RICHARD CAPPARELLI VS. MATT LOPATIN (C-000153-17, MIDDLESEX COUNTY AND STATEWIDE)

Citation: Not availableDocket: A-1948-17T4

Court: New Jersey Superior Court; June 25, 2019; New Jersey; State Appellate Court

Original Court Document: View Document

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Richard Capparelli, the plaintiff-appellant, and Matt Lopatin, the defendant-respondent, were former business partners engaged in litigation stemming from the dissolution of their companies, Direct Wholesale, Inc. and Unlimited Pins, LLC. In May 2013, they reached a global settlement agreement that established a mediation and arbitration process for resolving disputes. Initially, disputes were to be mediated by Michael Marotte, their former corporate counsel, and, if unresolved, submitted to a three-member arbitration panel that included Marotte as a neutral arbitrator. Marotte could be dismissed by either party, with a replacement selected by the remaining arbitrators.

An arbitration agreement ratifying this mechanism was executed in August 2013 and superseded in March 2015, with the process governed by the New Jersey Uniform Arbitration Act. This agreement waived certain provisions of the Act regarding potential conflicts of interest for neutral arbitrators and allowed for billing at an hourly rate of $600. 

However, the arbitration process became costly and complicated, leading to a new agreement in May 2015 that designated Marotte as the sole decision-maker for disputes over outstanding debts owed to the companies. In July 2017, Capparelli dismissed Marotte from the arbitration panel, and by August 2017, Marotte's partner informed the parties that Marotte could no longer serve under the May 2015 agreement. When the parties failed to agree on a replacement, Capparelli filed an order to show cause and a verified complaint in September 2017, seeking to compel the appointment of a new decision-maker. Lopatin responded with a contesting answer that included defenses based on "frustration of purpose and impossibility," and he filed a counterclaim for a declaratory judgment to require the remaining arbitrators to select a replacement for Marotte or, alternatively, for the court to appoint one.

The trial judge approved the plaintiff's motion to proceed with a summary proceeding under N.J.S.A. 2A:23B-7 and Rule 4:67-1(a) and held a plenary hearing focused on the parties' intentions regarding the May 2015 agreement, which established how to select a "Responsible Collector" for debt collection. Testimony was taken from the parties, but the judge did not allow testimony from Michael Marotte, who was selected to resolve disputes. On December 8, 2017, the judge ruled the May 2015 agreement null and void, directing the parties to revert to the arbitration agreement and dismissing the complaint and counterclaim without prejudice. The plaintiff appealed this order, asserting several points of error: the exclusion of Marotte's testimony regarding the parties' intent, the judge's invalidation of the May 2015 agreement based on its language, the voiding of the arbitration agreement under the New Jersey Uniform Arbitration Act, allegations of unclean hands by the defendant due to delays in corporate winding down, and the absence of a controversy regarding the May 2013 settlement agreement.

The May 2015 agreement defined the Responsible Collector's role in debt recovery, required mutual approval for settlement offers below full payment, and designated Marotte to make final binding decisions on disputes. For debts exceeding $5,000, a 15% commission was stipulated for the Responsible Collector, while debts under $5,000 would go to a collection agency, with Marotte intervening if the parties disagreed on the agency. The agreement also included provisions for addressing any lack of cooperation, granting Marotte authority to decide on necessary corrective actions and to determine compliance post-cure period. The appellate court affirmed the trial judge's order.

Marotte has the authority to determine if a party failed to take timely corrective actions to his satisfaction. If this occurs, the non-cooperating party forfeits their right to an equal distribution of funds collected from the collection dispute, which will instead be paid directly to the cooperating party, along with any commissions earned. The May 2015 agreement emphasizes strict time limitations and states that time is of the essence for all actions required. It is governed by New Jersey law, and any disputes regarding interpretation or enforcement must be submitted to Marotte for a binding decision.

Parties executed the May 2015 agreement voluntarily, after consulting their own counsel and understanding the terms. During a hearing, the plaintiff detailed the circumstances leading to the agreement, noting that it was drafted during a negotiation day instead of a scheduled arbitration hearing intended to address substantial debts owed. The agreement was aimed at providing a more cost-effective and expedited approach to collection issues.

The plaintiff was unclear when asked whether the May 2015 agreement served as a settlement or arbitration agreement. While acknowledging three prior drafts, he could not confirm if "arbitrator" appeared in them or in the final version. Marotte was chosen as the decision maker due to his role as a neutral arbitrator on the previous panel and his long-term position as corporate counsel. The plaintiff admitted there was no discussion about a mechanism to replace Marotte if necessary, nor was it established that he was the only qualified decision maker. He expressed doubt that Marotte possessed unique knowledge of the companies' collection matters that would preclude a different individual from serving in that capacity, stating that Marotte was only familiar with a small portion of the clients involved.

