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PSL, L.L.C. v. Terhune


January 22, 2009


On appeal from the Superior Court of New Jersey, Law Division, Ocean County, L-2508-07.

Per curiam.


Argued October 28, 2008

Before Judges Fuentes and Chambers.

Plaintiff PSL, L.L.C. (PSL) appeals from the order of January 24, 2008, dismissing its amended complaint with prejudice on the basis that the parties' settlement barred the claim. We reverse and remand for a plenary hearing to determine whether plaintiff's claim for damages survived when defendant failed to perform in accordance with the settlement.

Plaintiff is the owner of a mobile home park in which it leases mobile home spaces to tenants who own their own mobile homes placed in the rented spaces. Defendant, Earl Terhune, owned a number of the mobile homes in the park. In February 2002, plaintiff and defendant entered into the Lease and Mobile Home Park Management Agreement. Under this agreement, plaintiff gave defendant a ninety-nine year lease for the mobile home park. In return, defendant agreed to pay a monthly rental to plaintiff in amounts that gradually increased over the years, and he agreed to pay the taxes, assessments, utility charges, repairs, improvement expenses, maintenance costs, and insurance premiums for the property. Defendant was entitled to the rents paid by the tenants on the mobile home spaces.

In December 2002, only ten months into the lease, plaintiff filed an order to show cause and complaint, contending defendant had failed to pay rent for three months and had defaulted in his management duties. Plaintiff asserted claims for conversion and breach of contract and sought an accounting, termination of the agreement, compensatory and punitive damages, as well as injunctive relief. Defendant filed an answer and counterclaim asserting claims for breach of contract and interference with contract, contending that defendant had failed to honor an oral agreement to provide a second well for the park and that in July 2002,*fn1 plaintiff told the tenants to pay the rent to plaintiff and not defendant. We will not review the protracted procedural history that followed and that included the appointment of two receivers. When the case was set for trial in the fall of 2006, the parties reached a settlement of the case with the help of a mediator.

By the time of the settlement, plaintiff maintained that defendant owed it $374,912. Although failing to make payments to plaintiff, defendant had apparently continued to collect the rents from the mobile home tenants, presumably until the appointment of the first receiver in August 2005. Further, plaintiff alleged that defendant had failed to pay taxes on the property as the agreement required.

On October 13, 2006, the parties and their respective counsel, the mediator, and the receiver were all present in court, and the mediator placed the terms of the settlement on the record. The principal for plaintiff and defendant were placed under oath, and they both consented to the terms of the settlement. Under the settlement, defendant agreed to purchase the property for $1.2 million dollars, and the closing was to take place on or before December 13, 2006. The mediator stated:

The deposit in this case will be the Lease and Mobile Home Park Management Agreement which is also a subject of this lawsuit.

When we say deposit, the parties understand that if Mr. Terhune is not able to close on or before that date that the Lease and Mobile Home Park Management Agreement will be subject to a Court Order voiding the agreement. That will be the penalty - that is a bad word. I know - that will be the -deposit will be forfeited by Mr. Terhune if he is not able to close on or before that date. There will be, of course, agreement language which we would normally find in an agreement of sale for real estate which we will incorporate into a formal Consent Order to submit to the Court.

The settlement placed defendant in charge of the park on the day of the settlement. Defendant agreed to pay any outstanding bills that had not been paid by the receiver, and he would be responsible for any future bills, and in turn could collect rents from the park. The record further indicates that if defendant defaulted on the closing, the court would enter an order "voiding the agreement."

The mediator advised the court that the parties had requested that he prepare the order memorializing the settlement. He further stated that the parties agreed that all the material terms of the settlement were provided to the court and that "[i]f there are minor terms that need to be adjusted or any language, the parties have agreed that I will be the binding arbitrator with respect to the terms of the agreement."

After a discussion to allow defendant to purchase the property in the form of an L.L.C. and allowing defendant to apply for a certificate of occupancy and any permits prior to the closing, the mediator then stated: "General release, all the language with respect to waiver of all claims, releases, the parties dismiss all claims with prejudice."

The order memorializing the settlement was not submitted to the court until January 9, 2007. By that time defendant had defaulted on the settlement and failed to close on December 13, 2006. The order, fashioned as a consent order, was submitted to the court by the mediator who advised that he believed the consent order "accurately and completely memorializes the settlement reached between the parties." He also stated that defense counsel had told him that she was not authorized to execute the consent order by her client because he had a "change in position" and did not intend to close on the premises pursuant to the settlement. Prior to executing the order, the trial court had a telephone conference with counsel. The court signed the order dated January 11, 2007, and wrote on the lines reserved for counsel's signature on the order "signed by Court as representing settlement placed on the record." The order set forth the terms of the settlement as noted above, with numerous ancillary provisions. Regarding a default by defendant, the order provided:

In the event that the Defendant, Mr. Terhune, is not able to close on or before December 13, 2006, the lease and mobile home park management agreement will be subject to further Court Order voiding the agreement in that Mr. Terhune shall forfeit the lease and mobile home park management agreement. In that event, the parties shall have the right to pursue all further legal/equitable claims they may choose.

The order dismissed the case without prejudice.

