November 24, 2008
DAVID GRIPPI, ROBERT BIER, AND THOMAS MARTINO, PLAINTIFFS-APPELLANTS,
ANTHONY SPALLIERO, DOMENICA SPALLIERO RUSSO,*FN1 AND JOSEPH SPALLIERO, DEFENDANTS-RESPONDENTS, AND MARLBORO ENTERTAINMENT CENTER CORP., THE SPORTS & ENTERTAINMENT DEVELOPMENT CORP., MARLBORO ROUTE 9 AND 520 DEVELOPMENT COMPANY, AND MATTHEW V. SCANNAPIECO, DEFENDANTS.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-3955-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 15, 2008
Before Judges Parker, Yannotti and LeWinn.
Plaintiffs David Grippi, Robert Bier and Thomas Martino appeal from orders entered by Judge John Mullaney on January 2 and 4, 2008, dismissing plaintiffs' claims against defendants Anthony Spalliero (Spalliero), Dominica Spalliero Russo (Russo), and Joseph Spalliero (J. Spalliero).*fn2 For the reasons that follow, we affirm.
A. The Prior Litigation
In 1995, plaintiffs and other parties filed an action in the Law Division in which they alleged that they were shareholders of Marlboro, an entity incorporated by Spalliero and Abraham M. Penzer (Penzer). Plaintiffs alleged that in March 1990, Marlboro entered into an agreement with a joint venture called Herraxx Associates (Herraxx) for the purchase of about twenty-one acres of land along Routes 9 and 520 in Monmouth and Middlesex Counties.
According to the complaint, Marlboro intended to construct a movie theater, recreation center, bowling center, restaurant, bank and other structures on the site. Plaintiffs alleged that Herraxx had represented and warranted that it had no knowledge of any fact or circumstance that would interfere with the anticipated development of the property. In May 1990, Marlboro received final major site plan approval for the development of the site.
Plaintiffs further alleged that Herraxx had previously applied to the U.S. Army Corps of Engineers for a wetlands construction permit and had been directed to submit plans to the New Jersey Department of Environmental Protection (NJDEP) to determine the extent of the wetlands on the site and to obtain authorization for construction of the proposed improvements. According to plaintiffs, the NJDEP only authorized Herraxx to disturb .27 acres of freshwater wetlands on the property for the construction of a sewer line.
Plaintiffs alleged that Marlboro first became aware that there were freshwater wetlands on the site in April 1990. In May 1990, Marlboro commenced construction by dredging and filling the property. In July 1990, the Army Corps issued a letter to Spalliero, who was then Marlboro's president, stating that approximately eight acres of protected wetlands on the property had been cleared and filled without authorization. Even so, on August 21, 1990, Marlboro closed on the purchase of the property and Herraxx transferred title to Marlboro.
Plaintiffs asserted that in November 1990, the NJDEP issued a notice of violation and instructed Marlboro to cease and desist from any further construction on the property. In February 1991, the Army Corps advised Marlboro that about nine acres of wetlands had been impermissibly destroyed and ordered Marlboro to restore the property to its original condition.
Plaintiffs alleged that Marlboro was faced with the cost of restoring the wetlands as well as extensive fines and penalties. In July and August 1990, Spalliero and Penzer solicited investments in Marlboro from plaintiffs. Plaintiffs claimed that Spalliero and Penzer represented to them that Marlboro was constructing various improvements on the property and that the site was suitable for these purposes.
Plaintiffs further alleged that Spalliero and Penzer failed to inform them that there were wetlands on the property or that the presence of wetlands would have an effect on the proposed construction and development of the property. They also claimed that Spalliero and Penzer never told them that Marlboro had been cited for the "wetlands violations" and ordered to restore the property to its original condition. Plaintiffs stated that after they invested "hundreds of thousands of dollars" in Marlboro, they learned about the "wetlands problem" on the property.
Based on these allegations, plaintiffs asserted claims against Marlboro for breach of contract, negligence, fraud, and breach of the covenants of good faith and fair dealing. They asserted claims against Spalliero and Penzer for breach of contract, negligence, breach of the covenants of good faith and fair dealing and breach of fiduciary duty. Plaintiffs additionally asserted claims against Spalliero for fraud and conversion; and a claim against Penzer for legal malpractice. Claims also were asserted against professional engineers Edward A. Patalano and Edward A. Patalano Associates, Herraxx, Herrican Development, Ltd., XAX Group, Inc., Continental Insurance Company, Diraje Corp., and Green Meadows Holdings, L.L.C.