Plaintiff believed that any attorney or retired judge could replace Marotte as the decision maker if necessary. The plaintiff sought to clarify that their new agreement aimed to streamline debt collection, which had been obstructed for years. While plaintiff terminated Marotte from a three-person panel, he was unaware of the reasons behind Marotte's resignation, asserting it was unrelated to his termination. Conversely, defendant perceived the May 2015 agreement as a settlement, emphasizing that Marotte's role as the decision maker was crucial for his consent to the agreement. Defendant valued Marotte's extensive knowledge and history with the companies, which influenced his willingness to compromise on other terms. He insisted that without Marotte as the decision maker, he would not have signed the agreement, and he believed it would become void, reverting to the May 2013 agreement, which lacked provisions for commissions. Since the May 2015 agreement, defendant had not collected any money, while plaintiff had. Ultimately, the judge ruled the May 2015 agreement null and void, denying plaintiff's request to appoint a new decision maker. The judge confirmed that two distinct agreements existed: the first was a May 2, 2013, settlement term sheet that outlined binding arbitration procedures, which was formalized on March 16, 2015, and the second was entered into on May 28, 2015.

The settlement agreement drafted on Marotte's firm's letterhead aimed to exclude certain issues from the March 2015 arbitration agreement, designating Marotte as the sole decision-maker. Notably, the May 2015 agreement does not mention arbitration or provide a specific arbitration process. It focused on resolving collection matters that had caused conflict between the two principals. In August 2017, the plaintiff terminated Marotte as the neutral arbitrator, leading him to withdraw from the May 2015 agreement, which lacked a replacement procedure for him. The judge considered whether to amend the May 2015 agreement to appoint a substitute for Marotte or to declare it void due to impossibility of performance or frustration of purpose. 

The judge evaluated the parties' intentions, noting the plaintiff's testimony downplayed Marotte's role, portraying him merely as one of many attorneys involved, without special qualifications. The plaintiff acknowledged that the agreement aimed to reduce costs associated with arbitration and that drafting it took considerable time. However, he conceded Marotte had a decade-long relationship with the parties and was familiar with their financial situation, although he attempted to minimize Marotte's significance.

Conversely, the defendant highlighted Marotte's extensive involvement since 2013 and his specialized knowledge of the companies and their disputes, asserting that Marotte had proposed the collection carve-out. The judge found that New Jersey case law required interpreting the May 2015 agreement according to the parties' intent, which explicitly designated Marotte as the decision-maker and omitted a replacement mechanism. Consequently, Marotte's withdrawal, following his discharge from the arbitration agreement, undermined the agreement's purpose since his role was pivotal to its formation. The May 2015 agreement was specifically designed to address collection issues outside the arbitration framework, making Marotte's involvement essential.

The May 2015 agreement lacked any references to arbitration or applicable arbitration law. Under contract law, if a party's principal purpose is frustrated without fault, their obligations may be discharged unless the agreement specifies otherwise. Courts cannot alter contract terms but must determine the parties' intent. The evidence indicated that Marotte's involvement was essential to the agreement, and his withdrawal frustrated its purpose, leading to a declaration that the May 2015 agreement was null and void based on frustration of purpose and impossibility of performance. Consequently, the parties must resort to their arbitration agreement for dispute resolution and may draft a new agreement for collections if desired.

The plaintiff argues that the trial judge erred in voiding the entire agreement, citing its explicit provision against modifications except through a written instrument and a severability clause allowing remaining parts to remain effective if any portion is deemed illegal or unenforceable. The plaintiff also contends that the court improperly relied on parol evidence regarding Marotte's necessity for the agreement's execution, as such language was absent in the agreement. The plaintiff emphasizes the agreement's intent to minimize future conflicts, asserting that voiding it contradicts this purpose. 

The agreement was characterized as a settlement, which is supported by strong public policy favoring litigation settlements. Courts require "clear and convincing proof" to vacate such agreements, which are treated as contracts under basic contract principles. Absent fraud or compelling circumstances, courts enforce settlement agreements as written, respecting the intentions of the parties and avoiding revisions unless the intent is ambiguous or leads to absurd outcomes.

