Neizvestny v. Risis

OLEG NEIZVESTNY Plaintiff, v. MARGARITA RISIS and DANIEL RISIS, Defendants.

Civil Action No. 19-20398 (MF)

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

January 6, 2021

OPINION

FALK, U.S.M.J.

This case is essentially based in fraud and breach of contract. Plaintiff alleges that Defendants orchestrated a scheme to deprive him of his investment in a joint venture he entered into with them. At the conclusion of a multi-day settlement conference before the Undersigned, the parties placed a settlement on the record which was later reduced to a written settlement agreement. Before the Court is Plaintiff's motion to enforce the settlement. (CM/ECF No. 48.) Defendants oppose the motion. The motion is decided on the papers. Fed.R.Civ.P. 78(b). For the reasons set forth below, the motion is granted.

BACKGROUND

A. The Joint Venture

In 2011, Plaintiff, Oleg Neizvestny ("Oleg" or "Plaintiff"), entered into a joint venture pawnshop business with Defendants Daniel Risis ("Daniel") and his mother, Margarita Risis ("Margarita") (together referred to as "Defendants"). Oleg and Margarita signed an Operating Agreement for the creation of the entity, Perfect Pawn LLC ("Perfect Pawn") through which the pawnshop business was to operate. Pursuant to the Operating Agreement, Oleg and Margarita were to be equal partners in Perfect Pawn. (Compl. ¶ 25.) Plaintiff claims to have invested more than $1 million on the promise by Defendants that he was a 50% owner in Perfect Pawn. (Id. ¶¶ 42-46; Declaration of Simon Miller ("Miller Decl.") CM/ECF No. 48-1 at 2.) However, according to Plaintiff, Perfect Pawn was never formed. Plaintiff claims that for years Defendants engaged in a fraudulent scheme to treat him as a partner-owner of Perfect Pawn, convincing him to contribute monies and forego profits in order to grow the pawnshop business. Upon learning of the alleged fraud perpetrated by Defendants, Oleg filed suit against Daniel and Margarita seeking the value of his intended investment.

Plaintiff filed a Complaint on November 15, 2019, asserting claims for, inter alia, fraud and breach of contract, and seeking injunctive relief. On December 19, 2019, District Judge William J. Martini entered an Order granting a Preliminary Injunction.¹On December 31, 2019, Judge Martini entered a scheduling order. Defendants filed an Answer on January 21, 2020. Defendant Daniel Risis also filed a Counterclaim regarding an entity, Dalex Development, Inc. ("Dalex"), in which Plaintiff and Daniel were the sole shareholders. Dalex owned a commercial property in Wayne, New Jersey. The Counterclaim alleges, inter alia, that Plaintiff did not make his 50% contribution to Dalex and seeks approximately $179,000.

B. The Settlement Process

Following additional motion practice before the District Judge,² the Undersigned, as the Magistrate Judge assigned to the case, conducted an initial status/settlement conference with the parties on February 28, 2020. At the request of the parties the Undersigned engaged in an ongoing process to try to help the parties reach a settlement. Initially, an in-person settlement conference was held on March 10, 2020. The parties appeared three more times before the Court during May 2020, including a settlement conference via videoconference on May 13, 2020.³ The Undersigned conducted at least three more conferences in June, which included continuation of the May 13 settlement conference via videoconferences on June 3 and June 23, 2020.⁴ The settlement process was lengthy and comprehensive and was conducted with the active participation of the parties and their numerous counsel.

C. The Settlement Agreement

Ultimately, following a lengthy videoconference on June 23, the parties reached a settlement. Counsel and the individual parties—Oleg, Daniel and Margarita— appeared at and participated in the June 23 video conference. At the conclusion of the conference, the parties placed the terms of their settlement on the record. Each of the parties indicated their agreement and approval with the terms of the settlement. The June 23rd on-the-record settlement by the parties was memorialized in a written Settlement Agreement ("Agreement" or "Settlement Agreement") which provided that each Defendant would be jointly and severally liable for the settlement payments. (Settlement Agreement CM/ECF No. 48-2, ¶ 1(g).) Daniel signed the Agreement on July 29, 2020. The Agreement contains provisions governing the timing and amount to be paid by Defendants to Plaintiff, among certain other terms. Specifically, the Agreement provided for a settlement payment of $613,000, which included an upfront payment to Oleg of $125,000 upon the signing of the Agreement. (CM/ECF No. 48-2.) The Agreement also provides for the transfer to Daniel of Oleg's 50% interest in Dalex, an entity jointly owned by Daniel and Oleg. In return, Daniel agreed to remove Plaintiff's obligations under the existing mortgage on the property owned by Dalex (the "Dalex Property"), and indemnify Plaintiff for any costs or damages associated with those obligations. (Settlement Agreement CM/ECF No. 48-2, ¶ 9(e).)

