HISPANIC MULTI-PURPOSE CENTER TITLE HOLDING CORP. VS. PATERSON INTERNATIONAL PRE-SCHOOL (C-000121-16, PASSAIC COUNTY AND STATEWIDE) ( 2019 )

NOT FOR PUBLICATION WITHOUT THE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-5736-17T4
HISPANIC MULTI-PURPOSE
CENTER TITLE HOLDING
CORP.,
Plaintiff-Respondent,
v.
PATERSON INTERNATIONAL
PRE-SCHOOL,
Defendant-Appellant.
______________________________
Submitted May 28, 2019 – Decided July 17, 2019
Before Judges Mitterhoff and Susswein.
On appeal from the Superior Court of New Jersey,
Chancery Division, Passaic County, Docket No. C-
000121-16.
Paul E. Fernandez, attorney for appellant.
Bastarrika Soto, Gonzalez & Somohano, LLP,
attorneys for respondent (Franklin G. Soto, on the
brief).
PER CURIAM
This appeal arises from a rental dispute between two nonprofit
organizations, plaintiff Hispanic Multi-Purpose Service Center Title Holding
Company and defendant Paterson International Pre-School. Defendant has
operated its preschool on plaintiff's property since 2002. Defendant claims that
after their ten-year lease expired in 2012, the parties signed a second ten-year
lease (renewal lease) at the same rental fee as the original one. Plaintiff disputes
that the lease was renewed, asserting that the person who signed the renewal
lease on its behalf had no authority to do so.
Plaintiff filed a declaratory judgment action in the Chancery Division
seeking to invalidate the renewal lease. The attorney who was representing
defendant (initial counsel) failed to file an answer, and as a result, plaintiff
obtained a default judgment. Defendant's initial counsel also failed to appear at
the ensuing proof hearing, after which the Chancery Division judge voided the
renewal lease. A series of landlord-tenant proceedings were thereafter
conducted in Special Civil Part, at which defendant was represented by new
counsel. Those Special Civil Part proceedings resulted in plaintiff obtaining a
judgment of possession.
It is especially noteworthy that at some point during the course of the on-
again, off-again litigation in the Chancery Division, defendant's initial counsel
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disappeared and has not been heard from. Defendant's new counsel filed a
motion to vacate the Chancery judge's order invalidating the renewal lea se,
contending that defendant was not aware that a default judgment had been
entered or that a proof hearing had been scheduled. The Chancery Division
denied defendant's motion to set aside the default judgment. It is that decision
from which defendant now appeals.
After giving due consideration to the complex record and unusual
circumstances of this case, and in light of the prevailing legal principles, we
conclude that the default judgment against defendant should have been vacated.
We base this decision on two independently sufficient but factually related
grounds. First, we are satisfied that defendant has demonstrated excusable
neglect; it was reasonable for defendant to have relied on its initial counsel, who
disappeared without answering plaintiff's declaratory judgment complaint or
informing his client about the default judgment and proof hearing. Defendant
also demonstrated that it has a potentially meritorious defense that should have
been presented by its initial counsel.
Second, we conclude that plaintiff did not properly serve notice of the
final default judgment and the proof hearing when it mailed a letter to
defendant's initial counsel rather than mail notice to defendant directly in
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accordance with Rule 4:43-2(b). This deviation from the prescribed manner of
service was substantial in this instance because defendant's initial counsel
disappeared – apparently before the letter was sent – and never informed his
client about the default judgment or proof hearing.
I.
The dispute over this leasehold has a tortuous procedural history, having
been litigated in two different units of the Superior Court – the General Equity
Part of the Chancery Division and the Special Civil Part of the Law Division.
For purposes of this opinion, we confine our summary of the procedural history
and facts to events and circumstances that pertain directly to the specific issue
that is now before us, that is, whether the default judgment voiding the renewal
lease should be set aside to afford defendant an opportunity to litigate disputed
facts.
On November 4, 2016, plaintiff filed an action in the Chancery Division
for declaratory relief seeking to vacate a signed lease between plaintiff and
defendant for a ten-year term beginning in June 2012. 1 The renewal lease
1
Defendant was properly served with the complaint by a process server on
November 29, 2016.
