May 31, 2013
SBA FINANCE, L.L.C., Plaintiff-Respondent,
JAY BLOOM, Defendant-Appellant, and NAC TECHNOLOGY & OPERATIONAL RESOURCES, L.L.C., Defendant.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 16, 2013
On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-0854-10.
Fred Shahrooz Scampato argued the cause for appellant.
Christopher P. Gengaro argued the cause for respondent (Lentz & Gengaro, L.L.P., attorneys; Mr. Gengaro, of counsel and on the brief).
Before Judges Ashrafi, Hayden and Lisa.
Defendant Jay Bloom appeals from summary judgment granted to plaintiff SBA Finance, L.L.C., requiring him to pay a total of $108, 555.89 in satisfaction of a debt he had guaranteed, together with attorney's fees. We reverse.
Viewed most favorably to defendant Bloom, R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), the summary judgment record and prior proceedings in the trial court establish the following relevant facts and procedural history.
On January 1, 2004, Bloom, Steven Trenk, and Baton (a partnership of two persons) formed NAC Technology & Operational Resources, LLC (NAC). A few weeks later, City National Bank of New Jersey lent $60, 000 to NAC, later to be increased to $70, 000 through a "Change in Terms Agreement" executed on May 23, 2004. The bank obtained guarantees for repayment of the loan from Bloom and the Baton partners. Also, an entity named Silverado Insurance, Ltd., which was owned and operated by Steven Trenk and his father, Alvin Trenk, gave a commercial guarantee and entered into a hypothecation agreement with the bank by which Silverado pledged as collateral a certificate of deposit valued at about $102, 000.
NAC's operations did not go as planned. On June 7, 2006, Steven Trenk filed suit against Bloom in the District Court of Clark County, Nevada, alleging breach of the NAC partnership agreement and Bloom's fiduciary duty to NAC. Trenk sought injunctive and declaratory relief, as well as money damages and attorney's fees. Among other wrongs, Trenk's complaint alleged that Silverado had been promised a five percent ownership interest in NAC in return for its pledged collateral but that the interest was never transferred. Trenk also claimed that he had taken out a $50, 000 personal loan on NAC's behalf, in return for NAC's promissory note and an increased ownership interest in NAC. The complaint alleged that NAC was in default on its obligations to Steven Trenk. The complaint made reference to the $70, 000 City National loan and Silverado's pledge of collateral to obtain the loan, but it did not state that the City National loan was in default or that Bloom was obligated to reimburse Trenk because of that default.
Three years after the Nevada litigation commenced, on September 27, 2009, Bloom and Steven Trenk (signing both in his personal capacity and on behalf of NAC) entered into a settlement agreement. They released one another from all claims "arising from or relating to" the lawsuit. The settlement agreement also indicated the parties' intent to "waive any and all rights, claims, demands, obligation[s], and/or causes of action which through ignorance, oversight, or error may have been omitted from the terms of this Agreement." The Nevada case was dismissed with prejudice.
Before the settlement occurred, plaintiff SBA Finance, L.L.C., was founded, in May 2008. The attorney for SBA in this litigation was listed as the authorized representative of SBA in the certificate of formation issued by the New Jersey Department of Treasury. Alvin Trenk's friend, Stanley Amsterdam, was listed as the sole member and officer of the company. However, as later determined in Amsterdam's deposition, he played no role in determining SBA's actions and was not responsible for paying the fees of SBA's attorney. The sole purpose of forming SBA was to purchase and collect on the $70, 000 City National note. Amsterdam's participation in SBA was as a "favor" to Alvin Trenk, and any money recovered in this litigation would go to Alvin Trenk.
Through communications engaged in between counsel for plaintiff SBA and City National Bank, the bank was paid more than $71, 000 in exchange for assignment of the City National note and guarantees to SBA. The bank executed a formal assignment on December 17, 2008. As part of the deal, the bank released Silverado's collateral. At a later time in this litigation, it was revealed that Alvin Trenk paid the funds to obtain assignment of the note and guarantees to SBA.
In June 2009, SBA took action against Bloom to collect on the debt. Through its attorney, SBA sent two similar letters to Bloom and his counsel advising that the note was in default and demanding payment of principal and interest within five days. Bloom did not make the payment.
