August 8, 2008
MAKSIN MANAGEMENT CORPORATION, PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
ROY A. RAPP, INC., A NEW JERSEY CORPORATION, AND ROY A. RAPP, DEFENDANTS-RESPONDENTS/CROSS-APPELLANTS, AND
LINDA GATCHEL, D/B/A QUALITY SERVICE ADMINISTRATORS, DIANE HETTINGER, POWER PURCHASING, INC., JOSEPH CARDONA, AND WILLIAM LAURIE, D/B/A INSURANCE CAPITAL SERVICES, DEFENDANTS-RESPONDENTS.
On appeal from Superior Court of New Jersey, Law Division, Camden County, L-4633-03.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued April 9, 2008
Before Judges Cuff, Lisa and Simonelli.
Plaintiff Maskin Management Corporation filed a complaint against its former employee, defendant Linda Gatchel (Gathcel), and her company, for breach of the duty of loyalty and the covenant of good faith and fair dealing; for tortious interference with plaintiff's contractual relationship with plaintiff's major client, defendant Power Purchasing, Inc. (PPI); and for misappropriation of trade secrets. Plaintiff also sought damages from defendant Roy A. Rapp (Rapp) and his company, defendant Roy A. Rapp, Inc. (RRI), for breach of an asset purchase agreement, for tortious interference with plaintiff's contractual relationship with PPI, and for fraud; from defendant Diane Hettinger (Hettinger) for tortious interference with plaintiff's contractual relationship with PPI, and fraud; from defendant Joseph Cardona for tortious interference with plaintiff's contractual relationship with PPI;*fn1 and from defendant William Laurie (Laurie) for tortious interference with plaintiff's contractual relationship with PPI, misappropriation of trade secrets, and unfair competition.
Rapp and RRI filed a counterclaim for breach of contract, anticipatory breach of contract, quantum meruit, declaratory judgment and breach of implied covenant of good faith and fair dealing.
Plaintiff appeals from the following orders:
1. August 19, 2005, granting summary judgment to Hettinger and PPI, dismissing plaintiff's second amended complaint with prejudice;
2. August 19, 2005, denying plaintiff's cross-motion for partial summary judgment against Hettinger for liability for Gatchel's torts and fraud; and partial summary judgment against PPI for liability for Gatchel's torts and breach of the covenant of good faith and fair dealing and fraud;
3. September 23, 2005, denying plaintiff's motion for reconsideration of the orders of August 19, 2005, denying plaintiff's motion to amend the complaint to assert a conspiracy claim against Hettinger and PPI, and denying plaintiff's cross-motion for summary judgment against PPI for liability for Gatchel's torts and breach of covenant of good faith and fair dealing and fraud;
4. September 23, 2005, granting Gatchel's and Laurie's cross-motion for summary judgment;
5. September 23, 2005, denying plaintiff's motion for partial summary judgment against Gatchel;
6. June 9, 2006, denying plaintiff's motion for reconsideration of the orders of September 23, 2005 granting summary judgment to Hettinger, PPI, Gatchel and Laurie; and
7. October 20, 2006, granting summary judgment to Rapp and RRI.
Rapp cross-appeals from that portion of the October 21, 2005 order denying his motion to amend the counterclaim to include a punitive damages claim; and from the order of October 20, 2005,*fn2 granting plaintiff partial summary judgment on Rapp's breach of contract and breach of the implied covenant of good faith and fair dealing claims.*fn3
We reverse the grant of summary judgment to Gatchel, Rapp, RRI and Laurie. We affirm in all other respects.
The following facts are summarized from the record. Plaintiff was engaged in the business of insurance policies and claims relating to students in kindergarten through high school and to sports organizations and colleges. Thomas F. Smith was plaintiff's president and chief executive officer.
RRI, owned by Rapp, was engaged in the business of providing third-party administrator (TPA) services to corporate accounts, including medical and disability claims administration, prescription drug card administration, and the placement of stop-loss insurance. RRI received commissions for its services.