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document was signed by Ana Osorio, "Vice President Title Holding Corp.," and
Stacy Cruz, President of Paterson International Pre-School.
At some point, the Chancery Division case was administratively
terminated for failure to prosecute. Plaintiff filed a motion to reinstate the
complaint on May 24, 2017, and on June 21, 2017, the Chancery Division
reinstated the complaint.
On August 23, 2017, plaintiff's attorney sent a letter, via regular mail and
facsimile, to defendant's initial counsel advising that the complaint had been
reinstated and that plaintiff would file for default if defendant did not file an
answer within thirty days. There was no response to plaintiff's warning letter,
and no answer was filed. Plaintiff moved for entry of default on September 19,
2017. The court granted plaintiff's request, however, it is unclear as to the exact
date when the court entered default judgment because the order is not in the
parties' appendices.
Plaintiff's attorney mailed a letter dated November 3, 2017, to defendant's
initial counsel, advising that the court had scheduled a proof hearing for
November 9, 2017. Neither defendant's initial counsel nor an officer/
representative of the preschool appeared at that hearing. Plaintiff called one
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witness – Sonja Rosado, the Secretary of the Board of Hispanic Multipurpose
Center Title Holding Company.
Rosado testified that Ana Osorio, whose signature was on the purported
renewal lease, had never been affiliated with or had a management capacity at
Hispanic Multipurpose Center Title Holding Company and was not authorized
to enter into the lease agreement. Rosado also testified that Osorio was the aunt
of "the person who is running the Paterson International Pre School ," that
another tenant in the same building was renting a similar space for $11,000 per
month as compared to the renewal lease rent fixed at $3,000 per month, and that
no resolution authorizing the lease was brought before the Hispanic Multi-
Purpose Service Center Board. Based on Rosado's testimony and the lack of
opposition, the Chancery Division judge granted plaintiff's requested relief,
declaring the renewal lease void. The court's order voiding the lease was issued
on November 17, 2017.
After the renewal lease was invalidated, plaintiff filed a complaint in the
Special Civil Part for non-payment of rent. On January 31, 2018, plaintiff's
counsel sent a letter to defendant terminating the month-to-month tenancy as of
February 28, 2018, and requesting that defendant sign a new lease agreement, at
a higher rent, if it wished to continue leasing the premises. On May 29, 2018,
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the Special Civil Part judge held a bench trial on plaintiff's complaint seeking
to evict defendant as a holdover tenant. The judge ruled that plaintiff was
entitled to a judgment for possession. The judge also denied plaintiff's request
for a stay, pending the filing of a motion to vacate the November 17, 2017
Chancery Division order. 2
On June 20, 2018, defendant filed an order to show cause in the Chancery
Division, seeking to vacate the November 17, 2017 order that had voided the
renewal lease. In support of the order to show cause, defendant submitted a
certification by Stacy Cruz, the executive director of Paterson International Pre-
School. Cruz attested that defendant hired its initial counsel to represent it in
the Chancery Division action and was unaware of the entry of default and the
proof hearing until Cruz received a copy of the November 17, 2017 order in
December 2017. Cruz certified that she called the courthouse when she received
the order, and that someone from the clerk's office told her "not to worry because
the case had been dismissed by the [c]ourt." Cruz certified that she was unaware
that the November 17, 2017 order would "survive the dismissal of [p]laintiff's
complaint."
2
Defendant does not appeal from any of the Special Civil Part orders.
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Plaintiff also submitted a signed letter, dated July 23, 2018, from Luisa
Torres, who had been the deputy director of Hispanic Multi-Purpose Service
Center until her retirement in 2013. 3 The letter explained that at one point in its
history, the preschool operated under the umbrella of Hispanic Multi-Purpose
Service Center, but the entities separated in 2006. The letter stated that Osorio
was "the President of the Title Holding Company." According to the letter,
Torres witnessed Osorio execute a lease agreement on behalf of plaintiff in 2002
for a ten-year term and again witnessed Osorio execute a ten-year renewal in
2012. Torres asserted her belief that the renewal lease was a valid document
authorized by Hispanic Multi-Purpose Service Center.
