On appeal from the Superior Court of New Jersey, Law Division, Passaic County, L-6054-98.
Before Judges Newman, R.B. Coleman and Holston, Jr.
The opinion of the court was delivered by: Newman, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
In this fraud/legal malpractice action involving a residential real estate transaction, defendant Louis B. Chapman, Esq., and third-party defendant Feinman & Chapman, P.A., (Chapman) appeal, and defendants Kenneth C. and Diana Knoll (Knolls) cross-appeal, from a counsel fee award of $174,393 against Chapman and in favor of the Knolls.
Both Chapman and the Knolls contend that the trial judge erred in his determination of the overall attorney fee award. Chapman asserts that the award should have been proportionate to the jury's determination of Chapman's percentage of liability which was found to be ten percent. Chapman also argues that the trial court erred in failing to sanction third-party defendants Zoe Stevens and Varley & Stevens Realtors, Ltd. (Stevens) for a discovery violation that had a significant effect on the trial, and in failing to charge the jury on the Knolls' responsibility to mitigate their damages.
On the cross-appeal, the Knolls argue that the trial court erred in ruling that Chapman was not jointly and severally liable for all of the Knolls' compensatory damages including attorneys fees and in denying Knolls' request for an enhancement of the fee award. Except to reverse on holding Chapman responsible for one-third of the attorneys fees and costs incurred in the conduct of the trial, we affirm as to the remaining issues on the appeal and all of the issues raised on the cross-appeal. We also affirmatively hold Chapman 100 percent responsible for the attorney fees and costs in connection with the application for such fees and costs.
On June 30, 1998, plaintiffs Peter Grubbs and his wife Kathy L. Cody (Grubbs) filed a complaint in the Passaic County Special Civil Part against the Knolls and the Knolls' attorney, defendant Louis V. Chapman, seeking the return of certain monies which were placed in escrow in conjunction with a residential real estate transaction between the Grubbs and the Knolls. On October 13, 1998, Judge Scancarella granted the Knolls' motion to transfer the case to the Passaic County Law Division.
On October 16, 1998, the Knolls filed an answer, a counterclaim against the Grubbs, a cross-claim against Chapman, and a third-party complaint against Feinman & Chapman, P.A., Varley & Stevens Realtors, Ltd., and Zoe Stevens. In their counterclaim, the Knolls alleged that the Grubbs had committed fraud by failing to reveal that the property they sold to the Knolls was severely constrained by wetlands. In their cross-claim/third-party complaint, the Knolls asserted that the Stevens defendants had violated the Consumer Fraud Act (CFA), and that the Chapman defendants had committed legal malpractice.
The matter was tried by a jury on various dates in September and October 2001. On October 29, 2001, the jury returned a verdict in favor of the Knolls on their common law fraud, consumer fraud, and legal malpractice claims in the amount of $75,650. The jury also found that the Grubbs on their original complaint were only entitled to the return of one-half of the escrowed monies. The jury allocated sixty percent of liability to Stevens, thirty percent to the Grubbs, and ten percent to Chapman. According to the final judgment entered on December 4, 2001, the Stevens defendants were required, under the CFA, to pay three times the amount of the full verdict ($226,950), plus attorney's fees and costs of suit. Chapman defendants were ordered to pay $7594.45, plus attorney's fees, while the Grubbs were ordered to pay $22,786.34 without any attorney's fees because there was no legal or statutory basis to award such fees against the Grubbs. However, the judgment specified that the Stevens defendants were entitled to a reduction in their obligation in the event of any payment by the Chapman defendants or the Grubbs.
The Knolls subsequently settled with the Grubbs for $20,000, and with the Stevens defendants for $500,000. On December 26, 2001, the Knolls filed an application for an award of attorneys fees solely against the Chapman defendants who did not settle. On January 14, 2002, the Chapman defendants cross-moved for monetary sanctions against the Stevens defendants in lieu of any fee award, in light of Stevens' failure to produce a key document prior to trial.
On August 1, 2002, the trial court awarded the Knolls $523,179 in attorney's fees and costs comprised of the following four items:
(A) $385,344.37 of fees awarded for the underlying lawsuit; plus (B) $57,591.05 of costs/expenses awarded for the underlying lawsuit; plus (C) $68,696.42 of fees awarded for the fee application; plus (D) $11,547.72 of costs/expenses awarded for the fee application.
The judge directed that the Chapman defendants were responsible for one-third of this award, or $174,393. In concluding that the fee should be split in thirds, the trial judge commented that the facts were intertwined. The judge made no mention of apportioning the award consistent with the jury's determination of respective liability even though this was charged to the jury.
Chapman contends that the trial judge erred in apportioning the attorney's fees contrary to the jury's apportionment of liability, in ordering him to pay attorney's fees in an amount that was unreasonably disproportionate to the underlying jury award against him, and in apportioning settlement credit to compensate the Knolls for the attorney's fees they incurred in pursuing their claims against the Grubbs.
In reviewing a trial court's counsel fee determination, appellate courts apply a deferential standard; those determinations "'will be disturbed only on the rarest of occasions, and then only because of a clear abuse of discretion.'" Packard-Bamberger & Co., Inc. v. Collier, 167 N.J. 427, 444 (2001) (quoting Rendine v. Pantzer, 141 N.J. 292, 317 (1995)).
