April 22, 2010
RICHARD KOCHER AND FULDA KOCHER, PLAINTIFFS-APPELLANTS,
UC OVERLOOK DEVELOPMENT, LLC, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-1828-07.
The opinion of the court was delivered by: R. B. Coleman, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 9, 2009
Before Judges Carchman, R. B. Coleman and Simonelli.
In these back-to-back appeals,*fn1 plaintiff-appellants, Richard and Fulda Kocher (the Kochers), challenge a judgment of the Law Division that dismissed their claims against defendant, UC Overlook Development, LLC (Overlook) and directed the Kochers to reimburse Overlook $18,675.48 for attorney's fees and court costs incurred in defending against those claims. The Kochers also challenge separate orders of the Law Division dated January 4, 2008 and January 28, 2008, that granted Overlook's motion for enforcement of litigant's rights, pursuant to Rule 1:10-3. In granting that motion, the Law Division ordered the Kochers to pay $100 for each day beyond the prescribed period during which they failed to comply with the order to pay; the Kochers were also directed to pay reasonable attorney's fees and court costs incurred by Overlook in pursuing the motion for enforcement of litigant's rights.
Because we agree with the Kochers' contention that the Law Division prematurely dismissed their claims before they could avail themselves of discovery, we reverse and remand for further proceedings. With regard to the Kochers' second appeal, we affirm the judgment granting Overlook's motion for enforcement of litigant's rights.
The underlying dispute arises out of a contract for the sale of a 3.2-acre parcel of real property known as the Yardley (the Property). The Property, perched on cliffs above the Hudson River at 600 Palisades Avenue in the City of Union City, enjoys broad unobstructed views of the river and the New York City skyline. The Kochers purchased the property for $5,050,000 in late June 2000. Subsequently, in 2001, Union City adopted a resolution declaring that the Property was in an area in need of redevelopment pursuant to the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-5. On July 29, 2003, Union City adopted a redevelopment plan pursuant to N.J.S.A. 40A:12A-7. Thereafter, after the Property had been declared in need of redevelopment, the Kochers entered into a joint venture agreement with Joseph Panepinto to develop the Property, and Panepinto Properties, Inc. (Panepinto Properties) was designated by the Union City Redevelopment Agency (the Agency) as the redeveloper under its redevelopment plan. The Kochers and Panepinto subsequently found themselves in disagreement about their rights and obligations under their joint venture agreement and that disagreement resulted in litigation (the Panepinto Litigation), that was ultimately settled.
On July 30, 2004, while the Panepinto Litigation was pending, Overlook purchased the Property from the Kochers for $14,250,000 pursuant to a complex contract (the Purchase Agreement) that underlies the present dispute. Pursuant to the Purchase Agreement, Overlook paid $6,000,000 to the Kochers at closing and the remaining $8,250,000 was the subject of a second mortgage (Seller's Mortgage). The Purchase Agreement specified that the Kochers were obligated to use their best efforts to have Overlook designated as the redeveloper, and that the Seller's Mortgage would only accrue interest if and when Overlook was appointed redeveloper of the property.
The Purchase Agreement also provided for a landlord-tenant relationship between the parties. In selling the property, the Kochers retained a triple net master lease of the entire property for a two-year term and paid Overlook a monthly rent equal to taxes, insurance, and the monthly amount due on the First Mortgage.
Because both parties understood that the Property was designated for redevelopment and could be condemned, the Purchase Agreement contained certain provisions regarding the defense of condemnation proceedings taken against the Property. For example, Section 10.5 of the Purchase Agreement states:
A. Conduct of the Taking Litigation. Within ten (10) business days of the Taking, each party shall notify the other of its intention whether or not to continue participating therein. If [the Kochers] deliver notice to [Overlook] that [they] wish to do so within such 10-day period and [Overlook] does not provide such notice to [the Kochers], then [the Kochers] shall proceed with the defense of the Taking litigation at [their] sole cost and expense.... If [Overlook] provides such notice to [the Kochers], but [the Kochers] do not provide such notice to [Overlook], then [Overlook] shall conduct the defense of the Taking litigation at its sole cost and expense.
