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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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 ...