February 25, 2010
MIDDLEBROOKS & SHAPIRO, P.C., PLAINTIFF/THIRD-PARTY PLAINTIFF-RESPONDENT/CROSS-APPELLANT,
DOROTHY BONANNO, DEFENDANT-APPELLANT/CROSS-RESPONDENT,
KEITH A. MCKENNA, MCKENNA, MULCAHY & MCKENNA, L.L.P., AND FRANK M. CERRETA, THIRD-PARTY DEFENDANTS/CROSS-RESPONDENTS, AND ANTHONY AMBROSIO, ANTHONY AMBROSIO, P.C. AND AMBROSIO, KYREAKAKIS, DILORENZO, AND MORAFF & MCKENNA, THIRD-PARTY DEFENDANTS.
MIDDLEBROOKS & SHAPIRO, P.C., PLAINTIFF/THIRD-PARTY PLAINTIFF-APPELLANT,
DOROTHY BONANNO, DEFENDANT,
KEITH A. MCKENNA, MCKENNA, MULCAHY & MCKENNA, L.L.P., ANTHONY AMBROSIO, ANTHONY AMBROSIO, P.C. AND AMBROSIO, KYREAKAKIS, DILORENZO, MORAFF & MCKENNA, THIRD-PARTY DEFENDANTS, AND FRANK M. CERRETA, THIRD-PARTY DEFENDANT/RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-9493-02.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 15, 2009
Before Judges Grall, Messano and LeWinn.
Plaintiff Middlebrooks & Shapiro, P.C. (M&S) filed a complaint to recover $148,972.27 that it alleged Dorothy Bonanno owed for legal services provided between April 5, 1998 and November 30, 1999. M&S asserted a right to payment based on breach of contract, unjust enrichment and quantum meruit. Mrs. Bonanno filed a counterclaim charging M&S with breach of contract and legal malpractice. M&S filed a third-party complaint seeking contribution and indemnification from others who allegedly advised Mrs. Bonanno in the same matters. The third-party defendants are two lawyers - Keith A. McKenna and Anthony Ambrosio; three law firms - McKenna, Mulcahy & McKenna, L.L.P., Anthony Ambrosio, P.C., and Ambrosio, Kyreakakis, DiLorenzo, Moraff & McKenna; and one accountant - Frank M. Cerreta.
M&S's third-party claims were dismissed prior to trial, and Cerreta was awarded counsel fees and costs pursuant to Rule 1:4-8. M&S's claim for legal fees and Mrs. Bonanno's counterclaim for malpractice were tried to a jury for ten days during March and April 2007.*fn1 Relying on Puder v. Buechel, 183 N.J. 428 (2005), the trial judge dismissed Mrs. Bonanno's counterclaim for malpractice, denied M&S's application for a directed verdict and instructed the jury to consider Mrs. Bonanno's evidence of malpractice as a defense to non-payment. The jurors found that:
1) M&S and Mrs. Bonanno had an attorney-client relationship; 2) M&S deviated from the standard of practice in representing Mrs. Bonanno; and 3) the deviation warranted a reduction in the full amount claimed by M&S.
On post-verdict motions, the judge denied M&S's application for judgment notwithstanding the verdict and, applying Saffer v. Willoughby, 143 N.J. 256 (1996), awarded Mrs. Bonanno $52,000.49 for fees and costs she incurred in defending against M&S's complaint - a contingency fee of one-third of the bill for legal services avoided plus the fee charged by her malpractice expert. That award did not include the fee charged by Mrs. Bonanno's financial expert.
We now consolidate two appeals arising from the litigation commenced by M&S. In A-3157-07, Mrs. Bonanno contends that the trial judge erred in applying Puder and by excluding her accountant's fees from those awarded pursuant to Saffer. In response, M&S argues that the dismissal was proper under Puder and, if not, warranted due to Mrs. Bonanno's failure to establish the necessary causal relationship between Shapiro's advice and her damages. Additionally, by way of cross-appeal, M&S claims the judge should have directed a verdict or judgment notwithstanding the verdict in favor of M&S, should not have awarded any fees and costs pursuant to Saffer, should not have dismissed its third-party claims against Ambrosio, McKenna and their firms and should have granted its application to amend the complaint. In A-3755-07, M&S challenges the dismissal of its claims against Cerreta and his award of fees and costs pursuant to Rule 1:4-8.
