May 6, 2011
THE CITY OF ASBURY PARK, A MUNICIPAL CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF-CROSS-RESPONDENT,
THE ESTATE OF PASQUALE N. VACCARO, DEFENDANT-RESPONDENT/ CROSS-APPELLANT, CITY OF ASBURY PARK SEWERAGE AUTHORITY, DEFENDANT, AND ASBURY PARTNERS, L.L.C., INTERVENOR-APPELLANT/CROSS-RESPONDENT. BECKER MEISEL, L.L.C., INTERVENOR.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, L-004235-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued April 4, 2011
Before Judges Reisner and Ostrer.
Intervenor Asbury Partners (Partners) appeals from an August 2, 2010 order enforcing a settlement between plaintiff, the City of Asbury Park (City), and defendant, the Estate of Pasquale N. Vaccaro (Estate). The Estate cross-appeals from the portion of the August 2 order that denied its application for counsel fees. We reverse the order enforcing the settlement, and remand this matter to the Law Division for an evidentiary hearing.
As part of a plan to redevelop its waterfront area, the City designated Partners as the master redeveloper, and agreed to condemn certain properties at Partners' request. Partners, in turn, agreed to pay the cost of acquiring the condemned properties. In 2006, at Partners' request, the City filed a condemnation complaint to acquire property owned by the Estate. In the condemnation complaint, and in a separate complaint filed in 2007, the City also sought remediation of alleged pollution on the property at the Estate's expense. However, the 2007 complaint was dismissed without prejudice, pending an attempt to settle the environmental issues.
In the condemnation case, the court-appointed commissioners valued the property as worth $649,800, an amount the Estate rejected. By contrast with the condemnation award, the Estate's experts appraised the property as worth between $1.1 million and $1.8 million. In March 2008, the City deposited the amount of the commissioners' award with the court, apparently using funds supplied by Partners. However, the City and the Estate agreed that the Estate would leave the condemnation money in escrow pending resolution of the environmental issues. Expert reports estimated the remediation costs as ranging from a low of $300,000 to a high of over $2.7 million.*fn1
On April 13, 2010, the Estate filed a motion before the judge assigned to the condemnation case, seeking to enforce a settlement it claimed to have reached with the City on March 15, 2010. The Estate supported the motion with a certification from its counsel, Robert Heugle, Jr., and a series of emails concerning the settlement negotiations. Heugle attested that on March 10, 2010, the City's outside counsel, Lawrence Shapiro, called him and extended an offer to settle both the condemnation and environmental litigations. According to Heugle, the terms of the offer were that the Estate would receive the escrowed funds, including accrued interest; the City and Partners would release the Estate from any environmental clean-up or remediation responsibility; and the City would be "released from any further obligation to compensate the Estate for the fair market value of the property." Shapiro told Heugle that his "client" was making the settlement offer "for business reasons." On March 15, 210, Heugle called Shapiro's office and left a message confirming his client's acceptance of the offer. He also sent Shapiro a confirming email.
A day later, Shapiro called Heugle and, while acknowledging that the Estate had accepted the offer, informed Heugle that there was a "mistake" concerning the offer the client had intended him to convey. In an email dated March 16, 2010, Shapiro stated that "the offer that was relayed to you by me was not correct. As I stated, I relayed to you what was relayed to me, however, I was subsequently advised that the offer told to me was not correct." Shapiro apologized for the "misunderstanding" on behalf of his client "and the developer." He explained that "there has been some change in the decision making structure at the developer and, unfortunately, there was a miscommunication down the line as the proposed offer made its way to me."
Shapiro's email then communicated what he stated was "the correct and authorized offer": "the City/Developer will release your client from environmental liability for walking away from the valuation issue. In addition . . . $25,000 would be paid to your client in full and complete settlement of the matter." Shapiro explained that the settlement offer was based on the potentially enormous costs to clean up pollution on the property, and the anticipated costs of continued litigation.
