January 14, 2009
AL AND WANDA CASTELO, PLAINTIFFS-APPELLANTS,
MARIA AND WOLFGANG WINTER, DEFENDANTS-RESPONDENTS.
On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. C-179-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted December 3, 2008
Before Judges Rodríguez and Waugh.
Plaintiffs Al and Wanda Castelo appeal from the dismissal of their complaint seeking counsel fees from defendants Maria and Wolfgang Winter. We affirm.
On January 14, 1993, the Castelos and the Winters jointly purchased a seventy-two acre parcel of land in West Milford. Each party contributed fifty percent of the purchase price and paid fifty percent of the carrying costs associated with the property. In 1996, the parties formed Boulder Pond, LLC (Boulder Pond) and transferred ownership of the property to Boulder Pond. The West Milford property was Boulder Pond's only asset.
In September 1999, Boulder Pond entered into contract to sell the property to K. Hovnanian North Central Acquisition, LLC (Hovnanian).*fn1 In 2000, Hovnanian made a down payment of $125,000. Maria Winter divided those funds 52.5 percent to herself and her husband and 47.5 percent to the Castelos. She stated that the "differential was intended to both recognize [her and her husband's] majority ownership and interest in the Property and to partially reimburse [her] for expenses [she] had incurred and management fees [she] had earned over the preceding eight years."
Taking issue with the distribution formula used by Maria Winter, the Castelos filed a complaint seeking the dissolution of Boulder Pond and a determination that each party was to share equally in the distribution of its assets.*fn2 On December 2, 2003, the Winters filed an answer and counterclaim, in which they alleged that an oral agreement existed between the parties that called for the Winters to retain majority ownership of Boulder Pond and for Maria Winter to receive a management fee for her work in managing the property.
On May 12, 2005, the Castelos served a frivolous litigation notice pursuant to Rule 1:4-8, contending that the Winters' counterclaim was without merit in the absence of an operating agreement for Boulder Pond. The notice cited, among other cases, Kuhn v. Tumminelli, 366 N.J. Super. 431 (App. Div.), certif. denied, 180 N.J. 354 (2004). The Winters did not withdraw the counterclaim in response to the notice.
The litigation continued through 2005 and 2006. On October 14, 2005, the then General Equity judge entered partial summary judgment in favor of the Castelos, dismissing those parts of the counterclaim that claimed: (1) majority ownership on the part of the Winters; and (2) a management fee for work done by Maria Winter for Boulder Pond. However, the motion judge denied summary judgment with respect to the claim for a management fee prior to the creation of Boulder Pond. He stated his reasons as follows:
In light of the decision in Kuhn [v. Tumminelli, 366 N.J. Super. 431 (App. Div.), certif. denied, 180 N.J. 354 (2004)] and the requirements that an Operating Agreement be in writing as per N.J.S.A. 42:2B-2 it is apparent that Boulder Pond is governed by the "Default Provisions" of the LLC Act. As relevant records indicate that Plaintiffs and Defendants each contributed 50% to the purchase of the Property, under N.J.S.A. 42:2B-27 and N.J.S.A. 42:2B-34 each party is entitled to receive 50% of the company's profits. As such, the Court will grant Plaintiffs' motion for Summary Judgment as to this issue.
The Court does find, however, that material facts remain in dispute as to whether an oral agreement existed prior to the formation of Boulder Pond in 1996. A finding that material facts are in dispute precludes the grant of summary judgment. As such, the Court will deny Plaintiffs' Motion for Summary Judgment as to this issue.
Following that decision, the Castelos were granted leave to amend their answer to the counterclaim to raise the statute of limitations as a defense to the narrowed counterclaim, inasmuch as it was now limited to the period prior to the formation of Boulder Pond.
On May 1, 2006, the then General Equity judge again entered partial summary judgment in favor of the Castelos, finding that the Winters' claim sounding in quantum meruit for the pre-Boulder-Pond period was time barred. However, he denied the motion as to the claim for breach of the alleged oral management contract for the pre-Boulder-Pond period, finding that the claim would not have accrued until 2000 and was, consequently, not time barred. He found that "genuine issues of material fact, although somewhat suspect," continued to exist with respect to the merits of the claim for breach of the alleged oral contract.
