NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court."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 NOS. A-5849-17T3 A-0434-18T3
MARIGOLD MANAGEMENT, INC., d/b/a A DOLLAR,
Plaintiff-Respondent,
v.
RAMALINGAM ARUMUGAM and MEENAKUMARI KRUPPIAH, a/k/a MEENAKUMARI ARUMUGAM, as Individuals and Husband and Wife,
Defendants-Appellants,
and
M CITY DOLLAR, INC., RAKESH MALHOTRA and M CITY DOLLAR 4,
Defendants. _________________________________
RAMALINGAM ARUMUGAM and MEENAKUMARI KRUPPIAH a/k/a MEENAKUMARI ARUMUGAM, as Individuals and Husband and Wife, Plaintiffs-Appellants,
MARIGOLD MANAGEMENT, INC., d/b/a A DOLLAR, SHAUKAT KASSAM, and RESHMA KASSAM,
Defendants-Respondents. ________________________________
Submitted March 17, 2020 – Decided August 26, 2020
Before Judges Hoffman, Currier and Firko.
On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket Nos. L-0724-16 and L-6512-17.
Law Offices of Susheela Verma, attorneys for appellants (Susheela V. Verma, of counsel and on the briefs; Nishi Jaimin Patel, on the briefs).
Schafkopf Law, LLC, attorneys for respondents (Gary Schafkopf, of counsel and on the brief).
PER CURIAM
In these back-to-back matters, which we consolidate for the purposes of
this opinion, defendants Ramalingam Arumugam and Meenakumari Kruppiah
a/k/a Meenakumari Arumugam (appellants or the Arumugams) appeal from the
July 6, 2018 Law Division order for judgment in favor of plaintiff Marigold
A-5849-17T3 2 Management, Inc. d/b/a A Dollar (Marigold). 1 In a related action, Marigold II,
where they were plaintiffs, the Arumugams appeal from the August 14, 2018
Law Division order granting the summary judgment dismissal of their suit
against defendants Marigold, Shaukat Kassam, and Reshma Kassam, and
denying their cross-motion for leave to file an amended complaint.
On January 15, 2016, Marigold filed suit against appellants,2 alleging they
breached a Business Relationship Termination Agreement (the Agreement) they
signed on April 20, 2015. Sam, Marigold's sole owner, provided management
and consultation services to numerous dollar stores throughout the region. In
1999, Sam began sharing his expertise with Tony, who later opened his own
dollar stores under Sam's tutelage. This led to a long-term friendship between
Sam and Tony, in addition to a long-term business relationship; however, the
1 For ease of reference, and intending no disrespect, when we refer to an individual party, we use that party's first name, except we refer to Ramalingam Arumugam as "Tony" and Shaukat Kassam as "Sam," the names used to refer to them at trial. In addition, we refer to the first suit as Marigold I, and the second suit, where the Arumugams are plaintiffs, as Marigold II. 2 Marigold's complaint included three additional defendants – M City Dollar, LLC, Rakesh Malhotra, and M City Dollar 4 (collectively M City) – alleging counts of unjust enrichment, conversion, defamation, tortious interference, and fraud against them and the Arumugams. At the conclusion of the trial, the judge dismissed Marigold's complaint against the M City defendants.
(continued) A-5849-17T3 3 situation changed in 2015, after the pair had a falling out. As a result, Sam and
Tony terminated their relationship completely and executed the Agreement,3
which essentially precluded appellants from competing with Marigold and any
dollar stores where Sam provided consultation services for a period of sixty
months. The Agreement further provided for a one-time payment of $120,000
to appellants, which Sam immediately paid by certified check.
On November 2, 2017, appellants filed a separate complaint against
Marigold and the Kassams (Marigold II). They took this action after the trial
court in Marigold I denied their motion to amend their responsive pleading to
add additional counts to their counterclaim against Marigold, along with a third-
party complaint against the Kassams; however, after appellants filed Marigold
II, the trial court in Marigold I reconsidered its decision, in part, and allowed
them to amend their counterclaim against Marigold. Since the reconsideration
decision did not permit appellants to join the Kassams as third-party defendants,
they did not dismiss Marigold II.4
3 Sam's attorney prepared the Agreement, which Tony's wife also signed. 4 Of note, appellants' motion only requested reconsideration of the court's denial of their request to file an amended counterclaim; it did not seek reconsideration of the denial of their request to file a third-party complaint against the Kassams.
(continued) A-5849-17T3 4 Following a bench trial in Marigold I, the trial judge issued an oral
decision in favor of Marigold, finding appellants breached a valid contract. 5 The
judge concluded appellants breached their contract by helping set up and manage
various dollar stores, in violation of the non-competition provision of the
Agreement. He described Marigold's losses as "lost opportunities" and the loss
of the $120,000 paid as consideration for the non-competition provision. The
judge also ruled appellants' breach of contract entitled Marigold to attorney's
fees, eventually awarding attorney's fees of $66,861.50, plus costs of $8,875.
In granting the summary judgment dismissal of appellants' complaint in
Marigold II, the judge 6 concluded the complaint failed to state a claim upon
which relief could be granted. Citing the entire controversy doctrine, res
judicata, and collateral estoppel, the judge reasoned that the basis for the entry
of the judgment in Marigold I effectively barred the relief sought by the
Arumugams in Marigold II. He also denied appellants' motion to file an
amended complaint, which sought to add two additional defendants. For the
reasons that follow, we affirm.
