SEASIDE PROPERTIES, LLC VS. ARF REALTY MANAGEMENT (C-000092-17, MIDDLESEX COUNTY AND STATEWIDE)

• Court: New Jersey Superior Court Appellate Division
• Decided: June 16, 2020
• Docket: A-1895-18T2
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ."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-1895-18T2

SEASIDE PROPERTIES, LLC,

Plaintiff-Respondent,

v.

ARF REALTY MANAGEMENT and ARF REALTY INVESTORS CORP.,

Defendants/Third Party Plaintiffs-Appellants,

and

PB 24 & 35 CUTTERS DOCK, LLC,

Defendant-Respondent,

SEASIDE PROPERTIES, LLC, WALTER JAKOVCIC, RICHARD MATERA, TITAN DEMOLITION & SALVAGE, LLC, UNITED WASTE MANAGEMENT, INC., RAILWAY PROPERTY, LLC, BLUE DOLPHIN FREIGHT SYSTEMS, INC., GREEN AMERICAN TECHNOLOGIES, INC., d/b/a AMERICAN EAGLE PALLETS, and MATJAC PALLETS, INC., d/b/a AMERICAN EAGLE PALLETS,

Third-Party Defendants- Respondents,

JADRANKA JAKOVIVC and PAMELA MATERA,

Third-Party Defendants.

Submitted March 31, 2020 – Decided June 16, 2020

Before Judges Accurso and Gilson.

On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County, Docket No. C- 000092-17.

The Behrins Law Firm, attorneys for appellants (Jonathan B. Behrins, on the briefs).

Wilentz Goldman & Spitzer, PC, attorneys for respondents Seaside Properties, LLC, Titan Demolition & Salvage, LLC, United Waste Management, Inc., Railway Property, LLC, Blue Dolphin Freight Systems, Inc., Green American Technologies, Inc., and Matjac Pallets, Inc. (Willard C. Shih and Daniel A. Cozzi, of counsel and on the brief).

PER CURIAM

This appeal arises out of a dispute over whether defendants produced all

documents responsive to discovery demands. Defendants ARF Realty

A-1895-18T2 2 Management and ARF Realty Investors Corporation (ARF or defendants) appeal

from orders striking their pleadings with prejudice for failing to produce more

responsive discovery and denying their motions to reinstate their pleadings and

for reconsideration. We reverse and remand with directions that the trial court

make specific findings of fact warranting the harsh sanction of dismissal , in

accordance with Rule 1:7-4. If such findings cannot be made, the trial court is

to reinstate the pleadings and consider a lesser sanction under Rule 4:23-2. See

also R. 4:18-1(b)(4).

I.

We derive the facts from the record developed on the motions to compel

discovery and dismiss ARF's pleadings. The record provided to us is relatively

extensive; it includes twenty volumes of appendices and three transcripts. While

there are thousands of pages submitted, the parties have provided little analysis

of whether the thousands of pages of documents that were produced by ARF are

responsive to plaintiff's document demands.

The underlying litigation concerns allegations about alleged loans and

alleged mortgages. Plaintiff Seaside Properties, LLC (Seaside or plaintiff) owns

property located in Woodbridge (the Property). In June 2017, Seaside filed a

complaint seeking to quiet title to the Property and declare a mortgage and an

A-1895-18T2 3 assignment of that mortgage void and unenforceable. Seaside asserted that in

February 2014, ARF had improperly filed a mortgage in the amount of $3.5

million on the Property (the Mortgage). Seaside also asserted that the allegedly

invalid Mortgage had thereafter been assigned to defendant PB 24 & 35 Cutters

Dock, LLC (PB).

ARF disputed Seaside's claims and filed an answer asserting that the

Mortgage is valid and enforceable. ARF also asserted counterclaims against

Seaside contending that it had loaned Seaside approximately $10 million and

seeking repayment of those alleged loans. In addition, ARF alleged that Seaside

had been indebted to ARF prior to the disputed February 2014 Mortgage.

