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State v. Real Property Commonly Known as 48 South New York Road


September 14, 2009


On appeal from Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-2917-05.

Per curiam.


Submitted September 9, 2009

Before Judges Payne and Waugh.

Dawn Puchalsky appeals the order of the Law Division enforcing a "consent judgment" that embodies a memorandum of understanding (MOU) signed by her then attorney, whom she contends was not authorized to sign the MOU or to settle the within forfeiture action on her behalf.*fn1 We reverse and remand for a plenary hearing consistent with this opinion.


For the purposes of this appeal, the relevant facts need be summarized only briefly. This case has its origins in an investigation and prosecution by the New Jersey Division of Criminal Justice with respect to allegations of health care fraud and related criminal activity. The target of the investigation was a dental practice known as Craig C. Puchalsky, D.D.S., P.A., which was located at 48 South New York Road in Absecon. The practice was operated by Craig C. Puchalsky, who is a dentist, and Dawn, who served as the office manager. Both individuals were indicted as a result of the investigation.

Following the indictment, the State filed a forfeiture action, N.J.S.A. 2C:64-3, with respect to certain real and personal property that it contends were either derived from, or used in connection with, Craig and Dawn's illegal activities. In addition, civil enforcement proceedings were also commenced against them pursuant to the Insurance Fraud Prevention Act, N.J.S.A. 17:33A-1 to -30.

Efforts were made among counsel representing the various parties to effectuate an overall resolution of all pending matters, both criminal and civil. The MOU at issue on this appeal was negotiated and signed by all counsel for that purpose. The essential terms of the MOU addressed the simultaneous resolution of the three matters. In the criminal matter, the MOU provided that Dawn would plead guilty to third-degree health care claims fraud, serve a non-custodial probationary term, and be jointly obligated with Craig to pay restitution of $8,057.65. Craig was to plead not guilty to third-degree theft by deception, to apply to the Pre-Trial Intervention Program (PTI), and to be jointly obligated with Dawn to pay the $8,057.65 restitution. In the civil administrative matter, the MOU provided that Dawn and Craig would be jointly liable for a penalty of $50,000, which was to be paid from the seized funds.

The MOU further provided that Dawn and Craig would relinquish all seized assets (approximately $417,469), which would be disbursed to pay the $8,057.65 in restitution and the civil administrative penalty of $50,000. The sum of $40,000 was to be released to pay part of the Puchalskys' state and federal tax liability, which with interest exceeded $1,000,000. The remaining funds would be forfeited to the State.

A payment in the approximate amount of the equity in the property that housed the dental office, estimated to be $57,766, was also to be paid to the State. With respect to the Puchalskys' residential property, located at 6 Lake Drive in Linwood, the MOU required the Puchalskys to pay fifteen percent of the net equity in the property to the State if they did not timely sell the residence to pay the IRS and other creditors. If they failed to make the required payment, the State would be authorized to seek an order "permitting the State to foreclose on the property, to retain 15 percent of the net proceeds and to distribute the balance to lienholders and [] to the Puchalskys."

Shortly before the scheduled trial date of the foreclosure action, the State requested that the matter be marked "settled," pending the submission of the consent judgment. The matter was, consequently, marked as settled and removed from the trial list.

As contemplated by the MOU, Craig entered a plea of not guilty to attempted theft by deception in October 2007 and applied for admission to PTI. In November 2007, however, Dawn's then attorney advised Craig's attorney that his client had not yet entered her plea of guilty as contemplated by the MOU and was contemplating a plea of not guilty.

In late December 2007, Dawn's current attorney was substituted as new counsel. He eventually advised the State that Dawn was upset that the MOU afforded her husband "a better deal" than she had received in the criminal matter.*fn2 At that time, the Puchalskys were involved in a divorce. New counsel also asserted that Dawn had not authorized her prior counsel to execute the MOU on her behalf. Dawn then sought unsuccessfully to re-negotiate the terms of the MOU with the State.

Dawn decided to go forward with the plea. Prior to Dawn's plea, she and Craig executed a hold-harmless agreement, which specifically references the MOU. It appears that one purpose of the agreement, which the Puchalskys sought to withhold as confidential, was to shift some of Dawn's financial obligations under the MOU to Craig, as between themselves.

