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Capparelli v. Lopatin

Superior Court of New Jersey, Appellate Division

June 25, 2019

RICHARD CAPPARELLI, Plaintiff-Appellant,
v.
MATT LOPATIN, Defendant-Respondent.

          Submitted February 25, 2019

          On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County, Docket No. C-000153-17.

          Paul V. Fernicola & Associates, LLC, attorneys for appellant (Paul V. Fernicola, on the briefs).

          Saiber LLC, attorneys for respondent (Andrew S. Kessler and John M. Losinger, on the brief).

          Before Judges Messano, Gooden Brown and Rose.

          OPINION

          GOODEN BROWN, J.A.D.

         Plaintiff and defendant are former business partners. When their business relationship deteriorated amidst dueling accusations of misconduct, they engaged in extensive litigation in Florida and New Jersey related to winding down their companies, Direct Wholesale, Inc.[1] and Unlimited Pins, LLC[2] (the companies).[3] On May 2, 2013, they entered into a global settlement agreement (May 2013 agreement) that settled the pending lawsuits and established a mediation/arbitration mechanism to resolve any disputes encountered during the parties' wind-down[4] efforts. Under the mediation/arbitration mechanism, disputes would first be submitted for informal mediation to Michael Marotte, Esq., who had served as the companies' corporate counsel for about ten years. If Marotte was unable to resolve the dispute, then the dispute would be submitted for binding arbitration to a panel of three arbitrators (the three-person panel).

         The three-person panel consisted of one arbitrator chosen by each party and Marotte, who served as the neutral arbitrator. In this role, Marotte could withdraw at any time and was subject to dismissal by either party in the party's sole discretion. In that event, a replacement neutral third arbitrator would be selected by the two remaining arbitrators. The parties executed an arbitration agreement on August 8, 2013, and a superseding agreement on March 16, 2015 (collectively, arbitration agreement), to ratify and effectuate the May 2013 agreement. The arbitration agreement, among other things, specified that the arbitration procedure was governed by the New Jersey Uniform Arbitration Act (the Act), N.J.S.A. 2A:23B-1 to -32. The arbitration agreement also waived the provision of the Act prohibiting an individual with a "known, existing, and substantial relationship with a party" from serving as a neutral arbitrator, N.J.S.A. 2A:23B-11(b), and permitted each arbitrator to bill for services at an hourly rate of $600.

         Over time, the mediation/arbitration mechanism proved expensive and posed numerous scheduling difficulties for the three-person panel. As a result, on May 28, 2015, the parties entered into another settlement agreement (May 2015 agreement), naming Marotte as the sole decision maker responsible for resolving disputes between the parties related to the collection of outstanding debts owed to the companies. Thereafter, on July 23, 2017, plaintiff dismissed Marotte as the neutral arbitrator on the three-person panel as permitted under the May 2013 agreement. The following month, Marotte's partner informed the parties that Marotte could no longer serve as the decision maker under the May 2015 agreement.

         When the parties were unable to agree on a replacement for Marotte, in September 2017, plaintiff filed an order to show cause and verified complaint against defendant, seeking to compel the appointment of a replacement for Marotte to adjudicate the collection disputes pursuant to the May 2015 agreement. Defendant filed a contesting answer and asserted various affirmative defenses, including invoking "the doctrines of frustration of purpose and impossibility" in order to void the May 2015 agreement. Defendant's pleading also included a counterclaim for declaratory judgment, requiring the two remaining arbitrators on the three-person panel to select a replacement for Marotte in accordance with the May 2013 agreement, or, in the alternative, requiring the court to select a replacement to resolve the remaining wind-down disputes.

