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Cuyler Burk, LLP v. Silverman


October 9, 2007


On appeal from the Superior Court of New Jersey, Law Division, Morris County, Docket No. L-135-03.

Per curiam.


Argued: September 10, 2007

Before Judges Cuff, Lisa and Lihotz.

Defendant Robert M. Silverman appeals from an award of counsel fees and costs totaling $59,793.50 for filing and maintaining a frivolous counterclaim for legal malpractice against plaintiff Cuyler Burk, LLP. Defendant contends that the counterclaim was not frivolous as defined by statute or court rule and that the award is excessive. We disagree and affirm.

The facts concerning the circumstances of the legal representation provided by Cuyler Burk to defendant and the services provided to him are undisputed. Defendant is an attorney who specializes in Lemon Law claims.*fn1 In February 2002, a disciplinary matter was commenced against defendant and he sought legal representation for himself and his associate from Cuyler Burk. According to the complaint filed by a former client, the Disciplinary Review Board (DRB) alleged that defendant had an agreement with Chrysler Corporation to collect a set fee of $2000 in every case brought by defendant against the automaker. On or about March 15, 2002, Cuyler Burk filed an answer on behalf of defendant.

On April 15, 2002, Cuyler Burk provided the DRB with a list prepared by defendant of all cases brought by defendant against Chrysler since January 2000. Cuyler Burk believed that the list refuted any claim that defendant and Chrysler had an established fee for every case. By May 7, 2002, this claim was resolved to the satisfaction of Walton Kingsberry, of the Office of Attorney Ethics, and the person directly involved in the prosecution of the disciplinary charges against defendant. Kingsberry withdrew from active participation in the matter and reassigned it to another attorney on his staff.

Stephen Cuyler and an associate commenced discussions with other DRB personnel regarding not only the set fee issue, but also a complaint by a client that defendant commenced suit against her in Pennsylvania in order to avoid this state's pre-suit notice of the availability of fee arbitration. See R. 1:20A-6. In the course of these discussions, Cuyler raised the possibility of diversion as an appropriate resolution of the charges. DRB personnel informed Cuyler that this remedy was not available because an earlier charge had been diverted and because a formal complaint had been issued. Nevertheless, Cuyler sought to persuade DRB personnel that a second diversion was not precluded by any rule. Defendant was promptly informed of these discussions.

Discussions with DRB personnel continued throughout May 2002. The DRB representative assigned to the case advised Cuyler that she would pursue charges that defendant represented to the complaining client that his services were free, that he would not entertain a settlement offer that did not include attorneys' fees, and that defendant commenced suit to collect his fee against this client in Pennsylvania in spite of the lack of jurisdiction to do so. The DRB representative continued to suggest that the matter could be resolved by consent, if defendant would accept a reprimand. All of these circumstances were communicated promptly to defendant.

In late May 2002, Cuyler recommended that defendant not accept this offer of discipline by consent. He did so based on defendant's desire to be admitted to practice in neighboring states and to open law offices in those states. A disciplinary record in New Jersey could jeopardize these plans. Thus, by letter dated May 29, 2002, Cuyler advised defendant to reject the offer because defendant would be required to acknowledge that he violated the Rules of Professional Conduct and any discipline would became part of his official record.

It is undisputed that Cuyler and defendant discussed the offer of discipline by consent with a reprimand the same day. Cuyler explained the difference between diversion and discipline by consent. Defendant informed Cuyler that he did not want the matter to proceed to hearing and directed Cuyler to continue to seek to obtain a diversion or, if unsuccessful, to negotiate discipline by consent. By June 4, 2002, Cuyler and the DRB representative had negotiated a disposition and defendant agreed to discipline by consent with an admonition. Defendant reserved the right to review the stipulation of facts.

A DRB representative prepared a proposed Stipulation of Discipline By Consent, Affidavit of Consent and Stipulation of Facts. Cuyler forwarded the documents to defendant and conferred with him. The firm prepared proposed changes and forwarded the changes to defendant on June 26, 2002. Through mid-July, negotiations continued. At defendant's suggestion, Cuyler Burk requested that defendant be able to admit to a violation of the Rules of Professional Conduct for commencing suit against his client in Pennsylvania rather than New Jersey.

