July 31, 2007
THE THERESE YACENDA EDUCATIONAL TRUST; THE JACKLYN YACENDA EDUCATIONAL TRUST; AND BERNICE YACENDA, TRUSTEE, PLAINTIFFS-APPELLANTS,
BARRY R. MANDELBAUM, ESQ.; MANDELBAUM, SALSBURG, GOLD, LAZRIS, DISCENZA AND STEINBERG; THE MAUREEN YACENDA EDUCATIONAL TRUST (A/K/A THE JEANINE YACENDA EDUCATIONAL TRUST AND/OR THE GABRIELLE YACENDA EDUCATIONAL TRUST), DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-8499-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted April 24, 2007
Before Judges Coburn and Gilroy.
Plaintiffs, the Therese Yacenda Educational Trust, the Jaclyn Yacenda Educational Trust, and Bernice Yacenda, Trustee, appeal from the June 8, 2006, order of the Law Division granting summary judgment, dismissing their complaint as barred by the Entire Controversy Doctrine (ECD). We reverse.
James and Charles Yacenda were brothers who engaged in various business enterprises. Sometime in the early 1990s, the brothers created educational trusts for their children. Charles created the plaintiff trusts: the Therese Yacenda Education Trust and the Jacklyn Yacenda Education Trust, with Bernice Yacenda, Charles' wife, serving as trustee on behalf of his two daughters, Therese and Jacklyn. Collectively, these two trusts are referred to as the Bernice Trust. James created the Jeanine Yacenda Educational Trust and the Gabrielle Yacenda Education Trust, with Maureen Yacenda, his wife, serving as trustee on behalf of his two daughters, Jeanine and Gabrielle.
Collectively, these two trusts are referred to as the Maureen Trust.
James; Charles; Life Faith, Inc.; Life Charity, Inc.; Maureen, individually, and as trustee of the Maureen Trust; and Bernice, individually, and as trustee of the Bernice Trust (collectively, the parties); together with Brookdale Mortgage Investors, Inc. (Brookdale), and Barry R. Mandelbaum, Esq. (the escrow agent), entered into an escrow and authorization for disbursement agreement dated December 30, 1993,*fn1 (escrow agreement). The escrow agreement was created to manage the disbursement of certain assets, including the purchase of a note and mortgage held by Midlantic National Bank as mortgagee and YTwo, Inc., as mortgagor. Mandelbaum, as escrow agent, was to hold the issued and outstanding shares of Brookdale, subject to the direction of James and Charles. The purpose of the escrow agreement was to allow the parties to appoint an arbitrator to determine the parties' stock ownership of Brookdale.
After entering into the escrow agreement, the parties created the Y-Two escrow account to facilitate the disposition of funds emanating from the bankruptcy sale of Y-Two, Inc.'s corporate assets. The escrow account's funding came from the proceeds from the sale of a restaurant and the monthly payments on a purchase money mortgage held by Y-Two, as a result of the sale of a marina in Brielle. Pursuant to the arbitration proceeding under the escrow agreement, Y-Two, Inc., is owned 50% by the Bernice Trust and 50% by the Maureen Trust. Brookdale is owned 62% by the Maureen Trust and 38% by the Bernice Trust. In the Spring of 1995, Brookdale acquired the Midlantic note and mortgage. A separate escrow account, the Brookdale escrow account, was created to hold payments that were to be made from Y-Two to Brookdale on the acquired Midlantic mortgage.
In 1993 and 1995, the Maureen Trust executed four promissory notes in favor of either Charles or the Bernice Trust. The notes, naming Charles as payee, were subsequently assigned by Charles to the Bernice Trust.
