June 30, 2011
THE BOULDERS OF EDGEWATER CONDOMINIUM ASSOCIATION, INC., PLAINTIFF-RESPONDENT,
PATRICIO MILLIGAN AND LILY MILLIGAN, DEFENDANTS-APPELLANTS/ THIRD-PARTY PLAINTIFFS,
ILENE GELMAN, SHELDON GELMAN, PAUL SOUTHWORTH AND LOUISE BRODERICK, INDIVIDUALLY AND AS OFFICERS OF THE BOULDERS CONDOMINIUM ASSOCIATION, INC., THIRD-PARTY DEFENDANTS.
On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-6433-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued June 2, 2011
Before Judges Fuentes,Ashrafi and Newman.
Defendants Patricio Milligan and Lily Milligan appeal from court orders denying a motion to vacate an arbitration award and reinstate pleadings, denying a motion to reconsider vacation of the arbitration award, and denying reinstatement of their answer, counterclaims and third-party complaint. We are persuaded that defendants made a showing of good cause and a good faith presentation of a meritorious defense to warrant the vacation of the arbitration award and reinstatement of their answer, counterclaims, and third-party complaint. We therefore reverse and remand to the trial court for further proceedings.
This litigation arose out of a suit filed on July 23, 2009, by plaintiff, The Boulders of Edgewater Condominium Association, Inc. (plaintiff or the Association), for non-payment of condominium monthly common expense assessments, two separate special assessments, late charges, interest, and attorneys' fees incurred during the collection process.
Defendants disputed the amount owed and provided checks verifying payment of common expense assessments that were concededly properly charged. Discovery had been completed and the matter was scheduled for a pretrial mandatory non-binding arbitration on March 23, 2010.
Neither defendants' then attorney nor defendants appeared at the arbitration. Defendants, who are in their eighties, live in Albuquerque, New Mexico. Although the arbitration was scheduled for 11:00 a.m., the arbitrator and plaintiff's attorney waited for an hour and made several efforts to contact defendants' attorney by telephone. They were unsuccessful. Due to the non-appearance of the party defending against the claim, the arbitration proceeded pursuant to Rule 4:21A-4(f). Defendants' pleadings were struck. Plaintiff's counsel presented proofs, and an award was entered for plaintiff in the amount of $44,522.35.
Three days later, defendants' attorney filed a motion to vacate the award and reinstate defendants' pleadings. Plaintiff filed a cross-motion to confirm the arbitration award. In support of the motion to vacate the arbitration award, defendants' attorney certified that he discovered on March 25, 2010 that an arbitration had taken place on March 23, 2010, but stated he had not received notice of the arbitration hearing. Defendants' attorney pointed out that he moved his office and mail forwarded to him was inconsistent. Had he received notice, he certified that he would have certainly appeared, knowing how anxious his clients were to have this matter heard. He also pointed out that he had had "serious difficulties at my new office and the fax machine and phone had been disconnected." Defendants' adversary refused to consent to vacate the award and restore the pleadings, although defendants' counsel consented to vacate the default that had been entered against plaintiffs when "they failed to file a timely answer to the [counterclaim] and [t]hird-[p]arty [c]omplaint."
In opposing the motion to vacate, counsel for plaintiff certified that he served a copy of plaintiff's arbitration memorandum as required by Rule 4:21A-4 via U.S. Mail and electronic mail. He further stated that neither were returned as undeliverable. In addition, Travelers Insurance, the insurance company for the Association, attempted to reach out to defendants' counsel via e-mail to discuss a settlement offer submitted by defendants, which was also not returned as undeliverable. That letter included the arbitration date.
The trial court scheduled oral argument for 8:30 a.m. on April 16, 2010, but defendants' attorney failed to appear at that time. Defendants' attorney claimed that he appeared later that same morning after the motion had already been heard. In denying the motion to vacate the arbitration award, the court concluded that defendants/third-party plaintiffs "have not established good cause or meritorious defense. The records reflect that [they] were made aware of the scheduled arbitration hearing on at least [three] separate occasions and . . . for whatever reason, failed to appear." Nowhere in the moving papers, the trial court noted, have the Milligans sought to establish a meritorious defense, citing SWH Funding Corp. v. Walden Printing Co., 399 N.J. Super. 1 (App. Div. 2008).
