October 3, 2013
NEW CENTURY FINANCIAL SERVICES, INC., Plaintiff-Respondent,
JONATHAN A. CHANDROSS, Defendant-Appellant.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 18, 2013
On appeal from Superior Court of New Jersey, Law Division, Union County, Docket No. L-1423-10.
Jonathan A. Chandross, appellant, argued the cause pro se.
Respondent New Century Financial Services, Inc. has not filed a brief.
Before Judges Fuentes, Simonelli and Haas.
Defendant Jonathan A. Chandross appeals from a September 7, 2011 judgment entered by the Law Division, awarding plaintiff New Century Financial Services, Inc. $24, 210.43, the outstanding balance on a credit card account that defendant allegedly had with HSBC/Orchard Bank. Defendant also challenges the trial court's decision to suppress his answer and strike his counterclaim. For the reasons which follow, we reverse and remand for further proceedings.
Plaintiff is a debt collection agency, which purchases defaulted credit card accounts and then attempts to collect on them. On March 1, 2010, plaintiff's attorney, Pressler and Pressler, LLP, sent defendant a letter stating that plaintiff had purchased an account defendant purportedly held with HSBC/Orchard Bank. The letter explained that, in order to avoid litigation, defendant was required to pay plaintiff the entire $24, 284.43 balance due on the account.
On April 4, 2010, defendant sent a letter to plaintiff's attorney invoking the protections afforded to him by the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C.A. § 1692a - o. Specifically, defendant advised plaintiff that he disputed the debt and he requested a "full and detailed accounting for all monies you allege I owe, " together with "[c]opies of all papers establishing any agreement to pay the money you allege I owe, including copies of any original applications or sales agreements[.]"
Plaintiff did not respond to defendant's request. Instead, on April 8, 2010, it filed a one-page complaint against defendant in the Law Division seeking to recover the outstanding balance on the account, plus interest. Defendant filed an answer and a counterclaim, alleging that plaintiff violated the FDCPA by failing to validate the alleged debt. Defendant also requested a jury trial.
Defendant continued to seek further information and documentation concerning the credit card account and filed a motion to require plaintiff to provide a more definite statement of its cause of action. On June 25, 2010, the trial court granted the motion. However, plaintiff never complied with the order. Defendant also served plaintiff with a demand for documents, including the original credit card application and any documents verifying the individual charges comprising the full balance defendant allegedly owed on the account. Again, plaintiff did not respond. Defendant filed another motion to require plaintiff to comply with the June 25 order and to provide discovery. The court granted these motions in orders dated August 6 and 31, 2010. However, there is nothing in the record to indicate that plaintiff ever complied. Defendant then moved to dismiss plaintiff's complaint, but the motion was denied by the court on September 16, 2010.
Defendant was also not fully attentive to his own discovery responsibilities. He failed to appear for a deposition and did not respond to plaintiff's interrogatories. On November 12, 2010, the court ordered defendant to attend the deposition and to provide plaintiff with copies of his "checking, savings and accounts for paying bills" from September 1, 2001 to September 1, 2006; all monthly statements defendant received from HSBC/Orchard concerning the account; and any emails, letters or other writings sent by defendant concerning the account. Defendant did not immediately attend the deposition. Four days after the order was issued, however, defendant underwent neurosurgery and, on December 12, 2010, he wrote to the court to advise that he would not be able to participate in the litigation until at least March 15, 2011.
On January 7, 2011, the court entered an order that required defendant's attendance at a deposition on March 16, 2011 and advised him that, if he did not attend, plaintiff could apply for an order dismissing defendant's counterclaim. Defendant could not attend the deposition due to his surgery and more discovery motions followed. On July 8, 2011, the court ordered defendant to attend the deposition and provide the requested documentation. The court again ordered plaintiff to provide a more definite statement of its claims and documentation to substantiate them.
Defendant was finally deposed on August 4, 2011. He advised plaintiff's counsel that he was invoking a privilege based on "privacy" with regard to the checking and savings account information plaintiff sought. With regard to the two other categories of documents, defendant testified he did not have any monthly statements for the account and the only writings he had were the letters the parties exchanged prior to the filing of the complaint. Plaintiff's attorney did not seek to have the court intervene to rule upon defendant's claim of privilege.
Instead, the parties appeared for trial on September 6, 2011. Just prior to jury selection, plaintiff presented an oral, in limine motion to suppress defendant's answer and dismiss his counterclaim for failing to provide documentation concerning his savings and checking accounts from 2001 to 2006. In response, defendant explained that he was claiming a privilege based on "privacy." After the trial judge advised defendant no such privilege applied, defendant stated that he did not have any bank records from that time period because he only kept his financial records for three years. Defendant also argued that plaintiff had never complied with the court's repeated orders requiring it to provide him with a more definite statement of its claims, including documentation concerning all of the charges comprising the alleged account balance.