On February 1, 2007, in correspondence between counsel, the Castelos reiterated their assertion that the Winters' counterclaim was frivolous, relying upon both N.J.S.A. 2A:15-59.1 and Rule 1:4-8. Counsel for the Castelos enclosed a proposed voluntary dismissal of the counterclaim with prejudice and requested that the Winters agree to its entry. On February 22, 2007, counsel for the Castelos sent another letter reiterating the sentiments of the February 1, 2007, letter. Both letters warned that the Castelos would seek counsel fees if the Winters refused to dismiss the remaining portion of their counterclaim.
On May 11, 2007, Judge Catherine M. Langlois denied the Castelos' renewed motion for summary judgment on the remaining aspect of the counterclaim. Although her reasons were stated on the record, that transcript does not appear to be part of the record before us.
On October 4, 2007, shortly after the date scheduled for trial of the remaining issue of the counterclaim, the parties agreed to a voluntary dismissal with prejudice. Judge Langlois entered her own order reflecting the settlement on that day, noting that the parties retained the "right to initiate future action relating to Boulder Pond, LLC and Receiver previously appointed." On the same date, the parties filed a stipulation of dismissal with prejudice. On October 9, 2007, Judge Langlois entered a consent order of dismissal, prepared by counsel for the Castelos, which contained the following reservation of rights with respect to future litigation:
IT IS FURTHER ORDERED that, in the event that an accounting reveals unequal capital contributions by the Members of Boulder Pond, the parties hereby reserve their rights to determine how same shall be rectified, and, if the parties cannot consensually agree to a formula, the parties hereby reserve their rights to initiate another action relative to this and any other issues that may arise in connection with Boulder Pond, LLC and the Receiver appointed by this Court. [(Emphasis added).]
None of the three dismissal documents mentioned a claim for counsel fees based upon the filing of frivolous litigation or reserved the right to assert such a claim in the future.
On December 6, 2007, approximately two months after the earlier action had been dismissed with prejudice, the Castelos commenced the current action by filing a verified complaint seeking attorney's fees and costs "associated with defending Defendants' frivolous Counterclaim" in the earlier action. Their claim was based on N.J.S.A. 2A:15-59.1, but not Rule 1:4-8. On December 12, 2007, Judge Langlois denied the Castelos' request for issuance of an order to show cause pursuant Rule 4:67-1, which governs summary actions, finding that the action was neither summary nor emergent.
On April 25, 2008, Judge Langlois heard and decided the Castelos' motion for summary judgment on their claim for attorney's fees. She found their request to be both untimely and without substantive merit.
First of all, the procedures prescribed by Rule [1:4-8] apply to the assertion of costs and fees against a party pursuant to [N.J.S.A. 2A:15-59.1]. The procedures of the rule are applicable to the statute as far as it relates to obligations of timeliness.
This is a complaint filed December, more than the 20 days permitted pursuant to the rule. It was not done by motion under the underlying action, but by new complaint[.] [T]he procedures of the rule are applicable to provisions of the statute, so it is procedurally improper as far as timing and as far as not being done by motion in the underlying action.
Secondly, I certainly am aware of what the Winters' claim was. I remember reviewing it and, . . . not being real sure that [Maria] would be able to prove her point, nonetheless, the factual issue precluded summary judgment. In that regard the Castelos, of course, had every option under the summary judgment rule, particularly [Rule] 4:46-6 to have an action tried to conclusion . . . and then if it was determined that the claim after trial was based upon a contention raised in bad faith with knowledge that it was a sham or predicated on facts known or what should have been known to be false, counsel fees could have been awarded pursuant to [Rule] 4:46-6, so in that context the Castelos had the option to compel the Winters to trial, and on that issue receive fees under a summary judgment application. They also had the right to proceed under the frivolous litigation, make a motion had they gone to trial.
