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Pinto v. Spectrum Chemicals and Laboratory Products

January 21, 2010

WILMAN PINTO AND ALVARO VASQUEZ, PLAINTIFFS-APPELLANTS,
v.
SPECTRUM CHEMICALS AND LABORATORY PRODUCTS AND SPECTRUM CHEMICAL MANUFACTURING CORPORATION, DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

The central issue raised by the parties in this case is whether the Supreme Court should extend the holding of Coleman v. Fiore Bros., 113 N.J. 594 (1989), banning public-interest attorneys in Consumer Fraud Act (CFA) cases from engaging in simultaneous negotiations of merits and counsel-fee claims, to cases involving such fee-shifting statutes as the New Jersey Law Against Discrimination (LAD) and the Conscientious Employee Protection Act (CEPA). In deciding that issue, the Court reexamines whether Coleman's basic rationale has continuing vitality in the context of CFA cases.

Plaintiffs Wilman Pinto and Alvaro Vasquez worked as chemical packagers at a facility owned by defendant Spectrum Laboratory Products in New Brunswick, New Jersey, until their termination in 2006. Legal Services undertook the representation of plaintiffs and, in 2007, filed a civil action in the Superior Court, Law Division, claiming that defendant violated plaintiffs' rights under the CEPA and the LAD. Plaintiffs alleged that they were fired in retaliation for their repeated complaints about the dangerous working conditions and lack of staffing, and for their efforts to unionize their disaffected co-workers. In addition, plaintiffs alleged discrimination based on their ethnicity. Plaintiffs sought compensatory and punitive damages, civil penalties as prescribed by law, costs of suit, and attorneys' fees.

In August 2008, the parties entered into court-ordered mediation. Although the mediator believed that a settlement had been reached, the parties left the mediation process with entirely different understandings of the terms of the settlement, which was never reduced to writing. Legal Services believed that the parties "reached a settlement on the dollar amount of the underlying claim only." Legal Services "declined to enter into any negotiations or discussions regarding attorneys' fees pursuant to [Coleman]." Legal services conveyed this belief in a letter to the Honorable Phillip L. Paley, J.S.C. In response, defendant's counsel wrote to Judge Paley that the monetary offer ($80,000) settled all financial claims against her client, including attorneys' fees. Counsel explained that she told Legal Services that piling on attorneys' fees was a "deal breaker" and that her client would never agree to a settlement that did "not encompass, or even address, attorneys' fees."

Plaintiffs filed a motion to enforce the settlement agreement, believing that attorneys' fees were excluded from it. Defendant sought to enforce the settlement agreement, believing that attorneys' fees were included within it. In denying both motions, Judge Paley found that the purported settlement was "unenforceable" because there was no "meeting of the minds." In addition, Judge Paley declined "to extend Coleman beyond its express terms," finding that case inapplicable outside of the consumer fraud context.

The Appellate Division denied Legal Services' motion for leave to appeal. Thereafter, a motion was filed with the Supreme Court, which granted leave to appeal. The Court also granted the motion of the American Civil Liberties Union of New Jersey Foundation (ACLU), John J. Gibbons Fellowship in Public Interest & Constitutional Law, Disability Rights New Jersey, Education Law Center, and New Jersey Appleseed Public Interest Law Center to participate as amici curiae.

HELD: The Court upholds the decision of the trial judge who found that the parties did not reach a settlement through the mediator. In addition, the Court lifts the bar that Coleman v. Fiore Bros., 113 N.J. 594 (1989) placed on public-interest attorneys and defendants from simultaneously negotiating merits and attorneys' fees claims in Consumer Fraud Act (CFA) cases. In the Conscientious Employee Protection Act (CEPA) and the New Jersey Law Against Discrimination (LAD) claims at issue in this case, and in future CFA cases, public-interest counsel may simultaneously negotiate merits and fees. Defendants, however, may not insist on a waiver of fees or dictate how settlement proceeds should be divided between a public-interest attorney and her client in a fee-shifting case.