Ambiguities in a settlement agreement may necessitate a hearing to clarify the parties' intent at the time of the agreement and to implement that intent. A contract is considered ambiguous if its terms allow for at least two reasonable interpretations. When a contract is materially ambiguous, parties can submit extrinsic evidence to clarify its meaning, although such evidence cannot alter the written terms. Courts may consider relevant evidence to interpret the contract, focusing on the parties' intentions based on the entire document and surrounding circumstances. Contract interpretation is a legal matter reviewed de novo, without deference to trial court interpretations unless evidence supports the trial court's findings. In this case, the trial court voided the May 2015 agreement, determining that the involvement of Marotte, a key decision-maker, was essential for the agreement's validity. The absence of a replacement provision for Marotte in the May 2015 agreement led the judge to conclude that his resignation made performance impossible and frustrated the agreement's purpose. The judge's factual findings were well-supported, and his legal conclusions regarding the impossibility of performance and frustration of purpose were sound, contrary to the plaintiff's claims that the judge improperly altered the agreement.

Both the doctrines of impossibility and frustration of purpose can excuse a party's contractual obligations due to a supervening event that was not anticipated at the contract's inception and fundamentally alters the relationship between the parties. The doctrines are based on an implied condition within contracts that parties are excused from obligations if the fundamental basis of the contract ceases to exist without fault from either party. Frustration of purpose occurs when performance remains possible, but a supervening event drastically changes the nature of the agreement, making the original risks unacceptable. Relief under this doctrine requires clear and convincing evidence. In contrast, impossibility applies when performance becomes literally impossible or extremely burdensome due to unforeseen events.

The finding that Marotte's unavailability as a decision maker constituted both frustration of purpose and impossibility of performance is supported by evidence. His absence fundamentally altered the agreement's nature, rendering it impossible to fulfill the May 2015 contract, particularly given the contentious relationship between the parties that would likely lead to numerous disputes requiring his resolution. The parties did not anticipate the risk of Marotte's unavailability, as the May 2013 agreement did not address a replacement decision maker.

The plaintiff's argument for severability of unaffected provisions of the May 2015 agreement is rejected, as severability requires that the remaining terms align with the central purpose of the contract, which is not the case here. Additionally, the court did not improperly rely on parol evidence, which is generally inadmissible to alter an integrated written agreement.

Testimony is excluded under the rule only when offered to 'vary or contradict' an 'integrated' contract, not for interpretation purposes. The plaintiff contends that the May 2015 agreement is a "carve out" of the May 2013 agreement, necessitating their joint reading. However, the May 2015 agreement lacks reference to the 2013 agreement and establishes a distinct mechanism for collection disputes, designating Marotte as the sole decision-maker, unlike the three-person panel from the earlier agreement. The plaintiff argues the judge erred by not allowing Marotte to testify, claiming his testimony would have bolstered the credibility of the plaintiff’s position. Nevertheless, Marotte's deposition was not submitted as evidence during the hearing, which the Supreme Court advises against considering for appellate review. The judge clarified that the hearing would focus on the parties' intentions regarding the May 2015 agreement and indicated that Marotte's testimony was unnecessary. The trial court has discretion over testimony management, and its decisions are upheld unless clearly erroneous. The judge did not abuse this discretion, and while the exclusion of Marotte's testimony could be considered harmless error, it was unlikely to offer more relevant insights than the parties' own statements. Thus, the exclusion does not warrant reversing the judge's decision.

Plaintiff contends that the New Jersey Uniform Arbitration Act applies to the May 2015 agreement, asserting that it allows the trial court to appoint a substitute arbitrator if Marotte is unable to act. However, the court disagrees, stating that the determination of whether the parties agreed to arbitrate is a legal question reviewed de novo. The duty to arbitrate and its scope depend solely on the parties' agreement, and without mutual consent, neither party can compel arbitration. The May 2015 agreement lacks explicit arbitration language, mechanisms, or identification of Marotte as an arbitrator, indicating it does not constitute an arbitration agreement under the Act. In contrast, the May 2013 agreement clearly stated that disputes would be submitted to binding arbitration and provided for the appointment of a neutral arbitrator if necessary. The March 2015 arbitration agreement, while lacking explicit provisions for replacing the neutral arbitrator, outlined the binding arbitration terms agreed to by both parties. These agreements are interrelated and should be interpreted together.

Plaintiff further argues that the trial court erred in voiding the May 2015 agreement due to the unclean hands doctrine, claiming overwhelming evidence of defendant's wrongdoing. The unclean hands doctrine, which requires a suitor in equity to possess clean hands throughout the proceedings, is deemed inapplicable here since the plaintiff, not the defendant, is the suitor seeking equitable relief. The plaintiff's request for the appointment of a replacement for Marotte under the May 2015 agreement falls within the unclean hands doctrine but does not bar the defendant from defending against the claim. The court affirms its decision, noting that any unaddressed arguments from the plaintiff either do not warrant discussion or are unnecessary based on the current disposition. Additionally, the court confirms that the judge correctly dismissed the defendant's counterclaim for a declaratory judgment, which has not been appealed.