We affirm the dismissal of Mrs. Bonanno's claim for damages because her evidence was inadequate to permit the jury to find causation, and we conclude that the third-party complaints for contribution and indemnification are moot in light of the dismissal of the malpractice claim. We reverse the fees awarded to Mrs. Bonanno in defending against the fee dispute and the orders awarding fees to Cerreta pursuant to Rule 1:4-8 and N.J.S.A. 2A:15-59.1.
This is the pertinent evidence. Mrs. Bonanno retained Richard P. Shapiro of M&S in April 1998. He died in May 2002, about eight months before M&S commenced this litigation to collect what the firm was owed for the services he provided.
The circumstances existing when Shapiro was first consulted provide context essential to an understanding of the issues in this case. Mrs. Bonanno and her husband Joseph Bonanno divorced in August 1990. The marital assets included commercial real estate, which included a fifty-percent interest in property owned by 23 Commerce Road Associates, L.P. (23 Commerce Road). Prior to their divorce, Mr. Bonanno held a twenty-five-percent "general partnership interest" in 23 Commerce Road, and Mrs. Bonanno held a twenty-five-percent interest.
Pursuant to the terms of the Bonanno's property settlement agreement, Mrs. Bonanno acquired all but one percent of her husband's twenty-five-percent "general partnership interest" in 23 Commerce Road, and he retained his one-percent interest. The remaining fifty-percent interest was held by the Riback Group, the members of which are Martin and Charles Riback and Peter Silberlicht.
After the divorce, apparently acting under the authority of his one-percent general partnership interest, Mr. Bonanno continued to manage 23 Commerce Road through West Essex Management Corporation (West Essex), an entity which he established for that purpose. According to Mrs. Bonanno, her former husband was manipulating the finances of 23 Commerce Road, through West Essex, to deprive her of the income she would have otherwise derived from her share of 23 Commerce Road.
In the early 1990s, Cerreta, who was assisting Mrs. Bonanno in her efforts to implement the Bonannos' property settlement agreement, referred her to Anthony Ambrosio, Esq. Ambrosio subsequently represented Mrs. Bonanno in various matters, including one in which she alleged that her matrimonial lawyer had committed malpractice.
Mrs. Bonanno's efforts to enforce the property settlement agreement were further complicated by Mr. Bonanno's filing for bankruptcy in 1994. The trustee commenced an adversary action challenging the validity of the transfers that led to Mrs. Bonanno's acquisition of her forty-nine-percent interest in 23 Commerce Road. The trustee also proposed a sale of Mr. Bonanno's one-percent interest.
On February 20, 1998, the trustee issued a notice of proposed settlement of his adversary action challenging Mrs. Bonanno's interest in 23 Commerce Road. The trustee proposed to accept $170,000 from Mrs. Bonanno and, in return, dismiss the adversary action and convey Mr. Bonanno's right, title and interest in the partnership to her.
Objections to the trustee's proposed settlement were filed by the Riback Group and Mr. Bonanno's second wife. The Riback Group contended that the partnership agreement precluded the transfer and, referencing Mrs. Bonanno's inability to manage, expressed the Riback Group's "strong objection" to her "purchase and/or management" of 23 Commerce Road. On April 14, 1998, the attorney then representing Mrs. Bonanno in the bankruptcy matter, Arnold Jay Gold, prepared a response. With respect to the one-percent interest retained by Mr. Bonanno, Gold wrote: "Dorothy Bonanno is willing to purchase this interest, subject to all claims and possible objections by limited partners. Dorothy Bonanno is not seeking clear title to the interest from [the t]rustee and or the court."
Despite Gold's involvement, Ambrosio recommended Mrs. Bonanno retain Shapiro to represent her in the bankruptcy. Ambrosio introduced Shapiro to Mrs. Bonanno. M&S's records reflect services rendered in connection with the bankruptcy on April 5, 6, 8, 9, 13, 14, 15, 16, 17, 22, 23 and 30, 1998. The work billed includes conferences and correspondence with Ambrosio and Cerreta, appearances in bankruptcy court and conferences with the trustee's attorney and the bankruptcy judge.
On May 11, 1998, the bankruptcy judge entered an order approving a settlement by which the trustee agreed to accept $170,000, dismiss the adversary proceeding and convey the trustee's entire interest in 23 Commerce Road, the "general partnership and limited partnership interest of" Mr. Bonanno, to his former wife. The order expressly states:
[T]he Court makes no findings of fact or conclusions of law regarding the existence of and/or the extent of any general partnership interest which the [Trustee] may have in 23 Commerce Road, L.P. The Court makes no findings of fact or conclusions of law regarding whether the Trustee may exercise any right of any general partner in 23 Commerce Road, L.P., or whether the purchaser of such property from the Trustee may exercise any right of any general partner in such partnership.
