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Conklin v. Hannoch Weisman

July 18, 1996

NATHAN CONKLIN; RICHARD CONKLIN; FRANK CONKLIN, III; AUDREY CONKLIN, INDIVIDUALLY AND AS EXECUTRIX OF THE ESTATE OF FRANKLIN CONKLIN, DECEASED, PLAINTIFFS-RESPONDENTS,
v.
HANNOCH WEISMAN, A PROFESSIONAL CORPORATION AND CARLETON R. KEMPH, ESQ., DEFENDANTS-APPELLANTS, AND PAULA HERTZBERG; ELLIOT LEIBOWITZ AND JOEL LEIBOWITZ, INDIVIDUALLY AND D/B/A LONGVIEW ESTATES, A NEW JERSEY GENERAL PARTNERSHIP; THEODORE D. CASSERA, P.E.; CANGER, SCHOOR AND CASSERA INC., A NEW JERSEY CORPORATION, DEFENDANTS.



On appeal from the Superior Court, Appellate Division, whose opinion is reported at 281 N.J. Super. 448 (1995).

The opinion of the Court was delivered by O'hern, J. Justices Handler, Pollock, Garibaldi, Stein and Coleman join in Justice O'HERN's opinion. Chief Justice Wilentz did not participate.

The opinion of the court was delivered by: O'hern

(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).

NATHAN CONKLIN, ET AL. V. HANNOCH WEISMAN, ET AL. (A-92-95)

Argued February 14, 1996 -- Decided July 18, 1996

O'HERN, J., writing for a unanimous Court.

The primary issue in this legal malpractice action is whether plaintiffs are entitled to a new trial against their lawyer and his law firm based on the trial court's charge to the jury regarding proximate cause.

In the Fall of 1984, the Conklins listed for sale "100 prime acres" of their farm. The Conklins retained the law firm of Hannoch Weisman, P.C., to represent them in that sale. The law firm assigned then-associate, Carlton R. Kemph, to handle the matter.

In April 1985, Longview Estates (Longview) agreed to purchase the Conklin farm for $12 million. The contract required that the purchaser pay $3 million cash at or before closing. The remaining $9 million was financed through a purchase-money note and mortgage to be paid within five years after closing. The Longview partners guaranteed the partnership's note. The contract of sale described the purchase-money mortgage obligation as "subordinate" to one or more institutional construction mortgages. The contract was amended to subordinate the Conklin's purchase-money mortgage to a mortgage securing a loan that Longview was to obtain to raise any balance of cash due at closing.

By 1990 Longview had defaulted on its purchase-money mortgage and its construction mortgage and, along with its individual partners, had filed for bankruptcy protection. A mortgage lender that had priority over the Conklins by virtue of the subordination agreement foreclosed on the property. As a result, the Conklins lost the $9 million owed to them under the contract of sale and their land.

The Conklins, believing that their attorneys had failed to protect them in this transaction, sued Hannoch Weisman and Carlton Kemph (collectively, Hannoch) for legal malpractice. The Conklins claimed, among other things, that Hannoch had been negligent in preparing the contract documents and had failed adequately and accurately to explain to the Conklins the meaning and risks of subordination. The parties presented conflicting positions in respect of the communications between them on the subject of subordination. The Conklins claimed that Hannoch failed to provide any explanation of the meaning of subordination or the ramifications of subordination in the event of default by the buyers on any of the loans, including any attendant foreclosure. Hannoch, on the other hand, asserted that on numerous occasions they had provided the Conklins with detailed explanations concerning the meaning and risks of subordination, including the effects of foreclosure and default.

At the Conclusion of a lengthy trial, the jury determined that Hannoch was negligent in explaining subordination and the risks associated with subordination, but found that Hannoch's negligence was not a proximate cause of the damage suffered by the Conklins. The jury found that Hannoch was not negligent in drafting the contract documents insofar as they concerned subordination. The Conklins moved for a judgment notwithstanding the verdict or, alternatively, for a new trial on the subordination issue. The trial court concluded that a paragraph in its charge may have misled the jury to believe that Hannoch's malpractice could not be considered a proximate cause of the Conklins' losses if those losses were also caused by the bankruptcy of Longview and its partners. The court further concluded that a second paragraph in the charge, which it added just before the jury began its deliberations, failed to overcome the misleading effect of the original charge. Determining that its misleading jury charge resulted in a verdict that clearly constituted a miscarriage of Justice under the law, the court granted the motion for a new trial on the negligent advice/subordination issue.

Concerning the nature and scope of the retrial, the court determined that, based on the diametrically opposed evidence offered at trial, it could fairly be inferred that the jury had accepted the Conklins' version of the facts concerning subordination and had rejected Hannoch's version. Accordingly, the court preserved the verdict establishing Hannoch's negligence and ordered the jury on retrial to determine proximate cause, comparative negligence and damages based on the Conklins' version of the facts, that is, that Hannoch had not advised them of the risks of subordination.

