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East Coast News Corp. International Video Distributors, L.L.C v. Video Flixx Ii

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


February 15, 2012

EAST COAST NEWS CORP. INTERNATIONAL VIDEO DISTRIBUTORS, L.L.C., PLAINTIFF-RESPONDENT,
v.
VIDEO FLIXX II, VIDEO FLIXX 2 AND DOREEN ACCIARDI, DEFENDANTS-APPELLANTS.

On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-1129-10.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 9, 2012

Before Judges Parrillo and Grall.

Defendants Doreen Acciardi, Video Flixx II and Video Flixx 2 appeal from an order of the Law Division denying their motion to vacate a default judgment entered against them in the amount of $300,117.98. For the following reasons, we vacate the default judgment and remand the matter for further proceedings.

Plaintiff East Coast News Corp. International Video Distributors, L.L.C. (plaintiff or East Coast) sued defendants on a book account for monies owed for videos sold to defendants from December 2005 to January 2010 for retail use in defendants' video stores. The complaint was served on defendant Acciardi on June 3, 2010.*fn1 No answer was filed. As a result, on July 15, 2010, plaintiff made application for entry of default against all three defendants, which was served on Acciardi on August 6, 2010.*fn2 Thereafter, on August 10, 2010, plaintiff moved for entry of default judgment, accompanied by an affidavit, certification of proof attesting to the outstanding indebtedness, and supporting documentation consisting of invoices addressed to Video Flixx II. On August 13, 2010, the Clerk of the Court, pursuant to Rule 4:43-2(a), entered judgment by default in the sum certain of $300,117.98 against defendants.

On August 17, 2010, seven days after plaintiff's request for entry of default judgment, Acciardi retained counsel who, by correspondence of same day, requested plaintiff's consent to vacate the entry of default, which was denied. Consequently, defendants moved to vacate the judgment of default. In her affidavit in support of this motion, Acciardi certified that she is the owner of Pada Corp., Inc., which in turn owns and operates a video store under the names Video Flixx II, located at 204 Route 35 in Sayreville. According to Acciardi, Video Flixx II and Video Flixx 2 are simply trading names and not business entities. While acknowledging that Pada Corp. had a business relationship with plaintiff, Acciardi disputed the amount of money owed East Coast as reflected in the invoices submitted to the Clerk of the Court. Significantly, for present purposes, Acciardi represented that she had not personally guaranteed any debt of Pada Corp. and, therefore, as a shareholder of the company is not individually liable for its corporate debt.

After hearing argument on February 18, 2011, the Law Division judge denied defendants' motion to vacate default judgment. She reasoned:

Again, [defendants' counsel is] arguing the merits of the case, and, perhaps, on the merits, [Acciardi] would be successful in saying that she's not responsible. But, my understanding is, that vacating default judgments -- not defaults[] . . . but I'm talking about a default judgment. She was served. She was served with, that they were asking for a default and then a default judgment, she ignored it until there was a judgment, and I don't see the excusable neglect.

In that case, everybody can say, well, I didn't think it belonged to me, I didn't think I had to do anything, put it aside. And, in those cases, while I can be sympathetic to somebody who says, I, you know, had personal problems, whatever, they're not -- I'm not hearing anything that is excusable neglect here, so I'm going to deny the motion to vacate based on that, and it's on that prong that I think you have to get to before you get . . . to the merits.

We disagree.

It is well-established that "the opening of default judgments should be viewed with great liberality, and every reasonable ground for indulgence is tolerated to the end that a just result is reached." Marder v. Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.), aff'd, 43 N.J. 508 (1964). "Generally, a defendant seeking to reopen a default judgment must show that the neglect to answer was excusable under the circumstances and that he has a meritorious defense." Id. at 318.

In some circumstances, however, these requirements may be relaxed in the interests of justice under Rule 4:50-1(f), "any other reason justifying relief from the operation of the judgment or order." Although a judgment may be vacated on that ground only in exceptional cases, the boundaries of that subsection of the rule "are as expansive as the need to achieve equity and justice." Court Inv. Co. v. Perillo, 48 N.J. 334, 341 (1966). Thus, relief under subsection (f) is not automatically barred by reason of a party's failure to have made a timely motion for relief pursuant to Rule 4:49-1 or 4:49-2. See Baumann v. Marinaro, 95 N.J. 380 (1984).