The trial court granted plaintiff's cross-motion and confirmed the arbitration award, entering final judgment in favor of the Association in the sum of $44,522.35, plus post-judgment interest from March 23, 2010. The trial court, in the same order of April 16, 2010, dismissed defendants' counterclaims and third-party complaint with prejudice. Defendants then moved for reconsideration of the motion to vacate the arbitration award and restore their pleadings.
In more extensive certifications dated April 27, 2010, defendants' attorney admitted he has "suffered some serious personal problems that have impacted my ability to properly represent my client in this matter." He acknowledged that he failed to respond to the cross-motion to confirm the arbitration award. He further indicated that his late appearance on April 16, 2010 was the result of his "serious personal problems" or to "call the court to ascertain the time of oral argument."
Defendants' attorney stated he had gone through a divorce and experienced "a semi[-]breakdown." He certified that defendants were never notified of the arbitration scheduled by the court and "were unaware of the arbitration." He admitted that he did not return calls and did not advise them of his personal problems and "led them to believe they had competent counsel." His finances suffered, leading to his not carrying malpractice insurance nor having "the ability to compensate [his] clients for this loss if the order is not vacated."
In Patricio Milligan's certification, he indicated he has paid all monthly common expense assessments and two special assessments owed to the Association through December 31, 2010 in the amount of $21,609.69.
Previously, the Association demanded payment of $2,837.17 within thirty days of April 12, 2007. A check dated May 3, 2007 for $2,837.17 was payable to plaintiff and deposited into plaintiff's Fleet Bank account. On August 27, 2008, plaintiff sent a demand letter for arrears of $6,225.84. On December 11, 2008, plaintiff received a check from defendants dated October 1, 2008 in the amount of $6,833.76 with the notation "paid in full thru April 2009." In a letter of December 29, 2008, plaintiff's attorney indicated that the check would be credited against defendants' account unless defendants advised otherwise within fourteen days. The same letter stated the arrears for 2008 were $6,862.25 and that defendants owed $1,588.58 in legal fees.
On February 13, 2009, plaintiff received a check dated January 22, 2009 from defendants in the amount of $9,606.15 with the notation "full payment thru-2009." Both checks totaling $16,439.91 were deposited into plaintiff's attorney's escrow account. Although the checks were deposited, Milligan noted in his certification that plaintiff continued to charge late fees and interest. He asserted that his attorney's failure to appear at the arbitration should not penalize him for not doing "what [the attorney] was suppose to do in representing me."
In plaintiff's attorney's opposition certification dated May 4, 2010, he indicated that he had advised defendants in his letter of February 23, 2009, that the two checks contained incorrect information representing payment as "paid in full through April 2009" on the $6,833.76 check and as "full payment through-2009" on the $9,606.15 check. He advised that the checks would be deposited in the firm's escrow account "pending resolution of this matter." He advised that the checks "shall not be deemed as any full or partial satisfaction of your debt; or as any form of acceptance of any settlement agreement between the parties." He further stated the monies would not be credited against defendants' outstanding arrears.
Plaintiff's attorney reiterated in his certification that the notice of the scheduled arbitration date, along with the arbitration memorandum, were not returned. He retraced the history of the litigation leading up to the arbitration date and the court order of April 16, 2010 denying the motion to vacate the arbitration.
In a reply certification dated May 20, 2010, Patricio Milligan observed that plaintiff's attorney failed to act in accordance with the December 29, 2008 letter and did not apply the checks against their account. He pointed out that both checks represented full and pre-payment of common expense assessments through the year 2009. To continue to run late fees and interest, after having deposited checks for $16,439.91, was unacceptable.
Milligan also attached copies of the late fee accounts which totaled $18,450.00 through March 2010. The schedule of accounts showed that the initial $50 late charges on common expense assessments escalated in monthly $50 increments after common expense assessments remained unpaid for a twelve month period with the maximum amount reaching a $650 late fee in January 2010. The monthly late fee charge exceeded the monthly common expense assessment by more than $218. Late fee charges also accumulated on the same basis for a 2008 $2000 door installation assessment and a 2009 roof assessment. Late fee charges for the month of January 2010 totaled $2,650.
