Court Opinion

ID: 4427993
Source: CourtListenerOpinion
Date Created: 2019-08-20 18:59:10.591561+00
Date Added: 2024-06-11T14:50:54.733404
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE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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                                         3
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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                                       10
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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                                       11
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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                                      14
            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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                                        15
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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                                       20
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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