5 The judge dismissed the remaining counts of Marigold's complaint, concluding Marigold failed to satisfy its burden of proof as to those claims. 6 The trial judge who presided at the Marigold I trial also decided the motions on appeal in Marigold II. A-5849-17T3 5 I
We summarize the following facts from the extensive ten-day trial record.
Upon immigrating to the United States, Tony worked as a cashier and stocker at
a Massachusetts dollar store, where he met Sam, and their families became
friends. At that time, Sam provided consulting services to various dollar stores
throughout the northeast. Sam began teaching Tony about the dollar store
industry and took him to various trade shows. Sam then assisted the Arumugams
in acquiring their own dollar stores, with Sam providing management and
consultation services. From 1999 through early 2015, Sam and Tony opened
and closed various dollar stores throughout the northeastern United States.
Sam's services, later provided through Marigold, 7 included locating and
negotiating retail lease space, soliciting vendors and negotiating prices, ordering
supplies, obtaining permits, and performing similar tasks. The services provided
by Sam to each store varied; in return, dollar store owners would pay him a
monthly fee of $500 to $700. The stores managed by Sam, and then Marigold,
often used the name A Dollar, the same name Sam used for the dollar stores he
owned; however, there is no registered mark for that name.
7 Sometime in 2014, Sam purchased Marigold, a New Jersey corporation with no assets, and thereafter operated his dollar store management and consultation business through Marigold. A-5849-17T3 6 Sam managed the dollar stores owned by appellants for a fee of $500 a
month. According to Tony, neither Sam nor Marigold had written contracts with
the dollar stores they serviced; instead, they relied on verbal agreements. He
testified that he did the day-to-day work and Sam "handled everything [else]."
In early 2015, disagreements between Sam and Tony led them both to want to
terminate their business relationship. To that end, Sam had his attorney prepare
the Agreement.
The first paragraph of the Agreement obligated Marigold to pay $120,000
to the Arumugams in consideration "for the termination of the relationships
referenced in this Agreement, and in full settlement of any other claims against
[Marigold] now existing or which may accrue in the future." The third
paragraph included the following provision:
NON-COMPETITION: For a period of sixty (60) months following the date of this Agreement, Arumugams shall not, directly or indirectly, alone or in conjunction with any other person or entity, enter into, own manage, operate, control, or participate in the ownership, management, operation or control of, or become associated with, as an employee, director, officer, advisor, agent, consultant, principal, partner, member or independent contractor with or lender to, any person or entity engaged in or aiding others to engage in business of a Dollar Store, any similar business concept, or any location where [Marigold] operates, located anywhere in a ten (10) mile radius of the business referenced in this Agreement of the store
A-5849-17T3 7 closed by [Marigold] in the last twenty-four (24) months. For the purposes of this Agreement, any act of any relative or family member of the Arumugams will be deemed to be the act of Arumugams.
In addition to the non-competition provision, paragraph eight required:
CONTACTS: For twenty-four (24) months following the Closing, the Arumugams shall not have any contact with any former, current or future employees of [Marigold]; with any former current or future landlords; or former, current or future vendors that [Marigold] conducts business with that specialize in business of dollar store retail.
If the Arumugams breached the Agreement, paragraph nine mandated they
"shall immediately cease and desist [such] conduct . . . and forfeit the
[c]ompensation [a]mount to [Marigold]," which "shall be entitled to seek . . .
reimbursement of any [a]ttorney's fees accrued as a result of such breach."
Within three months of signing the Agreement, Tony began assisting co-
defendant Rakesh Malhotra to open various M City Dollar stores. Rakesh had
no prior experience in the dollar store industry. Testimonial and documentary
evidence revealed that Tony provided Rakesh assistance in locating and securing
retail leases, negotiating and purchasing inventory from vendors, picking up
supplies and inventory, and attending trade shows. Three of Marigold's current
vendors testified to working with Tony on behalf of M City Dollar. The physical
A-5849-17T3 8 evidence consisted of trade show badges, lease and purchase agreements signed
by Tony, and Tony's tax returns.
Regarding the Agreement, Tony testified that he spoke and understood
very little English; as a result, he denied understanding the nature of the
Agreement. According to Tony, he understood the $120,000 payment
represented the return of money he previously invested in the parties' business
arrangement. He further claimed that Sam presented the Agreement with no
advance notice and urged him to sign it the same day, without consulting an
attorney. Tony insisted that he would not have signed the Agreement if he
understood the restrictions it imposed. In fact, he claimed he first became aware
of the restrictive covenant when served with Marigold's complaint.
Sam disputed most of Tony's testimony, testifying the parties negotiated
the Agreement and that he suggested Tony present the Agreement to his attorney
for review. He maintained Tony was eager to sign the Agreement and terminate
their relationship.
Appellants testified that they struggled financially as a result of the
Agreement. Tony claimed inability to find work outside the dollar store
industry. Appellants maintained their only income was the $120,000 payout,
liquidated college savings funds and insurance policies, and loans they claimed
A-5849-17T3 9 to be receiving from family and friends. However, as noted in the trial judge's
oral decision, appellants' tax returns, and their ability to pay the mortgage on
their $565,000 home, undermined their claims of financial struggle.