B. If the parties each provide notice to the other as set forth in subsection to the other [sic] as set forth in subsection 10.5.A above, the provisions of Section 10.4 shall apply.
Section 10.4 sets forth a detailed scheme for the division of the "proceeds of the condemnation proceeding" in the event that the parties undertake a "joint defense." Section 10.4 of the Purchase Agreement provides
If at any time subsequent to the Closing, and prior to [Overlook] being designated as developer for the Property, any entity possessing the power of eminent domain shall file a Declaration of Taking and deposit monies for the condemnation of the Property (the "Taking"), then the following shall apply:
B. The parties shall conduct the defense of the Taking as set forth below.
C. If the parties shall jointly conduct such defense, the proceeds of the condemnation proceeding provided for in Section 10.4, shall be distributed in the following order:
1. Payment of the First Mortgage Note, with all accrued interest.
2. The next $1,150,000.00, plus $80,000.00 for each month after the twelfth month from the Closing until distribution is made, shall be split equally between [the Kochers] and [Overlook].
3. All remaining proceeds up to $13,000,000.00, less the amounts necessary to pay the items listed in Section 10.4.C.1 and 2, shall be paid to [the Kochers].
4. All proceeds in excess of the amount to be paid to [the Kochers] under Section 10.4.C.3 shall be split equally between [the Kochers] and [Overlook].
Thus, the Purchase Agreement provides that either party may "conduct the defense of the Taking litigation" on its own or in "joint defense" with the other party. It does not, however, specify whether the "defense of the Taking litigation" pertains only to the condemnation phase of the taking, only to the valuation phase of the taking, or to both.
On July 12, 2005, the Agency offered to purchase the Property from Overlook for $5,600,000. Overlook apparently did not respond to that offer, and on September 26, 2005, the Agency filed a declaration of taking. On October 8, 2005, the Agency filed its complaint in condemnation of the Property and deposited $5,600,000 into court pursuant to an October 27, 2005 order entered by the judge. Both Overlook and the Kochers provided notice that they would be undertaking a defense of the taking litigation, triggering Section 10.4.C of the Purchase Agreement.
As demonstrated by correspondence between Overlook and the Kochers, the parties soon found themselves in disagreement as to the meaning of the phrase "defense of the taking litigation," as employed in the Purchase Agreement. Overlook's view is that its opposition to the judgment of condemnation was contemplated and encouraged by the Purchase Agreement, while the Kochers contend that the Purchase Agreement permitted the parties to contest only the valuation phase of the condemnation proceedings and to thereafter divide the proceeds in the manner specified in Section 10.4.C. Against the Kochers' wishes, Overlook opposed the Agency's order to show cause for final judgment of condemnation and to appoint commissioners.
On March 30, 2006, the judge issued a written opinion rejecting Overlook's opposition to the Agency's order to show cause for final judgment and to appoint commissioners, thereby granting the Agency judicial authorization to condemn the Property. Overlook appealed the judge's decision, and, on May 8, 2007, this court affirmed. Union City Redev. Agency v. UC Overlook Dev., No. A-4485-05 (App. Div. May 8, 2007) (slip op. at 5).
In the meantime, on April 11, 2007, the Kochers filed their complaint (the Complaint) against Overlook alleging that Overlook's actions in opposing the judgment of condemnation constituted a breach of the Purchase Agreement as well as a breach of its fiduciary duty, a breach of the covenant of good faith and fair dealing, and fraud. By letter dated June 4, 2007, Overlook demanded that the Kochers withdraw their complaint, asserting that the claims therein were frivolous. On June 29, 2007, Overlook filed a motion to dismiss the complaint under Rule 4:6-2(e), and/or for summary judgment under Rule 4:46, for failure to state a claim upon which relief may be granted. Overlook also sought legal fees for the filing of frivolous claims pursuant to N.J.S.A. 2A:15-59.1.
On July 3, 2007, before the court had an opportunity to rule on Overlook's motion to dismiss, the Kochers filed an amended complaint (the Amended Complaint) without seeking leave of court and without Overlook's consent. On July 6, 2007, Overlook filed a motion to dismiss the Amended Complaint. Overlook again sought an order granting its costs and legal fees pursuant to N.J.S.A. 2A:15-59.1, on the ground that the Amended Complaint was frivolous.
