November 19, 2007
GREGORY DEANGELIS AND JEAN DEANGELIS, HUSBAND AND WIFE, PLAINTIFFS-RESPONDENTS,
AL CANNON AND DARLENE CANNON, DEFENDANTS-APPELLANTS.
On appeal from Superior Court of New Jersey, Law Division, Atlantic County, L-3130-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 26, 2007
Before Judges Axelrad and Payne.
Defendants, Al and Darlene Cannon, appeal from an order of the trial court denying their motion in aid of litigant's rights, filed pursuant to the frivolous litigation statute, N.J.S.A. 2A:15-59.1, in which they sought payment of the attorneys' fees and costs they incurred in defense of the action instituted against them by plaintiffs, Gregory and Jean DeAngelis. The statute provides in relevant part:
a. (1) A party who prevails in a civil action, either as plaintiff or defendant, against any other party may be awarded all reasonable litigation costs and reasonable attorney fees, if the judge finds at any time during the proceedings or upon judgment that a complaint, counterclaim, cross-claim or defense of the non-prevailing person was frivolous.
Plaintiff, Jean DeAngelis, and defendant, Al Cannon, are cousins who for many years maintained a close personal relationship. The record discloses that, in 1992, Jean inherited a substantial sum of money from a woman for whom she was hired to care in the last year of her life. After the inheritance was received, Jean transferred $30,000 to Al and Darlene Cannon to serve as a down payment on a house that they had contracted to purchase in Brigantine, New Jersey. At about the same time, Jean transferred $6,000 to her close childhood friend, Herba Rubenfine.
At the time of Jean's transfer of funds to the Cannons, she represented to the Cannons' real estate agent, and possibly to the bank granting a purchase money loan on the property, secured by a mortgage, that the money was a gift. Otherwise, the Cannons' debt load would have been too great for the financing on the house to be approved. Because of the Cannons' credit status, Jean and Gregory DeAngelis additionally co-signed the bank's loan documents. The $30,000 transfer from Jean and Gregory DeAngelis to Al and Darleen Cannon was not memorialized in a writing, and was not recorded as an encumbrance against the Brigantine property.
Thereafter, at an unstated time, Al Cannon, an Atlantic City casino worker, was investigated by the Internal Revenue Service (IRS) on charges of failing to report tips as income for tax purposes. In the course of the investigation, the $30,000 transfer was disclosed. Allegedly in order to avoid tax liability on the sum, the receipt of which had not been reported to the IRS, Al Cannon requested that Jean DeAngelis prepare documents establishing that the transfer was a loan. Jean complied, retaining her accountant to draft a document that allegedly memorialized a five-year, interest-free loan. If the loan were not repaid at the conclusion of the five-year period, the DeAngelises would obtain a one-half interest in the Cannons' property. A copy of the loan document was retained by the Cannons, but was not formally produced by them in the course of the present litigation.
On October 5, 2004, the DeAngelises filed suit against the Cannons, asserting the existence of the loan document and alleging in a two-count complaint that the Cannons were in default on their loan obligations. The Cannons answered the complaint and filed a counterclaim seeking damages on the basis of malicious prosecution, abuse of process, fraud, and extortion. The discovery period ended on July 1, 2005, following the depositions of Jean DeAngelis and Al Cannon. No documentary discovery was requested on behalf of the DeAngelises that would have required the production of the note.
The matter was arbitrated on August 30, 2005, and an award of $30,000 plus interest pursuant to court rule was granted in favor of the DeAngelises. The Cannons rejected the award, sought a trial de novo in the matter and, on September 13, 2005, made an offer of judgment of $0.00. Nine days later, on September 22, 2005, counsel for the Cannons sent a "Rule 1:4-8 notice and demand for withdrawal of frivolous filing" that stated:
Plaintiffs' pleadings are deficient as follows:
1. Plaintiff Jean DeAngelis has acknowledged on repeated occasions that the purported loan which is the subject of this litigation was in fact a gift.
