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A.S.C. Corp. v. Venino


December 27, 2007


On appeal from the Superior Court of New Jersey, Chancery Division, Ocean County, Docket No. OCN-C-98-05.

Per curiam.


Argued December 3, 2007

Before Judges Parrillo and Graves.

Defendant, Richard O. Venino, Jr., appeals from an order denying his application for attorneys' fees and costs pursuant to the Frivolous Litigation Statute, N.J.S.A. 2A:15-59.1, and Rule 1:4-8. We reverse.

By way of background, in October 2001, defendant, an attorney, represented Theodore Karras, the seller of eighty-three tax sale certificates in Lakewood in a putative transaction with plaintiff, A.S.C. Corporation, the buyer. Karras ultimately dismissed defendant as his attorney in February 2002 and the transaction was completed with Karras' new attorney. Subsequently, on December 15, 2003, plaintiff instituted a tax foreclosure action involving seven of the Karras properties.

One of these properties was located at Lot 2, Block 456 in Lakewood. Its owner of record was the Estate of Hyman Kaplowitz (estate). In December 2002, defendant began representing Oak Branch Realty, LLC (Oak Branch) in its efforts to purchase this property (the Oak Branch property) from the record owner. To that end, in June 2003, defendant contacted the estate, also represented by counsel, and commenced negotiations. As ordered by the estate, the property was appraised at $25,000. In February 2004, defendant ordered a title search, which indicated that there were no foreclosure actions or lis pendens filed on the property, N.J.S.A. 2A:15-6. In June 2004, defendant successfully negotiated the sale and Oak Branch purchased the property for $20,000. On August 17, 2004, on behalf of Oak Branch, defendant paid all of the outstanding taxes on the property, which amounted to $3092.80, and requested a redemption from the Lakewood tax collector. At this point, defendant was told that there was a foreclosure action pending on the property. Plaintiff refused to accept payment or consent to the redemption of the tax sale certificate. On October 20, 2004, the Lakewood tax collector issued an executed certificate of redemption for the outstanding taxes due on the property.

Oak Branch never intervened in plaintiff's foreclosure action and plaintiff never moved therein to bar Oak Branch's redemption of the tax sale certificate. Instead, plaintiff simply eliminated the Oak Branch property from the proceeding and a final judgment of foreclosure as to the six remaining Karras properties was entered on April 11, 2005.

In the meantime, on December 16, 2004, plaintiff filed a complaint against defendant alleging various causes of action purportedly arising under N.J.S.A. 54:5-89.1, the so-called "heir hunting" statute, including, among other things, tortious interference with contract and prospective economic advantage, misappropriation and fraud in connection with the purchase of the Oak Branch property. Plaintiff claimed that defendant had used information that he learned in his representation of Karras to interfere with plaintiff's ability to foreclose upon the Oak Branch property. Defendant answered, asserting, among other things, that he was an attorney representing a client in the transaction at issue. He also filed a notice pursuant to Rule 1:4-8, the rule prohibiting frivolous litigation, demanding that the complaint be withdrawn.

On June 17, 2005, plaintiff filed an amended complaint adding causes of action related to the original claims including unfair competition, civil conspiracy, intentional or malicious harm and unjust enrichment.*fn1 On August 4, 2005, defendant filed an answer to the amended complaint and a second notice and demand pursuant to Rule 1:4-8.

An appraisal ordered by plaintiff on September 22, 2005, valued the Oak Branch property at $70,000. Evidently, however, plaintiff's appraiser appraised the wrong property as evidenced by the photographs and maps where the appraiser indicated the Oak Branch property's location on a developed street. In fact, according to defendant, the area where the Oak Branch property was located had never been developed and there were no streets. Notwithstanding the appraisal, plaintiff considered the value of the property to be $140,000, claiming that the size of the actual lot was double the lot that was appraised. This, despite the fact that defendant, as part of discovery, served plaintiff with a copy of the original appraisal of $25,000, in October 2005. Although plaintiff's substituted counsel -- its third one in this matter -- would later claim he was not aware of that earlier appraisal until May 2006, it is undisputed that the report was in the file. Upon learning of defendant's appraisal, and following defendant's motion for summary judgment filed on July 10, 2006, plaintiff's counsel dismissed the complaint with prejudice in October 2006.

Defendant thereafter moved for attorneys' fees under N.J.S.A. 2A:15-59.1. The motion judge denied the application essentially finding that plaintiff had not been aware of the appraisal for $25,000, that plaintiff's appraisal had been for $70,000, and that the complaint was grounded in a disagreement as to the value of the property. The court further found that as soon as plaintiff's counsel became aware of the appraisal, the case was dismissed indicating that it was not meant to be harassing or malicious, but was based on a true belief that there was a violation of the statute. The court stated that "there was a disagreement as to the value of the property," and the record supported "the fact that the plaintiff rightfully or wrongfully believed that the property had a greater value." We disagree. Plaintiff's underlying claims were clearly and plainly not grounded in either law or fact.

