August 30, 2010
JOHN ALFANO AND KATHLEEN ALFANO, HIS WIFE, PLAINTIFFS-APPELLANTS,
NICHOLAS T. MATHIEU*FN1 AND CONCESSION SUPPLY COMPANY, INC., DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-4672-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued August 10, 2010
Before Judges Sabatino and Ashrafi.
This appeal concerns the enforceability of a civil settlement. For the reasons set forth in this opinion, we remand for an evidentiary hearing on the enforceability issue.
In October 2006, plaintiff John Alfano and his wife, plaintiff Kathleen Alfano, filed a personal injury action in the Law Division against defendants, Nicholas T. Mathieu and Concession Supply Company, Inc. ("Concession"). The complaint alleged that Mathieu, an employee of Concession, negligently operated a company van on Freehold Road in Manalapan, causing the van to collide with John Alfano's vehicle and injure him.
Plaintiffs' complaint was filed by an attorney ("plaintiffs' original*fn2 counsel") who had been retained to represent plaintiffs' interests in connection with the motor vehicle accident. Defendants, who were represented by a lawyer assigned by their insurance company, admitted ownership and operation of the company van, as well as the date, place and occurrence of the accident, but denied every other allegation.
After discovery was completed, the action was arbitrated at the courthouse on February 22, 2008, pursuant to Rule 4:21A-1(a)(1), resulting in a $135,000 award to plaintiffs. The award was rejected by defendants, and the matter was listed for trial.
Following the arbitration, the case was conferenced by a Law Division judge. Thereafter, defense counsel and plaintiffs' original counsel engaged in settlement negotiations. Defendants' insurer authorized an offer of $125,000, which was extended to plaintiffs through their counsel.
On November 11, 2008, plaintiffs signed a release, which stated that they agreed to settle the case for $125,000. Plaintiffs' signatures on the release were witnessed by their original counsel. The next day, November 12, defense counsel received a facsimile letter from plaintiffs' original counsel, advising that the case had settled for the sum of $125,000. The apparent settlement was reported to the court.
Soon thereafter, a check conveying the $125,000 in settlement funds was transmitted to plaintiffs' original counsel. However, the check was not endorsed, cashed, or deposited.
Approximately ten months later, in September 2009, defendants filed a motion to deposit the $125,000 in settlement proceeds with the court. Plaintiffs, acting by this point without the assistance of counsel, opposed defendants' motion. Their original counsel did not file any papers with respect to the motion.
On the return day of the application to deposit funds, plaintiffs both appeared in the motion judge's courtroom to present their oral opposition to the application. At the outset of that proceeding, the motion judge had an oath administered to both plaintiffs. The court also arranged to have plaintiffs' original counsel participate by telephone, although he was not sworn as a witness.
Plaintiffs asserted to the motion judge that they had not authorized their original counsel to agree to a settlement, and that they were not aware their case had been settled. In particular, John Alfano testified that he was unhappy with the $125,000 figure because it did not, in his view, take into account the damages arising out of his neck surgery and dysphagia.
Plaintiffs allege they signed the release in November 2008 under duress. According to plaintiffs, their original counsel and an unidentified female colleague allegedly visited them while John Alfano was in a hospital bed, and on pain medication. They claim that their original attorney spoke to John while the attorney's colleague spoke separately with Kathleen, attempting to coax them to accept the settlement. Kathleen testified that, at that time, the original counsel told plaintiffs and their family members:
I'll give you 48 hours. You can make up your mind. I don't want to have to come here, and get signatures from you. I'm not around the corner. So, the best way to do it is sign it [the release] now, and if you don't want to continue to do it I will tear up the papers. [Emphasis added.]
Plaintiffs claimed that they later considered and discussed between themselves the settlement offer and decided not to accept it. According to Kathleen, she called their original counsel, and told him they had decided to reject the settlement. She alleges that, during that phone call, her original counsel told her he would tear up the settlement papers.
During the proceeding before the motion judge, plaintiffs asserted that they had been unduly pressured to sign the release and were assured by their original counsel that they could revoke the release within forty-eight hours. Plaintiffs' original counsel contended, in his unsworn comments, that he had come to plaintiffs' residence because of John Alfano's health problems, that he was concerned about time because of a pending third trial listing, and that he had explained that he could try to obtain recovery for additional medical bills through a separate PIP arbitration.
