April 22, 2009
LESTER SMULL, PLAINTIFF-APPELLANT,
RESIDENTIAL HEALTHCARE, INC., D/B/A MEDICAL RESOURCE, ROBERT FINKLE AND DAVID GROELINGER, DEFENDANTS, AND JOHN ZUBAK AND HARVEY MITGANG, DEFENDANTS-RESPONDENTS.
On appeal from Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-3501-03.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 14, 2009
Before Judges A. A. Rodríguez and Payne.
On December 8, 2003, plaintiff, Lester Smull, filed a complaint against defendants, Residential Healthcare, Inc., d/b/a Medical Resource (RHC), John Zubak, Robert Finkle, Harvey Mitgang, and David Groelinger, seeking compensatory and punitive damages for breach of contract - wrongful discharge (Count I), breach of an implied covenant of good faith and fair dealing (Count II), breach of oral contract (Count III), intentional infliction of emotional distress (Count IV), fraud, deceit and misrepresentation (Count V), wrongful discharge in violation of public policy (Count VI), defamation (Count VII), and conspiracy (Count VIII). An amended complaint omitting the claim of intentional infliction of emotional distress was filed on May 1, 2004.
In both complaints, plaintiff alleged that he was employed by RHC on July 9, 2001, pursuant to a written employment agreement that guaranteed employment with RHC through December 31, 2005, with guaranteed annual renewal contracts of employment after that date, at an annual salary of $150,000 plus benefits and an expense allowance. Plaintiff further alleged that on July 16, 2003, he was asked to loan RHC the sum of $10,000, which he refused to do. Plaintiff was terminated without notice on the following day. Plaintiff stated in paragraphs 12 and 13 of his initial and amended complaints:
12. In the course of his employment, Mr. Smull had learned of a scheme in which RHC was making unauthorized unearned commission payments to a third party, Diane Bloom, who was then returning a percentage of those payments to certain officers of RHC as unlawful kickback payments through the use of an unauthorized and unofficial corporate checkbook.
13. Upon information and belief, Mr. Smull was terminated by RHC because, in whole or in part, he became aware of the unlawful kickback scheme and the Officers of RHC feared that he would present evidence of same to the Board of Directors and owners of RHC so that this practice would be stopped.
The alleged kickback scheme constituted the basis for plaintiff's cause of action for wrongful discharge in violation of public policy.
On February 1, 2006, plaintiff moved to amend his complaint to allege breach of fiduciary duty on the part of defendants John Zubak, the President and Chief Operating Officer of RHC, and Harvey Mitgang, its Executive Vice-President, arising from their alleged receipt of "monies from RHC in the form of 'commission payments,' stemming from business done between RHC and entities known as Self Funded Alternatives ('SFA') and Self Funded Alternatives of Nevada ('SFA of Nevada')." According to plaintiff, "[b]y accepting commission payments for the business activities of RHC, Messrs. Zubak and Mitgang have acted to the detriment of RHC, have engaged in a conduct of self dealing and unjust enrichment and have breached their fiduciary duty and duty of care to RHC." Plaintiff further alleged that the commission payments had "foreseeably resulted in a depletion of funds from RHC and have been a detriment to RHC."
Plaintiff's motion was supported by a certification by counsel that recited difficulties in obtaining documentary discovery of financial records.*fn1 Counsel continued by stating:
As stated, part of the focus of plaintiff's supplemental document requests seven months ago was the defendants' financial records including records of payments of commissions purportedly made by defendant RHC to two of the individual defendants, John Zubak and Harvey Mitgang. While plaintiff has been stymied to date in his effort to obtain these financial records, defendant Harvey Mitgang testified at deposition on January 24, 2006 that, in fact, he and Mr. Zubak had received commission payments from entities known as Self Funded Alternatives ("SFA") and Self Funded Alternatives of Nevada ("SFA of Nevada").*fn2 This was the first confirmation that, in fact, said commission payments were made to Messrs. Zubak and Mitgang.
After requesting leave to file a second amended complaint, counsel certified that "plaintiff anticipates that this will not unduly lengthen the period of pre-trial discovery in this matter." At the time, the period for discovery had been extended on three occasions from an initial discovery end date of April 15, 2004 to February 2, 2005 to November 3, 2005 and to April 14, 2006. No trial date had been given to the more-than-two-year-old case.
At oral argument on the motion, the judge expressed skepticism that discovery with respect to the commission payment allegations could be completed within the existing discovery period. The judge also stated:
Well, obviously, when it comes to an application for amended pleading, the court should exercise a great deal of liberality in doing so, but I - I can't find, based upon a reading of the papers - submissions here that there was a sufficient basis to allow plaintiff to include a breach of fiduciary duty . . . .
The motion was therefore denied.
Thereafter, plaintiff's case was tried before a jury in the period from March 4 to March 13, 2008 and, on April 2, 2008, an order of judgment was entered against RHC in the amount of $12,040 plus interest for breach of contract and defamation and against defendant Robert Finkle in the amount of $15,000 plus interest for defamation. Defendants Mitgang and Zubak were not found liable to plaintiff.
