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Shernoff v. Day Pitney

November 20, 2009


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-8497-07.

Per curiam.


Argued September 29, 2009

Before Judges Lisa, Baxter and Alvarez.

On December 31, 2008, plaintiff Frank L. Shernoff appealed a November 21, 2008 order sanctioning him for pursuing frivolous litigation by awarding $45,000 in counsel fees to defendants Day Pitney, LLC,*fn1 Gregory Parliman and Kristine Feher. In accordance with Rule 2:5-1(a), which requires the filing of a notice of appeal and a case information statement, plaintiff properly filed his notice and case information statement indicating he sought our review of the amount of the award. Subsequently, plaintiff amended, not the notice of appeal but the case information statement, to include the imposition of sanctions at all, and the dismissal of his complaint as well. Plaintiff then also filed a second amended case information statement, in which he purports to appeal the following: (1) denial of his motion concerning a certain information subpoena served upon him; (2) the motion judge's failure to reconsider the award of summary judgment; (3) the motion judge's failure to recuse himself; and (4) the denial of his motion to settle the record. For the reasons set forth below, we affirm all of Judge McCormack's orders.

Plaintiff's wife, Mia Shernoff (Shernoff), brought suit against Hewlett-Packard Company (HP) in the United States District Court for the District of New Jersey alleging breach of contract, negligence and breach of the implied covenant of good faith and fair dealing. Plaintiff, an attorney admitted to the New York bar, represented Shernoff; defendants represented HP. The case stemmed from Shernoff's prior employment with Compaq Computer Corporation (Compaq), which later merged with HP. Shernoff, a Compaq corporate officer, was issued stock options which were initially erroneously priced. After Shernoff pointed out the error to Compaq, the exercise price was corrected. When the companies merged, HP was required to convert Compaq stock options into HP stock options. In the federal suit Shernoff alleged that in the conversion process, HP mistakenly used the incorrect lower stock price from Compaq's initial issuance. Shernoff discovered the error in early March 2004, and requested that HP honor the option contract at the correct price. When she filed suit, she alleged that HP's error caused her to refrain from exercising her stock option when the share price of HP stock was at a high.

The lawsuit proceeded to a settlement conference conducted by United States Magistrate Judge Arleo on April 21, 2005. Plaintiff, who was admitted pro hac vice and assisted by local counsel, appeared on behalf of his wife. Defendants represented HP at that conference. The parties reached an agreement whereby, among other things, Shernoff was to be paid $37,500 for the surrender of her stock options. On the record, the parties orally agreed to certain additional "non-economic" terms, including the "non-admission of liability on the part of HP," "a confidentiality agreement regarding the terms of the settlement," and "a mutual non-disparagement provision."

Over the next few weeks, the parties unsuccessfully attempted to reduce the settlement to writing. A key provision in dispute was language precluding Shernoff from accepting employment with HP except by "mutual consent of the parties." Shernoff insisted that the parties had agreed that the "no re-employment" provision was to be waivable if she obtained the concurrence of her HP colleagues. HP denied this was the case, and asserted that any employment required "mutual consent."

Sometime between June 1 and June 14, 2005, Shernoff unilaterally exercised her HP stock options "without notice to HP or the [trial c]court" in contravention of the settlement agreement. Defendants notified the trial court of Shernoff's actions in a letter dated June 21, 2005, and requested a hearing. In response, Shernoff moved to rescind the settlement, claiming fraud, mistake and misrepresentation. HP opposed Shernoff's motion on July 18, 2005, and indicated that although it would not object to her retention of the proceeds gained when she exercised her option, it would seek enforcement of the non-economic terms.

Following an evidentiary hearing, Judge Arleo issued a report on July 17, 2006, finding that the parties had entered into a binding settlement on April 21, 2005. She recommended that HP's motion to enforce the settlement agreement be granted and Shernoff's cross-motion denied. Judge Arleo further found that the agreed-upon non-economic terms of the agreement included a general release of all claims from Shernoff, and a provision precluding her from accepting employment with HP except by "mutual consent of the parties." Judge Arleo finally concluded that there was no credible evidence to support a finding of fraud or mistake on the part of HP.

Plaintiff filed objections with the District Court, asserting that defendants failed to disclose certain terms, including the non-employment provision, at the settlement conference because they knew that Shernoff "would never consent if she had been given a legitimate opportunity to discuss and negotiate . . . ." Plaintiff alleged that defendants withheld these terms "in a deceptive, misleading, and fraudulent attempt to impose them upon [Shernoff] after the fact."

On December 4, 2006, United States District Court Judge Pisano issued a letter opinion determining that the parties formed a binding contract on April 21, 2005, despite their failure to execute a written settlement agreement. Judge Pisano opined that the non-economic terms to which the parties agreed included: "(1) non-admission of liability on the part of HP; (2) a general release of all claims from [Shernoff]; (3) a confidentiality agreement regarding the terms of the settlement; (4) a mutual non-disparagement provision; and (5) no future re-employment of [Shernoff] unless waived at [HP's] option." He explained:

These core terms, including the no re-employment provision, were not collateral to the agreement. Rather, the record demonstrates that the parties agreed that the no re-employment clause could be waived only by mutual consent of the parties, and [Shernoff's] counsel did not specify that they intended the no re-employment provision to be waivable simply by reaching an agreement with [Shernoff's] colleagues at HP. . . . Further, the non-economic terms were freely negotiated by the parties and are neither unfair nor unjust.

Significantly, Judge Pisano determined that there was no evidence of misrepresentation such as would warrant rescission of the settlement agreement. Accordingly, he entered an order granting HP's motion to enforce the agreement and denying Shernoff's requested relief.

Shernoff appealed the District Court's decision to the Third Circuit on December 26, 2006. In his appellate brief, plaintiff again alleged that HP "concealed and misrepresented its intentions." He argued:

The malicious terms were not included in HP's Settlement Position Paper; they were not discussed as part of the Settlement in Chambers; and they were introduced by the Magistrate only after the verbal agreement was concluded. HP's post-settlement terms were introduced by the Magistrate as if the Settlement in Chambers was at risk, and without first revealing her extra-judicial relationship and personal knowledge of HP's settlement practices. The litany of oppressive terms was not articulated or negotiated during the post-settlement discussion at the plaintiff's table.

On October 22, 2007, plaintiff filed a complaint in the Superior Court, Law Division, seeking compensation for damages he personally suffered as a result of defendants' allegedly fraudulent inducement of the settlement. He contended that defendants' conduct was malicious, fraudulent and deceptive and that they sought to end Shernoff's career of thirty years and cause her to forfeit personal property not at issue in the federal litigation. He again asserted that at the settlement conference the parties entered into a binding settlement agreement only as to: (1) HP's non-admission of ...

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