November 20, 2009
FRANK L. SHERNOFF, PLAINTIFF-APPELLANT,
DAY PITNEY, LLC, GREGORY PARLIMAN, AND KRISTINE FEHER, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-8497-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
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 liability; (2) payment by HP of $37,500, (3) Shernoff's surrender of the defective stock options; (4) a non-disparagement provision; and (5) confidentiality.
Plaintiff also alleged that Judge Arleo had a "friendly chat" with defendants while walking from chambers into the courtroom after the settlement conference. He claimed that upon reaching plaintiff's table in the courtroom, Judge Arleo announced that HP had "one more settlement requirement," specifically, the no re-employment agreement. Plaintiff further asserted that the no re-employment agreement was mentioned only by the judge, and that defendants did not anticipate HP having a problem allowing Shernoff to be re-employed if she had the concurrence of her former colleagues at HP. Plaintiff described the written stipulation of settlement as "oppressive, retaliatory, [and] vindictive," and claimed it included "never-articulated, and never-negotiated terms, conditions, results, and/or effects." Plaintiff's complaint also implied that Judge Arleo had an improper "extra-judicial relationship" with defendants.
Plaintiff demanded "actual, general, special, economic and non-economic damages" from defendants for "hundreds of hours of unpaid legal work to set aside the malicious settlement terms fraudulently procured by defendants." He averred that as a result of defendants' wrongful conduct he "suffered physical, psychological, and emotional harm . . . including stress, anxiety, depression, panic, palpitations of the heart, and sleeplessness." Essentially, he demanded damages for fraud, conspiracy and the intentional infliction of emotional distress.
On November 9, 2007, defendants' counsel forwarded a demand letter to plaintiff requesting that the amended complaint be withdrawn and putting him on notice that defendants would seek sanctions pursuant to the New Jersey Frivolous Claims Statute, N.J.S.A. 2A:15-59.1, and Rule 1:4-8. In response, plaintiff threatened to seek sanctions against defendants because he perceived the letter itself to be frivolous. Defendants filed a motion to dismiss, or in the alternative, for summary judgment. While the motion was pending, plaintiff engaged in tactics such as attempting to subpoena Judge Arleo.
On December 15, 2008, the Third Circuit held that the District Court "did not err in enforcing the settlement agreement." The written opinion stated that "although the parties did not finalize every last detail of their agreement, the record contains ample evidence of mutual assent as to its core terms." The Court noted that on the day of settlement, Shernoff testified before the magistrate judge that "she understood that the settlement was contingent on her agreement to certain non-economic terms, including the 'no re-employment' provision challenged here."
On January 18, 2008, the trial court granted defendants' motion for summary judgment. Defendants subsequently filed a motion for sanctions to be imposed on plaintiff, which was granted on February 29, 2008. At plaintiff's request, the court agreed to consider plaintiff's ability to pay when calculating sanctions. Plaintiff, however, did not comply with the court's request for information and instead filed motions for reconsideration and/or a stay. On November 21, 2008, the judge awarded $45,000 in sanctions against plaintiff, less than half of the fees requested by defendants.
We apply the same standard as the trial court when reviewing an award of summary judgment. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). We must decide "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
It should be reiterated that in his original notice of appeal, plaintiff only objected to the specific amount of counsel fees. Only those orders or parts thereof which are designated in the notice of appeal are subject to the appeal process and review. See, e.g. Sikes v. Twp. of Rockaway, 269 N.J. Super. 463, 465-66 (App. Div.), aff'd o.b., 138 N.J. 41 (1994); Campagna v. Am. Cyanamid Co., 337 N.J. Super. 530, 550 (App. Div.), certif. denied, 168 N.J. 294 (2001); Fusco v. Newark Bd. of Educ., 349 N.J. Super. 455, 461-62 (App. Div.), certif. denied, 174 N.J. 544 (2002); 1266 Apt. Corp. v. New Horizon Deli, 368 N.J. Super. 456, 459 (App. Div. 2004). Consequently, if a notice of appeal only indicates that an order of reconsideration is being appealed, for example, only that proceeding and not the order that generated the reconsideration motion will be reviewed. See W.H. Indus. v. Fundicao, 397 N.J. Super. 455, 458-59 (App. Div. 2008). Strictly speaking, therefore, our consideration of plaintiff's claim could begin and end with the amount of sanctions. Noting that he is technically a pro se litigant, however, and it being beneficial to all concerned that there be some finality engendered by this opinion, we will briefly consider the other orders enumerated in plaintiff's amended case information statements.