The following colloquy is pertinent:
THE COURT:... your [plaintiffs'] position is you signed the papers thinking that you could tear them up in a couple of days if you -- but at some point you had to communicate to [your original counsel] that you agreed to the settlement, or he wouldn't have told the [c]court that.
... I'm telling you what the law is, and they say once you report that a case is settled when it's -- when it's a trial call, or when it's on for some kind of a hearing before a [c]court, that's really all it takes.
MRS. ALFANO: But who gave him permission to do that?
THE COURT: Well, he's going to say you did, and -
MRS. ALFANO: Let him say it, because I want to hear it from him.
[PLAINTIFFS' ORIGINAL COUNSEL] Judge, I would never tell... Judge Perri or my adversary anything out -
THE COURT: So, your position, [plaintiffs' original counsel], is you talked to the Alfano's, and you reported back they would take the 125?
The motion judge did not invite defense counsel to cross-examine plaintiffs, nor did the judge permit the original counsel to be examined by either party under oath.
Upon considering these competing assertions, the motion judge issued an oral ruling, substantially granting defendants' motion and deeming the settlement for $125,000 enforceable. The judge noted that: "[I]t was reported that it [the case] was settled. It was marked settled. [In essence, defense counsel asked,] 'Judge let us pay the money over to the [c]court.' So I'm going to order that the money be paid into the court." The judge did not make any express credibility findings as to plaintiffs' contentions of non-assent and duress.
The motion judge ordered that the $125,000 amount be deposited with the court if plaintiffs continued to refuse to accept the money. Plaintiffs thereafter filed the instant appeal. They insist that they never authorized their original counsel to settle the case for $125,000. They urge that the turnover order be vacated, and that the matter be remanded for an evidentiary hearing to explore whether or not their claims of duress and non-authorization are truthful. Defendants argue that the settlement should be enforced, as they had a reasonable basis to rely on the signed release and the representation of plaintiffs' original counsel that the case was amicably resolved.
We are mindful of the strong public policy in our State favoring the enforcement of settlements that resolve contested matters. Pascarella v. Bruck, 190 N.J. Super. 118, 124 (App. Div.), certif. denied, 94 N.J. 600 (1983). "[S]ettlements are favored and will be enforced whenever voluntarily agreed to by the parties." Cap City Products Co., Inc. v. Louriero, 332 N.J. Super. 499, 508 (App. Div. 2000). We further recognize the interests of litigants in finality and repose once a settlement has been consummated and reported to the court. We also recognize the court's own institutional interests in the orderly and efficient disposition of litigation, and in conserving public resources so that reported settlements are processed and the associated case files are closed permanently and expeditiously.
Nonetheless, our case law has also appropriately recognized that a reported settlement may be vacated if there is proof of compelling circumstances. Nolan ex rel. Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). A party seeking to set aside a settlement agreement generally has the burden of proving his incapacity or incompetence to contract or other extraordinary circumstance sufficient to vitiate the agreement. Jennings v. Reed, 381 N.J. Super. 217, 227 (App. Div. 2005). Proven duress, deception, fraud, undue pressure, unseemly conduct, incapacity or incompetence may be sufficient to vacate a settlement agreement. Ibid.
In addition, because a settlement agreement is a form of a contract, see Pascarella, supra, 190 N.J. Super. at 124, factual questions may sometimes arise as to whether a litigant actually entered into the contract, or whether his or her counsel was authorized to state to the opposing party and to the court that an agreement had been reached. Under the Rules of Professional Conduct, an attorney "shall abide by a client's decision" when deciding whether to accept a settlement agreement. RPC 1.2. An attorney may not settle a case on a client's behalf without the client's unqualified assent.
