February 8, 2011
DEB ASSOCIATES AND JOSEPH ROLANDELLI, PLAINTIFFS-APPELLANTS,
FOREVER YOUNG MEDICAL DAYCARE, LLC, MARIA KIPNIS, MARINA NABUTOVSKAYA, MARIYA TOLCHEVA, SVETLANA KESTEL, JOSEPH RODRIGUES, ESTATE OF DEAN RICCIARDI AND SUSAN RICCIARDI, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Chancery Division, Passaic County, Docket No. C-112-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 26, 2010
Before Judges Messano and Waugh.
Plaintiffs Deb Associates and Joseph Rolandelli appeal from the Chancery Division's order denying their motion to enforce, or alternatively vacate, a settlement agreement previously reached with defendants, Forever Young Medical Daycare, LLC (Forever Young), Maria Kipnis, Marina Nabutovskaya, Mariya Tolcheva, Svetlana Kestel, Joseph Rodrigues, the Estate of Dean Ricciardi and Susan Ricciardi (collectively, defendants).
On August 10, 2005, plaintiff*fn1 filed its complaint alleging an interest in Forever Young pursuant to an agreement previously reached with Dean Ricciardi and the subsequent investment of significant sums of money in the senior day care centers operated by defendants. Plaintiff sought declaratory relief recognizing its ownership interest in the centers, the creation of equitable and constructive trusts, injunctive relief to block any sale by an individual defendant of his or her interests, compensatory and punitive damages, and counsel fees based upon defendants' intentional and wrongful conduct. Two years later, plaintiff amended its complaint to include a request for an accounting.
Trial commenced in February 2008 before now-retired judge Joseph J. Riva. The parties reached a settlement that was orally placed on the record on March 3. The terms of the settlement, as explained by plaintiff's counsel, provided that plaintiff would be given "the functional equivalent . . . of [five] percent in Forever Young," with "that interest . . . coming exclusively from . . . [Tolcheva]." The first $400,000 in distributions to plaintiff would "be allocated to the payment of a loan in that amount without interest." Plaintiff's counsel then continued:
[Tolcheva] currently has a plan to open a new center in New Brunswick. And when that center is -- when the entity is established [Deb] will [be] given a 20 percent interest of that center without having to pay anything in exchange for that 20 percent.
It's acknowledged that . . . currently the proposed members of that center will be . . . [Tolcheva] and someone else whose identity has not been told to us.
In the event that it's determined that that center will not be established and opened for whatever reason, and . . . [Tolcheva] has full discretion to do it or not do it and . . . she cannot be deemed in breach for not doing it, in that event, [DEB] will be given a[n] interest on the same basis in whatever center she does open where she is going to be an active principal as a substitute for the New Brunswick center.
Counsel confirmed these and other terms of the agreement with plaintiff, who acknowledged that he understood, that he had been involved personally in negotiating the settlement, that he was satisfied with the services of his attorney and that he was voluntarily settling the case. Plaintiff then engaged in this exchange with his attorney and the judge:
Plaintiff: If this deal from New Brunswick falls apart or she never opens another center, do I have a right to come in[to] [court] on that? That that wasn't lived up to?
Counsel: If she never opens another center? Plaintiff: Yup.
Counsel: No. You're taking a chance that she will open another center.
Plaintiff: Is there anything we can do to protect ourselves in that regard? I hate to say that.
Judge Riva then explained that plaintiff was getting a percentage of defendants' business under the settlement agreement and that, if the trial continued, "You could get nothing." The judge continued:
Judge: I'm hearing that if [Tolcheva] decides, for whatever reason, not to pursue a different center, then that's her call. Plaintiff: Is that what we agreed to? Plaintiff's counsel: That's what we agreed to.
The judge further explained:
It doesn't sound like that's what [Tolcheva] intends to do. She seems like a very aggressive businesswoman . . . . So, the likelihood of her resting on her laurels . . . is probably small. But anything is possible. If she hits the lottery tomorrow . . . she might decide she had enough work.
Plaintiff again affirmed his understanding of these terms.
Tolcheva was then voir dired regarding her approval of the settlement terms. No specific questions were asked as to the probability of her opening a new center in New Brunswick or elsewhere. The attorneys indicated their intention to reduce the terms of the settlement to writing.
Plaintiff's counsel drafted a written agreement and forwarded it to defense counsel on April 25. He noted plaintiff's presumption that "further steps have been undertaken to establish the new . . . center in New Brunswick." Counsel requested relevant documentation in this regard. The proposed agreement provided in pertinent part that Tolcheva was representing "that she plan[ned] to open a new . . . center in New Brunswick," and it set forth the terms of plaintiff's interest in that new center. However, the draft agreement also provided the following:
In the event th[e] [New Brunswick] facility is not opened for any reason, in the sole non-reviewable discretion of Tolcheva, then [plaintiff] will be given the same interest [i]n another comparable facility that Tolcheva opens, on the same terms. [Emphasis added.]
