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Sklodowsky v. American Developers of New Jersey

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 16, 2008

PAUL G. SKLODOWSKY, PLAINTIFF,
v.
AMERICAN DEVELOPERS OF NEW JERSEY, DEFENDANT/THIRD PARTY PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
JOHN F. LUSHIS, JR., TALLMAN HUDDERS & SORRENTINO, THIRD-PARTY DEFENDANTSRESPONDENTS/CROSS-APPELLANTS, AND
JOANNE SKLODOWSKY, THIRD-PARTY DEFENDANT.

On appeal from the Superior Court of New Jersey, Law Division, Hunterdon County, Docket No. L-459-04.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 23, 2008

Before Judges Sapp-Peterson, Messano and King.

Defendant, third-party plaintiff, American Developers of New Jersey, LLC (ADNJ), appeals 1) from the motion judge's March 21, 2006, order that granted summary judgment to third-party defendants John F. Lushis, Jr., and his law firm, Tallman Hudders & Sorrentino (THS), on ADNJ's claim of fraud; 2) from an interlocutory order of April 21, 2005, that dismissed with prejudice ADNJ's claim for negligent misrepresentation against Lushis and THS; and 3) from an interlocutory order entered on December 23, 2005, that denied ADNJ's request for discovery from plaintiff, Paul G. Sklodowsky, and Lushis, on the basis that it was subject to the attorney-client privilege. We have considered the arguments raised in light of the record and applicable legal standards. We affirm.*fn1

I.

This lawsuit arose out of an aborted real estate transaction. In November 2003, ADNJ contracted to purchase some forty-two acres of land in Kingwood Township (the property) from plaintiff, the sole record owner. ADNJ tendered its initial deposit of $35,000 and proceeded to conduct the necessary pre-development tests during the contract's 180-day due diligence period. Plaintiff retained Lushis to represent him, and ADNJ was represented by Alan Wohl.

During the due diligence period, it was revealed that an area of the property included wetlands upon which development was prohibited, and further that there was a house located in that area. There is a dispute in the record as to which party first proposed a possible solution that envisioned a "carve out" of the house and the surrounding wetlands from the sale. Nevertheless, on May 11, 2004, Lushis sent a letter to Wohl that referenced a title commitment previously furnished to ADNJ. Lushis wrote,

In reviewing the commitment, we noted that [it] indicates that a deed from "[plaintiff] and spouse, if applicable" will be required. [Plaintiff] is married; the property was purchased during the time of his marriage; and the home on the property has been used by Mr. and Mrs. Sklodowsky as their marital residence. As you know, however, the deed for the property is only in [plaintiff's] name and the Contract of Sale with [ADNJ] only has [plaintiff] as the selling party. As I indicated, whether Mrs. Sklodowsky will execute the deed is unclear.

Although the contract contained an affirmative representation by plaintiff that "no tenants ha[d] any rights to the [p]roperty, and the conveyance and possession [would] be free of any occupancy rights of any tenants or occupancy rights of others," and further permitted ADNJ to cancel the contract and have its deposit returned, it nevertheless decided to proceed to closing. On June 9, 2004, Wohl sent a letter to Lushis and plaintiff indicating that ADNJ was waiving the due diligence contingency, setting an anticipated closing date, and remitting the additional deposit balance of $50,000. Although ADNJ argues it did so because of the significant money it had already invested in the property, Wohl's letter did not indicate such, nor did it express any particular reservation of rights by ADNJ.

On August 30, 2004, Wohl sent Lushis a letter fixing a "time of the essence closing date" in accordance with the contract's terms for September 30, 2004. On that date, plaintiff's wife, third-party defendant Joanne Sklodowsky, failed to appear at the closing, and the parties did not consummate the sale.*fn2

Plaintiff then filed suit claiming ADNJ had breached the contract. ADNJ counterclaimed alleging that plaintiff had breached the agreement and negligently misrepresented his marital status. It sought an adjustment of the purchase price based upon Joanne's retention of her marital rights to the property. In a third-party complaint, ADNJ alleged that Lushis had "fraudulently and willfully withheld" and negligently misrepresented information regarding plaintiff's marital status. ADNJ also claimed that Lushis had "violat[ed] [] his obligations as an attorney," and "violated a duty of good faith that he owed to [ADNJ] . . . ."*fn3 ADNJ subsequently amended its third-party complaint to name THS as a third-party defendant alleging it was vicariously liable for Lushis' conduct.