During the presentation of appellants' case, Tony denied working for
Rakesh and managing M City Dollar stores. He alleged that Sam committed
theft when he issued himself various checks from the various dollar stores
owned by appellants. However, on cross-examination, Tony was unable to
present any evidence of Sam's alleged scheme. Tony also testified that he
believed the Kassams used two finance companies, Fox Finance, Inc. and Ivory
Factor, Inc., to perpetrate fraud. He testified that aside from his name appearing
on Schedule K-1 tax forms, he knew nothing about how Sam managed the stores
or handled all the paperwork.
On May 21, 2018, during the direct examination of Reshma by appellants'
counsel concerning various assets and accounts listed in her name – about which
she claimed to have no knowledge – the trial judge interjected to determine the
relevance of the questioning. Counsel asserted the questioning related to
appellants' defense and counterclaim for fraud. After allowing counsel to
continue her examination, the judge again interrupted her after she questioned
Reshma regarding the two finance companies. The judge instructed counsel to
A-5849-17T3 10 stop questioning the witness about the finance companies, stating she should
have investigated them during discovery.
After appellants' counsel spent several hours questioning first Reshma and
then Sam, the trial judge asked counsel to provide the evidentiary basis for the
Arumugams' counterclaims, "So, you have to now present some evidence. You
can't just call [Sam] and start asking him questions to start proving your case.
This is your case on the counterclaim." Finally, after the judge continued to
question her lack of evidence, counsel raised the possibility of "dismiss[ing] our
counterclaim and keep it in the other case so that way you don't have to deal
with this[.]"
The next day, after speaking with her clients, appellants' counsel sought
permission to withdraw the Arumugams' counterclaims "because a similar action
is pending where [Sam] is individually named[.]" In response, the trial judge
cautioned that "if you're dismissing the counterclaim against Marigold, . . .
because the trial has started[,] prejudice attaches and it is with prejudice to
asserting any other similar claims against Marigold." Counsel responded, "Yes,
Your Honor. We will dismiss the counterclaim against Marigold in this case."
The judge replied, "Okay. . . . the counterclaim is dismissed against . . .
Marigold Management, Inc. with prejudice."
A-5849-17T3 11 Following summations, the trial judge rendered his decision and delivered
an oral opinion. In summarizing the conflicting testimony of the parties, the
judge noted, "this case turns on the credibility of the . . . princip [al] parties[.]"
Despite Sam's inability to recollect certain information accurately, the judge
found him credible "in the material respects of the dispute, that is, the essence
of [the Agreement] and what its terms were and what [Tony] was informed and
agreed to[.]" He found Tony did not testify credibly, noting various
inconsistencies in his testimony compared to other witness testimony; in
addition, he rejected Tony's claimed inability to understand English. The judge
found that "he spoke enough English to understand the basic business principles
that were involved in his business. He understood leases and he had before him
[the Agreement]. He understood it."
Regarding the Agreement's execution, the judge found,
"[T]here's no question. I believe [Sam's] testimony that he told [Tony] go show it to your accountant and show it to your lawyer, and [Tony] said I don't have to show it [to] anybody, I know what it means, I – I'm – prepared to sign it, I – I want out, I want away, I – I want my money. And I find that [Sam] and [Tony] both clearly understood the terms of the separation agreement, it was negotiated in good faith, it was signed with the understanding."
A-5849-17T3 12 The judge then cited the testimony of the vendors and the documentary evidence
that supported his finding of appellants' breach of the Agreement.
In sum, I find that [the Arumugams] knew the terms of [the Agreement], that they received adequate . . . and valuable consideration [in] the form of $120,000, that their testimony that they couldn't do any business and lived off the $120,000 and then were almost destitute is contradicted. They had tens of thousands of dollars placed into their bank accounts [during] the calendar years of 2015 and [2016] and these were allegedly loans and gifts from friends and other relatives and other people. I don't . . . find that to be credible.
The judge then addressed each count of the complaint in turn. As to the
breach of contract claim, without addressing the enforceability of the
Agreement's restrictive covenant, the judge found appellants "knowingly
violated the terms of the [A]greement by assisting, aiding and otherwise helping
[M City Dollar] and [Malhotra] in the negotiation of leases, solicitation of
vendors and placing orders and doing other management services for M City
Dollar." He found the Agreement unambiguous and that the $120,000 payment
constituted valuable consideration. He went on to describe Marigold's loss as
"lost opportunities" and the loss of the $120,000.
The judge concluded Marigold failed to present sufficient evidence to
establish a prima facie case for fraud. Similarly, he found Marigold failed to
A-5849-17T3 13 establish its claims for defamation, conversion, or tortious interference. He
further found that Rakesh had no knowledge of the Agreement.
Turning to damages, the judge awarded Marigold $120,000 against
appellants, jointly and severally, as compensation for the breach of the
Agreement. In addition, he concluded that two paragraphs of the Agreement
contemplated the award of attorney's fees. Accordingly, he directed counsel for
Marigold to submit a certification of fees accrued. Marigold then filed a motion
for attorney's fees and appellants filed a cross-motion to clarify the verdict.
On July 6, 2018, the trial judge ruled on the parties' cross-motions. In
determining the award of attorney's fees, he analyzed the certification provided
by Marigold's counsel and the applicable law. The judge concluded that
although Marigold only succeeded on its breach of contract claim, the remaining
claims "were really subsumed into that claim, and they didn't necessitate any
additional legal services." Therefore, he found it unnecessary to allocate the
award based on the success of each claim.
