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Holtham v. Lucas

Superior Court of New Jersey, Appellate Division

July 10, 2019

FRANK HOLTHAM, JR., Plaintiff-Appellant,
v.
KATHERINE LUCAS, Defendant-Respondent.

          Submitted December 19, 2018

          On appeal from the Superior Court of New Jersey, Chancery Division, Family Part, Bergen County, Docket No. FM-02-1695-14.

          Ameri & Associates, LLC, attorneys for appellant (Nima Ameri, of counsel; John J. Clark, IV, on the brief).

          Respondent has not filed a brief.

          Before Judges Ostrer, Currier and Mayer.

          OSTRER, J.A.D.

         According 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 unenforceable penalty.

         We 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.

         However, 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 award.

         I.

         The parties divorced after five years of marriage. The judgment of divorce (JOD) incorporated the MSA, which the parties entered with their counsels' advice.[1] 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 enforceable."

         The MSA 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.

         Almost 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.

         Holtham 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.

         Holtham 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 ...


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