On July 23, 2018, the Chancery Division held oral argument on the motion
to vacate and instructed the parties to submit additional briefing. On August 3,
2018, after receiving the additional briefs and holding further oral argument, the
trial court denied defendant's motion to vacate the November 17, 2017 order.
On August 10, 2018, defendant filed an application for permission to file
an emergent motion to this court, which was granted. Thereafter, defendant filed
an emergent motion seeking a stay pending appeal. The motion was supported
3
The letter is not in the form of a proper certification. See also footnote 6 and
associated text.
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by a certification from Stacy Cruz. Among other things, Cruz certified that
defendant's initial counsel disappeared and that defendant was unable to contact
him.
Defendant also submitted a certification from Ana Osorio. Osorio
certified that she was the president of Hispanic Multi-Purpose Center Title
Holding Company from 2004 until 2017 and was in charge of renting out spaces
in the building. She attested that plaintiff entered into a ten-year lease with
defendant in 2002 and renewed the lease for another ten-year term in 2012.
Osorio refuted much of Rosado's proof-hearing testimony. Osorio attested that
she and Rosado had worked together for roughly twenty years at the Hispanic
Multi-Purpose Center, that Rosado was aware of Osorio's authority to enter into
the lease, and that Rosado knew of the lease renewal.
II.
We begin our analysis by reviewing the legal principles that apply to
motions to vacate judgments. "The decision whether to grant [a motion under
Rule 4:50-1 to vacate a final judgment or order] is left to the sound discretion
of the trial court, and will not be disturbed absent an abuse of discretion."
Mancini v. EDS ex rel. N.J. Auto. Full Ins. Underwriting Ass'n, 132 N.J. 330,
334 (1993). An abuse of discretion occurs "when a decision is 'made without a
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rational explanation, inexplicably departed from established policies, or rested
on an impermissible basis.'" U.S. Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449,
467-68 (2012) (quoting Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88, 123
(2007)).
The case law recognizes that a motion to vacate a default judgment should
be viewed with "great liberality." Mancini, 132 N.J. at 334 (quoting Marder v.
Realty Constr. Co., 84 N.J. Super. 313, 319 (App. Div.). "All doubts . . . should
be resolved in favor of the parties seeking relief." Ibid. "The reason courts take
an indulgent approach towards such motions is that a default judgment deprives
a party of the benefit of an adjudication on the merits." Allen v. Heritage Court
Assocs., 325 N.J. Super. 112, 117 (App. Div. 1999); see also Ragusa v. Lau, 119
N.J. 276, 284 (1990) (noting that the Court Rules are "simply a means to the end
of obtaining just and expeditious determinations between the parties on the
ultimate merits." (quoting Tumarkin v. Friedman, 17 N.J. Super. 20 (App. Div.
1951)).
Defendant's principal contention is that the default judgment should be
vacated pursuant to subsection (a) of Rule 4:50-1. To obtain relief under this
subsection, defendant must show both "excusable neglect" and a "meritorious
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defense." See Guillaume, 209 N.J. at 468; Mancini, 132 N.J. at 334. We next
address these two distinct prongs.
A.
The determination of whether neglect is excusable is fact-sensitive. See
Hous. Auth. of Morristown v. Little, 135 N.J. 274, 284 (1994) (noting that
"[c]ourts have applied subsection (a) adaptively when advanced as the basis for
setting aside a default judgment" and collecting cases addressing excusable
neglect). "'Excusable neglect'" may be found when the default was 'attributable
to an honest mistake that is compatible with due diligence or reasonable
prudence.'" Guillaume, 209 N.J. at 468 (quoting Mancini, 132 N.J. at 335); see
also DEG, LLC v. Twp. of Fairfield, 198 N.J. 242, 262 (2009) ("The four
identified categories in [Rule 4:-50(a)], when read together, as they must be,
reveal an intent by the drafters to encompass situations in which a party, through
no fault of its own, has engaged in erroneous conduct or reached a mistaken
judgment on a material point at issue in the litigation.").
Of special significance to this appeal, reviewing courts have found
excusable neglect arising from parties' reasonable reliance on their attorneys.