In or about October 2001, PPI retained RRI to provide third-party administration of its occupational accident claims. Hettinger was PPI's president at the time, and entered into two rate agreements (the PPI agreements) with RRI, pertaining to two separate groups of employees to whom PPI provided services. Both agreements were renewed on October 1, 2002; however, one agreement terminated July 31, 2003, and the other terminated September 20, 2003. Neither of the agreements required PPI to do business with RRI for the full duration of their terms. Rather, they merely itemized "the full Professional Services between [PPI] . . . and [RRI]" for the relevant time periods and with respect to the relevant employee groups. The PPI agreements did not contain a guarantee of renewal or any restriction on PPI's early termination. Essentially, the PPI agreements did not require PPI to use RRI exclusively and that, if PPI chose to do business with RRI, the rates would be as stated in the agreements.
In approximately the fall of 2002, Michael Sweeney, who had expertise in TPA services, and Smith began negotiating with Rapp to purchase RRI. During the negotiations, Rapp gave plaintiff all of RRI's agreements with its existing clients, including the PPI agreements. Sweeney, who was responsible for plaintiff's "due diligence" during the negotiations, was to calculate how much of RRI's business was guaranteed and for what length of time. Without reading the PPI agreements, Sweeney allegedly relied on statements Rapp made in determining that PPI was an extremely profitable part of RRI's business. Sweeney also determined that the PPI agreements were twelve-month agreements with "no out" on PPI's part.
On December 9, 2002, plaintiff and RRI entered into an asset purchase agreement (the purchase agreement), where RRI sold to plaintiff its accounts receivable as of December 1, 2002;*fn4 its plant, equipment and furniture; its name and proprietary information; its business and customer lists; and its good will. RRI represented that it had "no knowledge or basis for knowledge that any customer or group of related customers has terminated or expects to terminate a material portion of its normal business" with RRI.
The purchase agreement contained a non-competition clause, which prevented Rapp and RRI from competing with plaintiff from the closing date until November 30, 2006. The purchase agreement also conatined a provision that Rapp would be paid for any work he performed for plaintiff's benefit after the closing date at the per diem rate of $600, or the hourly rate of $75. Rapp claimed that plaintiff agreed to give him an employment contract, which would permit him to sell and place business with plaintiff for a fee. Sweeney disputed this and claimed that plaintiff agreed to enter into a contract for any new business Rapp generated on a case-by-case basis. Sweeney also claimed that Rapp never asked for a contract, and never brought a new client to plaintiff.
The parties also agreed that, other than as specified in the purchase agreement, plaintiff had no obligation to any of RRI's employees, except Gatchel. At the time of the sale, Gatchel was a claims manager for RRI. She had expertise in the area of claims and was responsible for managing and processing claims primarily, if not exclusively, for PPI. She also was PPI's exclusive contact. With respect to Gatchel, the purchase agreement contained the following provision:
[Plaintiff] agrees to enter into an employment agreement with [Gatchel] wherein [Gatchel] will be employed for a term of four (4) years at a rate of One Hundred Thousand Dollars ($100,000.00) per year[.] (Should [PPI] terminate its agreement with [plaintiff] [Gatchel's] compensation will be reasonably adjusted by [plaintiff])[.] A formal employment agreement shall be entered within one week from the date of closing upon terms and conditions to be agreed upon by the parties but not to conflict with [plaintiff's] standard employment contract.
The purchase agreement also provided that Gatchel would be responsible for processing the accounts for which plaintiff owed Rapp money.
