November 18, 2013
ARTHUR CUCCURULLO, JR., Plaintiff,
JOHN G. VOLPECELLO, SR., Defendant-Respondent. IN THE MATTER OF JAMES DE STEFANO, ESQ., and THE LAW FIRM OF CHARLES MICHAEL DAMIAN, LLC, Appellants.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 15, 2013.
On appeal from Superior Court of New Jersey, Law Division, Special Civil Part, Morris County, Docket No. DC-8306-11.
Timothy P. Kane argued the cause for appellants (Charles Michael Damian, L.L.C., and Abdy & Kane, P.C., attorneys; Charles M. Damian, on the briefs).
Robert J. Nish argued the cause for respondent (Nish and Nish, L.L.C., attorneys; Mr. Nish, on the brief).
Before Judges Yannotti, Ashrafi and St. John.
James de Stefano and Charles Michael Damian, L.L.C. appeal from an order entered by the Law Division on November 27, 2012, requiring that they pay counsel fees to defendant pursuant to Rule 1:4-8. We reverse.
On August 19, 2011, de Stefano, an attorney with the Damian law firm, filed a complaint in the Special Civil Part on behalf of plaintiff Arthur Cuccurullo, Jr., against defendant John G. Volpecello, Sr. According to the complaint, plaintiff leased certain property from defendant, which plaintiff intended to use to grow plants and shrubs for sale.
Plaintiff alleged that the building on the leased premises lacked heat and a restroom. He claimed the structure was porous and permitted rain, snow and "the elements" to penetrate the interior. Plaintiff alleged that he notified defendant of the various defects in the premises, but defendant failed to take any remedial actions. Plaintiff alleged that defendant instructed him not to pay any rent until the various problems were corrected.
Based on these allegations, plaintiff asserted four causes of action. Plaintiff claimed that defendant breached the lease agreement, thereby causing plaintiff to sustain damages in the amount of $12, 903. Plaintiff additionally claimed that defendant was negligent and breached a duty of care owed to him. Plaintiff further alleged that defendant intentionally interfered with his business activities. Plaintiff also claimed that defendant perpetrated a fraud by causing him to rent property that was not fit for his business purpose.
On September 23, 2011, defendant filed an answer denying liability and asserted two counterclaims against plaintiff. Defendant sought unpaid rent allegedly due under the lease, along with late fees and attorney's fees. He additionally sought damages for the wrongful conversion of "a certain Christmas tree bailing device."
By letter dated October 3, 2011, defendant averred that plaintiff's claims were "frivolous." Defendant therein demanded the claims be withdrawn and advised that he would seek sanctions under Rule 1:4-8 should plaintiff fail to do so.
The case was scheduled for trial on January 30, 2012, and adjourned to February 21, 2012. On February 6, 2012, defendant filed a motion for summary judgment on the complaint and his counterclaim.
Plaintiff opposed the motion. Plaintiff argued that there were genuine issues of material fact as to whether defendant made representations to plaintiff concerning the repairs to the greenhouse, defendant's alleged interference with prospective clients, and an oral agreement between the parties allowing plaintiff to forgo rental payments for January, February and March 2011.
On the trial date, defendant's attorney told the court that he had filed a motion for summary judgment. The judge commented that he did not have the motion and he was "not dealing with it." After settlement efforts failed, a jury was selected and counsel gave their opening statements.
After the openings, defendant moved to dismiss plaintiff's claims based on negligence, diversion of customers from plaintiff's business and fraud because plaintiff's attorney had not mentioned these claims in his opening statement. The judge granted the motion, allowing the case to proceed solely as a breach-of-contract case.
Plaintiff testified that he was a landscaper and tried to start a nursery business on the leased premises. He stated that when he entered into the lease, there were problems with the property. The water was not operational. There were leaks in the plastic covering the greenhouse, and the fan in the greenhouse was not working. Plaintiff entered into the lease after defendant said these problems would be corrected.
Defendant did not correct the problems. In January 2011, plaintiff wrote to defendant and asked to be released from the lease because the problems with the premises had not been corrected. He also said he could not access the building because snow had been plowed in front of it and blocked the entrance. Defendant called and asked for a meeting. Plaintiff agreed and the parties met.
At the meeting, plaintiff asked defendant if he could provide some relief, short of termination of the lease. According to plaintiff, defendant said he would not have to pay rent for the winter months because plaintiff did not have access to the buildings and there was no heat. In March 2011, plaintiff returned to the property. He purchased nursery stock and operated his business on the premises from March to May 2011. Plaintiff left because none of the problems had been corrected.
On cross-examination, plaintiff stated that, before he signed the lease, defendant said he was going to put a restroom in the premises. In April 2011, defendant refused to permit him to install a portable toilet on the property. Plaintiff said defendant told him he did not have to pay rent in January, February and March of 2010. He acknowledged that he was on the premises until mid-May and paid no rent from April 2011 to the end of the lease term. He insisted that he paid rent for December 2010 in cash, but he did not have a receipt for that payment.