On January 22, 2010, SBA filed a one-count complaint in the Law Division, Essex County, against Bloom and NAC. Bloom filed an answer denying liability and asserting affirmative defenses including accord and satisfaction and estoppel. In a counterclaim, Bloom alleged that "SBA Finance LLC is a limited liability corporation owned and/or controlled by Steven Trenk" and that the Nevada settlement agreement barred any claim by Steven Trenk or SBA based on Bloom's liability on the note and guarantee.
In the course of discovery, Bloom sought to prove the connection between the Trenks and SBA. On September 23, 2010, Bloom served SBA with interrogatories. Among other questions, Bloom asked for the "names and addresses of all persons having knowledge or information with regard to the facts" of the case. SBA's terse response, which was not provided until seven months later, in April 2011, did not include either Alvin or Steven Trenk, or SBA's attorney, as persons with knowledge of relevant facts. SBA's interrogatory answer identified only Bloom himself and individuals connected with City National Bank as persons with knowledge, and it did not state what facts were known to those individuals. Stanley Amsterdam was identified in the interrogatory answers as the only person having any connection with SBA. In yet another interrogatory, Bloom had asked that SBA "[d]escribe in detail the factual circumstances which led to SBA being the holder in due course of the Note as described in . . . plaintiff's Complaint" and to attach all documents relevant to that transaction. Plaintiff's response was: "SBA Finance purchased the Note and related loan documents from City National Bank. See the Discovery Documents."
While awaiting SBA's responses, Bloom's attorney took steps to depose Alvin and Steven Trenk. An attempt on February 21, 2011, to serve a subpoena upon Steven Trenk at a New Jersey address revealed that he had moved. Bloom's attorney investigated with the help of a private detective and located Steven Trenk at a new address in New York City. SBA's incomplete interrogatory answers were received a month later.
On May 13, 2011, Bloom's attorney deposed Amsterdam. The deposition revealed that Alvin Trenk had asked Amsterdam to form
SBA, had provided the purchase money for the City National note, and had a substantial financial stake in the outcome of the case while Amsterdam had none. Amsterdam essentially confessed ignorance about most every aspect of the assignment, the Silverado collateral that secured it, and even the reason for bringing the current lawsuit, attributing the last decision to the "advice of counsel." Additionally, SBA's counsel inappropriately directed Amsterdam not to answer questions about the source of payments of counsel's fees, or whether Amsterdam had signed a retainer agreement.
The Amsterdam deposition took place only days before discovery was set to close on May 17, 2011. After the deposition, Bloom moved to reopen discovery so that he could depose Alvin and Steven Trenk. The motion judge concluded that SBA's interrogatory answers were insufficient, and SBA's attorney agreed to amend them. On June 23, 2011, the judge granted an extension of discovery for sixty days, until August 22, 2011. The court's order also adjourned the scheduled September trial date to October 17, 2011.
Because Bloom's attorney was not licensed to practice law in New York, and is a solo practitioner without partners or associates with a New York license, he had to coordinate with another attorney to take the Trenks' depositions in that state. Counsel's first choice was unavailable. He ultimately found an attorney who would handle the matter, but the resulting delay meant that defense counsel did not file his motion for a commission to take the out-of-state depositions until July 18. The court did not address the motion until August 11, at which time the order for the commissions was granted with only eleven days of discovery remaining.
Defense counsel prepared subpoenas for both Alvin and Steven Trenk, but attempts to serve them at their homes failed. Alvin Trenk was reported to be "away until sometime in September, " while the concierge in Steven's building apparently stated only that he was not at home. Counsel was unable to effectuate service before the August 22 discovery end date, and so, he made a second motion to reopen and extend discovery. SBA's attorney opposed the motion. On September 2, 2011, the presiding judge denied the motion to reopen and extend discovery. Subsequently, SBA moved for and was granted summary judgment on Bloom's guarantee. Attorney's fees were added later, resulting in a final judgment of $108, 555.89. This appeal followed.
