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Hulse & Germano, Esqs., LLC v. Sandoval


March 17, 2009


On appeal from the Superior Court of New Jersey, Law Division, Burlington County, L-185-06.

Per curiam.


Submitted February 3, 2009

Before Judges Winkelstein, Gilroy and Chambers.

Defendants, Rigoberto Sandoval and Ellen Sandoval, husband and wife, appeal from a March 28, 2008 summary judgment dismissing their counterclaim for legal malpractice, and entering judgment against them on plaintiff's affirmative claim for legal fees in the sum of $24,158.53, together with $6039.50 in "contract interest," for a total judgment amount of $30,198.03. We reverse.

In March 2004, defendants entered into an agreement of sale with Feldman & Feldman, LLC (the seller), to purchase "all of the equipment, inventory, stock, name and lease rights of a business known as Oak Valley Pizza located in Deptford Township." As part of the agreement, defendants paid the seller a $20,000 deposit. Defendants subsequently claimed that the seller made material misrepresentations with regard to the agreement, and sought return of their deposit. When the seller declined to return the deposit, defendants hired plaintiff, the law firm of Hulse & Germano (the law firm), to represent them in a lawsuit against the seller for breach of contract. Under the terms of a retainer agreement with the law firm, defendants agreed to pay a $5000 retainer, and defendants would be billed for legal services at an hourly rate, with a separate rate for each court appearance. Ellen Sandoval claimed that one of the law firm attorneys informed her that there "would be a strong possibility of a fee shifting and that [the seller] would have to pay [the Sandovals' attorneys] fees."

Although Ellen Sandoval speaks some English, her husband, Roberto Sandoval, does not; his native language is Spanish. The law firm did not inform defendants that they could retain the law firm, or another law firm, on a contingency fee basis, nor did anyone from the law firm explain the fee agreement to defendants in Spanish.

The law firm filed suit on defendants' behalf against the seller. In addition to breach of contract, defendants claimed that the seller committed fraud, breached the implied covenant of good faith and fair dealing, and tortiously interfered with defendants' economic advantage. The case went to trial, and the jury awarded the Sandovals $21,700, including court costs, but no counsel fees.

Prior to the verdict, defendants had paid the law firm $10,860 toward the legal fee. Following the trial, the unpaid balance due to the law firm was $24,158.53. After giving a pre-action notice to defendants, see R. 1:20A-6, the law firm filed suit against defendants for the unpaid balance of legal fees. Defendants counterclaimed, alleging that the law firm committed legal malpractice by not informing them that it was customary for law firms in collection cases and breach of contract cases to offer the client a contingent fee agreement.

In support of their counterclaim, defendants submitted an affidavit of merit executed by Chester A. Luszcz, a New Jersey attorney, expressing his opinion that the law firm's representation of defendants fell outside acceptable professional standards.

During discovery, the law firm propounded an interrogatory upon defendants that asked them to "set forth the factual basis for [their] contention that [they] are not responsible for payment to Hulse & Germano with respect to the work performed on the subject premises." Defendants' response was: "Defendants will rely on its supplied expert's report. To sum it up, the plaintiffs failed to present the option of a contingency fee agreement, failed to explain the consequences of charging an hourly fee, failed to explain in Spanish, misrepresented the possibility of fee shifting in the original suit."

The expert report defendants referred to in their answer to the interrogatory was Luszcz's certification. The pertinent portions of that certification state the following:

4. I have reviewed the facts, file and discovery and conclude that "the law firm" deviated from the proper standards of care in regard to the fee arrangement and the representation of the defendants.

5. It is customary for many law firms in collection and/or breach of contract cases to offer a client a contingent fee arrangement.

6. It is a duty of an attorney to inform a client of the various options of the various fee arrangements, RPC 1.4(a) (b), 1.5(a),

8.4(c). In re Reisdorf, 80 NJ 319 (1979) held that the essential element in determining the reasonableness of a type of fee arrangements is the client's voluntarily informed agreement and absent it, may be unreasonable or deceptive. See also Cohen v. ROU, 146 [N.J.] 140, 156/158 (1996).