On May 8, defense counsel e-mailed plaintiff's counsel and advised that he would forward revisions. He further advised that "New Brunswick has not progressed[,]" citing Tolcheva's "health" and her need "to spend extra time with her [Forever Young] partners as a result of the litigation[.]" Counsel further advised that "the partnership that was going to do New Brunswick has broken down." Additional e-mails were exchanged as plaintiff's counsel pressed for the revised settlement agreement. On June 6, defense counsel forwarded his proposed changes.
Plaintiff's counsel responded, claiming that before he could "substantively respond," he needed to know "if New Brunswick [wa]s 'dead'" and if "an alternative [wa]s in the works." Defense counsel responded that Tolcheva "had her hands full between her health and some issues with members of [Forever Young]," and the plans had "gone into a state of suspension." He further advised that "[t]he project in New Brunswick . . . is clearly no longer on track because of the ruptured relationship between [Tolcheva] and the other partner. I do not know when the project will get back on track."
In August, plaintiff's counsel wrote to defense counsel. Referencing a conversation between plaintiff and Tolcheva, counsel noted that the New Brunswick facility was not moving forward and that Tolcheva "would not be pursuing another [comparable] project." Counsel asserted that Tolcheva's decision "destroy[ed] a material aspect of the settlement."
On November 5, after receiving no response, plaintiff moved to enforce the settlement or vacate the dismissal of the litigation and return the matter to the trial calendar. Plaintiff contended that Tolcheva had breached the settlement agreement, had fraudulently induced him to settle the case by offering an interest in the nascent New Brunswick center or some comparable future development and had violated the covenant of good faith and fair dealing.
Defendants responded in a letter to the judge. Defense counsel reviewed the terms of the settlement and reiterated that "[p]laintiff understood that . . . Tolcheva's failure to proceed with a new facility would not constitute a breach." He also took note of other unanticipated circumstances, including the death of Tolcheva's mother and a statewide moratorium preventing the "licensing of new adult medical daycare facilities."
On September 30, 2009, Judge Riva held a hearing on plaintiff's motion. Plaintiff, plaintiff's counsel, his paralegal and Tolcheva testified. On February 8, 2010, the judge denied plaintiff's motion and issued a comprehensive written decision that accompanied the order.
Judge Riva rejected plaintiff's claim that he was fraudulently induced into settling the litigation. The judge found that Tolcheva's statements regarding the New Brunswick center were her "opinion[s]," not facts. Moreover, the judge concluded that Tolcheva had taken significant steps to open the New Brunswick center. Lastly, the judge determined that plaintiff had not relied upon Tolcheva's representation because he knew that "additional steps needed to be taken to open the New Brunswick center."
Regarding plaintiff's claims that Tolcheva had breached the settlement agreement, Judge Riva found that she intended, as of the day of the settlement, "to open the New Brunswick center." He found "[n]o credible contrary evidence was presented by plaintiff." The judge further took note of the colloquy between plaintiff and counsel when the settlement was placed on the record, finding plaintiff "acknowledged that [Tolcheva] cannot be deemed in breach of the agreement for not [opening the center]." The judge found that plaintiff "understood that future circumstances might cause Tolcheva to decide not to open another center."
Judge Riva also rejected plaintiff's contention that defendants violated the implied covenant of good faith and fair dealing. He concluded that plaintiff had failed to demonstrate any "bad motive or intention" by Tolcheva. The judge also noted that "an implied covenant of good faith and fair dealing may not override an express provision in the agreement." Since the express terms of the settlement prohibited plaintiff from alleging that Tolcheva breached the agreement by failing to open the New Brunswick center, defendants had not violated the covenant of good faith and fair dealing by failing to do so.
The judge entered an order denying plaintiff's motion, and this appeal ensued.
Before us, plaintiff contends that 1) the judge "misapplied the operative legal principles"; and 2) "an adverse inference should have been drawn due to the failure to have [defense counsel] testify." We have considered these arguments in light of the record and applicable legal standards. We affirm substantially for the reasons set forth by Judge Riva in his written decision. R. 2:11-3(e)(1)(a).
Our review of the factual findings made by a trial judge after a hearing of this nature is quite limited. Estate of Ostlund v. Ostlund, 391 N.J. Super. 390, 400 (App. Div. 2007). "'[W]e do not weigh the evidence, assess the credibility of witnesses, or make conclusions about the evidence.'" Mountain Hill, L.L.C. v. Twp. of Middletown, 399 N.J. Super. 486, 498 (App. Div. 2008) (quoting State v. Barone, 147 N.J. 599, 615 (1997)). In general, the judge's factual "findings . . . should not be disturbed unless they are so wholly insupportable as to result in a denial of justice[.]" Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474, 483-84 (1974) (quotation omitted). However, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995).
We review some basic principles regarding settlements in general. "A settlement agreement between parties to a lawsuit is a contract." Nolan v. Lee Ho, 120 N.J. 465, 472 (1990). Since the "settlement of litigation ranks high in our public policy," Jannarone v. W.T. Co., 65 N.J. Super. 472, 476 (App. Div.), certif. denied sub. nom., Jannarone v. Calamoneri, 35 N.J. 61 (1961), "settlement agreements will be honored 'absent a demonstration of fraud or other compelling circumstances.'" Nolan, supra, 120 N.J. at 472 (quoting Pascarella v. Bruck, 190 N.J. Super. 118, 125 (App. Div.), certif. denied, 94 N.J. 600 (1983)). The party seeking to set aside the settlement based upon fraud must demonstrate by "clear and convincing proof" that "a material misrepresentation [was] made with intent that it be relied on, coupled with actual detrimental reliance." Nolan, supra, 120 N.J. at 472 (citations omitted) (quotation omitted).
