August 30, 2010
TRI-TECH ENVIRONMENTAL ENGINEERING, INC. D/B/A TRI-TECH ENGINEERING, PLAINTIFF-APPELLANT,
NUTLEY BOARD OF EDUCATION, DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-9675-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 18, 2010
Before Judges Carchman, Parrillo and Lihotz.
Plaintiff Tri-Tech Environmental Engineering, Inc. appeals from a Law Division judgment granting relief to defendant Nutley Board of Education. After a summary hearing, the court dismissed plaintiff's complaint, which sought to enforce a May 5, 2008 Mutual Release and Settlement Agreement (Settlement Agreement) that resolved a dispute regarding enforcement of the parties' management services contract pending in arbitration. The court also granted defendant's request to rescind, as legally unenforceable, the Settlement Agreement and a related Rider to the initial management services contract. Consequently, plaintiff was ordered to return monies previously paid under the terms of settlement. Further, the order dismissed the remaining counts of defendant's counterclaim and permitted the parties to return to arbitration.
On appeal, plaintiff advances these arguments. First, it challenges as error the court's denial of its request for enforcement of the Settlement Agreement. Second, claiming procedural and substantive errors, plaintiff posits that although its enforcement claims could have been determined in a summary proceeding, disposition of defendant's claim of unilateral mistake required a plenary hearing. We reject plaintiff's arguments that the trial court erred in denying enforcement of the Settlement Agreement. However, we agree the entry of judgment for defendant and rescission of the Settlement Agreement without benefit of an evidentiary hearing constituted reversible error. We conclude disputed material issues were presented in the pleadings, obviating summary disposition. Accordingly, we reverse the judgment and remand for further hearing.
The facts are taken from the parties' pleadings, as well as certifications and documents submitted in support of or in opposition to the relief requested in the summary proceeding. The parties' relationship began with the January 20, 2001 execution of a construction management agreement (Agreement). Under the terms of the Agreement, plaintiff was to provide management services for the remodeling and renovation of defendant's seven school facilities (the project). It was anticipated that a single referendum would fund the large-scale project, budgeted at $40,000,000, and that it would be completed over twenty-four months. Plaintiff's fees for the services delineated in the agreement were stated as a percentage of the project's cost, and payment was contingent on defendant's securing successful funding through the voter-approved referendum. However, in 2002, the electorate twice rejected the proposal. Therefore, completion of the project as initially proposed was abandoned.
Defendant modified the project and targeted referenda to focus on funding the renovation of specific school buildings, rather than the entire district. For example, in April 2003, the voters approved a $4,872,673 referendum for renovation of the high school. Thereafter, in 2004, a $23,700,000 referendum was adopted to fund the refurbishing of the middle school, and in 2006, a $38,500,000 referendum was approved to cover the costs associated with modernization of the district's five elementary schools and completing work on the high school.
It is noted that in the 2006 referendum, funding was comprised of "a grant from the State of New Jersey in the amount of $15,142,217; and... bonds in the principal amount of $23,357,783." The 2006 referendum budgeted $1,300,000 for construction management costs.
It is not disputed that from October 2000 to sometime in 2007, plaintiff provided, and defendant paid for, limited architectural, engineering, technical, and planning services related to the school building renovations and other unrelated contracts. The extent and nature of the services plaintiff rendered are not detailed in the record.
Significantly, the defeat of the 2002 referenda and subsequent change in the project's scope and manner of completion did not immediately trigger modification of the Agreement. On May 24, 2004, a single page "Contract Amendment" was executed, which added an anti-assignment provision and clarified the conditions of debarment, suspension or disqualification of the construction manager. See N.J.A.C. 17:19-4.1(a)(13). No mention was made of the significant alterations to completion of the original project.
In July 2007, defendant advised plaintiff that, based on the 2006 referendum, "the significantly reduced scope of work obviated the need for construction management services, in light of the lack of coordinated work by multiple trades and the availability of required engineering oversight of the work." Plaintiff contested this "termination" of its services and, as provided under the Agreement, filed for arbitration on July 19, 2007, asserting defendant had repudiated and materially breached the Agreement by "affirmatively blocking plaintiff from fulfilling [its] terms." Plaintiff sought damages in excess of $3,600,000.
