Globe Motor Co. v. Igdalev

• Court: New Jersey Supreme Court
• Writing for the Court: Justice PATTERSON delivered the opinion of the Court.
• Citation: Globe Motor Co. v. Igdalev, 225 N.J. 469, 139 A.3d 57 (N.J. 2016)
• Decision Date: 29 June 2016
• Parties: GLOBE MOTOR COMPANY, a corporation of the State of New Jersey, and the Margolis Law Firm, LLC, Plaintiffs–Respondents, v. Ilya IGDALEV and Julia Igdalev, Defendants–Appellants.

225 N.J. 469

139 A.3d 57

GLOBE MOTOR COMPANY, a corporation of the State of New Jersey, and the Margolis Law Firm, LLC, Plaintiffs–Respondents

v.Ilya IGDALEV and Julia Igdalev, Defendants–Appellants.

Supreme Court of New Jersey.

Argued Jan. 19, 2016.

Decided June 29, 2016.

Christopher J. Koller, Hackensack, argued the cause for appellants.

Michael A. Mark argued the cause for respondents.

Justice PATTERSON delivered the opinion of the Court.

This appeal as of right arises from defendants' alleged breach of a settlement agreement executed by defendants and one of the plaintiffs in this action, Globe Motor Company (Globe), to resolve prior litigation between the parties. Shortly after defendants sent two checks totaling $75,000 to plaintiffs to settle the earlier action, a Trustee appointed to represent the estate of an insolvent Minnesota entity brought an adversary proceeding against plaintiffs. The Trustee demanded that plaintiffs disgorge the settlement funds, on the ground that those funds had belonged to the bankrupt entity, not to defendants, and that the transactions were therefore voidable under provisions of the United States Bankruptcy Code, 11 U.S.C.A. §§ 544 and 548. Plaintiffs paid $22,500 to resolve the bankruptcy Trustee's claim.

Plaintiffs filed this action against defendants, seeking to recover the money that they paid to settle the bankruptcy proceeding as well as attorneys' fees and costs. They asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, fraud, and indemnification. The motion judge entered summary judgment for plaintiffs on their breach of contract claim. An Appellate Division panel affirmed that determination, with one judge dissenting.

We hold that the motion judge improperly granted summary judgment in plaintiffs' favor. We conclude that the record before the motion court, viewed in accordance with the summary judgment standard prescribed by Rule 4:46–2(c), did not establish plaintiffs' right to judgment as a matter of law. We therefore remand this case to the motion court for the development of a factual record, and a determination of plaintiffs' claims based on that record.

I.

The prior litigation that gave rise to this matter was instituted by plaintiff, the Margolis Law Firm, LLC (Margolis), as counsel for Globe, against a New Jersey limited liability company, Gemp, LLC (Gemp) and its members, defendants Ilya Igdalev (Ilya) and his wife Julia Igdalev (Julia).¹ In October 2009, the parties resolved the matter. They executed an undated Settlement Agreement and Release (Settlement Agreement) that provided for the payment of the settlement amount in accordance with the following terms:

That ILYA and JULIA shall jointly pay to GLOBE the amount of SEVENTY–FIVE THOUSAND ($75,000.00) DOLLARS, by certified or attorney trust account check payable to [“]The Margolis Law Firm LLC, as attorneys for Globe Motor Company” and delivered to The Margolis Law Firm LLC not later than 1:00pm on Friday, October 2, 2009 TIME BEING EXPRESSLY MADE OF THE ESSENCE.

The Settlement Agreement required Julia to pay Globe the entire $75,000 in the event that Ilya “does not pay, for any reason or no reason, any portion of the settlement amount.”

On or about October 1, 2009, Margolis received two certified checks in amounts totaling $75,000. As the Settlement Agreement required, each check was made payable to “The Margolis Law Firm LLC, as attorneys for Globe Motor Company.” One check, in the amount of $63,000, was drawn on a bank identified as M & I Marshall & Ilsley Bank, with no address. The check stated that the remitter was Mike Povolotsky, an individual later identified as a friend and business associate of Ilya. Povolotsky was affiliated with Auto Point, Limited (Auto Point), an entity organized under the laws of Minnesota. The second check, in the amount of $12,000, was a cashier's check drawn on Wells Fargo Bank N.A., and included the address of a Wells Fargo branch in Golden Valley, Minnesota.

Neither Globe nor Margolis objected to the manner in which the settlement funds were paid, and the checks apparently cleared. Five months later, Globe and defendants executed a stipulation dismissing Globe's action, with prejudice and without costs.

