October 23, 2013
KITCHEN KING, INC., Plaintiff-Appellant,
JAMES SCISCO and TAMMY SCISCO, Defendants-Respondents.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted February 12, 2013
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-50-09.
Whiteman Law Group, LLC, attorneys for appellant (Brian L. Whiteman, on the brief).
Lueddeke Law Firm, attorneys for respondents (Karri Lueddeke, on the brief).
Before Hayden and Hoffman Judges.
Plaintiff Kitchen King, Inc., appeals from a judgment awarding defendants James Scisco and Tammy Scisco compensatory damages, interest, and counsel fees for breach of a settlement agreement entered in a civil suit. Having reviewed the record in light of the applicable legal principles, we affirm.
We discern the following facts from the record. On October 22, 2006, defendants entered into a contract with plaintiff to purchase new kitchen cabinets, made by Jim Bishop Cabinets, Inc. (manufacturer), for $14, 050. Defendants gave plaintiff a $7000 deposit. When the cabinets were delivered on July 5, 2007, defendants paid the remaining balance of $7050.26. Thereafter, upon inspecting the delivered cabinets, James discovered that the stain had been sanded off the edges and corners of all of the cabinets to varying degrees, one cabinet door was cracked, and some of the cabinet molding had not been stained. Defendants immediately stopped payment on the check and sent plaintiff a letter describing the alleged defects.
On September 10, 2007, plaintiff filed a Construction Lien Claim for $7050.26 against defendants' property. On January 30, 2008, plaintiff filed a complaint in the Special Civil Part seeking the balance owed under the contract.
Defendants filed an answer on March 17, 2008, indicating that "[t]he goods or services received were defective." In a counter suit, defendants sought $5533, plus delivery of a new cabinet door and two new cabinets.
After negotiations, the parties reached a settlement agreement, filed with the court on April 29, 2008, which provided in part that:
2. No later than Thursday, April 24, 2008, defendant[s] shall pay plaintiff . . . ($7374.74) via a certified or bank check.
3. Within ten (10) business days of receipt of the payment . . . [plaintiff] shall do the following:
a) [Plaintiff] shall pick up the doors and drawer heads and return the same to the manufacturer [Jim Bishop Cabinets, Inc.] to either refinish or replace the existing doors and drawer heads . . . .
b) The one broken door shall be replaced.
c) [Plaintiff] shall pick up the two pieces of paneling and the rope molding and one piece of corner molding and return the same to the manufacturer whereby the manufacturer shall refinish or replace two pieces of paneling and the rope molding and corner molding which are consistent with the coloring of the other cabinetry.
d) [Plaintiff] shall obtain shelves from the manufacturer which shall replace the lazy susan system which was delivered with the upper-corner cabinet.
e) [Plaintiff] will order two (2) new base cabinets . . . in the same material and color as the other cabinets.
8) In the event that either party breaches the terms of this settlement agreement, the non defaulting party shall be entitled to damages, interest [at] a rate of ten percent per annum, reasonable attorneys [fees], and costs from the defaulting party. In the event of a default upon the terms set forth herein the non defaulting party may file an ex parte application with the court to enforce the terms and conditions set forth herein.
Defendants gave plaintiff a check for $7374.74 and executed a release. Plaintiff picked up the cabinets and delivered them to the manufacturer, and then returned the cabinets to defendants on July 2, 2008. However, defendants alleged that plaintiff breached the agreement, because plaintiff did not send the cabinets to the manufacturer's Alabama factory and did not refinish and repair them in accordance with the agreement.
On December 19, 2008, the court issued an order granting defendants' application to transfer the matter from the Special Civil Part to the Civil Part of the Law Division. On February 3, 2010, immediately prior to trial, defense counsel asked to formally amend the counterclaim to assert a claim for breach of the settlement agreement. Plaintiff's counsel suggested that "we all agree that we're in essence treating the trial as a hearing on the [defendants'] de facto motion to enforce the settlement agreement or to find a breach on the part of [plaintiff] in the settlement agreement[.]" The judge agreed that if, following the trial, he found that plaintiff had breached the agreement, then "defendants would be entitled to the remedies available to them under that agreement." Plaintiff's counsel responded: "That's exactly my understanding of what we're doing here."
During the trial, defendant James Scisco testified that the returned cabinets had not been repaired and refinished in accordance with paragraph three of the agreement. Instead, the cabinets had been simply touched up with a furniture marker, a repair he had specifically informed plaintiff's employees would not be acceptable under the agreement. Additionally, he observed that the stain on the two new cabinets did not match the stain on the other cabinets. In support of his testimony, which the court found credible, Scisco submitted into evidence photographs of the cabinets. He requested to be able to return the cabinets and have his entire payment refunded.
