January 6, 2011
BOROUGH OF BLOOMINGDALE, A CORPORATE BODY POLITIC OF THE STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
FLARLAS, LLC, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-17-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted November 30, 2010
Before Judges Skillman and Yannotti.
Defendant Flarlas, LLC (Flarlas), appeals from a judgment entered for plaintiff Borough of Bloomingdale (Borough) on August 28, 2009, and an order dated October 19, 2009, which denied its motion for reconsideration. For the reasons that follow, we reverse.
On December 28, 2007, the Borough filed a complaint in which it alleged that Flarlas had unlawfully expanded a prior non-conforming use of certain property, engaged in certain construction activities on the property without approval, and maintained thereon an unsafe structure. The Borough alleged that, as of December 24, 2007, it had assessed penalties against Flarlas in the amount of $93,000 for failure to obtain required permits, approvals and a certificate of occupancy. It further alleged that an additional $1500 was due each week that the violations continued. In addition, the Borough alleged that, as of December 24, 2007, it had assessed penalties against Flarlas in the amount of $38,000 for maintaining an unsafe structure, with an additional $2000 due for each week that the violation continued.
The parties entered into a stipulation of settlement dated November 3, 2008. The agreement states that Flarlas would meet with Dan Hagberg (Hagberg), the Borough's construction official/zoning officer, within one week. Hagberg would then determine and inform Flarlas what was required to bring the subject property into compliance with the Uniform Construction Code (UCC), N.J.S.A. 52:27D-119 to 151, and the Borough's Code (BC). Flarlas would have ninety days from notification to bring the property into compliance.
The agreement provided that if Hagberg was satisfied that the property was in compliance with the UCC and BC, Flarlas would pay the Borough a penalty in the amount of $5000. The agreement additionally provided that if Hagberg was not satisfied that the property was in compliance with the applicable codes within ninety days of notification, "Flarlas shall owe a $40,000 penalty to the Borough, with a lien attached to the property."
In August 2009, the Borough sought entry of judgment pursuant to the settlement agreement. In an affidavit dated August 7, 2009, the Borough's attorney, Joseph V. MacMahon (MacMahon), stated that on November 6, 2008, Hagberg met with representatives of Flarlas and provided them with a written document "setting forth available options" that would bring the subject property into compliance with the codes. Sally Meyer (Meyer) signed the document on behalf of Flarlas. However, according to MacMahon, Flarlas failed to bring the property into compliance with the codes, and the Borough was entitled to a judgment against Flarlas in the amount of $40,000.
MacMahon additionally stated that, after the expiration of the ninety day period provided for in the settlement agreement, he contacted James K. Webber (Webber), counsel for Flarlas, and informed him that Flarlas had not brought the property into compliance. MacMahon told Webber that the Borough might be interested in purchasing the property "if [it was] cost effective to do so." MacMahon said that discussions regarding the purchase of the property "have not progressed but may in the future if an agreeable price can be negotiated."
The Borough's motion for entry of judgment was returnable on August 28, 2009. Flarlas sought an adjournment of the return date to September 11, 2009, and, assuming it had been granted, filed a certification by Webber opposing the motion on September 2, 2009.
In his certification, Webber stated that Meyer met with Hagberg on November 6, 2008, as promised. At the meeting, Hagberg informed Meyer that the building in question had two significant problems. Flarlas had constructed a deck off the rear of the second story and converted a one-bedroom apartment into three studio apartments without permits and prior approvals. Hagberg told Meyer what needed to be done to correct the problems.
According to Webber, in January 2009, Flarlas filed an application with the Planning Board seeking approval of the non-conforming deck. Meyer also told Hagberg that she would convert the three studio apartments to a single apartment. Hagberg told Meyer that if such work were done, it had to be in conformance with the then-applicable BC. To do so, Flarlas had to hire an architect and other professionals at a cost of in excess of $30,000. Webber stated that Meyer did not have "that kind of money."