In the interim, Charles became ill in 1994. At about that time, the brothers, their wives, and the Maureen and Bernice Trusts were defending claims by Chemical Bank, a judgment creditor who alleged that the brothers and wives had transferred assets to the trusts in order to defraud the bank. On December 30, 1994, the two trusts entered into an agreement (the 1994 agreement) that allocated the ownership of certain properties and other debts and assets between the trusts. Under this agreement the two trusts agreed that to the "extent that any assets are recovered by Chemical . . . from either or both [of] . . . the trust[s], that each party shall reimburse the other party to the extent of fifty (50%) percent of the asset or assets recovered by Chemical . . . from either the assets shown on Schedule B or Schedule C [of this agreement]." In addition, the 1994 agreement provided that the trusts would "equally pay Mandelbaum, Salsburg, Gold, Lazris, Discenza and Steinberg, P.C. (the Mandelbaum Salsburg firm) legal fees and costs incurred in defending the action instituted by Chemical Bank, seeking to prove a fraudulent conveyance." After both trusts settled with Chemical Bank, the trusts disagreed on whether: 1) the 1994 agreement covered the settlement payments each trust had made to the bank; and 2) whether the agreement required the Maureen Trust to pay one-half of the legal fees of a law firm, other than the Mandelbaum Salsburg firm, for services rendered in defending the bank's action, after Charles died in 1996.
In March 2000, the Bernice Trust instituted suit against the Maureen Trust (the "2000 action") to recover monies under the four promissory notes, as well as a fifth note held by the Bernice Trust. The Maureen Trust counterclaimed, demanding payment to even up the trusts' contributions to the settlement of the Chemical Bank action and for one-half of the legal fees paid to the Mandelbaum Salsburg firm for services in defending against the bank's lawsuit.
Following a series of cross-motions for summary judgment, orders were entered in the Law Division that collectively: 1) entered judgment in favor of the Bernice Trust on the five promissory notes; 2) entered judgment on the counterclaim in favor of the Maureen Trust, directing that it be paid a sum sufficient to even up the payments made to settle the Chemical bank action, and that it be reimbursed for one-half of the Mandelbaum Salsburg firm's fees that the trust incurred in defending against the bank's lawsuit; and 3) that the Bernice Trust was entitled to one-half of the legal fees paid to the second law firm it engaged to defend its interest in the bank's action. The two trusts cross-appealed.
On appeal, we affirmed in part, reversed in part, and remanded the matter to the trial court. The Therese Yacenda Educational Trust v. The Maureen Yacenda Educational Trust, No. A-5036-01T2 (App. Div. October 15, 2003). Specifically, we affirmed the order directing that the amounts due the Bernice Trust on the promissory notes be placed in escrow; we affirmed the order that the Bernice Trust contribute funds in order to even up the Chemical Bank settlement; we affirmed the order that the Bernice Trust contribute to the Mandelbaum Salsburg firm's legal fees incurred by the Maureen Trust in defending the Chemical Bank action; we reversed the order that the Maureen Trust was obligated to reimburse the Bernice Trust for fees paid to the second law firm in defending the Chemical Bank action; and lastly, we remanded the matter to the trial court to recalculate the amounts due, consistent with the opinion, and to reconsider the issue of imposition of late charges, counsel fees, and costs on the promissory notes. Id. (slip. op. at 28). In April 2004, the trusts settled the 2000 action. A stipulation of settlement was filed with the Law Division, dismissing the action with prejudice.
On November 12, 2004, plaintiffs filed a complaint and order to show cause against Mandelbaum and the Mandelbaum Salsburg firm, requesting that the court direct that Mandelbaum or his law firm provide a full accounting of the proceeds received from the sale of corporate properties under the escrow agreement. On February 14, 2005, an order was entered denying plaintiffs' request for an accounting and granting plaintiffs leave to file an amended complaint "includ[ing] any matters relating to the accounting and . . . join as party defendants [t]he Maureen [Trust]," after which the matter was to proceed as a plenary action.
