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Guido v. Duane Morris

July 15, 2009

JOSEPH M. GUIDO AND TERESA GUIDO, PLAINTIFFS-RESPONDENTS,
v.
DUANE MORRIS, LLP, FRANK A. LUCHAK, ESQ., PATRICIA KANE WILLIAMS, ESQ., DEFENDANTS-APPELLANTS.



On appeal from Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-677-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued Telephonically March 10, 2009

Before Judges Rodríguez and Waugh.

Pursuant to leave granted, defendant Duane Morris, LLP, a law firm, and two of its partners, defendants Frank A. Luchak and Patricia Kane Williams, appeal from the motion judge's order reconsidering and vacating a prior order granting summary judgment with respect to a legal malpractice action filed against defendants by their former clients, plaintiffs Joseph M. and Teresa Guido. We affirm.

I.

We discern the following facts from the record.

A.

Joseph M. Guido was the 56.1 percent majority shareholder of Allstates WorldCargo, Inc. (Allstates), the stock of which is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. See 15 U.S.C.A. §§ 78a-78oo. Guido was the president and chief executive officer of Allstates from 1961 until 1999. He has served as the chairman of Allstates' four person board of directors since 1999.

On August 16, 2004, Guido delivered to Allstates: (1) an executed written consent in lieu of a special meeting of the stockholders; (2) amended and restated bylaws for Allstates to be adopted pursuant to the written consent; and (3) a draft information statement as required by the Securities Exchange Act of 1934. See 17 C.F.R. 240.14c-101.

Through those documents, Guido sought to amend Allstates' bylaws to increase the size of the board of directors from four to seven members and to appoint three independent persons, meaning non-employees, to fill the new seats. Guido understood that N.J.S.A. 14A:5-6 and Allstates' bylaws authorized him, as majority shareholder, to increase the size of the board. Allstates' management declined to notify all of the shareholders of the written consent and otherwise to process Guido's submissions.

On October 12, 2004, Guido received notice that there would be a meeting of the board of directors on October 18. Because the issue of the written consent was not included in the meeting's proposed agenda, Guido retained Duane Morris to represent him. That firm filed a verified complaint and sought an order to show cause with temporary restraints in the General Equity Part on October 14, 2004. The two-count complaint named Allstates and the three other members of the board of directors - Sam DiGiralomo, Barton C. Theile, and Craig D. Stratton - as defendants.

In count one, Guido requested injunctive relief, arguing that Allstates and the other board members had unlawfully failed to act on his written consent as required by N.J.S.A. 14A:5-6(2)(b). In the second count, Guido alleged a breach of fiduciary duty and the duty of loyalty based on the defendants' refusal to act in accordance with his written consent and other documents. He also sought counsel fees and costs.

The General Equity judge held a hearing on October 18, 2004, to address the request for temporary restraints. He denied the request for immediate injunctive relief, ordered discovery, and sent the case to mediation.

Immediately following the hearing, Guido spoke with DiGiralomo, without any counsel present, about a possible settlement. The proposed settlement was presented to the court on the same day, after Guido and DiGiralomo informed the court that they had "decided to discharge their attorneys."

Guido's counsel at the time, James Ferrelli of Duane Morris,*fn1 informed the General Equity judge that DiGiralomo had prevented him from having private discussions with his client before the possible settlement was presented to the court. Ferrelli warned the court: "I'm very concerned that there's been an instance of duress and overreaching. He is an elderly gentlemen. He has some health problems." The General Equity judge scheduled a case management conference to assess whether the settlement was entered into freely and voluntarily by the parties.

In a letter to Guido dated October 27, 2004, Ferrelli memorialized their earlier discussion concerning the proposed settlement. Ferrelli advised "against any agreement with [DiGiralomo] and the defendants that includes as a term any limitation on your rights as majority shareholder of Allstates. . . . [B]y requesting that you agree to such terms, [DiGiralomo] is taking away your ability to control the company, which substantially undermines your majority ownership."

On October 28, 2004, the General Equity judge held a conference with counsel and the parties in chambers. The conference resulted in a second preliminary settlement agreement. The essential terms of the settlement were placed on the record by the General Equity judge:

One, that the Board would not be expanded except by unanimous consent.

Two, there would be a shareholders agreement whereby each side would agree to vote for the other.

Three, that there would be a new employment agreement to be entered into by the parties. The precise terms have yet to be agreed upon.

There would be a general release executed by all parties, cross releases releasing all sides from any liability with regard to the subject litigation.

That once an employment agreement is entered into and the precise terms are put to paper, that the entire agreement will be submitted to corporate counsel to confirm that the agreement did not run afoul of any State or Federal law. And if it was determined that it did run afoul in any aspect with regard to Federal or State law, then in that event the parties could refile and come back to Court.

There was a subsequent dispute on the record as to whether Guido was entitled to counsel fees, which was apparently not resolved at that time. Although the settlement had not been entirely finalized, Guido filed a voluntary dismissal without prejudice on October 28, 2004.

In a letter to Guido dated November 3, 2004, Ferrelli memorialized the recent events involving the first and second settlement proposals. With respect to the events on October 28, 2004, Ferrelli wrote: "When I arrived [at court], you advised that you had not seen my October 27, 2004 letter regarding the settlement proposal. I had a copy and we reviewed it together. I reiterated my concerns regarding the proposed settlement with the defendants." Additionally, Ferrelli wrote, "we recommended against accepting the defendants' settlement terms, the ultimate decision was, of course, yours."

Guido subsequently had second thoughts about the terms of the proposed settlement reached on October 28. He decided that he was not satisfied with having the board of directors remain at four individuals. Because Guido was no longer content with the settlement, Duane Morris filed a second complaint on February 10, ...


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