In this case, the judge found Tolcheva's testimony to be credible and plaintiff's proofs to be insufficient. Judge Riva concluded that Tolcheva intended to open the New Brunswick center and that other circumstances forced her reconsideration and ultimate cancellation of those plans. He also found that plaintiff did not rely upon the opening of another facility as a material element of the settlement because, as we noted above, he had been specifically told at the time he entered into the settlement that Tolcheva could exercise unchallengeable discretion in making her decision. These legal conclusions are amply supported by the factual determinations Judge Riva made. For the same reasons, plaintiff failed to prove that Tolcheva breached the settlement contract.
Plaintiff contends that the judge misconstrued the law regarding his claim that Tolcheva breached the implied covenant of good faith and fair dealing. We disagree.
A covenant of good faith and fair dealing exists in all contracts such that "'neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" Sons of Thunder Inc. v. Borden, Inc., 148 N.J. 396, 420 (1997) (quoting Palisades Props., Inc. v. Brunetti, 44 N.J. 117, 130 (1965)). A party may obtain relief "if its reasonable expectations are destroyed when [the other party] acts with ill motives and without any legitimate purpose." Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 226 (2005) (citations omitted). "[T]he duty of good faith and fair dealing applies to settlements as it does to any other contract." Brundage v. Estate of Carambio, 195 N.J. 575, 608 (2008) (citation omitted). After listening to the testimony at the post-settlement hearing, Judge Riva determined that Tolcheva had not acted with any bad motives, and, hence, did not violate the implied covenant of good faith and fair dealing.
As noted, Judge Riva also concluded that because the settlement agreement expressly provided Tolcheva with complete discretion, plaintiff's claim as to a breach of the implied covenant of good faith and fair dealing sought to override an express provision of the contract. See, e.g., Sons of Thunder, supra, 148 N.J. at 419 (the "covenant of good faith and fair dealing cannot override an express . . . clause"). Plaintiff argues, however, that Judge Riva misconstrued the law in this regard because his claim was that Tolcheva had not "performed [her] obligations in good faith." Ibid. (emphasis omitted).
Nevertheless, we view any confusion regarding this legal principle as insubstantial. Having found that Tolcheva did not act in bad faith or with ill motive, the judge's conclusion that she did not violate the implied covenant is unassailable. See El-Sioufi v. St. Peter's Univ. Hosp., 382 N.J. Super. 145, 169 (App. Div. 2005) (citations omitted) ("a correct result, even if predicated on an erroneous basis in fact or in law, will not be overturned on appeal").
Defendant also argues that Judge Riva erred by failing to draw an adverse inference because defense counsel did not testify at the hearing. The argument is unavailing.
"[A]n adverse inference may be drawn against a party from the failure to produce a witness if (1) that party had the power to produce the witness, and (2) the witness' testimony would have been superior to that of the witnesses who did actually testify." State v. LaBrutto, 114 N.J. 187, 202-03 (1989) citing State v. Clawans, 38 N.J. 162, 171 (1962)). In determining the appropriateness of an adverse inference instruction, the court should consider three factors: whether the witness was available to both parties; whether such testimony would "'elucidate relevant and critical facts in issue'"; and whether there is a "'special relationship'" between the party producing the witness and the witness. Nisivoccia v. Ademhill Assocs., 286 N.J. Super. 419, 428 (App. Div. 1996) (quoting State v. Hickman, 204 N.J. Super. 409, 414 (App. Div. 1985)). Whether to provide an adverse inference charge rests with the sound discretion of the court. Clawans, supra, 38 N.J. at 170.
We note that plaintiff did not subpoena defense counsel, nor did he seek to call him as a witness at the hearing. Instead, plaintiff's counsel first urged the judge to draw an adverse inference in his summation. See Nisivoccia, supra, 286 N.J. Super. at 429 (quotation omitted) (noting "the better practice . . . suggests that an attorney who seeks to comment upon the nonproduction of a witness advise the trial judge and opposing counsel of his intention before summation").
Overlooking this procedural issue, Judge Riva did not mistakenly exercise his discretion. Plaintiff's claims rested upon Tolcheva's representations and post-settlement actions. Plaintiff called her as a witness, she testified fully at the hearing and was subject to what was essentially cross-examination. We fail to see how defense counsel's testimony would have been superior to Tolcheva's in any respect.
To the extent that plaintiff argues that defense counsel did not testify because he knew his testimony would contradict Tolcheva's, we note there is nothing in the record to support this claim. Moreover, it implies that defense counsel would permit his client to testify untruthfully, something prohibited by the Rules of Professional Conduct. See RPC 3.3(a)(4). We refuse to engage in such speculation.