The judge determined the $250 hourly rate charged by Marigold's attorney
"is not only reasonable, but is on the low side." He concluded the case was
"complex and difficult" and that it required "considerable skill" to perform the
required services. He further found "the lodestar was properly determined by
A-5849-17T3 14 reasonable hours expended, times a reasonable hourly rate. And therefore I find
that [Marigold] is entitled to recover all of its fees . . . ." The judge awarded
Marigold $66,861 in attorney's fees, plus reasonable costs of $8875, for a total
of $75,736. He denied appellants' cross-motion for clarification "because the
[c]ourt's order was very clear when it was placed on the record on May 24."
Before the court entered the final judgment in Marigold I, on June 6,
2018, Marigold and the Kassams filed a motion for summary judgment in
Marigold II. They argued appellants failed to state a claim for relief because the
verdict in the first action barred the relief sought by them in the second "based
on the entire controversy doctrine, res judicata, and collateral estoppel."
On July 9, 2018, appellants filed a cross-motion to amend their complaint
in Marigold II, seeking leave to remove Marigold and add the two finance
companies used by Sam and Marigold as defendants. Appellants attached a
proposed amended complaint which alleged the Kassams were involved in a
fraudulent scheme to "lure immigrants, low skill and low education individuals
who often cannot speak English to enter into [a] business relationship with
[them]" and open and close dollar stores in their names.
The proposed amended complaint claimed the dollar stores do not pay
taxes and that the Kassams siphon money out of the stores. It further alleged
A-5849-17T3 15 that the Kassams improperly used the finance companies to open bank accounts
for the money taken from the various stores. The amended complaint included
seven counts, alleging fraud, unjust enrichment, conversion, breach of contract,
conspiracy, racketeering violations, and consumer fraud.
On July 20, 2018, the parties appeared before the trial judge on their
respective motions. The judge first observed,
The counterclaim was voluntarily dismissed because at the close of plaintiffs' case, I asked [] defendant[s] to proceed with [their] counterclaim. [They] then dismissed the counterclaim. They had no proof. They agreed to a voluntary dismissal of the counterclaim. The amended answer and counterclaim [in Marigold I] . . . and the complaint [in Marigold II] . . . are identical.
Counsel for appellants explained she filed Marigold II because the
previous judge denied appellants' motion to amend their responsive pleading.
Counsel further noted that the reconsideration decision only permitted
appellants to amend their answer and counterclaim. Counsel asserted that
appellants voluntarily dismissed their counterclaims with the understanding that
they would be able to maintain their claims against the Kassams in Marigold II.
The trial judge rejected this contention as "preposterous." He pointed out that
"[Sam] was in [c]ourt. He was examined and cross[-]examined. His wife was
A-5849-17T3 16 in [c]ourt, examined and cross[-]examined. . . . you can't try a case twice." The
judge further explained,
There is absolutely nothing about this complaint that can survive a motion to dismiss. It is res judicata. It is, you are collaterally estopped, and the [e]ntire [c]ontroversy [d]octrine required that it be pled in [Marigold I], and it was pled in [Marigold I]. And this was just filed because, for some reason, the counterclaim at that point was not viable in [Marigold I]. And when it was, this should have been automatically dismissed, because it's the identical claim. Dismissed with prejudice. Motion granted.
On August 14, 2018, the court entered two orders in Marigold II: 1) granting the
summary judgment dismissal of the Arumugams' complaint against Marigold
and the Kassams; and 2) denying the Arumugams' motion for leave to amend
their complaint.
On September 28, 2018, the Arumugams filed appeals in both cases. In
their appeal in Marigold I, appellants contend the trial judge erred when he failed
to address the enforceability of the Agreement's restrictive covenant, which they
argue is unenforceable. They also contend the court unreasonably awarded
attorney's fees to Marigold. In their appeal of Marigold II, appellants argue the
judge erred when he denied their cross-motion for leave to amend their
complaint and when he granted the summary judgment dismissal of their
complaint against the Kassams.
A-5849-17T3 17 II
We first address the arguments raised in Marigold I. Our review of a
judge's verdict following a bench trial is limited. Our standard of review
requires that we uphold the trial judge's factual findings, provided they are
"supported by adequate, substantial and credible evidence." Rova Farms Resort,
Inc., v. Investors Ins. Co., 65 N.J. 474, 484 (1974). Thus, "we do not disturb
the factual findings and legal conclusions of the trial judge unless we are
convinced that they are so manifestly unsupported by or inconsistent with the
competent, relevant and reasonably credible evidence as to offend the interests
of justice." Seidman v. Clifton Sav. Bank, S.L.A., 205 N.J. 150, 169 (2011)
(citations and internal quotation marks omitted). Credibility determinations
receive "particular deference," RAB Performance Recoveries, LLC v. George,
419 N.J. Super. 81, 86 (App. Div. 2011), because of the position of the trial
judge to observe witnesses and hear them testify. Cesare v. Cesare, 154 N.J.
394, 412 (1998); however, the "trial court's interpretation of the law and the
legal consequences that flow from established facts are not entitled to any
special deference." Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378,
(1995).
A-5849-17T3 18 Non-competition covenants, while enforceable, are scrutinized closely
because they operate in derogation of free competition and the individual's right
to exploit his or her skills and labor. A non-compete provision is not valid if its
only purpose is to restrict competition, but it may be valid to the extent it furthers
some other legitimate goal. See Solari Industries, Inc. v. Malady, 55 N.J. 571,
576 (1970); Whitmyer Bros. v. Doyle, 58 N.J. 25, 36 (1971). Courts considering
non-compete covenants recognize that a business has a legitimate interest "in
protecting trade secrets, confidential information, and customer relations."