On appeal, the Appellate Division agreed that the jury charge was defective and that the trial court's insertion of the separate paragraph on the issue of intervening causation did not overcome that defect. The Appellate Division disagreed, however, with the trial court's Disposition concerning the nature and the scope of the retrial. The Appellate Division first instructed the court on retrial to exclude proximate cause from its charge to the jury and instead employ an objective cause-in-fact analysis similar to that used in medical malpractice "informed consent" cases. Under that analysis, when an attorney provides inadequate advice, the jury should be asked whether a prudent client would have declined to enter into the transaction if adequately informed of its risks. The Appellate Division also held that this case required the application of a limited "subjective" standard. Under that standard of causation, a jury should be asked to determine not whether a prudent plaintiff would have entered the disputed transaction, but whether the plaintiff in this case would have entered the transaction if adequately informed of the risks. Accordingly, in addition to making an objective analysis of what a prudent seller would have done, the jury should be instructed to answer whether the Conklins would have declined to sell rather than undertake the risks of subordination, regardless of whether a prudent seller would have done so. On the scope of the retrial, the Appellate Division affirmed the trial court's ruling that preserved the jury's finding of Hannoch's negligence but removed the issue of the Conklins' comparative negligence from the retrial.

The Supreme Court granted Hannoch's motion for leave to appeal.

HELD:

This matter requires a new trial because the jury charge on proximate cause could have confused the jury and led to an unjust result. The retrial must include the issue of defendants' negligence but not the Conklins' comparative negligence. For legal malpractice cases in which inadequate or inaccurate advice is alleged as a concurrent cause of harm, usual principles of negligence apply, including foreseeability. Because the traditional jury charge on proximate cause as a continuous sequence is unsuitable for legal malpractice cases in which there are concurrent, independent causes of harm, the jury must be instructed to determine whether the negligence was a substantial factor in bringing about the ultimate harm.

1. The trial court could reasonably conclude that the paragraph at issue effectively directed a verdict in favor of defendants on the issue of proximate cause and was, thus, clearly capable of producing an unjust result. Therefore, a new trial is appropriate. (pp. 12-15)

2. Although the jury's finding of negligence may not have been affected by error, there is no way of knowing precisely what conduct the jury based that finding on. Thus, the jury's finding of negligence was not entirely distinct and separable from the issue of proximate cause. The retrial must embrace questions of fault on the part of the attorneys relating to the adequacy of their advice to the Conklins concerning subordination and the risks associated with subordination. On retrial, the jury should not be permitted to consider the Conklins' conduct as contributory negligence. (pp. 15-20)

3. The objective theory of informed consent, under which the jury would be asked to consider whether a reasonably prudent client would have entered into a business transaction if adequately informed of its attendant risks, fails to reflect the many highly subjective, personal, financial and strategic concerns that underlay most legal decisions but are not present in the majority of medical decisions. In addition, there is no persuasive need to introduce into attorney malpractice the subjective standard of informed consent. Rather, usual principles of negligence should apply to legal malpractice cases. (pp. 20-27)

4. The standard proximate cause charge for concurrent causes is ill-suited for legal malpractice cases where there are concurrent causes of harm. Rather, the substantial factor test is suited for legal malpractice cases in which inadequate or inaccurate legal advice is alleged to be a concurrent cause of harm. The substantial factor test accounts for the fact that there can be any number of intervening causes between the initial wrongful act and the final injurious consequences and does not require an unsevered connecting link between the negligent conduct and the ultimate harm. As such, the jury must be instructed to determine whether the lack of adequate advice was a substantial factor in causing the Conklins' exposure to an unwanted risk of harm. (pp. 27-32)

As MODIFIED, the judgment of the Appellate Division is AFFIRMED.

JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN and COLEMAN join in JUSTICE O'HERN's opinion. CHIEF JUSTICE WILENTZ did not participate.

The opinion of the Court was delivered by

O'HERN, J.

The primary issue in this legal malpractice action is whether plaintiffs are entitled to a new trial against their lawyer and his law firm based on the trial court's charge to the jury regarding proximate cause. In its original form, that charge would, in essence, have required defendants' negligence to have been the sole cause of the harm to the client for the attorneys to be held liable. The trial of the matter had resulted in a jury verdict of no cause for action against the defendants on the plaintiffs' major claim. Although differing as to the nature and scope of the retrial, both lower courts agreed that the charge on proximate cause contained language clearly capable of producing an unjust result and that plaintiffs were entitled to a new trial on liability. Each court, however, preserved some of the first jury's findings. We agree that plaintiffs are entitled to a new trial based on the defective jury charge below, but differ from both lower courts concerning the nature and scope of the retrial.

I

The Conklin plaintiffs are members of a farm family that settled in Montville in the 1800's. Over the years, the family diversified its activities and was, at the time of the events that led to this lawsuit, conducting, in partnership form, farm and sand and gravel operations, and had business counselors with whom it had explored the possibility of sale of the property. In the Fall of 1984, the Conklins listed for sale "100 prime acres" of their farm. On the advice of their real estate broker, the Conklins retained the law firm of Hannoch Weisman, P.C., to represent them in the sale. The law firm assigned a then-associate, Carleton R. Kemph, to handle the matter.

In April 1985, a buyer, Longview Estates, agreed to purchase the Conklin Farm for $12 million. The contract required the purchasers to pay $3 million in cash at or before closing. A purchase-money note and mortgage to be paid within five years after closing and bearing interest at 9 per cent represented the ...


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