Plaintiffs agreed to settle their claims against Spalliero and Penzer. On March 13, 2000, the settlement was placed on the record before Judge Paul Chaiet. Spalliero and Penzer agreed to provide plaintiffs with cash or services in the total amount of $300,000. Plaintiffs, Spalliero and Penzer agreed that, upon full payment, the "standard releases" would be signed and exchanged. They further agreed that the terms of the settlement would remain confidential.
In court, plaintiffs, Spalliero and Penzer were sworn and they stated on the record that they agreed to the terms of the settlement. They also stated that they had not been forced to enter into the settlement and they were satisfied with the efforts of their attorneys. The record of the settlement was sealed. Thereafter, the plaintiffs provided releases to Spalliero and Penzer.
B. The Complaint in this Matter
This action was commenced on September 6, 2005. In their complaint, plaintiffs noted that the prior litigation had been settled. They also stated that United Jersey Bank (UJB) had filed an action to foreclose on a note, Spalliero's personal guaranty and a mortgage on the property. On October 3, 1995, UJB had assigned its rights under the note, guaranty and mortgage to SED.
Plaintiffs alleged that, at the time of that assignment, Spalliero agreed that he would not bid on the property at the foreclosure sale and he would cooperate in the development of the property. Plaintiffs further alleged that they had agreed to the settlement of the prior litigation based upon representations made both on the record and off the record that Spalliero "no longer maintained, and would not maintain, any interest, directly or indirectly, in the [p]roperty."
Plaintiffs claimed that Spalliero had "maintained, either directly or indirectly" an interest in the property through Marlboro, SED and Marlboro 9/520 "prior to and since the time the settlement was reached." Plaintiffs also claimed that Spalliero had transferred real and personal property and other assets to the other defendants. Plaintiffs alleged that Spalliero did so with the intent to delay, hinder and defraud plaintiffs.
Plaintiffs sought, among other things, an order vacating the settlement of the prior litigation, restoration of the complaint in the previous action, a declaration voiding the alleged fraudulent transfers of property, restraints against the further transfer of property, as well as compensatory and punitive damages.
C. Federal Criminal Proceedings
On October 11, 2005, Spalliero was indicted by a federal grand jury on various charges including offering and giving corrupt payments, scheming to defraud the public of honest services, and conspiracy to defraud the Internal Revenue Service (IRS). On September 17, 2007, Spalliero agreed to plead guilty to two counts involving the making of cash payments to Scannapieco in connection with the construction of housing on the site of the former Marlboro Airport, and one count alleging a conspiracy to defraud the IRS. It was agreed that if Spalliero complied with the terms of the agreement, the remaining charges against him would be dismissed. Spalliero was scheduled to be sentenced on September 5, 2008.*fn3
D. The Trial Court Proceedings in this Case
On May 26, 2006, Judge Mullaney entered an order directing plaintiffs to file an amended complaint with "a more definite statement addressed to the questions of fraud and/or fraudulent conveyance and/or breach of the settlement of March 13, 2000[.]" Plaintiffs filed an amended complaint on August 17, 2006, which repeated the allegations in the original complaint and added a claim that defendants violated the New Jersey Racketeer Influenced and Corrupt Organizations (RICO) Act, N.J.S.A. 2C:41-1 to -6.2, and had engaged in a civil conspiracy.
On February 23, 2007, plaintiffs served defendants with interrogatories and a demand for the production of documents. In July 2007, Spalliero, Russo and J. Spalliero filed a motion to dismiss the claims asserted against them. Plaintiffs opposed the motion and filed a cross-motion to extend the time for discovery and to compel defendants to respond to the outstanding discovery requests.
Judge Mullaney heard argument on September 20, 2007, and directed the parties to address the issue of whether plaintiffs' action was barred by the settlement of their claims against Spalliero and Penzer in the prior litigation. On November 8, 2007, Judge Mullaney heard additional argument on the motions and reserved decision.
The judge placed his decision on the record on January 2, 2008. The judge determined that the prior litigation "was well and truly settled" and that the settlement precluded plaintiffs from maintaining their claims in this action. On January 2, 2008, the judge entered an order dismissing the claims against Russo and J. Spalliero with prejudice. The judge entered an order on January 4, 2008, dismissing the claims against Anthony Spalliero with prejudice. This appeal followed.
