Submitted December 19, 2018
appeal from the Superior Court of New Jersey, Chancery
Division, Family Part, Bergen County, Docket No.
& Associates, LLC, attorneys for appellant (Nima Ameri,
of counsel; John J. Clark, IV, on the brief).
Respondent has not filed a brief.
Judges Ostrer, Currier and Mayer.
to well-settled contract law, a provision that stipulates an
unreasonably large amount of damages for a future breach is
an unenforceable penalty. Invoking that "penalty
rule," plaintiff-husband Frank Holtham, Jr., challenges
a provision in his marital settlement agreement (MSA) that
charged him a "per diem penalty of $150" for breach
of any duty under the agreement. Holtham did not, as
required, timely pay off a loan on an automobile that the MSA
equitably distributed to his wife, defendant Katherine Lucas,
and tender her title to the car. She sought relief, and the
trial court ordered Holtham to pay $150 for each day of his
noncompliance, totaling $18, 450, plus attorney's fees.
Holtham contends on appeal that $18, 450 was not a
permissible liquidated damage award but instead an
agree that $18, 450 would constitute an unenforceable penalty
under traditional contract law principles, which are founded
on the premise that contracting parties are rational economic
actors, and which limit damages to measurable compensable
losses. The penalty rule is intended to avoid oppression,
excessive recovery, and deterrence of efficient breach.
the penalty rule does not apply with equal force to marital
settlement agreements embodied in final divorce judgments. A
principal reason to enforce such agreements is to secure
post-divorce harmony and stability. Enforcement of penalty
provisions may appropriately deter post-divorce
non-compliance that is not economically motivated, and it may
compensate for the emotional harm resulting from such a
breach. Although we conclude the penalty rule does not govern
divorce settlement agreements, we emphasize that the family
court retains the inherent power to modify such provisions to
assure fairness and equity. Since no modification is
warranted under the circumstances of this case, we affirm the
parties divorced after five years of marriage. The judgment
of divorce (JOD) incorporated the MSA, which the parties
entered with their counsels' advice. Without
addressing the MSA's "merits," the JOD declared
that "the parties entered into it freely and
voluntarily, and that it is therefore binding and
enforced the parties' prenuptial agreements and resolved
several property and insurance-related matters. For example,
the MSA required Holtham to pay Lucas $315, 000 in two
installments; authorized her to retain a Florida condominium
and required him to lift a lis pendens; and required him to
help Lucas obtain health insurance and to pay for it for two
years. Relevant to this appeal, the MSA also provided that
Lucas would retain exclusive use of the 2009 Mercedes she
then possessed, and that Holtham would continue paying for
the car's insurance and financing. Holtham was required
to complete payment of the roughly $50, 000 remaining of the
auto loan by July 9, 2017, and then to transfer clear title.
all the MSA's executory provisions, including the
automobile provision, pertained to Holtham's actions. The
MSA stated that if Holtham defaulted "in any
obligations" in the MSA, Lucas would be entitled to
reasonable counsel fees incurred to enforce, and "a per
diem penalty of $150.00 for every day that husband fails to
comply with this agreement." The MSA included a mutual
release of all prior claims, and Holtham's representation
that he had "the ability and resources to comply
with" its obligations. According to a past financial
statement, annexed to the parties' prenuptial agreement,
Holtham was a multi-millionaire.
did not pay off the car loan or transfer title by July 9,
2017. The parties' attorneys exchanged letters in October
2017 about Holtham's non-performance. His attorney
alleged that Holtham had met his obligations under the
agreement and was prepared to transfer title, but asserted
various offsetting claims exceeding $65, 000. Lucas's
counsel requested immediate transfer of title and payment of
$150 for each day of non-compliance. He asserted the mutual
release barred Holtham's claimed offsets and threatened
to file a motion to enforce the MSA.
does not dispute that he waited until early November 2017 to
pay off the remaining car loan balance. He delivered title on
December 1, 2017 - a delay that he blamed on the lienholder -
two weeks ...