         After granting plaintiff's motion to proceed as a summary proceeding pursuant to N.J.S.A. 2A:23B-7 and Rule 4:67-1(a), [5] the trial judge conducted a plenary hearing "on the sole issue of the parties' state of mind and intention when they entered into the May 2015 [a]greement and selected . . . Marotte to resolve the outstanding collection disputes[.]" During the hearing, the judge heard testimony from the parties, but refused to hear testimony from Marotte. On December 8, 2017, the judge entered an order, declaring the May 2015 agreement "null and void[, ]" relegating the parties to the arbitration agreement to resolve the remaining disputes, and dismissing the complaint and counterclaim without prejudice.

         Plaintiff now appeals from the December 8, 2017 order, raising the following points for our consideration:[6]

POINT I - THE TRIAL [JUDGE] ERRED IN PREVENTING MICHAEL MAROTTE, ESQ. FROM TESTIFYING DURING THE HEARING AS TO HIS KNOWLEDGE OF THE PARTIES' INTENT IN ENTERING THE [MAY] 2015 AGREEMENT[.]
POINT II - THE TRIAL JUDGE ERRED IN VOIDING THE ENTIRE [MAY] 2015 . . . AGREEMENT BASED UPON THE LANGUAGE OF THE AGREEMENT ITSELF[.]
POINT III - THE TRIAL JUDGE ERRED IN VOIDING THE ENTIRE [MAY] 2015 ARBITRATION AGREEMENT BASED UPON THE NEW JERSEY [UNIFORM] ARBITRATION ACT, N.J.S.A. 2A:23B-1 [TO -32.]
POINT IV - THE DOCUMENTARY EVIDENCE DEMONSTRATES DEFENDANT . . . CAUSED MULTIPLE DELAYS IN WINDING DOWN THE COMING TO THE COURT WITH UNCLEAN HANDS[.]
POINT V - THE TRIAL [JUDGE] SHOULD HAVE DENIED [DEFENDANT'S] REQUESTED RELIEF AS THERE WAS NO CONTROVERSY YET BETWEEN THE PARTIES AS TO THE MAY [] 2013 SETTLEMENT AGREEMENT[.]

         Having considered the arguments and applicable law, we affirm.

         The focus of the plenary hearing was the May 2015 agreement, which was entitled "settlement agreement" and established a mechanism by which the parties would select a "dispute," defined as "the net total of all debts and obligations collectively owed by a single debtor" to the companies, for which plaintiff or defendant "[would] be primarily responsible as the 'Responsible Collector.'" The "'Responsible Collector' . . . [would] devote all reasonably necessary time and efforts towards collection of the amounts owed for the matters for which he [was] responsible." Under the May 2015 agreement, "[a]ll offers of settlement of any such dispute for less than immediate payment of the full amount owed" had to be approved by both parties. If the parties could not agree, "then the dispute [would] be submitted to [Marotte] for final binding decision."

         Further, pursuant to the May 2015 agreement, for debts exceeding $5000, "the Responsible Collector . . . [would] receive as a commission . . . 15% of the net amount received," less fees, costs, and offsetting payments, and Marotte would decide "through a final binding decision" any commission-related disputes. Debts less than $5000 would "be submitted to a collection agency for collection." However, if the parties were unable to agree on a collection agency, "then [Marotte] shall make a final binding decision." If either party "believe[d] the other [was] not providing a proper level of supervision or assistance to counsel and/or a collection agency retained in a collection effort for which the other [was] responsible and eligible for a commission," was "spending more in legal fees and costs than [was] warranted by the amount at issue," or "[was] otherwise not performing his collection responsibilities with respect to a collection effort," then the dispute could be submitted to Marotte who would "make a final binding determination[.]"

         The May 2015 agreement also specified that if Marotte determined there was a failure to "cooperate in good faith" by "either action or inaction," then Marotte would "provide the non-cooperating [party]" with time "to take whatever corrective action(s)" Marotte deemed necessary.