See, e.g., Goldhaber v. Kohlenberg, 395 N.J. Super. 380, 391-392 (App. Div.
2007) (finding excusable neglect where the defendant "consulted with a
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California attorney who advised him that New Jersey did not have jurisdiction
over him, and that, as a consequence, he need take no steps to defend himself.");
Regional Const. Corp. v. Ray, 364 N.J. Super. 534, 541 (App. Div. 2003)
(finding excusable neglect based on the defendant's mistaken assumption that an
attorney, who was representing the defendant in other actions involving the same
parties, would respond to a newly-filed complaint).
Furthermore, although "[m]ere carelessness or lack of proper diligence on
the part of an attorney is ordinarily not sufficient to entitle his clients to relief
from an adverse judgment in a civil action[,]" Baumann v. Marinaro, 95 N.J.
380, 394 (1984) (alteration in original) (quotation omitted), "sins or faults of an
errant attorney should not be visited upon his client absent demonstrabl e
prejudice4 to the other party." Jansson v. Fairleigh Dickinson Univ., 198 N.J.
Super. 190, 194. (App. Div. 1985) (reinstating a complaint where an attorney
failed to respond to interrogatories and misrepresented the status of the case to
the client). See also Parker v. Marcus, 281 N.J. Super. 589, 591-95 (App. Div.
4
We see no demonstrable prejudice to plaintiff by our decision to require a new
hearing to determine the validity of the renewal lease beyond the prejudice
inherent in any reversal of a default judgment. On remand, the Chancery
Division judge may, of course, issue such orders as it deems appropriate to
protect plaintiff's financial interests pending final determination of the validity
of the renewal lease.
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1995) (vacating a dismissal where an attorney failed to appear at an arbitration
hearing and to inform the client about the dismissal).
Applying these legal principles to the unusual circumstances of this case,
we conclude that defendant has established excusable neglect. Defendant
reasonably relied on its initial counsel to protect its interests in the course of the
Chancery Division litigation. Defendant's executive director, Stacy Cruz,
certified that she was informed by a court clerk that the matter had been
dismissed and that she had lost contact with defendant's initial counsel. She also
certified that defendant was not actually aware that default had been entered or
that a proof hearing had been held. Defendant had retained another attorney to
represent it in the landlord-tenant actions and Cruz believed that the new
attorney had settled the matter in January 2018.
Moreover, the record reflects that before disappearing, defendant's initial
counsel unsuccessfully attempted to file a consent order shortly before plaintiff's
complaint was administratively reinstated in June 2017. In these circumstances,
and given the complex procedural history of this ongoing dispute, it was not
unreasonable for Cruz to have thought that no action was needed in the Chancery
Division matter and that the preschool's initial counsel was still protecting
defendant's interests in the litigation.
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Plaintiff nonetheless argues on appeal that excusable neglect cannot be
shown because the "failure to file an Answer to the original Chancery Complaint
was based on total neglect and there is nothing excusable about it." That
argument begs the question whether defendant was acting reasonably in relying
on its attorney to file an answer and present a defense. See Jansson, 198 N.J.
Super. at 194; Regional Const. Corp. v. Ray, 364 N.J. Super. at 541. In this
instance, the attorney's "total" neglect, to use plaintiff's characterization, is
reflected not just in missing a court deadline or filing an inadequate pleading.
Rather, defendant's initial counsel disappeared altogether without informing his
client, or opposing counsel, that he was no longer acting on defendant's behalf,
leaving the preschool in the lurch in the face of an impending adverse default
judgment of which the client was unaware. 5 As we noted in Jansson,
The tension between these competing values [the
interest in finality/repose and the interest in having
matters adjudicated on their merits] becomes more
acute when the parties are blameless and have relied
upon the presumed competence and good faith of their
5
We do not know why defendant's initial counsel terminated his representation.
We do know from this record that defendant's initial counsel did not reply to
important, time-sensitive correspondence from plaintiff's attorney. Even if there
was a legitimate reason for defendant's initial counsel to terminate his
representation of the preschool, we believe that he was obligated in these
circumstances not only to advise his former client of the impending default
judgment and proof hearing, but also to advise plaintiff's attorney that he no
longer represented defendant.
