On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-1469-99.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Stern, A. A. Rodríguez and Payne.
Plaintiffs, Licette Music Corp., Fairyland Music Corp. and Dorton Music Corp. (collectively, Licette or plaintiffs), appeal from an order of summary judgment dismissing plaintiffs' claims against the defendant law firm of Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross, seeking to hold the firm vicariously liable for alleged acts of legal malpractice committed by defendant Andrew Napolitano while a member of the firm.
This suit had its origins in April 1972 when the plaintiff corporations filed suit in the Supreme Court of New York against Abraham Massler and A.A. Records, alleging that defendants committed breach of contract and fraud when they failed to pay royalties on the rights to children's music owned by plaintiffs and committed other acts resulting in a massive underreporting of royalties due to plaintiffs. Jack Benanty, the founder of the plaintiff companies, initiated the suit. Following his death in 1989, his son, Charles Benanty, began managing the litigation.
In April 1992, the New York court ruled in plaintiffs' favor, entering a judgment against defendants in the amount of $4,553,342.42 on the breach of contract claim and $4,948,855.27 on the claim of fraud. In order to collect on the judgments, plaintiffs sought to institute actions in Florida and New Jersey, states where Massler was alleged to own property. In 1993, plaintiffs retained the Sills firm to collect on the New York judgments by executing on property located in New Jersey. On March 30, 1993, Sills filed an action in the Law Division, Somerset County. The judgments were domesticated, and collection efforts were commenced through a levy on master tapes located at a New Jersey warehouse. Joseph Buckley, a member of the Sills firm, oversaw the litigation. He was assisted at various times by attorneys Mark Duckstein and Paul Doda.
Through discovery, it was determined that real estate located in Mountainside and Fairfield, New Jersey may have been fraudulently transferred by Massler to avoid payment of the judgments. In the Fall of 1994, Benanty proposed that Buckley bring suit on a contingency basis to void the transfers. Buckley refused to proceed on that basis, but did prepare a complaint on Benanty's behalf. Additionally, Buckley referred Benanty to Christopher Gengaro, a former Sills attorney and the husband of a member of the Sills firm, as a potential attorney in the matter. As a result, the firm of Lentz & Gengaro was retained.
A complaint alleging fraudulent conveyance by Massler and various other individuals and entities was filed by Gengaro in the Chancery Division, Union County, on August 15, 1995. The action was subsequently dismissed by Judge John Boyle as barred by the applicable statute of limitations.
Following dismissal of the suit, in May 1996, Benanty retained Napolitano, then a member of the firm Reed Smith, to seek reconsideration of the judge's decision. After briefing and oral argument had occurred, the judge determined that the discovery rule was applicable to the matter, restored the action, and ordered that a Lopez*fn1 hearing be conducted to determine when plaintiffs knew or should have known of facts that would equate in law with a cause of action. A Special Master was appointed for the purpose of conducting the Lopez hearing and making recommendations as to its outcome.
During the summer of 1996, Gengaro advised Benanty that the Sills firm might have committed legal malpractice in failing to recognize the dates upon which the statute of limitations would bar suit with respect to the various properties. It was determined by Gengaro and Napolitano that, in accordance with then-existing law,*fn2 at a minimum, notice of the potential claim needed to be given to Sills and Judge Boyle. Accordingly, either Gengaro or Napolitano drafted a letter for Benanty's signature, addressed to Buckley, in which he informed Buckley of the potential claim. That letter, dated August 27, 1996, provided further:
I have enjoyed our professional relationship and your patience, and have been generally pleased with the services your law firm provided, in particular, that of Paul Doda and his conscientious and dedicated job that he has performed on my behalf.
Nevertheless, in light of this confusing but very real possibility [of a malpractice claim], I have to request that you withdraw as my attorney in the Fair Mark[et] Value Hearing and transfer the file to Lentz & Gengaro.
Upon receipt of Benanty's letter, the Sills firm notified its carrier of the potential claim, and it withdrew from the litigation in Somerset and Union Counties in September 1996. Thereafter, the firm of Lentz & Gengaro appeared for Licette as counsel of record. At the time that Sills withdrew from the litigation, approximately $75,000 in legal fees was owed by Licette to Sills, and had been owed for a considerable time. Napolitano, while still an attorney with Reed Smith, advised payment, and the bill was eventually compromised.