On the same day, April 1, 2008, Dawn entered her plea of guilty to third-degree health care claims fraud in the criminal case. The State contends that it relied on the guilty plea as Dawn's ratification of the MOU, although that reliance does not appear to have been explicitly stated on the record or in any contemporaneous correspondence. Dawn also executed the civil administrative consent order in which she and Craig agreed to pay the $50,000 civil administrative penalty.

A few days before Dawn's original sentencing date, her attorney informed the State that Dawn was taking the position that she was not bound by the MOU specifically with respect to the forfeiture issues. Efforts to renegotiate the MOU by Dawn's attorney were again unsuccessful. On June 13, 2008, Dawn was sentenced to serve a three-year probationary term and to pay restitution of $8,850.15, in accordance with the plea and as contemplated by the MOU.*fn3

Because Dawn subsequently refused to enter into the consent judgment in this action, Craig moved, in August 2008, to enforce the terms of the MOU by requiring Dawn to enter into the forfeiture consent judgment. Dawn opposed the motion and cross-moved to restore the forfeiture case to the active trial calendar. The State also cross-moved for enforcement and other relief.

On September 12, 2008, the trial judge entered an order granting Craig's motion, enforcing the MOU, and entering the consent judgment. He also filed an order denying Dawn's application to restore the case to the active trial calendar.

In his memorandum of decision, the trial judge explained that, because the signature of Dawn's then attorney on the MOU "represented that he had authority from Dawn" to agree to the settlement and the MOU, he would "not inquire further into that aspect of the matter."

Dawn sought a stay of the consent judgment from the trial court, which was denied. However, the State agreed not to seek an order authorizing foreclosure on the residence for up to one year. This appeal followed.


As we held in Amatuzzo v. Kozmiuk, 305 N.J. Super. 469, 474-75 (App. Div. 1997):

On a disputed motion to enforce a settlement, as on a motion for summary judgment, a hearing is to be held to establish the facts unless the available competent evidence, considered in a light most favorable to the non-moving party, is insufficient to permit the judge, as a rational factfinder, to resolve the disputed factual issues in favor of the non-moving party.

Because the motion judge in this case decided the motions as a matter of law and without an evidentiary hearing, our review of that decision is plenary. Marshak v. Weser, 390 N.J. Super. 387, 390 (App. Div. 2007).

With respect to an attorney's authority to settle litigation, our law has long recognized that:

The general rule is that unless an attorney is specifically authorized by the client to settle a case, the consent of the client is necessary. Negotiations of an attorney are not binding on the client unless the client has expressly authorized the settlement or the client's voluntary act has placed the attorney in a situation wherein a person of ordinary prudence would be justified in presuming that the attorney had authority to enter into a settlement, not just negotiations, on behalf of the client. [Amatuzzo, supra, 305 N.J. Super. at 475 (citations omitted).]

In this regard, it is important to recognize that careful consideration of settlement negotiations is warranted when they are conducted by an attorney without the direct participation of the client, as apparently happened here. In such circumstances, we have generally held that a litigant will not be bound by an attorney's statements during negotiations unless the client has "specifically authorized" the attorney to bind him or her. Ibid. See also City of Jersey City v. Roosevelt Stadium Marina, Inc., 210 N.J. Super. 315, 327 (App. Div. 1986), certif. denied, 110 N.J. 152 (1998), stating:

[U]nless an attorney is specifically authorized by the client to settle a case, the consent of the client is necessary. Stout v. Stout, 155 N.J. Super. 196, 203-204 (App. Div. 1977), superseded on other grounds, Petersen v. Petersen, 85 N.J. 638 (1981); Clarkson v. Selected Risks Ins. Co., 170 N.J. Super. 373, 379 (Law Div. 1979).


In this case, Dawn's certification in opposition to the motions to enforce the MOU stated categorically that her prior attorney was not authorized to enter into a settlement or to sign the MOU. In fact, she asserted that she did not even know he had done so until months later. Consequently, there was a genuine issue of material fact precluding enforcement of the MOU without a plenary hearing to determine the disputed facts.