Campbell Soup Co. v. Desatnick, 58 F. Supp. 2d 477, 489 (D.N.J. 1999) (quoting
Ingersoll-Rand Co. v. Ciavatta, 110 N.J. 609, 628 (1988)).
New Jersey courts have considered covenants not to compete executed in
connection with an employment contract and those signed incident to the sale of
a business. Restrictive covenants ancillary to an employment agreement are
enforceable only insofar as they are reasonable under the circumstances. Solari,
55 N.J. at 576; Whitmyer, 58 N.J. at 32. In Solari, the Court enunciated a three-
part standard for determining the enforceability of such covenants: 1) it must
protect a legitimate interest of the employer; 2) it may impose no undue hardship
on the employee; and 3) it must not impair the public interest. 55 N.J. at 585.
Even if found to be enforceable, a covenant "may be limited in its application
A-5849-17T3 19 concerning its geographical area, period of enforceability, or its scope of
activity," sometimes referenced as the "blue pencil" rule. Coskey's T.V. &
Radio Sales v. Foti, 253 N.J. Super. 626, 634 (App. Div. 1992) (citing Solari,
55 N.J. at 585).
As we recognized in ADP, LLC v. Kusins, 460 N.J. Super. 368, 402 (App.
Div. 2019), after a court analyzes the relevant factors, a restrictive covenant may
be given "total or partial enforcement to the extent reasonable under the
circumstances." (quoting Whitmyer, 58 N.J. at 32). Our Supreme Court
replaced a void per se rule in favor of a rule which allows courts to "limit or
'blue-pencil' the application of [a restrictive covenant] in terms of the
geographical area, period of enforceability, and scope of prohibited activity."
Id. (citing Solari, 55 N.J. at 585).
In contrast to restrictive covenants ancillary to an employment agreement,
"covenants ancillary to the sale of a business are accorded far more latitude."
Coskey's, 253 N.J. Super. at 633. Sound reasons explain the difference in
treatment:
[I]f a retail store is purchased at a particular location, the seller receives payment for the good will generated at that location, recognizing that customers would be inclined to continue shopping at the facility. See Heuer v. Rubin, 1 N.J. 251, 256 (1949). For the seller to thereafter trade on that good will by reopening within
A-5849-17T3 20 the competitive area would destroy the essence of the transaction.
[Ibid.]
"[N]oncompetitive agreements . . . have a proper place and are enforceable
under appropriate circumstances. Thus a seller's incidental noncompetitive
covenant, which is designed to protect the good will of the business for the
buyer, is freely enforceable in the courts." Solari, 55 N.J. at 576. "Nonetheless,
courts, in examining sale[-]of[-]business non-competes, should perform the
three[-]part Solari/Whitmyer test, albeit more flexibly." Laidlaw. Inc. v. Student
Transp. of Am., 20 F. Supp. 2d 727, 754 (D.N.J. 1998). As noted in Jiffy Lube
Int'l, Inc. v. Weiss Bros., 834 F. Supp. 683, 691 (D.N.J. 1993),
"[N]otwithstanding the deference given to restrictive covenants made in
connection with the sale of a business, there is no indication that New Jersey
law denies to the court the right to 'blue pencil' such a covenant to insure that it
is reasonably tailored to meet the Solari test . . . ." (citation omitted).
In this case, the trial judge did not perform the three-part Solari/Whitmyer
test; instead, he analyzed Marigold's claim under a traditional breach of contract
analysis. It appears the judge focused on Marigold's complaint, which sought
damages for breach of contract, and did not seek prospective enforcement of the
restrictions contained in the non-compete provision of the Agreement.
A-5849-17T3 21 Given that the trial judge has since retired, we choose to exercise our
original jurisdiction and complete the three-part Solari/Whitmyer analysis. R.
2:10-5 ("The appellate court may exercise such original jurisdiction as is
necessary to the complete determination of any matter on review."). We choose
to exercise original jurisdiction since the trial judge's factual findings and
credibility determinations, along with the extensive trial record, provide an
adequate basis for us to perform the three-part Solari/Whitmyer analysis.
The first requirement that must be met for a restrictive covenant to be
enforceable is that it "simply protect the legitimate interests" of the covenantee.
Traditionally, this has meant trade secrets, confidential business information,
and customer relationships. Coskey's, 253 N.J. Super. at 636. In this case, given
the nature of the Dollar Store business and the services provided by Marigold ,
we conclude that Marigold's vendor and landlord relationships constitute
legitimate interests worthy of protection.
In their brief, appellants implicitly concede this case presents legitimate
business interests worthy of protection. The Agreement prevents appellants
from contacting Marigold's vendors and landlords for two years. Appellants do
not challenge this restriction, presumably because they know it does protect
Marigold's legitimate business interest in the Dollar Store industry.
A-5849-17T3 22 As Marigold argues, and the record reflects,
Dollar Store prices are low because they sell "closeout" items – lines of merchandise that larger stores discontinue and sell to Dollar Stores at low cost. Quantities are finite, but necessary for Dollar Stores to survive. Also, because of the nature of the business, Dollar Stores frequently fail and close soon after they open. This is why they have to have short term leases, which not all malls permit. That is why Marigold's relationship with its landlords and vendors is so important and distinguishable from those in the mainstream retail industry.