We note initially that the record submitted by plaintiffs on this appeal failed to disclose whether the trial court's orders of January 2, 2008 and January 4, 2008 were final judgments from which an appeal may be taken as of right pursuant to Rule 2:2-3(a)(1). "To be a final judgment, an order generally must 'dispose of all claims against all parties.'" Janicky v. Point Bay Fuel, Inc., 396 N.J. Super. 545, 549-50 (App. Div. 2007) (quoting S.N. Golden Estates, Inc. v. Cont'l Cas. Co., 317 N.J. Super. 82, 87 (App. Div. 1998)).
Although the orders at issue disposed of plaintiffs' claims against Spalliero, Russo and J. Spalliero, the record did not disclose whether the claims against the other named defendants had been resolved. In a letter dated October 8, 2008, counsel for plaintiffs advised this court that Marlboro, SED, Marlboro 9/520 and Scannapieco never filed answers to the complaint. Counsel did not state, however, whether defaults or default judgments had ever been entered against those defendants.
It appeared therefore that claims were still pending in the trial court against Marlboro, SED, Marlboro 9/520 and Scannapieco. At oral argument, we questioned whether this court had jurisdiction in the matter because it appeared that the orders appealed from were not final judgments and leave to appeal had not been granted.
Thereafter, the trial court issued an order that certified the orders as final and appealable judgments pursuant to Rule 4:42-2. Although we suggested at oral argument that such an order might resolve the apparent jurisdictional defect, it is apparent upon further consideration that the preconditions for certifying an interlocutory order as a final judgment under Rule 4:42-2 have not been satisfied.
The orders appealed represent an adjudication of the claims against Spalliero, Russo and J. Spalliero but they do not impose liability against any party. Because the orders are not enforceable as judgments, they may not be certified as final pursuant to Rule 4:42-2. Janicky, supra, 396 N.J. Super. at 552.
We are convinced, however, that leave to appeal should be granted nunc pro tunc pursuant to Rule 2:4-4(b)(2) to resolve the issues raised on this appeal. The appeal has been fully briefed and the interests of justice would be served by addressing the issues raised by plaintiffs at this time rather than after the resolution of the claims against Marlboro, SED, Marlboro 9/520, and Scannapieco.
Plaintiffs raise the following issues for our consideration:
THE TRIAL COURT ERRED BY ENFORCING THE PRIOR SETTLEMENT BECAUSE THE PLAINTIFFS HAD RAISED FACTUAL ISSUES OF FRAUD THAT REQUIRED A PLENARY HEARING.
THE TRIAL COURT IMPROPERLY CONVERTED THE MOTION TO DISMISS AND CROSS-MOTION TO COMPEL DISCOVERY SUA SPONTE INTO A MOTION TO ENFORCE THE SETTLEMENT AND IMPROPERLY ENGAGED IN OFF THE RECORD DISCUSSIONS WITH THE MARCH 2000 SETTLEMENT JUDGE.
THE TRIAL COURT ERRED BY DISMISSING THE COMPLAINT BECAUSE PLAINTIFFS HAD ADEQUATELY PLEAD VARIOUS CAUSES OF ACTION TO VACATE THE MARCH 2000 SETTLEMENT, AND NO DISCOVERY HAD TAKEN PLACE PURSUANT TO THE COURT'S DIRECTION. THUS, THERE WAS NO BASIS TO DISMISS PLAINTIFFS' COMPLAINT.
A. DEFENDANT SPALLIERO'S MOTION TO DISMISS SHOULD HAVE BEEN DENIED BECAUSE HE WAS IN DEFAULT WITH RESPECT TO [HIS] DISCOVERY OBLIGATIONS.
B. PLAINTIFFS' FRAUD CLAIM SATISFIES THE MATERIAL ELEMENTS OF THE UNDERLYING CAUSE OF ACTION AND IS PLEAD WITH PARTICULARITY PURSUANT TO RULE 4:5-8.