In September 2017, ARF also filed a third-party complaint against

Seaside, its members – Walter Jakovcic and Richard Matera – and entities

owned or operated by Jakovcic or Matera. ARF contended it had loaned the

third-party defendants approximately $10 million and it sought repayment of

those loans.

Thereafter, the parties engaged in discovery. In January 2018, Seaside

sent interrogatories and document demands to ARF. The document demands

consisted of forty-seven requests for documents. In February 2018, ARF

responded to all forty-seven document demands, but stated that it did not have

A-1895-18T2 4 certain documents and in response to other requests it produced copies rather

than the originals.

On March 22, 2018, counsel for Seaside sent counsel for ARF a letter

asserting that ARF's discovery responses were deficient. Addressing the

document demands, Seaside claimed that eight out of the forty-seven responses

were deficient. Of the eight alleged deficiencies, Seaside complained that in

five responses ARF had sent copies of the responsive documents, but not the

originals.1

Apparently, ARF did not initially respond to the deficiencies concerning

the document demands. Accordingly, in April 2018, Seaside moved to compel

discovery. On April 27, 2018, the trial court entered an order directing ARF to

provide "more specific responses." On May 25, 2018, the trial court also entered

a case management order directing ARF to produce the additional documents by

June 8, 2018.

On June 12, 2018, Seaside moved to strike ARF's pleadings. ARF claims

that on July 3, 2018, it sent more "detailed and streamlined" document responses

1 Seaside also complained that ARF had answered the wrong set of interrogatories by answering the interrogatories that had been served on defendant PB. ARF subsequently cured that deficiency. Accordingly, the orders at issue on this appeal only address the alleged deficiencies with ARF's responses to document demands. A-1895-18T2 5 to Seaside, which included hundreds of pages of documents. ARF, however,

apparently failed to oppose the motion to strike its pleadings. Consequently, on

July 6, 2018, the trial court entered an order striking, without prejudice, ARF's

pleadings.

Eleven days later, on July 17, 2018, ARF moved to reinstate its pleadings.

In support of that motion, counsel for ARF filed an affidavit representing that

ARF "has fully complied with" its discovery obligations and provided to Seaside

"every document in ARF's possession which was requested in discovery."

Counsel for ARF also represented that ARF did not have certain original

documents.

Seaside opposed the motion to reinstate and submitted a certification from

its counsel that stated: "To date, ARF . . . has not provided written responses

and documents responsive to the March 22, 2018 deficiency letter." That

certification did not analyze the documents produced by ARF, nor did it respond

to ARF's contention that all responsive documents in ARF's possession had been

produced.

On August 3, 2018, the trial court denied ARF's motion to reinstate. The

court explained the reasons on the record. The court did not analyze the

documents that ARF had produced to see whether they were responsive. Instead,

A-1895-18T2 6 the trial court accepted the representation of counsel for Seaside that ARF had

failed to provide responsive documents to seven of Seaside's forty-seven

document requests. In that regard, the trial court listed as deficient the responses

to document request numbers 10, 20, 21, 24, 25, 28, and 45. The trial court also

pointed out that the motion to reinstate was supported by an affidavit from

counsel and not a representative of ARF.

On August 20, 2018, ARF filed a motion for reconsideration. In support

of that motion, ARF submitted a certification from Antonio Fasolino, the owner

and president of ARF. Fasolino certified that (1) ARF had "fully complied with

the discovery demands" from Seaside; (2) ARF had already produced copies of

documents responsive to Seaside document demand numbers 10, 17, 21, 25, and

28; (3) ARF had the originals of those documents and they were available for

inspection by Seaside; and (4) ARF had responded to demand numbers 20 and

24 and provided documents, and explained why ARF did not have any

documents for demand number 45.

On September 14, 2018, the trial court entered an order denying ARF's

motion for reconsideration. The order stated that the court had heard arguments

on the motion and gave reasons for its decision in a "[b]ench [o]pinion rendered

A-1895-18T2 7 on September 14, 2018," but no transcript or opinion was included in the record

on this appeal.