2. Any claims based upon a purported loan are barred by the applicable statute of limitations.
3. The purposes of the within litigation are to perform a fraud on the Defendants and the Court.
The letter further stated that if the complaint were not withdrawn within twenty-eight days, the Cannons would seek appropriate sanctions, including but not limited to dismissal of the pleading and attorneys' fees. No response to the letter was received.
A motion for summary judgment on the complaint was then filed by the Cannons. On November 18, 2005, their motion was granted in part, and the second count of the complaint was dismissed. However, the motion judge construed the first count to assert a claim for the imposition of a constructive trust regarding an equitable ownership interest in the Cannon's property. According to assertions in the brief on appeal filed on behalf of the DeAngelises, the judge expressed a concern whether they were entitled to submit their remaining claim to the jury without documentary proof of their equitable interest in the property.
The DeAngelises' prior attorney then moved to extend the period of discovery and to compel the Cannons to execute authorizations to the IRS for production of the loan document. Their motion was denied on March 17, 2006 as the result of the expiration of the period for discovery. Substitute counsel for the DeAngelises entered an appearance on May 18, 2006.
Trial was scheduled for September 17, 2006. At a settlement conference with the court on July 10, 2006, the judge allegedly asked if either party possessed any documents providing evidence of a loan. At that time, counsel for the Cannons disclosed that the Cannons had a copy of the loan document, which was shown to the judge and opposing counsel, but was not formally produced.*fn1 Counsel for the Cannons also disclosed to the judge that he possessed two tapes of undated telephone calls by Jean DeAngelis to Al Cannon in which she allegedly admitted that the $30,000 was a gift. However, in connection with pending litigation regarding the transfer of $6,000 to Herba Rubenfine, Jean sought Al's testimony that the transfer of $30,000 to the Cannons was in fact a loan, which had been repaid, because that evidence would strengthen Jean's claim for reimbursement of the $6,000. The judge ordered that the tapes be disclosed to the DeAngelises, which they were. It is the Cannons' position that Al's failure to testify as Jean directed led to a split in the relationship between the two and the institution of the present suit.
On August 18, 2006, the Cannons' counterclaim was dismissed by the court as prematurely filed. Trial, which had been scheduled for September 17, was adjourned. In the meantime, on August 15, 2006, a stipulation of dismissal of the suit was executed by counsel for the DeAngelises and forwarded to counsel for the Cannons.
The stipulation was signed by counsel for the Cannons on September 18, 2006. The Cannons contend that the stipulation of dismissal resulted from the disclosure of the taped statements by Jean DeAngelis. The DeAngelises contend that the decision to dismiss entailed may considerations, including their inability to obtain the promissory note and the effort and expense necessary to try the case, particularly since the DeAngelises resided in California.
At 8:32 a.m. on the same day that the Cannons' counsel signed the stipulation of dismissal, he also filed the motion in aid of litigant's rights that is the subject of this appeal. The Cannons claim that their intent to seek attorneys' fees was disclosed to the DeAngelises before the stipulation of dismissal was signed. Counsel for the DeAngelises agrees that a discussion occurred, but claims that it preceded the dismissal of the Cannons' counterclaim and was superseded by the parties' agreement to the dismissal of the action.
The stipulation of dismissal was filed on September 21, 2006. The stipulation provided:
The matters in difference in the above-entitled action having been amicably adjusted by and between the parties, it is hereby stipulated and agreed that the same be and it is hereby dismissed, and without costs as to either party.
In a written decision of October 20, 2006, the motion judge denied the Cannons' claim for attorneys' fees in the approximate amount of $22,000. In doing so, the judge construed the terms of the stipulation of dismissal as an acknowledgement that neither party had prevailed, because the stipulation provided that "the matters in difference between the parties have been amicably adjusted." The judge further found that "[w]ithout an express reservation of the claim for attorney's fees and costs in the stipulation of dismissal, the stipulation operates, according to its terms, as a full settlement of the case and all elements thereof." This appeal followed.
On appeal, the Cannons claim that the motion judge erred in determining that they were not the prevailing parties in the litigation, and that the underlying litigation was in fact frivolous, thereby warranting a fee award.
