RICHARD CAPPARELLI VS. MATT LOPATIN (C-000153-17, MIDDLESEX COUNTY AND STATEWIDE) ( 2019 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1948-17T4
RICHARD CAPPARELLI,
Plaintiff-Appellant, APPROVED FOR PUBLICATION
June 25, 2019
v.
APPELLATE DIVISION
MATT LOPATIN,
Defendant-Respondent.
__________________________
Submitted February 25, 2019 – Decided June 25, 2019
Before Judges Messano, Gooden Brown and Rose.
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).
The opinion of the court was delivered by
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,
LLC2 (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-down4 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
1
Plaintiff and defendant were the only two shareholders in Direct Wholesale,
Inc.
2
Plaintiff and defendant were the co-managing members of Unlimited Pins,
LLC.
3
Plaintiff and defendant had business interests in other companies not directly
involved in this appeal.
4
The May 2013 agreement described "[t]he [w]ind-[d]owns" to "include
payment of all outstanding bills and debts to vendors and creditors prior to
distribution[s] to [the parties]."
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2
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 arbitrato r 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
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3
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
5
Defendant cross-moved to proceed summarily on his counterclaim only.
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4
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
CORPORATIONS AND IS THUS GUILTY OF
6
We have renumbered the point headings for clarity.
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5
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
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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
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7
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
7
Each party was represented by independent counsel.
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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" appearin g 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
8
Specifically, plaintiff explained that while the three-person panel billed
collectively at a rate of $1800 per hour, an individual arbitrator would only
cost $600 per hour, and scheduling one arbitrator would be much easier than
scheduling three arbitrators, the parties, and their respective counsel.
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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
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"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 decision maker under the May 2015 agreement, and
claimed that Marotte's resignation had nothing to do with the termination.
In contrast, defendant believed the May 2015 agreement was a
settlement agreement, not an arbitration agreement. Initially, defendant was
not agreeable to all the terms in the final version of the May 2015 agreement.
However, he relented because Marotte was going to be the decision maker and
that "was the most significant issue" to him. He wanted Marotte to be the sole
decision maker because "[Marotte] had been general [c]ounsel for [their]
companies for a number of years." Additionally, Marotte "had assisted [them]
in numerous activities[,]" and "had been on many, many, many phone calls
involving both [parties] . . . individually."
Based on that relationship, defendant believed Marotte had specialized
knowledge about the parties and the companies that no other attorney
possessed. Because defendant "felt that it would be beneficial both to [him]
and to the compan[ies] if [Marotte] was the decision maker," he "was willing
to give up on some of the other items for [Marotte] specifically to be there and
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to stay on board." Unlike plaintiff, defendant testified that "[he] would not
have entered into th[e] agreement[] if . . . Marotte was not the decision maker."
He believed that if Marotte was unable to serve as decision maker, the
agreement "would be voided" and they would revert back to the May 2013
agreement, which encompassed "any wind[-]down disputes" between the
parties. According to defendant, he signed the May 2015 agreement because it
specifically named Marotte as the decision maker, and, unlike the May 2013
agreement, did not provide for any replacements.
Defendant acknowledged that since the May 2015 agreement was
executed, he had not collected any monies as the Responsible Collector while
plaintiff had. Defendant also acknowledged that to date, plaintiff had not
received any commissions for those matters. Further, defendant admitted that
if the May 2015 agreement was voided and the parties relied on the May 2013
agreement to resolve their disputes, the Responsible Collector would not be
entitled to a commission because the May 2013 agreement made no such
provision.
Following the hearing, the judge issued an oral decision, declaring the
May 2015 agreement null and void. As a result, plaintiff's request to appoint a
replacement for Marotte as the decision maker under the May 2015 agreement
was denied. In his decision, the judge found the following facts:
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The parties here entered into two separate and distinct
agreements. The first agreement, identified on its face
as a settlement agreement term sheet, was entered into
on May 2[], 2013. This agreement specifically called
for binding arbitration and set forth procedures for the
selection of arbitrators and provided for the procedure
to replace the neutral arbitrator who, . . . in this case
was Michael Marotte.