Nevertheless, the judge granted plaintiff's motion pursuant to Rule 4:23-2(b)(3). The judge stated there was no "protective order in place" regarding defendant's financial records and, therefore, he should have produced them at his deposition as he had been ordered to do. The judge noted that defendant had explained that he no longer had any of his financial records from five years ago. However, the judge stated that she "[saw] no alternative but to dismiss his counterclaim and suppress his defenses with prejudice in this case." The judge did not address defendant's claim that plaintiff had not complied with the court's prior discovery orders.
With defendant's answer and counterclaim suppressed, the matter proceeded as if it were a default and a hearing was held for plaintiff to establish damages. Plaintiff presented the testimony of a business development manager, who stated that defendant's purported account was one of over 7, 000 delinquent accounts plaintiff had purchased in a "portfolio" from another collection agency called Sherman Acquisition, LLC in February 2010. The manager identified a number of bills of sale through which the account in question passed from HSBC/Orchard to Sherman Acquisition and ultimately to plaintiff. Plaintiff did not produce an original of defendant's credit card application and only provided a copy of a "card member agreement" that the manager asserted was similar to one that would have been issued to defendant.
The manager produced the last four monthly "Quick-Look Account Summar[ies]" that he said were issued on the account. Each Summary set forth the previous balance, identified any transactions and credits during the month, the periodic rates, the balance on which the finance charge was computed, the amount of the finance charge, the annual percentage rate, the closing date of the billing cycle, and the new balance. Finally, the manager produced a one-page excerpt from a larger Excel spreadsheet, listing defendant's name, address, telephone numbers, and the $24, 210.43 balance due on the account.
The judge found plaintiff's proofs sufficiently established the amount due. Apparently ignoring the fact that defendant's answer was suppressed and he was barred from testifying at trial, the judge stated "[d]efendant does not allege that he does not owe the debt" and, "[g]iven that there is no viable defense realistically asserted, the court will enter judgment for the amount owed." This appeal followed.
On appeal, defendant argues the trial court erred by striking his answer and counterclaim and preventing him from defending himself at the hearing. He also argues that plaintiff failed to adequately prove that the account belonged to him, the amount due, or that it had standing to file this collection action. Because we agree the court mistakenly exercised its discretion in suppressing defendant's answer and striking his counterclaim, we reverse and remand for further proceedings. Therefore, it is not necessary to address the issues defendant raises concerning plaintiff's standing or the proofs necessary to substantiate its claim.
"A trial court has inherent discretionary power to impose sanctions for failure to make discovery, subject only to the requirement that they be just and reasonable in the circumstances." Abtrax Pharm., Inc. v. Elkins-Sinn, Inc., 139 N.J. 499, 513 (1995) (citation omitted). A decision to impose discovery sanctions is reviewed under the abuse of discretion standard. Id. at 517.
Rule 4:23-2(b) provides for various remedies available to the court to address a party's failure to comply with discovery orders. According, a court may execute
(1) An order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order;
(2) An order refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting the introduction of designated matters in evidence;
(3) An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or proceeding or any part thereof with or without prejudice, or rendering a judgment by default against the disobedient party;
(4) In lieu of any of the foregoing orders or in addition thereto, an order treating as a contempt of court the failure to obey any orders.
In lieu of any of the foregoing orders or in addition thereto, the court shall require the party failing to obey the order to pay the reasonable expenses, including attorney's fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust.
The Supreme Court has provided guidance in determining the appropriate sanction under this rule:
In respect of the ultimate sanction of dismissal, this Court has struck a balance by instructing courts to impose that sanction only sparingly. The dismissal of a party's cause of action, with prejudice, is drastic and is generally not to be invoked except in those cases in which the order for discovery goes to the very foundation of the cause of action, or where the refusal to comply is deliberate and contumacious. Since dismissal with prejudice is the ultimate sanction, it will normally be ordered only when no lesser sanction will suffice to erase the prejudice suffered by the non-delinquent party, or when the litigant rather than the attorney was at fault. Moreover, the imposition of the severe sanction of dismissal is imposed not only to penalize those whose conduct warrant it, but to deter others who [might] be tempted to violate the rules absent such a deterrent.
[Abtrax, supra, 139 N.J. at 514-15 (alteration in original) (citations and internal quotation marks omitted).]
