Court Opinion

ID: 6496452
Source: CourtListenerOpinion
Date Created: 2022-06-29 20:09:38.447262+00
Date Added: 2024-06-11T09:08:01.280439
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NOT FOR PUBLICATION WITHOUT THE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-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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                                        2
                                        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

                                                                            A-2430-20
                                        3
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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                                       4
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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                                       6
            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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                                        9
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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                                       10
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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