On March 9, 2005, plaintiffs filed their amended complaint that: 1) demanded an accounting from Mandelbaum or the Mandelbaum Salsburg firm; 2) sought damages against Mandelbaum, alleging that he "has improperly, recklessly and/or negligently handled, administered, and disbursed the funds pursuant to the Escrow Agreement, thereby breaching his fiduciary duty to the plaintiffs;" and 3) added the Maureen Trust as a party defendant because its interest in the trust funds may be affected by the lawsuit. On April 18, 2005, Mandelbaum and the Mandelbaum Salsburg firm filed their answer and counterclaimed for legal fees pursuant to the escrow agreement and for sanctions under the frivolous litigation statute, N.J.S.A. 2A:15-59.1. On or about April 13, 2006, the Maureen Trust, joined by Mandelbaum and his law firm, filed a motion for summary judgment, asserting that plaintiffs' claims were barred by the ECD, and in the alternative, that part of the damages claimed were precluded by the Statute of Limitations. On June 8, 2006, the motion judge granted defendants' motion for summary judgment under the ECD and dismissed the complaint. A confirming order was entered the same day. This appeal followed.*fn2
On appeal, plaintiffs argue:
APPELLANT[S'] CLAIMS WITH REFERENCE TO THE Y-TWO AND BROOKDALE ESCROW ACCOUNTS ARE NOT BARRED BY [THE] ENTIRE CONTROVERSY [DOCTRINE].
A. THERE IS NO FACTUAL NEXUS BETWEEN THE CURRENT ACTION AND THE YEAR 200 LITIGATION BETWEEN THE BERNICE AND MAUREEN YACENDA TRUSTS.
B. THE BERNICE TRUST[S] [WERE] NOT SEEKING TO RELITIGATE OR CHANGE THE DISTRIBUTION OF ASSETS AND LIABILITIES BETWEEN THE TRUSTS.
C. PRIOR TO FILING AN ACTION TO COMPEL AN ACCOUNTING, NEITHER BERNICE YACENDA NOR THE BERNICE YACENDA TRUST KNEW[, OR] COULD HAVE KNOWN[,] THAT A CLAIM FOR MISHANDLING THE ESCROW FUNDS WAS VIABLE.
A trial court will grant summary judgment to the moving party "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c); see also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995). "An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." R. 4:46-2(c). On appeal, "the propriety of the trial court's order is a legal, not a factual, question." Pressler, Current N.J. Court Rules, comment 3.2.1 on R. 2:10-2 (2007). "We employ the same standard that governs trial courts in reviewing summary judgment orders." Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).
Plaintiffs contend that the ECD is not applicable to this matter because: 1) there is no factual nexus between the current action and the 2000 action; and 2) plaintiffs were unaware that a viable claim for mishandling the escrow funds existed when the 2000 action was pending. Plaintiffs contend that they are not seeking to change the ownership percentages in any of the companies and are not seeking to re-litigate the notes at issue in the 2000 action. Plaintiffs assert that the claims in the present action relate solely to Mandelbaum's failure, as escrow agent, to properly disburse funds in the YTwo and Brookdale escrow accounts in accordance with the ownership interest of the trusts. Defendants counter that the trial court properly granted the motion because the essential factual context between the two actions is identical, that is, a dispute between the trusts concerning apportionment of funds and legal fees. Defendants contend that plaintiffs, through their accountant, had been provided sufficient information by defendants during the pendency of the 2000 action to have asserted the present claim while the 2000 action was pending.
The ECD is an equitable doctrine that rests upon the twin pillars of "fairness to the parties and fairness to the system of judicial administration." Joel v. Morrocco, 147 N.J. 546, 555 (1997). The doctrine is designed to encourage comprehensive and conclusive adjudications, promote judicial economy and efficiency, and achieve party fairness. Pressler, Current N.J. Court Rules, comment 1 on R. 4:30A (2007).