A decision whether to award attorneys' fees rests with the discretion of the court and is ordinarily reviewed on an abuse-of-discretion standard. Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 443-44 (2001). An abuse of discretion is shown "when a decision is 'made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis.'" Flagg v. Essex County Prosecutor, 171 N.J. 561, 571 (2002) (quoting Achacoso-Sanchez v. Immigration & Naturalization Serv., 779 F.2d 1260, 1265 (7th Cir. 1985)). When, however, the trial court misperceives or misapplies the applicable law, the discretion of the trial judge is not involved and a decision based on misapplication or misperception of applicable law is not entitled to deference. Kavanaugh v. Quigley, 63 N.J. Super. 153, 158 (App. Div. 1960). The trial court's understanding of whether the original complaint was supported by the statute is reviewed de novo. Toll Bros., Inc. v. Twp. of W. Windsor, 173 N.J. 502, 549 (2002).

The Frivolous Litigation Statute, N.J.S.A. 2A:15-59.1, allows attorneys' fees and costs to prevailing parties based on frivolous complaints, upon a finding that either one of two conditions are met: 1) the action was commenced or maintained in bad faith, or 2) the action "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." N.J.S.A. 2A:15-59.1(b)(1),(2).

Under the first prong, "bad faith" can be demonstrated, as set forth in N.J.S.A. 2A:15-59.1(b), if the litigation was used "solely for the purpose of harassment, delay or malicious injury." Port-O-San Corp. v. Teamsters Local Union No. 863, Welfare & Pension Funds, 363 N.J. Super. 431, 438 (App Div. 2003) (citation omitted). "[T]he term 'frivolous' should be given a restrictive interpretation" so that false allegations of fact will not justify an award unless they were made in bad faith. McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 561 (1993). When a party honestly attempts to pursue a perceived though ill-founded and misguided claim, that conduct should not be found to constitute bad faith. Id. at 563.

Under the second prong, "[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." Belfer v. Merling, 322 N.J. Super. 124, 144 (App. Div.), certif. denied, 162 N.J. 196 (1999) (citation omitted). Thus, an award is justified only where a party had absolutely no basis for believing it had been wronged by the parties it sued, or where its suit served no purpose except to scare its adversaries into settling. Deutch & Shur, P.C. v. Roth, 284 N.J. Super. 133, 139 (Law Div. 1995). The court's focus should be on "the objective reasonableness of the action of a party under the circumstances." Ellison v. Evergreen Cemetery, 266 N.J. Super. 74, 85 (App. Div. 1993) (citation omitted). The court should decide the issue using a preponderance of the evidence standard. Ibid.

Here, plaintiff grounded its complaint against defendant exclusively in alleged violations of N.J.S.A. 54:5-89.1. Yet that statute affords plaintiff no private cause of action against defendant and no basis for the relief it had sought.

N.J.S.A. 54:5-89.1 is part of the New Jersey Tax Sale Law, N.J.S.A. 54:5-1 to -104.75, which was created to facilitate collection of property taxes by municipalities. The tax sale law converts tax liens into a "stream of revenue" by encouraging the purchase of tax certificates. Simon v. Cronecker, 189 N.J. 304, 318 (2007). "The sale of a tax certificate is a conditional conveyance of the property to the purchaser, subject to a person with an interest in the property having the right to redeem the certificate [according to N.J.S.A. 54:5-31 to -32, -46]." Ibid. "Unless redemption occurs, however, a purchaser who forecloses on the tax certificate becomes the owner of the property in fee simple. N.J.S.A. 54:5-87." Ibid. Thus, tax sale certificate holders are "entitled to reimbursement for all taxes and assessments paid on the property" with interest, N.J.S.A. 54:5-58 to -60, and, "if the property owner does not redeem the tax certificate within two years of the auction . . . may acquire title" by instituting a foreclosure action, N.J.S.A. 54:5-86 and -87. Id. at 319.

Of course, the tax sale law gives property owners an "opportunity to redeem the certificate[s] and reclaim [their] land." Ibid. This right to redeem the certificate exists until the final date for redemption set by the court in the foreclosure action. Cronecker, supra, 189 N.J. at 319. Thus, "the certificate holder's interest is subordinate to the property owner's right of redemption." Id. at 319-20; see also N.J.S.A. 54:5-54.

