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Saffer v. Willoughby

February 5, 1996

MICHAEL A. SAFFER, AS A FORMER MEMBER OF KLEIN CHAPMAN, A PARTNERSHIP, PLAINTIFF-RESPONDENT,
v.
WILLIAM W. WILLOUGHBY, JR., DEFENDANT-APPELLANT.



On certification to the Superior Court, Appellate Division.

Chief Justice Wilentz and Justices Handler, Pollock, O'hern, Garibaldi, and Stein join in Justice Coleman's opinion. The opinion of the Court was delivered by Coleman, J.

The opinion of the court was delivered by: Coleman

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized.

MICHAEL A. SAFFER V. WILLIAM W. WILLOUGHBY, JR. (A-40-95)

Argued October 24, 1995 -- Decided February 5, 1996

COLEMAN,J., writing for a unanimous Court.

William Willoughby, Jr. played professional basketball from 1975 through 1984. During that time, Willoughby retained the services of All-Pro Reps, Inc. (All-Pro), and its principals, Jerry Davis and Lewis Scheffel, as agent and business manager, respectively. Willoughby arranged for All-Pro to receive a portion of his earnings to invest on his behalf. Davis and Scheffel diverted most of the money, without Willoughby's authorization, into tax shelters. Approximately $1 million of Willoughby's money was lost.

Davis brought an action against Willoughby, claiming that Willoughby owed $129,000 in fees. Willoughby retained Michael A. Saffer, Esq., to represent him. Saffer asserted counterclaims against Davis, alleging breach of fiduciary duty and misappropriation of funds. Willoughby asked that Saffer bring in Scheffel as a third-party defendant on the counterclaim. Saffer refused, telling Willoughby that there was no evidence to support Scheffel's involvement in the scheme to mishandle Willoughby's money.

A jury awarded Willoughby significant monetary damages on the counterclaim, totalling over $750,000. Shortly after the verdict was rendered, Davis filed for bankruptcy. Willoughby was able to collect only $150 000 of the total judgment and has little hope of collecting the remainder of that judgment.

Shortly after Davis filed his petition in bankruptcy, Saffer withdrew his representation of Willoughby because Willoughby failed to pay Saffer's legal fee. Willoughby claimed that Saffer breached their original fee agreement and over-billed him. Willoughby retained new counsel who filed a request for arbitration of Saffer's fee with the District XI Fee Arbitration Committee (Fee Committee) for Passaic County. During the course of that arbitration, Willoughby and his new attorney discovered in Saffer's Davis-Willoughby litigation file a copy of a promissory note signed by Scheffel that allegedly tied Scheffel to the misappropriation of Willoughby's earnings. Willoughby claims that: 1) Saffer intentionally or negligently withheld this evidence; and 2) had Scheffel been held jointly liable for the judgment, Willoughby would have been able to collect the full amount of his damages from Scheffel.

Willoughby's attorney presented evidence of the alleged legal malpractice at the Fee Committee hearing, arguing that an attorney who commits malpractice is not entitled to a fee. On May 17, 1993, Willoughby filed a malpractice complaint against Saffer claiming as damages the difference between the full amount of the judgment against Davis and the amount Willoughby actually collected.

On August 11, 1993, the Fee Committee found that Saffer met his burden of proving the reasonableness of his fee based on the criteria set forth in the Rules of Professional Conduct (RPC) 1.5, and awarded Saffer a fee of $120,000,of which $103,510 remains unpaid. When Saffer sought confirmation of the award and entry of judgment, Willoughby filed a motion for a stay pending Disposition of the legal malpractice complaint. On December 20, 1993, the Law Division denied Willoughby's application for a stay, confirmed the award, and entered final judgment for Saffer in the amount of $103,510 with interest. On appeal, the Appellate Division affirmed, holding that the pending malpractice action did not satisfy any of the statutory grounds to vacate an arbitration award.

The Supreme Court granted certification.

HELD: Under the unique circumstances of this case and the controlling rules in effect during the arbitration, the District XI Fee Arbitration Committee should have granted the client a thirty-day window of opportunity after discovery of the alleged malpractice to withdraw the request for arbitration. In the absence of the opportunity for Willoughby to withdraw the request for arbitration, the Appellate Division should have stayed the fee award pending the Disposition of the legal malpractice complaint.