The Agreement also prohibits appellants from working for Dollar Stores
within ten miles of the stores Marigold services. Appellants do challenge this
restriction, but only insofar as the ten-mile restriction is concerned; however,
the evidence shows that at least one of M City Dollar's stores was less than three
miles from Marigold's stores. Therefore, the Agreement can be blue-penciled
to make the geographic limitation three miles, effectively rendering this
challenge moot. Similarly, since the record contains overwhelming evidence
that Tony began violating the non-compete within three months of the
Agreement – if not immediately – the Agreement can be blue-penciled to make
the duration of the non-compete six months, instead of sixty months.
Appellants' main argument is that "Marigold is in no position to make any
kinds of restrictions on [the Arumugams'] employment because Marigold and
A-5849-17T3 23 [the Arumugams] have no discernable relationship with one another." This
argument ignores Tony's admitted long-term business relationship with Sam,
and appellants' own assertion, in its amended counterclaim, that "there is no
distinction between [Sam] and Marigold."
Appellants also argue that Marigold had no legitimate business interests
at all in 2015 (when the noncompete Agreement was executed) because it
reported no net income that year; however, as Marigold notes, the reason it
showed no income is because it distributed its income.
Significantly, the covenants here were purchased, not just nominally, but
for $120,000. While Tony made a general claim that he was owed significant
sums from his business relationship with Sam, appellants presented no credible
testimony or documentary evidence to support their claim. We agree with
Marigold that the record demonstrates the covenants served a legitimate
business purpose, especially considering the significant sum of money paid as
consideration for them, following good faith business negotiations.
To be enforceable, the covenants in the Agreement must also not impose
undue hardship on the covenantors. Karlin v. Weinberg, 77 N.J. 408, 423 (N.J.
1978). For a court to find undue hardship, a particular non-competition
restriction must result in more than mere "personal hardship." Id. at 424. The
A-5849-17T3 24 inquiry should look to the "likelihood of the employee finding work in his [or
her] field elsewhere." Id. at 423. Where the breach results from the covenanters'
own conduct, "rather than from any wrongdoing by the [covenantee], a court
should be hesitant to find undue hardship . . . ." Id. at 424.
The question of hardship focuses on the adverse impact that compliance
with the covenant will have. Here, the record contains no credible evidence of
compliance, and Marigold does not seek prospective compliance. Moreover, the
two-year prohibition against contact with vendors and landlords in Paragraph 8
of the Agreement expired long ago. And the five-year covenant not to compete
in Paragraph 3 expired earlier this year. Regardless, as previously noted, it can
be "blue-penciled" down to six months. Thus, we agree with Marigold that the
hardship question is moot because appellants never complied with the covenants
and will never have to comply. Any hardship that appellants experienced was
self-imposed. Requiring appellants to repay the $120,000 they were paid as
consideration for the non-compete covenant they failed to honor, does not
constitute undue hardship.
The third requirement for an enforceable restrictive covenant is that it not
be "injurious to the public." The Arumugams do not argue this point. Since
Marigold did not seek prospective enforcement of the promises in its restrictive
A-5849-17T3 25 covenant, only the return of the money it paid for the covenant, enforcement
limited to compensating Marigold for past non-compliance would not injure the
public. Where a case presents "no major public component," no "extended
discussion" is required. Coskey's, 253 N.J. Super. at 793. We further note that
the non-compete provision at issue here is part of a private contract between
parties of equal bargaining power. No employer-employee relationship existed
between Marigold and the Arumugams.
Here, the issue is the computation of damages for breach of the non-
compete clause. In Totaro, Duffy, Cannova & Co., L.L.C. v. Lane, Middleton
& Co., L.L.C., 191 N.J. 1 (2007), the Court set forth the principles that inform
any award of contract damages. As a threshold matter, it explains that "judicial
remedies upon breach of contract fall into three general categories: restitution,
compensatory damages and performance." Id. at 12 (citation and internal
quotation marks omitted). The Court noted that
[e]ach of these contract remedies serves a different purpose. Restitution returns the innocent party to the condition he or she occupied before the contract was executed. Compensatory damages put the innocent party into the position he or she would have achieved had the contract been completed. Performance makes the non-breaching party whole by requiring the breaching party to fulfill his or her obligation under the agreement.
A-5849-17T3 26 [Id. at 12-13 (citation omitted).]
We conclude that the court applied the proper legal standard by awarding
the $120,000 Marigold previously paid as the amount of compensatory damages.
As to the court's factual findings of the amount of the compensatory damages,
there is sufficient credible evidence in the record to support its finding.
Regarding counsel fees and costs, we review such determinations of the
trial court for a clear abuse of discretion and will disturb that determination
"only on the rarest of occasions[.]" Litton Indus., Inc. v. IMO Indus., Inc., 200
N.J. 372, 386 (2009) (quoting Packard-Bamberger & Co., Inc. v. Collier, 167
N.J. 427, 444 (2001)). A prevailing party may only seek attorney's fees "if they
are expressly provided for by statute, court rule, or contract." Id. at 385 (quoting
Packard-Bamberger, 167 N.J. at 440).
