization of the grass slope along the south side of [plaintiff's property]." The Letter did not, however, indicate whether the placement or grade of the slope could be altered to avoid constructing the curb so far into the Sewer Easement. Nor, does the Letter state that the curbing was necessary. Indeed, we find that the Letter is sufficiently ambiguous as to undermine the trial court's enforcement of the settlement agreement in the absence of an evidentiary hearing.

Accordingly, we reverse and remand for an evidentiary hearing on the questions of (1) whether the curbing is necessary at the exact place it was constructed, fifteen feet into the Sewer Easement; and (2) whether the slope can be altered to the extent that the curbing can be placed closer to the Sewer Easement boundary, thereby giving defendant full use of its Sewer Easement. After hearing the testimony, the trial court shall determine whether the settlement agreement must be enforced as drafted or amended to adjust the Sewer Easement.

Reversed and remanded. We do not retain jurisdiction.


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