Within four days of that order, Cerreta wrote to Shapiro acknowledging receipt of the order and asking Shapiro to seek the judge's authorization for Mrs. Bonanno to pursue the "assets or rights acquired" under the May 11 order in state court or another forum. On June 2, 1998, the judge amended the order to exclude the final sentence of the paragraph quoted above referencing the right of a purchaser as a general partner.
According to Mrs. Bonanno, she participated in the bankruptcy because the one-percent interest her former husband retained in 23 Commerce Road was for sale and she wanted to be able to manage the property. She testified that Shapiro told her that "once [she] had the one percent general partnership, [she] would then be able to manage the property. [She] would be able to fire the or remove the managing company [West Essex] at the time and that [she] would be in control with the Ribacks."
On May 26, 1998, Mrs. Bonanno, as fifty-percent owner of "the membership and voting rights" of 23 Commerce Road Associates, L.P., and the "Riback Group," as fifty-percent owners, entered into a letter of agreement. It provided for two "managing members," one designated by Mrs. Bonanno and the other designated by the Riback Group, who would "jointly co-manage the property." It further provided Mrs. Bonanno with the right to "initially administer the property" and receive a four-percent management fee, with the Riback Group receiving a two-percent management fee. In addition, Mrs. Bonanno was to receive the first $50,000 available for distribution to the members, after which distributions were to be divided equally between Mrs. Bonanno and the Riback Group.
The parties to the May 26, 1998 letter of agreement acknowledged and agreed not to contest the principal amount or validity of an existing first mortgage on 23 Commerce Road in the amount of $2,006,696.69, as of that date. They further agreed to use their "joint best efforts to refinance" that mortgage. According to Mrs. Bonanno, she knew the principal was lower than the agreed amount, but Shapiro told her she should sign the agreement. She explained that she gave up the right to challenge the mortgage because she "wanted to stop fighting" and knew that she "eventually . . . would be able to make up that money once [she] started to manage the property" and thought her management would start "immediately."
By letter dated May 26, 1998, Ambrosio, as attorney for Mrs. Bonanno, and Mitchell Riback, as attorney for the Riback Group, notified the tenants of 23 Commerce Road that West Essex was no longer the property management agent and that the owners had retained D.K.B. Management Co., Inc., Mrs. Bonanno's company, to manage the property. The letter directed the tenants to pay all future rent to D.K.B. Management. According to Mrs. Bonanno, the letters were written on the advice of Shapiro.
West Essex and 23 Commerce Road had a contract under which West Essex was to provide management services that did not expire until October 2002, and West Essex did not step aside. Mrs. Bonanno said that West Essex, controlled by her former husband, sent letters to the tenants of 23 Commerce Road directing them to continue making all payments to West Essex.
On June 4, 1998, Anthony Ambrosio, then of Ambrosio, Kyreakakis, DiLorenzo, Moraff & McKenna, filed a verified complaint and order to show cause in the Chancery Division of the Superior Court in a matter captioned 23 Commerce Road Limited Partnership v. West Essex Management Corp. In that complaint, Mrs. Bonanno asserted that on May 11, 1998, she "became General Partner" of 23 Commerce Road. She sought damages and injunctive relief compelling West Essex to direct the tenants of 23 Commerce Road to make payments as required by the partners, provide an accounting and surrender all assets and records of 23 Commerce Road in the possession of West Essex.
According to Mrs. Bonanno, when she filed the complaint as "general partner," she believed that she held that status because of what Shapiro had told her. She also believed that Ambrosio filed the suit on Shapiro's advice.
Nonetheless, Mrs. Bonanno said that M&S did very little in the West Essex litigation. She recalled Shapiro taking her former husband's deposition and attending her deposition and others, and she thought Shapiro did a "good job" when he deposed Mr. Bonanno. By her recollection, McKenna took over when another case demanded Ambrosio's attention, and he assured her that he would pick up where Ambrosio left off. A substitution of attorney filed in the case, however, indicates that Shapiro was the attorney of record between Ambrosio and McKenna.
On September 10, 1999, the complaint filed on behalf of 23 Commerce Road against West Essex was dismissed with prejudice "on the ground that Dorothy Bonanno is neither a general nor a limited partner of 23 Commerce Road and had no authority to bring the action on behalf of the partnership." The order, however, did not terminate the litigation. The judge also ordered that "the caption [be] . . . amended to reflect the dismissal of the first named plaintiff so that the suit will henceforth be captioned Dorothy Bonanno v. West Essex Management Corp., et als." Thus, Mrs. Bonanno's claims against West Essex were not dismissed.