Oral argument on both motions was held on August 3, 2007. The judge converted the motion to dismiss to a motion for summary judgment pursuant to Rule 4:6-2(e) and granted summary judgment in favor of Overlook, dismissing both of the Kochers' complaints. In doing so, the judge found that the "clear and unambiguous" language of the contract permitted Overlook to oppose the condemnation of the Property, and not merely to contest valuation of the Property following condemnation. Addressing the Kochers' breach of contract claim, the motion judge stated:
No matter how you slice it, there is a contract, there is a provision in the contract which is clearly controlling in this situation. This clear language spelled out what would happen. The paragraph is entitled - 10.5A is entitled ["]conduct of the taking litigation.["] If as contended now by the plaintiffs that this meant opposition only to the evaluation, then it should have said that. It does not and it is the language of the contract that is controlling.
There is nothing outside of this about which the court finds a basis that it should... consider any parol evidence and... there are no certifications or affidavits of the plaintiffs submitted in this case that advance any parol evidence to modify this contract.
But the contract is... clear and unambiguous. There is no evid [sic] - no basis for the court finding that there is any modification via any parol evidence and there is no parol evidence advanced in any competent form either, but even if it was, the paragraph is clear and unambiguous and it is not for the court to weigh and rewrite... a term of any aspect of the contract to put a party in a better position than the very contract put them.
Addressing the Kochers' claim asserting a breach of the duty of good faith and fair dealing, the judge stated:
As to the breach of good faith and fair dealing, there is no evidence of any bad faith. The movant contends and it's supported by the contract and the record, acted as permitted by the contract and as permitted by New Jersey law controlling condemnation proceedings.
Addressing the Kochers' breach of fiduciary duty claim, the judge added:
[T]here is no evidence that advances the position that there was any fiduciary responsibility. These are people on equal footing.... [T]hese parties are two separate entities.... There is no, absolutely no evidence of any - or any scenario in this case in which there is any fiduciary duty or responsibility.
Accordingly, the judge granted Overlook's motion to dismiss the Kochers' substantive claims. The judge dismissed Overlook's motion for an award of fees and costs incurred in connection with the initial Complaint, but awarded fees and costs in connection with the Amended Complaint pursuant to N.J.S.A. 2A:15-59.1 and Rule 1:4-8. The judge reasoned that the defendant is entitled to fees and costs on the second motion because there never should have been an amended complaint filed without permission from the court. It's - the rules are clear and there was no leave of court sought and the leave of court in the form of even a motion to amend the complaint.
Instead the plaintiff just filed the amended complaint and then caused the defendant who already had the motion pending to go to the extra expense of time and resources to file this... second motion.
So the court... is granting counsel fees and costs for the second motion.... Subsequently, by order dated September 4, 2007, the judge entered an order against the Kochers which quantified the amount of legal fees and costs incurred by Overlook in defending against the Amended Complaint at $18,675.48. The judge considered an affidavit of services by Overlook and found the requested fees and costs fair and reasonable. In addition, the September 4 order directed the Kochers to pay the fees within thirty days of receipt thereof.
On October 19, 2007, the Kochers filed their first notice of appeal challenging the judge's orders of August 3, 2007 and September 4, 2007. They contend that the court improperly granted summary judgment prior to discovery, applied the wrong legal standard in rendering that judgment, and improperly granted Overlook's request for fees and costs.
In the meantime, Overlook, having unsuccessfully demanded payment of the court-ordered fees and costs, filed a motion for enforcement of litigant's rights to compel the Kochers to pay those fees and costs. The Kochers filed an opposition to the motion and a cross-motion for a stay. The court denied the Kochers' cross-motion for a stay and granted Overlook's motion for a sanction, entering a January 4, 2008 order directing the Kochers to pay $100 for each day that they failed to comply with the September 4, 2007 order, and to reimburse Overlook for attorney's fees and costs incurred in pursuing its motion for enforcement of litigant's rights. On January 28, 2008, the court entered a further order directing the Kochers to pay $4,507.26 in legal fees and costs.