Lushis and THS moved to dismiss prior to answering. The judge granted the motion as to the negligent misrepresentation count but denied it as to ADNJ's fraud and Petrillo claim. In an extensive written opinion, the judge concluded that ADNJ's negligent misrepresentation claim must fail because, pursuant to § 5.06 of the contract, its sole remedy was limited to cancellation of the agreement absent "the breach of [a] representation or warranty [that] was knowingly and willfully falsely made."

Lushis and THS then answered and discovery ensued, during which ADNJ moved 1) to compel plaintiff to testify regarding his communications to Lushis; and 2) to compel the production of certain documents over which Lushis had asserted a claim of privilege. Lushis and THS also moved to compel production of Wohl's file and to amend their answer and file a fourth-party complaint against Wohl and his firm. The judge granted Lushis' and THS's motion to compel discovery, denied their motion to file an amended pleading, and denied ADNJ's motion to compel. In a thorough written opinion, the judge reasoned that "information about fraud by [plaintiff] can be obtained through a less intrusive source, that avoids a breach of the [attorney-client] privilege, namely the deposition testimony of Joanne [] and [plaintiff]." He permitted ADNJ to depose plaintiff and Joanne and ask the following questions:

(1) Whether Joanne [] advised [plaintiff] that she refused to sign the [d]eed relating to the sale of the subject property, and, if so, when the discussion took place;

(2) Whether Joanne [] advised Lushis of any such conversation with [plaintiff] and when. [ADNJ] may not ask about the substance of any such conversation.

When discovery concluded, Lushis and THS moved for summary judgment. They argued that ADNJ could not prevail on its fraud claim because Lushis never made a misrepresentation regarding plaintiff's marital status, did not know that Joanne would refuse to execute a deed, therefore did not misrepresent her willingness to do so, and actually disclosed plaintiff's marital status four months prior to the closing, before ADNJ tendered the additional deposit and waived its due diligence contingency. As to ADNJ's Petrillo claim, Lushis and THS argued that they did not make any representations or misrepresentations that induced ADNJ's reliance. They noted that Wohl testified in his deposition that he reviewed the title binder which disclosed a 1988 mortgage on the property indicating plaintiff was married, that he never inquired as to whether the house located on the property was a marital residence, and that he never raised a title objection pursuant to the contract.

ADNJ opposed the motion for summary judgment and cross-moved for summary judgment. It argued that Lushis and THS knew and had a duty to disclose that plaintiff was married before allowing plaintiff alone to execute the contract for sale. ADNJ also argued that it had established all the necessary elements of fraud.

In a comprehensive written opinion issued on March 10, 2006, Judge Peter A. Buschsbaum concluded that Lushis and THS were entitled to summary judgment on ADNJ's claims.*fn4 Noting that "summary judgment [was] not appropriate with respect to a number of the elements of fraud" because of disputed facts, he nevertheless concluded that "[ADNJ] ha[d] not demonstrated any reasonable reliance on non-disclosure and thus [wa]s unable to prove fraud." In sum, he concluded,

Under these circumstances, given what was made known in the title report, the physical status of the property, the hiring of [] Wohl to review title, and [ADNJ's] own reaction to the timely, formal pre-closing disclosure of the marital status, [ADNJ's] claim that it was defrauded into reasonably relying on [plaintiff's] silence about his marital status is unsustainable as a matter of law.

He rejected ADNJ's Petrillo claim "[f]or the same reason." He noted that usually, "an attorney owes [a] duty only to his client, not to the other side's client." Distinguishing the facts presented from those in Petrillo, the judge concluded "Lushis and THS made no affirmative representation concerning plaintiff's marital status whatsoever," and did nothing "to induce Wohl to discontinue his own investigation of title, such as lulling Wohl to sleep concerning [plaintiff's] marital status, i.e., by saying 'don't worry, [Joanne]'ll sign'. . . ." He entered an order denying ADNJ's cross-motion for summary judgment, and granting Lushis' and THS's motion for summary judgment. The judge also granted plaintiff's and Joanne's motion for summary judgment as to ADNJ's fraud and misrepresentation claims made against them.*fn5 ADNJ reached a settlement with plaintiff and Joanne, and subsequently filed this appeal.

