SEASIDE PROPERTIES, LLC VS. ARF REALTY MANAGEMENT (C-000092-17, MIDDLESEX COUNTY AND STATEWIDE) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1895-18T2
SEASIDE PROPERTIES, LLC,
Plaintiff-Respondent,
v.
ARF REALTY MANAGEMENT and
ARF REALTY INVESTORS CORP.,
Defendants/Third Party
Plaintiffs-Appellants,
and
PB 24 & 35 CUTTERS DOCK, LLC,
Defendant-Respondent,
v.
SEASIDE PROPERTIES, LLC, WALTER
JAKOVCIC, RICHARD MATERA,
TITAN DEMOLITION & SALVAGE, LLC,
UNITED WASTE MANAGEMENT, INC.,
RAILWAY PROPERTY, LLC, BLUE
DOLPHIN FREIGHT SYSTEMS, INC.,
GREEN AMERICAN TECHNOLOGIES,
INC., d/b/a AMERICAN EAGLE PALLETS,
and MATJAC PALLETS, INC., d/b/a
AMERICAN EAGLE PALLETS,
Third-Party Defendants-
Respondents,
and
JADRANKA JAKOVIVC and
PAMELA MATERA,
Third-Party Defendants.
Submitted March 31, 2020 – Decided June 16, 2020
Before Judges Accurso and Gilson.
On appeal from the Superior Court of New Jersey,
Chancery Division, Middlesex County, Docket No. C-
000092-17.
The Behrins Law Firm, attorneys for appellants
(Jonathan B. Behrins, on the briefs).
Wilentz Goldman & Spitzer, PC, attorneys for
respondents Seaside Properties, LLC, Titan Demolition
& Salvage, LLC, United Waste Management, Inc.,
Railway Property, LLC, Blue Dolphin Freight Systems,
Inc., Green American Technologies, Inc., and Matjac
Pallets, Inc. (Willard C. Shih and Daniel A. Cozzi, of
counsel and on the brief).
PER CURIAM
This appeal arises out of a dispute over whether defendants produced all
documents responsive to discovery demands. Defendants ARF Realty
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Management and ARF Realty Investors Corporation (ARF or defendants) appeal
from orders striking their pleadings with prejudice for failing to produce more
responsive discovery and denying their motions to reinstate their pleadings and
for reconsideration. We reverse and remand with directions that the trial court
make specific findings of fact warranting the harsh sanction of dismissal , in
accordance with Rule 1:7-4. If such findings cannot be made, the trial court is
to reinstate the pleadings and consider a lesser sanction under Rule 4:23-2. See
also R. 4:18-1(b)(4).
I.
We derive the facts from the record developed on the motions to compel
discovery and dismiss ARF's pleadings. The record provided to us is relatively
extensive; it includes twenty volumes of appendices and three transcripts. While
there are thousands of pages submitted, the parties have provided little analysis
of whether the thousands of pages of documents that were produced by ARF are
responsive to plaintiff's document demands.
The underlying litigation concerns allegations about alleged loans and
alleged mortgages. Plaintiff Seaside Properties, LLC (Seaside or plaintiff) owns
property located in Woodbridge (the Property). In June 2017, Seaside filed a
complaint seeking to quiet title to the Property and declare a mortgage and an
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assignment of that mortgage void and unenforceable. Seaside asserted that in
February 2014, ARF had improperly filed a mortgage in the amount of $3.5
million on the Property (the Mortgage). Seaside also asserted that the allegedly
invalid Mortgage had thereafter been assigned to defendant PB 24 & 35 Cutters
Dock, LLC (PB).
ARF disputed Seaside's claims and filed an answer asserting that the
Mortgage is valid and enforceable. ARF also asserted counterclaims against
Seaside contending that it had loaned Seaside approximately $10 million and
seeking repayment of those alleged loans. In addition, ARF alleged that Seaside
had been indebted to ARF prior to the disputed February 2014 Mortgage.