Plaintiff also acknowledged that he used a building adjacent to the greenhouse. The building had a propane heater but defendant told him it was inoperable. Plaintiff denied that there was only a "slight" tear in the roof of the greenhouse. He said there were several tears in the roof and the plastic had separated from the wood in the rear of the structure. He stated that he was told new plastic would be put on the greenhouse roof.
Plaintiff further testified that he spent $500 to have a new pipe and spigots installed in the greenhouse. Plaintiff was shown a receipt for those improvements. He acknowledged that the receipt indicated that "$300" had been charged, but said he was charged $500. Plaintiff said he lost "a few plants" in the period from July to November 2010 because of excessive heat and cold temperatures.
Plaintiff was shown the lease and asked to read the section which stated that the tenant was required to make all necessary repairs and replacements "including repair and replacement of pipes, electrical wiring, heating, plumbing systems, fixtures and all other systems and appliances." Plaintiff conceded that he signed the lease.
Dana Congleton testified on plaintiff's behalf. She stated that plaintiff was her boyfriend and she was involved in the nursery business on the leased premises. Congleton said there were problems with the property. There was no bathroom. The fan in the greenhouse did not work. There also were holes at the top of the greenhouse, and every time it rained, water would leak in. Nothing was done to remedy these problems.
Congleton was present at the January 2011 meeting between plaintiff and defendant. According to Congleton, at that meeting, defendant agreed plaintiff would not have to pay rent until the spring of 2011. Plaintiff and Congleton returned to the property in the spring. They ordered "plants and stuff like that." However, some of the plants died because of the heat and other problems.
Plaintiff rested his case, and defendant moved to dismiss the breach-of-contract claim because plaintiff had not proven any damages. The judge granted the motion, noting that plaintiff did not have "to be exact in proving damages, " but he had to present some proof. The judge additionally noted that, under the lease, plaintiff had the responsibility to make repairs.
Defendant's attorney then sought judgment on the counterclaim based on plaintiff's testimony. Counsel argued that defendant should be awarded seven months of rent (January 2011 to July 2011) at $1500 per month, plus late fees of $50 for each of those months. Plaintiff's attorney opposed the motion, noting that plaintiff had testified the defendant agreed he did not have to pay rent for January through March of 2011.
The judge found that, while an agreement can be modified orally, evidence of the change had to be "clear." The judge stated that there was insufficient evidence to show the lease had been modified. Judgment was entered against plaintiff for seven months of rent, plus late fees for each of those months. The judge rejected defendant's claim for attorney's fees, noting that the lease only permitted such fees if they related to re-letting the premises.
The trial continued on the issue of whether plaintiff paid the rent for December 2010. Defendant's son testified that plaintiff did not pay rent in that month. In addition, defendant testified that he tried to collect the rent for December 2010 but plaintiff did not pay. On cross-examination, defendant said he always provides a receipt for rent payments.
The jury returned a verdict finding that plaintiff did not pay rent for the month of December 2010. Thereafter, defendant presented a judgment to the court dismissing plaintiff's complaint and awarding defendant $12, 400 on the counterclaim.
On March 13, 2013, defendant filed a motion for an award of frivolous litigation sanctions against plaintiff, de Stefano and Charles Michael Damian, Esq. In support of that motion, defendant's counsel submitted a certification with the October 3, 2011 letter attached. Defendant sought the award of attorney's fees in the amount of $17, 325.
De Stefano opposed the motion. In his certification, he said the lawsuit was brought in good faith and without any malicious intent. He believed plaintiff had grounds for his breach of contract and fraud claims, based on defendant's representations that repairs would be made to the leased premises. He also said that plaintiff had "numerous damages" associated with defendant's failure to provide heat and adequate water.
The judge heard argument on the motion on April 23, 2012, and reserved decision. On May 29, 2012, the judge filed a written opinion in which he concluded, "There was no rational argument for plaintiff's position and none was made. There was almost no evidence at all and certainly no credible evidence to support plaintiff's claims. They were, in short, utterly untenable."
The judge also found that if plaintiff believed in the merits of his case, "any such belief was not reasonable." The judge wrote that "no attorney could have an objectively reasonable belief in the merits of plaintiff's case in any respect." The case was lost because there was no evidence that "would have supported plaintiff's claims."
The judge found that defendant had been required to incur counsel fees of $17, 325 "to defend against frivolous claims and a frivolous defense to his counterclaim." He found that defense counsel's hourly rate and the time he devoted to the case were reasonable. The judge entered an order dated May 29, 2012, requiring plaintiff and de Stefano to pay defendant $17, 325. The judge did not, however, impose sanctions on Damian.
