November 18, 2011
MICHAELSON FOREIGN CAR PARTS, PLAINTIFF-RESPONDENT,
RICHARD J. KUHN D/B/A AUTO GLASS MAN; EUGENE CAUFIELD D/B/A AUTO GLASS MAN, DEFENDANTS/THIRD-PARTY PLAINTIFFS-APPELLANTS,
MICHAEL BROWER, THIRD-PARTY DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-5132-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted October 26, 2011
Before Judges Axelrad and Ostrer.
Third-party plaintiffs appeal from the trial court's order dismissing on res judicata grounds their claim that their former business partner, third-party defendant, was liable for balances due plaintiff, a parts supplier of the business. Third-party plaintiffs also appeal from the trial court's award of attorney's fees and costs to third-party defendant. Although we affirm the dismissal, we are compelled to reverse the award of attorney's fees.
Third-party plaintiffs Richard J. Kuhn and Eugene Caufield operated an auto glass company, Auto Glass Man, along with third-party defendant Michael Brower.*fn1 After Brower left the concern in June 2006, Kuhn and Caufield continued to operate the business. Kuhn and Caufield sued Brower twice before filing the instant third-party complaint. In each prior suit, they alleged that Brower was responsible for over $100,000 of debts incurred by their business, including over $87,000 in vendors' charges. The first suit, filed in September 2006, was dismissed without prejudice by stipulation. In response to the second suit, which was filed February 28, 2008, Brower filed a counterclaim seeking monies allegedly due him. That case was resolved in advance of trial by the entry of an order on July 21, 2009 dismissing the complaint and counterclaim with prejudice. The order also stated, "neither party admits liability as to debt of underlying law suit."
Plaintiff in the instant action, Michaelson Foreign Car Parts (Michaelson), filed a complaint on October 15, 2009 against Kuhn and Caufield individually, doing business as Auto Glass Man, seeking payment of $135,576.61 on a book account, for goods sold and delivered from April 16, 2007 to January 29, 2009, including interest and fees.*fn2 Kuhn and Caufield answered the complaint and filed a third-party complaint against Brower, which recited verbatim all the allegations in the 2008 complaint that was dismissed with prejudice, adding just one paragraph, which stated:
As a result of the failure to pay the above bill, the within suit was instituted by Michaelson Foreign Car Services in which the within plaintiff seeks judgment for $135,576.61. [A]ny and all payment of this bill was the responsibility of the third party defendant, Brower, to pay and he failed to pay the above bill.
Brower's answer to the third-party complaint included an affirmative defense that the claim was barred, based on the dismissal with prejudice of the prior action. Brower's answer also alleged that the complaint violated N.J.S.A. 2A:15-59.1, and stated that he would seek attorney's fees and costs.
In response to Michaelson's motion for summary judgment, the third-party plaintiffs and Brower cross-moved against each other for summary judgment. Brower sought dismissal of the third-party complaint on res judicata grounds. He also sought the award of attorney's fees. He submitted his attorney's certification of fees and costs as follows: (a) $5,285 from December 7, 2006 through October 17, 2007, which apparently related to the first suit against Brower, which was dismissed without prejudice, and (b) $3,052.50 from January 4, 2010 through August 13, 2010, which apparently related to the third-party complaint. The certification did not address fees or costs incurred in connection with the second suit filed in 2008, which was dismissed with prejudice.
Although Michaelson sought payment only from Caufield and Kuhn - apparently because the $135,576.61 represented unpaid invoices, fee and charges after Brower left - Caufield and Kuhn claimed that Brower remained liable. Caufield and Kuhn argued that Michaelson credited payments they made after Brower resigned to the oldest invoices, thereby resolving balances due when Brower was with the business. Although the third-party complaint alleged that Brower was responsible for the full $135,576.61, third-party plaintiffs clarified that they sought from Brower only the amount due Michaelson before Brower left the business, which allegedly was roughly $86,000. They also argued that the dismissal with prejudice did not bar their third-party complaint because it stated that "neither party admits liability as to debt of the underlying law suit" - which they argued was the anticipated suit by Michaelson filed three months later.