In September 2017, ARF also filed a third-party complaint against
Seaside, its members – Walter Jakovcic and Richard Matera – and entities
owned or operated by Jakovcic or Matera. ARF contended it had loaned the
third-party defendants approximately $10 million and it sought repayment of
those loans.
Thereafter, the parties engaged in discovery. In January 2018, Seaside
sent interrogatories and document demands to ARF. The document demands
consisted of forty-seven requests for documents. In February 2018, ARF
responded to all forty-seven document demands, but stated that it did not have
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certain documents and in response to other requests it produced copies rather
than the originals.
On March 22, 2018, counsel for Seaside sent counsel for ARF a letter
asserting that ARF's discovery responses were deficient. Addressing the
document demands, Seaside claimed that eight out of the forty-seven responses
were deficient. Of the eight alleged deficiencies, Seaside complained that in
five responses ARF had sent copies of the responsive documents, but not the
originals.1
Apparently, ARF did not initially respond to the deficiencies concerning
the document demands. Accordingly, in April 2018, Seaside moved to compel
discovery. On April 27, 2018, the trial court entered an order directing ARF to
provide "more specific responses." On May 25, 2018, the trial court also entered
a case management order directing ARF to produce the additional documents by
June 8, 2018.
On June 12, 2018, Seaside moved to strike ARF's pleadings. ARF claims
that on July 3, 2018, it sent more "detailed and streamlined" document responses
1
Seaside also complained that ARF had answered the wrong set of
interrogatories by answering the interrogatories that had been served on
defendant PB. ARF subsequently cured that deficiency. Accordingly, the orders
at issue on this appeal only address the alleged deficiencies with ARF's
responses to document demands.
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to Seaside, which included hundreds of pages of documents. ARF, however,
apparently failed to oppose the motion to strike its pleadings. Consequently, on
July 6, 2018, the trial court entered an order striking, without prejudice, ARF's
pleadings.
Eleven days later, on July 17, 2018, ARF moved to reinstate its pleadings.
In support of that motion, counsel for ARF filed an affidavit representing that
ARF "has fully complied with" its discovery obligations and provided to Seaside
"every document in ARF's possession which was requested in discovery."
Counsel for ARF also represented that ARF did not have certain original
documents.
Seaside opposed the motion to reinstate and submitted a certification from
its counsel that stated: "To date, ARF . . . has not provided written responses
and documents responsive to the March 22, 2018 deficiency letter." That
certification did not analyze the documents produced by ARF, nor did it respond
to ARF's contention that all responsive documents in ARF's possession had been
produced.
On August 3, 2018, the trial court denied ARF's motion to reinstate. The
court explained the reasons on the record. The court did not analyze the
documents that ARF had produced to see whether they were responsive. Instead,
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the trial court accepted the representation of counsel for Seaside that ARF had
failed to provide responsive documents to seven of Seaside's forty-seven
document requests. In that regard, the trial court listed as deficient the responses
to document request numbers 10, 20, 21, 24, 25, 28, and 45. The trial court also
pointed out that the motion to reinstate was supported by an affidavit from
counsel and not a representative of ARF.
On August 20, 2018, ARF filed a motion for reconsideration. In support
of that motion, ARF submitted a certification from Antonio Fasolino, the owner
and president of ARF. Fasolino certified that (1) ARF had "fully complied with
the discovery demands" from Seaside; (2) ARF had already produced copies of
documents responsive to Seaside document demand numbers 10, 17, 21, 25, and
28; (3) ARF had the originals of those documents and they were available for
inspection by Seaside; and (4) ARF had responded to demand numbers 20 and
24 and provided documents, and explained why ARF did not have any
documents for demand number 45.
On September 14, 2018, the trial court entered an order denying ARF's
motion for reconsideration. The order stated that the court had heard arguments
on the motion and gave reasons for its decision in a "[b]ench [o]pinion rendered
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on September 14, 2018," but no transcript or opinion was included in the record
on this appeal.