This term sheet was formalized on March 16[],
2015[,] in a document entitled arbitration agreement. [9]
This agreement, drafted on . . . Marotte's firm's
letterhead spelled out in detail the procedures to
follow in arbitrating the seemingly intractable disputes
between . . . plaintiff and . . . defendant.
. . . [T]he arbitration law was specifically
mentioned and made part of this agreement. [Seventy-
three] days later on May 28[], 2015[,] a second
agreement was entered into between the parties. This
agreement was also drafted on Marotte's firm's
letterhead and was entitled settlement agreement. The
apparent objective of this agreement was to carve out
from the March[] 2015 arbitration agreement certain
issues and to have Marotte be the sole and ultimate
decider.
Conspicuously, nowhere in the [May 2015]
agreement is the word arbitration mentioned . . . nor is
there any specific agreement for arbitration. This
agreement was to handle specifically collection
matters that existed and were the source of conflict
between the two principals.
9
The March 16, 2015 arbitration agreement referred to by the judge
superseded the August 8, 2013 arbitration agreement that ratified and
effectuated the May 2013 agreement.
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[I]n August[] 2017[,] . . . plaintiff terminated
Marotte as the neutral arbitrator under the [arbitration]
agreement. Marotte thereafter withdrew from . . . the
May[] 2015 agreement[, which] . . . . was silent on the
procedure for replacing Marotte . . . .
The judge posited that "[t]he issue before the [c]ourt [was] whether it
should rework the [May 2015] agreement and provide . . . a substitute for
Marotte or declare the agreement void under the legal principles of
impossibility of performance . . . and/or frustration . . . of purpose." In making
the determination, the judge evaluated the parties' intent in entering the May
2015 agreement thusly:
[Plaintiff] testified essentially there was no specific
intention with respect to the selection of Marotte. He
portrayed Marotte as one of a myriad of attorneys who
had worked for the parties and brought no special
expertise to the project. He indicated that the purpose
of the May[] 2015 agreement was essentially to save
fees . . . that would have been incurred if the
arbitration process as set forth in the [arbitration]
agreement was followed.
He testified that it took a better part of a day to
draft and negotiate the May accord and various drafts
were prepared. Unlike the prior agreement between
the parties, . . . no specific provisions were made to
substitute Marotte in the event he was unable to
discharge his duties under the May[] 2015 agreement.
Despite [plaintiff's] attempt to minimize
Marotte's prior business relationship between the
parties, he did concede that Marotte had worked with
the parties for ten years and fulfilled the role of
corporate counsel. He was familiar with the
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companies, its principals, and the debts and accounts
receivable, which were the focal point of the May[]
2015 agreement. [Plaintiff's] efforts to downplay
Marotte's unique knowledge about the parties and the
relationship to the parties were not credib[le].
[Defendant's] testimony, not surprisingly,
differ[ed] from [plaintiff's]. He pointed out that
Marotte had been involved with the companies they
owned and had been involved in the present dispute
since 2013 when the initial term sheet of settlement
was executed. Per [defendant], Marotte had spent
numerous hours working with both principals. In his
view[,] Marotte had specialized knowledge about the
individuals, the companies, and the companies'
business transaction[s]. It was Marotte, according to
[defendant], who suggested the carve-out of the
collection matters that was the subject of the May[]
2015 agreement.
The procedure set forth in [the May 2015]
agreement departed significantly from the procedures
previously negotiated by the parties in the course of
their prior conduct. Per [defendant], without
Marotte[,] there would be no [May] 2015 agreement.
The judge determined that "New Jersey case law require[d] the [c]ourt to
give the May[] 2015 agreement its plain and ordinary meaning[,] thus
respecting the parties' intent to designate Marotte as the sole decision maker
and deliberately omitting a mechanism for replacing Marotte." Applying the
applicable legal principles, the judge concluded that Marotte's withdrawal
"from the [May] 2015 agreement, which followed his discharge from the
[arbitration] agreement by [plaintiff]," "substantially negated and frustrated"
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"the intent of the parties" because "his selection and participation in the May[]
2015 agreement was the most significant factor that . . . produced that
agreement."
