April 16, 2010
ELIZABETH LABRIOLA KURRE AND MICHAEL LABRIOLA, PLAINTIFFS-APPELLANTS,
GREENBAUM ROWE SMITH RAVIN DAVIS & HIMMEL, LLP, ALAN E. DAVIS, ESQ., JOSEPH M. ORIOLO, ESQ., DEFENDANTS-RESPONDENTS, AND MCKENNA DUPONT HIGGINS & BYRNES, P.C., MICHAEL R. DUPONT, ESQ., DEFENDANTS.
On appeal from Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-1427-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 1, 2009
Before Judges Stern, Sabatino and Newman.
Plaintiffs appeal from an order granting summary judgment to defendant, Greenbaum Rowe Smith Ravin Davis & Himmel and partners thereof (hereinafter Greenbaum), on February 1, 2008, and from an order denying reconsideration on April 4, 2008.*fn1 Plaintiffs assert that the trial court erred (1) "in refusing to treat a derivative claim as a direct claim and grant individual recovery to shareholders of a closely held corporation," (2) "in finding that the Greenbaum Rowe defendants did not represent plaintiffs personally," and (3) "in refusing to grant reconsideration despite having overlooked controlling authority."
It is undisputed that plaintiffs and their brother, Joseph, were the shareholders of Labriola Motors, a Nissan franchise and dealership which was experiencing financial difficulties for several years before Nissan urged that the dealership be sold to avoid termination of the franchise. Plaintiffs were also having some personal differences with their brother, Joseph.
On August 3, 2001, Labriola Motors retained Greenbaum to represent it in connection with a proposed sale to Pine Belt Automotive, Inc. The retainer letter stated that Greenbaum would act as "counsel to the Company" and expressly advised plaintiffs and Joseph, with whom Greenbaum had a prior relationship, that because each of their "interests and concerns as shareholders of the Company differ in connection with the proposed transaction," each "should retain independent legal counsel and/or accounting or financial advisors to represent [them] in connection with [their] review, negotiation and execution of the contract documents." Plaintiffs signed the retainer agreement and acknowledged "that (i) this firm will represent only the Company in connection with the proposed transaction, and (ii) this firm has advised you of your right to obtain independent legal counsel."
On October 19, 2001, plaintiffs retained the law firm of McKenna DuPont Higgins & Byrnes (hereafter McKenna) to represent them.*fn2 Joseph also retained counsel. After the Pine Belt deal fell through, Greenbaum continued to represent Labriola Motors in connection with a possible sale to Buhler Management Associates, LLC, and plaintiffs continued their individual representation by McKenna. In the interim, discussions about the termination of the franchise, and its forbearance, continued with Nissan.
On October 8, 2001, Nissan notified Labriola Motors that it would terminate the franchise agreement in sixty days. Under the terms of Nissan's Policy Review Procedures Board, the dealership could appeal the notice of termination. This malpractice case is premised on Greenbaum's failure to advise plaintiffs, McKenna as their representative, and the company of the contractual appeal process because, if such an appeal was pursued, the company could have continued its unsuccessful negotiations to sell the dealership, and avoid bankruptcy and sale at a "distressed" price. Plaintiffs' experts reported that the appeal procedure "would have gained the time the Labriolas needed to sell the dealership intact at a market price."*fn3 Plaintiffs also assert Greenbaum failed to give them other necessary advice.
In granting summary judgment to Greenbaum, Judge Graziano included the following:
I think that the duty which the Defendants owed to this corporation, if they were negligent in executing that duty, they owed the same duty to the corporation that they owed to the individual[s] as shareholders. They were speaking to these people in their capacity as officers of the corporation, if they had any, and as shareholders, not as individuals. All communications were what should the corporation do, this what the corporation should do, this is what it shouldn't do.