As noted above, Shapiro billed Mrs. Bonanno for services rendered between April 5, 1998 and November 20, 1999. There is conflicting evidence about the fee arrangement. M&S presented a retainer agreement dated June 8, 1998 providing for payment at an hourly rate for representing her interests in Mr. Bonanno's bankruptcy case, and one dated June 18, 1998 providing for payment at an hourly rate for representation in the West Essex litigation. Middlebrooks, testifying on behalf of M&S, acknowledged that Mrs. Bonanno had never returned a signed copy of either agreement but said that Cerreta had assured the firm that he had a signed copy. Cerreta denied making that representation, but he acknowledged writing letters transmitting payments from Mrs. Bonanno and indicating that additional payments would follow. Mrs. Bonanno's testimony about the arrangement for payment was less than clear. She testified that payment for legal services, as opposed to costs, was to be contingent upon the outcome. She explained that the checks she had written to M&S were for costs Shapiro incurred, not for payment toward the balance reflected on the multiple invoices she received. Mrs. Bonanno also said, however, that she agreed to pay when she could and to negotiate the amount after she assumed management of 23 Commerce Road.
On this record, it is not entirely clear when Mrs. Bonanno ousted West Essex and acquired the right to manage 23 Commerce Road. There is evidence that as of April 30, 2003, Mrs. Bonanno and the Riback Group had yet to reach a final agreement on the operation of 23 Commerce Road or completely resolve their dispute with West Essex. On that date, Mrs. Bonanno and the Riback Group executed a second settlement agreement addressing their respective rights as the owners and partners of 23 Commerce Road. The agreement purports to resolve a case captioned Bonanno v. 23 Commerce Road Associates, L.P., MRS-C-16-00. Like the agreement of May 26, 1998, the April 30, 2003 agreement provides a temporary plan for management. Pending negotiation of an operating agreement satisfactory to the parties, there were two managing members; one designated by Mrs. Bonanno (referenced as the D.K.B. Group) and one designated by the Riback Group. Under this plan, the D.K.B. Group was responsible for administration and was to receive a four-percent management and administrative fee; the Riback Group was to receive a two-percent management fee. Distributions, after the first $180,000 was paid to the D.K.B. Group, were to be divided equally. As they had on May 26, 1998, the parties again stipulated to the principal amount of the mortgage - $1,566,372.22 as of August 1, 2002 - and agreed not to contest its amount or validity but to attempt a refinance.
On April 30, 2003, McKenna filed a certification in the West Essex case in support of Mrs. Bonanno's "motion to remove West Essex Management Corporation of management of the 23 Commerce Road Property and to transfer management" as provided in the April 30, 2003 agreement. The order resolving that motion is not among the documents in the various appendices submitted on these appeals.
There is an additional settlement agreement, which the parties refer to as a "global settlement," that purports to resolve several law suits, including the West Essex case. The global settlement requires the D.K.B. and Riback Groups to pay West Essex $24,858.47 for unpaid management fees and to ratify the leases prepared by West Essex.*fn2 Like the April 30, 2003 agreement between Mrs. Bonanno and the Riback Group, the global settlement includes a stipulation as to the balance of the mortgage on 23 Commerce Road - $1,619,351.11 as of April 30, 2002 - and calls for a refinance.
Mrs. Bonanno did not assume management responsibility or refinance the mortgage until the summer of 2005.
In the opinion of James Ventantonio, Mrs. Bonanno's malpractice expert, Shapiro's advice "was a significant deviation from the standards" that required him to familiarize himself with the relevant law and advise Mrs. Bonnano accordingly. Ventantonio's opinion was premised on the assumption that Shapiro had, as Mrs. Bonanno testified, told her she would become the general partner by acquiring her former husband's interest from the trustee.
Ventantonio concluded that Shapiro's advice did not account for statutory law that provides that an "assignment of a partnership interest," without more, does not entitle the assignee "to become or to exercise any right of a partner." According to Ventantonio, Mrs. Bonanno could not have become general partner without "get[ting] a certificate from the other limited partners enforcing this," which could have been done by "agreement," "consent" or "any manner." Because that was not done, Mrs. Bonanno was left with an "interest but no control" and was not entitled to anything other than a share of any "distribution" proportionate to her interest in 23 Commerce Road.