In order to determine whether a party has prevailed in litigation, it is not necessary that the matter be tried to its conclusion. Indeed, the statute itself provides that such a determination can be made "at any time during the proceedings or upon judgment." See also Evans v. Prudential Prop. & Cas. Ins. Co., 233 N.J. Super. 652, 658-59 (Law Div. 1989) (recognizing that the frivolity of a position taken by a litigant can be determined at the time the position is adjudicated, prior to the conclusion of the litigation). Further, parties have been recognized to be "prevailing" when they have settled actions as a "face-saving device." Iannone v. McHale, 236 N.J. Super. 227, 230-31 (Law Div. 1989) (finding settlement, whereby plaintiff withdrew petition contesting election as a face-saving device, rendered the defendants the prevailing parties), rev'd on other grounds, 245 N.J. Super. 17 (App. Div. 1990); see also Fagas v. Scott, 251 N.J. Super. 169, 192 (Law Div. 1991) ("Even where a settlement is reached, the facts can be interpreted to demonstrate that one party has 'prevailed' for purposes of the act."). When a complaint has been dismissed or claim withdrawn as the result of its lack of merit, the targeted party is deemed to have prevailed and may recover attorneys' fees under the statute, assuming other conditions are met. First Atl. Fed. Credit Union v. Perez, 391 N.J. Super. 419, 432 (App. Div. 2007) (stating principle); Ibelli v. Maloof, 257 N.J. Super. 324, 334-36 (Ch. Div. 1992) (finding withdrawal of a motion seeking dismissal for lack of personal jurisdiction after the responding party uncovered substantial sales in New Jersey was, in the circumstances, involuntary and rendered movant liable for attorneys' fees); Chernin v. Mardan Corp., 244 N.J. Super. 379, 383 (Ch. Div. 1990) (motion to amend complaint to delete defendant after becoming convinced that no cause of action could properly be asserted rendered defendant the prevailing party).
Here, the DeAngelises voluntarily dismissed their complaint after learning of evidence that tended to disprove their case and reflect negatively on plaintiff's credibility. Moreover, the DeAngelises were faced with the realization that they could no longer compel the production of the promissory note that would be central to their proofs, presuming that their case was meritorious. To be sure, the contents of the tape recordings of conversations between Jean DeAngelis and Al Cannon that were disclosed shortly before plaintiffs offered to voluntarily dismiss their case were never authenticated, nor would that evidence alone necessarily preclude a rational factfinder from concluding that the $30,000 transfer was a loan rather than a gift. Nonetheless, the circumstances, albeit contested, suggest that plaintiffs voluntarily dismissed their complaint with the realization that their chance of success was sufficiently limited that the probability of recovering either their alleged loan or an interest in the Cannons' property was no longer worth the effort to bring to conclusion a case that had already proceeded for two years.
However, even if we assume that the Cannons met their burden of establishing that they were the prevailing parties, the Cannons were also statutorily required to demonstrate that the litigation in which the DeAngelises engaged was frivolous. See also, e.g., Chernin, supra, 244 N.J. Super. at 383-84 (despite determination that dismissed defendant was a prevailing party, the court denied attorneys' fees as the result of absence of sufficient evidence that pleadings were frivolous). The statute provides in this regard:
b. In order to find that a complaint . . . of a non-prevailing party was frivolous, the judge shall find on the basis of the pleadings, discovery, or the evidence presented that either:
(1) The complaint . . . was commenced, used or continued in bad faith, solely for the purpose of harassment, delay or malicious injury; or
(2) The non-prevailing party knew, or should have known, that the complaint . . . was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law.
We have addressed what constitutes "frivolous" litigation at length in our decision in Belfer v. Merling, 322 N.J. Super. 124 (App. Div.), certif. denied, 162 N.J. 196 (1999). There, we stated:
The term "frivolous" as used in the statute must be given a restrictive interpretation. McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546 (1993). This is in recognition of the principle that citizens should have ready access to all branches of government, including the judiciary. Rosenblum v. Borough of Closter, 285 N.J. Super. 230, 239 (App. Div. 1995), certif. denied, 146 N.J. 70 (1996). The statute should not be allowed to be a counterbalance to the general rule that each litigant bears his or her own litigation costs, even when there is litigation of "marginal merit." Venner v. Allstate, 306 N.J. Super. 106, 113 (App. Div. 1997).
