April 8, 2009
PEDRO & SONS CONSTRUCTION AND PEDRO ORTIZ, PLAINTIFFS-RESPONDENTS,
SANTOS URIBE AND LEONARDA URIBE, DEFENDANTS-APPELLANTS.
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-5308-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted March 17, 2009
Before Judges Winkelstein and Gilroy.
Defendants Santos Uribe and Leonarda Uribe*fn1 appeal from the July 3, 2008 order that denied their motion to vacate the December 19, 2005 judgment entered against them in the amount of $20,000. We reverse.
We briefly state the combined facts and procedural history as adduced from defendants' appendix. Defendants own a three-unit building at 137 Butler Street in the City of Paterson. In December 2002, the building caught fire and damaged the units. In February 2003, defendants contacted a local contractor, plaintiff Pedro Ortiz of plaintiff Pedro & Sons Construction, for an estimate to repair the building.
Ortiz estimated the cost of repairs at $48,500. Leonarda Uribe advised Ortiz to draft a contract and send it to Citi Mortgage (Citi), defendants' mortgagee, for approval. Citi was in possession of the fire insurance proceeds and consented to release those proceeds in increments, "depending on the percentage of the work that was completed." Ortiz agreed to draft a contract and present it to defendants and Citi for review.
By April 2003, no contract had been presented to defendants. However, without obtaining the necessary permits from the City, Ortiz placed a dumpster in front of defendants' property. Santos Uribe received a summons because of the illegally-parked dumpster. Defendants requested Ortiz to obtain the necessary permit so that they could have the summons dismissed. However, because of his failure to produce the permit and timely present defendants with a contract, defendants paid the summons and informed Ortiz that his services were no longer required. As such, plaintiffs never conducted any repairs on defendants' building.
Thereafter, defendants contacted another contractor to complete the necessary repairs and received an estimate of $120,000. A contract was presented to Citi for the work, and by May 2003, the new contractor commenced the repairs.
On December 21, 2004, plaintiffs filed a complaint in the Law Division against defendants, demanding $20,000 for goods and services rendered. On February 2, 2005, defendants filed an answer pro se. The parties were ordered to submit to non-binding arbitration on September 7, 2005. As a result of defendants' failure to appear at the arbitration proceeding, the court entered an order striking their answer pursuant to Rule 4:21A-4(f). Based on the proofs submitted at the arbitration hearing, the arbitrator entered an award that day against defendants in the amount of $20,000.
On November 1, 2005, the court entered an order dismissing the action because the parties failed to either confirm the arbitration award or demand a trial de novo within fifty days of its entry. R. 4:21A-6. After both parties received notice of the November 1, 2005 dismissal, plaintiffs filed a motion on November 30, 2005, seeking to vacate the dismissal and confirm the arbitration award. On December 19, 2005, the court granted plaintiffs' motion and entered judgment, confirming the arbitration award.*fn2
On May 8, 2008, plaintiffs sent defendants a copy of the December 19, 2005 order, together with an information subpoena. Although defendants had not received plaintiffs' mailing of May 8, 2008, they received notification of the judgment when served with plaintiffs' June 5, 2008 motion seeking to enforce litigant's rights for failure to answer the information subpoena.
On June 26, 2008, defendants filed a cross-motion to vacate the December 2005 judgment. Although they acknowledged that they were properly served with the complaint and the November 2005 order of dismissal, defendants denied receiving the arbitration notice, the order suppressing their answer for failure to appear at the arbitration proceeding, a copy of the arbitration award, and plaintiffs' motion to vacate dismissal and confirm the arbitration award.
On July 3, 2008, the court granted plaintiffs' motion to enforce litigant's rights, and denied defendants' motion to vacate the judgment. Although the court did not express its reasons for denying defendants' motion in an oral or written opinion, it did note on the order the following explanation of its disposition of the motion, pursuant to Rule 1:6-2(f):
Application is denied. Notice was given to defendants of motion to enforce arbitration award and to enter a judgment. This was done in 2005. No basis under R. 4:50-1 provided to allow this court to vacate default judgment.