On September 26, 2018, Seaside filed a motion to strike ARF's pleadings
with prejudice. Seaside contended that ARF still had not cured the deficiencies
in certain responses to document demands. On October 10, 2018, ARF produced
additional responses and documents to Seaside. Those responses included
hundreds of pages of documents and a certification from Fasolino describing the
documents that were being produced.
ARF apparently did not file formal opposition to Seaside's motion to strike
its pleadings with prejudice. Thus, on October 12, 2018, the trial court
adjourned the motion to November 9, 2018, and directed ARF to file a motion
to reinstate.
On November 9, 2018, the trial court heard oral argument on the motion
to strike with prejudice. The court then issued an order granting that motion and
supported its decision with a letter opinion. In the letter opinion, the trial court
noted that ARF had failed to file a motion to reinstate, but the court pointed out
that ARF had filed a certification clarifying its discovery responses. Without
analyzing that certification and the documents that were submitted, the trial
court found that ARF had failed to comply with Seaside's discovery requests and
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failed to file a motion to reinstate as directed by the court. Consequently, the
court entered an order striking with prejudice ARF's "answer and affirmative
claims" under Rule 4:23-5.
II.
On appeal, ARF argues that the trial court erred in striking its pleadings
and "repeatedly" denying its "[m]otions to [r]einstate and [m]otions for
[r]econsideration." In opposition, Seaside contends that ARF failed to comply
with Rule 4:23-5 and the trial court properly dismissed ARF's pleadings with
prejudice. What is missing from both parties' analysis is a proper examination
of whether ARF's responses were deficient and whether Seaside suffered any
prejudice as a result of any deficiencies.
Our review of a trial court's discovery orders is limited, and we will
generally defer to discovery rulings "absent an abuse of discretion or a . . .
misunderstanding or misapplication of the law." Capital Health Sys. v. Horizon
Healthcare Servs., 230 N.J. 73, 79-80 (2017) (citing Pomerantz Paper Corp. v.
New Cmty. Corp., 207 N.J. 344, 371 (2011)). The well-settled purpose of Rule
4:23-5 is to elicit outstanding discovery "rather than to punish the offender . . .
." Zimmerman v. United Serv. Auto. Ass'n, 260 N.J. Super. 386, 374 (App. Div.
1992). Accordingly, dismissal "with prejudice is a drastic remedy," and courts
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should use it "sparingly" where the violation of a rule or order evidences
deliberate disregard of the court's authority and the non-offending party suffers
prejudice. Gonzalez v. Safe & Sound Sec. Corp., 185 N.J. 100, 115-16 (2005)
(citations omitted).
To succeed on a motion to dismiss with prejudice under Rule 4:23-5 for
failure to provide discovery, the moving party must strictly comply with the
requirements of the rule, which requires a two-step process. Sullivan v.
Coverings & Installation, Inc., 403 N.J. Super. 86, 93 (App. Div. 2008). In step
one, "the aggrieved party may move for dismissal for non-compliance with
discovery obligations and, if the motion is granted, the [pleading] is
[suppressed] without prejudice." Ibid. (citing R. 4:23-5(a)(1)). The delinquent
party then has sixty days to cure and move to reinstate the pleadings. R. 4:23-
5(a)(1) to (2). If it does not, in step two the non-delinquent party may seek
dismissal with prejudice. Sullivan, 403 N.J. Super. at 93 (quoting R. 4:23-
5(a)(2)).
Rule 4:23-5 is generally not applicable where a party has answered the
discovery and there is a dispute over the adequacy of the response. As a
comment to the Rule explains:
Moreover, the rule is inapplicable where the issue is not
a failure to answer but rather a bona fide dispute as to
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the adequacy of the answers. In the latter case a
dismissal is inappropriate. Rather the court must
adjudicate the dispute and, if appropriate, enter an order
compelling more specific answers. Zimmerman, 260
N.J Super. []368 []. See also Adedoyin v. ARC of
Morris Cty., 325 N.J. Super. 173 (App. Div. 1999)
(answers claimed not to be fully responsive will defeat
a motion to dismiss with prejudice if adequate to defeat
a motion to dismiss without prejudice); St. James AME
Dev. v. Jersey City, 403 N.J. 480, 485-86 (App. Div.