In Ventantonio's opinion, Shapiro's deviation was that he was not aware of the legal pitfalls and did not act to avoid them. "[T]hat [error] led directly to the . . . failure in the court action against West Essex from being successfully pursued" with resulting delay in Mrs. Bonanno's receipt of management fees.
When asked whether there was anything that Shapiro could have done to vest his client with management rights, Ventantonio explained that he could have accomplished that by "forcing the other partners, if they're agreeable to this agreement, to sign a stipulation that she [could] become the general partner." He offered no evidence to establish that the members of the Riback Group would have agreed and did not address the fact that Mrs. Bonanno's May 26, 1998 agreement with the members of the Riback Group, her only other partners, gave her management rights.
Ventantonio further indicated that the complaint filed against West Essex was dismissed because, without status as a general partner, she lacked standing. He did not address the significance of the provision of the court's order in the West Essex case substituting Mrs. Bonanno as plaintiff or the fact that the West Essex litigation continued until the global settlement.
Ventantonio also found fault with Shapiro's advice about the mortgage on 23 Commerce Road. In his opinion, Mrs. Bonanno's stipulation to the principal due on the mortgage and agreement not to challenge the validity of the mortgage "put her in - in a jeopardy where, in fact, she can - she was almost estopped or not allowed to go forward in her litigation." When asked what Mrs. Bonanno could have done if she had not waived her right to contest the mortgage, Ventantonio replied "she could actually go against those - the mortgage company." He did not discuss the potential for success in such an action.
In addition to testifying as a fact witness, Cerreta testified as an expert on damages. With respect to the mortgage, he estimated the damages sustained because the principal was $400,000 higher than it should have been and the interest rate was inflated. With respect to the delay of Mrs. Bonanno's ability to assume responsibility for management, Cerreta estimated the management fees she lost by the delay in her assumption of managerial responsibility. Cerreta concluded that Mrs. Bonanno lost $729,000.
We affirm the dismissal of Mrs. Bonanno's counterclaim for malpractice because the evidence did not permit the jurors to find the essential elements of legal malpractice. Those elements "are (1) the existence of an attorney-client relationship creating a duty of care by the defendant attorney, (2) the breach of that duty by the defendant, and (3) proximate causation of the damages claimed by the plaintiff." McGrogan v. Till, 167 N.J. 414, 425 (2001).
Mrs. Bonanno's claim involves legal advice about two transactions - the purchase of Mr. Bonanno's interest from the bankruptcy trustee and the May 26, 1998 settlement agreement. Preliminarily, Mrs. Bonanno was required to prove negligence by demonstrating that a reasonably competent lawyer would have advised her that the purchase of her husband's interest would not, without more, entitle her to assume his role as general partner or oust West Essex and earn the management fees, which she expected to receive when she agreed not to challenge the mortgage on 23 Commerce Road. Conklin v. Hannoch Weisman, 145 N.J. 395, 420 (1996).
In addition, Mrs. Bonanno could not prevail unless she demonstrated that Shapiro's negligent advice was a proximate cause of the damage she alleged. With respect to the rendering of negligent legal advice in connection with a transaction, proof of proximate cause requires evidence demonstrating that "the lack of adequate advice was a substantial factor in causing" the harm. Id. at 422.
In the context of this case, Mrs. Bonanno was required to show that her goals - status as general partner, acquisition of managerial rights that would permit her to oust West Essex and a modification of the mortgage - were attainable. See 2175 Lemoine Ave. Corp. v. Finco, Inc., 272 N.J. Super. 478, 490-91 (App. Div.) (recognizing the attorney's negligence leading to an agreement that was not legal but reversing a judgment in favor of the client because there was no evidence establishing that it could have been structured legally), certif. denied, 137 N.J. 311 (1994). That is where Mrs. Bonanno's proofs fell short. There was no evidence of a legal theory under which the bankruptcy judge could have declared Mrs. Bonanno general partner; of circumstances under which the Riback Group would have been legally required or willing to give Mrs. Bonanno complete control as general partner or manager; of a legal basis for compelling West Essex to withdraw as manager or of terms under which West Essex would have agreed to withdraw; or evidence that any effort on behalf of Mrs. Bonanno to renegotiate or challenge the mortgage would have been successful.
In fact, the only relevant evidence suggests that Mrs. Bonanno's goals were not readily attainable. The Riback Group's position prior to and following Mrs. Bonanno's purchase of her former husband's interest during the bankruptcy proceedings demonstrates their insistence upon joint control, a division of the management fee and acceptance of the principal on the existing mortgage. The only evidence relevant to West Essex's position compels the conclusion that it was determined to maintain its role as manager and the fees for its work.
