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Goldsworthy v. Browndorf

January 16, 2008


On appeal from the Superior Court of New Jersey, Law Division, Civil Part, Mercer County, MER-L-2177-04.

Per curiam.


Argued: October 15, 2007

Before Judges A.A. Rodríguez and C.L. Miniman.

Plaintiff George Goldsworthy (Goldsworthy) appeals from a summary judgment in favor of defendants Eric Browndorf, Esquire (Browndorf), and Cooper, Levenson, April, Niedelman & Wagenheim, P.A. (the Cooper firm), dismissing his legal malpractice claims against them. Because the trial judge misapplied the doctrine of judicial estoppel to bar Goldsworthy's claims and did not view the facts in a light most favorable to Goldsworthy, Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), we reverse and remand for further proceedings consistent with this opinion.

Goldsworthy has owned and operated McDonald's franchises since 1977. In December 1995, based on the recommendation of McDonald's, Goldsworthy purchased four restaurants located in Ocean City, Cape May, Wildwood and North Wildwood, all seasonal shore communities. Goldsworthy agreed to purchase these restaurants because he relied on McDonald's representations that they were turnkey operations that required little or no cash investment. This proved to be incorrect and Goldsworthy ultimately invested $800,000 or more to meet McDonald's minimum operational standards. Additionally, the revenue projections for these seasonal restaurants proved to be overstated.

As 1997 drew to a close, Goldsworthy's financial problems in connection with the operation of the four restaurants became significant. As a result, he retained the Cooper firm in the Fall of 1997 to assist him in refinancing his debt and the firm assigned the matter to Browndorf. Because Goldsworthy had some concerns about the Cooper firm's experience, he told Browndorf that another McDonald's franchisee had recommended Douglas Brooks, a Massachusetts attorney who had previously sued McDonald's on behalf of other franchisees, and Browndorf telephoned Brooks. However, after consulting with other attorneys at the Cooper firm, Browndorf told Goldsworthy that "they would be happy to work with Brooks, but that they did not believe it was necessary." The Cooper firm never sought Brooks' advice and counsel.

During the Winter of 1997-98 Goldsworthy was in significant financial difficulty as a result of reduced cash flow. Goldsworthy attributed this reduction to his mandatory participation in national McDonald's pricing promotions during the height of the summer season, a time in which much of his annual revenue was made. The decrease in cash flow also seemed to be due to unforeseen competition from two Burger King Restaurants and road work on local bridges leading into two of his four restaurants.

As a result of Goldsworthy's financial difficulties, he fell behind on his loan obligation to MetLife Capital (MetLife). On January 8, 1998, MetLife sent Goldsworthy a default notice for the nonpayment of $243,973.07. MetLife notified Goldsworthy that failure to remit the past-due amount by January 28, 1998, would cause an acceleration of the notes, repossession of the collateral, or both. MetLife, Goldsworthy's largest creditor, had a secured claim against him in the amount of $2.7 million. Goldsworthy also became delinquent on his account payable to McDonald's. On January 20, 1998, McDonald's declared him in default under his franchise agreement and demanded payment in full of the outstanding amount, $58,533.42, within sixty days. In addition to the amounts owed to MetLife and McDonald's, Goldsworthy owed over $450,000 in trade debt and another $500,000 in taxes.

After the default notices were issued, Browndorf secured Goldsworthy an extension from McDonald's, which gave Goldsworthy until April 22, 1998, to pay the amounts owed to McDonald's. MetLife, too, agreed to an extension of time to cure the default. However, Goldsworthy did not cure the default within the extended time. Indeed, Goldsworthy's indebtedness to McDonald's grew to about $150,000. When the default on the MetLife loan was not cured by the extended deadline, MetLife accelerated the balance on Goldsworthy's $2.7 million loan.

Thereafter, Browndorf attempted to negotiate with McDonald's and MetLife. First, on February 19, 1998, Browndorf wrote to McDonald's general counsel in advance of a settlement conference to explain why Goldsworthy was having financial difficulties. Browndorf ascribed those difficulties primarily to McDonald's misrepresentations respecting the turnkey nature of the four restaurants and the significant funds Goldsworthy expended to bring them into compliance with McDonald's standards. Browndorf also ascribed Goldsworthy's financial difficulties to a $2.5 million decrease in gross receipts as a result of competition and "certain McDonald's pricing and promotion policies." Browndorf proposed a restructuring of the debt. He advised McDonald's general counsel that his focus [was] not on litigation. These are last resorts. While we have retained Douglas Brooks to assist us in litigation in the bankruptcy court[,] it is absolutely not something Mr. Goldsworthy wants to pursue.

The next day Browndorf, another attorney from the Cooper firm, and Goldsworthy traveled to Philadelphia to meet with McDonald's representatives and attempt to negotiate a restructuring of Goldsworthy's obligations. This meeting was unsuccessful and on March 10, 1998, Browndorf wrote to Goldsworthy stating that his impression was that McDonald's "played hardball" and that McDonald's representatives clearly indicated they were unwilling to make any concessions.

By letter dated March 16, 1998, Browndorf confirmed his earlier discussion with Goldsworthy about a potential Chapter 11 proceeding. He pointed out that Chapter 11 would permit a workout with MetLife but not with McDonald's unless Goldsworthy could cure the default under the franchise agreement as required by § 365 of the Bankruptcy Code. He advised that "[t]he only possible exception [to the requirement of a full cure] would be if you could establish the type of extensive fraud claim against McDonald's that we discussed." If Goldsworthy wished to proceed with litigation, Browndorf opined that there would not be "a high probability of ultimate success." Nevertheless, Browndorf assured Goldsworthy that the Cooper firm would pursue litigation if that was what Goldsworthy wanted to do. He stated that the Cooper firm "will rely heavily upon your documentation of the facts." He also observed that the firm would not interview witnesses at that point "[i]n recognition of your limited resources." Browndorf and the Cooper firm did not advise Goldsworthy of his rights under the New Jersey Franchise Practices Act, N.J.S.A. 56:10-1 to -29, at any time before or during the discussions that preceded this confirmatory letter. They also did not advise him that he would be entitled to an award of attorney's fees if he was successful in an action against McDonald's. N.J.S.A. 56:10-10.

After further settlement negotiations with McDonald's were unsuccessful, Browndorf wrote to Goldsworthy on April 16, 1998, advising him that they needed to "take immediate steps to try and resuscitate [the] negotiations." Browndorf further informed Goldsworthy that if no settlement was reached, he needed to authorize the Cooper firm to proceed with a Chapter 11 proceeding in order to give him "the best possible shot at reorganization." Browndorf warned that Goldsworthy would "have to engage in a long shot litigation, notwithstanding the filing, to establish that McDonald's failure to rewrite the Ocean City and ...

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