2008) (a bona fide dispute as to the adequacy of the
answers must be determined before disposition of either
a motion to dismiss with prejudice or a motion to
restore the dismissed pleading).
[Pressler & Verniero, Current N.J. Court Rules, cmt.
1.5 on R. 4:23-5 (2020).]
Here, ARF did not fail to respond to Seaside's discovery requests. Instead,
ARF responded to forty-seven document demands and produced thousands of
pages of documents. Seaside, however, contended that eight out of the forty-
seven responses were deficient. Significantly, five of the alleged deficiencies
asserted that ARF produced a copy rather than the original. What Seaside and
the trial court never properly analyzed was whether the documents produced
were deficient and whether Seaside suffered any prejudice.
In its motion for reconsideration, ARF produced a certification from its
owner and president stating that it had produced all the documents in its
possession. It also pointed out that in response to five requests it had produced
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copies of the documents, but it had the originals and they were available for
inspection by Seaside. The trial court did not analyze that position to see if ARF
had been responsive. Moreover, the trial court did not analyze whether Seaside
had been prejudiced by any of the responses. The underlying dispute here is
whether ARF had a mortgage on the Property and whether ARF had made other
loans and was entitled to repayment of those loans. Nowhere in the extensive
papers submitted to us is there an analysis of whether Seaside has been
prejudiced such that it cannot prove its affirmative claim that the Mortgage
should be vacated. Nor is there an adequate analysis of whether Seaside has
been prejudiced in its ability to defend against the counterclaims and third-party
complaint.
Moreover, neither Seaside nor the trial court ever analyzed whether lesser
sanctions were appropriate. For example, if Seaside contends that some of the
documents it seeks go to defending against the third-party complaint, the trial
court could enter an order that limits ARF to the documents produced. Thus,
when the actual merits are analyzed, if ARF does not have documents supporting
its alleged loans to the third-party defendant, ARF's claims can be dismissed on
the merits.
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In short, the trial court did not analyze the actual discovery responses and
whether Seaside was correct in alleging that the documents produced were
deficient. In that regard, it is not enough for Seaside to simply assert that the
deficiencies were not cured when ARF is claiming that it does not have certain
documents. That disputed issue needs to be analyzed and fact findings need to
be made.
We note that the record before the trial court was complicated by ARF's
errors and failures to file formal motions to reinstate, even when directed by the
trial court. We appreciate and generally would defer to the trial court's
discretion concerning such issues. Nevertheless, counsel's failure should be
analyzed to see if it warrants a sanction that is ultimately imposed on the client.
The record does demonstrate that ARF filed supplemental discovery responses
and produced thousands of pages of discovery. While those supplemental
certifications were not formally filed in support of motions to reinstate, they
were served on Seaside and they were filed with the trial court. Accordingly,
the ARF certifications should be analyzed to see if, in fact, they are sufficient to
cure the alleged deficiencies.
Finally, we are not persuaded by Seaside's arguments that we should
decline to review certain orders and that we should not consider certain
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documents that were allegedly not part of the record before the trial court. The
record before us does not demonstrate that either party strictly complied with all
the requirements of Rule 4:23-5. We again emphasize that the goal is to ensure
that relevant discovery is produced so that the merits of the substantive claims
can be fairly evaluated.
Accordingly, we reverse and remand with directions that the trial court
conduct an appropriate hearing to evaluate whether the deficiencies in eight out
of forty-seven document responses were in fact cured and whether, if they were
not cured, Seaside was prejudiced in a way that would warrant striking with
prejudice ARF's answer and third-party complaint. On remand, the trial court
should also consider whether a lesser sanction than dismissal is warranted. See
R. 4:23-2; R. 4:18-1(b)(4).
Reversed and remanded. We do not retain jurisdiction.
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