The judge elaborated:
[Marotte] possessed unique knowledge and
experience with the parties and their disputes. The
May[] 2015 agreement was specifically carved out
from the [arbitration] agreement, which was equipped
to handle collection issues within the framework of
the . . . agreement. A separate procedure was intended
with respect to collection matters and Marotte's
participation was a critical part of this agreement.
The May[] 2015 agreement was completely void
of any mention of arbitration or invocation of the
arbitration law. Where a party's principal purpose is
substantially frustrated without his fault[,] the party's
remaining duties are discharged unless the language or
circumstance indicate to the contrary. . . . There is a
basic principle of contract law that the [c]ourt cannot
rewrite the terms of the agreement. The [c]ourt's role
is to discern the parties' intent.
The [c]ourt is fully cognizant that this type of
relief should not be lightly granted. . . . The [c]ourt is
satisfied that the evidence after considering the
testimony is clear and convincing that Marotte was an
integral part of the [May 2015] agreement and his
withdrawal frustrated the intent and purpose of the
parties and, therefore, the May[] 2015 agreement
should be declared null and void under the principles
of frustration [of] purpose and impossibility of
performance.
This means that the parties are relegated to their
[arbitration] agreement to resolve what appears to be
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their intractable disputes. They are free to draw up a
new agreement to deal with collections if they so
desire.
The judge entered a memorializing order and this appeal followed.
Plaintiff argues that "based upon well-settled principles of contract
interpretation law, the language of the [May] 2015 [a]greement demonstrates
that the trial judge erred [in] voiding the [May] 2015 [a]greement in its
entirety." According to plaintiff, in voiding the agreement, the judge ignored
the agreement's provision that "expressly precluded any modification or
amendment . . . except through the execution of a written instrument[,]" and
disregarded the "severability clause" that allowed "the remaining portions" of
the agreement to "remain in full force and effect" in the event "any part or
portion . . . shall be held to be illegal, unenforceable[,] or contrary to . . .
public policy."
Additionally, plaintiff contends that "[b]y accepting [defendant's]
testimony . . . that without . . . Marotte[] . . . , it was impossible to carry out
the [May] 2015 [a]greement when no such language was contained in the
[May] 2015 [a]greement, the trial court relied upon impermissible parol []
evidence as its basis to void the [May] 2015 [a]greement in its entirety."
Plaintiff continues that since "[t]he [May] 2015 [a]greement was put in place
. . . to prevent and minimize future conflicts[,] . . . cancelling it goes against
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the intent of the [a]greement." Moreover, according to plaintiff, "the [May]
2015 [a]greement was not merely an agreement to arbitrate claims, it was
expressly identified as a settlement agreement between the parties" and
"[s]ettlement of litigation ranks high in our public policy."
We agree that there is a strong public policy favoring settlement of
litigation, Nolan v. Lee Ho, 120 N.J. 465, 472 (1990), and we "strain to give
effect to the terms of a settlement wherever possible." Brundage v. Estate of
Carambio, 195 N.J. 575, 601 (2008) (quoting Dep't of Pub. Advocate, Div. of
Rate Counsel v. N.J. Bd. of Pub. Utils., 206 N.J. Super. 523, 528 (App. Div.
1985)). Because the "[i]nterpretation of a settlement agreement implicates
significant legal and policy principles, . . . the standard for vacating a
settlement is not easily met." Kaur v. Assured Lending Corp., 405 N.J. Super.
468, 474 (App. Div. 2009) (citing Nolan, 120 N.J. at 472). Thus, "[b]efore
vacating a settlement agreement, our courts require 'clear and convincing
proof' that the agreement should be vacated." Nolan, 120 N.J. at 472 (quoting
De Caro v. De Caro, 13 N.J. 36, 42 (1953)).
Equally well-settled is the principle that a settlement agreement between
parties is a contract governed by basic contract principles, ibid., and, "absent a
demonstration of 'fraud or other compelling circumstances,'" a court should
enforce a settlement agreement as it would any other contract. Jennings v.
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Reed, 381 N.J. Super. 217, 227 (App. Div. 2005) (quoting Pascarella v. Bruck,
190 N.J. Super. 118, 124-25 (App. Div. 1983)). Among the contract principles
applicable to settlement agreements "are that courts should discern and
implement the intentions of the parties[,]" and not "rewrite or revise an
agreement when the intent of the parties is clear." Quinn v. Quinn, 225 N.J.