Webber additionally stated that the parties had discussed what was required to bring the property "up to code." On February 12, 2009, the Borough's attorney approached Webber and indicated that the Borough might want to enter into negotiations to purchase the property. Meyer was interested because she was losing money on the property, since it was unoccupied, with the exception of a parking lot that had been leased to a car dealer.
Webber stated that on March 4, 2009, the Planning Board informed Meyer that she had to submit another set of plans for the deck variance application and Flarlas "promptly" complied. On March 17, 2009, Meyer was informed that her application was incomplete and would not be considered as filed.
Webber noted that Flarlas had submitted $1250 with the initial application, and the Borough had not returned the monies. Webber said that, when the Borough raised the possibility that it might purchase the property, Meyer decided not to invest any more money in seeking the variance or performing construction until the negotiations "ripened."
In March and April 2009, Webber repeatedly called MacMahon in an effort to "keep matters moving[.]" Webber said that he did not receive a response and, therefore, wrote to MacMahon to inquire about the Borough's interest in buying the property. On June 17, 2009, MacMahon informed him that he would seek an order of judgment in conformance with the settlement agreement.
MacMahon told Webber that he had not discussed purchasing the building with the governing body but hoped to do so on August 18, 2009. It appears that Flarlas was seeking $680,000 for the property. On August 19, 2009, MacMahon told Webber that the Borough was not interested in acquiring the property at that price, and he would inform him if the Borough wanted to revisit the negotiations at a later date.
Webber stated that the court should not enter the order of judgment because Flarlas had acted in good faith in endeavoring to bring the property into compliance with the applicable codes. Webber also stated that the $40,000 fine demanded by the Borough was unconstitutional, inequitable and excessive. To resolve the matter, Webber suggested that Flarlas pay a $5,000 fine, and hold in abeyance the enforcement of any existing code violations until Flarlas either sold the property or decided to re-occupy the non-conforming part of the building.
It appears that the court did not adjourn the motion, and on August 28, 2009, entered judgment for the Borough in the amount of $40,000. Flarlas then filed a motion for reconsideration. In a certification submitted in support of that motion, Webber stated that he thought that the return date of the motion had been adjourned to September 11, 2009. Webber asked the court to vacate the judgment and place the motion back on the docket. The Borough consented to Flarlas's motion.
However, on October 19, 2008, the court entered an order denying Flarlas's motion. On the order, the court wrote that Flarlas had entered into a stipulation of settlement to resolve the Borough's lawsuit and thereby agreed to the terms of the agreement. The court noted that Meyer had been represented throughout by counsel, and the agreement had been placed on the record on November 3, 2008. The court concluded that it was a "binding agreement."
On appeal, Flarlas argues that the judgment should be vacated because the trial court failed to consider a number of defenses it had raised in opposition to enforcement of the settlement agreement. Flarlas contends that the trial court should have considered whether, under the circumstances, the $40,000 penalty was unconstitutionally punitive and capricious. Flarlas further contends that the court erred by failing to consider its "traditional" defenses to enforcement of a contract.
"Fundamental to our jurisprudence relating to settlements is the principle that '[t]he settlement of litigation ranks high in our public policy.'" Brundage v. Estate of Carambio, 195 N.J. 575, 601 (2008) (quoting Jannarone v. W.T. Co., 65 N.J. Super. 472, 476 (App. Div.), certif. denied, 35 N.J. 61 (1961)). "In furtherance of this policy, our courts 'strain to give effect to the terms of a settlement whenever possible.'" Ibid. (quoting Dep't of Pub. Advocate v. N.J. Bd. of Pub. Utils., 206 N.J. Super. 523, 528 (App. Div. 1985)).
An agreement to settle a lawsuit is a contract that the courts should honor and enforce as it enforces other contracts. Id. at 601. A court should, however, set aside a settlement agreement if it has been "'achieved through coercion, deception, fraud, undue pressure, or unseemly conduct[.]'" Ibid. (quoting Peskin v. Peskin, 271 N.J. Super. 261, 276 (App. Div.), certif. denied, 137 N.J. 165 (1994)).