Following the dismissal of Globe's action, Auto Point filed a voluntary petition pursuant to Chapter 7 of the United States Bankruptcy Code (Chapter 7), 11 U.S.C.A. §§ 701 –784, in the United States Bankruptcy Court for the District of Minnesota. The Bankruptcy Court appointed a Trustee to represent Auto Point's bankruptcy estate. Almost a year later, the Trustee instituted an adversary proceeding pursuant to Federal Rules of Bankruptcy Procedure §§ 7001, 7003 and 7004 against Globe and Margolis. The Trustee contended that the $75,000 used to settle Globe's action against defendants belonged to Auto Point and that the transfers of those funds to plaintiffs were voidable pursuant to 11 U.S.C.A. §§ 544 and 548. The Trustee alleged that Auto Point had no obligation to Globe or Margolis and had received less than “a reasonably equivalent value” in exchange for the $75,000 disbursement. In the alternative, the Trustee alleged that Auto Point was either insolvent when the payment was made, or became insolvent because of the payment.

Plaintiffs retained Minnesota bankruptcy counsel. They eventually resolved the adversary proceeding by paying $22,500 to Auto Point's bankruptcy estate. According to plaintiffs, they decided to settle the matter on the advice of their bankruptcy counsel. Because of the settlement, the United States Bankruptcy Court for the District of Minnesota did not determine whether the Trustee was entitled to the funds.

Globe and Margolis then filed this declaratory judgment action pursuant to N.J.S.A. 2A:16–52. They alleged that in the Settlement Agreement that resolved the prior litigation, defendants had agreed to pay the settlement amount “free and clear from claims of others and not subject to surrender,” and were therefore liable for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, fraud, and common-law indemnification. They also asserted a claim against Julia for contractual indemnification. Globe and Margolis claimed damages in the amount that they had paid to settle the claims of the Trustee, as well as attorneys' fees and costs for both the Minnesota action and the declaratory judgment action.

The parties filed cross-motions for summary judgment. In support of their motion for summary judgment, plaintiffs set forth the terms of the Settlement Agreement, presented the checks received in payment of the settlement amount, recounted the history of the Minnesota bankruptcy proceeding, and documented their claims for damages and attorneys' fees.

In a certification filed in support of defendants' summary judgment motion, Ilya stated that at the time of the settlement of Globe's action against him, his “New Jersey bank accounts had been restrained due to allegations in a criminal action against [him].” According to Ilya, he asked Povolotsky, who “was holding more than $75,000.00 of money owed to [Ilya] from prior dealings,” to “make checks payable [to Margolis], in the total amount of $75,000.00 in settlement of this case.” Ilya represented that neither he nor Julia had been asked to indemnify plaintiffs or hold them harmless from any claims, and did not do so, and that the Settlement Agreement did not mandate that “the funds were to come from my wife or myself, individually, or any specific payor.” Defendants' motion was also supported by a certification signed by Julia, adopting the contentions set forth in Ilya's certification and further noting that plaintiffs “accepted [the checks] without protest[.]”

The court granted plaintiffs' motion for summary judgment, and denied defendants' cross-motion for summary judgment. Although the motion judge did not individually address each of plaintiffs' claims, his grant of summary judgment was premised on plaintiffs' cause of action for breach of contract.² The judge reasoned that, by virtue of the Trustee's allegation that the $75,000 was transferred by Auto Point and could be recovered by Auto Point's estate in bankruptcy, defendants had not satisfied their obligations under the Settlement Agreement.

The motion court entered judgment for $22,500, the amount that plaintiffs had paid to settle the Chapter 7 adversary proceeding brought by the Trustee of Auto Point's bankruptcy estate. The court evidently concluded that Julia was individually liable on a theory of contractual indemnification because it entered judgment against her as well as Ilya.

The motion court initially denied without prejudice plaintiffs' application for attorneys' fees but granted a later fee application. It entered judgment compelling defendants to pay $19,881 in fees, expenses and costs, in addition to the $22,500 awarded as compensatory damages, for a total of $42,381.

Defendants appealed the grant of plaintiffs' motion for summary judgment. With one judge dissenting, an Appellate Division panel affirmed the judgment of the motion court. The majority concluded that when the record is viewed in the light most favorable to defendants, Ilya's certification demonstrates nothing more than that Povolotsky was holding money owed to Ilya, and that Povolotsky was asked by Ilya to pay plaintiffs the amount owed by defendants to fulfill the terms of the Settlement Agreement. The Appellate Division majority concluded that, based on the Minnesota bankruptcy Trustee's claim, it appears that Povolotsky paid the checks using the assets of Auto Point. It held that the motion court properly exercised its discretion when it granted summary judgment and awarded attorneys' fees and costs.

The dissenting Appellate Division judge asserted that the majority construed the facts and drew inferences in the light most favorable to plaintiffs rather than in...