Gatchel never signed an employment agreement with plaintiff. She eventually became dissatisfied working for plaintiff, and was especially unhappy with the way plaintiff serviced PPI. Gatchel told Hettinger about her dissatisfaction and that she was unhappy with her employment circumstances. In approximately the beginning of April 2003, Gatchel told Hettinger she was thinking about leaving plaintiff. Hettinger responded that PPI would also leave because no one else at plaintiff could handle PPI's work, and because without Gatchel, plaintiff could not offer the services PPI needed. Sometime thereafter, Gatchel asked Hettinger if Gatchel could have PPI's business if she left plaintiff and started her own company.
Gatchel also expressed her dissatisfaction to Laurie,*fn5 and said she was thinking of going into business for herself. Laurie offered to help Gatchel financially because he thought it would be a good business venture. During the month of April 2003, Gatchel was in frequent phone contact with Laurie.*fn6 On April 11, 2003, Laurie created Insurance Capital Services, an entity through which he funded Gatchel's new business. Laurie gave Gatchel $79,000 for her start-up expenses.
Although Gatchel and Rapp spoke frequently by phone after the sale, Rapp claimed to have no knowledge that Gatchel was starting her own business and would take PPI from plaintiff. He said that their conversations concerned monies plaintiff owed him. Rapp's phone records also indicated calls to Laurie during the relevant time period. Rapp claimed these calls concerned his request for Laurie's help in obtaining homeowner's insurance for a home Rapp purchased in Florida.
Pursuant to an agreement between Gatchel and Laurie, signed between April 11 and May 1, 2003, Laurie agreed to provide start-up money for Gatchel's business, and Gatchel agreed to pay Laurie whatever she earned in excess of her operating expenses until the initial funding was repaid and sufficient funds were advanced to cover reserves for guaranteed contracts.
Laurie claimed he never heard of PPI until after May 2003, and that Gatchel never talked about taking PPI from plaintiff. Laurie assumed that Gatchel would get business by going "to a number of TPA's and see if they wanted to divest themselves of their claims operations which were becoming expensive due to a governmental changes (sic) in HIPPA and a number of things that we would be able to absorb."
Sometime prior to April 15, 2003, Hettinger, on PPI's behalf, signed a rate agreement with Gatchel, providing for payment of a monthly rate per employee for the period March 29, 2003, through March 29, 2006, with service to begin on May 1, 2003. As with the PPI agreements, this agreement merely said that if PPI chose to do business with Gatchel, these would be the rates. It did not mean that PPI would use Gatchel exclusively.
On April 15, 2003, Hettinger notified plaintiff that PPI was canceling its services with plaintiff as of May 1, 2003.
Hettinger falsely represented that this decision was "a result of an executive decision to consolidate all administration through the corporate office[.]" She admitted making this false representation "to protect [Gatchel's] abilities to do what she needed to do for the next couple of weeks to clear out her business at [plaintiff] without my compromising it."
Gatchel admitted that, during April 2003, in preparation for starting her own company, she called the phone company and a software company; researched the price of computers and licenses she needed; purchased computers, desks, and a fax machine; and purchased a business owner's liability insurance policy in her name d/b/a Quality Services Administrators (QSA), workers' compensation insurance, professional liability insurance, and a crime shield bond. On April 15, 2003, she entered into a lease for office space; on April 17, 2003, she entered into a software licensing and service agreement with the same company used by plaintiff. As a result, after the transfer of PPI's business to Gatchel's new company, all that was needed was a letter from Hettinger to the software vendor authorizing the removal of PPI's data from plaintiff.
Plaintiff sought a meeting with Hettinger in an attempt to save its relationship with PPI. Prior to the meeting, Gatchel advised Hettinger that Smith was going to try to convince PPI to stay with plaintiff by lowering PPI's rates, and that plaintiff would not release PPI's files willingly. Gatchel also advised Hettinger that Hettinger "must play the game" at the meeting, and that Hettinger should "think about how you are going to handle this."
Plaintiff and Hettinger met on April 28, 2003. Two days later, Hettinger notified plaintiff that PPI's files would be picked up on May 1, 2003, and brought to PPI's office. Hettinger requested Gatchel's assistance in assuring a smooth transition. The files were picked up, but they were delivered to Gatchel's new office.