On January 31, 2008, we granted the Kochers' motion for a stay of the trial court's judgment and contempt order pending appeal. On February 21, 2008, the Kochers filed a second notice of appeal, challenging the contempt order entered. We listed the matters for back-to-back consideration on the calendar for oral argument.
Summary judgment must be granted "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). This court's inquiry is "'whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'" Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 445-446 (2007) (quoting Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 536 (1995)). "[T]he competent evidential materials must be viewed in the light most favorable to... the non-moving party, [who] is entitled to the benefit of all favorable inferences in support of [its] claim." Bagnana v. Wolfinger, 385 N.J. Super. 1, 8 (App. Div. 2006). Moreover, before granting summary judgment, "[a] trial court 'should assure itself that the parties have had a reasonable opportunity to obtain and submit material information to the court[.]'" D.M. v. River Dell Reg'l High Sch., 373 N.J. Super. 639, 648 (App. Div. 2004) (quoting Ziegelheim v. Apollo, 128 N.J. 250, 264 (1992)), cert. denied, 188 N.J. 356 (2006). "When 'critical facts are peculiarly within the moving party's knowledge,' it is especially inappropriate to grant summary judgment when discovery is incomplete." Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 193 (1988) (quoting Martin v. Educ. Testing Serv., Inc., 179 N.J. Super. 317, 326 (Ch. Div. 1981); see also Lyons v. Twp. of Wayne, 185 N.J. 426, 437 (2005).
Our review of a ruling on summary judgment is de novo, applying the same legal standard as the trial court. Chance v. McCann, 405 N.J. Super. 547, 563 (App. Div. 2009). If then there is no genuine issue of material fact, we must "decide whether the trial court correctly interpreted the law." Massachi v. AHL Servs., Inc., 396 N.J. Super. 486, 494 (App. Div. 2007), certif. denied, 195 N.J. 419 (2008).
The Kochers contend that the trial court erred by granting summary judgment. Their contention is that the parties to the contract intended the phrase "defense of the taking" to be limited to opposition to the Agency's valuation of the Property, and does not encompass opposition to the judgment of condemnation. The contractual language of Sections 10.4 and 10.5 neither explicitly confirms nor explicitly negates this interpretation. The Kochers' Amended Complaint claimed that by acting contrary to its interpretation of the phrase, Overlook breached the duty of good faith and fair dealing owed to them, breached a fiduciary duty owed and breached the terms of the contract. On appeal, the Kochers argue that all three claims were improperly dismissed by the trial court. At such an early stage in the proceedings and where the language of the agreement was susceptible to either of the disputed interpretations, we are of the view that the court should have been more indulgent of the Kochers' claims.
As noted, the language of the Purchase Agreement is not dispositive. Under such circumstances, one would ordinarily look to other indicia of the meaning intended by the parties. We shall not attempt to resolve the issue of ambiguous contract language because we believe plaintiffs' additional theories warranted exploration in discovery.
The Kochers argue, for example, that the motion judge erred in dismissing their claim for breach of the covenant of good faith and fair dealing, especially because they were not afforded an opportunity to conduct discovery to obtain evidence of Overlook's bad faith. In response, Overlook argues that the claim was properly dismissed because plaintiffs offered no evidence, in the form of certifications or affidavits, supporting their interpretation that the Purchase Agreement contemplated only a challenge to the valuation phase of the condemnation. Overlook asserts that "a court should deny a summary judgment motion only where the party opposing the motion has come forward with evidence that creates a 'genuine issue as to any material fact challenged,'" pursuant to Brill, supra, 142 N.J. at 529 (quoting R. 4:46-2), and that the Kochers offered no such evidence.
An implied covenant of good faith and fair dealing is inherent in every contract in New Jersey. Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001); Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 420 (1997). "[G]ood faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party...." Wilson, supra, 168 N.J. at 244 (quoting Restatement (Second) of Contracts § 245 comment a (1981)). A breach of the covenant of good faith and fair dealing necessarily requires "[b]ad motive or intention" on the part of the breaching party, because "'[c]ontract law does not require parties to behave altruistically toward each other[.]'" Id. at 251-52 (quoting Original Great Am. Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd., 970 F.2d 273, 280 (7th Cir. 1992)).
