December 27, 2007
GUS VITALE T/A G. VITALE CONSTRUCTION, PLAINTIFF,
SCOTT MOLIN, MAUREEN MOLIN, MEL'S PARTY, INC., DEFENDANTS, AND ALLAN LAZAROFF AND MARC REICHMAN, DEFENDANTS-RESPONDENTS.
LAURENCE A. HECKER, ESQ., APPELLANT.
On appeal from Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-2023-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 24, 2007
Before Judges Cuff and Simonelli.
Plaintiff's attorney, Laurence A. Hecker, Esq., appeals from the order of November 30, 2006, imposing sanctions against him, pursuant to Rule 1:4-8, and N.J.S.A. 2A:15-59.1, the Frivolous Claim Statute.*fn1 We affirm.
On June 5, 1996, Party City of Flemington, L.L.C. (the LLC) was formed with defendant Scott Molin as its sole member. The LLC operates a franchise known as Party City (the store) located in Flemington.
On July 1, 2002, Molin executed an Assignment of Limited Liability Interest transferring a fifty-percent interest in the LLC to defendants Marc Reichman and Alan Lazaroff (defendants). On May 28, 2004, defendants executed an Assignment of Limited Interest transferring their interest in the LLC to Molin and his wife, defendant Maureen Molin.
In or about November 2002, Molin purportedly entered into an oral agreement with plaintiff for construction services at the store. A dispute arose as to the cost of plaintiff's services. As a result, plaintiff filed a complaint against the Molins on August 2, 2004. Plaintiff did not name the LLC as a defendant. The Molins filed a bankruptcy action after plaintiff filed the complaint.
Because he believed a partnership owned the store, Hecker sought to take depositions from Reichman and Lazaroff. By letter dated July 13, 2005, defendants' attorney, Michael A. Quiat, advised Hecker and provided documentation showing that the store was owned by the LLC, not a partnership. Quiat further advised Hecker:
Under the circumstances, I see no good faith basis to bring an action against Messrs. Reichman and Lazaroff in this matter, as they clearly do not have personal liability. I am instructed to advise you that any attempt to join these individuals as defendants will be met with a motion for sanctions, as there exists no good faith basis to name them as defendants in this suit.
Hecker responded by letter, dated July 14, 2005, that a representative from the franchisor advised him that the franchisor did not give approval for the LLC to operate the store, and the only approved documentation was a partnership agreement, dated November 12, 2002. By letter, dated August 15, 2005, Quiat advised Hecker, and provided documentation showing, that: (1) on November 4, 2002, the franchisor confirmed the LLC as the franchisee of the store, and consented to defendants assuming a membership interest in the LLC; (2) on November 12, 2002, defendants and Mrs. Molin executed a Transfer Agreement and Consent, which conveyed a membership interest in the LLC to them; and (3) the parties executed an Assignment of Limited Liability Interest in the LLC, confirming that defendants and Mrs. Molin were purchasing a membership interest in the LLC. Quiat once again advised Hecker:
[T]here is no good faith basis for proceeding against Messrs. Reichman and Lazaroff individually in connection with any claims on behalf of Mr. Vitale. As a result, I must again remind you that any attempt to join these individuals as defendants is frivolous as a matter of law, and will be met with a motion for sanctions, including an application for attorney's fees.
Hecker claimed he never received this letter because he had moved his office. However, Quiat sent the letter by certified mail to the address on Hecker's letterhead, and Hecker's office refused to accept it.
On or about September 7, 2005, Hecker filed a motion, returnable September 23, 2005, to extend time for discovery and amend the complaint to add defendants as parties. Hecker never served the motion on defendants or Quiat. When Quiat became aware of the motion by letter, dated September 22, 2005, he demanded its withdrawal. Quiat also advised Hecker:
Let this then be your final notice: should you fail to withdraw this frivolous and bad faith motion to entangle my clients in this litigation, we will move for sanctions and attorney's fees under Rule 1:4-8 and N.J.S.A. 2A:15-59.1.
Quiat again provided the documentation he had previously provided in his August 15, 2005 letter.
Hecker refused to withdraw the motion. As a result, the court entered an order permitting plaintiff to file an amended complaint naming defendants as parties. Plaintiff filed the amended complaint sometime in October 2005. Defendants filed an answer, which asserted the amended complaint "is frivolous as a matter of law pursuant to Rule 1:4-8 and N.J.S.A. 2A:15-59.1, and Defendants expressly reserve the right to move for sanctions and attorney's fees." Defendants also served a notice to take plaintiff's deposition. Plaintiff did not request any discovery.
At plaintiff's deposition on January 26, 2006, plaintiff and Hecker reviewed the documents Quiat previously provided and determined defendants had no liability. However, plaintiff did not voluntarily dismiss the amended complaint until March 24, 2006, the day before trial.
On April 10, 2006, Quiat filed a motion for attorney's fees and costs pursuant to Rule 1:4-8 and N.J.S.A. 2A:15-59.1. Hecker did not file any opposition. On April 28, 2006, Judge Jacobson ordered plaintiff and Hecker to pay sanctions for engaging in frivolous litigation against defendants. The judge later reviewed Quiat's Affidavit of Services and billing records, and entered an order on June 5, 2006, requiring plaintiff and Hecker to pay fees and costs in the amount of $13,415.47.
