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The City of Asbury Park v. Estate of Vaccaro

A-6233-09T4 (N.J. Super. App. Div. 2011) (Unpublished)

CONTRACTS — When an agreement is made, even a settlement agreement after litigation, a court, using its equitable powers can set it aside if it reasonably concludes that a mistake was made by one party and that the mistake was not the result of gross negligence such that it should bar equitable relief.

A municipality designated a master redeveloper and agreed to condemn certain properties at the redeveloper’s request. The redeveloper, in turn, agreed to pay the cost of acquiring the condemned properties. At the redeveloper’s request, the municipality filed a condemnation complaint to acquire property owned by an estate. The municipality also sought remediation of alleged pollution on the property at the estate’s expense. The complaint was dismissed without prejudice, pending an attempt to settle the environmental issues.

In the condemnation case, the court-appointed commissioners valued the property at an amount the estate rejected. The estate’s experts had appraised the property as worth between double and triple the award. The municipality deposited the amount of the commissioners’ award with the court, apparently using funds supplied by the redeveloper. The municipality and the estate agreed that the condemnation money would remain in escrow pending resolution of the environmental issues. Expert reports provided widely varying cost estimates for the remediation.

The estate then filed a motion to enforce a settlement it claimed to have reached with the municipality. It supported its motion with a certification from its counsel and a series of emails concerning the settlement negotiations. The estate’s counsel attested that the municipality’s outside counsel called him and extended an offer to settle both the condemnation and environmental litigations. According to the estate counsel, the terms of the offer were that the estate would receive the escrowed funds, including accrued interest; the municipality and the redeveloper would release the estate from any environmental clean-up or remediation responsibility; and the municipality would be released from any further obligation to compensate the estate for the fair market value of the property. The estate’s counsel called the municipality’s counsel’s office and left a message confirming his client’s acceptance of the offer. He also sent the municipality’s counsel a confirming email message.

A day later, the municipality’s counsel called the estate’s counsel and, while acknowledging that the estate had accepted the offer, informed the estate’s counsel that there was a mistake concerning the offer the client had intended him to convey. In an email message, the municipality’s counsel stated that he relayed what was relayed to him; however, he was subsequently advised that the offer told to him was not correct. The municipality’s counsel apologized for the misunderstanding on behalf of his client and the developer. He explained that there had been some change in the decision making structure at the developer resulting in a miscommunication. The municipality’s counsel then relayed a new offer, reflecting the potentially enormous costs to clean up the pollution and to cover the anticipated costs of continued litigation.

In response to the estate’s motion, the redeveloper moved to intervene for the purpose of opposing a court-ordered enforcement of the settlement. In support of its intervention motion, through a certification from its counsel, the redeveloper submitted its version of the relevant events. His certification explained that because the redeveloper was providing the funds to acquire all of the properties in the redevelopment area, all settlement offers to landowners involved in the condemnation proceedings were initiated by the redeveloper and transmitted to the municipality’s attorney for conveyance to landowners. The redeveloper’s counsel explained that his client authorized him to communicate a settlement offer in this case. However, he mistakenly informed the municipality’s counsel that he could offer the estate the monies on deposit, along with the pledge that the redeveloper would forgo future claims for any environmental remediation costs. He attested that the offer was made without the knowledge or consent of the redeveloper’s general counsel or of the redeveloper, and that he had no authority to convey the offer that he did.

Based on these certifications, the lower court granted the estate’s motion to enforce the settlement. Applying the four-part test for equitable relief based on unilateral mistake, the lower court found, first, that the mistake was not of such consequence that to enforce the contract as made would be unconscionable. The judge considered whether the settlement was a reasonable deal and concluded it was, because the property might have been worth more than the amount offered and the cost of remediation might have been lower than it was estimated it to be. Second, he found that the mistake related to a material feature of the contract. As to the third prong of the test, he found a lack of reasonable care on the part of the redeveloper’s attorneys. As to the fourth prong, he found there would be no prejudice to the estate if the settlement were set aside. In the end, it enforced the agreement and, in doing so, it rejected the redeveloper’s claim that the offer was a contingent one.

On appeal, the Appellate Division noted that the redeveloper was technically not a party to the litigation; however, it was understood by everyone involved in the transaction that the municipality’s counsel would be communicating settlement offers that the redeveloper had authorized. Both the municipality and redeveloper had created a reasonable belief, on the part of the estate and the estate’s counsel, that the municipality’s attorney was authorized to speak for both of them in communicating settlement offers.

The Court, however, disagreed with the lower court’s finding that granting equitable relief would be improper; the lower court could reasonably have concluded that while a mistake was made, it did not involve the kind of gross negligence that would bar equitable relief. Further, the lower court should have considered the vast disparity between the low offer price and the much higher amount that the redeveloper’s general counsel authorized because the margin of error was substantial. On that basis, the Court reversed and found that enforcing such a disparity would be unconscionable.

The Court also found that contested issues of material fact existed and this should have precluded summary judgment. The redeveloper’s attorneys made themselves available as witnesses, and like any other witnesses, they should have been required to testify and be cross-examined. Additionally, the parties should have been afforded an opportunity to present additional witnesses and evidence. Additionally, there was a question as to whether the settlement offer required an approval resolution by the municipality.

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