The covenant of good faith and fair dealing "cannot override an express term in a contract." Id. at 244. Thus, where a plaintiff alleges a breach of an obligation expressly set forth in the contract, "there can be no separate breach of an implied covenant of good faith and fair dealing." Wade v. Kessler Inst., 172 N.J. 327, 345 (2002). Instead, the covenant is implicated when the defendant "has acted consistent with the contract's literal terms, but has done so in a manner so as to 'have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" Id. at 345 (quoting Bak-a-Lum Corp. v. Alcoa Bldg. Prods., 69 N.J. 123, 129 (1976)). The covenant has been applied to imply absent terms and conditions into a contract where those terms and conditions "'must have [been] intended'" by the parties. Seidenberg v. Summit Bank, 348 N.J. Super. 243, 257 (2002) (quoting N.J. Bank v. Palladino, 77 N.J. 33, 46 (1978)). It also allows the court to judge whether a party has exercised bad faith or ill motive in carrying out discretionary activities to which it has been granted "unilateral authority" by the contract. See Wilson, supra, 168 N.J. at 240.
The existence of bad faith is a question for the trier of fact. Seidenberg, supra, 348 N.J. Super. at 263. The plaintiff bears the burden of proving the defendant's "'bad motive or intention.'" Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88, 110 (2007) (quoting Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 225 (2005)). "In the final analysis, bad faith must be judged not only in light of the proofs regarding the defendant's state of mind but also in the context from which the claim arose." Seidenberg, supra, 348 N.J. Super. at 262-63. Thus, in making a determination as to whether a party has performed in good faith, "the court must consider the expectations of the parties in the purposes for which the contract was made. It would be difficult, if not impossible, to make that determination without considering evidence outside the written memorialization of the parties' agreement." Id. at 259.
Because the covenant of good faith and fair dealing implicates the defendant's state of mind and the purposes and expectations of the parties to the contract, the parol evidence rule, which proscribes the use of oral statements to contradict the express terms of a written contract, does not apply. Id. at 256-57. This is because parol evidence is always admissible "in order to provide understanding into the parties' intentions" and because an application of the parol evidence rule to claims of breach of the covenant of good faith and fair dealing would extremely limit a party's ability to prove the intentions and expectations in entering the contract. Ibid.
Of particular importance to this case, the Supreme Court has recognized that claims of breach of the covenant of good faith and fair dealing may require discovery before summary judgment may be granted. Wilson, supra, 168 N.J. at 254. In Wilson, the Court held that where the plaintiffs contended that discovery would adduce facts demonstrating circumstantial evidence of bad motive on the part of the defendant, it was improper to grant summary judgment prior to discovery. Id. at 253-54; see also Pressler, Current N.J. Court Rules, comment 2.3.3 on R. 4:46-2 (2010). Likewise, in Seidenberg, we reversed a dismissal of a claim alleging bad faith, holding that "[w]hether plaintiff's proofs will meet the bad faith standard defined in Wilson, or even survive summary judgment, cannot be resolved until the parties are at least given a full opportunity for further investigation and discovery." Supra, 348 N.J. Super. at 263.
We find that the motion judge erred by granting summary judgment in favor of Overlook before the Kochers had an opportunity to obtain facts in discovery bearing upon their allegation of bad faith on the part of Overlook. The Kochers, in their counterstatement of material facts in dispute, contended that the parties understood that the "defense of the taking litigation," as authorized and contemplated by the Purchase Agreement, was limited to the defense of the valuation phase of the condemnation. Specifically, the Kochers alleged that Overlook did not act in a manner contemplated by the Purchase Agreement "in attempting to void the condemnation."
Instead, they claimed that "the Plaintiffs and the Defendant were to go forward and contest the valuation of the Property and seek the highest award possible." It is at least possible, though by no means clear from the contract, that the justified expectations of the parties were that challenges to the taking anticipated by the contract would be limited to the valuation phase of the taking. If that were the case, then the Kochers would not receive what they bargained for by the introduction of an unexpected delay in the condemnation proceedings, due to the decrease of their share of the taking proceeds pursuant to the Purchase Agreement.