In defendants' attorney's reply certification, he pointed out that the relocation of his office, as well as personal and financial difficulties, left him unaware of the arbitration hearing of March 23, 2010. He stated that the e-mail addressed to his former paralegal dated March 15, 2010 was never received because she had been laid off in January 2010 and the e-mail address to which the notice was sent went out of service on December 16, 2009. He further certified that Internet and telephone service to his office was terminated in March by his landlord. He was only able to receive calls on his cell phone and service to his cell phone "ha[d] been interrupted on several occasions for non-payment."
In denying the motion for reconsideration in an order of May 20, 2010, the trial court attached a three-page opinion, which essentially laid out the requirements for reconsideration under Rule 4:49-2. The trial court also set forth the governing principles which prohibit reconsideration merely because of dissatisfaction with the decision and noted that the motion should not be used as a "second bite at the apple."
The court also acknowledged that a litigant may bring additional information which it could not have provided on the first application and that the court, in the interest of justice and the exercise of sound discretion, should consider such evidence. The court concluded that its prior decision and order did not fall within the "'narrow corridor' of cases" showing that "the court's legal analysis was flawed" or "the existence of relevant evidence which could not have been provided at the earlier hearing." The trial court found that the movant only asserted that the court's "holding and rationale should be reconsidered, without substantiating same." The court determined that reconsideration was inappropriately brought because the requirements of Rule 4:49-2 were not met. The trial court's opinion makes no reference whatsoever to any of the information contained in the elaborate certifications presented in support of the reconsideration motion.
On appeal, defendants argue that the trial court erred in denying the motion to vacate the arbitration award and the subsequent motion for reconsideration. Defendants contend that the failure of defendants' attorney to attend the arbitration hearing should not have resulted in dismissal of the claims and entry of judgment against them. They also maintain that they presented meritorious defenses to the Association's claims,pointing out that the Association improperly attempted to return full payment of the outstanding balance without crediting the account or accepting payment in satisfying the debt for the payment. They also assert that the late charges imposed by the Association were unreasonable, unlawful, and in violation of the Association's governing documents. They also allude to the arbitrator's award being procedurally defective in awarding counsel fees when that is within the province of the court but never commented on the reasonableness of the fees so awarded.
Rule 4:21A-4(f) provides:
Failure to Appear. An appearance on behalf of each party is required at the arbitration hearing. If the party claiming damages does not appear, that party's pleading shall be dismissed. If a party defending against a claim of damages does not appear, that party's pleading shall be stricken, the arbitration shall proceed and the non-appearing party shall be deemed to have waived the right to demand a trial de novo.
Relief from any order entered pursuant to this rule shall be granted only on motion showing good cause and on such terms as the court may deem appropriate, including litigation expenses and attorney's fees incurred for services directly related to the non-appearance. [(Emphasis added).]
A motion to vacate a default arbitration award requires that "[u]pon a showing of 'good cause,' . . . the defaulting party makes a 'good faith assertion of a meritorious defense' to the plaintiff's claims." SWH Funding Corp., supra, 399 N.J. Super. at 11-12; see also Pressler & Verniero, Current N.J. Court Rules, comment 5.6 on R. 4:21A-4 (2011).
When deciding whether "good cause" has been shown, we approach the proofs "'with great liberality, and every reasonable ground for indulgence is tolerated to the end that a just result is reached.'" SWH Funding Corp., supra, 399 N.J. Super. at 11 (quoting Del. Valley Wholesale Florist, Inc. v. Addalia, 349 N.J. Super. 228, 232 (App. Div. 2002)). "Good cause" is not synonymous with "excusable neglect," which is contained in Rule 4:50-1, id. at 10, but instead it is much more encompassing. Ibid. "Good cause" can be satisfied by a mere showing of attorney carelessness and inadvertence. Id. at 12-14 (holding "good cause" existed where defense counsel sought an adjournment of an arbitration, did not verify that it was accepted by the arbitrator, did not appear, and failed to take remediating action after the award was entered by the arbitrator and where counsel offered a meritorious defense); Del. Valley Wholesale Florist, supra, 349 N.J. Super. at 232-33 (finding "good cause" where counsel was "lulled" into believing opposing counsel would not proceed with the arbitration, did not appear, and presented a meritorious defense on appeal). Where, in addition, there is an absence of substantial prejudice to the party opposing the motion to vacate, the court should grant the motion. SWH Funding Corp., supra, 399 N.J. Super. at 14. Lastly, we recognize that courts are reluctant to cast "the sins of the lawyer" on to his or her client. Ibid.