Courts have granted applications to vacate default judgment even where a defendant's proof of excusable neglect is weak where either the defendant's application to re-open the judgment or the plaintiff's proofs raise sufficient question as to the merits of plaintiff's case. For example, in Morales v. Santiago, 217 N.J. Super. 496, 504-05 (App. Div. 1987), pursuant to Rule 4:50-1(f), we vacated a judgment entered after a proof hearing, due to our "misgivings" about the merits of plaintiffs' claim, although defendant's attorney had "failed to present their case adequately on the motion to vacate." Id. at 504. In Morales, we found serious questions as to whether plaintiffs had proven the existence of a binding contract and as to their proof of damages. We determined that both sides were entitled to an opportunity to present their proofs at a trial. Ibid. See also Siwiec v. Fin. Res., Inc., 375 N.J. Super. 212, 218-20 (App. Div. 2005) (although there was no excusable neglect, defendant was entitled to relief under subsection (f) where plaintiff's right to judgment presented a novel question of law and defendant was not accorded notice of proof hearing or right to participate); T & S Painting and Mgmt. v. Baker Residential, 333 N.J. Super. 189, 193 (App. Div. 2000) (setting aside default judgment where service was inadequate, a colorably meritorious defense was set forth and there was inadequate proof of the claim); Monmouth Cnty. Soc. Servs. v. P.A.Q., 317 N.J. Super. 187, 196-97 (App. Div. 1998) (affording relief where default judgment of paternity entered on a defective complaint and no competent proof and defendant can demonstrate that he is not the father of the child), certif. denied, 160 N.J. 90 (1999). As these cases well illustrate, a plaintiff's failure to prove a right to relief is considered a special circumstance warranting relief from default judgment. This is because "justice requires the plaintiff to prove liability," and "if the evidence, even when viewed indulgently, demonstrates that the defendant is not liable, upon timely motion a default judgment entered on that evidence must be vacated under [Rule] 4:50-1(f)." Morales, supra, 217 N.J. Super. at 505.

As in those cases, here we are satisfied that the interests of justice are served by vacating the default judgment in view of the equities of the matter. Our primary concern is that defendant Acciardi has personally suffered a substantial judgment that appears to be undeserved on the merits. Even the motion judge acknowledged the lack of proof of Acciardi's individual or personal liability for the corporate debt, but denied the motion in the mistaken view that the absence of excusable neglect precluded the exercise of her discretion otherwise.

Although Rule 4:43-2(a) allows the Clerk of the Court to enter judgment against a defendant when it is for a sum certain and "[i]f the claim is founded upon a note, check or bill of exchange or is evidenced by entries in the plaintiff's book account, or other records . . .[,]" nowhere in plaintiff's proofs is it established that Acciardi has a book of account, note, bill of exchange, or any other records with plaintiff, or that she otherwise personally guaranteed the debt of the corporation actually liable for the bills invoiced to either Video Flixx 2 or Video Flixx II. And as to the latter, no proof has been presented to refute plaintiff's certified representation that they are merely trading names under which the company's video stores operate and not viable business entities subject to being sued. Equally absent is any evidence of facts or circumstances allowing the corporate veil to be pierced to reach any of the named defendants.

In such an instance, where the requisite documentary proof of liability is wanting, a plaintiff otherwise entitled to a judgment by default must submit to a proof hearing, Rule 4:43-2(b), by notice of motion pursuant to Rule 1:6 served on all parties to the action including the defaulting defendants, "to establish the truth of any allegation by evidence . . . ." R. 4:43-2(b). Given the state of the record at the time of plaintiff's application for entry of default judgment, defendants were entitled at the very least to this procedural protection.

As in Morales, here we determine that both sides are entitled to an opportunity to present their proofs at trial after appropriate discovery. We, therefore, reverse the order denying defendants' motion and remand this matter for entry of an order re-opening the judgment, vacating the default, and permitting defendants to file their answer. The order shall be conditioned on defendants' payment of plaintiff's filing fees and other appropriate costs, which they may seek upon application to the trial court. R. 4:50-1.

Reversed and remanded.


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