On August 21, 2002, an amended complaint against defendant was filed due to the lapse of time. Defendant was informed once again why this procedure was necessary. Defendant did not respond to Cuyler's August correspondence until September 5, 2002. At this time, he expressed confusion and stated that he thought that the firm had only been negotiating a diversion. He also questioned the bills submitted by the firm, none of which had been paid. This was the first time defendant had questioned any bill. Twice in early September, defendant was reminded that he had agreed to pursue discipline by consent.

On September 17, 2002, the parties conferred. On September 20, 2002, Cuyler Burk withdrew as counsel for defendant. It is undisputed that defendant retained new counsel, a hearing was conducted before the District IV Ethics Panel on the amended complaint, and the panel found defendant had violated the Rules of Professional Conduct and recommended a thirty-day suspension. On appeal, the DRB modified the discipline imposed to a reprimand.

On January 13, 2003, Cuyler Burk filed a complaint to collect the fees incurred by defendant in the amount of $18,747.94. Defendant filed an answer to the complaint and a counterclaim in which he asserted a legal malpractice claim against plaintiff. On August 19, 2003, Cuyler Burk notified defendant's attorney that it considered the counterclaim frivolous and that it would move for sanctions.

On August 20, 2004, two months after the deposition of his expert, defendant dismissed the counterclaim. Following the submission of a stipulation of dismissal with prejudice of plaintiff's complaint, plaintiff filed a motion for sanctions pursuant to N.J.S.A. 2A:15-59.1 and Rule 1:4-8.

In a written opinion filed on December 22, 2005, Judge Harper held that the legal malpractice counterclaim was frivolous. The judge held that Cuyler Burk was a prevailing party because defendant withdrew his complaint after defendant's expert changed his opinion during his deposition. In other words, "the withdrawal of the complaint was done to avoid anticipated defeat, and as such, it is not a voluntary dismissal, but instead an acknowledgement that the Plaintiff would prevail."

Judge Harper also found that the counterclaim was commenced in bad faith. He found that the evidence was undisputed that Cuyler Burk had made attempts to resolve the case on defendant's behalf and that he dragged his feet frustrating the firm's effort to expeditiously and favorably resolve the case. He characterized the counterclaim as a tactic to frustrate the firm's ability to collect the fees owed to it by defendant. Judge Harper also found that defendant knew or should have known that the counterclaim was "without any reasonable basis in law." Furthermore, the judge found that defendant's contention that plaintiff recommended that he not settle the disciplinary matter is "patently untrue." The judge also found that the affidavit of merit submitted by one attorney and the expert report submitted by another were founded on inadequate and incomplete facts.

Once Judge Harper ruled that Cuyler Burk was entitled to an award of fees and costs, it submitted an affidavit of services in which it sought fees and costs in excess of $105,000. On April 24, 2006, Judge Harper conducted a plenary hearing on the fee request at which Cuyler testified in support of the firm's application.

In his August 1, 2006 written opinion, Judge Harper awarded the firm $6,865.75 for expenses and $52,927.75 for legal services incurred in its defense of the legal malpractice counterclaim. The judge noted that defendant did not contest the reasonableness of the hourly rate and the judge found that the maximum hourly rate of $275 was reasonable. Judge Harper then reviewed the tasks performed by the firm and calculated the amount of time reasonably necessary to perform the tasks required to defend the counterclaim and to prepare the motion for sanctions. In doing so, he drastically reduced the number of hours from 496.80 to 202.75.

On appeal, defendant argues that Cuyler Burk cannot be considered a prevailing party and the counterclaim is not frivolous. He also contends that the award is excessive and not supported by adequate factual findings.

New Jersey adheres to the "American rule" that each party bears their own legal fees. Van Horn v. City of Trenton, 80 N.J. 528, 538 (1979). Thus, fee-shifting is allowed only when expressly authorized by statute, court rule or contract. State Dep't of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 504 (1983). Consistent with our tradition, exceptions to the general rule are "rigorously enforced, lest [the exceptions] grow to consume the general rule itself." Van Horn, supra, 80 N.J. at 538.

N.J.S.A. 2A:15-59.1, the frivolous litigation statute, is one of the few exceptions to the general rule. Relief under this statute is approached cautiously so that baseless litigation is deterred but the right of access to the courts is not unduly infringed. Gooch v. Choice Entertaining Corp., 355 N.J. Super. 14, 18 (App. Div. 2002).