The preliminary factual dispute relates to whether Dawn's prior attorney was or was not authorized to enter into the settlement agreement. If he was, it was appropriately subject to enforcement. However, even if he was not authorized to enter into the settlement at the time he did so, the inquiry is not ended.

In Amatuzzo, supra, 305 N.J. Super. at 475, we held that a party may be bound by a settlement when "the client's voluntary act has placed the attorney in a situation wherein a person of ordinary prudence would be justified in presuming that the attorney had authority to enter into a settlement, not just negotiations, on behalf of the client." We relied on U.S. Plywood Corp. v. Neidlinger, 41 N.J. 66, 74 (1963), in which the Supreme Court held:

The plaintiff knew that the meeting of May 18th had been specifically called to consider the settlement of creditors' claims. It sent its attorney Mr. Green, who is also its attorney in the present litigation. Throughout the meeting Mr. Green acted on its behalf. He was appointed to the creditors' committee which took over the defendant's assets and he thereafter acted as a member of that committee. His connection with the committee was never questioned by the plaintiff. If Mr. Green approved a settlement agreement, he presumptively had his client's authority to take that action. See N.J. Highway Authority v. Renner, 32 N.J. Super. 197, 200 (App. Div. 1954), aff'd 18 N.J. 485 (1955); [citations omitted].

The plaintiff is, of course, at liberty to rebut the presumption by testimony from Mr. Green and others indicating that no authority had been granted. But even upon the introduction of such testimony there may be a factual issue for the jury (see McCormick, Evidence § 311, pp. 651-652 (1954)), not only as to whether there had been a grant of authority, but also as to whether the circumstances here gave rise to an apparent authority sufficient to protect the defendant. See Ruppert v. Jernstedt & Co., 116 N.J.L. 214, 217 (E. & A. 1936), and J. Wiss & Sons Co. v. H.G. Vogel Co., 86 N.J.L. 618, 621 (E. & A. 1914), where the court, in dealing with the doctrine of apparent authority, had this to say:

The question in every such case is whether the principal has, by his voluntary act, placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question, and when the party relying upon such apparent authority presents evidence which would justify a finding in his favor, he is entitled to have the question submitted to the jury.

In addition, the State correctly argues that Dawn may have taken actions, such as entering into the hold-harmless agreement with Craig and taking advantage of certain provisions of the disputed settlement agreement, that would warrant a determination that she ratified the settlement agreement by her actions. "[R]atification is 'equivalent to an original grant of power,... and relates back to the date of the original action.'" Grimes v. City of East Orange, 288 N.J. Super. 275, 281 (App. Div. 1996) (quoting Houman v. Mayor and Council of Pompton Lakes, 155 N.J. Super. 129, 159 (Law Div. 1977)). "Ratification may be express or implied, and intent may be inferred from the failure to repudiate an unauthorized act; from inaction; or from conduct on the part of the principal which is inconsistent with any other position than intent to adopt the act." Thermo Contracting Corp. v. Bank of N.J., 69 N.J. 352, 361 (1976) (internal citations omitted). Once effected, a ratification "cannot later be revoked, even where the ratification may have been induced by the anticipation of benefits which fail to accrue." Ibid. (internal citation omitted).

All such determinations are, of necessity, extremely fact sensitive and cannot be made on certifications in the face of conflicting factual assertions by the participants, such as those in this case.

Consequently, we reverse the "consent judgment" on appeal and remand to the trial court for a plenary hearing on the following issues: (1) whether Dawn's attorney was authorized to accept the proposed settlement and sign the MOU on her behalf; and (2) even if the attorney was not so authorized, whether Dawn should nevertheless be bound by the MOU because (a) she put her then attorney in such a position that "a person of ordinary prudence would be justified in presuming that the attorney had authority to enter into a settlement" or (b) she "ratified" the MOU by her conduct, including, but not limited to, entering into a hold-harmless agreement with her estranged husband, Craig, or accepting the benefits of the MOU so as to prejudice other parties who reasonably relied on her conduct as ratification of the MOU. The hearing may include such additional issues as the trial judge deems legally appropriate and not inconsistent with our opinion.

Reversed and remanded. Jurisdiction is not retained.

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