7. In this case, it is my understanding that the "law firm" failed to properly inform the clients that some law firms offer contingent fee agreements in collection/breach of contract cases. Informed consent is absolutely required in a case in which the clients are without a legal background and in one in which the client is an immigrant who speaks Spanish as his first language. In addition these clients were involved in a case in which a positive outcome was at best speculative due to the nature of collection cases.

8. I understand that the "law firm" made representations to the clients that there was a strong possibility of receiving an attorney fee from the opposing party in this collection action. This was a misrepresentation in that these cases normally do not provide fee shifting unless the contract calls for it.

9. It is my conclusion that "the law firm" deviated from proper professional standards and therefore committed legal malpractice.

My conclusion is based on my experience, a review of the applicable standards in case law and the facts.

Plaintiff moved for summary judgment, claiming that the expert's report was "inadmissible for a variety of reasons." Plaintiff claimed that the report failed to identify any standard of care purportedly breached by plaintiff and the opinion was nothing more than a net opinion.

Following oral argument, with little explanation, the trial court granted the law firm's motion. The motion judge stated:

It is a legal mal. And, I think, when you charge a professional with . . . legal malpractice, the rules require an expert. In this case, we have no expert to say that Mr. Hulse had an obligation to tell your client he could go on an hourly basis or a contingent fee. So, he took the hourly basis.

[M]y understanding of the case is that it was a weak case anyway. And, . . . Mr. Hulse is not an idiot. If there's a chance of losing, he's not going to take the contingency. He would do his best for his client, and he did do his best for his client. He got a recovery of, what, $20,000?

MR. HULSE: Almost 22, Judge.

THE COURT: A $22,000 recovery, but he had to put the time in. His bill is fair, it's a reasonable bill. And, therefore, I'm granting summary judgment in favor of the plaintiff.

The court subsequently denied defendants' motion for reconsideration.

In our view, the court misconstrued the nature of the expert's report. The purpose of an expert's report is "to forewarn the propounding party of the expected contents of the expert's testimony in order to enable preparation to counter such opinions with other opinion material." Maurio v. Mereck Constr. Co., Inc., 162 N.J. Super. 566, 569 (App. Div. 1978).

Although an expert's testimony at trial may be confined to matters of opinion contained in an expert's report, Mauro v. Owens-Corning Fiberglass, 225 N.J. Super. 196, 206 (App. Div. 1988), aff'd sub nom, Mauro v. Raymark Industries, Inc., 116 N.J. 126 (1989), "the logical predicates for and conclusions from statements made in the report are not foreclosed." McCalla v. Harnischfeger Corp., 215 N.J. Super. 160, 171 (App. Div.), certif. denied, 108 N.J. 219 (1987). Background information that supports opinions in an expert's report may be examined at trial. Velazquez v. Jiminez, 336 N.J. Super. 10, 45-46 (App. Div. 2000); see also Hall v. Zuckerman, 202 N.J. Super. 455, 458-59 (App. Div. 1985) (holding, where there had been no motion to compel production of an expert's report nor a motion to preclude the expert from testifying, that the failure of a party to provide an expert's report in pretrial discovery should not result in precluding the expert from testifying as to the basis for the expert's conclusion).

This case law is consistent with N.J.R.E. 705, which provides that an expert may testify in terms of opinion or inference, and give reasons for his or her opinion, without prior disclosure of the underlying facts or data, unless the court requires the expert to do otherwise. The evidence rule further states that "the expert may in any event be required to disclose the underlying facts or data on crossexamination." N.J.R.E. 705. In other words, simply because an expert's report does not contain all of the underlying facts to support the opinion does not necessarily mean that the expert's opinion is inadmissible at trial. The reasons for the opinion need not be included in the report so long as the report is otherwise sufficient to provide notice to the other party of the expected contents of the expert's testimony.