We agree with the Borough that Flarlas should not be heard to complain concerning the amount of the judgment that the Borough could obtain pursuant to the settlement agreement. As noted, Flarlas argues that a $40,000 judgment is excessive, and thereby unconstitutional, because it is allegedly five times greater than the combined amount of all of the fines the Borough has levied for similar offenses in the past decade. We are satisfied, however, that the motion judge correctly found that Flarlas was bound by the terms of the agreement, including its provision for entry of a $40,000 judgment.
Flarlas nevertheless argues that the motion judge erred by failing to consider its demand for reformation of the settlement agreement. Flarlas asserts that it did not anticipate that the Borough's requirements for bringing the property up to code would be "so expensive." Flarlas also asserts that the Borough's insistence on renovation, coupled with the threat that Flarlas would be required to pay a large fine if it did not undertake the repairs, warrants reformation of the contract. We disagree.
In the settlement agreement, Flarlas expressly agreed to do whatever Hagberg required in order to make the property code-compliant. Flarlas knew or should reasonably have known the costs involved. In our view, the Borough did not act unconscionably when it sought to enforce the settlement agreement according to its terms. Therefore, Flarlas did not establish grounds for reforming the agreement.
Flarlas additionally argues that the trial court erred by failing to consider its contention that the settlement agreement should not be enforced because the Borough violated the covenant of good faith and fair dealing, which is implied in every contract. Wilson v. Amerada Hess Corp., 168 N.J. 236, 244 (2001). Good faith conduct is conduct that does not "'violate community standards of decency, fairness or reasonableness.'" Id. at 245 (quoting Restatement (Second) of Contracts, § 205 comment a (1981)).
Furthermore, "'[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.'" Id. at 245 (quoting Restatement (Second) of Contracts, supra, § 205 comment a). The covenant requires the parties to refrain from taking any actions that would destroy or injure the other party's right to receive the benefits of the agreement. Ibid.
Flarlas asserts that, until the Borough announced that it intended to file a motion for entry of judgment, it acted consistently with its obligations under the agreement. Flarlas points out that it filed an application for approval of the non-conforming deck, and inquired as to the process for returning the property to use as a single apartment. Flarlas also points out that it spent $2500 in professional fees and $1250 on the application regarding the deck.
Flarlas additionally asserts that the Borough "dangled" the possibility that it would purchase the property at the same time that it was seeking entry of the $40,000 judgment. According to Flarlas, the Borough was insisting that it pay the $40,000 fine as well as spend an equivalent amount to bring the property "up to code." According to Flarlas, it ceased in its efforts to make the property code-compliant after MacMahon suggested the Borough might be interested in purchasing the property.
Flarlas asserts that the Borough did not act in good faith when the Borough's attorney raised the possibility that the Borough might want to acquire the property at or about the time it was threatening to obtain the $40,000 judgment pursuant to the settlement agreement. Flarlas also claims that it ceased in its efforts to bring the property into compliance with the applicable codes when the Borough expressed an interest in acquiring the property. Flarlas asserts that, under the circumstances, the Borough did not act in good faith when it sought entry of the judgment pursuant to the agreement.
We are satisfied that Flarlas has presented sufficient evidence to warrant consideration by the trial court of its contention that the Borough violated the covenant of good faith and fair dealing and therefore should be precluded from enforcing the agreement. In our view, the trial court erred by summarily rejecting this defense to the Borough's demand for enforcement of the agreement.
We accordingly vacate the judgment entered on August 28, 2009, and remand the matter for further proceedings on this issue. The court should conduct an evidentiary hearing in the event there are genuine issues of material fact pertinent to Flarlas's claim.
Reversed and remanded for further proceedings in conformity with this opinion. We do not retain jurisdiction.
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