Kevin Griffen, defendants' expert in the field of cabinet refinishing, opined that the refinishing work was not performed in accordance with the settlement agreement, noting that the edges of the doors and molding had not been properly refinished and the cracked door was not replaced. He further explained that, although wood finishing markers can be used for small touchups, they should not have been used for repairs of the magnitude needed for the cabinets at issue. He testified that, because the repairs and refinishing were now much more extensive and expensive, it would cost approximately $7903 to repair the cabinets, not $1811, as he had previously estimated.
Terry Barth, plaintiff's owner, testified that his employees had picked up the cabinets from defendants and delivered them to plaintiff's New Jersey warehouse. From there, the manufacturer transported them to its warehouse in Hillsborough, New Jersey, not its factory in Alabama. Thereafter, no representatives or employees of plaintiff were involved in the repair of the cabinets. Plaintiff did not inspect the cabinets after the manufacturer's work was completed, but simply shipped them back to defendants.
Eric Williams, a vice-president of the manufacturer, testified that he had used two types of specialty wood finishing markers to repair the sand-through areas on the cabinets at the New Jersey warehouse. Williams stated that, if the cabinets had been delivered to the Alabama factory, the manufacturer would have used the same specialty markers to refinish them. Two manufacturer's representatives admitted that they had not been aware of the provisions in the settlement agreement requiring the repair or replacement of the broken door and unstained molding, and stated that they had not observed, or fixed, those defects.
On June 20, 2011, the judge issued an oral opinion, and an order, awarding defendants $7374.74 in damages, plus counsel fees, interest, and costs. The judge found that plaintiff had breached paragraph three of the agreement because: (1) plaintiff delivered the cabinets to the manufacturer's New Jersey warehouse, not its Alabama factory; (2) the cabinet doors were not repaired or replaced but merely touched up with a finishing pen; and (3) the two new cabinets were not substantially identical to the other cabinets. He also found that, pursuant to the terms of the settlement agreement, defendants were entitled to attorneys' fees and interest.
Defense counsel subsequently submitted an affidavit of services, seeking a fee award of $21, 750. On July 11, 2011, the judge issued an order for judgment, awarding defendants $7374.74 in damages, $2335.12 in interest, and $11, 625 in counsel fees. This appeal followed.
On appeal, plaintiff raises the following contentions for our consideration:
POINT I: THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY AWARDING COMPENSATORY DAMAGES OF $7374.74 WHERE THE ALLEGED BREACH OF SETTLEMENT TERMS WAS MUCH LOWER.
A. The Trial Court's Award of Compensatory Damages Exceeded the Goal of Making the Plaintiff Whole in a Breach of Contract Claim.
B. The Trial Court Did Not Provide Calculations and Reasoning Based on Sufficient Evidence to Support the Award of Compensatory Damages.
POINT II: THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY AWARDING EXCESSIVE ATTORNEYS' FEES WITHOUT FIRST DETERMINING THE REASONABLENESS OF THE ATTORNEYS' FEES.
A. A Trial Court Must Calculate the Lodestar Before Awarding Attorneys' Fees.
B. A Trial Court Must Scrutinize a Lodestar Especially Closely When the Attorneys' Fees Requested are Disproportionate to the Damages Awarded.
POINT III: THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY AWARDING POST-JUDGMENT INTEREST DESPITE EXTRAORDINARY AND EQUITABLE REASONS PROHIBITING POST-JUDGMENT INTEREST.
POINT IV: THE TRIAL COURT COMMITTED REVERSIBLE ERROR BY HOLDING A TRIAL ON A MATTER WHERE THE PLEADINGS BEFORE THE COURT WERE INADEQUATE.
The scope of our review of a trial judge's factual findings is limited. We must uphold those findings "when supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). However, we conduct a de novo review of the trial court's interpretation of the law. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).
We begin our analysis with the well-established principle that "[a] settlement agreement between parties to a lawsuit is a contract, " Nolan v. Lee Ho, 120 N.J. 465, 472 (1990), and is generally "governed by principles of contract law." Thompson v. City of Atl. City, 190 N.J. 359, 379 (2007). "Fundamental to our jurisprudence relating to settlements is the principle that [t]he settlement of litigation ranks high in our public policy." Brundage v. Estate of Carambio, 195 N.J. 575, 601 (2008) (internal quotation marks and citations omitted).
"When there is a breach of a material term of an agreement, the non-breaching party is relieved of its obligations under the agreement." Nolan, supra, 120 N.J. at 472; see also Magnet Res., Inc. v. Summit MRI, Inc., 318 N.J.Super. 275, 285 (App. Div. 1998) (material breach by party to contract excuses other party from further contractual performance). The question of whether a breach is material is for the trier of fact. Magnet Res., Inc., supra, 318 N.J.Super. at 286.