Prior to 1998, the ECD required mandatory joinder of claims and parties, incorporating the concept of claim preclusion. Stated simply, it required that whenever possible, a party should assert all claims arising from the same transactional set of facts in a single lawsuit, "even those against different parties." Harley Davidson Motor Co., Inc. v. Advance Die Casting, 150 N.J. 489, 497 (1997) (quoting Joel, supra, 147 N.J. at 548). However, in 1998, the Supreme Court amended Rule 4:30A "to restrict the scope of the doctrine to non-joinder of claims." Hobart Bros. v. Nat. Union Fire Ins., 354 N.J. Super. 229, 242 (App. Div.), certif. denied, 175 N.J. 170 (2002). ("Non-joinder of claims required to be joined by the Entire Controversy Doctrine shall result in the preclusion of the omitted claims to the extent required by the [E]ntire [C]ontroversy [D]octrine . . . ."). R. 4:30A.
As a result of the 1998 rule amendment, "preclusion of a successive action against a person not a party to the first action has been abrogated except in special situations involving both inexcusable conduct [by the party bringing the claim] . . . and substantial prejudice to the non-party resulting from omission from the first suit." Pressler, Current N.J. Court Rules, comment 1 on R. 4:30A (2007). The burden of establishing both inexcusable conduct and substantial prejudice rests with the party seeking to invoke the ECD as an affirmative defense. Hobart, supra, 354 N.J. Super. at 242; Brown v. Brown, 208 N.J. Super. 372, 384 (App. Div. 1986).
Notwithstanding the substantive change in the rules, "'[T]he polestar for the application of the [Entire Controversy] rule [remains] judicial "fairness."'" K-Land Corp. No. 28 v Landis Sewerage Auth., 173 N.J. 59, 74 (2002) (quoting Reno Auto Sales, Inc. v. Prospect Park Sav. & Loan Assoc., 243 N.J. Super. 624, 630 (App. Div. 1990)). Accordingly, "in considering fairness to the party whose claim is sought to be barred, a court must consider whether the claimant has 'had a fair and reasonable opportunity to have fully litigated that claim in the original action.'" Gelber v. Zito Partnership, 147 N.J. 561, 565 (1997) (quoting Cafferata v. Peyser, 251 N.J. Super. 256, 261 (App. Div. 1991)). For example, "[m]andatory joinder of claims has been applied to bar claims involving commonality of facts in cases involving piecemeal litigation where parties, for strategic reasons, withhold claims concerning the underlying litigation, thus getting two bites of the apple." Allstate Ins. Co. v. Cherry Hill Pain & Rehab Institute, 389 N.J. Super. 130, 140 (App. Div. 2006), certif. denied, 190 N.J. 254 (2007).
To the contrary, "where claims are 'separate and discrete' from those in the initial proceeding, the mandatory joinder of claims does not bar the subsequent action." Ibid. (Quoting Hillsborough Twp. Bd. of Educ. v. Faridy Thorne Frayta, P.C., 321 N.J. Super. 275, 285 (App. Div. 1999). Nor does the doctrine "apply to bar component claims either unknown, unarisen, or unaccrued at the time of the original action." K-Land Corp., supra, 173 N.J. at 70 (quoting Pressler, Current N.J. Court Rules, [comment 3.3] on R. 4:30A [(2007)] (emphasis omitted). It is against these principles that we consider the issue presented.
Although there is a similarity between the two actions because the plaintiff and defendant trusts are identical, we conclude that the trial judge improvidently granted summary judgment. In the present action, plaintiffs assert an independent claim against Mandelbaum and his law firm for failure to properly distribute the assets in the Y-Two and Brookdale accounts in accordance with the interest of each trust. Mandelbaum and his law firm were not parties to the 2000 action. Accordingly, the present action should not be dismissed as to Mandelbaum and the law firm unless the court determines that the failure to name those defendants as parties in the 2000 action was inexcusable, and those defendants are substantially prejudiced by not having been joined in the 2000 action. Hobart, supra, 354 N.J. Super. at 242. We find neither inexcusable conduct, nor substantial prejudice.
