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Grow Co., Inc. v. Chokshi

November 12, 2008

GROW COMPANY, INC., PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
DILIP CHOKSHI AND PHARMACHEM LABORATORIES, INC., DEFENDANTS-RESPONDENTS/CROSS-APPELLANTS.



On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-280-05.

The opinion of the court was delivered by: Fisher, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued September 24, 2008

Before Judges Fisher, C.L. Miniman and Baxter.

In this appeal, we review a partial summary judgment that applied the terms of an earlier settlement agreement as a basis for dismissing the claims of plaintiff Grow Company, Inc. against defendant Dilip Chokshi, a former employee, and defendant Pharmachem Laboratories, Inc., with whom Chokshi presently has a business relationship. The judge also found that the settlement agreement authorized an award of counsel fees to Chokshi, but he did not quantify the amount due, choosing instead to dismiss that claim without prejudice to be renewed in a later suit. We conclude that the disposition of the fee issue was not a final determination and left interlocutory the order under review. Although we again condemn the foisting of jurisdiction upon this court in the absence of a final order, see Vitanza v. James, 397 N.J. Super. 516 (App. Div. 2008), in these particular circumstances we find it equitable to grant leave to appeal out of time, and we reverse the partial summary judgment.

I.

The record reveals that Grow is engaged in the manufacture and distribution of nutrients and nutritional supplements. Chokshi is a chemist, who was employed by Grow in 1979 and eventually became its director of research, development and quality control. Grow claims that, during his employment, Chokshi learned of Grow's alleged trade secrets and proprietary processes.

In 1982, Chokshi executed a confidentiality agreement (the 1982 agreement) by which he agreed he would not "at any time, either during the period of his employment with [Grow] or at any time thereafter in any fashion, form or manner, either directly or indirectly, divulge, disclose or communicate to any person, firm or corporation in any manner whatsoever any information of any kind, nature or description concerning any matters affecting or relating to the business of [Grow], including . . . all product formulations and other trade secrets . . . ."

In October 1991, Chokshi and two others terminated their relationship with Grow and formed Bio-Foods, Ltd. In late November 1999, Grow sued Bio-Foods, Chokshi and the other former employees, alleging they unfairly competed with Grow from 1991 to 1999. Among other things, Grow asserted claims of product disparagement, trade libel, and the conversion of Grow's trade secrets. The parties to that suit eventually resolved their differences and executed a document entitled "Release, Covenant Not To Sue and Settlement Agreement" (the settlement agreement), which released "all claims against Releasees which Grow ever had, now has or hereafter can, shall or may have, for, upon or by reason of any matter, cause or thing whatsoever from the beginning of the world to and including the date of Grow's execution of this Agreement." The settlement agreement was executed on December 21, 2001.

The action at hand was commenced by Grow against Chokshi and Pharmachem on July 27, 2005. In its pleadings, Grow alleged that "[o]n or before the time of the settlement" Chokshi became associated with Pharmachem and again resumed his alleged course of unfair competition through use of Grow's alleged trade secrets and proprietary information. Grow alleged it had recently discovered that "between January 9, 2001 and May 31, 2005," Pharmachem and Chokshi applied for five patents "that are based upon Grow's processes and formulas, which are Grow's trade secrets and proprietary information" learned by Chokshi during his employment with Grow.

Chokshi and Pharmachem denied these allegations and filed a counterclaim alleging that Grow had breached the settlement agreement by commencing this action. The counterclaim also sought, among other things, a judgment declaring unenforceable the 1982 agreement and an award of counsel fees based on the settlement agreement. In this latter respect, the settlement agreement contains the parties' stipulation that should Grow commence an action barred by its covenant not to sue, then the parties encompassed by the settlement agreement's terms "shall be entitled to recover from Grow all their attorney's fees, expenses and costs of suit incurred in connection therewith."

After a period of discovery, the parties filed dispositive motions. Grow moved for partial summary judgment, seeking a declaration that neither Chokshi nor Pharmachem was entitled to an award of attorneys' fees. Chokshi and Pharmachem moved for summary judgment, arguing, among other things, that Grow's suit was barred by the settlement agreement, the absence of any proof of a trade secret, and the lack of any duty that would prohibit the revelation of any information learned while Chokshi was employed by Grow. In ruling on these motions, the trial judge rendered separate written opinions on December 22, 2006.