34, 45 (2016). "Thus, when the intent of the parties is plain and the language
is clear and unambiguous, a court must enforce the agreement as written,
unless doing so would lead to an absurd result." Ibid. "To the extent that there
is any ambiguity in the expression of the terms of a settlement agreement, a
hearing may be necessary to discern the intent of the parties at the time the
agreement was entered and to implement that intent." Ibid.A contract is ambiguous if its terms are "susceptible to at least two
reasonable alternative interpretations." Nester v. O'Donnell, 301 N.J. Super.
198, 210 (App. Div. 1997) (quoting Kaufman v. Provident Life & Cas. Ins.
Co., 828 F. Supp. 275, 283 (D.N.J. 1992), aff'd, 993 F.2d 877 (3d Cir. 1993)).
When a contract is ambiguous in a material respect, the parties must be given
the opportunity to illuminate the contract's meaning through the submission of
extrinsic evidence. Conway v. 287 Corp. Ctr. Assocs., 187 N.J. 259, 268-70
(2006). While extrinsic evidence should never be permitted to modify or
curtail the terms of an agreement, a court may "consider all of the relevant
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evidence that will assist in determining the intent and meaning of the contract"
in attempting to resolve ambiguities in the document. Id. at 269.
As the Court explained in Conway,
[e]vidence of the circumstances is always admissible
in aid of the interpretation of an integrated agreement.
This is so even when the contract on its face is free
from ambiguity. The polestar of construction is the
intention of the parties to the contract as revealed by
the language used, taken as an entirety; and, in the
quest for the intention, the situation of the parties, the
attendant circumstances, and the objects they were
thereby striving to attain are necessarily to be
regarded. The admission of evidence of extrinsic facts
is not for the purpose of changing the writing, but to
secure light by which to measure its actual
significance.
[Ibid. (alteration in original) (quoting Atl. N. Airlines,
Inc. v. Schwimmer, 12 N.J. 293, 301-02 (1953)).]
The "[i]nterpretation and construction of a contract is a matter of law for
the court subject to de novo review." Spring Creek Holding Co. v. Shinnihon
U.S.A. Co., 399 N.J. Super. 158, 190 (App. Div. 2008) (quoting Fastenberg v.
Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998)). Thus,
we accord no special deference to a trial court's interpretation of an agreement
entered into by the parties. Kaur, 405 N.J. Super. at 474. However, "findings
by the trial court are binding on appeal when supported by adequate,
substantial, credible evidence[,]" and "[d]eference is especially appropriate
when the evidence is largely testimonial and involves questions of credibility."
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Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011) (quoting
Cesare v. Cesare, 154 N.J. 394, 411-12 (1998)).
With these principles in mind, we review the judge's determination to
void the May 2015 agreement, which constitutes the crux of this appeal. In
voiding the agreement, based on the testimony of the parties as well as the
terms contained within the four corners of the agreement, the judge determined
that Marotte's selection and participation as the decision maker "was the most
significant factor that . . . produced [the May 2015] agreement." Based on
Marotte's "unique knowledge and experience with the parties and their
disputes[,]" the judge found that "[his] participation was a critical part of [the
May 2015] agreement."
Because there was no provision in the May 2015 agreement for the
selection of a replacement, as contained in the May 2013 agreement, the judge
concluded that Marotte's resignation rendered performance of the May 2015
agreement impossible and frustrated the purpose of the agreement. We are
satisfied that the judge's factual findings are fully supported by the record and,
in light of those facts, his legal conclusions are sound. Contrary to plaintiff's
assertion, the judge did not void the May 2015 agreement by revising th e
agreement to add a requirement that Marotte's participation was indispensable.
Instead, the judge determined that the evidence adduced at the hearing
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demonstrated that Marotte's resignation rendered the performance of the
agreement impossible and frustrated the purpose of the May 2015 agreement.
"The respective concepts of impossibility of performance and frustration
of purpose are, in essence, doctrinal siblings within the law of contracts." JB
Pool Mgmt., LLC v. Four Seasons at Smithville Homeowners Ass'n, 431 N.J.
Super. 233, 245 (App. Div. 2013).