We acknowledge Overlook's argument that the Kochers' factual allegations are vague and somewhat conclusory. Those allegations do not, for example, clearly state that the parties had actually agreed that opposition to the taking would be limited to the valuation phase; however, we are satisfied that the Kochers deserved an opportunity to conduct discovery before their case was dismissed. The Kochers allege that Overlook entered into the bargain in bad faith, knowing that it could adhere to the literal terms of the contract in contesting the judgment of condemnation, while consciously depriving the Kochers of their "justified expectations." Wilson, supra, 168 N.J. at 245.
Given the magnitude of the contractual relationship between the parties (which authorized the parties to undertake an otherwise undefined "joint defense" of the taking), the early stage of the proceeding, and the court's obligation to afford plaintiffs "the benefit of all favorable inferences in support of [their] claim[,]" Bagnana, supra, 385 N.J. Super. at 8, we believe plaintiffs should have been allowed to proceed with discovery to attempt to develop evidence that Overlook acted with bad motive or intention by delaying the condemnation proceedings in a manner not contemplated by the parties at the time they entered into the Purchase Agreement.
We also note that Rule 4:46-2 contains a specific requirement that a court granting a motion for summary judgment must specify its reasoning in the manner called for by Rule 1:7-4. "A trial judge is obliged to set forth factual findings and correlate them to legal conclusions. Those findings and conclusions must then be measured against the standards set forth in Brill v. Guardian Life Insurance Co. of America." Great Atl. & Pac. Tea Co., v. Checchio, 335 N.J. Super. 495, 498 (App. Div. 2000) (citation omitted). Brill requires that any reasonable inference be given to the party opposing the motion to dismiss. Supra, 142 N.J. at 536. Here, the trial court's oral factual findings and conclusions do not afford that procedural advantage to the opponent of the motion.
In the proceeding below, the motion judge also dismissed the Kochers' claim that Overlook breached a fiduciary duty because the parties were perceived to be separate entities on equal footing. The Kochers claim that the motion judge erred in that assessment because the parties were engaged in a joint venture, and joint venturers owe one another a fiduciary duty, as a matter of law.
Joint ventures are similar in nature to partnerships but have "a more limited business objective." Am. Fire & Cas. Ins. Co. v. Manzo, 347 N.J. Super. 100, 107 (App. Div. 2002). Like partners, joint venturers owe one another a fiduciary duty. Silverstein v. Last, 156 N.J. Super. 145, 152 (App. Div. 1978). New Jersey courts have defined a joint venture as "'an undertaking usually in a single instance to engage in a transaction of profit where the parties agree to share profits and losses[,]'" but "'without any actual partnership or corporate designation.'" Wittner v. Metzger, 72 N.J. Super. 438, 444 (App. Div.) (quoting Kurth v. Maier, 133 N.J. Eq. 388, 391 (E. & A. 1943)), certif. denied, 37 N.J. 228 (1962). We have enumerated the following as elements of a joint venture agreement:
(A) A contribution by the parties of money, property, effort, knowledge, skill or other asset to a common undertaking;
(B) A joint property interest in the subject matter of the venture;
(C) A right of mutual control or management of the enterprise;
(D) Expectation of profit, or the presence of "adventure," as it is sometimes called;
(E) A right to participate in the profits;
(F) Most usually, limitation of the objective to a single undertaking or ad hoc enterprise. [Ibid.]
Here, the trial court dismissed the Kochers' fiduciary duty claim prior to discovery and without sufficient information to make an informed conclusion about the nature of the relationship between Overlook and the Kochers. Most importantly, there is no indication in the trial court's oral opinion that it considered any of the factors in Wittner, which, if satisfied, would create a fiduciary duty running between the parties. Furthermore, because discovery had not been conducted, plaintiffs were denied the ability to gather evidence supporting the existence of the Wittner factors. Such evidence would not have been gleaned from an inspection of the contract itself.
We find it significant that under the contract, the parties could elect to conduct a "joint defense" of the taking. The nature of the Purchase Agreement thus raises at least an inference that the parties may have been involved in a joint undertaking with a shared goal to maximize the value of the taking. That inference, when considered in light of the Kochers' allegation that the parties were fiduciaries, raises an issue of material fact sufficient to allow the claim to advance past discovery.