Absent any evidence that Mrs. Bonanno could have accomplished her goals in 1998, there was no basis for concluding that Shapiro's advice was a substantial factor in her failure to achieve those objectives. Because there is no evidence that would permit a jury to find that any advice Shapiro gave or failed to give was a substantial factor in causing the harms Mrs. Bonanno asserts, we affirm the dismissal of her counterclaim.
In light of that disposition, it is not necessary to address Mrs. Bonanno's claim of error in the trial judge's application of Puder. Even if we were to conclude that M&S was not entitled to a dismissal of the malpractice claim based on Puder, we would be required to find the error harmless because of the inadequacy of her evidence on the merits of her malpractice claim.
M&S's objections to the dismissal of its third-party claims against Ambrosio and McKenna and their law firms and against Cerreta are moot. Those claims were for indemnification and contribution in the event Mrs. Bonanno was awarded damages for malpractice. Given our affirmance of the dismissal of Mrs. Bonanno's counterclaim, M&S's third-party complaints have no continued significance.
M&S also contends that it should have been permitted to amend its complaint to add a claim that the third-party defendants acted in concert to deprive the firm of fees due from Mrs. Bonanno. The argument presented in support of that claim lacks sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
We turn to consider the arguments relevant to the initial complaint - M&S's claim for $148,972.27 due for legal services rendered to Mrs. Bonanno. M&S contends that it established its entitlement to payment in the amount claimed and that, upon dismissal of Mrs. Bonanno's malpractice claim, M&S was entitled to a directed verdict or entry of judgment notwithstanding the verdict. We reject these claims.
The trial judge properly denied M&S's motions for a directed verdict and judgment notwithstanding the verdict. A motion for judgment must be denied if "'the evidence, together with the legitimate inferences therefrom, could sustain a judgment in . . . favor' of the party opposing the motion." Dolson v. Anastasia, 55 N.J. 2, 5 (1969). The evidence and available inferences must be viewed in the light most favorable to the party opposing the application. Sons of Thunder v. Borden, Inc., 148 N.J. 396, 415 (1997). This court applies the same standard on review of the trial judge's determination. Ibid.
Accepting Mrs. Bonanno's testimony as true, M&S was not entitled to judgment in an amount computed in accordance with the retainer agreement. By her account, she never agreed to the terms and M&S agreed to negotiate the total fee after she assumed responsibility for managing 23 Commerce Road. M&S did not have a signed agreement to rebut Mrs. Bonanno's version of the terms under which Shapiro provided representation, and apart from establishing the reasonableness of its hourly rate, M&S made no effort to establish the reasonableness of its fees. On this record, the jurors could have concluded that M&S was not entitled to recover fees equivalent to the amount billed, and judgment was properly denied. Thus, even without consideration of the evidence of Shapiro's deviation from accepted standards of practice, we cannot conclude that the evidence foreclosed a verdict favorable to Mrs. Bonanno.*fn3
Confusing the standards applicable to a motion for judgment notwithstanding the verdict and a motion for a new trial, M&S argues that the verdict is against the weight of the evidence and a clear miscarriage of justice. R. 2:10-1; see Dolson, supra, 55 N.J. at 5-6 (distinguishing the standards). Because M&S did not seek relief on that basis before the trial judge, that claim is not cognizable on appeal. R. 2:10-1.
M&S argues that the judge erred in awarding Mrs. Bonanno fees incurred in this litigation pursuant to Saffer. We agree that Saffer cannot be understood to permit an award of fees and costs incurred in a fee dispute if the client's affirmative claim for legal malpractice is dismissed.
The holding of Saffer is that "a negligent attorney is responsible for the reasonable legal expenses and attorney fees incurred by a former client in prosecuting the legal malpractice action. Those are consequential damages that are proximately related to the malpractice." Saffer, supra, 143 N.J. at 272. The rationale for this award is that it is necessary to make a client who has been damaged by malpractice whole. Bailey v. Pocaro & Pocaro, 305 N.J. Super. 1, 5 (App. Div. 1997). Where a malpractice claim is dismissed for failure to establish that the attorney's representation was a proximate cause of injury to the client, there are no consequential damages. Otherwise, the evidence of a deviation from the standard of care is an affirmative defense in a fee dispute "for the limited purpose of affecting 'the quality of services rendered in assessing the reasonableness of the fee pursuant to RPC 1.5.'" Saffer, supra, 143 N.J. at 266 (quoting R. 1:20A-2(c)(2)).