To qualify for an award of attorneys' fees under this statute, the party seeking fees must be a prevailing party. It is not necessary that the party seeking fees must proceed to trial and obtain a judgment in its favor. A party may be considered a prevailing party, if the matter settles, First Atlantic Federal Credit Union v. Perez, 391 N.J. Super. 419, 432 (App. Div. 2007), or if the complaint is dismissed on jurisdictional grounds, Ibelli v. Maloof, 257 N.J. Super. 324, 338 (Ch. Div. 1990). In the case of a settlement, the facts must be examined carefully and, if the result achieves the primary relief sought in the complaint or is tantamount to a surrender of all claims against a party, a party can be considered a "prevailing party" for purposes of this statute. Chernin v. Mardan Corp., 244 N.J. Super. 379, 383 (Ch. Div. 1990). See also Warrington v. Vill. Supermarket, Inc., 328 N.J. Super. 410, 421 (App. Div. 2000) (holding plaintiff, whose complaint precipitated the removal of a construction feature that barred access to store by handicapped persons, a prevailing party).

In Chernin, the court held that the party omitted as a defendant on the filing of an amended complaint was a prevailing party for purposes of the statute. The plaintiff amended the complaint after the plaintiff became convinced that a cause of action could not be asserted against the originally named and subsequently omitted defendant. Chernin, supra, 244 N.J. Super. at 381. To be sure, the withdrawal of a claim soon after recognition that it is baseless, ordinarily will not trigger sanctions, particularly when a claim must be asserted in a timely manner. Iannone v. McHale, 245 N.J. Super. 17, 19 (App. Div. 1990). Nevertheless, when the party asserting the claim recognizes or is presented with information indicating that the claim is baseless and continues to prosecute the claim, sanctions may be in order. Id. at 21-22.

Here, the counterclaim was dismissed by defendant after the attorney who submitted the affidavit of merit and the second attorney who submitted an expert report withdrew their opinions when presented with all of the facts of plaintiff's representation of defendant. As in Chernin, Cuyler Burk is a prevailing party because all claims of legal malpractice were withdrawn once plaintiff demonstrated that the counterclaim had no factual basis.

An applicant for fees under N.J.S.A. 2A:15-59.1 must also demonstrate that the claim was filed in bad faith, solely for the purpose of delay or harassment, or the non-prevailing party knew or should have known that the counterclaim was without any reasonable basis in law or equity. N.J.S.A. 2A:15-59.1b(1)(2). Here, Judge Harper found that the counterclaim asserted by defendant satisfied both criteria.

An honest attempt to resolve a perceived, but ill-founded, claim is not bad faith, particularly when the plaintiff disclosed the relevant facts to her attorney and the plaintiff relied on the advice of the attorney. McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 563 (1993). The failure to dismiss a complaint immediately following revelation of the absence of a factual basis to support the claim is also not bad faith. Gilbert v. Electro-Steam Generator Corp., 328 N.J. Super. 231, 235 (App. Div. 2000). On the other hand, the assertion of a counterclaim to complicate and to delay a simple action on a book account is bad faith. Gooch, supra, 355 N.J. Super. at 19-20; Deutch & Shur, P.C. v. Roth, 284 N.J. Super. 133, 139 (Law Div. 1995).

Deutch & Shur is particularly instructive. The plaintiff law firm filed a complaint seeking unpaid attorneys' fees. The defendant client did not respond to the complaint and eventually a default judgment was entered. 284 N.J. Super. at 135. A writ of execution issued and the plaintiff levied on personal property belonging to the defendant. Ibid. A month after the levy, the defendant successfully moved to vacate the judgment. Ibid. He filed an answer and counterclaim in which he asserted a legal malpractice claim. Ibid. The plaintiff's motion to dismiss the counterclaim was promptly granted and the plaintiff's motion for summary judgment on its complaint was also granted. Id. at 136.

In granting the plaintiff's motion for attorneys' fees pursuant to N.J.S.A. 2A:15-59.1a, the judge found that the counterclaim was asserted in bad faith. Id. at 139. The judge explained his ruling that the counterclaim had been asserted in bad faith for the purpose of harassment and delay as follows:

Unlike the plaintiff in McKeown, the defendant in this case prosecuted his claim in "bad faith." First, it was not until plaintiff had levied upon defendant's personal property that defendant took any action in this case, whether defending against the claim or bringing the counterclaim. Second, unlike the plaintiff in McKeown, the defendant in this case had absolutely no basis for believing that he somehow had been wronged by the plaintiffs. . . . In the within matter, it is hard to see what purpose this counterclaim served except to "scare" the plaintiff into compromise or to make collection more expensive. The fact that the defendant may have relied on counsel is in no way dispositive of the issue. Such reliance must be in good faith. I find that defendant could not have sincerely believed that he had a legitimate claim against his former counsel.