Both doctrines may apply to certain situations in
which a party's obligations under a contract can be
excused or mitigated because of the occurrence of a
supervening event. The supervening event must be
one that had not been anticipated at the time the
contract was created, and one that fundamentally
alters the nature of the parties' ongoing relationship.
[Ibid.]
Indeed, "[b]oth the impossibility and frustration doctrines are concerned
with '[a]n extraordinary circumstance [that] may make performance [of a
contract] so vitally different from what was reasonably to be expected as to
alter the essential nature of that performance.'" Ibid. (second, third, and fourth
alterations in original) (quoting Restatement (Second) of Contracts, ch. 11,
intro. note at 309 (Am. Law. Inst. 1981)). "The doctrines stem from the
concept of an implied condition within a contract." Ibid. "[T]he concept is
that a contract is to be considered 'subject to the implied condition that the
parties shall be excused in case, before breach, the state of things constituting
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the fundamental basis of the contract ceases to exist without default of either
of the parties.'" Id. at 245-46 (alteration in original) (emphasis omitted)
(quoting A-Leet Leasing Corp. v. Kingshead Corp., 150 N.J. Super. 384, 397
(App. Div. 1977)).
Frustration of purpose arises when "the obligor's performance can still
be carried out, but the supervening event fundamentally has changed the nature
of the parties' overall bargain." Id. at 246. "The frustration must be so severe
that it is not fairly to be regarded as the risks that [the party invoking the
doctrine] assumed under the contract." Id. at 247 (alteration in original)
(quoting Restatement (Second) of Contracts § 265 cmt. a). Relief from
performance of contractual obligations on the theory of frustration of purpose
"will not be lightly granted; the evidence must be clear, convincing[,] and
adequate." A-Leet Leasing Corp., 150 N.J. Super. at 397. By comparison,
under the related doctrine of impossibility or impracticability of performance,
a party is excused from having to perform his contract obligations "where
performance has become literally impossible, or at least inordinately more
difficult, because of the occurrence of a supervening event that was not within
the original contemplation of the contracting parties." JB Pool Mgmt., 431
N.J. Super. at 246.
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Here, we agree with the judge's finding that there was clear and
convincing evidence of frustration of purpose and impossibility of
performance. The supervening event of Marotte's unavailability as the
decision maker fundamentally changed the nature of the parties' overall
bargain and rendered performance under the May 2015 agreement impossible.
Based on the contentious and acrimonious relationship of the parties,
undoubtedly, collection disputes would abound, thus necessitating a procedure
for their amicable resolution. Because Marotte was responsible for
definitively deciding those disputes, including issues related to the selection of
debts, approval of settlement offers, commissions earned, collection efforts,
and bad faith, as well as deciding issues related to the subject matter and
interpretation of the May 2015 agreement itself, his unavailability frustrated
the nature of the parties' overall bargain and rendered performance of the
contract obligations impossible. Further, based on the judge's fact -findings,
which are supported by the record, the unavailability of Marotte as the
decision maker was not a risk defendant assumed under the contract, nor was it
contemplated by the parties, as evidenced by the fact that a replacement
decision maker was never addressed as in the May 2013 agreement.
Plaintiff argues that based on the severability clause, the provisions
within the May 2015 agreement that were unaffected by the identity of the
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24
decision maker could have been severed from the agreement, and any disputes
arising from those provisions could have been decided by a third party or the
court. However, "[s]everability is only an option if striking the unenforceable
portions of an agreement leaves behind a clear residue that is manifestly
consistent with the 'central purpose' of the contracting parties, and that is
capable of enforcement." NAACP of Camden Cty. E. v. Foulke Mgmt. Corp.,
421 N.J. Super. 404, 437 (App. Div. 2011). That is not the case here.
We also reject plaintiff's contention that the judge relied upon
impermissible parol evidence as the basis for voiding the May 2015 agreement.
"In general, the parol evidence rule prohibits the introduction of evidence that
tends to alter an integrated written document." Conway, 187 N.J. at 268.
However, the rule excludes testimony "only when it is offered for the purpose
of 'varying or contradicting' the terms of an 'integrated' contract; it does not
purport to exclude evidence offered for the purpose of interpreting and giving
a meaning to those terms[,]" as occurred here. Atl. N. Airlines, Inc., 12 N.J. at
302 (quoting 3 Corbin on Contracts, § 579 (1951)).
