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American Federal Mortgage Corp. v. Rooney

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


June 30, 2010

AMERICAN FEDERAL MORTGAGE CORP., PLAINTIFF-RESPONDENT,
v.
JOHN C. ROONEY, MICHAEL M. BOGNER, PETER CALAUTTI, FRANK CUCCARO, GLEN R. MEYERS, AND RESIDENTIAL HOME MORTGAGE CORPORATION, DEFENDANTS-APPELLANTS. SCHWARTZ, SIMON, EDELSTEIN, CELSO & ZITOMER, L.L.C., INTERVENOR.

On appeal from Superior Court of New Jersey, Chancery Division, Morris County, No. C-38-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 9, 2010

Before Judges Wefing and Grall.

Defendants appeal from a trial court order enforcing a settlement agreement and directing them to sign a form of the agreement appended to the order. After reviewing the record in light of the contentions advanced on appeal, we reverse and remand for further proceedings.

Plaintiff American Federal Mortgage Corp. ("American") is in the business of providing residential mortgages, home equity loans and related products. Individual defendants John C. Rooney ("Rooney"), Michael M. Bogner ("Bogner"), Peter Calautti ("Calautti"), Frank Cuccaro ("Cuccaro") and Glen R. Meyers ("Meyers") are all former employees of American. When Rooney and Bogner left American, they organized defendant Residential Home Mortgage Corporation ("Residential"), which engages in the same business.

In the course of conducting its business, American organized and maintained various lists. Those pertinent to this litigation are the "Closed Loan List", which listed all of its existing customers who had either obtained or requested American products or services; the "Logged in Loans" list, which listed individuals who were not existing customers of American but who had expressed interest in the past in American's products; and the "Customer Lead List", which listed contact information of individuals to be contacted to solicit business to expand its customer base. American also maintained a separate file, "Legal Reviews" to ensure its compliance with various legal and regulatory requirements. The individual defendants had access to these documents during their employment at American, which contended that all of the documents contained confidential proprietary information.

At some point after Residential commenced doing business, American became convinced that the individual defendants were using the confidential information recorded on these lists to enhance Residential's business opportunities. It filed suit in March 2006, seeking to restrain defendants from using the contents of these lists and for damages. Plaintiff did not allege in its complaint that any of the individual defendants had signed any written confidentiality agreements while in plaintiff's employ; rather, it relied upon their common law duty of loyalty to an employer.

After defendants filed their answer and counterclaim, in which they alleged that American was improperly trying to solicit defendants' customers, the parties engaged in extensive efforts to settle the litigation, assisted by two retired members of the judiciary. Those efforts had not led to a complete resolution by the time the trial date, December 8, 2008, arrived.

The parties and their attorneys appeared on December 8, apparently ready to proceed to try the case on its merits. Before the trial actually commenced, however, the attorneys advised the trial court that their clients had come to a resolution of their dispute and they placed the terms of that resolution on the record. Plaintiff's counsel told the court that "subject to editorial changing and language changes we have to work out" the agreement called for defendants to pay the sum of $515,000 and that "defendants are all representing as part of that agreement that they will not solicit, close with, or refer any clients from the 2005 American Federal Mortgage close loan list in anyway shape or form permanently." He explained to the trial court that the agreement contained the following exception:

There will be an exception, Judge, for the list being protected and prohibited from any use by the defendants. We are going to work on a specific list that we are going to attach to the settlement agreement. The defendants are going to go through the list. They are going to provide me with a highlighted version of what they believe to be their friends, family, and referral of friends and family that they believe would be excluded from protection of this agreement. I will review it with my clients, and I will prepare an exhibit to the settlement agreement which everyone agrees are individuals that the defendants shall not be in violation of the agreement if they should end up working with them on future closings.

That is the sum and substance of the agreement, Judge. There are other issues we have to work out, but that is the essential term of the agreement.

Defendants' attorney clarified two terms with respect to the payment of the $515,000 but otherwise concurred with the recitation of plaintiff's counsel. Both attorneys agreed they saw no need to question their respective clients about their understanding of the scope and effect of the terms announced by their attorneys.

Unfortunately, the attorneys found it easier to advise the trial court that the matter was settled than to reduce the terms of the settlement to a document that all parties agreed upon. Two major sticking points developed: (1) the interpretation of who was included in the exception for friends, family and referral of friends and family and (2) the reference in the transcript to a permanent prohibition against Residential soliciting, closing or referring clients from the 2005 Closed Loan List.