Overlook, citing McKelvey v. Pierce, 173 N.J. 26, 57 (2002), appears to argue that a fiduciary relationship can only be found where one of the parties is in a superior or dominant position. That argument misreads McKelvey. As we read that case, it instructs that a fiduciary relationship may be found when one party is in a superior or dominant position, but does not foreclose the possibility that a fiduciary obligation may arise in other circumstances, such as in a joint venture.
Under the circumstances, we reverse and remand with instructions to the trial court to allow discovery regarding the Kochers' breach of the covenant of good faith and fair dealing and breach of fiduciary duty claims. We need not address the parties' remaining arguments, since they may be affected by the plaintiff's success or lack of success in marshalling evidence to support their theories of action. The proper remedies should be addressed by the trial court once all the relevant facts are adduced.*fn2
Next, we address whether the trial court properly ordered that the Kochers pay attorney's fees and costs, "pursuant to N.J.S.A. 2A:15-59.1 and/or R. 1:4-8." As previously noted, the trial court's determination that the Amended Complaint was frivolous was based on the fact that it was filed without leave of court, as required by Rule 4:9-1. We hold that the trial court's stated reasons for imposing fees and costs pursuant to N.J.S.A. 2A:15-59.1 were improper, and therefore vacate the order.
"A trial court's determinations on the availability and amount of fees and costs for frivolous litigation are reviewable for 'abuse of discretion.'" Ferolito v. Park Hill Ass'n, 408 N.J. Super. 401, 407 (App. Div.) (quoting Masone v. Levine, 382 N.J. Super. 181, 193 (App. Div. 2005)), certif. denied, 200 N.J. 502 (2009). "Reversal is warranted when 'the discretionary act was not premised upon consideration of all relevant factors, was based upon consideration of irrelevant or inappropriate factors, or amounts to a clear error in judgment.'" Ibid.
A claim is "frivolous" within the meaning of the Frivolous Litigation Statute, N.J.S.A. 2A:15-59.1, if filed or pursued in "bad faith, solely for the purpose of harassment, delay or malicious injury," or if "the non-prevailing party knew, or should have known, that the [claim or defense] was without reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification, or reversal of existing law." [Ferolito, supra, 408 N.J. Super. at 407-08 (quoting N.J.S.A. 2A:15-59.1) (citations omitted) (alteration in original).]
A trial court must consider the plaintiff's view of the merits of the purportedly frivolous action before awarding attorney's fees and costs under N.J.S.A. 2A:15-59.1. Id. at 410-11. It is error to do so without "considering whether defendant established that plaintiff commenced or continued [the] action in bad faith." Ibid. Furthermore, "[o]nly a party 'who prevails in a civil action' is entitled to th[e] relief" provided by N.J.S.A. 2A:15-59.1. Id. at 407 (quoting N.J.S.A. 2A:15-59.1(a)(1) (emphasis added).
First, as we have discussed above, the trial court's dismissal of two of the Kochers' claims was premature. They should not have been dismissed at such an early stage in the proceeding, let alone deemed "frivolous." Because we are reversing the trial court's dismissal of the Kochers' claims, Overlook has not "prevailed" and therefore is not entitled to attorney's fees and costs under N.J.S.A. 2A:15-59.1.
Second, because the trial court never found that the Kochers filed the Amended Complaint in bad faith, or solely for the purpose of harassment, delay, or malicious injury, it never should have applied N.J.S.A. 2A:15-59.1 to require them to reimburse the cost of Overlook's attorney's fees in defending the Amended Complaint. The trial court explained that it directed the Kochers to pay Overlook's attorney's fees and court costs because the Amended Complaint was filed without leave of court in violation of Rule 4:9-1. The violation of a procedural rule, which is conduct normally assignable to an attorney and not the party, is not a proper basis upon which to apply the fee-shifting provision of N.J.S.A. 2A:15-59.1. We conclude that the trial court rendered its decision based on "inappropriate factors," Ferolito, supra, 408 N.J. Super. 407, and therefore vacate the order directing the Kochers to bear the costs of Overlook's attorney's fees and costs incurred in responding to the Amended Complaint.
