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Luce, Schwab & Kase, Inc., A New Jersey Corporation v. Ski Conditioning Inc.

June 7, 2012

LUCE, SCHWAB & KASE, INC., A NEW JERSEY CORPORATION, PLAINTIFF-RESPONDENT,
v.
SKI CONDITIONING INC., KEITH SMITH A/K/A KEITH A. SMITH AND KAROLE SMITH, DEFENDANTS-APPELLANTS.



On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-4920-10.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued February 1, 2012

Before Judges Axelrad and Ostrer.

The trial court denied defendants' motion to vacate a default judgment against them, and then denied their motion for reconsideration, finding they had not demonstrated excusable neglect or a meritorious defense. We are persuaded the court mistakenly exercised its discretion in denying the motion, and reverse.

I.

Defendant Ski Conditioning, Inc. (Ski) entered into a credit agreement on December 27, 1995 with plaintiff Luce, Schwab & Kase, Inc. (LSK), a wholesaler of refrigeration, air conditioning and heating equipment. On the same day, Karole and her husband Keith, who was identified as Ski's president, also executed a "Guaranty of Past and Future Indebtedness," agreeing to remain personally liable for any of Ski's debts to LSK, and also agreeing to pay a 1.5 percent monthly "service charge" on past due bills, and a collection fee of 30 percent of any unpaid principal, interest and service charges.

On June 11, 2010, LSK filed a complaint against Ski, Keith and Karole, claiming $55,865.02 was due from Ski and unpaid on a book account for merchandise sold and delivered, and for "services rendered"; also due was $l6,759.50 as the thirty percent collection fee; and Karole and Keith were liable for the total amount of $72,624.52 as personal guarantors. Attached to LSK's complaint were the credit agreement, personal guaranties, and an April 16, 2010 statement, addressed to "Ski Conditioning" and reflecting a balance due of $55,865.02. The statement summarized fifty-seven separately numbered invoices, beginning with one dated November 24, 2008, and ending with one dated March 31, 2010. The last ten invoices, from June 30, 2009 through March 31, 2010, were month-end invoices for service charges. No payments were reflected for the entire period covered by the statement, although some credits were reflected for warranty returns.

The summons and complaint were served on Keith in early July. Although the return of service is not included in the record, the June 30, 2010 summons indicated that service on all three defendants would be made at what was identified as Keith's home address in the credit agreement. We presume Keith accepted service for Karole. See R. 4:4-4(a)(1) (authorizing service on a competent individual, at least fourteen years old, who is a "member of the household . . . then resid[ent]" at the defendant's "dwelling place or usual place of abode").

Defendants did not answer the complaint, and LSK obtained a default, serving defendants a copy of the request by letter dated August 18, 2010. LSK then obtained, on August 26, 2010, the clerk's entry of default judgment against all three defendants in amount of the $72,624.52, which was served on September 1, 2010.

Represented jointly by counsel, Karole and Keith moved for an order vacating the default judgment on November 22, 2010. In support of their motion, Keith and Karole attempted to excuse their failure to respond, and described their basis for defending the suit.

Regarding the failure to respond, Keith certified that his business had failed, he had been unemployed until July 26, 2010, and he had no funds to hire an attorney until November 4, 2010. He stated Karole was unaware of the lawsuit until she found papers pertaining to it in September 2010. He thus conceded that he failed to deliver the summons and complaint to her after it was served. He stated that he and his wife had been estranged. He certified he failed to respond to the complaint because he was "under stress over the divorce, no job, my lack of funds and health issues with one of our children."

Karole asserted she was unaware of the suit until late September. She stated she and Keith had marital difficulties for over a year while living in the same house, and she had filed for divorce September 20. After she became aware of LSK's lawsuit, she asked her divorce attorney to contact LSK's attorney in writing on September 24. Aside from her lack of actual knowledge until September, she said that her failure to respond was attributable to "stress over the divorce, [her] lack of funds and health issues with one of our children and a belief that [her] estranged husband was working on hiring an attorney."

With respect to defenses, Keith and Karole claimed that Ski was not indebted to LSK, because "any monies owed . . . were the responsibility of Airsmith, L.L.C." (Airsmith). They certified that Ski "went out of business on March 31, 2002," and Airsmith "made a final payment" on behalf of Ski's debts to plaintiff on October 24, 2006. Keith asserted he was only an employee of Airsmith, Karole was the limited liability company's sole member, and Airsmith also "went out of business" in September 2009. Attached to defendants' supporting brief was a copy, without an authenticating certification, of an October 24, 2006 check for $5000, drawn on the account of Airsmith LLC, with the notation "Note: Final Payment," and a corresponding page of a check register.*fn1

The court denied the motion on January 7, 2011 on the papers. Although the order states that the court has "considered oral argument," defendant has asserted without dispute that the court decided the motion on the papers. The court noted on the order, "Failure to establish excusable neglect R 4:50-1," but made no other findings of fact or conclusions of law.

Karole then retained her own attorney, who filed a motion to reconsider on February 4, 2011. She filed a supporting certification stating, "I also incorporate the prior Certifications previously filed. I have also reviewed all of the Motion papers submitted." However, she did not specifically certify to the truth of the additional facts set forth in her brief regarding her child's illness. Cf. 1:6-6 (evidence on motions not already appearing of record or judicially noticeable must be presented by affidavit on personal knowledge). She asserted in the brief that her child had been hospitalized before default judgment was entered. She argued the distraction of a child's serious illness constituted excusable neglect, citing Tradesmens National Bank & Trust Co. v. Cummings, 38 N.J. Super. 1, 4 (App. Div. 1955). As additional support for the claimed meritorious defense, she also asserted in the brief, apparently referring to Airsmith, that she was not involved in the firm's management and that she became the company's sole member because of her husband's poor credit. Although Keith did not file his own notice of motion for reconsideration, his attorney sent the court a letter purporting to join in Karole's motion.

LSK opposed the motion, arguing Karole had presented insufficient grounds for reconsideration, and noting that Keith had not formally filed a notice of motion. LSK did not address defendants' argument that any amounts due and owing LSK were Airsmith's obligation, not Ski's.

The court reconsidered its decision, but denied anew the motion to vacate the default judgment. The court concluded again there was no excusable neglect, without addressing Karole's claim of a family-member's illness or the failure of Keith to give her actual notice of the lawsuit. The court also found no meritorious defense, without addressing defendants' argument that LSK sought payment for sales to Airsmith, and not Ski, and the guarantees only applied to Ski's debts, stating:

[Defendants] failed to answer on the grounds that they were, the individual defendants were involved in marital difficulties and that in any event they couldn't afford to hire a lawyer for purposes of filing an answer.

And in any event with everything else going on and in light of the fact that the corporation had entered bankruptcy, they didn't feel that was a high priority ...


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