On June 19, 2012, de Stefano filed a motion for reconsideration of the sanctions. In his certification, he said he had sufficient evidence to support the claims against defendant, including evidence that plaintiff had provided him on his damages and a report from a home inspector who viewed the premises and noted its deficiencies.
Defendant opposed the motion and filed a cross-motion to include the Damian law firm as a jointly responsible party for the sanctions. Defendant also sought counsel fees for the time his attorney devoted to responding to the reconsideration motion.
On November 27, 2012, the trial judge heard argument on the motions and placed his decision on the record. The judge found that defendant was entitled to have the Damian law firm named as a responsible party on the order. The judge additionally found no basis to reconsider his prior order. The judge determined that defendant was entitled to additional counsel fees of $1750 that were incurred to respond to the motion.
The judge entered orders on November 27, 2012, amending the judgment to name the Damian law firm as a responsible party for the sanctions. The judge imposed sanctions totaling $19, 075, and denied the reconsideration motion. This appeal followed.
Appellants argue that (1) plaintiff's complaint was supported by fact and law and the pleading was not deficient as a whole; (2) the pleading cannot be deemed frivolous under Rule 1:4-8 because the trial judge allowed the matter to survive summary judgment; (3) defendant's motions for sanctions were untimely; (4) the sanctions are excessive; and (5) respondent's case information statement was filed out of time and should not be considered.
We turn first to appellants' contention that the pleading filed on plaintiff's behalf was not frivolous.
Rule 1:4-8 provides that
The signature of an attorney or pro se party constitutes a certificate that the signatory has read the pleading, written motion or other paper. By signing, filing or advocating a pleading, written motion or other paper, an attorney or pro se party certifies that to the best of his or her knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:
(1) the paper is not being presented for any improper purpose, such as to harass to or cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the factual allegations have evidentiary support or, as to specifically identified allegations, they are either likely to have evidentiary support or they will be withdrawn or corrected if reasonable opportunity for further investigation or discovery indicates insufficient evidentiary support; and
(4) the denials of factual allegations are warranted on the evidence or, as to specifically identified denials, they are reasonably based on a lack of information or belief or they will be withdrawn or corrected if a reasonable opportunity for further investigation or discovery indicates insufficient evidentiary support.
Sanctions can be imposed if an attorney files a pleading that does not conform to the rule's requirements and fails to withdraw the pleading within the "safe harbor" period, which is twenty-eight days after service of a demand for its withdrawal. R. 1:4-8(b)(1).
However, sanctions are not warranted unless the pleading as a whole is frivolous or of a harassing nature. United Hearts, L.L.C. v. Zahabian, 407 N.J.Super. 379, 390 (App. Div.) (citing Iannone v. McHale, 245 N.J.Super. 17, 32 (App. Div. 1990)), certif. denied, 200 N.J. 367 (2009). A pleading is considered to be frivolous if it is not supported by any rational argument, credible evidence or is completely untenable. Id. at 389 (citing First Atl. Fed. Credit Union v. Perez, 391 N.J.Super. 419, 432 (App. Div. 2007)).
We will not reverse an order imposing sanctions pursuant to Rule 1:4-8, unless the order represents a mistaken exercise of discretion. Id. at 390 (citing Masone v. Levine, 382 N.J.Super. 181, 193 (App. Div. 2005)). The order imposing sanctions will not be reversed if it was premised upon a consideration of all relevant factors and does not represent a clear error of judgment. Ibid. (citing Masone, supra, 382 N.J.Super. at 193).
We note initially that the record does not support appellants' contention that sanctions could not be imposed here because the judge had denied defendant's summary judgment motion and allowed the case to proceed to trial. See id. at 394. As we have explained, the judge never ruled on the motion. He stated that he had not been provided with the motion and was not going to address it. Appellants' argument to the contrary is without sufficient merit to warrant further comment. R. 2:11-3(e)(1)(E).
We are convinced, however, that the judge mistakenly exercised his discretion by imposing sanctions on appellants pursuant to Rule 1:4-8. As we noted previously, de Stefano asserted four claims on behalf of plaintiff: breach of contract, negligence, tortious interference with business, and fraud. The record shows that de Stefano had a good faith belief that at least one of those claims, the breach-of-contract claim, was warranted by existing law and had sufficient factual support.
As we have explained, the breach-of-contract claim was based on the lease agreement between the parties, which is dated July 21, 2010. The lease stated that the tenant acknowledged the premises were "in good order and repair." The lease also stated that the tenant agreed "to take good care of and maintain" the leased premises "in good condition throughout the term." The lease additionally provided:
The Tenant, at his expense, shall make all necessary repairs and replacements to the Leased Premises, including the repair and replacement of pipes, electrical wiring, heating and plumbing systems, fixtures and all other systems and appliances and their appurtenances. The quality and class of all repairs and replacements shall be equal to or greater than the original worth. If Tenant defaults in making such repairs or replacements, Landlord may make them for Tenant's account, and such expenses will be considered additional rent.
