August 17, 2011
RADIAC RESEARCH CORP., PLAINTIFF-APPELLANT,
BERNADETTE PASQUA, DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Chancery Division, Warren County, Docket No. C-16022-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted May 18, 2011
Before Judges Nugent and Kestin.
Plaintiff, Radiac Research Corp. ("plaintiff" or "the corporation"), appeals from the June 17, 2010 Chancery Division order that denied its motion to reinstate the complaint, which had been administratively dismissed for lack of prosecution "under Rule 1:13-7 or 4:43-2"; schedule a proof hearing; and compel defendant, Bernadette Pasqua, to convey to plaintiff her corporate stock. Plaintiff requests "that the [June 17] [o]rder be reversed, that the [c]omplaint be reinstated and that the matter be permitted to go forward for an adjudication on the merits." We reverse that part of the order that denied plaintiff's motion to reinstate the complaint and we remand for further proceedings.
Plaintiff is a closely held New York corporation that is engaged in the business of hazardous waste disposal, operates throughout the northeastern United States, and is licensed to do business in New Jersey. Plaintiff alleges that since defendant inherited her husband's stock, which represents one-third ownership in the corporation, she has refused to execute financial statements and other documents required by plaintiff to maintain its licenses and bid on government contracts, thereby jeopardizing its ability to conduct business.
On October 15, 2007, plaintiff filed a three-count complaint against defendant alleging causes of action for specific performance, breach of fiduciary duty, and breach of the duty of loyalty. The complaint sought judgments directing defendant to cooperate in the preparation, execution, delivery and filing of the documents necessary to operate the business, as well as mandating the sale of her interest in the business to the corporation.
Defendant filed an answer and counterclaim denying the allegations in the complaint and demanding repayment of a loan she or her late husband made to plaintiff. Although defendant subsequently refused to provide discovery, the parties attended mediation. Defendant cooperated with neither the mediator nor her attorney, who was subsequently relieved as counsel.
Following unsuccessful mediation, the Chancery Division scheduled a case management conference for December 10, 2008. Defendant failed to appear. The court subsequently denied plaintiff's motion to strike defendant's answer, but awarded plaintiff $1,903 in counsel fees. The court scheduled another case management conference for February 9, 2009, and defendant failed to appear.
On April 13, 2009, on plaintiff's motion, the Chancery Division entered an order striking defendant's answer and counterclaim for failing to appear at the February case management conference, but "without prejudice to reinstatement upon motion for good cause shown." The court ordered "the clerk [to] enter default against [d]efendant as if no responsive pleading on behalf of [d]efendant had been filed." The court also ordered defendant to pay plaintiff additional counsel fees.
After obtaining the default, plaintiff did not timely move for a default judgment and on August 14, 2009, the court entered an administrative order dismissing plaintiff's complaint for lack of prosecution under Rules "1:13-7 or 4:43-2." According to plaintiff, neither plaintiff nor its counsel recall receiving a copy of the order until the spring of 2010 when counsel contacted the court and learned that the case had been dismissed. Meanwhile, in preparation for a proof hearing, plaintiff had hired two expert witnesses to appraise defendant's stock.
On May 4, 2010, plaintiff filed a motion seeking an order reinstating the complaint, compelling the sale of defendant's stock, and scheduling a proof hearing. On June 17, 2010, the Chancery Division entered an order denying the motion, explaining in the order, among other things, that ten months had expired since the administrative dismissal and that the relief sought for conveyance of defendant's interest in the business was "beyond what was sought in the complaint." The court also noted that plaintiff "is a New York corporation with its principal place of business in New York" and stated that, if plaintiff wished to pursue the relief for conveyance of defendant's interest in the business, "a new action in an appropriate forum" should be commenced.
Plaintiff contends that it has established good cause to reinstate its complaint, that defendant will suffer no prejudice if the complaint is reinstated, but the corporation will suffer substantial prejudice if the complaint is not reinstated. Plaintiff maintains that public policy favoring adjudications on the merits supports reinstatement of its complaint. Additionally, plaintiff argues that the Chancery Division mistakenly ruled that the relief it sought was beyond that sought in the complaint. Finally, plaintiff contends that the court's ruling that proceedings should take place in New York was an issue that the court raised on its own without requesting briefing or argument. Plaintiff points out that it is authorized to conduct business in New Jersey and defendant lives in the State.
We review an order denying reinstatement of a complaint dismissed for lack of prosecution under a misapplication of discretion standard. See Weber v. Mayan Palace Hotel & Resorts, 397 N.J. Super. 257, 262 (App. Div. 2007); Ghandi v. Cespedes, 390 N.J. Super. 193, 196 (App. Div. 2007).