Relying on Crippen v. Central Jersey Concrete Pipe Co., 176 N.J. 397, 409 (2003), in which our Court held that the grant of summary judgment before discovery is usually premature, plaintiff argues that Judge McCormack improvidently granted defendants summary judgment before discovery was conducted. He further contends that defendants deliberately frustrated the discovery process by serving their summary judgment motion simultaneously with their answer to the complaint and by intentionally failing to appear for depositions. He asserts that because defendants violated the Rules of Court "in order to avoid testifying to their own fraud, the award of summary judgment constituted reversible harmful error."
"Generally, summary judgment is inappropriate prior to the completion of discovery." Wellington v. Estate of Wellington, 359 N.J. Super. 484, 496 (App. Div.), certif. denied, 177 N.J. 493 (2003). A party opposing summary judgment on that basis is nonetheless obligated to establish "'with some degree of particularity the likelihood that further discovery will supply the missing elements of the cause of action.'" Ibid. (quoting Auster v. Kinoian, 153 N.J. Super. 52, 56 (App. Div. 1977)). The party opposing summary judgment "must specify what further discovery is required, rather than simply asserting a generic contention that discovery is incomplete." Trinity Church v. Lawson-Bell, 394 N.J. Super. 159, 166 (App. Div. 2007).
Plaintiff did not submit an affidavit or otherwise indicate the reason discovery would aid him in the pursuit of his claims.
R. 4:46-5(a). He obviously participated in the prior proceeding as counsel and was the husband of a party to the suit. Furthermore, Judge McCormack granted summary judgment based on the doctrine of res judicata and the litigation privilege. Since plaintiff has explained neither why discovery is necessary nor how it would have overcome these well-established legal doctrines which bar the litigation, we do not believe the trial court ultimately erred by granting summary judgment.
"The doctrine of collateral estoppel, or issue preclusion, 'bars relitigation of any issue [that] was actually determined in a prior action, generally between the same parties, involving a different claim or cause of action.'" Zirger v. Gen. Accident Ins. Co., 144 N.J. 327, 337 (1996) (quoting State v. Gonzalez, 75 N.J. 181, 186 (1977)). "Generally the question to be decided is whether a party has had his day in court on an issue, rather than whether he has had his day in court on that issue against a particular litigant." McAndrew v. Mularchuk, 38 N.J. 156, 161 (1962).
For collateral estoppel to foreclose the relitigation of an issue, the party asserting the bar must show that:
(1) the issue to be precluded is identical to the issue decided in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the court in the prior proceeding issued a final judgment on the merits; (4) the determination of the issue was essential to the prior judgment; and (5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding. [In re Estate of Dawson, 136 N.J. 1, 20 (1994) (citations omitted).]
The proper forum for litigation as to the enforceability and fairness of the settlement agreement was federal court. Both Judge Arleo and Judge Pisano found that there was no credible evidence to support a finding of fraud or mistake, or any other basis for rescission of the settlement. The Circuit Court found no error in those decisions. As Shernoff's lawyer and husband, plaintiff was clearly in privity with a party to the earlier proceeding.
Privity is "'merely a word used to say that the relationship between the one who is a party on the record and another is close enough to include that other within the res judicata.'" Zirger, supra, 144 N.J. at 338 (quoting Bruszewski v. U.S., 181 F.2d 419, 423 (3d Cir.) (Goodrich, J., concurring), cert. denied, 340 U.S. 865, 71 S.Ct. 87, 95 L.Ed. 632 (1950)). "A relationship is usually considered 'close enough' only when the party is a virtual representative of the non-party, or when the non-party actually controls the litigation." Collins v. E.I. Dupont De Nemours & Co., 34 F.3d 172, 176 (3d Cir. 1994). As Shernoff's husband and attorney, plaintiff was "close enough" to be considered in privity for purposes of collateral estoppel.