Plaintiff has not appealed from the order of judgment, but instead has challenged the order denying his motion to file a second amended complaint alleging breach of fiduciary duty by Mitgang and Zubak. On appeal, plaintiff argues:
THE TRIAL COURT ABUSED ITS DISCRETION WHEN IT DENIED PLAINTIFF'S MOTION TO AMEND HIS COMPLAINT TO INCLUDE CLAIMS OF BREACH OF FIDUCIARY DUTY EVEN THOUGH PRE-TRIAL DISCOVERY HAD NOT BEEN COMPLETED AND PLAINTIFF'S AMENDMENT OF THE COMPLAINT WOULD NOT HAVE DELAYED TRIAL.
Rule 4:9-1 provides that, after the period for amending a pleading as a matter of course has expired, "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." Nonetheless, whether an amended complaint should be permitted remains in the court's sound discretion. Notte v. Merchants Mut. Ins. Co., 185 N.J. 490, 500-01 (2006); Kernan v. One Washington Park Urban Renewal Assocs., 154 N.J. 437, 456-57 (1998). The Supreme Court has held that the court's exercise of discretion requires a two-step analytical process, requiring consideration of "whether the non-moving party will be prejudiced, and whether granting the amendment would nonetheless be futile" because the amended claim will fail. Notte, supra, 185 N.J. at 501. These determinations are to be made "in light of the factual situation existing at the time [the] motion is made." Ibid. (quoting Interchange State Bank v. Rinaldi, 303 N.J. Super. 239, 256 (App. Div. 1997)). "[C]courts are free to refuse leave to amend when the newly asserted claim is not sustainable as a matter of law. In other words, there is no point to permitting the filing of an amended pleading when a subsequent motion to dismiss must be granted." Ibid. (quoting Interchange State Bank, supra, 303 N.J. Super. at 256-57).
Plaintiff notes that his proposed amended pleading did not seek to name new parties, and it would have been filed prior to the conclusion of the applicable discovery period and prior to the assignment of a trial date to the matter. Plaintiff also claims that it was only after the deposition of Mitgang that he had sufficient facts to support his breach of fiduciary duty claim. We find that statement to be curious, since the commission payments appear to stem from the same conduct (then characterized as a kickback scheme*fn3 ) that plaintiff alleged in paragraph 12 of his initial and first amended complaints he had discovered prior to his termination. According to plaintiff, his knowledge of that scheme and his potential disclosure of it to the Board of Directors led directly to his termination. If such were the case, then we do not understand plaintiff's two-year delay in utilizing these facts as a basis for liability on the part of Mitgang and Zubak.
Further, our review of the record presented to the motion judge suggests that she acted reasonably in concluding that plaintiff had not alleged sufficient facts to support a claim of breach of fiduciary duty on the part of Mitgang and Zubak. In that regard, plaintiff alleges that Mitgang and Zubak benefited monetarily from commission payments made by RHC to SFA and SFA of Nevada. However, the pleadings do not allege what work was done in exchange for the payments, whether the work was unnecessary or whether the payments were excessive. Indeed, it is unclear that such facts were known to plaintiff at the time. It is therefore possible that RHC paid a reasonable commission based on market rates for the work performed, and that the work enhanced RHC's position, rather than depleting its assets. An additional question exists as to whether plaintiff had standing to bring this claim, since he does not appear to have had an ownership interest in RHC. "[P]leadings reciting mere conclusions without facts and reliance on subsequent discovery do not justify a lawsuit." Glass v. Suburban Restoration Co., 317 N.J. Super. 574, 582 (App. Div. 1998).
In circumstances in which the cause of action that plaintiff sought to assert had limited factual and legal support,*fn4 substantial discovery would be required to perfect plaintiff's claim, more than two years had elapsed since suit had been filed, and three extensions of the discovery period had already been granted, we find no abuse of discretion on the motion judge's part in declining to authorize the amendment. We have previously noted plaintiff's allegation that his knowledge of allegedly illegal conduct involving SFA and SFA of Nevada and the potential that he would disclose that conduct to the Board of Directors constituted the real reason for his termination. Under the circumstances, it was incumbent upon plaintiff to pursue the discovery required to support that allegation in a timely fashion, but he did not. As we stated in Du-Wel Prods., Inc. v. U.S. Fire Ins. Co., 236 N.J. Super. 349 (App. Div. 1989), certif. denied, 121 N.J. 617 (1990), in affirming a trial court's determination not to permit the filing of a third-party complaint:
Amendment of pleadings, while liberally allowed, nevertheless remains a matter within the sound discretion of the court. It is well-settled that an exercise of that discretion will be sustained where the trial court refuses to permit new claims and new parties to be added late in the litigation and at a point at which the rights of other parties to a modicum of expedition will be prejudicially affected. [Id. at 364.]
We find that statement applicable here.