In the judge's first written opinion, he granted that part of Grow's motion that sought a dismissal of Pharmachem's counterclaim for an award of attorneys' fees based on the settlement agreement. The judge reasoned that Pharmachem was not a signatory to the settlement agreement and did not fall within the settlement agreement's description of the class of persons entitled to its benefits. The judge, however, rejected Grow's argument that Chokshi was not entitled to fees based upon the terms of the settlement agreement. The judge recognized that it was "conceded Chokshi has not paid for any legal fees and/or costs associated with this litigation," because they were paid by Pharmachem. However, the judge determined that fees may still be awarded even though the litigation was financed by others.

By way of his second opinion, the judge held that the settlement agreement, which encompassed "extraordinarily broad language," barred all the claims brought by Grow against Chokshi and Pharmachem, and warranted the entry of summary judgment in their favor. The judge did not explain how the settlement agreement was broad enough to bar the claims against Pharmachem, which was not a signatory to the settlement agreement, but not broad enough to permit an award of fees based upon Grow's alleged breach of the agreement, as he held in his first opinion. Because he concluded that the settlement agreement barred Grow's claim, the judge did not rule upon the other arguments posed by Chokshi and Pharmachem in support of their motion for summary judgment.*fn1

The judge engaged in a status conference with counsel on December 22, 2006, the day the motions were decided. At that time, the parties had not received the judge's written opinions, but at the start of the hearing, the judge indicated the upshot of his rulings and then asked for comments about the future course of the suit. At the time, the case was scheduled for trial on January 2, 2007.

Stating that the only remaining issue concerned the quantification of Chokshi's legal fees, the judge said, "I don't see, subject to [c]counsel's input, how the matter can proceed on January 2nd which is the assigned date and I am not prepared to adjourn the trial date." He also indicated that because the amount of the fees sought was a matter that had not been explored in discovery, for obvious reasons, he did not think it fair to proceed to trial on January 2, 2007:

Now it would appear to me that [Grow] has due process rights to explore what's "reasonable"? The defendant[s'] posture has been: We cannot determine our bills until the matter is concluded -- the substantive matter, i.e. [a determination of the settlement agreement's impact on the suit]. We have a trial that's scheduled on January 2nd and I've already indicated I'm not prepared to adjourn that trial. I think in fairness to [Grow] . . . that [Grow] . . . [is] entitled to explore the legal fees; whether that's by definition of counsel, a review of billing, invoices, et cetera, et cetera.

Now I can't tell from this record what has been done, I know that Mr. Chokshi, I think it was in August of 2006, testified that to that point his counsel had been paid in excess of $500,000 by Pharmachem but I don't think I have anything else. I don't think I have billing slips, billing records, certifications from counsel and/or the like, it therefore, at least at first blush does not appear possible to try that which remains on January 2nd.

In accurately outlining the circumstances, the judge recognized that the remaining issue was not trial-ready; in addition, because the ascertaining of whether any party was entitled to fees, and from whom, could not be understood until the judge rendered his decision on the other substantive issues on December 22, 2006, the judge correctly realized that the parties' inability to try the case eleven days later was due to no one's fault or dilatory conduct.

Obviously, the trial should have been adjourned and a brief period of discovery permitted regarding the quantum and reasonableness of the fees sought by Chokshi. What occurred at the December 22, 2006 hearing reveals, however, that the trial date was the one thing that the judge would not alter. In short, the judge realized that a trial on the remaining issue could not fairly be conducted on January 2, 2007, but he steadfastly refused to adjourn it. As a result of the quandary created by his intractable view of the trial date, the judge suggested that the counsel fee claim be dismissed without prejudice so that it could be refiled in a new lawsuit; he also indicated he would exempt the parties from the impact of the entire controversy doctrine that would otherwise arise in the second suit.