Gatchel's last day of work for plaintiff was May 1, 2003. She began working in her new office on May 2, 2003. QSA began providing services for PPI in mid-May 2003, and was paid for those services retroactively to May 1, 2003.*fn7 Plaintiff eventually discovered what Gatchel had done and filed a complaint shortly thereafter. As to PPI, plaintiff claimed it owed plaintiff money as part of the "contract buy-out" based on plaintiff's belief that PPI was obligated to do business with plaintiff until after the termination date of the PPI agreements.
We first address the grant of summary judgment to Gatchel. In granting summary judgment, the motion judge distinguished Lamorte Burns & Co. v. Walters, 167 N.J. 285, 303 (2001), from the facts in this case, and concluded that Gatchel's conduct did not rise anywhere near the level of the defendants' conduct in Lamorte and, therefore, she did not breach her duty of loyalty. Specifically, the judge found that, unlike the defendants in Lamorte, Gatchel never signed a non-compete agreement; she never took any clients other than PPI, with whom she exclusively worked; she did not solicit information; she did not steal confidential information; and Hettinger would not have stayed with plaintiff if Gatchel left.
We use the same standard as the trial court when deciding a summary judgment motion. Jolley v. Marquess, 393 N.J. Super. 255, 267 (App. Div. 2007) (citing Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998)). Summary judgment must be granted if "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment as a matter of law." R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 528-29 (1995). "Genuine" issue of fact means "only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." R. 4:46-2(c). If there is no genuine issue of fact, we must then decide whether the lower court's ruling on the law was correct. Prudential, supra, 307 N.J. Super. at 167. Applying this standard, we conclude that the motion judge mistakenly granted summary judgment to Gatchel.
While still employed, an employee may anticipate future employment and may make arrangements for new employment with a competitor or by establishing a new competing business. Lamorte, supra, 167 N.J. at 303 (quoting Auxton Computer Enters., Inc. v. Parker, 174 N.J. Super. 418, 423 (App. Div. 1980)). However, an employee not bound by a restrictive covenant is not free until after termination of employment, to compete honestly with his or her former employer, even to the extent of soliciting the former employer's customers with whom the employee became acquainted during the course of employment. Auxton, supra, 174 N.J. Super. at 423; Lamorte, supra, 167 N.J. at 303; United Bd. & Carton Corp. v. Britting, 63 N.J. Super. 517, 523 (Ch. Div. 1959), modified o.g., 61 N.J. Super. 340 (App. Div.), certif. denied, 33 N.J. 326 (1960). An "employee may not breach the undivided duty of loyalty he or she owes to his or her employer while still employed by soliciting the employer's customers or engaging in other acts of secret competition." Lamorte, supra, 167 N.J. at 303 (citing Platinum Mgmt. Inc. v. Dahms, 285 N.J. Super. 274, 303 (Law Div. 1995)). While still employed, the employee may "not engage in conduct that causes" the employer "to lose customers, sales, or potential sales." Cameco, Inc. v. Gedicke, 157 N.J. 504, 522 (1999). The obligation to protect the employer's interests "'lasts until the last hour of . . . service.'" United Bd. & Carton Corp., supra, 63 N.J. Super. at 526 (quoting Ritterpusch v. Lithographic Rate Serv., 208 Md. 592, 603 (Md. Ct. App. 1956)). This duty exists regardless of the existence of an anti-competition contractual provision. Lamorte, supra, 167 N.J. at 303.
Here, there is no question that Gatchel breached her duty of loyalty to plaintiff. PPI was plaintiff's client, not Gatchel's, and Gatchel solicited PPI and improperly competed with plaintiff for PPI's business while still employed by plaintiff. Gatchel caused plaintiff to lose PPI's business while she was still plaintiff's employee. Accordingly, summary judgment should not have been granted to Gatchel, and partial summary judgment should have been granted to plaintiff on this issue. The jury shall decide all other claims against Gatchel.