The trial judge noted the Agreement specifically provided for the award
of attorney's fees to Marigold in the event the Arumugams breached the
Agreement. He concluded Marigold was successful on the merits as the breach-
of-contract issue dominated the entirety of the ten-day bench trial. Furthermore,
he reviewed counsel's certification on the record and found "[f]or each item there
was a date of service, a description of the services provided, the amount of time
broken down into tenths of [an] hour, and the hourly rate, which was $250 per
A-5849-17T3 27 hour . . . ." The judge also analyzed the RPC 1.5(a) factors and determined that
Marigold was entitled to recover all of its fees. We find no basis to disturb the
award in this case.
III
We next turn to the arguments raised in the appeal of the Marigold II
dismissal order. The Arumugams contend the judge erred in granting summary
judgment in favor of Marigold and the Kassams as the doctrines of res judicata,
collateral estoppel, and entire controversy did not apply. They argue they were
denied a fair and full opportunity to litigate the issues in the first action. We
disagree.
We review a trial court's decision granting summary judgment de novo,
using the same standard the trial court applied. Townsend v. Pierre, 221 N.J.
36, 59 (2015) (citing Davis v. Brickman Landscaping, Ltd., 219 N.J. 395, 405
(2014)). A court should grant summary judgment if the record establishes there
is "no genuine issue as to any material fact challenged and that the moving party
is entitled to a judgment or order as a matter of law." R. 4:46-2(c).
"An issue of material fact is 'genuine only if, considering the burden of
persuasion at trial, the evidence submitted by the parties on the motion, together
with all legitimate inferences therefrom favoring the non-moving party, would
A-5849-17T3 28 require submission of the issue to the trier of fact.'" Grande v. Saint Clare's
Health Sys., 230 N.J. 1, 23-24 (2017) (quoting Bhagat v. Bhagat, 217 N.J. 22,
38 (2014)). "If there exists a single, unavoidable resolution of the alleged
disputed issue of fact, that issue should be considered insufficient to constitute
a 'genuine' issue of material fact for purposes of Rule 4:46-2." Brill v. Guardian
Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). We also review the trial court's
legal conclusions de novo. Manalapan Realty, L.P. v. Twp. Comm. of
Manalapan, 140 N.J. 366, 378 (1995).
The claims the Arumugams asserted in Marigold II are identical to the
counterclaims they brought in Marigold I. The facts alleged in Marigold II are
nearly identical to the counterclaim facts alleged in Marigold I. The only
difference between the two pleadings are paragraphs 50-55 in Marigold II
complaint, which allege facts to support an unjust enrichment claim against
Reshma; otherwise, the two pleadings contain identical factual allegations. In
addition, both pleadings assert identical causes of action.
Under the doctrine of res judicata, a "cause of action between parties that
has been finally determined on the merits by a tribunal having jurisdiction
cannot be relitigated by those parties or their privies in a new proceeding."
A-5849-17T3 29 Velasquez v. Franz, 123 N.J. 498, 505 (1991). New Jersey law requires three
basic elements for res judicata to apply:
(1) the judgment in the prior action must be valid, final, and on the merits; (2) the parties in the later action must be identical to or in privity with those in the prior action; and (3) the claim in the later action must grow out of the same transaction or occurrence as the claim in the earlier one.
[Watkins v. Resorts Int'l Hotel & Casino, 124 N.J. 398, 412 (1991).]
It is well settled that a "judgment of involuntary dismissal or a dismissal
with prejudice constitutes an adjudication on the merits 'as fully and completely
as if the order had been entered after trial.'" Velasquez, 123 N.J. at 507 (quoting
Gambocz v. Yelencsics, 468 F.2d 837 (3d Cir. 1972)).
In both cases under review, appellants sued Marigold for fraud, unjust
enrichment, conversion, and breach of contract. In both cases, they alleged the
same facts as the basis for each cause of action. Clearly, the second and third
requirements are satisfied. Regarding the first requirement, appellants'
voluntary dismissal of their counterclaims in Marigold I operates as a final
judgment on the merits. See Chase Manhattan Bank, N.A. v. Celotex Corp., 56
F.3d 343, 345 (2d Cir. 1995) ("A voluntary dismissal with prejudice is an
adjudication on the merits for purposes of res judicata.")
A-5849-17T3 30 Appellants argue they moved to dismiss their counterclaims in the
Marigold I because the trial judge "continually refused to hear evidence relevant
to their counterclaim . . . . " While the trial judge expressed frustration with
what he perceived as a lack of trial preparation, the record does not support the
contention he refused to hear or receive relevant evidence. Even if the record
supported this contention, we nevertheless reject the argument that this alleged
unadjudicated claim could be pursued in a separate lawsuit. If the trial judge
refused to hear relevant evidence, then it was incumbent on counsel to attempt
to present all relevant evidence to the trial judge, thereby creating an appropriate
record, and if the judge refused to hear the evidence, to pursue an appeal
regarding the scope of the judgment that had been entered in that action.
Appellants did not have the luxury of simply dismissing their counterclaim in
order to pursue this alleged unadjudicated claim in another pending lawsuit.
Clearly, the entire controversy doctrine does not permit such serial
lawsuits. To the contrary, the entire controversy doctrine was devised as a means
of promoting judicial economy and fairness to the parties; the doctrine requires
that, whenever possible, a party should assert all claims arising from the sa me
set of facts in a single lawsuit. Harley Davidson Motor Co., Inc. v. Advance
Die Casting, Inc., 150 N.J. 489, 496 (1997). To the extent that the Arumugams
A-5849-17T3 31 argue the judge erred in Marigold I by refusing to hear evidence relevant to their
counterclaim, it obviously is inappropriate for them to attempt to pursue those
arguments in Marigold II, rather than by way of an appeal of those rulings in
Marigold I.