Defendants contend that the factual context of the two actions is identical, that is, "concerning apportionment of funds and legal fees held in the trusts," as determined by the December 30, 1994, agreement. We disagree.
The December 30, 1994, agreement assessed liabilities and determined ownership interests in certain assets between the Bernice and the Maureen Trusts; addressed the trusts' agreement to reimburse each other for any monies recovered by Chemical Bank in a then-pending action against the trusts and others; and addressed the trusts' agreement to divide the attorneys' fees paid to the Mandelbaum Salsburg law firm for services rendered in defending the Chemical Bank action only. The December 30, 1994, agreement did not address the assets held in the Y-Two or the Brookdale escrow accounts, and did not address Mandelbaum's distribution of assets from those accounts.
The issues asserted by plaintiff and defendant trusts in the 2000 action were limited in number and narrow in scope. Plaintiffs filed the 2000 action to collect on the five promissory notes, the obligation to pay being determined by the four corners of each instrument, including payment of attorneys' fees. The balance of the 2000 action concerned the obligation by the Bernice and Maureen Trusts to reimburse the other for monies paid to Chemical Bank and for attorneys' fees in defending the bank's action. That the 2000 action was limited to those claims is not disputed and is evidenced by the substance of the stipulation of settlement filed in the 2000 action, containing mutual releases from the Bernice and Maureen Trusts to each other that were limited to the matters asserted in the 2000 action. The trusts did not sign a general release of any or all claims.
In the present action, plaintiffs seek a formal accounting from Mandelbaum and his law firm, concerning Mandelbaum's compliance with his fiduciary duties in distributing the assets from the Y-Two and Brookdale escrow accounts, in accordance with their ownership interest in the two entities. This claim is not premised on any facts presented in the 2000 action. That the 2000 action concerned attorneys' fees, and that the present action may require an accounting of fees paid to Mandelbaum and his law firm, is not controlling. The attorneys' fees in the 2000 action pertained only to: 1) fees contractually due plaintiffs under the promissory notes; 2) fees due the Mandelbaum Salsburg firm in defending the Chemical Bank lawsuit; and 3) fees due a second law firm for defending the Bernice Trust in the bank action. In the present action, Mandelbaum is being asked to account for attorneys' fees concerning his and his firm's services as a fiduciary in distributing the assets in the two escrow accounts. Each claim is separate.
Accordingly, we are not satisfied that there exists a single set of core facts requiring plaintiff to have asserted the present claim in the 2000 action under the ECD. It is the factual context "giving rise to the controversy itself, rather than a commonality of claims, issues or parties, that triggers the requirement of joinder to create a cohesive and complete litigation." Mystic Isle Dev. Corp. v. Perskie & Nehmad, 142 N.J. 310, 323 (1995). Because there was no obligation to have asserted the claim in the first action, plaintiffs' institution of the present action cannot be deemed "inexcusable." In addition, the Mandelbaum defendants do not assert that they have been prejudiced by the institution of the second action, much less substantially prejudiced, nor do we discern any prejudice.
Although the issue is less clear as it pertains to the Maureen Trust, as it is not affected by the 1998 amendment to Rule 4:30A, we are satisfied that plaintiffs should not be barred from proceeding against the Maureen Trust because the claims do not arise from a single set of core facts. Moreover, as indicated in plaintiffs' amended complaint and argued in their brief, plaintiffs are not proceeding directly against the Maureen Trust, only Mandelbaum and his law firm, on a claim of breach of fiduciary duty. That Mandelbaum may be entitled to indemnification from the Maureen Trust does not require a different result, a common law cause of action for indemnity not accruing until liability is fixed. Bd. of Educ. of Florham Park v. Utica Mut. Ins., 172 N.J. 300, 307 (2002).
Reversed and remanded to the trial court for further proceedings.