Prior to the filing of a complaint for foreclosure, the property owner may sell his or her property to anyone for any amount. Id. at 320. However, once the complaint for foreclosure has been filed the court supervises disposition of the property in order to protect the property owner from unscrupulous third-party investors. Ibid. To be sure, "[t]he post-complaint sale and purchase of redeemable property interests is implicitly permitted by N.J.S.A. 54:5-89.1." Cherokee Equities, L.L.C. v. Garaventa, 382 N.J. Super. 201, 210 (Ch. Div. 2005), appeal dismissed per stipulation, 186 N.J. 598 (2006). However, the "statute only prohibits post-filing transfers that are made for 'nominal, little or no consideration.'" Ibid. Since the owner of property subject to a tax lien and foreclosure is likely in "desperate financial circumstances," a third-party investor who seeks to acquire the property and redeem the tax sale certificate must intervene in the foreclosure action as a means of securing judicial review of the adequacy of consideration offered to the owner. Cronecker, supra, 189 N.J. at 320.

"From a practical viewpoint, the statute's requirements give the tax collector the necessary means of knowing who is entitled to redeem." Id. at 321. As noted, only those third-party investors who are a party to the action either directly or through intervention, and who pay more than nominal consideration are entitled to redeem a tax sale certificate.

Id. at 322; see also Simon v. Rando, 374 N.J. Super. 147, 155 (App. Div. 2005), aff'd, 189 N.J. 339 (2007). Although no hard and fast rule has been adopted, Cronecker, supra, 189 N.J. at 333-35, "more than nominal consideration under N.J.S.A. 54:5- 89.1 means consideration that is not insubstantial under all the circumstances . . . ." Id. at 335. "[I]t is an amount, given the nature of the transaction, that is not unconscionable." Ibid.

Here, although defendant's client failed to intervene in plaintiff's foreclosure action, and the municipality nevertheless issued Oak Branch the redemption, plaintiff never moved in the underlying proceeding to bar Oak Branch from redeeming the tax sale certificate. See Rando, supra, 374 N.J. Super. at 152. Instead, plaintiff, without any basis in law, instituted suit against Oak Branch's attorney alleging breaches of N.J.S.A. 54:5-89.1, which, for reasons already mentioned, establishes only a procedural rule, Cronecker, supra, 189 N.J. at 321, and not a substantive right of action for claims of tortious interference with contract and prospective economic advantage, misappropriation and fraud, unfair competition, civil conspiracy, intentional or malicious harm and unjust enrichment.

But even if a cause of action was established in law, plaintiff has not established any basis in fact to support the requested relief. Indeed, discovery revealed that the Oak Branch property was appraised at $25,000 by defendant's expert and although plaintiff's third counsel claims to have discovered this fact only belatedly, no one disputes that the information was at all relevant times in plaintiff's files. Moreover, plaintiff disagreed with its own expert's appraisal, which in any event appears to have been erroneous on its face. These facts, which clearly demonstrate the baselessness of plaintiff's claims, were all readily available to, and reasonably ascertainable by, plaintiff, presumably a sophisticated investment company, as early as October 2005. Yet plaintiff's complaint was not dismissed until one year later, despite repeated warnings by defendant, as early as February 8, 2005, that its claims were without any basis in fact or law and that defendant would seek counsel fees and costs pursuant to the Frivolous Litigation Statute and rule, and further despite the fact that plaintiff could have sought any relief to which it may have been entitled in the foreclosure action, by challenging Oak Branch's redemption.

Finally, at oral argument on defendant's application for attorneys' fees, plaintiff argued that defendant had a duty of care arising out of the original transaction in which defendant represented Karras. In support, plaintiff relied on Banco Popular N. Am. v. Gandi, 184 N.J. 161, 180 (2005), wherein the Court held that if an attorney induces a non-client's reasonable reliance on his representations, there is a duty owed by the attorney to the non-client.

Here, of course, defendant had no duty to plaintiff that arose out of his early representation of Karras. Indeed, defendant no longer represented Karras by the time the actual sale transaction occurred. More significant, defendant made no representations to plaintiff; nor did he invite plaintiff's reliance. But even if such a duty existed, we discern no breach thereof. The information that defendant used to track the property was in the public domain and available to anyone interested in pursuing the property. Trumbower v. Park Attractions, Inc., 121 N.J. Eq. 284, 285 (E. & A. 1937); Barry L. Kahn Defined Benefit Pension Plan v. Twp. of Moorestown, 243 N.J. Super. 328, 336 (Ch. Div. 1990).

Under all the circumstances, we are satisfied that plaintiff knew or reasonably should have known that its claims were untenable, without any basis in law or equity, and completely unsupported by any credible evidence. In a word, plaintiff's claims were baseless.

Having misapplied the governing law, denial of defendant's request for fees and costs was unwarranted. We, therefore, reverse and remand for determination of the amount of fees and costs that must be awarded to defendant.

Reversed and remanded for further proceedings consistent with this opinion.

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