Plaintiff's contention that the District Court lacked jurisdiction to hear his claims against the present defendants due to a lack of diversity is irrelevant. It attempts to sidestep the real impediment barring his demands, namely, that his state court claims have been substantively addressed in federal court.
The trial court granted defendants' summary judgment motion because the issues raised in plaintiff's complaint had already been fully litigated in the prior federal court proceedings. Because plaintiff had a fair opportunity to litigate the issue of defendants' allegedly fraudulent conduct in federal court, he is precluded from relitigating the issue in state court. The fact that he lost in the federal forum does not bestow upon him the right to try again in the state forum. Plaintiff has had his day in court on these issues.
Plaintiff also contends it was error for the motion judge to rely upon the doctrines of res judicata, litigation privilege and standing. He claims judicial inconsistency between the various decisions. We disagree.
In support of the argument that res judicata should not apply because "'the conduct of [an] adversary or other special circumstances' made a fair trial impossible," plaintiff points to defendants' allegedly fraudulent conduct and "extra-judicial relationship" with Judge Arleo. See Olivieri v. Y.M.F. Carpet, Inc., 186 N.J. 511, 523 (2006). These allegations, however, were previously found to lack merit in federal court. Plaintiff raised these arguments in his objections to Judge Arleo's report and recommendation, his reply brief in support of those objections, his appellate brief to the Third Circuit, and various motions to both federal courts. Contrary to plaintiff's assertions, Judge Pisano did not find any improper communications by Judge Arleo to any party, or any credible evidence of fraud or other misconduct. The only basis for consideration of plaintiff's state court claims are defendants' purported misdeeds, all of which have been found to be innocent conduct in federal court.
Plaintiff's lawsuit is simply barred by res judicata. He is trying to appeal the federal court judgments in state court. And "[t]he rule that state courts must accord preclusive effect to prior federal court judgments is so settled that it is accepted as axiomatic." Watkins v. Resorts Int'l Hotel & Casino, Inc., 124 N.J. 398, 406 (1991). There is no basis whatsoever for making an exception to the rule in this case.
Plaintiff's claim that the litigation privilege does not afford defendants protection is equally meritless. "'A statement made in the course of judicial . . . proceedings is absolutely privileged and wholly immune from liability. That immunity is predicated on the need for unfettered expression critical to advancing the underlying government interest at stake in [that] setting.'" Hawkins v. Harris, 141 N.J. 207, 213 (1995) (quoting Erickson v. Marsh & McLennan Co., Inc., 117 N.J. 539, 563 (1990)).
The litigation privilege applies to "'any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.'" Id. at 216 (quoting Silberg v. Anderson, 786 P.2d 365, 369 (Cal. 1990)). It is not "limited to statements made in a courtroom during trial," but rather, "extends to all communications in connection with the . . . proceeding," including statements made during settlement negotiations. Ibid. Defendants' conduct and statements during the settlement conference and subsequent proceedings and related events were certainly aimed at achieving the objects of the litigation and connected to the action.
"[I]n both judicial and quasi-judicial proceedings[,] the potential harm which may result from the [litigation] privilege is mitigated by [certain] formal requirements such as . . . the comprehensive control exercised by the trial judge whose action is reviewable on appeal." Ruberton v. Gabage, 280 N.J. Super. 125, 132 (App. Div.), certif. denied, 142 N.J. 451 (1995). To support the argument that Judge Arleo did not exercise comprehensive control in the prior proceedings such that the litigation privilege should apply, plaintiff again cites her "extra-judicial relationship" and the judge's ex parte conversations with defendants. These allegations, however, were previously rejected by the federal courts.