II.

When reviewing a grant of summary judgment, we employ the same standards used by the motion judge. Atlantic Mut. Ins. Co. v. Hillside Bottling Co., Inc., 387 N.J. Super. 224, 230 (App. Div.), certif. denied, 189 N.J. 104 (2006). We first determine whether the moving party has demonstrated there were no genuine disputes as to material facts; we then decide whether the motion judge's application of the law was correct. Id. at 230-31. In this case, while the motion record reveals certain disputed facts, there are none with respect to the critical issue of ADNJ's reasonable reliance. The judge decided the issue as a purely legal question, and therefore, we owe no particular deference to his conclusion. Id. at 231 (citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)).

A.

ADNJ contends that the judge erred in dismissing its Petrillo claim because he based his conclusion upon "the fact that Lushis did not issue an affirmative misrepresentation." We think this entirely misstates the basis for the judge's decision.

In Petrillo, the Supreme Court held that

[A]ttorneys may owe a duty of care to non-clients when the attorneys know, or should know, that non-clients will rely on the attorneys' representations and the non-clients are not too remote from the attorneys to be entitled to protection. The Restatement[] [of the Law Governing Lawyers's] requirement that the lawyer invite or acquiesce in the non-client's reliance comports with our formulation that the lawyer know, or should know, of that reliance. [Petrillo, supra, 139 N.J. at 483-84.]

However, in Lyons, Doughty & Veldhuis, P.C. v. Powers, 331 N.J. Super. 193, 196 (App. Div. 2000), we declined to extend Petrillo's reach to a situation in which the non-client failed to demonstrate reasonable reliance upon the attorney's non-disclosure. See Hewitt v. Allen Canning Co., 321 N.J. Super. 178, 186 (App. Div.)(holding duty to non-client "inapplicable" where there was no misrepresentation and no reliance), certif. denied, 161 N.J. 335 (1999).

We note that ADNJ never asserted Lushis made a material representation about either plaintiff's marital status or the willingness of Joanne to execute a deed. Although the evidence demonstrates that Lushis likely knew at the time the contract was executed that plaintiff was married, there is no proof in the record that Lushis knew Joanne would not sign the deed until he met with her in June 2004. His deposition testimony indicated that he did not speak to her about the issue until then, and Joanne's deposition testimony revealed that she never told Lushis whether she would or would not execute the deed until then.

Judge Buchsbaum did not base his decision upon the lack of an affirmative misrepresentation from Lushis to ADNJ. Rather, he concluded, and we agree, as a matter of law ADNJ could not demonstrate it reasonably relied upon Lushis' failure to disclose plaintiff was married. ADNJ could not demonstrate that it was "lulled" by Lushis into believing Joanne was willing to execute the deed at closing. Therefore, under all the attendant circumstances, the judge correctly concluded ADNJ could not demonstrate it reasonably relied upon a misrepresentation or material omission made by Lushis. Summary judgment was appropriate on the Petrillo claim.

With respect to the dismissal of its fraud claim, ADNJ argues that questions of fact existed that foreclosed the grant of summary judgment on the issue of reliance. In particular, ADNJ contends that when Lushis finally disclosed plaintiff's marital status, in May 2004, it had already expended significant monies in pre-development activities, and therefore, its decision to proceed to closing was not evidence of any lack of reliance. Rather, it was an attempt by ADNJ to "close the deal."