By orders entered September 16, 2010, the court granted Michaelson's motion for judgment against Caufield and Kuhn; denied third-party plaintiffs' motion; and granted Brower's motion, dismissing with prejudice the third-party complaint, and awarding Brower $5,285 in fees. The court reasoned that the third-party complaint was barred based on the dismissal with prejudice of the 2008 suit. The court found the additional paragraph in the third-party complaint did not alter its analysis. The court also awarded fees and costs of $5,285 stating only that counsel had filed the appropriate certification.
Caufield and Kuhn then filed this appeal asserting that the court erred in dismissing the third-party complaint and awarding attorney's fees and costs.*fn3 We address these issues in turn.
The court correctly decided that the third-party complaint was barred as a result of the dismissal with prejudice of the 2008 complaint. Dismissal with prejudice is the equivalent of a judgment on the merits. See Velasquez v. Franz, 123 N.J. 498, 507 (1991) ("A judgment of . . . dismissal with prejudice constitutes an adjudication on the merits 'as fully and completely as if the order had been entered after trial.'") (citation omitted). Therefore, a dismissal with prejudice is res judicata as to the claims dismissed. Ibid.; Citizens' Voices Ass'n v. Collings Lakes Civic Ass'n, 396 N.J. Super. 432, 445 (App. Div. 2007) (stating that dismissal with prejudice "would normally be considered res judicata as to the issues addressed"). Consequently, a party is barred from reviving claims that are dismissed with prejudice. Restatement (Second) of Judgments, § 19 (1982) ("A valid and final personal judgment rendered in favor of the defendant bars another action by the plaintiff on the same claim."); see also Watkins v. Resorts Int'l Hotel & Casino, 124 N.J. 398, 415-16 (1991).
Caufield's and Kuhn's third-party complaint raised the same claim that was dismissed with prejudice in the 2008 action. In the 2008 action, Caufield and Kuhn claimed that Brower was liable for over $100,000 of debts incurred by their business, including over $87,000 in vendors' charges. The third-party complaint repeated verbatim the allegations of the 2008 complaint, except that it identified Michaelson as a vendor. Although the balance due Michaelson had risen to $135,576.61, Caufield and Kuhn conceded they only sought from Brower roughly $86,000 that was due when Brower left the firm. The additional paragraph therefore did not alter the claim that was dismissed with prejudice. Caufield and Kuhn continued to seek payment from Brower for the same vendors' balances that existed when he left the business. Caufield and Kuhn have presented no basis to differentiate the third-party complaint from their dismissed-with-prejudice claim.
Nor is our conclusion affected by the proviso in the order of dismissal with prejudice that stated "neither party admits liability as to debt of underlying law suit." Assuming the "underlying law suit" was Michaelson's claim, as third-party plaintiffs argued, the proviso simply preserved any defenses to a claim by Michaelson. It did not preserve Caufield's and Kuhn's claim against Brower for old vendors' balances.
In sum, the instant claim was barred by res judicata and the trial court correctly dismissed it with prejudice.
We are constrained to reverse the award of fees. First, the trial court failed to provide essential findings of fact and conclusions of law to support its award of fees against Caufield and Kuhn under the Frivolous Litigation Statute, N.J.S.A. 2A:15-59.1. R. 1:7-4. Second, Brower apparently failed to comply with the notice requirements of Rule 1:4-8(b), which apply "[t]o the extent practicable" to a claim for fees and costs against a party under N.J.S.A. 2A:15-59.1. R. 1:4-8(f). See Toll Bros., Inc. v. Twp. of W. Windsor, 190 N.J. 61, 71-73 (2007) (applying the notice requirements in Rule 1:4-8 to claims for fees and costs against parties under N.J.S.A. 2A:15-59.1).