Hecker filed a motion to reconsider and vacate the April 28, 2006 order, claiming he did not file opposition to the motion for sanctions because he believed the motion had been adjourned, and he was out of the country or attending to his ill mother in Florida. After hearing oral argument, Judge Jacobson granted reconsideration, vacated the April 28, 2006 order, and reduced the fee award. The judge found although Hecker had a good faith basis to originally proceed against defendants:
[O]nce the paperwork was sent to Mr. Hecker, . . . I think at that point there needed to be an immediate investigation of the viability of the law suit against Mr. Reichman and Mr. Lazaroff. The basis for filing the [amended] complaint in the first place was seriously called into question and the fact that it wasn't until months later that, following the deposition of [plaintiff], that the law suit was eventually and appropriately dropped, I think does run afoul of the essence of Rule 1:4-8 because the facts were made available to the plaintiff in September.
Judge Jacobson again reviewed Quiat's billing records and reduced the award to $9566.37, reflecting only those fees and costs defendants incurred from the time Hecker had the documentation showing there was no reasonable good faith basis to proceed with the amended complaint. Hecker never challenged the reasonableness of the fees and costs Quiat requested.
Hecker first contends Judge Jacobsen erred in imposing Rule 1:4-8 sanctions because he did not act in bad faith in filing the amended complaint. We disagree.
A trial judge's decision to award attorney's fees pursuant to Rule 1:4-8 is addressed to the judge's sound discretion, DeBrango v. Summit Bancorp., 328 N.J. Super. 219, 229 (App. Div. 2000), and will be reversed on appeal if it "was not premised upon consideration of all relevant factors, was based upon consideration of irrelevant or inappropriate factors, or amounts to a clear error in judgment." Masone v. Levine, 382 N.J. Super. 181, 193 (App. Div. 2005).
Rule 1:4-8 supplements N.J.S.A. 2A:15-59.1, which permits the trial judge to award: 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. [N.J.S.A. 2A:15-59.1a(1).]
To find a complaint frivolous, the judge must conclude:
(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. [N.J.S.A. 2A:15-59.1b(1)-(2); Gooch v. Choice Entertaining Corp., 355 N.J. Super. 14, 18 (App. Div. 2002).]
Under N.J.S.A. 2A:15-59.1, suit is deemed to have been filed in bad faith and for an improper purpose where it "lacked both factual and legal bases" and such deficiencies are "known to plaintiff's counsel." Port-O-San Corp. v. Teamsters Local Union No. 863 Welfare & Pension Funds, 363 N.J. Super. 431, 438-39 (App. Div. 2003). Where a plaintiff had a sufficient good faith basis to initially commence litigation against a defendant, once discovery indicates insufficient evidentiary support for the complaint, the plaintiff lacks a good faith basis to proceed, and the litigation becomes frivolous. N.J.S.A. 2A:15-59.1b(2); DeBrango, supra, 328 N.J. Super. at 228. The plaintiff's attorney is obligated at that point to withdraw the complaint. DeBrango, supra, 328 N.J. Super. at 228 (citing R. 1:4-8(a)(3)); Throckmorton v. Twp. of Egg Harbor, 267 N.J. Super. 14, 20 (App. Div. 1993)). Failure to do so warrants an award of fees and costs for continuing frivolous litigation in bad faith. DeBrango, supra, 328 N.J. Super. at 228.
Here, Hecker received documents in September 2005, showing defendants had absolutely no liability. Nonetheless, he proceeded with the amended complaint, lacking a good faith basis to do so, and failed to withdraw it until the day before trial. Because Hecker continued frivolous litigation in bad faith, Judge Jacobson did not abuse her discretion in requiring him to pay defendants' litigation fees and costs.
Hecker contends for the first time that defendants' motion for sanctions should have been dismissed for failure to comply with Rule 1:4-8(b)(1). We disagree.
A prerequisite to moving for sanctions under Rule 1:4-8 is serving a written notice on the attorney who signed or filed the frivolous pleading and demand that the pleading be withdrawn within twenty-eight days after service of the written notice.
R. 1:4-8(b)(1). The written notice and demand must:
(i) state the paper is believed to violate the provisions of [Rule 1:4-8], (ii) set forth the basis for that belief with specificity, (iii) include a demand that the paper be withdrawn, and (iv) give notice . . . that an application for sanctions will be made within a reasonable time thereafter if the offending paper is not withdrawn within 28 days of service of the written demand.
A defendant seeking sanctions under Rule 1:4-8 may perfect his or her rights by correspondence or the filing of a pleading asserting the complaint is frivolous. Port-O-San, supra, 363 N.J. Super. at 435-36. Here, defendant's answer asserts the complaint was frivolous, and the language in Quiat's letters to Hecker fully complied with the notice requirements of Rule 1:4-8(b)(1).
Hecker also contends for the first time that Judge Jacobson did not calculate attorney's fees in an appropriate way. We disagree.
A prevailing party may be awarded "all reasonable litigation costs and reasonable attorney fees[.]" N.J.S.A. 2A:15-59.1a(1). Moreover, a sanction for frivolous litigation may consist of "some or all of the reasonable attorney's fees and other expenses incurred as a direct result of the violation, or both." R. 1:4-8(d)(2). However, costs and fees cannot be awarded for activity preceding the time when litigation became frivolous. DeBrango, supra, 328 N.J. Super. at 230.
Here, Judge Jacobson reviewed Quiat's billing records, appropriately excluded all fees and costs for activity preceding the time when the litigation became frivolous, and determined the amount of $9566.37 was reasonable. In opposing the motion for sanctions, Hecker did not challenge the reasonableness of the fees and costs Quiat requested, or contend the work performed or the time expended was unnecessary or excessive. He also gives no indication here what amount of the fees and costs awarded are unreasonable. Under these circumstances, Judge Jacobson appropriately exercised her discretion in awarding fees and costs in the amount of $9566.37.
Hecker's remaining contention that defendants waived their right to seek sanctions by not participating in the motion to amend the complaint is without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).