On September 26, 2018, Seaside filed a motion to strike ARF's pleadings

with prejudice. Seaside contended that ARF still had not cured the deficiencies

in certain responses to document demands. On October 10, 2018, ARF produced

additional responses and documents to Seaside. Those responses included

hundreds of pages of documents and a certification from Fasolino describing the

documents that were being produced.

ARF apparently did not file formal opposition to Seaside's motion to strike

its pleadings with prejudice. Thus, on October 12, 2018, the trial court

adjourned the motion to November 9, 2018, and directed ARF to file a motion

to reinstate.

On November 9, 2018, the trial court heard oral argument on the motion

to strike with prejudice. The court then issued an order granting that motion and

supported its decision with a letter opinion. In the letter opinion, the trial court

noted that ARF had failed to file a motion to reinstate, but the court pointed out

that ARF had filed a certification clarifying its discovery responses. Without

analyzing that certification and the documents that were submitted, the trial

court found that ARF had failed to comply with Seaside's discovery requests and

A-1895-18T2 8 failed to file a motion to reinstate as directed by the court. Consequently, the

court entered an order striking with prejudice ARF's "answer and affirmative

claims" under Rule 4:23-5.

II.

On appeal, ARF argues that the trial court erred in striking its pleadings

and "repeatedly" denying its "[m]otions to [r]einstate and [m]otions for

[r]econsideration." In opposition, Seaside contends that ARF failed to comply

with Rule 4:23-5 and the trial court properly dismissed ARF's pleadings with

prejudice. What is missing from both parties' analysis is a proper examination

of whether ARF's responses were deficient and whether Seaside suffered any

prejudice as a result of any deficiencies.

Our review of a trial court's discovery orders is limited, and we will

generally defer to discovery rulings "absent an abuse of discretion or a . . .

misunderstanding or misapplication of the law." Capital Health Sys. v. Horizon

Healthcare Servs., 230 N.J. 73, 79-80 (2017) (citing Pomerantz Paper Corp. v.

New Cmty. Corp., 207 N.J. 344, 371 (2011)). The well-settled purpose of Rule

4:23-5 is to elicit outstanding discovery "rather than to punish the offender . . .

." Zimmerman v. United Serv. Auto. Ass'n, 260 N.J. Super. 386, 374 (App. Div.

1992). Accordingly, dismissal "with prejudice is a drastic remedy," and courts

A-1895-18T2 9 should use it "sparingly" where the violation of a rule or order evidences

deliberate disregard of the court's authority and the non-offending party suffers

prejudice. Gonzalez v. Safe & Sound Sec. Corp., 185 N.J. 100, 115-16 (2005)

(citations omitted).

To succeed on a motion to dismiss with prejudice under Rule 4:23-5 for

failure to provide discovery, the moving party must strictly comply with the

requirements of the rule, which requires a two-step process. Sullivan v.

Coverings & Installation, Inc., 403 N.J. Super. 86, 93 (App. Div. 2008). In step

one, "the aggrieved party may move for dismissal for non-compliance with

discovery obligations and, if the motion is granted, the [pleading] is

[suppressed] without prejudice." Ibid. (citing R. 4:23-5(a)(1)). The delinquent

party then has sixty days to cure and move to reinstate the pleadings. R. 4:23-

5(a)(1) to (2). If it does not, in step two the non-delinquent party may seek

dismissal with prejudice. Sullivan, 403 N.J. Super. at 93 (quoting R. 4:23-

5(a)(2)).

Rule 4:23-5 is generally not applicable where a party has answered the

discovery and there is a dispute over the adequacy of the response. As a

comment to the Rule explains:

Moreover, the rule is inapplicable where the issue is not a failure to answer but rather a bona fide dispute as to

A-1895-18T2 10 the adequacy of the answers. In the latter case a dismissal is inappropriate. Rather the court must adjudicate the dispute and, if appropriate, enter an order compelling more specific answers. Zimmerman, 260 N.J Super. []368 []. See also Adedoyin v. ARC of Morris Cty., 325 N.J. Super. 173 (App. Div. 1999) (answers claimed not to be fully responsive will defeat a motion to dismiss with prejudice if adequate to defeat a motion to dismiss without prejudice); St. James AME Dev. v. Jersey City, 403 N.J. 480, 485-86 (App. Div. 2008) (a bona fide dispute as to the adequacy of the answers must be determined before disposition of either a motion to dismiss with prejudice or a motion to restore the dismissed pleading).