[A]fter the end of the cure period[, ] [Marotte would] make a binding final determination as to whether the non-cooperating [party] took all of those corrective actions to [Marotte's] satisfaction . . . . If [Marotte] determine[d] that [the party] failed to timely take all of those corrective actions to [Marotte's] satisfaction . . . [, ] then the non-cooperating [party would] forfeit[] his right under the [May 2015] [a]greement to any equal distribution of funds collected as part of the subject collection[s] "dispute", and all of those collected funds from that dispute shall instead be paid directly to the other [party] in addition to any commission that other [party] may have earned under the [May 2015] [a]greement with respect to that collection effort.

         Additionally, the May 2015 agreement imposed strict time limitations to complete the actions delineated therein and provided that "[w]ith respect to each time limitation in the [a]greement, time [was] of the essence." The agreement also provided that its interpretation and enforcement was "governed under the substantive and procedural laws of the State of New Jersey." Further, "[a]ny disputes concerning th[e] [a]greement, the subject matter of th[e] [a]greement[, ] or the interpretation of th[e] [a]greement shall be submitted to [Marotte] for a final and binding decision." Finally, each party acknowledged executing the May 2015 agreement "of his own free will and accord," "after receiving full advice from counsel of [his] own selection, "[7] and "understand[ing] the terms and conditions of th[e] agreement."

         At the hearing, plaintiff testified about the circumstances under which the May 2015 agreement was entered, explaining that the parties had appeared on May 28, 2015, for a scheduled arbitration hearing before the three-person panel as prescribed in the May 2013 agreement. According to plaintiff, one of the issues he intended to present for arbitration was the need to "start collecting money owed to [the companies, ]" amounting to "several million dollars." Although the three-person panel had addressed collection issues in the past, instead of proceeding with the scheduled arbitration hearing, the parties spent "the entire day" negotiating and drafting the May 2015 agreement to specifically address the collection disputes.

         According to plaintiff, the only reason they entered into the May 2015 agreement was "[t]o find a less expensive way to handle all the collection issue[s] and to do it in an easier or faster fashion than going through the three-[person] arbitration panel."[8] In responding to specific questions regarding whether the May 2015 agreement was a settlement agreement or an arbitration agreement, plaintiff was vague and equivocal. Although plaintiff acknowledged that there were three prior drafts before the parties agreed on the final version, he had no recollection of the word "arbitrator" appearing in the prior drafts, and was "not sure" whether the final version of the six-page agreement they ultimately agreed upon identified Marotte as an "arbitrator."

         Plaintiff testified Marotte was selected as the decision maker in the May 2015 agreement because he was "the neutral arbitrator" on the three-person panel, and he had been "the corporate counsel for the compan[ies] for about ten years[.]" Plaintiff acknowledged that, unlike the arbitration agreement, a mechanism to replace Marotte if he was unable or unwilling to serve under the May 2015 agreement "was never discussed." Likewise, "[t]here was no discussion" that "[Marotte] was the only person who was capable of deciding a dispute."

         Plaintiff denied that the entire May 2015 agreement was based on the fact that Marotte would act as the decision maker, and stated he would not have signed the May 2015 agreement if he believed that it could be voided if Marotte was unable to serve. Plaintiff did not believe that Marotte had any "[u]nique knowledge" of the companies' collection matters that would prevent any other individual from serving as his replacement. In fact, according to plaintiff, Marotte only "knew . . . a very small percentage" of "[t]he companies['] . . . hundreds of clients[, ]" and there were other attorneys with whom plaintiff had a similar long-standing relationship. Plaintiff's understanding was that any attorney or retired judge could serve as the decision maker "[i]f something happened to . . . Marotte[.]"

         Plaintiff explained his intention in entering into the agreement, stating that "[they] had already been trying for over two years, in some instances, four or five years[, ] to collect money from debtors," but defendant had "obstruct[ed]" the process. According to plaintiff, the "new agreement on how to handle the process of collecting money" allowed them to move forward in an expeditious and cost-effective manner. Although plaintiff acknowledged terminating Marotte from the three-person panel, he denied knowing why Marotte resigned as the ...


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