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attorneys. Undoubtedly, there are some individuals
"sophisticated enough in the affairs of the world to be
able to select the good from the bad among [the] mass
of lawyers throughout the country." Link v. Wasbash
R. Co., 370 U.S. 626, 647 (1962) (Black, J., dissenting).
Unfortunately, this is not always the case. To be sure,
instances of misconduct or incompetence are rare in the
legal profession. When they occur, however, the
financial penalties heaped upon the client are often
disastrous. Against this backdrop, we believe that the
sins or faults of an errant attorney should not be visited
upon his client absent demonstrable prejudice to the
other party. Consistent with that belief, we are
compelled to reverse the trial court's order and remand
for further proceedings.
[198 N.J. Super. at 194].
In sum, we are satisfied that any neglect attributable to defendant was
excusable based on defendant's reasonable assumption that its attorney would
not disappear without warning, without filing an answer to plaintiff's declaratory
judgment complaint, and without mounting a fact-sensitive defense in support
of the validity of the renewal lease that defendant had signed.
B.
Turning to whether defendant has presented a meritorious defense, "[w]e
must examine defendant's proposed defense to determine its merit." Bank of
New Jersey v. Pulini, 194 N.J. Super. 163, 166 (App. Div. 1984). In this regard,
"[w]here either the defendant's application to re-open the judgment or the
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plaintiffs' proofs presented at the proof hearing raise sufficient question as to
the merits of plaintiffs' case, courts may grant the application even where
defendant's proof of excusable neglect is weak." Siwiec v. Fin. Res., Inc., 375
N.J. Super. 212, 220 (App. Div. 2005).
In the particular circumstances presented in this case, defendant appears
to have a potentially meritorious argument that the purported lease was valid
based upon the certification from Osorio and the letter from Torres, that, if
believed, contradict Rosado's proof-hearing testimony that Osorio had no
authority to enter into the lease. 6 See id. at 219 ("[A]lthough it should have been
submitted in certification form, defendant did provide a meritorious explanation
for the failure to close the loan. Whether the explanation is true remains to be
seen."); T & S Painting & Maint., Inc. v. Baker Residential, 333 N.J. Super. 189,
192-93 (App. Div. 2000) (finding a meritorious defense based on defendant's
certification that the plaintiff had breached the contract between the parties).
Ultimately, the validity of the renewal lease hinges on the credibility of
potential witnesses who offer conflicting versions of the circumstances in which
6
We recognize that Torres' letter was not in the form of a certification, see
footnote 3, and it appears that Osorio's certification was not submitted with the
original order to show cause but rather with an emergent motion to the Appellate
Division.
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the renewal lease was signed. This has become a rancorous contest and we have
no insight as to who is telling the truth. All that we can decide on this appeal i s
whether defendant was entitled to an opportunity to present its proofs to the
Chancery Division. See Siwiec, 375 N.J. Super. at 220.
III.
We turn next to defendant's assertion that plaintiff failed to properly serve
notice of the final judgment of default and notice of the scheduled proof hearing.
This contention provides an independent basis 7 to vacate the order invalidating
the renewal lease. Rule 4:43-2(b) provides in pertinent part that "the party
entitled to a judgment by default shall apply to the court therefor by notice of
motion pursuant to Rule 1:6, served on all parties to the action, including the
defaulting defendant or the representative who appeared for the defaulting
defendant." See footnote 6. Additionally, the rule provides that when the court
elects to hold a proof hearing, "[t]he notice of proof hearing shall be by ordinary
mail addressed to the same address at which process was served unless the party
7
We note that in addition to being a standalone legal argument, defendant's
service-of-process contention supports its position regarding excusable neglect;
the failure to learn about the default judgment helps to explain why the preschool
did not contest plaintiff's application for declaratory judgment or appear at the
proof hearing to challenge plaintiff's version of the circumstances in which the
renewal lease was signed.
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entitled to judgment has actual knowledge of a different current address for t he
defaulting defendant."