C. FRAUD COUNT PLEAD WITH SPECIFICITY.
D. PLAINTIFFS ADEQUATELY PLEAD FRAUDULENT TRANSFER IN COUNT[S] THREE, FOUR AND FIVE [OF] THE AMENDED COMPLAINT.
E. THE PLAINTIFFS HAVE SUFFICIENTLY PLEAD VIOLATIONS OF NEW JERSEY'S RICO ACT BY THE DEFENDANTS IN COUNT SIX.
F. PLAINTIFFS HAVE SUFFICIENTLY PLEAD CIVIL CONSPIRACY IN COUNT SEVEN OF THE AMENDED COMPLAINT.
We have thoroughly reviewed the record in light of these contentions and the applicable law. We are convinced that plaintiffs' arguments are without merit.
We reject plaintiffs' contention that Judge Mullaney erred by "converting" defendants' motions to dismiss into a motion to enforce the settlement of the prior litigation. Here, defendants sought dismissal pursuant to Rule 4:6-2(e) on the ground that plaintiffs failed to state claims upon which relief could be granted. Defendants also asserted that the plaintiffs' fraud claims should be dismissed because they had not been pled with the particularity required by Rule 4:5-8.
When Judge Mullaney first considered defendants' motions on September 20, 2007, he noted that the motions raised the issue of whether plaintiffs could pursue their claims in view of the settlement that they reached with Spalliero and Penzer in the prior litigation. Indeed, in their complaint, plaintiffs had squarely placed the validity of that settlement in issue. Although Spalliero had not moved to enforce the settlement, he was in effect asking for that relief through his Rule 4:6-2(e) motion.
Thus, the judge did not improperly "convert" defendants' motion to dismiss into a motion to enforce the settlement. In any event, the judge afforded plaintiffs ample time to brief and argue the issue. Acordingly, there is no merit to plaintiffs' contention that they were denied due process by the manner in which the judge considered the motions.
Plaintiffs next argue that Judge Mullaney acted improperly by consulting with Judge Chaiet regarding the settlement of the prior litigation. As we stated previously, the terms of the settlement were placed on the record before Judge Chaiet on March 13, 2000. Plaintiffs maintain that, by speaking to Judge Chaiet about the matter, Judge Mullaney violated various provisions of the Code of Judicial Conduct (CJC). We disagree.
In a letter dated February 26, 2008, which was submitted to this court pursuant to Rule 2:5-1(b), Judge Mullaney stated in part that Judge Chaiet sits in the Criminal Division in Monmouth County and has been there for several years. When this matter came to me under the docket number assignment, I determined that the underlying case had been settled but that the settlement had been sealed at the request of counsel. I spoke with Judge Chaiet about his recollection, if any, of the settlement and he indicated to me that he had no recollection whatsoever about this matter. He advised me that the only reference he had of this would be the transcript which I would have to arrange to unseal to determine what was settled and the method and manner of the settlement.
We are satisfied that Judge Mullaney did not act improperly when he asked Judge Chaiet if he recalled the settlement of the prior litigation. Although Canon 3A(6) of the CJC states that a judge may not engage in "ex parte or other communications concerning a pending or impending proceeding," the commentary to that rule states that this proscription "does not preclude a judge from consulting with other judges, or with court personnel whose function is to aid the judge in carrying out adjudicative responsibilities." Moreover, Judge Chaiet did not recall the previous litigation and the discussion had no bearing whatsoever on Judge Mullaney's decision on the motions.
Plaintiffs next argue that Judge Mullaney erred by dismissing their claims. Plaintiffs contend that their claims were pleaded with sufficient particularity to survive the motion to dismiss. They also argue that the judge acted prematurely in dismissing their complaint and they should have been afforded an opportunity for discovery. Again, we disagree.
Where, as in this case, a motion is made to dismiss a complaint pursuant to Rule 4:6-2(e), the trial court must determine "'whether a cause of action is "suggested" by the facts.'" Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989) (quoting Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 192 (1988)). The court must examine "the legal sufficiency of the facts alleged on the face of the complaint." Ibid. The court must search "'the complaint in depth and with liberality to ascertain whether the fundament of a cause of action may be gleaned even from an obscure statement of a claim, opportunity being given to amend if necessary.'" Ibid. (quoting Di Cristofaro v. Laurel Grove Memorial Park, 43 N.J. Super. 244, 252 (App. Div. 1957)). We are convinced that Judge Mullaney did not err by finding that plaintiffs failed to plead sufficient facts to support their claims.
As the judge pointed out in his decision on the record, plaintiffs' fraud claims were based on the assertion that Spalliero had induced them to settle the prior litigation by making false and misleading statements that the subject property had been "lost" in foreclosure, was valueless, and could not be developed due to the wetlands issue. Plaintiffs also claimed that Spalliero represented that he would have no further interest in or involvement with the property.