In response to the Estate's motion, Partners moved to intervene for the purpose of opposing enforcement of the settlement. In support of its intervention motion, Partners submitted its version of the relevant events, through a certification from its condemnation counsel, Michael Oxman. His certification explained that because Partners was providing the funds to acquire all of the properties in the redevelopment area, "all settlement offers to landowners that are parties to condemnation proceedings with the City [in that area] are initiated by Asbury Partners and transmitted to the City's attorney for conveyance to landowners."*fn2
Oxman explained the alleged miscommunication of the settlement offer as follows. Partners' general counsel, Richard Levitan, authorized Oxman to communicate this settlement offer to Shapiro: "if the Estate would 'walk-away' from the funds on deposit with the Court, then Asbury Partners would not hold the Estate responsible for any remediation costs" and "Asbury Partners would be willing to offer the Estate a nominal sum if that would conclude a settlement." Shapiro, in turn, was to extend that offer to the Estate.
According to Oxman, instead of communicating Levitan's offer to Shapiro, Oxman "mistakenly informed Mr. Shapiro that he could offer the Estate the monies on deposit with the Court, along with the pledge that the Asbury Partners would forgo future claims against the State for any environmental remediation costs." Oxman attested that the offer he mistakenly communicated to Shapiro was "without the knowledge or consent of Mr. Levitan" or Partners, and that Oxman had no authority to convey that offer to Shapiro. Oxman then described a series of confirming emails from Shapiro and the Estate's counsel on March 15, copies of which were sent to Levitan. On the evening of March 15, Oxman received a phone call from Levitan "during which I immediately realized I had mis-communicated Asbury Partners' offer, and had conveyed an offer for which I had no authority."
Levitan confirmed his views in a March 15 email to Shapiro, stating "Larry - This [the settlement as described in Heugle's email] does not reflect an offer that was on the table." Oxman and Levitan instructed Shapiro to withdraw the offer "first thing in the morning on March 16 and to convey the offer which should have been made."
Partners also submitted a certification from Levitan, corroborating Oxman's version of events. According to Levitan, he authorized Oxman to convey to Shapiro that "the Estate would give up or walk away from the deposit (allowing the return of the funds to Asbury Partners) and, in exchange, the Estate would not be responsible for the remediation costs." Additionally, Partners would pay the Estate "a nominal sum" to conclude the deal. Levitan asserted that Partners "would never have authorized the offer the Estate now seeks to enforce" because the cost to remediate the pollution "would exceed even the Estate's most optimistic view of its property's value." Levitan attested that Oxman had no authority to communicate "such an offer to Mr. Shapiro or anyone else." Levitan further stated that
The correct offer did not reflect a "change of heart" on Asbury Partners' part or "settler's remorse." Changes in the membership of Asbury Partners played no role in the discovery and correction of the mistaken offer. There was never a change to the offer itself, only a correction to withdraw the incorrect offer and transmit the correct one.
On behalf of the City, Shapiro also submitted a certification, contending that even if the parties had agreed on a monetary amount that was actually authorized by Partners, a final settlement would have required more than mere agreement on financial terms. He contended that "the financial terms were only the first part of a potential settlement in this action," and the settlement would have required the City Council's approval. Because pollution from the Estate's property had reached the City's right of way, any settlement would have had to address the City's separate environmental claims, which extended beyond those claims asserted in the condemnation action. According to Shapiro, the redeveloper agreement with Partners did not address whether Partners or the City "would be responsible for environmental remediation that may be required as a result of the redevelopment process."
Shapiro also confirmed, in general, the chain of events that Heugle described, in which Shapiro communicated to Heugle what Oxman had told him, only to be advised later that "Asbury Partners itself, the client of Mr. Oxman, did not authorize the settlement terms I had relayed to Defendant Estate via its counsel." Shapiro asserted that "therefore, I had no authority to make the settlement offer."
In response, the Estate filed a supplemental certification from Heugle, rebutting Shapiro's certification. Heugle attested that when Shapiro communicated the City's offer, Shapiro did not state "that the offer conveyed by him" was only the first step of a longer settlement process, nor that it "was contingent or conditional in any respect." According to Heugle, Shapiro was "a very experienced, competent litigator" who would have specifically told Heugle if his client's settlement offer was conditional or contingent.