We also conclude that the motion judge mistakenly granted summary judgment to Rapp and Laurie. The record reveals a long-term relationship between the two men and numerous telephone calls between them from March to April 2003, the critical period of time in which Gatchel was planning her new business and had received start-up funds from Laurie. What Rapp and Laurie talked about, and why Laurie would have invested $79,000 without knowing exactly where Gatchel would obtain business, creates a credibility issue, which must be resolved by a jury. D'Amato by McPherson v. D'Amato, 305 N.J. Super. 109, 113-14 (App. Div. 1997) (quoting Brill, supra, 142 N.J. 536).
We do not reach the same conclusion as to Hettinger and PPI. We agree with the motion judge that there can be no claim against these defendants for tortious interference because a party cannot interfere with its own contract. "[I]t is 'fundamental' to a cause of action for tortious interference with a prospective economic relationship that the claim be directed against defendants who are not parties to the relationship." Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 752 (1989) (citations omitted); Mandel v. UBS/PaineWebber, Inc., 373 N.J. Super. 55, 80 (App. Div. 2004), certif. denied, 183 N.J. 213-14 (2005).
We also agree with the motion judge that there was no breach of contract or breach of the covenant of good faith and fair dealing by Hettinger and PPI. The PPI agreements did nothing more than set out, for a period of one year, the rates that would be charged for services provided to PPI and what those services would be. The PPI agreements did not contain any provision penalizing PPI in any way for canceling the agreements before their expiration dates, nor did the agreement require PPI to continue to do business with plaintiff for a period of one year.
The construction of a written contract is usually a legal question for the court, suitable for disposition on summary judgment, unless there is ambiguity or the need for parol evidence to aid in interpretation. Driscoll Constr. Co. v. St. of N.J., Dep't of Transp., 371 N.J. Super. 304, 313-14 (App. Div. 2004) (citations omitted); Great Atl. & Pac. Tea Co. v. Checchio, 335 N.J. Super. 495, 502 (App. Div. 2000) (citing Michaels v. Brookchester, Inc., 26 N.J. 379, 387 (1958)). The court's aim is to determine the intentions of the parties to the contract, as revealed by the language used, the relations of the parties, the attendant circumstances, and the objects the parties were trying to attain. Driscoll Constr. Co., supra, 371 N.J. Super. at 313 (citing Onderdonk v. Presbyterian Homes of N.J., 85 N.J. 171, 184 (1981)); Nester v. O'Donnell, 301 N.J. Super. 198, 210 (App. Div. 1997) (quoting Anthony L. Petters Diner, Inc. v. Stellakis, 202 N.J. Super. 11 27 (App. Div. 1985)). A court must be careful not to make a better contract for the parties than the one the parties made for themselves. Kotkin v. Aronson, 175 N.J. 453, 455 (2003) (citing Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960)); Great Atl. & Pac. Tea Co., supra, 335 N.J. Super. at 501 (quoting Washington Constr. Co. v. Spinella, 13 N.J. Super. 139, 142 (App. Div.) aff'd, 8 N.J. 212 (1951)).
Reviewing the PPI agreements, we are convinced they were nothing more than rate agreements for a one-year period; nothing in these agreements required PPI to do business with RRI during the one-year period; there was no early termination penalty; and there was no obligation to renew. Thus, there was no breach of contract.
Plaintiff's breach of the implied covenant of good faith and fair dealing claim against Hettinger and PPI also fails. "Every party to a contract . . . is bound by a duty of good faith and fair dealing in both the performance and enforcement of the contract." Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 224 (2005) (citing Wilson v. Amerada Hess Corp., 168 N.J. 236, 241 (2001)). "The party claiming a breach of the covenant of good faith and fair dealing 'must provide evidence sufficient to support a conclusion that the party alleged to have acted in bad faith has engaged in some conduct that denied the benefit of the bargain originally intended by the parties.'" Id. at 225 (quoting 23 Williston on Contracts § 63:22 at 513-14 (Lord ed. 2002)).