We summarily reject most of Bloom's arguments on appeal. Contrary to Points I and II of his brief, he was not entitled to summary judgment based on the preclusive effect of the Nevada settlement. The motion judge was correct in concluding that there was insufficient evidence to indicate as a matter of law that Steven Trenk directed SBA's litigation efforts on Bloom's guarantee of the City National note. See Zirger v. Gen. Accident Ins. Co., 144 N.J. 327, 338 (1996) (party is in privity with another for preclusion purposes where "the party is a virtual representative of the non-party, or when the non-party actually controls the litigation"). Defendant's Point III, arguing that he was entitled to summary judgment because the payment from SBA to City National was a pay-off of the loan rather than consideration for the assignment is unworthy of discussion in a written opinion. R. 2:11-3(e)(1)(E).
We do, however, find merit in Bloom's argument that he should have been allowed additional time to depose the Trenks. His motion to reopen discovery was governed by Rule 4:24-1(c), which provides in relevant part that "[n]o extension of the discovery period may be permitted after an arbitration or trial date is fixed, unless exceptional circumstances are shown." We review the denial of Bloom's discovery motion for an abuse of discretion. Bender v. Adelson, 187 N.J. 411, 428 (2006); Leitner v. Toms River Reg'l Sch., 392 N.J.Super. 80, 87 (App. Div. 2007).
To demonstrate exceptional circumstances, our courts generally require that the attorney has diligently pursued the information sought during the discovery period, and yet has been frustrated by circumstances largely beyond his or her control. See, e.g., Bender, supra, 187 N.J. at 429; Rivers v. LSC P'ship, 378 N.J.Super. 68, 79-80 (App. Div.), certif. denied, 185 N.J. 296 (2005); Zadigan v. Cole, 369 N.J.Super. 123, 133 (Law. Div. 2004). Additionally, the sought-after discovery should relate to an essential issue in the case. Zadigan, supra, 369 N.J.Super. at 133; Vitti v. Brown, 359 N.J.Super. 40, 51 (Law Div. 2003).
Under the circumstances presented here, the proper exercise of the presiding judge's discretion required an extension of discovery be allowed for the purpose of taking the depositions of Alvin and Steven Trenk. It is difficult to read the record without concluding that SBA's conduct was unfairly designed to obscure the true nature of the interests involved, and to frustrate Bloom's consistent attempts to substantiate his primary defense that SBA was acting as an alter ego of Steven Trenk, with respect to whom he had a release of all claims. It was this sense that plaintiff had "played" defendant to gain a tactical advantage that led the trial court to grant the first discovery extension. Those same circumstances, along with Bloom's inability to serve the Trenks within the extended discovery period, justified a second extension.
SBA argues that Bloom "squandered" the additional time he was given instead of using it to depose the Trenks. The record does not support that contention. Defense counsel's lack of a New York license and his status as a solo practitioner complicated what would otherwise have been a reasonable time of sixty days to conduct two out-of-state depositions. Yet in the time from the granting of the first discovery extension on June 23, 2011, to its ending date of August 22, 2011, defense counsel had found a second New York attorney to replace the one that had backed out, moved for and received a commission authorizing the New York depositions, obtained subpoenas for the Trenks, and made attempts to serve them. Counsel's efforts resulted in his learning that Alvin was "away" until the next month, and Steven could not be contacted at his home address. While there may have been measures counsel could have taken to reach that point more quickly, he was not dilatory in taking steps to conduct the necessary depositions. In the circumstances shown on this record, counsel showed sufficient diligence in pursuing crucial discovery he needed for Bloom's defense.
Also important, SBA and its counsel bear responsibility for the discovery delays. SBA's responses to interrogatories, served only one month before the original discovery end date, were either woefully incomplete or deliberately misleading. Knowing that Bloom was seeking to determine whether Alvin and Steven Trenk were connected to SBA, the answers failed to include the Trenks and SBA's counsel as persons with knowledge of the relevant facts. At the May 13, 2011 deposition of Amsterdam, Bloom's attorney finally learned that Alvin Trenk was likely directing the litigation, but even there the obfuscation continued. SBA's attorney instructed Amsterdam not to answer relevant questions about Alvin's connection to the case, and about who was paying counsel's fees. Meanwhile, Amsterdam could not even explain why SBA had filed the lawsuit, except that his attorney had told him to (he was "relying on the advice of counsel").