In applying these principles, we are persuaded that the trial court was mistaken in not granting the motion for reconsideration under Rule 4:49-2.
The motion for reconsideration represented a comprehensive presentation of why the arbitration award should have been vacated. The trial court made no reference to the detailed certifications, which not only added to the good cause explanation for non-appearance, but also presented a good faith assertion of meritorious defenses.
Defendants' attorney elaborated on his non-appearance due to his personal problems resulting from his recent divorce, which caused him significant financial difficulties. His claim of not receiving notice was buttressed by the fact that his communication services had been interrupted and terminated in some instances because of non-payment for those services. He fully explained why there was no e-mail response sent to his secretary who had not been with him for some months and sent to an incorrect e-mail address. His personal problems interfaced with his not receiving the notices sent by his adversary because of fax machine and telephone disconnections, and inconsistent mail forwarding.
We cannot meaningfully differentiate these circumstances from SWH where this court condemned defense counsel's conduct in relation to the arbitration but, nonetheless, still found good cause. See SWH Funding Corp., supra, 399 N.J. Super. at 14. Because these motions to vacate are approached with great "liberality," we conclude that a good cause showing was made here.
With regard to the criteria of a good faith assertion of a meritorious defense, Milligan's certification, along with the attached exhibits, provide a wealth of documentation challenging the reasonableness of the late fees and interest charges which appeared to have exceeded the total amount of the common expense assessments and the special assessments for door installation in 2008 and accumulated roof charges in 2009. The statement of account attached to Milligan's certification showed that he had paid $21,609.69 as of February 2010 for his common expenses, door installation, and accelerated roof assessments; notwithstanding, his outstanding balance was still $25,837.63.
Furthermore, the record does not reflect an authority for the monthly
incremental increase of late fee charges which has
exceeded the actual common expense for a particular month.*fn1
The same type of incremental late fees were also charged for
each of the assessments made in 2008 and 2009.
Defendants, on this showing alone, presented a meritorious defense to these additional charges which arguably inflated the amount of the judgment awarded in arbitration. Defendants had never maintained that the common expense assessments were not legal charges and have paid them as reflected in the previously mentioned statement of account.
Beyond the foregoing, there are also defenses raised involving whether the checks totaling $16,439.91 should have resulted in a suspension of any late charges and interest.
Furthermore, there is no breakdown of the interest charges which can be imposed on "unpaid assessments" under the Master Deed, Article VI, 6.15, and it does not provide for interest on late charges, if indeed, interest was so exacted. Moreover, depositing the checks, albeit in an escrow account, and not refunding the amount within ninety days, may have arguably triggered an accord and satisfaction under N.J.S.A. 12A:3-311.
The reasonableness of attorney's fees are also questioned because no determination had been made that the fees were reasonable. See Master Deed, Article VI, § 6.15.
Defendants have shouldered their burden to show good cause, as well as a good faith basis for meritorious defenses, warranting the vacation of the arbitration award and reinstatement of their answer, counterclaim, and third-party complaint. With the arbitration award being vacated, the confirmation of that award by the court is of no effect.
Lastly, as previously noted, Rule 4:21A-4(f) authorizes the imposition of terms as a condition of reinstatement, including litigation expenses and attorney's fees directly related to the "non-appearance" at an arbitration hearing. On remand, plaintiff may seek relief under this provision, which will be decided in the trial court's sound discretion.
Reversed and remanded for further proceedings consistent with this opinion.