Before addressing the particular facts in this case, we stress the
importance of adhering to the rules for serving notice of default judgments and
proof hearings. A proof hearing is essentially a substitute for a trial – it is the
means by which a court can be assured that there is a sufficient basis in law and
in fact to support a final judgment. The just outcome of a proof hearing depends
on the judge knowing whether material facts are disputed. Accordingly, it is
well-settled that "[a] default judgment will be considered void when a
substantial deviation from service of process rules has occurred, casting
reasonable doubt on proper notice." Jameson v. Great Atl. & Pac. Tea Co., 363
N.J. Super. 419, 425 (App. Div. 2003). Even if there is actual notice of the suit
comporting with due process, the default judgment must be set aside if there is
a substantial deviation from service of process rules. Sobel v. Long Island
Entm't Products, Inc., 329 N.J. Super. 285, 292-94 (App. Div. 2000).
We have reviewed the record before us carefully in view of these legal
principles and conclude that plaintiff deviated substantially, and unjustifiably,
from Rule 4:43-2(b). Plaintiff relies on the November 2, 2017 letter mailed to
plaintiff's initial counsel advising him that a proof hearing was scheduled for
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November 9, 2017. (Pa9). Rule 4:43-2(b) clearly provides that notice of the
proof hearing is to be sent "by ordinary mail addressed to the same address at
which process was served[,]" see footnote 1, not to defendant's attorney. 8
Plaintiff nonetheless argues that "[r]espondents had every reason to
believe based on [defendant's initial counsel's] prior representation that he was
the attorney for Appellant's [sic] in this case, and that by notifying him
Appellant's [sic] were being afforded proper Notice with respect to the hearing."
In the particular circumstances of this case, the assumption that counsel
continued to represent the preschool was unreasonable, and thus does not justify
a substantial deviation from the manner of service prescribed in Rule 4:43-2(b).
Plaintiff's argument on this point must be viewed in context with its contention
that defense counsel's neglect was "total" and thus inexcusable.
Counsel's "total" neglect had become apparent by his failure to file an
answer to the declaratory judgment complaint, and thus manifested before
plaintiff sent the November 2 letter serving notice of the scheduled proof
hearing. Plaintiff is therefore hard pressed to claim that it had "every reason to
believe" that defendant's initial counsel would notify defendant of the default
8
We note that the record does not reflect that defendant's initial counsel had
formally entered an appearance in the declaratory judgment action.
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and proof hearing. On the contrary, there was ample reason to suspect that
something was amiss with respect to the status of defense counsel's
representation once he failed to respond in any way to plaintiff's warning that it
would seek a default judgment if an answer was not filed within thirty days.
The reasonableness of plaintiff's assumption would be viewed in a
different light if defendant's initial counsel had acknowledged, by any means of
communication, that he was accepting service on behalf of his client. The
situation might also be different if defendant's initial counsel had at least
acknowledged that he was still representing the preschool, since that would
support a reasonable inference that he was still in contact with his client. Here,
however, there was no response at all to plaintiff's correspondence pertaining to
the default judgment, including the August 23, 2017 warning letter, which
suggests that defendant's initial counsel had already disappeared.
In these circumstances, we are not prepared to assume that defense
counsel's silence betokened consent to a different form of service than the one
prescribed by Court Rules. Nor was it reasonable for plaintiff's attorney to make
that assumption. We therefore conclude that the manner of service chosen by
plaintiff represents a substantial deviation from Rule 4:43-2(b), casting
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reasonable doubt on proper notice and providing a basis to vacate the default
judgment. See Jameson, 363 N.J. Super. at 425.
IV.
Default judgments are considered void when a substantial deviation from
service of process rules has occurred, and even when the adequacy of service is
not at issue, motions to vacate default judgments should be granted liberally,
especially if the material facts appear to be disputed. Given the totality of the
circumstances before us, we are constrained to conclude that the decision to
deny defendant's motion to set aside the default judgment departs from these
established policies. See Guillaume, 209 N.J. Super. 467-68. We therefore
reverse the November 18, 2017 order that voided the renewal lease and remand
to the Chancery Division for further proceedings to allow both parties a fair
opportunity to present their proofs and arguments regarding the validity of the
renewal lease. We do not retain jurisdiction.
Reverse and remand.
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