Res judicata also precludes appellants' claims against the Kassams in
Marigold II. Res judicata applies not only to parties in a prior lawsuit, but also
to those in privity with them. Township of Washington v. Gould, 39 N.J. 527,
533 (1963) ("It is well-settled that where a judgment of a court of competent
jurisdiction directly determines a right, question or fact distinctly put in issue,
such judgment estops the parties or their privies from thereafter relitigating the
same issue in a subsequent proceeding between them, regardless of its nature or
form).
Appellants concede Sam is the sole owner and officer of Marigold and
that he makes its decisions. They further allege that the interests of Sam and
Marigold are so aligned to make them alter egos (hence the pierce-the-corporate-
veil claim in both cases). Sam is therefore in privity with Marigold for res
judicata purposes, because the claims against him here are identical to those
against Marigold in Marigold I. For that reason, summary judgment in his favor
was proper. See Henry v. Farmer City State Bank, 808 F.2d 1228, 1235 n.6 (7th
A-5849-17T3 32 Cir. 1986) ("The doctrine of res judicata operates to bar the RICO claims against
all of the defendants. Even though the Bank was the only actual party to the
state court mortgage foreclosure proceedings, the other defendants, as directors,
officers, employees, and attorneys of the Bank, are in privity with the Bank for
purposes of res judicata.").
In addition, we conclude the entire controversy doctrine precludes
appellants' claims against both Sam and Reshma. "[T]he entire controversy
doctrine seeks to assure that all aspects of a legal dispute occur in a single
lawsuit. The goals of the doctrine are to promote judicial efficiency, ensure
fairness to all parties with a material interest in an action, and encourage the
conclusive determination of a legal controversy." Olds v. Donnelly, 150 N.J.
424, 431 (N.J. 1997).
The doctrine applies not only to claims but to parties as well. Id. (holding
entire controversy doctrine "requires that parties should present all affirmative
claims and defenses arising out of a controversy," and also “requires the
mandatory joinder of all parties with a material interest in a controversy.").
In considering the application of the entire controversy doctrine,
courts are to be guided by the general principle that all claims arising from a particular transaction or occurrence should be joined in a single action. . . . That mandate encompasses not only matters actually
A-5849-17T3 33 litigated but also other aspects of a controversy that might have been litigated and thereby decided in an earlier action. . . . Ultimately, it is for the trial court to determine whether or not joinder is appropriate in a given case, and thus litigants should be compelled to bring all actions at one time, with the understanding that trial judges are empowered, once all claims are joined, to segregate different claims to assure manageability, clarity and fairness.
[Higgins v. Thurber, 413 N.J. Super. 1, 12 (App. Div. 2010), (internal citations and quotations omitted).]
In January 2016, Marigold filed its complaint in Marigold I and appellants
filed their answer and counterclaims in March 2016. More than a year-and-a-
half later, on September 27, 2017, appellants filed a motion in Marigold I for
leave: 1) to amend their answer; 2) to assert additional counterclaims against
Marigold; and 3) to file a third-party complaint against Sam and Reshma. The
court denied the motion because appellants failed to submit Sam's deposition
testimony.
Because their motion was denied, appellants filed Marigold II, naming
Marigold, Sam, and Reshma as defendants. Two weeks later, on November 16,
2017, appellants filed a motion to reconsider in Marigold I. In support, they
again included their attorney's certification and this time included Sam's
deposition transcript. However, they only sought reconsideration of the ruling
denying the request to amend their answer and add new counterclaims – they
A-5849-17T3 34 did not seek reconsideration of the ruling denying their request to file a third -
party complaint against Sam and Reshma. Nevertheless, they did acknowledge
consolidation of Marigold II with Marigold I was necessary, stating: "At this
time, [the Arumugams] seek to file only [an amended] [a]nswer and
[c]ounterclaim as, due to [the] [c]ourt's decision, a separate complaint against
[Sam] has been filed and the [the Arumugams] will seek to consolidate."
Appellants' motion to reconsider was granted, and on January 29, 2018, they
filed their amended answer and counterclaim in Marigold I.
Notwithstanding their stated intentions, appellants never sought to
consolidate Marigold I and Marigold II. As a result, Marigold did; however,
appellants inexplicably opposed consolidation. Ultimately, the court denied
Marigold's motion to consolidate. Appellants' brief failed to acknowledge the
motion to consolidate or provide any explanation for their opposition to
Marigold's consolidation motion. Marigold argues that appellants opposed the
motion "because they wanted to keep the two cases separate." In the absence of
any other explanation, we conclude that Marigold's assertion is likely correct
and weighs heavily against the non-application of the entire controversy
doctrine. We agree with Marigold that the court would have likely granted the
consolidation motion, if unopposed, "given the complete overlap between the
A-5849-17T3 35 [two cases]." Given the procedural history described, the goals of the entire
controversy would be severely undermined if appellants were permitted to
pursue Marigold II at this point.
Regarding appellants' belated motion to file an amended complaint in
Marigold II, the judge did not abuse his discretion in denying appellants' motion.
At that point, Marigold II was subject to dismissal, as noted, on multiple
grounds. A proposed amendment should be denied when it is futile. See Mustilli
v. Mustilli, 287 N.J. Super. 605, 607 (Ch. Div.1995).
Affirmed.
A-5849-17T3 36