The allegation is they failed to advise the corporation to purse that appeal on the administrative determination by the franchiser. Granted, we'll assume for a moment that that should have been done and that that was negligence for the purpose of argument, we'll say it was. The question then is who can complain about the negligent action? Clearly the corporation can. The corporation is not doing [so] here, it's two individuals who were large shareholders in the corporation.
The duty that they're alleging to have been breached to me is not other than that owed to the corporation. The corporation suffered financial reversals because of the failure to so advise, at least it's alleged that that can be proven. And that's no different -- excuse me, and that is the same duty, if any, that they owed to those shareholders. I just -- I just don't see that the obligation was any different.
He was not representing, based on the record as I can see it, those individuals in any of these particular transaction[s] from August 9. They were representing the corporation in its attempt to stay solvent, to stay in business. I don't see that the individuals had any right to rely on anything that the attorney said other than to the extent that they're shareholders and they can rely on it in making decisions as shareholders.
This is not one of those circumstances I think where an attorney's statement to a non-client gives rise to an obligation. Usually, as I recall the cases, it's a situation where the attorney represents one party and not another, statements are made on which the other party ends up relying. It was foreseeable or should have been foreseeable to the attorney that if he made those statements in the other person's presence, that the person might rely on them, he relies on them to his detriment.
The person doing the relying here was these two individuals as shareholders of the corporation which was the client. That's whose [sic] the attorney was speaking to, not to an entirely unrelated person outside the attorney/client relationship. These shareholders were a part of the corporation which was the client.
I distinguish those cases that Counsel would like us to rely on, on that basis. I don't disagree that the obligation has been created by the Supreme Court and other case law and that an attorney may be responsible to a non-client for negligent statements or actions. I don't think that's the case here.
I think it's clearly a standing matter. The exception for stockholders to bring such suits doesn't exist in this case for the reasons that I've stated.
We agree with Judge Graziano and affirm the grant of summary judgment substantially for the reasons expressed in his oral opinion of February 1, 2008.
Plaintiffs insist that the retainer letter with respect to the Pine Belt negotiations did not state that plaintiffs should retain independent counsel for any other purpose. We cannot preclude summary judgment on so narrow a reading, and it makes no sense in light of the totality of the circumstances. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
There was nothing unique to the Pine Belt transaction which suggested a need for separate counsel in that matter alone. To the contrary, a sale to Pine Belt and to Buhler was being discussed incident to the survival of the dealership.
While Elizabeth certified that Greenbaum had represented the family in the past, she points to no retainer agreement on which she and Michael could reasonably rely as a basis for their personal representation in connection with the sale or termination of the dealership. To the contrary, she testified in her deposition that she and Michael retained McKenna "[t]o assist in the protection of their respective interests with respect to their interests in Labriola Motors Inc . . ." In any event, plaintiffs retained McKenna in October 2001, and the challenged malpractice occurred subsequently in November. Moreover, in their depositions, plaintiffs acknowledged being advised to retain personal counsel, and that they retained McKenna to protect their individual interests after being advised by Greenbaum to retain independent counsel. McKenna continued to represent plaintiffs with respect to a possible sale to Buhler and prior to the bankruptcy proceedings.
The record as a whole precludes consideration of a legitimate factual dispute concerning Greenbaum's representation of plaintiffs personally at any relevant time, or of any duty owed to them with respect to issues concerning the dealership. Petrillo v. Bachenberg, 139 N.J. 472, 483-84 (1995); Estate of Albanese v. Lolio, 393 N.J. Super. 355, 368-69 (App. Div.), certif. denied, 192 N.J. 597 (2007). Nor can they reasonably contend that they legitimately believed that Greenbaum represented them personally in the dealership's dealings with Nissan. See Restatement of the Law, Law Governing Lawyers §§ 14, 96.
The parties agree that, given the bankruptcy proceeding involving the dealership, Greenbaum's client, a derivative action cannot benefit plaintiffs for any claimed personal loss. We need not further pursue the assertion that they could bring a direct claim because Greenbaum owed no duty to them.