A breach of the covenant of good faith and fair dealing may be found even if no express term of the contract is violated. Brunswick Hills Racquet Club, Inc., supra, 182 N.J. at 226 (quoting Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 423 (1997)). Thus, "a party to a contract may breach the implied covenant of good faith and fair dealing in performing its obligations even when it exercises an express and unconditional right to terminate[,]" id. at 422, that is, even where the contract in question contains "express and unambiguous provisions permitting either party to terminate the contract without cause." Id. at 421 (citing United Roasters, Inc. v. Colgate-Palmolive Co., 649 F.2d 985 (4th Cir.), cert. denied, 454 U.S. 1054, 102 S.Ct. 599, 70 L.Ed. 2d 590 (1981)). However, the covenant cannot override an express contractual term. Wade v. Kessler Inst., 172 N.J. 327, 341 (2002) (quoting Wilson, supra, 168 N.J. at 244); Sons of Thunder, Inc., supra, 148 N.J. at 419.
The covenant of good faith and fair dealing has been applied in three general ways. First, it "permits the inclusion of terms and conditions which have not been expressly set forth in the written contract." Seidenberg v. Summit Bank, 348 N.J. Super. 243, 257 (App. Div. 2002). Second, it allows "redress for the bad faith performance of an agreement even when the defendant has not breached any express term." Ibid. Third, it permits "inquiry into a party's exercise of discretion expressly granted by a contract's terms." Ibid. (citing Wilson, supra, 168 N.J. at 250).
Only the second aspect is at issue here. That is, plaintiff contends that Hettinger and PPI breached the implied covenant of good faith and fair dealing by entering into a separate contract with Gatchel five days before Hettinger made a false statement about PPI's reason for terminating its relationship with plaintiff. However, since PPI could cease doing business with plaintiff at any time without penalty, Hettinger's false statement does not give plaintiff an actionable claim. Also, neither Hettinger nor PPI ever gave plaintiff any reason to believe that PPI would stay on as a client for a one-year period and, prior to termination, they did nothing to induce plaintiff to alter its business practices in reliance on PPI's continued business. Moreover, the period of time from when Hettinger made the false statement and when PPI actually terminated was, at most, two weeks. The only action plaintiff took in that two-week period was to convene a meeting with Hettinger and to draw up a proposal to convince PPI to stay.
The fraud claim against Rapp, Hettinger and PPI was also properly dismissed. To prove legal fraud, a plaintiff must show that there was "a material misrepresentation of a presently existing or past fact[,]" made with knowledge of its falsity and with the intent that the other party rely thereon, resulting in reliance by that party to its detriment. Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997) (citing Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 624-25 (1981)). Fraud must be proved by clear and convincing evidence. N.J. Econ. Dev. Auth. v. Pavonia Rest., Inc., 319 N.J. Super. 435, 445 (App. Div. 1998) (citing Baldasarre v. Butler, 254 N.J. Super. 502, 521 (App. Div. 1992), rev'd in part o.g., 132 N.J. 278 (1993)); Albright v. Burns, 206 N.J. Super. 625, 636 (App. Div. 1986) (citing Williams v. Witt, 98 N.J. Super. 1, 4 (App. Div. 1967)).