We agree that plaintiff's failure to comply with paragraph three constituted a material breach of the settlement agreement. As a result, defendants were entitled to damages under the settlement agreement. "Under contract law, a party who breaches a contract is liable for all of the natural and probable consequences of the breach of that contract." Pickett v. Lloyd's, 131 N.J. 457, 474 (1993). "[T]he goal is 'to put the injured party in as good a position as . . . if performance had been rendered.'" Totaro, Duffy, Cannova & Co., L.L.C. v. Lane, Middleton & Co., L.L.C., 191 N.J. 1, 13 (2007) (quoting Donovan v. Bachstadt, 91 N.J. 434, 444 (1982)). "What that position is depends upon what the parties reasonably expected." Donovan, supra, 91 N.J. at 444. "Compensatory damages should be in an amount reasonably within the contemplation of the parties at the time the contract was formed and sufficient to put the injured party in the same position it would have enjoyed if the breaching party had performed, no better position and no worse." State v. Ernst & Young, L.L.P., 386 N.J.Super. 600, 617 (App. Div. 2006).
"'The law abhors damages based upon mere speculation.'" Caldwell v. Haynes, 136 N.J. 422, 442 (1994) (quoting Lewis v. Read, 80 N.J.Super. 148, 174 (App. Div. 1963)). However, a calculation of damages need not be exact for a party to obtain relief. Totato, Duffy, Cannova & Co., L.L.C., supra, 191 N.J. at 14. It is sufficient that the non-breaching party "'prove damages with such certainty as the nature of the case may permit, laying a foundation which will enable the trier of facts to make a fair and reasonable estimate.'" Ibid. (quoting Lane v. Oil Delivery Inc. v. Femina Fashions, Inc., 356 N.J.Super. 118, 128-29 (App. Div. 2002), certif. denied, 176 N.J. 279 (2003)). "So long as the record supports a reasonable estimate of damages, based upon more than mere speculation, a damage award can be affirmed." Borough of Fort Lee v. Banque Nat'l de Paris, 311 N.J.Super. 280, 291 (App. Div. 1998).
Applying those principles, we are in accord with the trial judge that the amount defendants paid plaintiff under the settlement agreement was an appropriate measure of damages. The parties agreed that defendants would pay the amount still owed under the sales agreement in exchange for plaintiff refinishing and repairing the cabinets in accordance with the settlement agreement. Plaintiff breached that agreement, and thus defendants would be entitled to the return of their payment under the agreement. Nolan, supra, 120 N.J. at 472.
Moreover, contrary to plaintiff's argument, such an award does not place defendants in a better position than if the breach had not occurred. At the time of the trial defendants' expert's testimony that it would cost $7903 to repair the cabinets was uncontradicted. Although "'parties injured by a breach of contract have a common law obligation to take reasonable steps to mitigate their damages, '" Sean Wood, L.L.C. v. Hegarty Grp., Inc., 422 N.J.Super. 500, 519 (App. Div. 2011) (citations omitted), defendants could not have mitigated their damages for $1811 after plaintiff breached the settlement agreement.
With regard to attorneys' fees, the settlement agreement specifically provides for an award of reasonable counsel fees to the non-defaulting party. Defense counsel sought $21, 750 in fees, and trial judge awarded $11, 625. We find no merit to plaintiff's objection to this award.
We "will disturb a trial court's award of counsel fees 'only on the rarest of occasions, and then only because of a clear abuse of discretion.'" Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 386 (2009) (quoting Packard-Bamberger & Co., Inc. v. Collier, 167 N.J. 427, 444 (2001)). Where the prevailing party is entitled under a contract to reasonable counsel fees, courts apply the same test to determine the reasonableness of those fees that is used in other fee award cases. Ibid.
Applying these principles to the record, we find that the judge did not clearly abuse its discretion in awarding the fee under the agreement. Counsel fees were clearly warranted here because defendants prevailed in the litigation, and the agreement required plaintiff to indemnify defendants in the event of a breach. See ibid.
Similarly, we find the judge did not abuse his discretion in awarding defendants prejudgment interest of $2335.12 at the ten percent rate set forth in the agreement. See DialAmerica Mktg., Inc. v. KeySpan Energy Corp., 374 N.J.Super. 502, 509 (App. Div.), certif. denied, 184 N.J. 212 (2005). As the defaulting party, plaintiff was liable to defendants for interest on the damages under the settlement agreement.
Finally, we find plaintiff's argument that the court erred in "holding a trial on a matter where the pleadings before the court were inadequate" to be without merit. R. 2:11-3(e)(1)(E). Plaintiff's counsel did not move to dismiss the litigation on the grounds that defendants' pleadings were "inadequate." Rather, counsel had explicitly agreed that the purpose of the trial was "to enforce the settlement agreement or to find a breach on the part of plaintiff in the agreement."