SBA argues that none of this really matters. It contends that, because there is no doubt that City National's rights under the note could not be resolved in the Nevada litigation, there can similarly be no doubt that any later assignee of the note can recover from Bloom in City National's stead regardless of the Nevada settlement. In other words, SBA argues that even if Bloom could show that Steven Trenk directed the current litigation, he could not show that the issues here were encompassed by the settlement agreement.
SBA may ultimately be correct. But we are unwilling to rest the resolution of this case on that rationale without giving Bloom an opportunity to depose the Trenks, who may have crucial information both about the control of SBA and the scope of the Nevada settlement. The Nevada complaint made reference to the City National loan, to Silverado's right to a five percent stake in return for the collateral it provided, and to the effect the Silverado agreement would have on the ownership interests in NAC. Although we do not now decide the proper scope of the releases in the settlement agreement among Bloom, Steven Trenk, and NAC, we think it necessary to allow Bloom the opportunity to complete discovery and attempt to substantiate the difficult defense he has asserted from the beginning of this case. This is an even more desirable course since the trial court did not determine the scope of the Nevada settlement in the summary judgment motion, relying instead on the lack of privity between SBA and Steven Trenk. Furthermore, the parties' briefs on appeal focus mostly on privity and leave the scope of the settlement under-analyzed. See Fischer v. Johns-Mansville Corp., 103 N.J. 643, 673-74 (1986) (declining to address issue that was not briefed nor addressed by lower courts).
We also observe that plaintiff's argument offers no explanation for its hide-the-ball litigation strategy, which successfully concealed until the very end of the May discovery deadline the fact that Alvin Trenk had supplied the money for the purchase of the City National note and stood to reap the benefits from this lawsuit. If SBA is correct that control and interest in this litigation is irrelevant, there was no reason to interpose the hapless Amsterdam or, for that matter, SBA as the putative plaintiff. Alvin (or Steven) Trenk might have just as easily purchased the note themselves, had Silverado's collateral released, and filed a complaint against Bloom. That they did not do so suggests possible gamesmanship, and Bloom was surely justified in desiring to get to the bottom of the maneuvers.
We are keenly aware of the need to avoid the delays attending numerous discovery extensions and the corresponding rescheduling of fixed trial dates. Repeated delays in the litigation process not only burden litigants and judges, but also result in "decreased . . . public confidence in our courts." Zadigan, supra, 369 N.J.Super. at 129. Nevertheless, the unfair tactics demonstrated here pose a similar threat. We do not begrudge parties and their attorneys for litigating aggressively and maneuvering for tactical advantages; indeed, zealous advocacy is the heart of our system of justice. LoBiondo v. Schwartz, 199 N.J. 62, 101 (2009); Brundage v. Estate of Carambio, 195 N.J. 575, 602 (2008). But "[g]amesmanship can be taken too far." Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 230 (2005) (discussing duty of good faith and fair dealing in commercial transactions).
In this case, before deciding whether SBA is entitled to summary judgment, the trial court should have permitted Bloom more time to depose the Trenks, especially where the process to do so was well on its way. That course will ensure that we adhere to the principle that "every litigant who has a bona fide cause of action or defense [has] the opportunity for full exposure of his case." Velantzas v. Colgate-Palmolive Co. 109 N.J. 189, 193 (1988) (quoting United Rental Equip. Co. v. Aetna Life & Cas. Ins. Co., 74 N.J. 92, 99 (1977)) (internal quotation marks omitted).
Of course, the award of attorney's fee must also await SBA's primary claim. Because the issue could arise again on remand, we observe that the contractual provision for attorney's fees contained in Bloom's guarantee does not relieve SBA's attorney from demonstrating the reasonableness of his fee request. City of Englewood v. Exxon Mobile Corp., 406 N.J.Super. 110, 125 (App. Div.), certif. denied, 199 N.J. 515 (2009). Additionally, if attorney's fees are ultimately awarded, the court should take into consideration whether counsel is entitled to fees for services he performed in delaying and inadequately responding to discovery, and in filing a motion for summary judgment supported by a certification of a witness who had claimed under oath that he was ignorant of the transaction
Accordingly the orders of the trial court denying an extension of the discovery period and entering final judgment for plaintiff SBA are reversed and the case is remanded for further proceedings consistent with this opinion
We do not retain jurisdiction