Prior to the scheduled date of arbitration, the parties settled the dispute. The settlement terms were reflected in two simultaneously executed documents: a Rider amending the initial Agreement and a related Settlement Agreement.
On May 5, 2008, defendant adopted a resolution approving the Settlement Agreement, which authorized payment to plaintiff of $2,725,000, of which $750,000 was to be paid immediately and the balance satisfied pursuant to a schedule of semi-annual expenditures between June 1, 2008 and June 1, 2012. Defendant's resolution stated "approval of the settlement is expressly conditioned upon the opinion of bond counsel that the settlement obligation can be funded from the 2006 [r]eferendum [funds]." The Rider outlined the terms of payment for plaintiff's continued construction management services, capped "for the years 2008 to 2010" and without limit for "calendar year 2011 and thereafter."
The Settlement Agreement also stated that the payments are all unconditional, absolute and guaranteed and shall be made on the dates set forth therein, irrespective of any future suspension or termination of the [Rider] for any reason and at any time. In... the event that any payment set forth in paragraphs 2(a) through 2(i) is not made within sixty (60) days of the due date set forth therein, then and in that event, [plaintiff] shall apply to the Superior Court of New Jersey, for entry of judgment for the total amount set forth in paragraphs 2(a) through 2(i), plus the amount of costs and counsel fees incurred to enforce this [Settlement Agreement], less credit for payments made by [defendant] to the date of said application.
The following day, bond counsel sent a letter to defendant's attorney, conditionally authorizing the payment to plaintiff "for its construction management services from the bond proceeds authorized at the [2006 referendum]" as follows:
[Defendant] may pay this additional amount from the [2006 referendum] bond proceeds provided that (i) all the work that was approved by the New Jersey Department of Education, Office of School Facilities and included in the [2006 referendum] has been completed; and (ii) the total amount expended for the work and related fees on the [2006 referendum] does not exceed $39,760,000.*fn1
Defendant's counsel notified plaintiff of bond counsel's opinion, stating the Settlement Agreement and Rider "satisfie[d] the condition contained in the [r]esolution" regarding funding of the Settlement Agreement from the 2006 referendum. Despite its request, plaintiff was not provided a copy of bond counsel's written opinion. This interpretation of bond counsel's opinion, and the assurance of satisfaction with the expressed conditions of the Settlement Agreement, apparently was error.
Beginning in May 2008, plaintiff resumed the provision of services under the Settlement Agreement and the Rider, and defendant made the $750,000 payment. Thereafter, defendant did not make the payment due on June 1, 2008. "[F]or tax purposes," plaintiff delayed in submitting its invoice until October 1, 2008, sending a request for both the second and third installment payments.
Before defendant received the invoice, the Department of Education's Office of Fiscal Accountability and Compliance (OFAC) began investigating a complaint regarding the Settlement Agreement. In the summer of 2008, the OFAC verbally advised defendant to withhold further payments to plaintiff until its investigation was completed. Defendant notified plaintiff of its decision to comply with OFAC's directive. On October 21, 2008, plaintiff sent a notice of default demanding the acceleration of all payments due under the Settlement Agreement and Rider.
In a December 2, 2008 letter, the OFAC stated it was not restricting payment to plaintiff for its services. Nevertheless, defendant adopted one resolution repudiating the Settlement Agreement and another terminating the Rider.
Following the conclusion of its investigation, OFAC sent defendant a letter on February 11, 2009, that expressed concerns as to whether the initial contract between the board and Tri-Tech [was] compatible with state law. It was determined during the review that Tri-Tech did not have the requisite prequalification to perform contract management services on the district facilities projects; there are also bidding violations due to the contract; and there are concerns about a board member's actions regarding the planning and execution of the settlement.
Additionally,... [s]ervices were provided using bond referendum funds that had not been previously approved by the State of New Jersey, Department of Education, Office of School Facilities.
Consequently, defendant was required to return $326,004.47 in state aid received after January 21, 2003.