The "[d]eliberate suppression of a material fact that should be disclosed is equivalent to a material misrepresentation. . . ." N.J. Econ. Dev. Auth., supra, 319 N.J. Super. at 446 (citing Strawn v. Canuso, 140 N.J. 43, 62 (1995)). That is, "'[s]ilence, in the face of a duty to disclose, may be a fraudulent concealment.'" Ibid. (quoting Berman v. Gurwicz, 189 N.J. Super. 89, 93 (Ch. Div. 1981), aff'd o.b., 189 N.J. Super. 49 (App. Div.), certif. denied, 94 N.J. 549 (1983)). Fiduciary relationships, such as those between an attorney and client or a principal and agent, may call for disclosure. Berman, supra, 189 N.J. Super. at 93 (quoting Pomeroy, Equity Jurisprudence § 902 at 552-54 (5th ed. 1941)). An ordinary business transaction, however, will rarely give rise to a duty to disclose since the parties are essentially "'adversarial.'" N.J. Econ. Dev. Auth., supra, 319 N.J. Super. at 446 (quoting Globe Motor Car Co. v. First Fidelity Bank, 273 N.J. Super. 388, 393 (Law Div. 1993), aff'd, 291 N.J. Super. 428 (App. Div.), certif. denied, 147 N.J. 263 (1996)). Also, where the information is equally available to both parties, neither has the duty to disclose that information to the other. Ibid. (citing Globe Motor Car Co., supra, 273 N.J. Super. at 395).
As to Hettinger and PPI, we agree with the motion judge that plaintiff failed to establish by clear and convincing evidence that they had a specific, deliberate intent to defraud plaintiff, and that there was detrimental reliance. Hettinger told plaintiff that PPI was terminating their relationship. The reason for the termination may have been a lie, but that is irrelevant. PPI had no obligation to do business with plaintiff and could terminate their relationship at any time. It decided to terminate. Plaintiff took no action, other than to convene a meeting with Hettinger, in reliance on Hettinger's lie. Thus, there was no detrimental reliance by plaintiff as a result of that lie.
Regarding Rapp, the motion judge found that he made no fraudulent misrepresentations to plaintiff. We agree. Rapp told plaintiff that RRI had one-year rate agreements with PPI. This was true. Whether or not PPI honored the agreements had nothing to do with Rapp. Further, Rapp never told plaintiff that PPI could not terminate the PPI agreements.
We also emphasize that Sweeney, who was responsible for plaintiff's "due diligence" during the negotiations with Rapp and RRI, never read the PPI agreements, which plaintiff had received prior to entering into the purchase agreement. "Where both parties to a contract have or can acquire the same amount of knowledge regarding its subject matter, one party may not attack the contract by alleging reliance on representations made by the other." Middlesex County Sewerage Auth. v. Borough of Middlesex, 74 N.J. Super. 591, 605-06 (Law Div. 1962) (quoting Condon v. Sandhowe, 97 N.J. Eq. 204, 206-07 (Ch. 1925)), aff'd, 79 N.J. Super. 24 (App. Div.), certif. denied, 40 N.J. 501 (1963). An exception exists only where the signature to the contract was obtained by fraud, such as by reason of a willful misrepresentation as to the document's contents, Filmlife, Inc. v. Mal "Z" Ena, Inc., 251 N.J. Super. 570, 575 (App. Div. 1991) (quoting Winoka Village v. Tate, 16 N.J. Super. 330, 333-34 (App. Div. 1951)), or where there was mistake, duress, unconscionability, or illegality. Fleming Cos., Inc. v. Thriftway Medford Lakes, Inc., 913 F. Supp. 837, 843 (D.N.J. 1995). Thus, a party "is not justified in relying on representations made  when [it had] ample opportunity to ascertain the truth" before acting. Id. at 844. Applying these principles, we conclude that plaintiff had ample opportunity to engage in due diligence before purchasing RRI and to read the PPI agreements. It may not now attack Rapp and RRI because it failed to do so.