On appeal, defendants argue that the trial court erroneously denied their motion seeking to vacate the order of judgment pursuant to Rule 4:50-1. We agree.
Generally, upon service of an order striking a defendant's answer for failure to appear for an arbitration proceeding pursuant to Rule 4:21A-4(f), the defaulting party may move for relief from the sanction only on a showing of "good cause [for the non-appearance] and on such terms as the court may deem appropriate, including litigation expenses and counsel fees incurred for services directly related to the non-appearance."
R. 4:21A-4(f). Here, defendants were never served with the order striking their answer for failure to appear at the arbitration proceeding or with the arbitration award, thus depriving them of the opportunity to seek vacation of the order and award prior to plaintiffs seeking confirmation of the award. Because the order of judgment was entered against defendants with their answer having been suppressed, we equate their motion as one to vacate a default judgment under Rule 4:50-1.
Rule 4:50-1 provides the circumstances under which a court may set aside an order of judgment, including: "(a) mistake, inadvertence, surprise, or excusable neglect; . . . or (f) any other reason justifying relief from the operation of the judgment or order."*fn3 In addition, a party seeking to set aside a default judgment must establish that he or she has a meritorious defense. Mancini v. EDS, 132 N.J. 330, 334 (1993); Goldhaber v. Kohlenberg, 395 N.J. Super. 380, 391 (App. Div. 2007).
Whether to vacate a default judgment pursuant to this rule "is left to the sound discretion of the trial court and will not be overturned on appeal absent a mistaken exercise of that discretion." Nowosleska v. Steele, 400 N.J. Super. 297, 302 (App. Div. 2008). However, discretion "means legal discretion, in the exercise of which the judge must take account of the law applicable to the particular circumstances of the case and be governed accordingly." State v. Steele, 92 N.J. Super. 498, 507 (App. Div. 1966). Thus, "[i]f the trial judge misconceives the applicable law or misapplies it[,] . . . the exercise of legal discretion lacks a foundation and becomes an arbitrary act." Ibid. In those circumstances, we need not defer to the trial court's discretionary ruling. Alves v. Rosenberg, 400 N.J. Super. 553, 563 (App. Div. 2008).
A motion to vacate a default judgment pursuant to Rule 4:50-1 is "viewed with great liberality, and every reasonable ground for indulgence is tolerated to the end that a just result is reached." Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.), aff'd, 43 N.J. 508 (1964); see also Nowosleska, supra, 400 N.J. Super. at 303. "A court's liberality in vacating default judgments is justified, since a default judgment is based only on one side's presentation of the evidence without due consideration to any countervailing evidence or point of view, and, thus, may not be a fair resolution of the dispute." Nowosleska, supra, 400 N.J. Super. at 303. Accordingly, all doubts are "resolved in favor of the parties seeking relief." Mancini, supra, 132 N.J. at 334.
We are satisfied that defendants not only established excusable neglect under Rule 4:50-1(a), but also exceptional circumstances under subsection (f) of the rule warranting relief from the judgment. It is undisputed that defendants never received the notice to arbitrate, a copy of the order of September 7, 2005 striking their answer for failure to appear at the arbitration proceeding, a copy of the arbitration award, or plaintiffs' motion of November 30, 2005, seeking to vacate the November 1, 2005 dismissal and to confirm the arbitration award. In addition, defendants were not served with a copy of the December 19, 2005 order entering judgment against them until two and one-half years later, when they were served with plaintiffs' June 5, 2008 motion seeking to enforce litigant's rights.
Additionally, defendants have raised a meritorious defense to plaintiffs' complaint. Defendants deny that plaintiffs performed any work on their building. In fact, the record indicates that another contractor made the repairs. We are satisfied that the trial court mistakenly exercised its discretion by failing to view defendants' motion with "with great liberality." Marder, supra, 84 N.J. Super. at 319. Accordingly, we reverse the order of July 3, 2008, and remand to the trial court for further proceedings consistent with this opinion.
Reversed and remanded.