Plaintiff initiated its summary action with the Law Division, requesting entry of a judgment for $1,975,000 representing the outstanding amount due and owing under the Settlement Agreement, plus attorney's fees and interest, and a writ of mandamus compelling defendant to satisfy the judgment.
Defendant filed an answer and a counterclaim seeking to void the Settlement Agreement, which it asserted was unenforceable for a variety of reasons, including fraud, unconscionability, and violation of public policy. Defendant amended its pleadings to add unilateral mistake as a further basis to void the Settlement Agreement.
Following argument, the court issued a written opinion denying plaintiff's request for enforcement and granting defendant's request to void the Settlement Agreement based upon unilateral mistake. The court stated:
[Defendant] clearly and explicitly conditioned its approval of the settlement upon an unqualified opinion from bond counsel that the settlement could be funded from the proceeds of the 2006 referendum. Bond counsel's opinion did not meet that requirement and, moreover, the opinion itself misstates the terms of the Settlement Agreement. Beyond this, the Settlement Agreement and Rider contain provisions for future services that are contrary to law.
The court concluded enforcement of the Settlement Agreement would be unconscionable and ordered it and the Rider rescinded.
Plaintiff moved for reconsideration, arguing it had been afforded only "seven days to oppose what the [c]court treated as a motion for summary judgment" in "violation of the court rules." Plaintiff also argued the doctrine of unilateral mistake was misapplied and rescission was improper because material factual disputes required discovery and a plenary hearing. The trial judge denied this motion.
Plaintiff's first set of challenges attacks the summary proceedings below. Conceding its demand for payment was initiated as a summary action, R. 4:67-1, by filing a complaint and order to show cause, R. 4:67-2(a), plaintiff argues defendant's counterclaim alleging breach of contract, fraud, rescission and other claims, along with a demand for a jury trial, left the court unable to utilize a summary proceeding to address those claims.
Prior to considering whether the court's determination withstands scrutiny, we review plaintiff's general attack on the use of the summary procedure it initiated. Concern over the use of summary procedures was first expressed after the responsive pleadings were filed in plaintiff's January 23, 2009 letter to the trial judge. Questioning the propriety of proceeding summarily with defendant's counterclaims, plaintiff stated: "[a]ny relief sought by [defendant],  including, but not limited to, the [c]ounterclaim, should not be entertained in a summary manner, as there are no legal grounds to do so." Plaintiff further argues it was error to conduct the dispositional hearing before it was required to answer the counterclaim.
As permitted by Rule 4:67-1, use of a summary procedure requires all parties to agree to implementation of the process, or that the court find the affidavits submitted "palpably [show] that there is no genuine issue as to any material fact." R. 4:67-5. Otherwise, the court cannot "render final judgment thereon." Ibid. Where a party objects to a summary proceeding, or there is a genuine issue as to a material fact, the court must hear evidence as to those contested matters and only then render a final judgment. Ibid. The court must make findings of fact, either by adopting the uncontested facts in the pleadings after concluding that there are no genuine facts in dispute, or by conducting an independent evidentiary hearing. Courier News v. Hunterdon County Prosecutor's Office, 358 N.J. Super. 373, 378-79 (App. Div. 2003).
A review of the record discloses plaintiff's concern regarding the use of the procedure failed to rise to a full objection. In fact, in its letter challenging the propriety of possible summary consideration of defendant's claims, plaintiff advised, if the [c]court determines that it is best to hear argument on February 13, 2009, we will be guided by the [c]court's wishes. In addition, we would ask that the [c]court proceed based on the submissions provided to date. No more submissions are contemplated by the Order to Show Cause.
Further, although the court's opening remarks questioned whether a summary proceeding was appropriate, plaintiff never expressed a need for additional time to respond to defendant's mistake arguments or to add evidence. Rather, plaintiff consistently advocated: "We take the position that the [c]court is able to make a decision on the record before it[.]" As such, the court agreed to consider argument and issued a written opinion.