The December 22, 2006 hearing concluded with no clear indication from the parties as to their consent to this approach,*fn2 but ultimately the judge entered an order, on January 24, 2007, which adhered to his suggestion that Chokshi's fee claim be dismissed without prejudice; the order contains the following provision:

Although Chokshi's counsel stated at the December 22, 2006 hearing that Chokshi was prepared to proceed to trial on January 2, 2007 on [c]ount [o]ne of Chokshi's [c]ounterclaim on the issue of the amount of [a]ttorneys' [f]ees, it is the ruling of this court that to require . . . Grow to proceed to trial as to the quantification of [a]ttorneys' [f]ees would be a denial of Grow's due process rights, and that the court would permit discovery respecting same, accordingly, the court is hereby dismissing Chokshi's [f]irst [c]ount of his [c]ounterclaim without prejudice. It is hereby further ordered that the filing of any subsequent action by Chokshi against Grow seeking the quantification of [a]ttorneys' [f]ees, expenses and costs, as set forth in this order (including without limitation the entry of judgment regarding same), shall not be barred by Rule 4:30A, or by operation of the [e]ntire [c]ontroversy [d]octrine. Grow has the right to dispute the amount of the claim, and in the event that Chokshi does not file a claim to determine the amount of [a]ttorneys' [f]ees, expenses and costs within six years of the date this order is entered, plus allowance for any applicable tolling of said limitation period, then said claim shall be barred. This court shall assume jurisdiction of any said action filed by Chokshi, if so requested, which shall be presided over and be determined by the [trial judge], without a jury.

The order also contained a dismissal of that part of the counterclaim that sought declaratory relief regarding the enforceability of the 1982 agreement, even though the judge's written decisions provided no rationale for that disposition.

Taking the position that the January 24, 2007 order was a final order, both Grow and Pharmachem appealed. Soon before Grow filed its notice of appeal, however, Chokshi moved for an order compelling Grow to file a supersedeas bond as security pending Grow's anticipated appeal. Even though no monetary award had been entered against Grow, and even though Grow had not sought a stay pending appeal, the judge directed Grow to post a supersedeas bond in the amount of $650,000. In fixing the amount of the bond, we discern from the judge's oral decision that he believed the award sought by Chokshi -- who had yet to file the new suit authorized by the January 24, 2007 order -- would likely be quantified in a similar amount. The judge also based his authority to compel the posting of a bond -- even absent a motion for a stay -- on a perceived inequity in ruling otherwise, i.e., that he had generously dismissed the claim without prejudice rather than force Grow to trial on January 2, 2007, which he would not adjourn, even though he also recognized that trying the issue of counsel fees at that time would deprive Grow of due process, as the January 24, 2007 order itself plainly acknowledges. The judge said in his oral decision:

As [Grow] has conceded that it will be prosecuting an appeal, the [c]court is satisfied that under [R. 2:9-6] the [c]court has the authority to set a [supersedeas] bond, and the [c]court is further satisfied it is appropriate to so set a bond. That is, as the [c]court honored [Grow's] request to not compel [Grow] to proceed to trial, to confront the issue of legal fees as that issue had not been fully discovered, it would be inequitable to permit [Grow] to proceed with impunity.

Once again, the judge's refusal to adjourn the trial date became the tail that wagged the dog and caused Grow to suffer the expense of a bond despite having never sought a stay that it did not need.

In its appeal, Grow argues, among other things, that: the settlement agreement did not bar its claim against Chokshi, because it does not preclude claims based on conduct occurring after execution of the settlement agreement; Chokshi is not entitled to an award of fees because he did not personally incur any such expenses; and the requirement that Grow post a supersedeas bond was erroneous because no money judgment had been entered and because Grow had not sought a stay pending appeal.

Chokshi cross-appealed, arguing that the judge mistakenly dismissed his counterclaim for declaratory relief regarding the enforceability of the 1982 agreement. Pharmachem also cross-appealed, arguing that the judge adopted an unduly restrictive interpretation of the settlement agreement in concluding that Pharmachem was not a party entitled to fees for Grow's breach of the settlement agreement. Like Chokshi, Pharmachem argues ...


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