In fixing Chapman's counsel fee obligation, the trial judge initially observed that, while he recognized his obligation to separate out the fee-eligible claims, it could not be ignored that the claims against the Grubbs, Stevens, and Chapman had rested upon intertwined facts. Nonetheless, the judge was satisfied that the wrongdoing of each party was equally difficult for the Knolls to prove. The judge was satisfied that the Knolls had prevailed on all of their major claims and viewed his primary task as one of making the Knolls whole. Thereafter, the judge ruled as follows:
I therefore find that the fair and reasonable way to award legal fees in this case is to allocate the fees on a one-third/one-third/one-third basis. And the amount to be paid by defendant Chapman will therefore depend on the ... total allowable fee and costs that I will fix and may be modified by the amount received by the plaintiffs for legal fees pursuant to the settlement.... Plaintiff received $500,000 in settlement from the Stevens' defendants. Three times the jury verdict is $226,950.
Of that $7,565 [is] recoverable from the Chapman defendants, $22,695 is recoverable from the Grubbs' defendants. That leaves $196,690 from the Stevens' settlement as Stevens' share of the jury verdict. Subtracting that from the $500,000 leaves $303,310 to apply to the legal fees of the plaintiffs.
It's noted also that plaintiffs accepted $20,000 in settlement of $22,695 due from the Grubbs ... plus interest and ... some other small amount of money.
Of course, one-third of legal fee is allocated to the Grubbs Cody parties because of the circumstances that I've previously enunciated. And of course, we know that no legal fee is recoverable from those parties.
... Thus, under the hypothetical of $480,000 with the plaintiffs receiving more or less $303,000 or not two-thirds of $480,000 the one-third of legal services that would be attributable in that hypothetical to the defendants Chapman would be assessed against Chapman without reduction.
Now if, for example, the $303,000 exceeds two-thirds of that which is found to be a ... reasonable legal fee, then of course, the legal fee assessed against the Chapman defendant would be reduced. For example, if the fair and reasonable legal fee and costs were $390,000, that would amount to a share of $130,000 against each group of defendants. Since the plaintiffs voluntarily settled for an amount which ... totals $303,000 toward legal fees, then the Chapman defendants would be liable for the difference between ... $390,000 and $303,000 or ... $87,000.
The judge made no comment upon the proportionality of the award against Chapman given the limited liability ascribed to him by the jury. Ultimately, following a second hearing, the judge awarded $523,179 in counsel fees, out of which Chapman was directed to pay $174,393.
At the outset, we note that the trial judge mistakenly included the attorney fees and costs incurred in the fee application as part of the total attorney fees and expenses awarded. Because the other parties to the litigation had settled with the Knolls, the subsequent fee/expenses application was necessitated solely by the Chapman defendants. Therefore, the entire cost of fees and expenses in connection with the application should be borne by them. This result would be in accord with Saffer v. Willoughby, 143 N.J. 256 (1996), which makes attorney fees part and parcel of the consequential compensatory damages. Thus, Chapman would be legally responsible for payment of the $80,244.14 of attorney fees and costs incurred in the fee application proceedings.
With regard to attorney fees and expenses incurred on the trial, certain guiding principles are to be followed which we reiterate. "[A] negligent attorney is responsible for the reasonable legal expenses and attorney fees incurred by a former client in prosecuting the legal malpractice action." Saffer v. Willoughby, supra, 143 N.J. at 272. In fixing counsel fees, a trial judge must ensure that the award does not cover effort expended on independent claims that happen to be joined with claims for which counsel is entitled to attorney fees. Ricci v. Corporate Express of the East, Inc., 344 N.J. Super. 39, 48 (App. Div. 2001), certif. denied, 171 N.J. 42 (2002); Chattin v. Cape May Greene, Inc., 243 N.J. Super. 590, 614 (App. Div. 1990), aff'd, 124 N.J. 520 (1991); 49 Prospect Street v. Sheva Gardens, 227 N.J. Super. 449, 470 (App. Div. 1988).
Our Supreme Court has declined to construe New Jersey's various fee-shifting statutes to require proportionality between the damages recovered by a plaintiff and the fees awarded. Szczepanski v. Newcomb Med. Ctr., Inc., 141 N.J. 346, 366 (1995). Nonetheless, the amount a plaintiff recovers in damages is relevant to the determination of whether the fees sought are reasonable. Chattin, supra, 243 N.J. Super. at 616 (quoting Riverside v. Rivera, 477 U.S. 561, 574, 106 S.Ct. 2686, 2694, 91 L.Ed. 2d 466, 479 (1986)).
In such cases, the trial court's responsibility to carefully review the lodestar fee request is heightened. Szczepanski, supra, 141 N.J. at 366. The court must evaluate "not only the damages prospectively recoverable and actually recovered, but also the interest to be vindicated ... as well as any circumstances incidental to the litigation that directly or indirectly affected the extent of counsel's efforts." Id. at 366-67. The lodestar should be decreased "if the prevailing party achieved limited success in relation to ...