Rule 4:43-2(d) states that "[i]f a party entitled to a judgment by default fails to apply therefor within four months after the entry of the default, the court shall issue a written notice in accordance with R. 1:13-7(a)." Rule 1:13-7(a) provides that if a "required proceeding" has not taken place after an action has been pending for four months, or a general equity action for two months, the action shall be dismissed without prejudice after written notice to the plaintiff. Required actions include entry of default judgment after the entry of default. R. 1:13-7(b)(4). Rule 1:13-7(a) also provides for reinstatement of a dismissed complaint:
After dismissal, reinstatement of an action against a single defendant may be permitted on submission of a consent order vacating the dismissal and allowing the dismissed defendant to file an answer, provided the proposed consent order is accompanied by the answer for filing, a case information statement, and the requisite fee. If the defendant has been properly served but declines to execute a consent order, plaintiff shall move on good cause shown for vacation of the dismissal. In multi-defendant actions in which at least one defendant has been properly served, the consent order shall be submitted within 60 days of the order of dismissal, and if not so submitted, a motion for reinstatement shall be required. The motion shall be granted on good cause shown if filed within 90 days of the order of dismissal, and thereafter shall be granted only on a showing of exceptional circumstances.
The rule was amended effective September 1, 2008. The pre-amendment rule provided that reinstatement "may be permitted only on motion for good cause shown." R. 1:13-7(a). The current rule, reflecting the 2008 amendments, provides separate standards for cases with a single defendant and cases with multiple defendants. In single defendant cases, reinstatement is permitted upon a showing of good cause. R. 1:13-7(a). In multi-defendant cases, reinstatement within ninety days is permitted on a showing of good cause, but otherwise a party must demonstrate exceptional circumstances. Ibid. The comments explain the reason for the difference:
Multi-defendant cases in which at least one defendant has been served present, however, a different management problem in that the case likely will have proceeded and discovery undertaken before the unserved defendant is brought in. Thus vacation of the dismissal against that defendant has the capacity of substantially delaying all further proceedings. To permit appropriate case management, the rule requires the consent order to be submitted within 60 days after the dismissal, and thereafter a motion must be filed. Moreover, good cause is the standard if the motion is filed within 90 days after the dismissal order and thereafter, the exceptional-circumstance standard applies. [Pressler & Verniero, Current N.J. Court Rules, comment 1.1 on R. 1:13-7 (2011).]
This action involves one defendant, so plaintiff must establish good cause for reinstatement of its complaint. We have explained the concept of good cause:
Good cause is an amorphous term, that is, it is difficult of precise delineation. Its application requires the exercise of sound discretion in light of the facts and circumstances of the particular case considered in the context of the purposes of the Court Rule being applied. Rule 1:13-7(a) is an administrative rule designed to clear the docket of cases that cannot, for various reasons, be prosecuted to completion. Dismissals under the rule are without prejudice. Accordingly, the right to reinstatement is ordinarily routinely and freely granted when plaintiff has cured the problem that led to the dismissal even if the application is made many months later. [Ghandi, supra, 390 N.J. Super. at 196 (internal quotations and citations omitted).]
"[A]bsent a finding of fault by the plaintiff and prejudice to the defendant, a motion to restore under the rule should be viewed with great liberality." Id. at 197.
Here, plaintiff and plaintiff's counsel have certified that they did not receive the dismissal notice. The Chancery Division made no contrary finding. Moreover, it does not appear that the court applied the standard for reinstatement of a complaint, or addressed good cause, lack of prejudice to defendant, or the fault of plaintiff.
The Chancery Division pointed out that defendant had filed with the State the documents plaintiff sought to compel her to provide. However, the complaint and motion papers indicated that defendant had continued in her refusal to execute papers necessary for plaintiff to maintain its licenses and bid on governmental contracts. Specifically, paragraph ten of the complaint alleged that starting from the time she had become a shareholder, defendant "has failed and refused to cooperate in execution of papers necessary for the maintenance of the company's business." The complaint alleges that as a result, plaintiff has been unable to secure bonding from its surety companies, causing the company to use cash assets as collateral and requiring the other shareholders to personally indemnify banks, creditors, and other agencies, and requiring the company to refrain from bidding on lucrative contracts.
Additionally, the court found that the relief sought by plaintiff in the motion, namely compelling defendant to sell her stock, was beyond the relief requested in the complaint. This was apparently an oversight. That remedy was specifically requested by plaintiff in clauses in the second and third counts of its complaint.
Finally, the court indicated that plaintiff was a New York corporation with its principal place of business in New York, and had only cited New Jersey law, and that if it "wishe[d] to buy out defendant's shares, it must file a new action in an appropriate forum." There was no choice of law analysis, and plaintiff claims it was never given the opportunity to brief the issue.
In view of those circumstances, we are constrained to find that the trial judge misapplied its discretion in denying the motion to reinstate the complaint. Plaintiff and plaintiff's counsel averred that they did not remember receiving the dismissal notice. The Chancery Division made no finding to the contrary, and there is no evidence that plaintiff itself was at fault. See Ghandi, 390 N.J. Super. at 198 (noting that when clients are blameless, courts should be reluctant to penalize them for their attorney's mistakes). Defendant will not be prejudiced by reinstatement of the complaint because her answer had previously been dismissed. On the other hand, plaintiff has established through its motion papers that its business will continue to be harmed, and it will therefore be severely prejudiced if its complaint is not reinstated.
We reverse the order of the trial judge, reinstate the complaint, and remand this case for management and disposition of all issues. Additionally, due to the lapse of time that has occurred since plaintiff has taken any action in this matter, plaintiff shall provide defendant with documented notice of our decision and any orders that follow it.
Reversed and remanded.
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