Due to defendant's default on the settlement agreement, the trial court, in accordance with that settlement agreement, entered an order dated January 30, 2007, terminating the agreement and restoring plaintiff to the management of the property. The order also allowed defendant to return to the property at limited times for the purpose of collecting trailer rents and making repairs in regard to the mobile homes he owned on the property. He was otherwise enjoined from entering the property or collecting rents. The order further provided that the court would schedule a conference to discuss the remaining issues with the mediator present. By letter dated April 25, 2007, the mediator advised the court that the dispute could not be resolved and that "I understand that this matter is going to be returned to the Court for Trial."

On May 11, 2007, an order was entered dealing with defendant's access to the property to collect rents and stating that "[n]either party will interfere with each other" and that "[e]ach party is left to their own remedies." An order was entered on May 15, 2007, modifying the May 11, 2007 order in other respects, but maintaining the above language. The trial court gave the case a May 29, 2007, trial date, but that date was later adjourned. The trial court held a conference on June 16, 2007. By that time, defense counsel had been relieved. Defendant, the mediator, plaintiff's counsel and plaintiff's representatives were all present. The court was advised that the only issues that remained in the case were the damage claims. As a result, by order dated June 18, 2007, the trial judge entered an order transferring the case to the Law Division for disposition, and providing for discovery, namely the deposition of defendant. The case was scheduled for trial on January 28, 2008.

It was only after new defense counsel entered the case that defendant moved in January 2008 to dismiss the complaint with prejudice. Defendant maintained that under terms of the settlement placed on the record, if he failed to abide by the terms of the settlement and did not close on the purchase of the property, the only consequence was that the lease agreement was void. Defendant contended that the settlement order of January 11, 2007, was inconsistent with the terms of the settlement placed on the record. The trial court granted the motion and dismissed the complaint with prejudice.*fn2 Plaintiff appeals, contending that the order of January 11, 2007, permitted the parties to continue to pursue damage claims in the litigation.

At the outset, we note that a settlement is a contract governed by principles of contract law. Brundage v. Estate of Carambio, 195 N.J. 575, 600-01 (2008). Construction of a contract is generally a question of law for the court to determine, and our review is de novo. Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998). When interpreting a contract, our task is to discern the intent of the parties. J.L. Davis & Assocs. v. Heidler, 263 N.J. Super. 264, 270 (App. Div. 1993). When doing so, we must "consider the relations of the parties, the attendant circumstances, and the objects [the parties] were trying to attain." Ibid. (quoting Karl's Sales & Serv. v. Gimbel Bros., 249 N.J. Super. 487, 492 (App. Div.), certif. denied, 127 N.J. 548 (1991)). The interpretation of the contract must be reasonable and "in accord with justice and common sense." Ibid. (quoting Karl's Sales & Serv. v. Gimbel Bros., supra, 249 N.J. Super. at 492). Contracts that are clear and unambiguous, must be enforced as written. Id. at 271. However, "where the intention is doubtful or obscure, the most fair and reasonable construction, imputing the least hardship on either of the contracting parties, should be adopted, so that neither will have an unfair or unreasonable advantage over the other." Ibid. (quoting Karl's Sales & Serv. v. Gimbel Bros., supra, 249 N.J. Super. at 493). However, if the meaning of a contractual provision is doubtful or ambiguous and parole evidence is needed to interpret the document, then construction of the provision is a question of fact. Anthony L. Petters Diner, Inc. v. Stellakis, 202 N.J. Super. 11, 27-28 (App. Div. 1985).

After a careful review of the record, we find that a question of fact is present regarding plaintiff's ability to pursue his damage claims if defendant defaulted on the settlement agreement to purchase the mobile home park. The settlement placed on the record in October 2006 did not expressly provide that plaintiff's damage claims would survive if defendant defaulted on his agreement to purchase the property nor did it provide that these claims were lost if the defendant defaulted on the settlement.

It was expressly understood that not all of the details of the settlement were being placed on the record, and that the settlement would be memorialized in the form of an order. That was done, and the order of January 11, 2007, provided that if defendant failed to close, the Lease and Mobile Home Park Management Agreement would be voided and "the parties shall have the right to pursue all further legal/equitable claims they may choose." Since this order was entered after defendant defaulted on the settlement to purchase the property, everyone knew this language would take effect, and it was not merely a boilerplate provision addressing some future possible contingency. Plaintiff maintains that this language recognizes his right to pursue his damage claims when defendant breached the settlement agreement. The trial court, however, explains that this language could be "fairly applied to disputes or claims the parties may assert against each other in the light of the plaintiff's ownership of the property and mobile home units and Mr. Terhune's continued ownership of several other mobile home units on the subject property." However, it is not clear that such language would be necessary to preserve those claims.

The conduct of the parties in continuing with the litigation after the defendant's default and the transfer of the case to the Law Division for a damage trial further suggests that the damage claims survived. However, the defense argues that the subsequent litigation dealt with other issues. In his certification, defendant maintains that he understood that the damage claims did not survive the settlement. Based on the record before us, we cannot resolve these issues. Accordingly, we reverse and remand for a plenary hearing to determine whether, under the terms of the settlement, plaintiff may pursue his damage claims against defendant after defendant failed to purchase the mobile home park.

Reversed and remanded.

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