As Judge Mullaney found, however, the terms of the settlement did not preclude Spalliero from having an interest in the property or involvement in its development. Indeed, plaintiffs stated in their complaint that Spalliero entered into an agreement in 1995 which provided, among other things, that he would not bid on the property at the foreclosure sale and would cooperate in the development of the property. Therefore, plaintiffs' complaint in this action made clear that, before they entered into the agreement to settle the prior litigation, plaintiffs were well aware that the property was going to be developed and that Spalliero would continue to be involved in its development.
In addition, the complaint filed in the prior case indicated that plaintiffs were well aware of the "wetlands problem" with the property. That pleading also showed that plaintiffs knew that the property had been "lost" in the foreclosure action. Furthermore, although plaintiffs alleged that Spalliero continued to maintain some sort of interest in the property, there were no facts in the complaint to support that allegation.
Thus, the facts as alleged in the complaint provided insufficient support for plaintiffs' claim against Spalliero for fraud. The complaint also failed to include specific factual allegations to support plaintiffs' fraud claims against Russo and J. Spalliero.
In addition, the complaint did not set forth sufficient facts to support the allegations that Spalliero had fraudulently transferred assets to other defendants with the intent to delay, hinder and defraud creditors, that such transfers were made without receiving reasonably equivalent value, and that Spalliero had become insolvent as a result of these transfers. The complaint merely set forth conclusions without any factual basis.
Similarly, plaintiffs failed to plead sufficient facts to support their claims under New Jersey's RICO Act, N.J.S.A. 2C:41-1 to -6.2. The Act provides that it is unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which he has participated as a principal within the meaning of N.J.S.A. 2C:2-6 to sue or invest, directly or indirectly, any part of the income, or the proceeds of the income, in acquisition of any interest in, or the establishment or operation of any enterprise which is engaged in or the activities of which affect trade or commerce. [N.J.S.A. 2C:41-2a.]
To establish "a pattern of racketeering activity," a plaintiff must show that the enterprise is
(1) [e]ngaging in at least two incidents of racketeering conduct one of which shall have occurred after the effective date of this act and the last of which shall have occurred within 10 years . . . after a prior incident of racketeering activity; and
(2) [a] showing that the incidents of racketeering activity embrace criminal conduct that has either the same or similar purposes, results, participants or victims . . . or are otherwise interrelated by distinguishing characteristics and are not isolated incidents.
Plaintiffs alleged that defendants had engaged in "racketeering activity," specifically fraud and the fraudulent transfer of property. Plaintiffs claimed that the "purpose" of the "racketeering enterprise" was "to defraud the plaintiffs through the improper transfers and development of the [p]roperty[.]" However, as with plaintiffs' other causes of action, the complaint did not set forth sufficient facts to support these allegations.
The same is true of plaintiffs' claim that defendants had engaged in a civil conspiracy. To support such a claim, a plaintiff must establish: a combination of two or more persons acting in concert to commit an unlawful act, or to commit a lawful act by unlawful means, the principal element of which is an agreement between the parties to inflict a wrong against or injury upon another, and an overt act that results in damage. [Morgan v. Union County Bd. of Chosen Freeholders, 268 N.J. Super. 337, 364 (App. Div. 1993) (internal citations omitted), certif. denied, 135 N.J. 468 (1994).]
In their amended complaint, plaintiffs alleged that the purpose of the conspiracy "was to fraudulently deny [p]laintiffs their interest in the property by way of fraudulent property transfers and bribery of public officials so as to be able to develop the property after representing that A. Spalliero no longer had an interest in the [p]roperty[.]" However, as we have explained, plaintiffs did not plead sufficient facts to support their fraud allegations. Moreover, they failed to allege sufficient facts to show that there was an agreement by defendants to commit the alleged wrongs.
We recognize that dismissal of a claim pursuant to Rule 4:6-2(e) is ordinarily without prejudice. Smith v. SBC Commc'ns, Inc., 178 N.J. 265, 282 (2004). However, before ruling on the motions to dismiss, the judge gave plaintiffs the opportunity to amend their complaint. They failed to come forward with sufficient facts to support their claims. We are convinced that further amendment or additional discovery would not cure the fundamental defects in the causes of action that plaintiffs purported to assert in their complaint.