Plaintiff also argues that because the May 2015 agreement was a "carve
out" from the May 2013 agreement, as acknowledged by the judge, the
agreements must be read in conjunction with each other. Where "two
documents were separate pieces of paper but it was obvious . . . that they were
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25
interrelated parts of a single transaction[,]" the documents are treated as a
unitary contract. Gen. Inv. Corp. v. Angelini, 58 N.J. 396, 400 (1971); see
also In re Resnick, 284 N.J. Super. 47, 60 (App. Div. 1995) (explaining that
because decedent's will and attendant contract refer to one another and are
closely related, the two documents "must be read in pari materia"). However,
the May 2015 agreement makes no reference to the May 2013 agreement.
Instead, unlike the May 2013 agreement, which provided for a three -person
panel to settle "wind-down" disputes between the parties, the May 2015
agreement created a stand-alone mechanism for handling collection disputes
by having Marotte serve as the sole final decision maker.
Plaintiff further argues that the judge erred in preventing Marotte from
testifying at the hearing. Plaintiff asserts that had "Marotte been allowed to
testify," the "judge would not have found [plaintiff's] testimony" lacked
credibility "and a vastly different decision" would have been made. In
support, plaintiff relies on Marotte's deposition testimony to show Marotte's
personal knowledge of the parties' intent in entering into the May 2015
agreement.10
10
Although plaintiff's appendix includes a copy of the deposition transcript,
the transcript was never submitted to the judge or moved into evidence at the
hearing. Our Supreme Court has cautioned against "consider[ing] . . .
deposition testimony that was not presented to the trial court and that was
(continued)
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Prior to the hearing, the judge issued an order specifying that the sole
issue at the hearing would be "the parties' state of mind and intent[] when they
entered into the May 2015 [a]greement and selected . . . Marotte to resolve the
outstanding collection disputes[.]" At the beginning of the hearing, the judge
reiterated his position and noted that although Marotte "s[a]t for a
deposition[,]" he did not have to do so because the court "did not order nor . . .
require any additional discovery." During the hearing, when Marotte arrived
in the courtroom, the judge informed him that his testimony was not needed.
"[C]ontrol[ling] and manag[ing] the introduction of testimony" is within
the discretion of the trial court, Hall v. St. Joseph's Hosp., 343 N.J. Super. 88,
107 (App. Div. 2001), and "[its] decision . . . [is] conclusive unless clearly
erroneous as a matter of law." Bosze v. Metro. Life Ins. Co., 1 N.J. 5, 10
(1948). Here, we are satisfied the judge did not abuse his discretion. See
N.J.R.E. 403 ("relevant evidence may be excluded if its probative value is
substantially outweighed by the risk of . . . undue delay, waste of time, or
(continued)
submitted by the parties for the first time on appeal." Townsend v. Pierre, 221
N.J. 36, 45 n.2 (2015); see also Harris v. Middlesex Cty. Coll., 353 N.J. Super.
31, 48 (App. Div. 2002) (striking "the materials in plaintiff's appendix that
were not included in the record below," and "not consider[ing] them in th[e]
decision"). Although we will not strike the transcript from plaintiff's
appendix, our decision on this issue does not require us to consider the
deposition testimony.
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27
needless presentation of cumulative evidence"). However, even assuming he
did, it was harmless error, see Rule 2:10-2, because we are hard-pressed to
conclude that the excluded testimony would be more probative of the parties'
intent in entering into the May 2015 agreement than the testimony of the
parties themselves. Thus, the exclusion of Marotte's testimony does not
constitute grounds for reversing the judge's decision as it is not "of such a
nature as to have been clearly capable of producing an unjust result[.]" Ibid.Next, plaintiff argues "that the New Jersey [Uniform] Arbitration Act
applies to the [May 2015 agreement]" and "authorized the trial court to appoint
a substitute [arbitrator]" if "Marotte[] [was] 'unable to act' to resolve the
parties' collection issues." We disagree.