In the end, judging the defendant's conduct as a whole, I conclude that the defendant's counterclaim was brought in bad faith, for the purpose of delay and harassment. Therefore, defendant's counterclaim constitutes "frivolous litigation" under N.J.S.A. 2A:15-59-1. [Ibid.]

This case is remarkably similar to Deutch & Shur. To be sure, defendant filed his counterclaim promptly. On the other hand, the counterclaim was without factual basis and contained an assertion, i.e., that plaintiff never recommended settlement, which is baseless. The firm promptly notified defendant that it considered the counterclaim frivolous and advised him that it would seek sanctions. Defendant, however, continued to prosecute the counterclaim. When confronted with all relevant facts, defendant's experts withdrew their opinions. Still, defendant did not dismiss his counterclaim for another two months. The counterclaim has all the earmarks of a pleading meant simply to intimidate an adversary and to delay entry of judgment on the complaint. Therefore, we affirm the conclusion that defendant filed and pursued the counterclaim in bad faith.

Similarly, this record demonstrates that the counterclaim was filed and pursued without any basis in law or fact. Defendant cannot seek refuge in the fact that he obtained an affidavit of merit or a report from an expert. When the party supplies the facts to the expert, and the expert relies solely on the facts supplied to him by the party and assumes those facts to be true, and those facts are found to be untrue, the production of an affidavit of merit will not immunize a party from a frivolous litigation sanction. Masone v. Levine, 382 N.J. Super. 181, 194 (App. Div. 2005).

Here, the record reveals that the attorney who prepared the affidavit of merit was the successor attorney. He admitted that he received the complete file from plaintiff but technical problems in his office prevented him from reviewing the entire file. He conceded that he never reviewed the complete file and based his opinion on the facts provided to him by defendant.

In addition, the attorney who rendered an expert report in support of the counterclaim admitted that he had not reviewed the entire file, was unaware that Cuyler Burk had negotiated discipline by consent with an admonition, and that defendant had failed to timely reply to plaintiff's efforts on his behalf and to provide timely instructions to plaintiff. Once he was presented with the full file, including the demand to withdraw the counterclaim prepared by plaintiff when defendant filed the counterclaim, the expert withdrew his opinion. In fact, in his deposition defendant's expert stated that defendant's expectations from his counsel "were overblown and ill-founded." In response to the question, "Do you think there was malpractice here?", defendant's expert replied, "No."

Having determined that Judge Harper correctly held that the counterclaim was filed without any basis in fact and that fees should be awarded, the judge properly requested the submission of an affidavit of services. Notably, Judge Harper did not restrict his inquiry solely to the documentation submitted by the parties. The judge conducted a plenary hearing. His opinion contains findings of fact. The judge also appended to his opinion a marked-up copy of the affidavit that reflects his determination about the reasonable amount of time that should have been spent on various tasks.

When an award of attorneys' fees is authorized, the quantum of any fee award is considered a matter vested in the discretion of the judge. This decision will not be disturbed unless there has been a clear abuse of discretion. Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 25 (2004); Rendine v. Pantzer, 141 N.J. 292, 317 (1995). Whether a counsel fee award derives from a fee-shifting statute, such as the Law Against Discrimination,*fn2 or from a statute or rule, the award of counsel fees should not be the springboard for further litigation. Rendine, supra, 141 N.J. at 334. Thus, when a judge examines the reasonableness of the hourly rate, the tasks performed and the amount of time expended on those tasks and provides findings of fact that are amply supported in the record, a reviewing court will not disturb those findings. Id. at 317. This is such a case.

Judge Harper found that the hourly rate charged by Cuyler Burk was reasonable. In fact, defendant does not dispute the reasonableness of the rate charged. The judge then proceeded to critically examine the tasks performed to defend the counterclaim and the amount of time expended. In doing so, he found that some of the time expended was excessive. The end result was a liberal reduction in the amount of hours and a substantial reduction in the fee sought by plaintiff. Our review reveals that Judge Harper acted well within the considerable discretion bestowed on him to fashion an appropriate award.


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