Here, the expert's certification was sufficient to forewarn plaintiff of the expected contents of the expert's trial testimony. The expert claimed that the law firm deviated from the standard of care by not informing defendants that either the law firm or another law firm may take the case on a contingent fee basis. The expert relied upon the Rules of Professional Conduct (RPCs) and case law to support his position.

By way of example, RPC 1.4(c)*fn1 states that "a lawyer shall explain the matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation." RPC 1.5(a) states that "[a] lawyer's fee shall be reasonable." The latter RPC sets forth in detail the factors to be considered in determining the reasonableness of the fee.

Further, in cases cited by the expert, the New Jersey Supreme Court has emphasized that an attorney's fee agreement with a client is subject to judicial oversight and ethical considerations. Cohen v. Radio-Electronic Officers Union, 146 N.J. 140, 155 (1996); In re Reisdorf, 80 N.J. 319, 329 (1979).

Plaintiff is of course entitled to discover the basis for the expert's opinion, which may be determined at the expert's deposition, an N.J.R.E. 104 hearing, or, perhaps, even at trial. N.J.R.E. 705. Our point is that the expert's certification was sufficient to put plaintiff on notice as to the expected contents of the expert's testimony at trial, and the court's imposition of the ultimate sanction of dismissing defendants' counterclaim and entering judgment on plaintiff's affirmative claim for what the court perceived as a lack of an expert opinion was a mistaken exercise of discretion. See Velazquez, supra, 336 N.J. Super. at 45-46 (although trial court given wide discretion in determining sanctions, sanction must be just and reasonable).

That does not, however, end the analysis. The New Jersey Constitution provides that the Supreme Court "shall make rules governing the administration of all courts in the State and . . . the practice and procedure in such courts." N.J. Const. art. VI, § 2, ¶ 3. The Supreme Court's rulemaking power "includes the power to interpret and enforce court rules." State v. Leonardis, 73 N.J. 360, 375 (1977). One of those court rules is Rule 1:21-7(b), which requires an attorney to afford the client an opportunity to retain the attorney on an hourly fee basis before entering into a contingency fee agreement. The rule does not, however, address the contrary situation of whether an attorney is required to advise a client of the availability of a contingent fee agreement before entering into an hourly fee arrangement with the client. Given the Court's rule-making power, the question consequently becomes whether the lack of such a rule means that as a matter of law an attorney has no such obligation to so inform the client? If that is what the absence of such a rule means, the failure to so inform the client could not be a deviation from the standard of practice regardless of what an expert says. Because this issue was not raised or briefed, we decline to take original jurisdiction and address it in this opinion. It should, however, be resolved on remand.

Likewise, the motion court did not consider whether, even if an attorney has an obligation under the case law, the RPCs, or the court rules to inform a client of the availability of a contingent fee agreement, the failure to so advise the client is tantamount to legal malpractice. See Johnson v. Schragger & Krasny, 340 N.J. Super. 84, 90 (App. Div. 2001) (observing that while the RPCs "may provide guidance to the court in determining whether a duty exists, they do not provide an independent cause of action"); Albright v. Burns, 206 N.J. Super. 625, 634 (App. Div. 1986) (violations of ethical standards do not per se give rise to malpractice claim). This issue need be addressed by the trial court only if it finds that an ethical obligation to inform the client of the availability of a contingent fee agreement does exist. In the absence of a full record and appropriate briefing, we decline to take original jurisdiction and decide the issue.

Finally, on remand, should the court determine to award damages to plaintiff, the court must analyze the reasonableness of the fees under the criteria set forth in Rule 4:42-9, and give consideration to the proportionality of the fees in relation to the amount of damages recovered. See Grubbs v. Knoll, 376 N.J. Super. 420, 432 (App. Div. 2005) (amount plaintiff recovers in damages relevant to determination of whether fees sought are reasonable).

Reversed and remanded for further proceedings consistent with this opinion.

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