Mrs. Bonanno's attorney cites no decision in which a client, unable to establish the elements of malpractice but successful in reducing or avoiding a bill for legal services, has been awarded counsel fees in the fee dispute. The rule established in Saffer is an exception to the American Rule, which requires each litigant to bear his or her expenses. In re Estate of Vayda, 184 N.J. 115, 120-21 (2005). Since Saffer, the Court has stressed that exceptions to the American Rule are narrow. Id. at 121-25.
Based on the arguments presented on appeal, we see no basis for extending Saffer to require an award of counsel fees in a fee dispute to a client who cannot prove an affirmative claim of malpractice but prevails only by showing that the fee was not reasonable in light of the quality of services rendered. See generally Saffer, supra, 143 N.J. at 266 (discussing the relevance of the quality of services in a fee dispute). The authority to establish exceptions to the American Rule is with the Supreme Court. In re Niles, 176 N.J. 282, 298 (2003).
For the foregoing reasons, we reverse the award of fees and costs in favor of Mrs. Bonanno and reject her claim that the award should have included additional expert fees.
M&S contends that the trial judge erred in awarding Cerreta fees and costs for frivolous litigation pursuant to Rule 1:4-8 and N.J.S.A. 2A:59-1. The judge issued two separate orders imposing the sanctions - one issued on December 8, 2006 awarding $1974.07 and one issued on February 9, 2007 awarding $22,499.69.
By order of January 8, 2008, the judge clarified that both M&S and its attorney are liable for payment.
M&S filed its third-party complaint naming Cerreta on August 19, 2003. On October 2, 2003, Cerreta served the notice of his intention to seek sanctions pursuant to Rule 1:4-8 and a demand for the withdrawal of M&S's third-party complaint seeking his contribution. He asserted that "a non-lawyer cannot be held accountable, in a claim for legal malpractice, which is the underlying [c]ounterclaim by Dorothy Bonanno against [M&S]." He further alleged, "Statements made in your complaint are untrue. I consider your inclusion of me in the suit to be frivolous and designed as a scattergun approach."
On March 5, 2004, the judge then assigned to the case dismissed the third-party complaint against Cerreta for failure to file an affidavit of merit. This court granted M&S leave to file an interlocutory appeal and reversed on the ground that Cerreta is an unlicensed financial advisor and not a "'licensed person' to whom any part of the [affidavit of merit] statute applies." Middlebrooks & Shapiro, P.C. v. Bonanno, No. A-1990-04 (App. Div. Mar. 30, 2006) (slip op. at 8).
On July 21, 2006, a second judge issued an order denying Cerreta's motion for summary judgment without prejudice but directing M&S to submit factual proof with an expert's report within thirty days. By letter dated August 21, 2006, Cerreta's attorney advised the court that M&S had not complied, sought entry of an order granting summary judgment and asked the court to set a date for a hearing to consider imposition of sanctions pursuant to Rule 1:4-8.
By October 6, 2006, the case had been assigned to a third judge. He entered an order granting Cerreta summary judgment, which the judge viewed as an order "specifically enforcing" the July 21, 2006 order.
M&S moved to vacate that order on the ground that it was entered without motion. Reasoning that the order was entered for failure to comply with the previous order, the trial court denied M&S's motion to vacate. This court denied leave to appeal.
Subsequently, the judge heard argument on Cerreta's application for sanctions pursuant to Rule 1:4-8. Concluding that the motion to vacate was without basis or merit and frivolous, the court awarded fees and costs in the amount of $1974.07. This court denied leave to appeal.
On December 18, 2006, Cerreta filed a second motion for sanctions, this time relying upon Rule 1:4-8 and N.J.S.A. 2A:15-59.1(b)(2). Through this application Cerreta sought to shift responsibility for all fees and costs he incurred in defending against the third-party complaint, other than those awarded on December 6, 2006, to M&S and its attorney. On February 9, 2007, the judge awarded $22,499.69, an amount that includes the expenses Cerreta incurred in his unsuccessful efforts, in the trial court and on appeal, to obtain a dismissal of the third-party complaint based upon the affidavit of merit statute.
The judge's reasons for finding the third-party claim for contribution frivolous mirrored Cerreta's demand for withdrawal of the pleading - that a non-lawyer cannot be accountable for legal malpractice. He determined that the claim for contribution was unsupported by even a "scintilla of evidence" that Cerreta was responsible for the legal advice given to Mrs. Bonanno. In addition, relying upon Cherry Hill Manor Assocs. v. Faugno, 182 N.J. 64, 72-76 (2004), the judge concluded that, as a financial advisor, Cerreta could not be responsible for the erroneous legal advice, which caused the injury and harm for which Mrs. Bonanno sought damages.