"[T]he issue of whether parties have agreed to arbitrate is a question of
law that is reviewed de novo." Jaworski v. Ernst & Young U.S. LLP, 441 N.J.
Super. 464, 472 (App. Div. 2015). "[I]t is equally true that the duty to
arbitrate, and the scope of the arbitration, are dependent solely on the parties'
agreement." Cohen v. Allstate Ins. Co., 231 N.J. Super. 97, 101 (App. Div.
1989). "Thus, '[i]n the absence of a consensual understanding, neither party is
entitled to force the other to arbitrate their dispute'" and "[s]ubsumed in this
principle is the proposition that only those issues may be arbitrated which the
parties have agreed shall be." Quigley v. KPMG Peat Marwick, LLP, 330 N.J.
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Super. 252, 271 (App. Div. 2000) (first alteration in original) (quoting In re
Arbitration Between Grover & Universal Underwriters Ins. Co., 80 N.J. 221,
228-29 (1979)).
Here, as the judge astutely pointed out, unlike the May 2013 agreement
or the corresponding March 2015 arbitration agreement executed only seventy-
three days prior, absent from the May 2015 agreement was "the word
arbitration," "any specific agreement for arbitration[,]" or the "invocation of
the arbitration law." Moreover, there was no arbitration mechanism, no
arbitration panel, and Marotte was not identified as an arbitrator, but rather as
the individual responsible for making "a final and binding determination."
Thus, it is abundantly clear that the May 2015 agreement was not an
arbitration agreement governed by the Act.
On the other hand, the May 2013 agreement explicitly provided that
disputes would "be submitted to binding arbitration" to the three person panel
and, in the event the neutral third arbitrator "withdr[e]w" or was "dismiss[ed],"
"each party's representative [arbitrator] shall meet and choose a neutral third
arbitrator." Although the corresponding March 2015 arbitration agreement, to
which the judge relegated the parties, made no express provision for the
replacement of the neutral third arbitrator, its provisions "set[] forth the terms
and conditions of the binding arbitration" to which the parties "both agreed to
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29
participate" "pursuant to the [May 2013 agreement]." Because the arbitration
agreement refers to and effectuates the May 2013 agreement, the two
documents "were interrelated parts of a single transaction[,]" Angelini, 58 N.J.
at 400, and "must be read in pari materia." Resnick, 284 N.J. Super. at 60.
Plaintiff argues further that given the "overwhelming evidence that
[defendant was] a wrongdoer with respect to the [May] 2015 [a]greement[,]"
"pursuant to the unclean hands doctrine, the trial court erred in voiding the
[May] 2015 [a]greement in total and by denying [plaintiff's] requested relief."
The equitable doctrine of unclean hands grants discretion to a trial court to
refuse relief to one who is a wrongdoer with respect to the subject matter of
the suit, Borough of Princeton v. Bd. of Chosen Freeholders, 169 N.J. 135, 158
(2001), and requires that "[a] suitor in equity must come into court with clean
hands and . . . keep them clean after his entry and throughout the proceedings."
Ibid. (first alteration in original) (quoting A. Hollander & Son, Inc. v. Imperial
Fur Blending Corp., 2 N.J. 235, 246 (1949)). Thus, the doctrine of unclean
hands is applied against a person bringing a claim in equity to bar "the special
remedies of equity," but "does not deny legal rights, or foreclose a defense by
a defendant brought into equity." Merchs. Indem. Corp. v. Eggleston, 37 N.J.
114, 132 (1962).
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Here, the "suitor" in equity is plaintiff, not defendant. Plaintiff filed a
verified complaint and order to show cause, seeking equitable relief through
the appointment of a replacement for Marotte in the May 2015 agreement.
Thus, the doctrine of unclean hands is inapplicable as it does not "foreclose a
defense by a defendant brought into equity." Ibid.To the extent we have not specifically addressed a particular argument
or any of plaintiff's remaining arguments, it is because either our disposition
makes it unnecessary or the argument is without sufficient merit to warrant
discussion in a written opinion. 11 R. 2:11-3(e)(1)(E).
Affirmed.
11
For example, plaintiff argues the judge should have denied defendant's
counterclaim for a declaratory judgment. The judge, in fact, dismissed the
counterclaim, and that decision has not been appealed.
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