HARTFORD UNDERWRITERS, ETC. v. ARCH-CONCEPT CONSTRUCTION, INC. (L-3851-16, MONMOUTH COUNTY AND STATEWIDE) ( 2022 )

NOT FOR PUBLICATION WITHOUT THE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-2430-20
HARTFORD UNDERWRITERS
INSURANCE COMPANY,
Plaintiff-Respondent,
v.
ARCH-CONCEPT
CONSTRUCTION, INC. and
DUSAN LAZETIC, individually
and as President of
ARCH-CONCEPT
CONSTRUCTION, INC.,
Defendants-Appellants.
_____________________________
Argued May 2, 2022 – Decided June 29, 2022
Before Judges Rothstadt and Bishop-Thompson.
On appeal from the Superior Court of New Jersey, Law
Division, Monmouth County, Docket No. L-3851-16.
Kevin J. Kotch argued the cause for appellants (Ferrara
Law Group, PC, attorneys; Ralph P. Ferrara and Kevin
J. Kotch, of counsel and on the briefs).
David J. Dering argued the cause for respondent (Leary,
Bride, Mergner & Bongiovanni, attorneys; David J.
Dering, of counsel and on the brief).
PER CURIAM
Defendants Arch-Concept Construction, Inc. and its president Dusan
Lazetic appeal from the Law Division's April 1, 2021 order enforcing the parties'
settlement agreement. Judge Linda Grasso Jones entered the order after
determining that defendants' performance of its obligations under the agreement
was not excused by the doctrine of impossibility, that she could not rewrite the
parties' agreement, and that the damages stipulated in the agreement were
enforceable liquidated damages. On appeal, defendants argue that the doctrine
of impossibility applies to its inability to perform under the settlement
agreement, that the judge should have extended a forbearance as a matter of
equity, and that the damages awarded under the parties' agreement and a consent
judgment are an unenforceable penalty.
We have considered defendants' contentions in light of the record and the
applicable legal principles. We conclude that defendants' arguments are without
merit. We affirm substantially for the reasons expressed by Judge Grasso Jones
in her written statement of reasons that she attached to her order.
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I.
The salient facts derived from the record are summarized as follows.
Plaintiff Hartford Underwriters Insurance Company provided worker's
compensation insurance to Arch-Concept from May 2012 through January 2016.
On November 4, 2016, plaintiff filed a complaint against defendants to recover
what it alleged were unpaid premiums based upon Arch-Concept understating
its payrolls and misclassifying certain workers. It also sought relief under the
New Jersey Insurance Fraud Prevention Act (IFPA), N.J.S.A. 17:33A-1 to -34.
Plaintiff alleged that audits estimated defendants owed plaintiff $583,665 in
unpaid premiums and that it was also entitled to treble damages for defendants'
violation of the IFPA.
The parties agreed to settle plaintiff's claims pursuant to their May 31,
2018 written settlement agreement. The agreement acknowledged that the
parties did not agree with each other's positions regarding the facts alleged in
the complaint, however they settled due to the "costs and uncertainty" of
litigating the matter. Their agreement required plaintiff to accept and defendants
to pay $275,000 over twelve quarterly installments. In the event defendants
breached the agreement, they agreed to the entry of a consent judgment in favor
of plaintiff and against defendants in the amount of $425,000, less any payments
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made under the agreement. The parties attached to the agreement a form of
consent judgment signed by defendants that reflected the default provision in
their agreement.
The agreement also stated that the parties were represented by counsel
throughout the negotiation and preparation of the agreement. Moreover, should
there be a dispute, the agreement was "not [to] be construed against any party."
Thereafter, defendants remitted payments as agreed until June 2020, when
they requested the first of three consecutive requests for forbearances due to
circumstances allegedly arising from the COVID-19 pandemic and its impact on
defendants' business. Despite not being contractually obligated to do so under
the settlement agreement, 1 plaintiff agreed to the first two requests, each
resulting in a written forbearance agreement that did not otherwise alter the
terms of the original settlement agreement, aside from extending the time to
1
The agreement did include a provision for an annual forbearance. To that end,
it stated that on prior notice to plaintiff,
The [d]efendants, one (1) time every calendar year shall
be allowed to request from [plaintiff] an additional
fifteen (15) days of forbearance beyond the
aforementioned grace period provisions, thus providing
[d]efendants with a total of 35 days from the due date
of the quarterly payment within which to make the
prescribed quarterly payment without being in default.