A trial court's determinations on the availability and amount of fees and costs for frivolous litigation are reviewable for "abuse of discretion." Masone v. Levine, 382 N.J. Super. 181, 193 (App. Div. 2005). Reversal is warranted when "the discretionary act was not premised upon consideration of all relevant factors, was based upon consideration of irrelevant or inappropriate factors, or amounts to a clear error in judgment." Ibid.
Cerreta's failure to comply with the procedural requirements of Rule 1:4-8(b) warrants reversal of the order against M&S. Claims of frivolous litigation lodged against a party to the litigation are governed by N.J.S.A. 2A:15-59.1. Nonetheless, such claims must be pursued, to the extent practicable, in accordance with the procedural requirements of Rule 1:4-8. R. 1:4-8(f); Toll Bros., Inc. v. Twp. of W. Windsor, 190 N.J. 61, 69-73 (2007).
One of the obligations of a party who intends to seek an award based on frivolous litigation is service of a written notice of its intention to seek sanctions for frivolous litigation and a demand to withdraw the frivolous pleading.
R. 1:4-8(b). Strict compliance is required. Toll Bros., supra, 190 N.J. at 69. Cerreta's notice and demand asserted his intention to demand fees pursuant to Rule 1:4-8, which applies to attorneys and pro se litigants but not parties. Thus, Cerreta did not give adequate notice of his intention to seek fees against M&S pursuant to N.J.S.A. 2A:15-59.1. For that reason alone, reversal of the order against M&S is required.
Even if we were to conclude that the notice reciting Rule 1:4-8 was adequate to serve the purposes of the Rule, we could not affirm this award against M&S or against the firm's attorney. Cerreta's notice and demand and the trial judge's determination were based upon a misunderstanding of the basis for the claim.
M&S's claim for contribution from Cerreta in the event that Mrs. Bonanno established entitlement to damages for legal malpractice was not dependent upon proof that he provided legal advice. The claims asserted by M&S were: "To the extent [Mrs. Bonanno] alleges she relied, to her detriment, upon the advice, skill and judgment of [M&S], so, too, was there detrimental reliance on the advice and participation of" Cerreta; and "To the extent [Mrs. Bonanno] alleges she suffered damages as a result of inadequate legal, accounting, or other advice and service, the same were the direct and proximate result of the failure of Third[-]Party Defendants." Fairly read, the basis for the contribution claim was Cerreta's role in providing financial advice relevant to the business transactions at issue.
The financial considerations underlying the business decision about which Shapiro gave legal advice are apparent. For example, Mrs. Bonanno explained her decision to forego challenging the mortgage on 23 Commerce Road with reference to her ability to collect fees for managing the property. Thus, unlike the attorney in Cherry Hill Manor Assocs., M&S did not seek contribution for a different injury but rather for the "same" injury - the loss Mrs. Bonanno sustained as a consequence of the transactions that she undertook after receiving financial and legal advice. 182 N.J. at 75-76.
In light of the evidence in the form of correspondence between Shapiro and Cerreta, the judge was clearly mistaken in concluding that this counterclaim, which was dismissed prior to Cerreta's deposition, was frivolous. It cannot be said that the pleading "was 'filed in bad faith solely for the purpose of harassment, delay or malicious injury,'" or filed "'without any reasonable basis in law.'" Shore Orthopaedic Group, LLC v. Equitable Life Assur. Soc. of U.S., 397 N.J. Super. 614, 627 (App. Div. 2008) (quoting Lake Lenore Estates, Assocs. v. Twp. of Parsippany-Troy Hills Bd. of Educ., 312 N.J. Super. 409, 424 (App. Div. 1998)). Nor can we conclude that M&S's continuation of this litigation after the initial and subsequent grants of summary judgment was frivolous. Cf. Debrango v. Summit Bancorp, 328 N.J. Super. 219, 229-30 (App. Div. 2000). M&S was successful on its first interlocutory appeal, and it is clear that the circumstances under which the second summary judgment was granted were sufficiently unique to warrant a good faith challenge. Even a grant of summary judgment on the merits after full discovery is an insufficient ground for concluding that a claim is frivolous. McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 563 (1993).
The award of counsel fees and costs to Mrs. Bonanno and Cerreta are reversed and vacated. The judgment is otherwise affirmed.