They could not be considered prevailing in the civil action in the sense that this was a consent order, a voluntary dismissal. Indeed in which the parties, following a telephone conference with counsel, that both the plaintiffs and the defendants advised the court of voluntarily withdrawing the remainder of the counterclaim, which is the Winters', with prejudice, and the parties having entered into a stipulation of voluntary dismissal of that. . . .
And the other provision here, and the one that protects them, not filing of this application but for further issues, is that in the event an accounting reveals unequal capital contributions, the parties reserve their rights to determine how that should be rectified. If the parties cannot agree to a formula, the parties reserve their rights to initiate another action relative to this, "this" meaning, the contributions, and other issues that arise in connection with Boulder Pond and the receiver.
That provision certainly does not allow another action to proceed here under frivolous litigation. So there is no basis to grant plaintiffs' summary judgment whatsoever and indeed the court is going to dismiss this complaint in its entirety. Summary judgment is denied for plaintiffs.
I cannot find that they prevailed in the civil action. They entered a consent order and voluntary dismissal. That is different then the Ibelli*fn3 case in which the party itself, upon being confronted in court about the possibility that what it said was completely false, withdrew a motion, . . . certainly acknowledging that it was not going to be able to proceed on issues regarding jurisdiction, and the court said it was hardly voluntary. It was taken only to avoid the inevitable defeat. In an acknowledgment that the adversary would prevail. That is different then in this instance where the parties consensually entered an order of voluntary dismissal on the counterclaim [with] prejudice. So I cannot conclude that they prevailed.
I cannot find it was frivolous, merely because it was withdrawn prior to trial. I find . . . this complaint was procedurally improper, that it was not timely, and it was not done by motion under the previous action.
And I find it is not a protected complaint because it is not an issue that may be raised by these parties subsequently. That protection of additional issues related solely to the issue of the receiver, accountings and distributions.
Judge Langlois denied summary judgment and, sua sponte, dismissed the complaint with prejudice. Plaintiffs filed this appeal.
We affirm essentially for the reasons stated by Judge Langlois in her comprehensive oral decision. We add only the following comments.
As a general proposition, the parties in civil litigation must bear their own counsel fees, even if they are the prevailing party. There are exceptions to the general rule, as set forth in Rule 4:42-9. They include fee shifting permitted by court rule and statute. R. 4:42-9(a)(7) ("As expressly provided by these rules with respect to any action, whether or not there is a fund in court."); and id. (8) ("In all cases where counsel fees are permitted by statute.").
Both Rule 1:4-8 and N.J.S.A. 2A:15-59.1 permit a prevailing party to seek counsel fees and expenses by way of sanction for the filing of frivolous claims. In the May 12, 2005, frivolous litigation notice, the Castelos relied only upon Rule 1:4-8, which provides for sanctions against attorneys and pro se parties. In their February 2007 letters seeking withdrawal of the remainder of the counterclaim, counsel for the Castelos invoked both the court rule and the statute, which only provides for sanctions against parties. In their December 2007 complaint, the Castelos proceeded only against the Winters personally, citing the statute.
N.J.S.A. 2A:15-59.1(a)(1) provides that:
[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.
For the purpose of the statute, a finding that the pleading is "frivolous" must be based upon a finding that:
(1) The complaint, counterclaim, cross-claim or defense 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, counterclaim, cross-claim or defense 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) to (2).]
While the Castelos did not seek sanctions pursuant to Rule 1:4-8, their application pursuant to N.J.S.A. 2A:15-59.1 is nonetheless governed by Rule 1:4-8(f), which provides that, "[t]o the extent practicable, the procedures prescribed by this rule shall apply to the assertion of costs and fees against a party other than a pro se party pursuant to N.J.S.A. 2A:15-59.1." See Toll Bros., Inc. v. Twp. of W. Windsor, 190 N.J. 61, 72 (2007) ("[T]he public policies underlying N.J.S.A. 2A:15-59.1 militate in favor of requiring that claims against parties meet the Rule's procedural requirements to the fullest extent possible.").