Plaintiff's condemnation of the procedure arose after it took its chances on the outcome and obtained an unfavorable result. Division of Youth & Family Servs. v. M.C., 201 N.J. 328, 340 (2010); Spedick v. Murphy, 266 N.J. Super. 573, 593 (App. Div.), certif. denied, 134 N.J. 567 (1993). Accordingly, reversal on this basis alone is unwarranted as plaintiff "urged the lower court to adopt the proposition now alleged to be error." Brett v. Great Am. Recreation, 144 N.J. 479, 503 (1996).
Two additional procedural arguments presented by plaintiff are easily dispensed with. First, plaintiff suggests the trial court erred in granting relief to defendant based upon its counterclaim, as it did not affirmatively move for relief. Plaintiff explains that because the only motion application before the court was its request, which was denied, no further action should have been taken. We are not persuaded and will examine the merits of the dispute.
Second, plaintiff is manifestly incorrect in its assertion the trial court "essentially converted" the matter to "a summary judgment" motion. The court rendered a full decision on the merits as required in a summary action; this was not a summary judgment proceeding. See O'Connell v. N.J. Mfrs. Ins. Co., 306 N.J. Super. 166, 171-72 (App. Div. 1997) (comparing summary action and summary judgment proceedings), certif. granted, 153 N.J. 405, appeal dismissed, 157 N.J. 537 (1998). The court's opinion makes clear that it was following Rule 4:67-5.
Having rejected plaintiff's procedural challenges, we examine the trial court's substantive determination that unilateral mistake warranted rescission of the Settlement Agreement and Rider. We first set forth the framework for our review.
In our review, we defer to the trial court's view of the background and factual dynamic between the parties, as established in the record. See Township of W. Windsor v. Nierenberg, 150 N.J. 111, 132-33 (1997). Of course, we are not bound by a trial court's findings based on documentary evidence or the "court's interpretation of the law and the legal consequences that flow from established facts[.]" Manalapan Realty, L.P. v. Tp. Comm. Of Manalapan, 140 N.J. 366, 378 (1995); accord Balsamides v. Protameen Chems., Inc., 160 N.J. 352, 372 (1999).
Equity may allow rescission in light of a unilateral mistake in a contract under certain circumstances. Conduit & Foundation Corp. v. City of Atl. City, 2 N.J. Super. 433, 439 (Ch. Div. 1949). A party seeking rescission must show "'special circumstances justifying a departure from the generally controlling principle that parties are bound by the contracts they make for themselves.'" Dugan Constr. Co. v. N.J. Tpk. Auth., 398 N.J. Super. 229, 243-44 (App. Div. 2008) (quoting Intertech Assocs. v. City of Paterson, 255 N.J. Super. 52, 59-60 (App. Div. 1992)).
In Conduit, supra, 2 N.J. Super. at 440, we set forth a four-part test against which we review whether to rescind a contract based upon a claim of unilateral mistake. We have affirmed this test in later opinions, stating:
"The essential conditions to  relief by way of rescission for mistake are (1) the mistake must be of so great a consequence that to enforce the contract as actually made would be unconscionable; (2) the matter as to which the mistake was made must relate to the material feature of the contract; (3) the mistake must have occurred notwithstanding the exercise of reasonable care by the party making the mistake, and (4) it must be able to get relief by way of rescission without serious prejudice to the other party, except for loss of his bargain." [Dugan, supra, 398 N.J. Super. at 242 (quoting Cataldo Constr., supra, 110 N.J. Super. at 418-19) (other citations omitted).]
See also Restatement (Second) of Contracts § 153 (1981).
Based on the record, the trial court recited theses facts supporting unilateral mistake:
In the case at bar, the Nutley Board expressly conditioned its consent to settle on an opinion by bond counsel "that the settlement obligation can be funded from the 2006 Referendum." Bond counsel, as noted earlier, approved settlement provided that all the work approved by the New Jersey Department of Education and included in the 2006 referendum "has been completed" and provided further that the expenditure for that work "and related fees on the December 12th bond referendum does not exceed $39,760,000."