The precedent that is squarely on point for the present circumstances is Amatuzzo v. Kozmiuk, 305 N.J. Super. 469 (App. Div. 1997). In Amatuzzo, the defendant opposed the plaintiff's motion to enforce a civil settlement involving a transfer of rights to the defendant's property, asserting that he had not authorized his attorney to agree to the settlement. Id. at 473. During settlement negotiations, the defendant refused to sign a Stipulation of Settlement. Ibid. The defendant's lawyer nevertheless sent a fax to her adversary, representing that she had the authority to settle the case on behalf of her client. Id. at 474. The trial court enforced the settlement over the defendant's objection, in part because it found that "the action and conduct of [defendant's counsel] in this case bound [defendant] who permitted [his counsel] to be held out as having express or implied authority[.]" Ibid. The trial court reached that determination without conducting an evidentiary hearing.
On appeal, we reversed the trial court's decision in Amatuzzo and remanded the case for an evidentiary hearing. We noted that the defendant had certified that he did not agree to settle with the plaintiff, and when presented with the settlement agreement, he had, by his account, strenuously objected to some of the provisions of the agreement. Id. at 473. In those circumstances, we held that the defendant's certification was sufficient to raise a "material and substantial issue," and thus required the trial court to "conduct a hearing to ascertain the intent of the parties at the various critical times in the proceedings." Id. at 474.
The plaintiff in Amatuzzo, as the party seeking to enforce the settlement, had the burden on remand at the evidentiary hearing of "establishing that a contract of settlement was entered into." Id. at 475. With further respect to the applicable burden of proof, we noted that if the trial court is persuaded that the defendant's counsel had neither express nor implied authority to settle, "it would not be defendant's burden to demonstrate extraordinary circumstances to bar the enforcement of the purported settlement." Id. at 475. "It is only where a contract of settlement is actually held to exist that the party seeking to vacate the settlement must show compelling circumstances." Ibid.
The present circumstances are substantially similar to the setting in Amatuzzo, with the exception of the release signed by the plaintiffs. Like the defendant in Amatuzzo, plaintiffs have sworn that they never authorized their attorney to agree to the settlement. In particular, John Alfano has asserted under oath that his original counsel "was aware [that] I did not want to accept the settlement because it never included [adequate compensation for] my neck surgery, and my dysphagia[.]" The check for the settlement amount of $125,000 was never requested by plaintiffs and never cashed. Also, both plaintiffs have attested that their original counsel had told them they could think about the offer for forty-eight hours, and that the release would be torn up if they changed their minds. During the course of the proceeding on the motion for the turnover of funds, plaintiffs' original counsel was never asked about the truth of that assertion.
Although the motion judge had an oath administered to each of the plaintiffs before the motion proceeding began, the proceeding did not rise to the level of an evidentiary hearing required under Amatuzzo. Neither of the plaintiffs were examined by opposing counsel. Their original attorney was not sworn or physically present, and plaintiffs were not explicitly offered the chance to question or cross-examine him. See Jamgochian v. N.J. State Parole Bd., 394 N.J. Super. 517, 536 (App. Div. 2007) (noting "[t]he importance of cross-examination, 'one of the greatest engines that the skilled man has ever invented,' for ascertaining the truth of a matter" (quoting 6 Wigmore on Evidence § 1838 (Chadbourn Rev. 1976))), aff'd as modified, 196 N.J. 222 (2008); see also Franklin v. Sloskey, 385 N.J. Super. 534, 543 (App. Div. 2006) (observing--by analogy, in a domestic violence case involving pro se litigants--the problems inherent in handling such proceedings too informally and in not providing an opportunity for cross-examination).
We appreciate, as did the motion judge, that plaintiffs' original counsel was in an awkward position where his clients were disputing his authority to report the matter settled on their behalf, and were making factual accusations critical of his handling of the matter and the signing of the releases. It is unclear from the record whether the original counsel had yet withdrawn as of the time of the motion hearing, in light of the patent conflict problems. Even so, a formal evidentiary hearing was warranted, and the quasi-formal proceeding that was conducted fell short of the mark.
It is conceivable that, on remand, the trial court may find that the original counsel handled the matter appropriately, and that plaintiffs' assertions of coercion, duress, and non-assent are not credible. That credibility assessment is best left to the trial court as a factfinder. Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974). The trial court may, in its discretion, allow limited discovery on these issues in advance of the evidentiary hearing.
Vacated and remanded for an evidentiary hearing. We do not retain jurisdiction.*fn3