Rule 1:4-8(b)(2) provides that "[a] motion for sanctions shall be filed with the court no later than 20 days following the entry of final judgment."*fn4 The Castelos failed to comply with that requirement. They did not file a motion within twenty days and their complaint was not filed until December 6, 2007, slightly more than two months after the underlying action was dismissed with prejudice.
Judge Langlois held that the Castelos' application was untimely. The Castelos argue that she was in error because it was not "practical" for them to have filed within twenty days. They do not, however, offer any plausible argument in support of their impracticability contention. They point to the language in Judge Langlois' October 4, 2007, order of dismissal and the October 9, 2007, consent order of dismissal, reserving the right to initiate another action, as excusing their compliance with the twenty-day filing deadline. Their argument is untenable, inasmuch as neither order provided for an application for counsel fees or an open ended right to pursue further litigation. To the contrary, both orders specifically contemplated that any further litigation would be confined to issues "that may arise" related to Boulder Pond and the work of the receiver, as opposed to claims that had already arisen with respect to the litigation just terminated.*fn5 In fact, by specifying what certain future claims were permitted, those orders impliedly precluded any other types of claims then known to the parties. Any ambiguity in the order must be construed against the Castelos, whose attorney drafted it. Kotkin v. Aronson, 175 N.J. 453, 455 (2003).
The Castelos argue that the decision denying their application should be reversed because Judge Langlois failed to engage in the sort of "practicality assessment" mentioned in Toll Bros., supra, 190 N.J. at 72. Toll Bros. requires that the trial court "assess whether it is practicable under all the circumstances to require strict adherence to Rule 1:4-8," noting that the "most fact-sensitive aspect of such an inquiry undoubtedly will involve compliance with the safe harbor requirement that is designed to bring an early stop to offending behavior." Ibid. In this case, the "safe harbor requirement," i.e. that the other party be given notice and an opportunity to withdraw the offending pleading, had already been satisfied several times, as noted above. While the Court in Toll Bros. anticipated that "courts may not be able to summarily dismiss such applications [for failure to comply with Rule 1:4-8 procedures] when genuine factual disputes are present," ibid., the Castelos have offered no plausible explanation for their two month delay. Consequently, no hearing or protracted analysis was required. We discern no reason to relax the timing requirement of Rule 1:4-8(b)(2) under the circumstances of this case. See Gooch v. Choice Entertaining Corp., 355 N.J. Super. 14, 19 (App. Div. 2002).
We also discern no reason to overturn Judge Langlois' decision that there was no frivolous claim. There was no contemporaneous determination by Judge Langlois or her predecessor that any of the Winters' claims were frivolous, even when the claims were dismissed on summary judgment.*fn6 While the fact that the Winters voluntarily withdrew the remaining claim is not necessarily determinative as to whether the claim was frivolous as that term is used in the statute, Ibelli v. Maloof, 257 N.J. Super. 324, 334-36 (Ch. Div. 1992), Judge Langlois was very familiar with the case and did not view any of the claims as meeting the statutory requirements of frivolousness. Her decision in that regard is subject to the abuse of discretion standard, Shore Orthopaedic Group, LLC v. Equitable Life Assur. Soc'y of the United States, 397 N.J. Super. 614 (App. Div.), certif. denied, 195 N.J. 520, certif. granted on other grounds, 195 N.J. at 523 (2008), and we see no abuse of that discretion.
The Castelos also argue that Judge Langlois erred in dismissing their compliant sua sponte. While the dismissal of the Castelos complaint sua sponte was not necessarily the optimal way of proceeding, Klier v. Sordoni Skanska Constr. Co., 337 N.J. Super. 76, 84-85 (App. Div. 2001), we see no error under the circumstances of this case. The Castelos had initially taken the position that the case warranted summary disposition and then brought a motion for summary judgment. At oral argument before Judge Langlois, they argued that there was no need for discovery and that "it is appropriate to handle it in a summary manner [and] . . . . on this summary judgment motion." It was their position that the case should be decided as a matter of law, and that is how Judge Langlois decided it. We see no deprivation of due process, which was our concern in Klier.
In summary, we see no abuse of discretion by Judge Langlois in any of her decisions and consequently affirm her order of dismissal.