[Pressler & Verniero, Current N.J. Court Rules, cmt. 1.5 on R. 4:23-5 (2020).]

Here, ARF did not fail to respond to Seaside's discovery requests. Instead,

ARF responded to forty-seven document demands and produced thousands of

pages of documents. Seaside, however, contended that eight out of the forty-

seven responses were deficient. Significantly, five of the alleged deficiencies

asserted that ARF produced a copy rather than the original. What Seaside and

the trial court never properly analyzed was whether the documents produced

were deficient and whether Seaside suffered any prejudice.

In its motion for reconsideration, ARF produced a certification from its

owner and president stating that it had produced all the documents in its

possession. It also pointed out that in response to five requests it had produced

A-1895-18T2 11 copies of the documents, but it had the originals and they were available for

inspection by Seaside. The trial court did not analyze that position to see if ARF

had been responsive. Moreover, the trial court did not analyze whether Seaside

had been prejudiced by any of the responses. The underlying dispute here is

whether ARF had a mortgage on the Property and whether ARF had made other

loans and was entitled to repayment of those loans. Nowhere in the extensive

papers submitted to us is there an analysis of whether Seaside has been

prejudiced such that it cannot prove its affirmative claim that the Mortgage

should be vacated. Nor is there an adequate analysis of whether Seaside has

been prejudiced in its ability to defend against the counterclaims and third-party

complaint.

Moreover, neither Seaside nor the trial court ever analyzed whether lesser

sanctions were appropriate. For example, if Seaside contends that some of the

documents it seeks go to defending against the third-party complaint, the trial

court could enter an order that limits ARF to the documents produced. Thus,

when the actual merits are analyzed, if ARF does not have documents supporting

its alleged loans to the third-party defendant, ARF's claims can be dismissed on

the merits.

A-1895-18T2 12 In short, the trial court did not analyze the actual discovery responses and

whether Seaside was correct in alleging that the documents produced were

deficient. In that regard, it is not enough for Seaside to simply assert that the

deficiencies were not cured when ARF is claiming that it does not have certain

documents. That disputed issue needs to be analyzed and fact findings need to

be made.

We note that the record before the trial court was complicated by ARF's

errors and failures to file formal motions to reinstate, even when directed by the

trial court. We appreciate and generally would defer to the trial court's

discretion concerning such issues. Nevertheless, counsel's failure should be

analyzed to see if it warrants a sanction that is ultimately imposed on the client.

The record does demonstrate that ARF filed supplemental discovery responses

and produced thousands of pages of discovery. While those supplemental

certifications were not formally filed in support of motions to reinstate, they

were served on Seaside and they were filed with the trial court. Accordingly,

the ARF certifications should be analyzed to see if, in fact, they are sufficient to

cure the alleged deficiencies.

Finally, we are not persuaded by Seaside's arguments that we should

decline to review certain orders and that we should not consider certain

A-1895-18T2 13 documents that were allegedly not part of the record before the trial court. The

record before us does not demonstrate that either party strictly complied with all

the requirements of Rule 4:23-5. We again emphasize that the goal is to ensure

that relevant discovery is produced so that the merits of the substantive claims

can be fairly evaluated.

Accordingly, we reverse and remand with directions that the trial court

conduct an appropriate hearing to evaluate whether the deficiencies in eight out

of forty-seven document responses were in fact cured and whether, if they were

not cured, Seaside was prejudiced in a way that would warrant striking with

prejudice ARF's answer and third-party complaint. On remand, the trial court

should also consider whether a lesser sanction than dismissal is warranted. See

R. 4:23-2; R. 4:18-1(b)(4).

Reversed and remanded. We do not retain jurisdiction.

A-1895-18T2 14