To prove a common law fraud claim, ADNJ must demonstrate

(1) a material misrepresentation made by Lushis of a presently existing or past fact; (2) Lushis' knowledge or belief of its falsity; (3) an intention that ADNJ rely on it; (4) reasonable reliance thereon by ADNJ; and (5) resulting damages. Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997). The fact that Lushis made no affirmative misrepresentation is not fatal to ADNJ's claim because, "[t]he '[d]eliberate suppression of a material fact that should be disclosed' is viewed as 'equivalent to a material misrepresentation (i.e., an affirmative misrepresentation),' which will support a common law fraud action." Winslow v. Corporate Exp., Inc., 364 N.J. Super. 128, 140 (App. Div. 2003)(quoting N.J. Econ. Dev. Auth. v. Pavonia Restaurant, Inc., 319 N.J. Super. 435, 446 (App. Div. 1998)).

We agree with Judge Buchsbaum that ADNJ cannot demonstrate reasonable reliance after Lushis' May 2004 letter, and any argument it makes regarding prior reliance is unavailing. We assume arguendo that Lushis knew plaintiff was married and failed to disclose that fact when the contract was signed. We further assume that omission was material because plaintiff represented that no tenants had "any rights to the [p]roperty" when the contract was signed.*fn6 We also disregard, for the sake of argument, Wohl's admitted failure to adequately review the title report, although under section seven of the agreement, had he done so, ADNJ could have cancelled the agreement without incurring the costs it claims forced its decision to proceed to closing. Despite all of these assumptions, the undisputed facts are that ADNJ, once fully advised of the situation, decided to complete the transaction. To the extent it now claims economic concerns motivated its decision, the contract provided ADNJ the ability to recoup the losses it allegedly incurred before the May 2004 "disclosure," but it chose not to. Therefore, it proceeded to tender its second deposit, waive the due diligence contingency, and set a closing date no longer relying upon a misrepresentation made by Lushis, but rather based upon its own business judgment. We find no basis to reverse the grant of summary judgment.

B.

ADNJ also appeals from the interlocutory order that dismissed its claim for negligent misrepresentation against Lushis and THS. It argues the judge erred in applying § 5.06 of the contract, which limited ADNJ's claim for damages to those instances in which plaintiff "knowingly and willfully falsely" breached a contract representation or warranty. ADNJ argues that the contract language applied only to plaintiff, and that the judge's reliance upon it to dismiss ADNJ's claim against Lushis and THS was error.

We affirm the dismissal of ADNJ's negligent misrepresentation claim, but for a different reason than that expressed by the motion judge. Home Properties of N.Y. v. Ocino, 341 N.J. Super. 604, 616 (App. Div. 2001). While the motion to dismiss was brought before any discovery took place, we now have the benefit of the significant discovery that followed.

In Banco Popular N. Am. v. Gandi, 184 N.J. 161, 182-86 (2005), the Supreme Court limited such a claim when brought against an attorney by a non-client to situations in which there was an actual misrepresentation made, and reliance as a result, equating such negligent misrepresentation claims to those made in Petrillo. For the reasons expressed above, ADNJ failed to demonstrate Lushis or THS made an actual misrepresentation and that it reasonably relied upon it to its detriment.

C.

Lastly, ADNJ argues it was mistakenly denied the ability to "pierce the attorney-client privilege" between plaintiff and Lushis so as to access Lushis' file and all communications he had with plaintiff. We conclude that we need not reach the merits of the issue because ADNJ has failed to articulate how the potential discovery would have permitted it to avert summary judgment.

Judge Buchsbaum permitted ADNJ a less-intrusive way to obtain the information by deposing plaintiff and Joanne. The critical information was not whether the parties were married; rather, it was whether Lushis knew that Joanne would not cooperate in the sale of the home. The testimony adduced at plaintiff's and Joanne's depositions indicates that neither told Lushis, if indeed they ever actually spoke to each other about the issue.

ADNJ has furnished a complaint plaintiff subsequently filed in October 2007 in which he named Lushis, THS and others as defendants. However, even assuming the allegations plaintiff now makes in the complaint were true, they perhaps support a claim of legal malpractice against Lushis regarding the advice he gave to plaintiff, but they do not support ADNJ's claims of fraud or negligent misrepresentation against Lushis and THS, and they do not serve to overcome ADNJ's failure to demonstrate reliance as we have discussed above.

Therefore, we conclude that even if the interlocutory order was entered in error, further discovery would not have resulted in ADNJ's ability to stave off the summary judgment motion or the earlier motion to dismiss.

Affirmed.


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