We note, however, that Section 13.1 of the Purchase Agreement permits either party to recover attorney's fees and costs incurred in any action to enforce or interpret the Purchase Agreement from the non-prevailing party. Thus, apart from the issue of the Kochers' motivations and intentions in filing their complaints against Overlook, the Kochers may be contractually obliged to reimburse Overlook for attorney's fees and court costs if they do not prevail on remand. The same holds true for Overlook if the Kochers are successful in the remand proceeding.
Finally, we address the Kochers' challenge in the second appeal to the trial court's order of January 4, 2008, granting Overlook's motion for enforcement of litigant's rights pursuant to Rule 1:10-3.*fn3 That order found the Kochers "violated the litigant's rights of UC Overlook by failing to pay the court-ordered sum to UC Overlook within 30 days, as directed by the Court in its Order dated September 4, 2007." It directed the Kochers to pay $100 for "every day that Plaintiffs shall have failed to comply with the Court's Order dated September 4, 2007" and ordered that the Kochers pay the costs and attorney's fees incurred by Overlook in vindicating its litigant's rights. The trial court further stated, in denying the Kochers' cross-motion for a stay:
Motion denied as untimely & w/o legal basis. The order/judgment was entered Sept. 4, 2007. The plaintiffs simply ignored order entering judgment, but made no timely application for stay. The contempt of that order/judgment is not purged by this untimely attempt. As contended by defendants, plaintiffs have not demonstrated any entitlement to stay.
On appeal, the Kochers argue that the trial court improperly issued a contempt order because "the contempt power should not be used for the purpose of enforcing an order directing the payment for money." In response, Overlook argues that the trial court acted within its discretion to grant relief under Rule 1:10-3 because plaintiffs willfully disregarded their obligation to comply with the trial court's judgment of September 4, 2007.
Both Rule 4:59-1 and Rule 1:10-3 provide procedural mechanisms by which to compel a party to pay a monetary judgment rendered against it. Rule 4:59-1(a) provides that "[p]rocess to enforce a judgment or order for the payment of money and process to collect costs allowed by a judgment or order, shall be a writ of execution, except if the court otherwise orders." Alternatively, Rule 1:10-3 authorizes what "is essentially a civil proceeding to coerce the defendant into compliance with the court's order for the benefit of the private litigant[.]" Pasqua v. Council, 186 N.J. 127, 140 (2006) (quoting Essex County Welfare Bd. v. Perkins, 133 N.J. Super. 189, 195 (App. Div.), certif. denied, 68 N.J. 161 (1975)). It is well established that such a proceeding, which is referred to as an action for enforcement of litigant's rights, "is a proper tool to compel compliance with a court order," as long as it is "not for the purpose of punishment, but as a coercive measure to facilitate the enforcement of the court order." Ridley v. Dennison, 298 N.J. Super. 373, 381 (App. Div. 1997). Rule 1:10-3 further provides that the court, at its discretion, may "make an allowance for counsel fees to be paid by any party to the action to a party accorded relief under this rule."
Furthermore, "it is no defense to a charge of contempt that the court order which was violated was erroneous. The person's duty is to comply or, if possible, obtain a stay, and to appeal." In re Mandell, 250 N.J. Super. 125, 129 (App. Div. 1991). "Although appeal can be a time-consuming process, the injury flowing from interim compliance with an erroneous court order is ordinarily curable." Ibid. Therefore, "[i]t is no excuse that the trial judge may be in error.... One who is dissatisfied with the action of a court must obtain a stay or obey the order." In re Carton, 48 N.J. 9, 16 (1966).
We find that there was adequate evidence in the record to support the trial court's finding of a violation of litigant's rights. The Kochers argue that they failed to comply because they were engaged in settlement discussions with Overlook, and believed that such negotiations would yield a "global resolution." The anticipation of a settlement does not excuse the responsibility to comply with an order requiring payment by a stated date. We therefore hold that the Kochers are obliged to pay the coercive sanction levied by the trial court as well as the attorney's fees and costs incurred by Overlook in vindicating its litigant's rights.
Reversed and remanded as to the dismissal of the Amended Complaint. Affirmed as to the orders for enforcement of litigant's rights.