The Estate also filed a certification from another one of its attorneys, Michael Schottland, providing a copy of a recent decision of this court, a case that was argued on May 19, 2010 and decided on June 1, 2010. That opinion affirmed a $1.544 million condemnation verdict in favor of the owner of a smaller property located adjacent to the Estate's property. City of Asbury Park v. Alvino, No. A-6457-08 (June 1, 2010). The Alvino property was also in the redevelopment area, and hence, Partners would have to pay that award. In his certification, Schottland asserted that the Alvino verdict demonstrated that it would not be unconscionable to enforce the settlement. He also asserted that, knowing a decision in the Alvino appeal was impending, Partners had good reason to attempt a quick settlement with the Estate for a much lower price than Alvino had been awarded in the trial court.
Based on the certifications of the parties, the trial judge granted the Estate's motion to enforce the settlement. Applying the four-part test for equitable relief based on unilateral mistake, Conduit & Foundation Corp. v. City of Atlantic City, 2 N.J. Super. 433, 440 (Ch. Div. 1949), the court found, first, that the mistake was not "of such consequence that to enforce the contract as actually made would be unconscionable." Instead of comparing the $25,000 Levitan claimed he authorized with the $649,000 Oxman communicated to Shapiro, the judge considered whether the settlement was a reasonable deal for Partners and the City. He concluded it was, because the property might have been worth more than they offered and the cost of remediation might have been lower than they estimated it to be. Second, he found that the mistake related to a material feature of the contract. However, as to the third prong of the test, he found "a lack of reasonable care" on the part of Partners' attorneys. On the fourth prong, he found there would be no prejudice to the Estate if the settlement were set aside.
The judge further determined that the offer from Shapiro to the Estate was enforceable. He rejected the claim that the offer was "contingent on anything," including the resolution of further issues of environmental remediation or the City Council's approval.
We review the trial judge's decision to enforce a settlement for abuse of discretion. Brundage v. Estate of Carambio, 195 N.J. 575, 613 (2008); Chattin v. Cape May Greene, Inc., 216 N.J. Super. 618, 628 (App. Div.), certif. denied, 107 N.J. 148 (1987). However, two considerations in that review are whether the judge properly applied the law, N.H. v. H.H., 418 N.J. Super. 262, 267 (App. Div. 2011), and whether there were material disputes of fact that required a plenary hearing. See Amatuzzo v. Kozmiuk, 305 N.J. Super. 469, 474-75 (App. Div. 1997).
We begin by considering the law concerning authority to settle litigation.
The general rule is that unless an attorney is specifically authorized by the client to settle a case, the consent of the client is necessary. City of Jersey City v. Roosevelt Stadium Marina, Inc., 210 N.J. Super. 315, 327 (App. Div. 1986) (citing Stout v. Stout, 155 N.J. Super. 196, 203-04 (App. Div. 1977)). Negotiations of an attorney are not binding on the client unless the client has expressly authorized the settlement or the client's voluntary act has placed the attorney in a situation wherein a person of ordinary prudence would be justified in presuming that the attorney had authority to enter into a settlement, not just negotiations, on behalf of the client. [Id. at 475.]
In this case, Shapiro represented the City, which was the only other party to the litigation with the Estate. Although all parties recognized that Partners was, in a non-legal sense, a party in interest, Partners was not then a party to the litigation. However, it was understood by everyone involved in the transaction that Shapiro, on behalf of the City, would be communicating settlement offers that Partners had authorized. On behalf of Partners, Oxman authorized Shapiro to make an offer and Shapiro communicated that offer to the Estate. "[W]here the client by words or conduct communicated to the adverse attorney, engenders a reasonable belief that the attorney possesses authority to conclude a settlement, the settlement may be enforced." Id. at 475-76. Here, both the City and Partners created a reasonable belief - on the part of Shapiro and on the part of the Estate - that Shapiro was authorized to speak for both of them in communicating settlement offers and that he was authorized to communicate the specific offer that the Estate accepted.
