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Otis Elevator Co. v. Eastern Elevator Services

February 4, 2010


On appeal from the Superior Court of New Jersey, Chancery Division, Gloucester County, C-96-05.

The opinion of the court was delivered by: R. B. Coleman, J.A.D.


Argued January 5, 2009

Before Judges R. B. Coleman and Sabatino.

Defendants, Eastern Elevator Services, Inc. (Eastern), Robert Rauch (President of Eastern) and Jacqueline Rauch (100 percent shareholder of Eastern), appeal from a default judgment entered against them in the amount of $610,297.64. Defendants argue that their settlement agreement is unenforceable because there was never a meeting of minds, and that the matter should be scheduled for trial. They alternatively argue that if the settlement agreement is found enforceable, reinstatement of default awarding plaintiff Otis Elevator Company (Otis) liquidated damages was improper. Defendants further claim that because the judge did not mention Mrs. Rauch's name at the motion hearing on December 7, 2007, the portion of the order entering judgment as to Jacqueline Rauch should be vacated. For the reasons that follow, we reverse and remand.

On July 14, 2005, Otis and Eastern executed an agreement for Otis to purchase Eastern's contracts related to its elevator business, maintenance, and repair. This agreement was effective on the closing date of September 1, 2005. Shortly thereafter, Otis discovered discrepancies in the projected revenue and number of active contracts represented by Eastern. The result was a total reduction of $26,534.68 in the anticipated monthly revenue. On November 10, 2005, Otis filed a verified complaint against defendants alleging equitable fraud - rescission (count one); legal fraud - damages (count two); and, breach of contract - damages (count three).

After completing discovery, trial was scheduled for April 2, 2007, and then subsequently for May 30, 2007. In both instances trial was adjourned due to ongoing settlement discussions. Trial was then scheduled for July 9, 2007.

On or around June 1, 2007, the attorney-client relationship between defendants and their attorney became strained. On June 26, 2007, defense counsel submitted a motion to withdraw for in-camera review. That motion was subsequently granted. Defendants did not obtain a new attorney before the scheduled trial date. Thus, on July 9, 2007, plaintiff appeared in court; defendants did not. On July 30, 2007, an order for default was entered against defendants.

Mr. Rauch then filed for bankruptcy in Florida, effectively staying this matter, however, on August 10, 2007, Mr. Rauch's bankruptcy application was dismissed. Plaintiff moved for entry of judgment by default against defendants. On September 24, 2007, defendants cross-motioned to vacate default, arguing excusable neglect and that meritorious defenses existed. On October 5, 2007, the Law Division judge denied plaintiff's motion to enter default judgment and granted defendants' motion to vacate default.

Trial was scheduled for October 29, 2007, but before that date, the parties reported they had reached a settlement.

Thereafter, on November 7, 2007, the terms of the settlement were stated on the record before the court. Defendants were not present at the settlement hearing; however, defense counsel represented to the court that he had authority to place the settlement agreement on the record on behalf of defendants.

The stated settlement agreement provided that Otis should receive a total of $350,000 plus interest. Specifically, the parties agreed that: (a) effective immediately, Otis would retain the full amount of the $202,907.40 holdback from the original closing date in 2005; (b) defendants would wire transfer $30,000 to their attorney's trust account and that defense counsel would deliver a $30,000 check to plaintiff counsel on November 19, 2007; (c) the remaining $117,092.60 would be delivered by defendants on or before March 18, 2008 at the interest rate of seven percent per annum beginning to run on November 19, 2007; and, (d) as assurance that Otis would receive the $117,092.60, defendants were obligated to place a mortgage on their Florida property executed in favor of Otis, provide documentation of the Florida property's ownership, to cooperate in securing either title or a duplicate title for an Astro van acquired as part of the sale, and to provide documentation of all Internal Revenue Service (IRS) liens. At the settlement hearing, the parties stated their plan to execute a "more formal agreement" consistent with the terms placed on the record.

On November 19, 2007, defendants failed to deliver the $30,000 to their attorney. In turn, a more formal settlement agreement was never memorialized in writing as anticipated. On November 26, 2007, the court entered an order demanding that defendants show cause why judgment should not be entered against them in the full amount of damages, $610,297.64. Defendants' attorney then filed an in-camera motion to withdraw as counsel.

On December 7, 2007, the court reinstated the previous default and entered a judgment in favor of plaintiff for liquidated ...

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