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remit full payment then-due until the following quarter and adjusting the
remaining installments accordingly. When plaintiff rejected the third request in
December 2020, defendants remitted only a partial payment. Including the
partial payment, defendants remitted a total of $200,374.33 by the end of 2020.
In response and pursuant to the agreement, plaintiff filed a motion to
enforce the settlement, seeking judgment in the amount of $224,625.67
($425,000 less $200,374.33 in payments remitted). Plaintiff supported its
motion with its attorney's certification and exhibits, including the settlement
agreement and consent judgment.
Defendants filed a certification from Lazetic in opposition that
acknowledged they owed "$75,000 in payments under the settlement
agreement," but that "Arch-Concept was unable to make the remaining . . .
payments" because "of the pandemic and the shut-down of its business." There
were no documents supporting that contention and no assertion that Lazetic, who
signed the settlement agreement and form of consent judgment individually, was
not able to make any of the required payments.
After considering oral arguments, Judge Grasso Jones entered an order
granting plaintiff's motion, enforcing the settlement agreement, and awarding
plaintiff $224,625.67. In her accompanying statement of reasons, the judge
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explained defendants did not carry their burden to prove that the doctrine of
impossibility excused their non-performance of the settlement agreement, that
she could not change the terms of the agreement to require another forbearance,
and that the damages provision was not an unenforceable penalty. Specifically,
the judge concluded as follows:
Defendants . . . do not provide clear and convincing
evidence to relieve it of its performance obligations
under the contract. The certification of Dusan Lazetic
does not provide evidence that it was impossible for the
company, or Lazetic himself (who is also an individual
responsible party under the settlement agreement) to
make the required payment. With reference to
defendants' request that the court should as a matter of
equity provide more time for defendants to make the
required payment, even under the present COVID-19
pandemic circumstances the court cannot write for the
parties a different agreement than they entered into.
Certain federal and New Jersey state legislative and/or
executive determinations have been made that provide
equitable relief to certain persons, under certain
circumstances (i.e., precluding eviction of residential
tenants for non-payment of rent), but the court is not
aware of any such provision saving defendants from
their obligations under the settlement agreement – and
no such provision has been brought to the court's
attention. Finally, entering judgment in the amount of
$224,625.67 would not result in the imposition of an
inappropriate penalty provision against defendants. As
set forth in the initial motion, and particularly in the
reply papers filed by plaintiff, the amount initially
sought by plaintiff from defendants was far greater than
the amount plaintiff actually agreed to receive. While
it would certainly have been in defendants' best
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interests financially to have paid the amount due and
owing under the settlement agreement, it cannot be said
that the amount sought in this motion, which was
agreed to by all parties who were represented by
counsel, constitutes an impermissible or unenforceable
penalty provision.
This appeal followed.
II.
We consider defendants' contentions on appeal de novo because a judge's
interpretation of a contract, including its enforceability, is a question of law
entitled to de novo review. Holtham v. Lucas, 460 N.J. Super. 308, 317 (App.
Div. 2019) (citing Wasserman's Inc. v. Middletown, 137 N.J. 238, 257 (1994)).
In our review, we owe no deference to a trial judge's conclusions of law or the
legal consequences that flow from established facts. Cherokee LCP Land, LLC
v. City of Linden Plan. Bd., 234 N.J. 403, 414-15 (2018).
Applying that standard, we conclude Judge Grasso Jones properly
determined that defendants did not provide any proof to excuse its non -
performance under the doctrine of impossibility or that they were entitled to a
reformation of the settlement agreement on equitable grounds. Moreover, we
disagree with defendants that the negotiated settlement amount stipulated to by
the parties was an unenforceable penalty.