D. Consent to Magistrate Judge Jurisdiction

As part of the Settlement the parties expressly requested that the Undersigned retain jurisdiction to enforce the Agreement, if necessary. This was stated on the recordand also included in the written agreement. In accordance with their agreement, the parties submitted the appropriate consent form, which was signed by the District Judge and entered on the docket on August 27. (CM/ECF No. 51).

E. Alleged Breach of Settlement Agreement

According to Plaintiff, Defendants failed to make any payment due and owing under the Agreement. On July 23, 2020, Plaintiff's Counsel sent written notice of default to Defendants. (Miller Decl. CM/ECF No. 48-1 at ¶ 9.) Plaintiff states that Daniel failed to cure his default and Margarita never signed the Agreement or took any steps to honor the settlement. (Id.). Plaintiff now moves to enforce the settlement.

F. Motion to Enforce the Settlement Agreement

Plaintiff filed the instant motion seeking an order and entry of judgment enforcing the terms of the June 23, 2020 settlement against Daniel and Margarita, set forth on the record and in the written Settlement Agreement.

(i) Defendants' arguments

Defendants contend that the agreed upon settlement is unenforceable against Daniel for two reasons. First, Defendants contend that when the terms of the settlement were placed on the record on June 23, 2020, as well as when Daniel executed the Settlement Agreement on July 29, 2020, Daniel was acting under a mistake of fact regarding the legal status of the Dalex Property. Specifically, Defendants contend that although Daniel knew that the Dalex Property was the subject of a foreclosure action in state court, he didn't know at the time he agreed to the settlement that it was the subject of a default judgment motion in the foreclosure (which was apparently granted monthsafter the settlement here). Although not entirely explained or substantiated, the argument seems to be that Daniel intended to refinance the Dalex property to help fund the settlement and the existence of a pending default judgment motion or a default judgment (both are argued in different places in Defendants' motion papers) in the foreclosure case would make that impossible. Second, Defendants argue that the proposed settlement was made expressly contingent on the execution of a written settlement agreement by all parties, and that the settlement cannot be consummated because Margarita never executed the Agreement.

With regard to Margarita, Defendants also assert that Plaintiff never provided the required notice that Margarita was in default of her settlement obligations.

(ii) Plaintiff's arguments

Plaintiff asserts that the settlement is enforceable against both Defendants. Plaintiff contends that if Daniel actually was unaware of a default motion in the longstanding Dalex foreclosure case, Daniel's own negligence is not an excuse for non-performance of the contract. Noting that Daniel admits knowledge of the foreclosure at the time of the settlement and the Settlement Agreement actually references the Dalex mortgage foreclosure action, Plaintiff argues that Daniel's purported lack of knowledge of entry of a default judgment cannot be the basis to rescind the Settlement Agreement. Plaintiff maintains that had Daniel simply looked at the docket or checked on the status of the foreclosure action, he would have known that a motion for default was pending. Plaintiff further contends that his purported unilateral "mistake" does not meet the high threshold for rescission under New Jersey law and that it would be unjust, inequitable andprejudicial to permit Daniel to continue to avoid his contractual obligations to Oleg by hiding behind his own negligence.

Plaintiff also contends that the settlement is enforceable as to both Daniel and Margarita because both parties assented to its terms on the record. Plaintiff also contends that Daniel is bound by the Agreement because its very terms provide that "[e]ach Defendant is both jointly and severally liable for the Settlement Payment." (Settlement Agreement CM/ECF No. 48-2, ¶ 1(g).) Plaintiff argues that because the Agreement expressly provides for joint and several liability, it is enforceable against Daniel regardless of Margarita's unjustified failure to sign it.

G. Motion to Withdraw by Defendants' Counsel

On September 22, 2020, Defendants' counsel, Coughlin Duffy, LLP moved to withdraw as counsel. Despite bitter accusations which need not be repeated here, Daniel seemed to oppose the motion. A formal hearing was held and the motion to withdraw was granted by Order dated October 14, 2020. (CM/ECF No. 65.) Since then, three new lawyers have appeared for Defendants, the third group of attorneys who have represented Defendants in this case. New counsel filed an additional opposition to the instant motion,...