July 29, 2009
DARA-ANN SCHEPS F/K/A PAPARAZZO, PLAINTIFF-APPELLANT,
VICTOR PAPARAZZO, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Passaic County, Docket No. FM-16-1187-03.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued June 1, 2009
Before Judges Sabatino and Simonelli.
Plaintiff Dara-Ann Scheps appeals from the July 18, 2008 Family Part order denying her motion for various relief stemming from the failure of defendant Victor Paparazzo to abide by the terms of a February 27, 2008 consent order (consent order). On appeal, plaintiff contends that the motion judge erred in: (1) failing to enforce the consent order as to her entitlement to counsel fees; and (2) incorrectly calculating interest due as a result of defendant's failure to make timely payments required by the consent order. We reverse and remand for further proceedings.
We summarize the relevant facts from the record. The parties were married on June 5, 1993. Plaintiff filed a divorce complaint.*fn1 On December 9, 2004, the trial judge entered a final judgment of divorce, incorporating the parties' oral settlement agreement placed on the record.*fn2 On December 21, 2004, the judge entered a supplemental judgment of divorce, which required defendant to, among other things, make a two-stage payment of alimony as follows:
4. Stage one of the alimony resolution obligates defendant to make the following payments to [plaintiff]:
i. January 1, 2006 $48,000
ii. November 1, 2006 $48,000
iii. May 1, 2007 $24,000
10. Stage two of the alimony resolution obligates defendant to make the following payments to [plaintiff]:
i. August 1, 2007 $12,000
ii. November 1, 2007 $12,000
iii. February 1, 2008 $12,000
iv. May 1, 2008 $12,000
v. August 1, 2008 $12,000
vi. November 1, 2008 $12,000
vii. February 1, 2009 $12,000
viii. May 1, 2009 $12,000
ix. August 1, 2009 $12,000
x. November 1, 2009 $12,000
The supplemental judgment also required defendant to pay to plaintiff 260 equal weekly payments of $1277.95 in connection with the first mortgage balance on the parties' property in Toms River.
Defendant only paid plaintiff $4000, instead of the $48,000 payment, due on January 1, 2006. As a result, plaintiff filed a motion to enforce litigant's rights. After oral argument, the judge found defendant in violation of litigant's rights for failure to make the required payment. The judge entered an order on April 7, 2006, ordering defendant to make a $44,000 lump sum payment within thirty days, and if he failed to comply, to pay a $50 per day sanction beginning on the thirty-seventh day following the entry of the order.
Defendant did not timely pay the $44,000 required by the April 7, 2006 order. He only paid $4000 on May 5, June 2, July 9, August 31, October 3, October 28, and December 5 and 26, 2006. He was also delinquent on the weekly payments. Plaintiff and/or her attorney repeatedly requested payment.
On or about February 14, 2007, plaintiff filed another motion in aid of litigant's rights. Defendant filed a cross-motion, seeking to reduce his payment to $4000 monthly in lieu of the agreed-upon, and court-ordered, lump sum of $48,000. On March 23, 2007, following oral argument, the motion judge entered an order requiring defendant, among other things, to pay plaintiff $48,000 plus arrears of $15,550 for a total of $63,550. The judge also ordered defendant to make the weekly payments and to pay plaintiff's counsel fees. The judge also permitted plaintiff to serve an information subpoena, to depose defendant as to his assets and income, and to "utilize any [and] all collection procedures permitted by statute and case law." On or about April 9, 2007, plaintiff filed the order as a judgment and recorded it as a lien. The judge subsequently entered an order on April 8, 2007, ordering defendant to pay $3500 for plaintiff's counsel fees. Plaintiff also recorded this order as a lien.
It is undisputed that after plaintiff served the information subpoena, the parties entered into extensive negotiations, resulting in an agreement to amend the supplemental divorce judgment regarding defendant's payments. The parties incorporated that agreement into the consent order.
Defendant did not dispute that he owed plaintiff $144,000 at the time of entry of the consent order. The consent order required him to pay the arrears, together with 7% annual interest, in twenty-four monthly installments of $6420 ($6000 plus $420 in interest), the first day of each month beginning January 1, 2008. The consent order also provided as follows:
The defendant agrees that if he does not make any of the aforementioned payments on or before the first of each month, he will pay any and all legal fees and costs associated with plaintiff's enforcement of the terms of this Consent Order, including but not limited to letters to the adversary as well as if a motion is filed to seek enforcement of plaintiff's rights. In addition, if the defendant does not make timely payments on or before the first of each month as defined above, the defendant expressly agrees to pay the plaintiff interest in the amount of 6% per month on any balance due and owing to the plaintiff at the time and going forward until the entire amount, along with interest, is paid to plaintiff.