The list of excepted names initially submitted by defendants included the names of more than 600 individuals who defendants asserted fit within the description of friends, family and referrals of friends and family. Plaintiff rejected this list and sent a revised list of 238 names of individuals it believed fit within the category of friends, family and referrals of friends and family.

Plaintiff also took the position that the reference to a permanent bar to doing business with the remaining names on the "Closed Loan List" meant that defendants were precluded in perpetuity from doing business with those individuals even if the individuals affirmatively, through no efforts on Residential's part, sought out Residential for assistance in mortgage products at any point in the future. After an exchange of multiple drafts of proposed settlement agreements, accompanied by increasingly acrimonious e-mails, the attorneys eventually filed cross-motions to enforce a settlement, each contending that his or her final draft incorporated all the terms the parties had agreed to and should be enforced by the trial court.

At oral argument, plaintiff's counsel pointed to the words contained in the transcript and asserted that the document he had drafted mirrored those terms. Defendants' attorney argued that defendants had agreed not to solicit business from the names contained in the Closed Loan List but had never agreed to affirmatively turn away business that arrived at their doors unsolicited. After hearing argument, the trial court agreed with plaintiff's interpretation of a permanent prohibition and plaintiff's proposed list of exceptions. The trial court cited the use of the word "permanently" in the transcript of December 8; it gave no reason to support its conclusion that the list drafted by plaintiff reflected the parties' agreement. Defendants, represented by new counsel, have appealed from the trial court's subsequent order.

The public policy in New Jersey is to encourage the settlement of litigation. Impink ex rel. Baldi v. Reynes, 396 N.J. Super. 553, 563 (App. Div. 2007); All Modes Transport, Inc. v. Hecksteden, 389 N.J. Super. 462, 469 (App. Div. 2006). This policy rests upon "the notion that the parties to a dispute are in the best position to determine how to resolve a contested matter in a way which is least disadvantageous to everyone." Jennings v. Reed, 381 N.J. Super. 217, 226 (App. Div. 2005) (quoting Peskin v. Peskin, 271 N.J. Super. 261, 275 (App. Div.), certif. denied, 137 N.J. 165 (1994)).

That policy, however, "does not mean that courts will rewrite or unduly expand settlement agreements in order to deem settled or waived things not legitimately encompassed." Isetts v. Borough of Roseland, 364 N.J. Super. 247, 254 (App. Div. 2003). "[T]he ultimate goal is a just result." Manzo v. Shawmut Bank, N.A., 291 N.J. Super. 194, 201 (App. Div. 1996). Nor does that mean that a court will enforce an agreement that the parties have not reached. Mosley v. Femina Fashions, Inc., 356 N.J. Super. 118, 126 (App. Div. 2002), certif. denied, 176 N.J. 279 (2003) ("Before a settlement agreement may be enforced, however, there must be an agreement to the essential terms of the agreement.")

Generally, a trial court presented with a disputed motion to enforce a settlement should hold a hearing to resolve the disputed questions of fact. Amatuzzo v. Kozmiuk, 305 N.J. Super. 469, 474-75 (App. Div. 1997). At such a hearing, the party urging the existence of an enforceable settlement has the burden of proof. Id. at 475.

Here, we are satisfied that the trial court erred when it acted to enforce this alleged settlement without having conducted a hearing at which the parties would testify as to their understanding of what was encompassed in the terms placed on the record on December 8. The testimony could address the question of the composition of the list of those excepted from the ban on transacting business with defendants. It could also address the meaning of the permanent nature of that ban, that is, did it refer to a permanent ban on solicitation, as defendants contend, or did it refer to a permanent ban on any business with those individuals on the customer list, no matter the circumstances under which it might take place, as plaintiff contended. It was presented with sharply contrasting versions of what had occurred; it could not resolve that dispute simply upon the basis of arguments by counsel, and it was not fair to the parties to leave the issue to be decided in the context of a future application whenever plaintiff decided defendants were not complying with what plaintiff understood the agreement to be. The monetary penalties contained within the agreement were too significant to require defendants to proceed at their own risk.

Reversed and remanded for further proceedings.

20100630

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