We have also repeatedly held that the sanction of dismissal is the sanction of last resort, to be imposed only when no lesser penalty would be sufficient in view of the nature of noncompliance and the prejudice caused to the other parties. See e.g., Rabboh v. Lamattina, 312 N.J.Super. 487, 492-93 (App. Div. 1998), certif. denied, 160 N.J. 88 (1999); Irani v. K-Mart Corp., 281 N.J.Super. 383, 387 (App. Div. 1995).
Here, the court did not make a finding that defendant's failure to provide his bank records was contumacious or that the discovery orders went to "the very foundation" of plaintiff's cause of action. At the August 4, 2011 deposition, defendant claimed his personal financial records were privileged. Rule 4:14-3(c) states that, where the basis for an objection to a question posed at a deposition is privilege, the deponent is not required to answer. At that point, plaintiff's counsel could have contacted the court pursuant to Rule 4:14-4 to request a ruling on defendant's privilege claim. However, he did not. Instead, counsel waited until jury selection was about to begin to make an oral motion to strike defendant's pleadings as a sanction. Thus, the court did not rule on defendant's claim of privilege, correctly finding that it lacked merit, until the day of the trial. Once defendant's claim of privilege was denied, he told the court that he did not have any bank records from the 2001-2006 time period.
We do not perceive defendant's conduct in claiming a privilege later found to be meritless to be contumacious. Defendant had previously been ordered to attend his deposition and advised that his failure to attend could lead to sanctions. He had also been advised that any documents not produced in response to plaintiff's request for discovery would be barred at the time of trial. However, defendant was never advised by the court that, if he raised a privilege against disclosure, and the privilege was later rejected by the court after oral argument, his pleadings would be immediately suppressed and the matter would proceed as a default.
Once the court ruled that defendant's claim of privilege lacked merit, it had several viable alternatives to address the matter, short of suppressing defendant's answer and striking his counterclaim. For example, because plaintiff was not prepared to proceed with the trial that day, the court could have ordered defendant to submit to a further deposition that afternoon at which plaintiff could have inquired further as to the names, addresses, and contact information for defendant's banks. It also could have adjourned the trial to give plaintiff time to subpoena the banks for the records. The court might have also considered, as suggested by plaintiff's counsel at argument on the motion, striking defendant's pleadings without prejudice, thus placing the burden upon him to contact the banks himself to obtain the documentation he alleged he discarded in the past. The court could have also ordered defendant to reimburse plaintiff for any additional expenses caused by the need for additional discovery. However, the record does not reflect that any of these alternatives were considered or weighed.
The suppression of defendant's answer and the striking of his counterclaim was also inappropriate because the court did not explain how plaintiff was specifically prejudiced by defendant's inability to provide his bank records. While the records might have been useful if they disclosed that defendant had made payments on the account, thus negating his claim that it was not his account, they were not the linchpin to plaintiff's case. To succeed on its claim, plaintiff also had the responsibility for establishing it had standing to collect on the account and the propriety of the entire amount it sought to collect. Defendant's bank records, even if available, would not have been determinative on those two critical issues.
We must also note that defendant promptly advised the court that he could not comply with the November 12, 2010 and January 7, 2011 orders because he had just undergone neurosurgery. Nevertheless, the court mistakenly considered his failure to immediately comply with these orders in support of its decision to suppress his pleadings. In addition, the court did not weigh the fact that plaintiff never complied with the court's orders of June 25, 2010, August 10, 2010, and July 8, 2011 to provide a more definite statement of its cause of action, together with documentation substantiating each of the charges reflected in the account balance. Although defendant argued that plaintiff's case must also be dismissed due to its failure to comply with the three orders, the court only suppressed defendant's pleadings.
Finally, it is significant that the court, in ruling on the merits of plaintiff's claim, specifically stated that its decision, at least in part, was based upon defendant's failure to deny that it was his credit card account or to raise a "viable defense." However, defendant had always denied liability and his failure to do so again at the hearing, or to raise viable defenses, such as plaintiff's failure to comply with the FDCPA, was due to the court's suppression of his answer and the striking of his counterclaim.
Under these circumstances, we are convinced the court mistakenly exercised its discretion in imposing the ultimate sanction of striking defendant's pleadings. Accordingly, we reverse the judgment and remand this matter for further proceedings on the merits of plaintiff's complaint and defendant's counterclaim. The trial court should promptly schedule a case management conference to set a reasonable period for completion of discovery, including the provision by plaintiff of a more definite statement of its cause of action, together with the items defendant requested under the FDCPA and defendant's disclosure of the names of the banks he used between 2001 and 2006 In its future rulings the court must also make clear to the parties as we have here that the sanctions permitted by Rule 4:23-2(b) will be imposed if its orders are ignored and it must then promptly follow up on the orders to ensure full compliance by the parties
Reversed and remanded We do not retain jurisdiction