It is undisputed that after entry of the consent order, defendant was again non-compliant in the timing and amount of his payments. As a result, plaintiff filed a motion to enforce the consent order. She requested, among other things, sanctions of $50 per day, an award of counsel fees, and permission to serve another information subpoena. In her supporting certification, plaintiff outlined defendant's repeated violations of the consent order. She also provided a partial list of his assets, indicating defendant's ability to pay. Defendant's undisputed assets include ownership of: the Toscana Cheese Company, a home in Toms River, a thirty-one foot Ocean Master Center console boat, a Harley Davidson motorcycle, a Porsche, a truck, and an ownership interest in the Manchester Gun Club. Defendant also receives approximately $11,000 per month from the sale of another company. Defendant filed a cross-motion, seeking denial of plaintiff's enforcement motion and an award of counsel fees.
Prior to the disposition of the motions, on or about June 23, 2008, defendant made all outstanding payments due to plaintiff. Nevertheless, plaintiff pursued the motion. At oral argument, the judge found that the consent order was "obviously a carefully-drafted consent order[,]" and was "very well worked out and well worded[.]" The judge emphasized that the parties "should follow it strictly to the letter of the agreement, which means, . . . that [defendant] can save himself a lot of grief just [making payments] by the first of the month[.]"
Despite these comments, the judge denied plaintiff's request for sanctions, for counsel fees and to serve another information subpoena. The judge ordered defendant to pay interest on all late payments, but calculated that interest at $1.055 per day instead of the 6% monthly rate required by the consent order. The judge noted that defendant was then current on his payments. As to counsel fees, the judge stated, "each will pay their own. There's substantial compliance with the terms of the consent order in this matter so that I don't see the need to reward or punish anyone with counsel fees."
Plaintiff sought reconsideration of the interest calculation and of the denial of counsel fees. The judge denied the motion. This appeal by plaintiff followed. Defendant did not cross-appeal.
Plaintiff contends that the judge erred in failing to strictly enforce the specific and unambiguous terms of the consent order as to her entitlement to counsel fees. We agree.
We first emphasize that despite two judgments and two court orders, defendant was always non-compliant in the timing and amount of his payments. Defendant only came current after forcing plaintiff to file a motion. That said, we continue our analysis.
"The basic contractual nature of matrimonial agreements has long been recognized." Pacifico v. Pacifico, 190 N.J. 258, 265 (2007). Although "'the law grants particular leniency to agreements made in the domestic arena,' thus allowing 'judges greater discretion when interpreting such agreements[,]' . . . [a]s a general rule, courts should enforce contracts as the parties intended." Id. at 266. Where the terms of a contract are unambiguous, "the court must enforce it as written." County of Morris v. Fauver, 153 N.J. 80, 103 (1998) (citation omitted).
"Settlement agreements in matrimonial matters, being 'essentially consensual and voluntary in character, . . . [are] entitled to considerable weight with respect to their validity and enforceability' in equity, provided they are fair and just."
Dolce v. Dolce, 383 N.J. Super. 11, 20 (App. Div. 2006) (quoting Petersen v. Petersen, 85 N.J. 638, 642 (1981)); see also Lepis v. Lepis, 83 N.J. 139, 153 (1980); Berkowitz v. Berkowitz, 55 N.J. 564, 569 (1970); Schlemm v. Schlemm, 31 N.J. 557, 581-82 (1960).
Separation agreements "'are generally favored by the courts as a peaceful means of terminating marital strife and discord so long as they are not against public policy.'" Dolce, supra, 383 N.J. Super. at 20 (quoting Konzelman v. Konzelman, 158 N.J. 185, 193 (1999)); see also Weishaus v. Weishaus, 180 N.J. 131, 143 (2004). "And while incorporation of a PSA into a divorce decree does not render it immutable, nor its terms solely governed by contract law, nevertheless, if found to be fair and just, it is specifically enforceable in equity." Eaton v. Grau, 368 N.J. Super. 215, 224 (App. Div. 2004) (citations omitted).
Although in matrimonial matters, the award of counsel fees is typically a discretionary decision, see R. 5:3-5(c), "[i]f the parties have stipulated by agreement that the husband will pay counsel fees to the wife in an amount to be fixed by the court, the court cannot refuse to allow any counsel fees at all." Pressler, Current N.J. Court Rules, comment 4.5 on R. 5:3-5 (2009) (citing Jobe v. Jobe, 197 N.J. Super. 596 (App. Div. 1984)).
Here, the terms of the consent order regarding counsel fees are unambiguous. If defendant did not make a payment when due, he must pay "any and all legal fees and costs associated with plaintiff's enforcement of the terms of the consent order." Because there was no showing of changed circumstances, which may have warranted deviation from the agreement's terms, or of defendant's inability to pay, plaintiff was entitled to an award of "any and all" counsel fees and costs for her motion. Accordingly, the trial court must determine the amount of reasonable counsel fees and costs plaintiff incurred for her motion and award her that amount.
Plaintiff next contends that the judge erred in calculating the interest due and owing to her under the consent order. She claims entitlement to the 6% monthly rate provided in the consent order.
There is no dispute that defendant agreed to pay 6% interest per month on any balance due and owing to plaintiff. The court incorrectly calculated that 6% of the $6420, broken down to a daily rate, equals $1.055 per day. As plaintiff correctly notes, 6% monthly interest on $6420 equals $385.20 a month, or $4622.40 per year. Therefore, the average daily rate should be approximately $12.66, not $1.055. The question is, however, whether the 6% monthly interest is enforceable.