However, as discussed further below, there are material factual disputes as to whether Shapiro had authority to bind the City without a resolution of the City Council and whether the offer he communicated constituted the entire settlement. There are also material factual disputes bearing on whether Partners and the City are entitled to equitable relief. We focus first on the equitable relief issue, because that appears to be Partners' primary defense to enforcement.
The seminal case on the issue of equitable relief based on unilateral mistake is Conduit & Foundation Corp. v. City of Atlantic City, supra, 2 N.J. Super. at 440. Addressing a case in which a bidder on a public contract had mistakenly submitted a ruinously low bid, the court stated the test for equitable relief:
The essential conditions to such 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. [Ibid.]
In discussing the meaning of negligence or lack of "reasonable care," the court quoted the following language:
"Where the mistake is wholly caused by the want of that care and diligence in the transaction which should be used by every person of reasonable prudence, and the absence of which would be a violation of a legal duty, a court of equity will not interpose its relief." [Id. at 441 (quoting DuPont Chem. Co. v. Buckley, 96 N.J. Eq. 465, 466-67 (Ch. 1924)).]
The court accepted as sufficient the contractor's explanation that he and his co-worker inadvertently made a calculation error during an all-night work session:
The explanation for this mistake, given by Halloran and Sloan, was that they both were tired, having worked almost continuously from Tuesday afternoon until early Thursday morning, and that each one had anticipated that the other had included the costs in the computation. They as well testified that this is the customary manner in which their bids had been made up, and in the years they had been in business, such a mistake had never been made before. [Id. at 438.]
In other words, equity will make some allowances for human frailty. The court reached a similar result, relieving a bidder from a bid containing a $10,000 mistake, in Cataldo Construction Co. v. County of Essex, 110 N.J. Super. 414, 418, 422-23 (Ch. Div. 1970). See Crane v. Bielski, 15 N.J. 342, 347-49 (1954); Hamel v. Allstate Ins. Co., 233 N.J. Super. 502, 508 (App. Div. 1989).
In more recent cases, Conduit has been applied in situations where an insurance company has settled a case, only to realize later that the settlement exceeded the policy limits. See Villanueva v. Amica Mut. Ins. Co., 374 N.J. Super. 283, 289-90 (App. Div. 2005). In Villanueva, the court granted relief, although the mistake resulted from "simple negligence--an honest mistake discovered and communicated promptly to plaintiff." Id. at 290.
In Hamel v. Allstate Insurance Co., the court applied the doctrine of unilateral mistake to relieve the personal injury plaintiffs from the financially disastrous consequences of a mistake made by their attorney.
In the present case, the consequence of the Hamels' attorney's mistake in transmitting their executed release to Allstate without Prudential's approval was potentially so serious that to enforce the release would be unconscionable. Mrs. Hamel apparently suffered serious injury through no fault of her own. Their underinsured motorist coverage, for which they paid insurance premiums, is the only source from which substantial compensation is readily available, and the mistake threatens to cause a forfeiture of that compensation. [Hamel, supra, 233 N.J. Super. at 507.]
While the attorney was obviously somewhat negligent, the court found that it would be inequitable not to relieve the plaintiffs from the consequences of his error. Id. at 508.
Based on the cases cited above, we part company with the trial judge's legal analysis. If the facts are as Oxman and Levitan attested, the court could reasonably conclude that while a mistake was made, it did not involve the kind of gross negligence that would bar equitable relief. Further, we conclude that in determining whether it would be unconscionable to enforce the settlement, the court should consider the vast disparity between the $25,000 Levitan claimed he authorized and the nearly $650,000 that Oxman told Shapiro to offer. That was "a substantial margin of error." Cataldo, supra, 110 N.J. Super. at 419. We conclude that, provided the other three prongs of the Conduit test are satisfied, it would be unconscionable to hold a party to a $650,000 settlement when the party only authorized its attorney to offer $25,000.