Plaintiff has no standing to pursue this cause of action, even if we were to assume hypothetically that he was compelled to perform many hours of unpaid legal work in an effort to set aside the terms of the settlement. As Shernoff's attorney and spouse he does not have any cognizable claim arising out of his failed efforts. See Hartnack v. Hartnack, 70 N.J. Super. 513 (App. Div. 1961). Any damages resulting from defendants' alleged fraud were personal to Shernoff, the party to the settlement, not to her attorney or to her spouse.
Plaintiff contends that summary judgment should not have been granted because of the purported "judicial inconsistency" in compelling him to disclose Shernoff's and his financial status in order for the state court to set the amount of counsel fees. He argues that if their joint financial fortunes can be examined for purposes of imposing sanctions, then their joint financial fortunes should be considered for purposes of determining economic losses attributable to defendants' wrongful conduct. This argument is entirely without merit.
In order to obtain a true picture of an individual's financial status, at times it is necessary to consider the spouse's financial situation, particularly where assets may be jointly owned. Shernoff's claims against her employer are personal, however, and plaintiff had no individual cause of action as a result. Plaintiff and Shernoff's jointly shared assets were certainly relevant to plaintiff's ability to pay a sanction. The notion that he might have to incidentally disclose some of Shernoff's financial holdings in the process of revealing his own bears no logical nexus to his lack of standing to sue defendants for the alleged damages he suffered while representing Shernoff. The one notion just does not conflict with the other.
The Frivolous Claims statute was enacted to deter nuisance lawsuits and to compensate those who are victimized by it. Deutch & Shur, P.C. v. Roth, 284 N.J. Super. 133, 141 (Law Div. 1995). When considering a motion for sanctions pursuant to the statute, a court determines whether the action "was commenced . . . or continued in bad faith, solely for the purpose of harassment," and "whether the non-prevailing party 'knew, or should have known,' that the action '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.'" Gooch v. Choice Entertaining Corp., 355 N.J. Super. 14, 18 (App. Div. 2002) (quoting N.J.S.A. 2A:15-59.1b(1) and (2)).
The purpose of Rule 1:4-8 is the same. Where a party has no reasonable or good faith belief in the merit of the cause, even if pro se, sanctions are warranted. See K.D. v. Bozarth, 313 N.J. Super. 561, 574-75 (App. Div.), certif. denied, 156 N.J. 425 (1998). Here, after pursuing the matter through the federal system with absolutely no success, plaintiff's belief that defendants had engaged in wrongful conduct was simply not reasonable. He knew that there was no basis whatsoever for the complaint, other than his profound disappointment in the outcome.
Plaintiff contends that the amount of sanctions was the equivalent of his "entire 2008 income" and is therefore unjust. Assuming for the sake of argument that the allegation is true, it was the direct product of plaintiff's non-compliance with Judge McCormack's attempts at securing financial information. When Judge McCormack decided on the amount of the sanction on November 21, 2008, he noted that plaintiff had yet to complete the previously issued information subpoena. That information subpoena was in the main taken from the appendices of the Rules of Court, and is a document judgment creditors routinely serve upon adverse parties in order to obtain an accurate sense of a debtor's financial resources. Judge McCormack's use of the basic document was intended to, as he put it, put him in a "better position to determine the plaintiff's ability to pay when assessing the magnitude of the sanction." Defendants had requested $103,144.18 in counsel fees as a result of the three complaints, numerous motions, subpoenas, and service of interrogatories filed in this action. We are hard-pressed to understand why plaintiff believes his non-compliance with a court order, by refusing to supply financial information, should be rewarded by either a remand or reversal of the decision.
On May 2, 2008, Judge McCormack indicated that he would include plaintiff's ability to pay in the decision regarding the amount of sanctions to be imposed. When plaintiff did not complete the information subpoena, Judge McCormack was left with no alternative but to award fees without information that may have helped plaintiff. Plaintiff created the problem; he should not now be given the opportunity to draw out this litigation even further in order to correct it.
Plaintiff's last contention of error is that Judge McCormack should have recused himself. None of plaintiff's thirteen grounds in support of recusal merit discussion in a written opinion. R. 2:11-3(e)(1)(E).