In May 1997, Napolitano joined the Sills firm as a member. In an employment contract, effective May 1, 1997, Napolitano agreed with the firm's statement with respect to fees and other income:
All fees for legal services rendered and all other income you may receive in connection with your activities as an attorney (including from lecturing and authorship) commencing 1 May 1997 will be the property of the Corporation. You will bill clients at such rates as may be mutually agreed upon between us, taking into account the general Member billing structure at this firm.
Income earned by you from lecturing and authorship will belong to the Firm . . . but it is agreed you may retain that income as you collect it - the total will be credited against any year-end bonus awarded to you.
Additionally, in the agreement, Napolitano stated that he had delivered to the Firm a list of all of his potential clients. However, no such list has been located at Sills, and Napolitano has denied retaining a copy. Napolitano testified at his deposition that he "doubted" that he mentioned his role in the Licette litigation in negotiations with Sills.
Napolitano informed Benanty of his impending move to Sills. At the time, according to Benanty, Napolitano was:
Running the lawsuit. Everything from making the highest level strategic decision to the lowest of an administrative letter to a clerk of the court.
Strategically it was Napolitano in my book. I have to say from the time that Boyle reversed and reinstated the case or whatever, reopened the case, from that point on Napolitano was my man. He was the guy . . . that I listened to.
The record indicates that Benanty wished Napolitano to continue his role in the litigation after joining the Sills firm. According to Benanty's deposition testimony, Napolitano proposed that the Sills firm would represent Licette as lead attorneys if Benanty agreed to fire Lentz & Gengaro.*fn3 Upon Benanty's refusal, Napolitano offered to act as lead consulting attorney, so long as all work was done under Lentz & Gengaro's name.
Napolitano testified that he had discussed with Benanty the fact that Sills could not and would not take the Licette case back. Benanty had fired the firm, and the firm had washed its hands of him. Napolitano testified that "[i]t would have required a significant change in [the Sills firm's] thinking and in Mr. Benanty's thinking about each other for [the firm] to have represented him." A private consultancy arrangement was the result. In Napolitano's view, the payments to him made by Benanty for his services as a consultant did not constitute fees for legal services, and he was never called upon by Sills to account for them.
Other members of the Sills firm also testified on the subject of Napolitano's representation of Licette. Buckley stated that he was approached by Napolitano, who suggested the possibility of representation and wished to know whether he would get origination credit for Buckley's former client. Buckley responded by noting the fee collection difficulties experienced by the firm and the conflict of interest existing as the result of Benanty's potential malpractice claim. He stated that representation by the firm was unlikely, but that if it occurred, Buckley would waive any right to origination credit. In a certification submitted in the present matter, Buckley noted that, after Napolitano joined the Sills firm, no notice of appearance by the firm was filed in either the Union County or the Somerset County cases.
Thomas Demski, chair of the firm's Professional Responsibility Committee and a member of its Management Committee testified that if Napolitano had wished to bring in Licette as a client, he would have had to obtain the firm's permission as the result of the conflict of interest. Demski testified that Buckley inquired about the possibility of representation, and Demski replied that Benanty would have to waive his right to sue Sills in order for such representation to occur. According to Demski, the matter was not pursued further, and permission to represent Licette was not obtained either from the Professional Responsibility Committee or the Management Committee, to which the ultimate decision would have been entrusted. Demski testified further that a search had not disclosed a list of Napolitano's clients when he entered the firm. No file had been opened naming Licette as a client, and no hours had been billed to Licette. Demski confirmed that no attorney could do legal work at Sills unless a file had been opened, a retainer letter had been sent, and a conflicts check had been completed.
Nonetheless, it is clear that Napolitano did represent Licette while a member of the Sills firm, obtaining lump-sum payments by check from Benanty made payable to Napolitano and negotiated personally by him. A total of $39,000 was paid in this fashion.*fn4 Benanty testified that Napolitano's secretary would call him to request payment, and that no bills or itemized statements of work performed were ever furnished. None of the money was ever transferred by Napolitano to the Sills firm, although Napolitano testified that fees for all other cases in which he acted as a consultant were paid to Sills. Napolitano testified with respect to his fee that "[i]t ...