To support an award under N.J.S.A. 2A:15-59.1, the court must find that the claim was pursued in "bad faith, solely for the purpose of harassment, delay or malicious injury," N.J.S.A. 2A:15-59.1(b)(1), or "[t]he non-prevailing party knew or should have known [it] was pursued without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law."
N.J.S.A. 2A:15-59.1(b)(2). When a frivolous litigation claim is based on the lack of a reasonable basis in law or equity, and the non-prevailing party is represented by an attorney who presumably advised the party to proceed, an award cannot be sustained unless the court finds that the party acted in bad faith in pursuing or asserting the unsuccessful claim. Ferolito v. Park Hill Ass'n, Inc., 408 N.J. Super. 401, 408 (App. Div.), certif. denied, 200 N.J. 502 (2009). A grant of summary judgment without more does not support a finding of bad faith by the losing party. Ibid. Furthermore, the party seeking sanctions bears the burden to prove bad faith. Ibid.
In Ferolito, supra, the court reversed the award of fees under N.J.S.A. 2A:15-59.1 in view of the trial court's failure to address the question of reliance and good faith. Id. at 410. We reach the same result here. The record before us does not reflect a basis for finding that Caufield and Kuhn pursued the claim against Brower simply to harass, delay or cause injury. Nor do we discern evidence of bad faith by Caufield and Kuhn, who were represented by counsel throughout. In the absence of an appropriate finding, the award of fees must be reversed.
The award of fees must also be reversed because Brower failed to comply with the notice and demand requirement, also known as the "safe-harbor" provision, which requires a movant for sanctions to certify that he or she has served on the opposing party a notice stating that the pleading is believed to be frivolous and a demand that it be withdrawn within twenty-eight days (or less time if the sanctions motion pertains to a motion returnable sooner). R. 1:4-8(b)(1). If the objectionable pleading is withdrawn within the prescribed time period, then there is no exposure to sanctions. Ibid. Also, the motion for sanctions must be filed separately from other applications. Ibid. It may be filed up to twenty days following entry of final judgment. R. 1:4-8(b)(2).
Although third-party plaintiffs did not raise compliance with the "safe harbor provision," we are compelled to raise it ourselves, as the provision serves the interests of the judiciary by encouraging the prompt withdrawal of frivolous claims.
Early notice further the legislative purposes by providing all opportunity for remediation. Noncompliance places the applicant at risk of forfeiting recompense for defending against allegedly frivolous litigation conduct for which the offending person was not put on notice. The Rule thus does not thwart the legislative policy against frivolous litigation but enhances it. . . . By insisting on compliance as soon as practicable, the salutary benefits of adhering to the notice requirement will more promptly rid the judicial forum of frivolous litigation behavior . . . . [Toll Bros., supra, 190 N.J. at 72.]
Brower's affirmative defense that the third-party complaint violated the frivolous litigation law, N.J.S.A. 2A:15-59.1, does not satisfy the notice and demand requirement. In particular, it did not notify third-party plaintiffs that they could timely withdraw their claim without risking sanctions. The record includes no certification of compliance with the notice and demand requirement. Moreover, Brower did not file his motion for sanctions separately from his motion for summary judgment. We find no authority or policy reason to relax the Rule and deem an affirmative defense substantial compliance with the notice and demand requirements. Although the Rule requires compliance with the notice and demand provision only "to the extent practicable," the record reflects no impediment to compliance. See Ferolito, supra, 408 N.J. Super. at 409 (finding on appeal there was "no question that it was 'practicable' for [parties] to serve a notice and demand").
Finally, we observe that even if fees were appropriate, there was no apparent basis to award $5,285, which evidently represents the fees and costs incurred in connection with defending Caufield's and Kuhn's first suit. Brower alleged only the third-party complaint was frivolous, as it was filed in the face of the dismissal with prejudice. Consequently, at most, Brower would have been entitled to the fees incurred in defense of the third-party complaint. Brower's counsel certified to fees and costs of $3,052.50 in defending the third-party complaint up to the filing of the summary judgment motion.
Affirmed as to dismissal of third-party complaint; reversed as to the award of attorney's fees and costs.