1. In Coleman, to encourage public-interest lawyers to continue their mission of serving the needs of low-income citizens and to remove the ethical dilemma of having such lawyers sacrifice their statutory fees for the purpose of effectuating the best settlement for their clients, the Court carved out a special exception to the general policy of allowing the parties to freely negotiate the terms of a settlement. The Court concluded that, in all future CFA cases, public-interest attorneys could not engage in "simultaneous negotiations of statutory claims for fees until the merits of the claim have bee settled," and that defense counsel would be barred from "insist[ing] on the waiver or settlement of statutory fees as a condition of or before the settlement of the merits claim." Significantly, in Coleman, the Court parted company with the position taken by the Unites States Supreme Court in Evans v. Jeff D., 475 U.S. 717 (1986). Both the majority and the dissent in Jeff D. agreed that simultaneous negotiations, even in fee-shifting cases, served the public interest of advancing the prospects of settlement. In Coleman, this Court determined that following federal policies would disserve our State's interests. It appears that, twenty years after Coleman, no other jurisdiction bars public-interest and defendants' lawyers from simultaneously negotiating settlements of both claims for damages and attorneys' fees in fee-shifting cases. (Pp. 8-13)

2. The question is whether bifurcating settlement negotiations -- compelling public interest attorneys and defendants to resolve the merits of a claim before discussing attorneys' fees -- will best effectuate the goals that the Legislature sought to achieve by including fee-shifting provisions in the LAD, CEPA, and CFA. Fee-shifting provisions "are designed to attract competent counsel" to advance the public interest through private enforcement of statutory rights that the government alone cannot enforce. Those undertaking such cases serve as "private attorneys general," vindicating the rights of defrauded consumers, the victims of discrimination, and whistleblowers who suffer retaliation for exposing wrongdoing. This Court also has maintained a longstanding policy of encouraging the settlement of litigation on mutually acceptable terms of the parties. Coleman, however, runs counter to the policy of promoting settlement negotiations on terms that will be acceptable to the parties. The Court does not believe that judicially mandated bifurcated settlement negotiations have a practical application in the "real world" or advance the interests of the very people who are intended to be protected by such remedial statutes as the LAD, CEPA, and CFA. The Coleman formula was intended to protect public-interest law firms and their clients, but, in reality, its application may do more harm than good. Coleman drew a distinction between public-interest and private counsel in CFA cases, finding that public-interest counsel faced unique conflict issues. However, the potential conflict between clients and their public-interest attorneys in fee-shifting cases is little different than the common dilemma facing private attorneys in both fee-shifting and other cases. Private-practice and public-interest attorneys face the same attorney-client tension when the settlement offer does not satisfy all of the financial demands of both client and counsel. The Court trusts that in these delicate situations attorneys will be attentive to their professional responsibilities, understanding that a client's interests must never be subordinated to the personal interests of the lawyer. The Court agrees with defendant and amici that Coleman's ban on simultaneous negotiations of the value of claims and attorneys' fees should not be extended to LAD and CEPA cases. Moreover, the Court does not see any meaningful distinction between CFA cases and LAD and CEPA cases on the subject of barring simultaneous negotiations. Therefore, the Court does not believe that Coleman's bar on simultaneous negotiations in CFA cases involving public-interest attorneys has continuing vitality and lifts the restraint placed on public-interest attorneys in Coleman. (Pp. 14-25)

3. Coleman's prohibition on a defendant conditioning settlement on the waiver of attorneys' fees has continuing validity in fee-shifting cases involving public-interest law firms. When a plaintiff is seeking monetary damages in fee-shifting cases, a defendant has no legitimate interest in how the plaintiff and attorney divvy up the settlement. In such circumstances, a defendant's demand that a plaintiff's attorney waive her statutory fee as the price of a settlement is not only an unwarranted intrusion into the attorney-client relationship, but a thinly disguised ploy to put a plaintiff's attorney at war with her client. Plaintiffs' attorneys who are compelled to forfeit their hard-earned fees as a condition of settlement will be less inclined to take on the next case, and the cascading effect of that mindset will make it difficult to attract competent counsel to enforce the CFA, LAD, CEPA, and other fee-shifting statutes. The Court thus adopts the approach suggested by Justice Brennan in his dissent in Jeff D. and bars defendants from demanding fee waivers as a condition of settlement in fee-shifting cases involving public-interest law firms. (Pp. 25-27)