The motion judge also properly denied plaintiff's motion to amend the complaint to include a conspiracy claim against Hettinger and PPI. Once a responsive pleading has been filed, "a party may amend a pleading only by written consent of the adverse party or by leave of court which shall be freely given in the interest of justice." R. 4:9-1. A motion for leave to amend should be liberally granted and the decision rests within the court's sound discretion. Kernan v. One Washington Park Urban Renewal Assocs., 154 N.J. 437, 456-57 (1998) (citations omitted); Fisher v. Yates, 270 N.J. Super. 458, 467 (App. Div. 1994). "That exercise of discretion requires a two-step process: whether the non-moving party will be prejudiced, and whether granting the amendment would nonetheless be futile." Notte v. Merchs. Mut. Ins. Co., 185 N.J. 490, 501 (2006).
Here, the motion judge correctly concluded that there was prejudice, i.e., that it would be unfair to force Hettinger and PPI to defend against newly asserted claims after they had been granted summary judgment on all of plaintiff's original claims. See Falco v. Cmty. Med. Ctr., 296 N.J. Super. 298, 325 (App. Div. 1997) (motion to amend properly denied where it asserted new claim against defendants after summary judgment had been granted in their favor on all counts of plaintiff's complaint as originally filed), certif. denied, 153 N.J. 405 (1998).
We now address Rapp's cross-appeal. Rapp appeals the grant of summary judgment to plaintiff on his claim for breach of the implied covenant of good faith and fair dealing stemming from plaintiff's failure to give him a contract, as provided for in the purchase agreement, that would enable Rapp to write new business through plaintiff. Another provision required plaintiff to pay Rapp for any work performed by him for plaintiff's benefit at a daily rate of $600 or an hourly rate of $75.
Prior to the institution of this litigation, plaintiff never gave Rapp a contract, and Rapp never wrote any business for plaintiff's benefit. During the course of this litigation, plaintiff offered Rapp a contract and had asked him to submit a proposal. Rapp never responded.
Rapp does not contend that plaintiff breached the purchase agreement. Rather, he contends that plaintiff engaged in bad faith by including in the purchase agreement a non-compete clause and a promise to give him a contract, even though plaintiff never intended to follow up on that promise. Rapp's claim fails because the evidence demonstrates, and Rapp does not dispute, that plaintiff was willing to negotiate a contract with him. This is all the purchase agreement contemplated, especially since it did not spell out the terms of any contract, other than to state what Rapp's hourly and daily rates would be if he performed any work for plaintiff.
Moreover, since it does not appear that Rapp ever attempted to place any business with plaintiff, he is hard pressed to claim that he was foreclosed from earning a living during the four-year period of the non-competition clause. That is, this was not a case where Rapp found clients for plaintiff and where plaintiff then refused to negotiate a commission.
That brings us to Rapp's attempt to amend his counterclaim to include a punitive damages claim, which is grounded on Smith's admission at deposition that plaintiff never intended to give Rapp a contract because it believed that he would retire after the sale of RRI. To sustain a claim for punitive damages, a party has to show more than a breach of a good faith obligation. Pickett v. Lloyd's (A Syndicate of Underwriting Members), 131 N.J. 457, 475-76 (1993) (citing Nappe v. Anschelewitz, Barr, Ansell & Bonnello, 97 N.J. 37, 49-50 (1984)). In addition, a claim for punitive damages may lie only where there is a valid underlying cause of action. Smith v. Whitaker, 160 N.J. 221, 235 (1999) (citing Nappe, supra, 97 N.J. at 45).
Here, Rapp has no underlying cause of action against plaintiff for failure to provide a contract. Moreover, any cause of action Rapp did have was merely one for breach of a good faith obligation, which does not trigger a punitive damages claim.
In sum, the order of September 23, 2005, granting Gatchel's and Laurie's cross-motion for summary judgment; the order of September 23, 2005, denying plaintiff's motion for partial summary judgment against Gatchel; the order of June 9, 2006, denying plaintiff's motion for reconsideration of the orders of September 23, 2005, granting summary judgment to Gatchel and Laurie; and the order of October 20, 2006, granting summary judgment to Rapp and RRI, except for the fraud claims, are reversed. All other orders are affirmed in their entirety.
Affirmed in part and reversed in part.