This opinion was itself premised upon an apparently mistaken understanding of the Settlement Agreement. Bond counsel characterized the Settlement Agreement as requiring the Nutley Board to pay Tri-Tech "certain sums for construction management services for the December 12th bond referendum." However, the Settlement Agreement clearly was predicated upon payment for services rendered under the 2004 referendum, the 2006 referendum and for other unspecified services through 2012. It appears, therefore, that both the Nutley Board, bond counsel, and quite possibly, arbitration counsel were under the mistaken belief that the settlement only pertained to services performed under the 2006 referendum.
Further, as noted, all the work under the 2006 referendum is not completed and, necessarily, not approved by the State Department of Education, Office of School Facilities. Also, the Settlement Agreement is contrary to law insofar as it would entail funding of 2004 referendum work from the proceeds of the 2006 referendum; authorize work in excess of 24 months, contrary to N.J.S.A. 18A:18A-42; and obligated the Nutley Board to pay for work in futuro prior to the approval of a funding source. N.J.S.A. 18A:24-55.
The Nutley Board clearly and explicitly conditioned its approval of the settlement upon an unqualified opinion from bond counsel that the settlement could be funded from the proceeds of the 2006 referendum. Bond counsel's opinion did not meet that requirement and, moreover, the opinion itself misstates the terms of the Settlement Agreement. Beyond this, the Settlement Agreement and Rider contain provisions for future services that are contrary to law.
The trial court further determined defendant's mistaken belief that bond counsel's opinion authorizing payment under the Settlement Agreement was consonant with the terms of the 2006 referendum was material, as this approval was an explicit condition of the resolution adopting the Settlement Agreement. Next, reliance on bond counsel's opinion was reasonable and "[g]iven the facts of this case, any error by [defendant's] counsel... should not be held against a public body." Finally, the only prejudice is the loss of plaintiff's bargain. Relying on Hamel v. Allstate Ins. Co., 233 N.J. Super. 502, 508 (App. Div. 1989), the court concluded enforcement of the Settlement Agreement and Rider was unconscionable, both because of their illegality and the lack of a funding source to satisfy the settlement amount, and ordered rescission.
In Hamel, the plaintiff's attorney mistakenly settled a personal injury claim by accepting plaintiff's carrier's policy limit of $15,000 and releasing the tortfeasor without obtaining consent from his client's underinsured motorist (UIM) carrier or the carrier's waiver of subrogation rights against the tortfeasor. Id. at 504-05. As a result, the carrier rejected the client's claim for UIM benefits. Id. at 505.
Plaintiff sought declaratory relief granting permission to proceed against the UIM carrier notwithstanding deposit of the $15,000 or, alternatively, to void the release given in favor of the tortfeasor and return the monies paid. Ibid. The trial court ordered the Settlement Agreement rescinded. Ibid.
We reviewed the above stated four-part Conduit test and remanded for additional determinations. First, it was clear counsel's mistake of transmitting the release to the tortfeasor's carrier prior to obtaining the UIM carrier's approval "was potentially so serious that to enforce the release would be unconscionable[,]" especially considering that plaintiff was injured at no fault of her own, paid the insurance premiums for the UIM coverage, and had no other source of compensation for injuries. Id. at 507. Second, the mistake was clearly central and material to the contract as it was a release to "terminate all further claims against the releasee." Id. at 508. Third, it would have been "fundamentally unjust," despite counsel's misjudgment, not to allow relief as "no one will lose anything except the benefit of the bargain[.]" Ibid. We remanded for review of the final prong, whether serious prejudice would inure to any other party bound by the determination were rescission granted. Id. at 509.
Here, plaintiff challenges the trial court's application of this analysis, arguing "[i]ssues of fact exist on all elements of the rescission claim." We agree in part with plaintiff's assertion. The court's finding of mistake turned largely on the perceived lack of a funding source. Following our review, we find a paucity of evidence in this record to support that finding.