Although this case does not present the typical liquidated damages situation, case law regarding consideration of liquidated damages is helpful in our analysis of the default interest rate here. "Liquidated damages is the sum a party to a contract agrees to pay" for breaching a promise. Westmount Country Club v. Kameny, 82 N.J. Super. 200, 205 (App. Div. 1964) (citation omitted). When it is agreed upon in "a good faith effort to estimate in advance the actual damage that will probably ensue from the breach, [it] is legally recoverable as agreed damages if the breach occurs." Ibid. A penalty, on the other hand, "is the sum a party agrees to pay in the event of a breach, but which is fixed, not as a pre-estimate of probable actual damages, but as a punishment, the threat of which is designed to prevent the breach." Ibid. "Parties to a contract may not fix a penalty for its breach[;] . . . such a contract is unlawful." Ibid. (citing Suburban Gas Co. v. Mollica, 131 N.J.L. 61, 62 (Sup. Ct. 1943)).
Because stipulated damages "may constitute an oppressive penalty," "[h]istorically, courts have closely scrutinized contract provisions that provided for the payment of specific damages upon breach." Metlife Capital Fin. Corp. v. Wash. Ave. Assocs. L.P., 159 N.J. 484, 493 (1999) (citing Wasserman's Inc. v. Middletown, 137 N.J. 238, 248 (1994)).
An agreement, made in advance of breach, fixing the damages therefore, is not enforceable as a contract and does not affect the damages recoverable for the breach, unless (a) the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach, and (b) the harm that is caused by the breach is one that is incapable or very difficult of accurate estimation. [Ibid. (citing Restatement of Contracts §339 (1932)).]*fn3
"New Jersey adopted the Restatement method for evaluating stipulated damage clauses in [Westmount Country Club, supra, 82 N.J. Super. 200]." Ibid. However, since then, "[c]courts began to treat the two-pronged Westmount test as a continuum; the more uncertain the damages caused by a breach, the more latitude courts gave the parties on their estimate of damages." Id. at 494 (citation omitted). "Reasonableness" is now "'the standard for deciding the validity of stipulated damages clauses,'" and it is determined "'under the totality of the circumstances.'" Id. at 495 (citing Wasserman's Inc., supra, 137 N.J. at 249).
We tacitly acknowledged this more flexible approach in a foreclosure case challenging an enhanced default rate, which increased the contract rate by 15%. Id. at 494 (citing Stuchin v. Kasirer, 237 N.J. Super. 604 (App. Div.), certif. denied, 121 N.J. 660 (1990)). "Despite reciting the strict two-pronged test of Westmount, [we] remanded the issue to the trial court to receive 'appropriate evidence of the reasonableness or unreasonableness of the 15% rate increase[.]'" Metlife Capital Fin. Corp., supra, 159 N.J. at 494-95 (citing Stuchin, supra, 237 N.J. Super. at 614).
In Wasserman's Inc., supra, 137 N.J. at 249-54, our Supreme Court expressly addressed the proper method for evaluating stipulated damage clauses. The challenged clause provided that upon the cancellation of a lease of commercial property, the lessor would pay damages in the amount of 25% of the lessee's gross annual receipts. Id. at 242. Citing the "principle of reasonableness," the Court noted that the uncertainty or difficulty in calculating damages, the parties intent, the actual damages suffered, and the parties' bargaining power, all affect the validity of a stipulated damages clause. Id. at 250-54. However, the Court did not find these factors to be dispositive, and remanded the case "leav[ing] to the sound discretion of the trial court the extent to which additional proof is necessary on the reasonableness of the clause." Id. at 258.
In Metlife, the Court applied "'[t]he overall single test of validity'" to determine whether a five percent late fee was "'reasonable under the totality of the circumstances.'" Metlife, supra, 159 N.J. at 495 (quoting Wassenaar v. Panos, 331 N.W.2d 357, 361 (Wis. 1983)). The Court found "that under that 'reasonableness' test, the five percent late fee is a valid measure of liquidated damages." Id. at 495-96 (observing that "liquidated damages provisions in a commercial contract between sophisticated parties are presumptively reasonable and the party challenging the clause bears the burden of proving its unreasonableness").
"Default interest rates, like late fees, are presumed reasonable." Id. at 501. However, in Metlife, supra, the Court noted that, while "[n]o reported case in New Jersey ha[d] directly addressed the validity of a fixed percentage late charge," courts in other jurisdictions had determined invalid late charges that "involved unusually large percentages or explicit evidence of a coercive intent." Id. at 498-99.
The above cases involve commercial transactions; however, the same "reasonableness" test should be applied here. Although the 6% monthly interest rate is specified in the consent order, it amounts to 72% per year, and a 7% annual interest rate already applies to certain arrears. Accordingly, applying the settled law noted in this opinion, the trial court must determine whether the 6% monthly interest penalty is reasonable here under the totality of the circumstances.
Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.