A claim will be deemed frivolous or groundless when no rational argument can be advanced in its support, when it is not supported by any credible evidence, when a reasonable person could not have expected its success, or when it is completely untenable. Fagas v. Scott, 251 N.J. Super. 169, 189 (Law Div. 1991) (citation omitted). False allegations of fact will not justify a fee award unless they are made in bad faith, for the purpose of harassment, delay or malicious injury. McKeown-Brand v. Trump, supra, 132 N.J. at 561. When the plaintiff's conduct bespeaks an honest attempt to press a perceived, though ill-founded and perhaps misguided, claim, he or she should not be found to have acted in bad faith. Id. at 563. [Belfer, supra, 322 N.J. Super. at 144-45.]
See also First Atl., supra, 391 N.J. Super. at 432-33.
As the result of the conduct of all parties in this case, whose characterization of the nature of the funds depended solely upon expediency, it is not possible to definitively judge the status of the money transferred from Jean DeAngelis to the Cannons. When it suited the Cannons at the time of transfer, the money was deemed a gift, and Jean DeAngelis appears to have actively cooperated in conveying that impression. When it suited the Cannons at the time of the investigation of their finances by the IRS, the money was deemed a loan, and Jean DeAngelis again appears to have aided in establishing proof of that fact by retaining an attorney to draft a loan document that would satisfy the IRS's demands for proof. Although the undated and unauthenticated tapes of telephone calls by Jean DeAngelis suggests grounds for impeachment of her prior deposition testimony regarding the status of the funds and for concluding that the money was in fact a gift, that evidence is not dispositive. Both its admissibility and its significance remain untested as the result of the parties' consent to dismissal of the DeAngelises' action.
Further, we draw a distinction between an action that is frivolous and one that cannot, at the conclusion of litigation, be proven. Here, all parties agree that a loan document was drafted at the time of the IRS's audit. Although the precise terms of the document have not been disclosed by the Cannons, the only party to possess a copy of it, we have been offered no basis for a conclusion that the document was unsuitable as a foundation for suit. That the DeAngelises failed to obtain the document for use as evidence at trial, despite its eventually acknowledged possession by the Cannons, clearly diminished their ability to prevail if trial had in fact occurred. Nonetheless, because its existence was confirmed, and the document was discoverable, we cannot say, on the present record, that suit was without legal basis.
Further, the evidence existing at this time does not permit a conclusion that the litigation was commenced or continued in bad faith, solely for the purpose of harassment, delay or malicious injury. The Cannons claim that the DeAngelises filed suit after Al Cannon failed to testify in a manner that would have assisted Jean DeAngelis in the recovery of the $6,000 that she transferred to her friend Herba Rubenfine. However, we have not been provided with evidence that the Rubenfine matter was tried, or of the nature of Al Cannon's testimony, if any, at that trial. Further, we cannot ascertain the veracity of the tape recording produced in this litigation, and we have no ground for determining when the conversation that was allegedly recorded therein occurred in relationship to the Rubenfine litigation. As a final matter, we have not been supplied with information regarding the time of trial in Rubenfine as it related to the institution of suit in the present matter. Although it is of course possible that such information would have been disclosed if the action from which this appeal arose had been tried, that action has now been dismissed with the consent of the parties.
In sum, the seemingly duplicitous and potentially illegal conduct of all parties to this matter has served to obscure any merits that the underlying litigation may have had. On the record presented, we find the evidence inadequate to establish the Cannons' entitlement to attorneys' fees pursuant to N.J.S.A. 2A:15-59.1. As a consequence of this determination, we do not need to address whether the Cannons' execution of the stipulation of dismissal entered by the parties in this matter served as a waiver of their attorneys' fee claim.