Bond counsel's opinion suggested payment was authorized for work pursuant to the 2006 referendum of up to $1,300,000, and for sums above that amount from surplus monies, if any, after satisfaction of all costs associated with the work authorized by the referendum. The court's determination assumed that defendant, its attorney, bond counsel, and the arbitrator all misunderstood the terms of the Settlement Agreement, believing payment related solely to work performed under the 2006 referendum. Such an assumption is not suggested by the facts of record. Plaintiff's arbitration payment demand clearly delineated the past services provided and computed the amount of compensation due for those services. Defendant objected to the methodology employed in calculating these sums. There was never a suggestion that defendant misunderstood what work was encompassed by plaintiff's demand. Likewise, the suggestion that defendant and its attorney misunderstood what claims were being settled is incongruous with details revealed in counsel's April 28, 2008 correspondence.
We acknowledge there is some ambiguity in bond counsel's statement regarding the permissible use of the monies, which raises the question of what services could be paid from the 2006 Referendum funds. At the very least, bond counsel's testimony was necessary to explain his opinion, including what it was based upon and to what it applied. For example, could services performed in preparation for the 2006 renovations be paid from the budgeted construction management costs? Also, could fees be paid for services other than those delineated in the 2006 referendum if surplus funds were available?
Additionally, the record does not reveal the actual costs incurred for the 2006 renovations, and thus cannot conclusively show the funds remitted, with or without any fees paid to plaintiff, exceeded $38,500,000. The only mention of unavailability of funds is found in the certification of Joseph Zarras, defendant's Superintendent of Schools. However, Zarras stated only that, "[a]t this time, it appears  there will be no surplus, but, rather there will be a deficit." Zarras's assertion is equivocal and undocumented.
On the other hand, plaintiff maintains the pre-construction phase services, as well as certain professional fees for removal of hazardous materials, were lower than budgeted; therefore, a possible surplus exists, ranging from $500,000 to $1,750,000. Plaintiff's submissions included revised budgets dated September 9 and December 12, 2008.*fn2 Defendant acknowledges that prior to its approval of the resolution adopting the Settlement Agreement, a discussion regarding the availability of a surplus ensued. The bald assertion that these estimates were incorrect is insufficient to establish this fact, which is pivotal to defendant's compliance with the Settlement Agreement.
Finally, plaintiff points out that if the 2006 funding source was disallowed, defendant was otherwise obligated to satisfy the settled sum through general funding. Plaintiff further asserts, pursuant to the Agreement, pre-referendum services were to be paid from defendant's general funds; thus, the funding source fell outside any referendum limitations.
Likewise, plaintiff should be afforded the opportunity to show what it contends is defendant's unreasonable conduct after receipt of bond counsel's opinion, including its repeated refusal to remit a copy of the opinion and its insistence that the opinion allowed adoption of the Settlement Agreement, upon which plaintiff relied to its detriment.*fn3
The other significant finding not supported by this limited record is whether plaintiff suffered prejudice from rescission beyond mere loss of the benefit of its bargain. Plaintiff maintains specific harms flowed from its reliance on defendant's assertion that bond counsel had fulfilled the condition stated in the resolution adopting the Settlement Agreement, including (1) use of monies previously received to pay sub-contractors; (2) assumption of liabilities or possible third-party claims in the resumption of continued services; (3) deterioration of its financial solvency due to the continued provision of services for six months without payment; (4) degradation of its reputation after losing its construction management certification when defendant repudiated the Settlement Agreement and Rider, and (4) termination of the arbitration, requiring completely new proceedings and loss of any monies expended to date. It is undisputed that plaintiff attempted to obtain a copy of bond counsel's opinion to assure itself the Settlement Agreement was in place. Defendant rebuffed these requests and plaintiff suggests it changed its position in reliance, continuing its services. A court must examine whether plaintiff can be returned to its original position or whether it suffered prejudice by relying upon defendant's acceptance of the Settlement Agreement. Hamel, supra, 233 N.J. Super. at 509; see also Villenueva v. Amica Mut. Ins. Co., 374 N.J. Super. 283, 290 (App. Div. 2005) (finding rescission under unilateral mistake appropriate only where "no material issue of fact remains to be resolved").
Faced with genuine issues as to material facts, we conclude the record was insufficient to allow a summary disposition and an evidentiary hearing was required prior to entry of final judgment.*fn4 Accordingly, the trial court's order, including plaintiff's return of the $750,000 payment, is reversed, and the matter is remanded for further proceedings.
Reversed and remanded.