In our view, de Stefano could reasonably believe, based on the alleged dealings between the parties, that the relevant provisions of the lease were ambiguous. Plaintiff alleged that the premises were not "in good repair" at the beginning of the lease term, and he claimed defendant agreed to make the improvements required to put them in that condition.
Thus, despite the terms of the lease, it could be reasonably argued that defendant had agreed to make the repairs needed to put the premises "in good repair" before the commencement of the lease term. Indeed, it could be reasonably argued that the tenant's agreement to maintain the premises "in good repair" made no sense at all if the premises were not "in good repair" to begin with.
In addition, it could be reasonably argued that the tenant's obligation under the lease to make the so-called "repairs and replacements" also was ambiguous. Counsel could reasonably maintain that the tenant's obligation applies if repairs or replacements are required during the lease term to ensure that the premises continue to be "in good repair." That obligation might not apply where, as plaintiff alleged in this case, defendant had agreed to make the necessary repairs to put the premises "in good repair" at the start of the lease term.
As we pointed out in Great Atlantic & Pacific Tea Co. v. Checchio, 335 N.J.Super. 495, 500-02 (App. Div. 2000), when an agreement is ambiguous, evidence regarding the circumstances surrounding the agreement's execution may be introduced to aid in its interpretation. "'Even when the contract on its face is free from ambiguity, evidence of the situation of the parties and the surrounding circumstances and conditions is admissible in aid of interpretation.'" Id. at 501 (quoting Schnakenberg v. Gibralter Sav. & Loan Ass'n, 37 N.J.Super. 150, 155 (App. Div. 1955)).
Furthermore, even if the lease initially required plaintiff to make the necessary repairs, de Stefano had evidence that defendant had agreed to modify the lease and make repairs so that plaintiff could use the greenhouse for his nursery business beginning in the spring of 2011. Contracting parties may modify, abrogate or rescind the agreement, so long as they both agree to the change and there is sufficient consideration therefor. Unalachtigo Band of the Nanticoke-Lenni Lenape Nation v. State, 375 N.J.Super. 330, 344 (App. Div.) (citing Cnty. of Morris v. Fauver, 153 N.J. 80, 95-96, 99-100 (1998)), certif. denied, 184 N.J. 210 (2005).
"'[A]n act or forbearance required by a legal duty owing to the promisor that is neither doubtful nor the subject of honest and reasonable dispute is not a sufficient consideration.'" Oscar v. Simeonidis, 352 N.J.Super. 476, 487 (App. Div. 2002) (quoting Levine v. Blumenthal, 117 N.J.L. 23, 27 (Sup. Ct. 1936), aff'd, 117 N.J.L. 426 (E. & A. 1937)). However, "where a right or legal duty owing to the promisor is doubtful or the subject of honest and reasonable dispute, the clarification of such right or duty will constitute good and valuable consideration." Ibid.
Here, de Stefano could reasonably maintain that there was an honest and reasonable dispute as to whether defendant had agreed before the lease was executed to make the required repairs to the leased premises. Thus, de Stefano could reasonably argue that defendant had resolved that dispute by agreeing to make the necessary repairs, and that this was sufficient consideration to modify the agreement.
We recognize that the judge dismissed the breach-of-contract claim at trial because plaintiff did not present sufficient evidence of damages. We note, however, that plaintiff testified that he paid $500 for certain repairs. On cross-examination, he was shown a receipt which indicated $300 had been charged for plumbing work and repairs to the greenhouse fan.
Furthermore, in his opposition to the sanctions motion, de Stefano presented the judge with receipts showing the plants that plaintiff had purchased for his nursery business. It is not clear why that evidence was not presented at trial. It is also not clear why plaintiff and Congleton were not asked to provide more specific testimony concerning the plants that were lost as a result of the alleged deficient conditions of the greenhouse.
Nevertheless, de Stefano had the evidence and it provided support for plaintiff's claim that his nursery business was damaged by defendant's alleged breach of contract. De Stefano may have been mistaken in failing to present that evidence at trial, but it shows he had a good faith belief, based on a reasonable inquiry, that the breach-of-contract claim had sufficient factual support.
We therefore conclude that the trial judge mistakenly exercised his discretion by imposing sanctions upon appellants pursuant to Rule 1:4-8 for the complaint and defense to the counterclaim. Accordingly, the order entered on November 27, 2012, imposing sanctions upon de Stefano and the Damian law firm is reversed.
In view of our decision, we need not address appellants' arguments that defendant's motions for sanctions were untimely; the sanctions are excessive; and defendant's case information statement was filed out of time and should not be considered.