1. In a fee arbitration, the determination of a Fee Committee is binding and not appealable unless a committee member: failed to disqualify himself or herself; failed to follow the rules; or committed fraud. The amended rules, effective after this arbitration, provide an additional ground for appeal: a palpable mistake of law by the Fee Committee that on its face was gross, unmistakable or in manifest disregard of the applicable law and has led to a unjust result. Withdrawal from arbitration by a client is only permitted within thirty days after the request for arbitration is docketed by the secretary of the Fee Committee. (pp. 5-8)

2. A Fee Committee has jurisdiction only to arbitrate fee disputes between clients and attorneys. Pursuant to Court Rules, the Fee Committee does not have jurisdiction to decide claims for monetary damages resulting from legal malpractice. However, the filing of a malpractice claim does not deprive the Fee Committee of jurisdiction to decide the fee dispute. In the course of deciding the reasonableness of a fee, a Fee Committee may consider evidence of malpractice for the limited purpose of affecting the quality of services rendered in assessing the reasonableness of the fee pursuant to RPC 1.5. Neither the evidence submitted to a Fee Committee, nor the decision or settlement made in connection with a fee arbitration proceeding, is admissible evidence in a legal malpractice action in the Superior Court. (pp. 8-10)

3. Although Willoughby elected arbitration and continued to arbitrate even after the malpractice complaint was filed should not have prejudiced his application for a stay because the provisions of Rule 1:20A, in existence in 1993, did not preclude processing both claims simultaneously. Moreover, unless a client is permitted to withdraw from arbitration or the arbitration award is stayed, the client can be compelled to pay the lawyer's fee while contending in a legitimate malpractice case that the lawyer's malpractice bars collection of the entire fee awarded. (pp. 10-12)

4. The Court adopts the following procedure for this type of case when, during the pendency of a fee arbitration and after the thirty-day period for withdraw has elapsed, a client discovers a substantial malpractice claim against the former lawyer, the Fee Committee is directed, pursuant to Rule 1:1-2, to relax Rule 1:20A-3(b)(1) to permit the client to have a new thirty-day window of opportunity to withdraw the request for arbitration. The window of opportunity begins the day the client discovers the substantial malpractice claim within the meaning of Grunwald v. Bronkesh. Rule 1:20A-3(b)(1) will not be relaxed if the basis for a substantial malpractice claim is known to the client before the thirty-day withdraw period expires. If the substantial basis for a malpractice claim is discovered after a Fee Committee has awarded a fee, the client may seek a stay of the award from the Superior Court either before or after the award has been confirmed. The trial court shall first determine whether a substantial claim of malpractice exists, and if so, grant a stay of the arbitration award on terms and conditions fixed by the court pursuant to Rule 2:9-5. Here, the arbitration award should be stayed pending Disposition of Willoughby's legal malpractice action. (pp. 12-13)

5. Ordinarily, an attorney may not collect attorney's fees for services negligently performed. In addition, a negligent attorney is responsible for the reasonable legal expenses and attorney's fees incurred by a former client in prosecuting the legal malpractice action because these expenses are consequential damages that are proximately related to the malpractice. (pp. 14-17)

6. The present case is exceptional, nonetheless, Willoughby is entitled to reasonable expenses and attorney's fees, as consequential damages, incurred in a successful malpractice prosecution. In addition, if the consequential damages that are proximately related to the malpractice claim and the balance of the uncollectible judgment against Davis are awarded to and collected by Willoughby in the malpractice action, Saffer would be entitled to collect his fee. (p. 17)

Judgment of the Appellate Division is REVERSED and the judgment entered pursuant to the Fee Committee's award is stayed pending Disposition of the malpractice claim.

CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI and STEIN join in JUSTICE COLEMAN's opinion.

The opinion of the Court was delivered by COLEMAN, J.

This case involves a fee dispute between an attorney and a former client. The former client filed a request for fee arbitration with the District XI Fee Arbitration Committee (Fee Committee) . Six months after filing the request, and before a decision was reached, the client discovered evidence that convinced him to file a legal malpractice action in the Law Division against his former attorney. The client, represented by new counsel, presented evidence of the alleged malpractice to the Fee Committee. He argued that a negligent attorney was not entitled to collect a fee.

The case requires us to determine the appropriate procedure a Fee Committee should follow when the basis for a legal malpractice claim is discovered after the time permitted for withdrawing an arbitration request has expired. The Appellate Division declined to grant any relief. We granted certification, 140 N.J. 326 (1995), and stayed the judgment.

We hold that under the unique circumstances of this case and the controlling rules in effect during the arbitration, the Fee Committee should have granted the client a thirty-day window of opportunity after discovery of the alleged malpractice to withdraw the request for arbitration. In the absence of that opportunity for Willoughby to withdraw the request for arbitration, the Appellate Division should have stayed the fee award pending Disposition of the legal malpractice complaint.

I

Defendant William W. Willoughby, Jr., is a former professional basketball player who played for various teams in the National Basketball Association from 1975 through 1984. During that time, Willoughby retained the services of All-Pro Reps, Inc. (All-Pro), and its principals, ...


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