We also conclude that there were material disputes of fact that required a hearing. The claim of mistake was based on the certifications of Oxman and Levitan. There may have been no witnesses to their telephonic communications and so the Estate would not necessarily be in a position to present evidence, on the enforcement motion, to directly contradict their certifications. However, the Estate did present some contrary evidence, in the form of Shapiro's communication of the original offer, and his assertion, in retracting that offer, that there had been a change of management at Partners; one possible construction of that statement was that someone high up in the Partners organization had a change of heart after the offer was extended.
Moreover, the Estate presented circumstantial evidence that the offer, as Shapiro presented it, made sense for "business reasons" and therefore might have been the offer Levitan authorized. For example, a neighboring property owner had received a much larger condemnation award, after a jury trial, than the amount the commissioners awarded to the Estate. And, if the Estate's only asset was the property, as Henry Vaccaro attested, there were limits to the amount Partners or the City could hope to recoup from the Estate for remediation costs.
In any event, while we cast no aspersions on Partners' attorneys, they have made themselves witnesses, and like any other witnesses, where there is a factual dispute they should be required to testify and be cross-examined. See RPC 3.7. And all parties should be permitted to present additional witnesses and evidence on the issue.
The record presented to us also presents a live issue as to whether the settlement required the City Council's approval before it was finalized. Shapiro attested that it did, and he was certainly in a position to have personal knowledge as to what his client, the City, required. Although it was not before the trial judge on the enforcement motion, the parties have provided us with their submissions on the later motion to stay the judgment pending appeal. One of the documents submitted on that motion was the City Council's June 4, 2008 resolution authorizing Asbury Partners to retain an environmental consultant for purposes of the ongoing litigation. It would seem somewhat anomalous that the City would require a resolution to authorize Asbury Partners to hire a consultant for the lawsuit, but would not require a resolution to authorize a settlement of the entire litigation, including the City's environmental claims. See City of Jersey City v. Roosevelt Stadium Marina, 210 N.J. Super. 315, 327-28 (App. Div. 1986), certif. denied, 100 N.J. 152 (1988).
On the other hand, as the Estate points out, Shapiro's offer certainly did not state that it was conditioned on the Council's approval. And there is no evidentiary record as to whether the City Council approved other individual settlements concerning acquisitions in this redevelopment area, or whether the City Council may have, in some legally effective manner, given its advance approval to condemnation settlements that were to be funded by Partners. There is a material factual dispute on this point.
There is a also a material dispute of fact as to whether the parties understood that any financial settlement would be only the first step toward resolving the case, to be followed by negotiation over the terms of the environmental remediation on the City's property. That is what Shapiro attested. On the other hand, Shapiro's offer, and even the offer Levitan claims he authorized, was not hedged with any such condition. At oral argument, when we asked the Estate's attorney about whether the settlement, based on Shapiro's offer, would provide the Estate with indemnification from third-party environmental claims, he asserted his belief that it did. However, that was not the understanding of Partners or the City. Even the Estate may have an interest in further negotiation on such a potentially important point. In any event, there are material disputes of fact as to whether the monetary agreement represented the complete settlement. See Mosley v. Femina Fashions, Inc., 356 N.J. Super. 118, 126 (App. Div. 2002), certif. denied, 176 N.J. 279 (2003).
Finally, there is a huge amount of money at stake in this case, some of which may wind up coming from the public treasury. All of this convinces us that the matter must be remanded for a plenary hearing.
While we remand this matter for a plenary hearing, we add the following observation. If on remand the trial court determines to relieve Partners of the settlement offer for equitable reasons, nothing in our decision precludes the court from conditioning that equitable relief upon the extension of equitable relief to the Estate. For example, the court may require Partners to pay the Estate's counsel fees for the initial enforcement motion, this appeal, and the required plenary hearing.
Finally, we appreciate the importance of resolving this dispute, which has dragged on now for many years. The Estate lost title to the property in 2008, but has not been compensated for that loss based on asserted environmental issues. It also appears from the record that no one has acted to clean up the property. If on remand the court determines not to enforce the settlement, the case should proceed to trial expeditiously.
Reversed and remanded.