4. The Court agrees with the trial court that there was no settlement in this case because the parties never had a meeting of the minds on the precise terms of the agreement. The parties acted in good faith, but under a mutual mistake about the true meaning of the settlement. In conclusion, the Court upholds the decision of the trial judge who found that the parties did not reach a settlement through the mediator. In addition, the Court lifts the bar that Coleman placed on public-interest attorneys and defendants from simultaneously negotiating merits and attorneys' fees claims in CFA cases. In the CEPA and LAD claims at issue in this case, and in future CFA cases, public-interest counsel may simultaneously negotiate merits and fees. Defendants, however, may not insist on a waiver of fees or dictate how settlement proceeds should be divided between a public-interest attorney and her client in a fee-shifting case. (Pp. 27-28)

The judgment of the trial court is AFFIRMED and the matter is REMANDED to the trial court for proceedings consistent with this opinion.

CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, WALLACE, RIVERA-SOTO, and HOENS join in JUSTICE ALBIN's opinion.

The opinion of the court was delivered by: Justice Albin

Argued October 13, 2009

Parties to a lawsuit, generally, are free to negotiate the terms of a settlement in the way they see fit. The plaintiff, typically, will discount the maximum value of the case by factoring the probability of an unfavorable verdict and a low damages award. The defendant likely will accept a financial settlement that is worth the risk of averting an unfavorable judgment, a high monetary award, and protracted legal expenses. Settlement, as such, is a predictive science. Historically, without judicial interference, the parties weigh the costs and benefits to determine whether a settlement is in their best interests.

We carved out an exception to that general policy in the case of public-interest lawyers representing clients in fee-shifting cases under the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -184. In Coleman v. Fiore Bros., 113 N.J. 594 (1989), we addressed the conflict faced by a public-interest attorney who is compelled to negotiate the settlement of the value of her client's claim and, at the same time, the value of her counsel's fees as provided by statute. In that case, to protect a public-interest lawyer from being cast at odds with her client, we took a unique approach, barring "public interest counsel from simultaneous negotiation of statutory claims for fees until the merits of the claim have been settled and [] precluding defense counsel from attempting such simultaneous disposition." Coleman, supra, 113 N.J. at 605. We are now asked to revisit the soundness of that approach.

Legal Services of New Jersey (Legal Services) urges this Court to extend Coleman's rationale to other fee-shifting statutes, in particular cases arising under the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 to -14, and the New Jersey Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -49. Defendant in this case, along with an assortment of public-interest legal organizations, including the American Civil Liberties Union of New Jersey Foundation (ACLU), counters that Coleman should be limited to CFA cases. Indeed, having participated in the Coleman case, the ACLU confesses that the position it took twenty years ago was wrong and today professes that public-interest attorneys and their clients will be disadvantaged if they are precluded from simultaneously negotiating the settlement of the merits and counsel-fee claims in LAD and CEPA cases.

We now hold that Coleman's ban on simultaneous negotiations of merits and counsel-fee claims that applies to public-interest attorneys in CFA cases should not be extended to cases involving such fee-shifting statutes as the LAD and CEPA and should be abandoned in CFA cases as well. We are convinced that permitting such simultaneous negotiations will not undermine the public policy of attracting competent counsel in state consumer fraud, discrimination, and whistleblowing cases and will, in fact, work to the benefit of public-interest lawyers and their clients, who will have a more realistic prospect of favorably settling their claims. However, in fee-shifting cases involving public-interest counsel, we will apply Coleman's injunction that "defense counsel may not insist on the waiver . . . of statutory fees as a condition of . . . settlement of the merits claim." Id. at 611. How a public-interest attorney and the client divide a lump-sum settlement is no business of the defendant.

I.

A.

Plaintiffs Wilman Pinto and Alvaro Vasquez worked as chemical packagers at a facility owned by defendant Spectrum Laboratory Products in New Brunswick, New Jersey until their termination in 2006.*fn1 Legal Services undertook the representation of plaintiffs and, in 2007, filed a civil action in the Superior Court, Law Division, claiming that defendant violated plaintiffs' rights under the CEPA and the LAD. The complaint also asserted common law claims against defendant for wrongful termination, breach of the implied covenant of good faith and fair dealing, and tortious interference with ...


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