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At the outset, we recognize the strong public policy favoring settlement
agreements. It is beyond cavil that "parties to a dispute are in the best position
to determine how to resolve a contested matter in a way which is least
disadvantageous to everyone." Gere v. Louis, 209 N.J. 486, 500 (2012) (quoting
Impink ex rel. Baldi v. Reynes, 396 N.J. Super. 553, 563 (App. Div. 2007)). We
will not therefore "rewrite," "vary, enlarge, alter[,] or distort [such agreements']
terms for the benefit of one [party] to the detriment of the other under the guise
of judicial interpretation." Camden Bd. of Educ. v. Alexander, 181 N.J. 187,
197 (2004). For that reason, courts should not disturb an agreement absent
"clear and convincing proof" that it is necessary to do so. Capparelli v. Lopatin,
459 N.J. Super. 584, 603 (App. Div. 2019) (quoting Nolan v. Lee Ho, 120 N.J.
465, 472 (1990)).
One circumstance where a court may vacate a settlement agreement is
where the doctrine of impossibility, also known as impracticability of
performance, applies. Under that doctrine, "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 th e
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contracting parties.'" Id. at 607 (quoting JB Pool Mgmt., LLC v. Four Seasons
at Smithville Homeowners Ass'n, 431 N.J. Super. 233, 246 (App. Div. 2013)).
For example, where a seller agrees to deliver goods to a buyer by a specific
date and at a designated port, but the port is subsequently closed by quarantine
regulations, the seller's duty to deliver the goods in such a manner is discharged.
Restatement (Second) of Contracts, § 261 cmt. b, illus. 1 (Am. Law Inst. 1981).
However, the doctrine of impossibility is not applicable where the
difficulty is "the personal inability of the promisor to perform." Sullivan v. Max
Spann Real Est. & Auction Co., 465 N.J. Super. 243, 264 (App. Div. 2020)
(quoting Connell v. Parlavecchio, 255 N.J. Super. 45, 49 (App. Div. 1992)).
"[A] party cannot render contract performance legally impossible by its own
actions." Ibid. (quoting Petrozzi v. City of Ocean City, 433 N.J. Super. 290, 303
(App. Div. 2013)).
Applying these guidelines, we conclude defendants' arguments that the
doctrine of impossibility applies to their circumstances or that we should extend
their time to make installment payments lack sufficient merit to warrant further
discussion in a written opinion. R. 2:11-3(e)(1)(E). Suffice it to say that we
agree with Judge Grasso Jones' determination that defendants did not provide
any proof to support that Arch-Concept was unable to remit installments as
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promised because of a "supervening event that was not within the original
contemplation of the contracting parties." See Capparelli, 459 N.J. Super. at
607. Moreover, Lazetic never certified that he was personally unable to make
payment for any reason. Even if we concluded that the pandemic presented
circumstances warranting application of the doctrine of impossibility, and we
have not here done so, there was insufficient evidence that the event caused
defendants to remain in default.
We also conclude that the damages awarded under the settlement
agreement did not amount to a penalty. Stipulated damage clauses in
commercial contracts between sophisticated parties are viewed as presumptively
reasonable "liquidated damages" and courts will enforce such a clause unless
the party challenging it proves they are instead an unreasonable "penalty."
Metlife Cap. Fin. Corp. v. Wash. Ave. Assocs. L.P., 159 N.J. 484, 496 (1999).
We measure the reasonableness of stipulated damages against the "totality
of the circumstances," including the "intention" and "bargaining power" of the
parties, "the anticipated or actual loss caused by the breach," and "the difficulty
in assessing damages." Sullivan, 465 N.J. Super. at 263 (quoting Metlife, 159
N.J. at 494-95). Essentially, stipulated damages clauses are meant to
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compensate a party for the breach of another but not as a "shotgun" to compel
the party to perform. Holtham, 460 N.J. Super. at 317-18.
Under these principles, defendants failed to demonstrate the consent
judgment for $425,000 less payments made was a penalty. Defendants'
argument focuses on only the fact that they are obligated to pay an additional
$150,000 regardless of when their breach occurred, but this argument ignores
the totality of the circumstances.
The parties here are sophisticated commercial entities represented by
counsel, who settled defendants' exposure to over $2,000,000 in damages for a
fraction of that amount. In the event of a breach, the parties negotiated a
backstop meant to not only compensate plaintiff for the breach but also to limit
defendants' residual exposure from a reinstatement of the complaint so as to
ensure defendants were not required to litigate plaintiff's original claim.
Affirmed.
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