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Verni v. Lanzaro


August 12, 2010


On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-10488-00.

Per curiam.



Argued: March 17, 2010

Before Judges Cuff, Payne and Waugh.

In 1999, the Verni family was involved in a serious automobile accident. The driver of the car who struck the Verni car had attended a football game at Giants Stadium and was highly intoxicated at the time of the collision. Antonia Verni, then two years old, suffered catastrophic injuries. Her mother, Fazila Verni, suffered less serious injuries.

Soon after the accident, the Verni family retained Rosemarie Arnold to represent them. In 2000, Arnold filed a complaint. In 2004, first Mrs. Verni and then the guardian ad litem discharged Arnold, and the law firm of Nagel, Rice and Mazie entered the case. David Mazie of the Nagel firm is the attorney who represented the Verni family following the substitution.*fn1 The substituted firm completed discovery, tried the case to verdict, defended the verdict on appeal, and was preparing the case for the new trial ordered by this court, Verni v. Harry M. Stevens, Inc., 387 N.J. Super. 160 (App. Div. 2006) (Verni I), certif. denied, 189 N.J. 429 (2007), at the time it settled the matter soon before the second trial commenced.

The fee dispute that is the subject of this appeal commenced shortly after the jury returned its verdict. Mazie filed a motion to discharge Arnold's statutory attorney's lien*fn2 against plaintiffs' damages recovery, asserting that the Arnold firm "added absolutely no value to the claims that plaintiffs prevailed upon at trial." On March 15, 2005, Mazie filed a motion to set legal fees in the matter, and on April 8, 2005, the trial court entered an order that plaintiffs' counsel be paid a "legal fee equal to 25% of all amounts recovered . . . in excess of $2 million," which in light of the $109,000,000 verdict meant the court approved a legal fee in excess of $25,000,000. The order explicitly stated that the court made no finding concerning the fee dispute that existed between the Arnold firm and Mazie.

Further action concerning the fee dispute was stayed after the Aramark defendants filed a notice of appeal on April 13, 2005. On August 3, 2006, this court issued a decision reversing the judgment below and remanding the matter for a new trial. See Verni I, supra.

Following settlement of the case, a judge conducted a "friendly hearing," see Rule 4:44-3, at which he approved the "very fair and reasonable settlement" arrived at on behalf of Antonia.*fn3 The order approving the settlement also included a $4,853,146.09 counsel fee award held in escrow pending the outcome of the fee dispute with Arnold.

The evidentiary hearing in the fee dispute occurred over five days from February 6 through 13, 2008. Mazie argued that Arnold should receive nothing; Arnold sought one-half of the fee. On April 18, 2008, the judge issued a written opinion in which he determined that a fees-payable-upon-discharge provision in Arnold's retainer agreements with the Verni family governed the amount of counsel fees due the firm. The judge further found that Arnold was "entitled to be compensated for the 827 hours of actual work that was performed on this case at the agreed upon rate of $275 per hour for a total fee of $227,425.00." Arnold appeals this order and an order denying her post-hearing motion to recuse the judge.

Our scope of review of the facts found by the trial judge is limited. "Appellate review of a trial court's attorney fee determination is deferential. We will only disturb the trial court determination on a showing of 'clear abuse of discretion' based on the record presented on the fee application." In re Estate of F.W., 398 N.J. Super. 344, 355 (App. Div.) (citation omitted), certif. denied, 196 N.J. 347 (2008). We owe no deference, however, to the legal conclusions of the trial judge. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

The rule for allocating fees among law firms who have provided services to the client pursuant to contingent fee retainer agreements is well understood. In LaMantia v. Durst, 234 N.J. Super. 534, 537-44 (App. Div.), certif. denied, 118 N.J. 181 (1989), this court directed that a court should apply the principles of quantum meruit. The considerations that inform this analysis include: the quantity and quality of time expended on the case by each firm, the viability of the claim when the file was transferred, and the amount of the recovery. Id. at 540-41.

Here, however, the contingent fee agreement between Arnold and the Vernis contained a termination provision that set an hourly rate at which the client agreed to reimburse the firm if the client terminated the relationship. The termination provision provides:

[i]n the event that there is no recovery at the conclusion of your case, you shall not be obligated to pay any fee to the Law Offices of Rosemarie Arnold for their services; however, you are responsible to reimburse the Law Offices of Rosemarie Arnold for all disbursements in connection with the preparation, institution, and prosecution of my [sic] claim. In the event you choose to discontinue the services of the Law Offices of Rosemarie Arnold, prior to the conclusion of your case, you will be responsible for paying the costs expended on your case within thirty (30) days of said date, and you will be responsible to pay the attorney on an hourly basis at a rate of $275.00 per hour for every hour spent on the file, without regard to the outcome of the case. [Emphasis added.]

Arnold argues this provision covered only the situation when a client abandoned the matter for which she was retained. Mazie argues the language is not so limited and applies to situations in which the matter proceeds with substitute counsel.

The judge held that the termination provision is clear and unambiguous and mandates that, upon being discharged, Arnold "is entitled to get [her] hourly rate for the time expended whether the client does better or worse in the outcome than is provided in the contingency fee clause" of the retainer agreements. The judge held that this express provision defined and limited Arnold's expectations on discharge. He stated that Arnold specifically waived successor participation in the contingency fee award. They [the Arnold firm] insisted on being paid an hourly rate of $275 for their time if they were terminated [by plaintiffs] without regard to the outcome of the case. Under such a provision they may do worse or they may do better depending upon the ultimate outcome. It was an obvious business decision on their part. The court cannot make a better contract for them than the one they drafted, negotiated, and had executed.

Therefore, the judge determined that his next task was to determine the number of hours expended by Arnold prior to substitution.

The language of the termination agreement does not contain the limitation, expressly or by fair implication, advanced by Arnold. Nevertheless, we cannot rule out an interpretation that the provision solely governs the calculation of the fees between the two parties to the retainer agreement, i.e., the lawyer and the clients, but does not limit the attorney's ability to seek a larger share of the contingent fee awarded to a substituted law firm.

We have located no authority in this state that addresses termination provisions in a retainer agreement. In LaMantia, the fee dispute arose when the attorney representing the client withdrew from one firm and joined another firm. 234 N.J. Super. at 535-37. We suggested that such disputes could be avoided if partnerships addressed the allocation of fees in the event a partner withdrew from the firm and took the case to the new firm. Id. at 543-44.

We note, however, that just as a well-drafted agreement concerning the allocation of fees in the event an attorney departs from a firm and takes files can avoid the application of a quantum meruit provision, we discern no sound reason to prevent a law firm from defining its expectations in the event a client decides to substitute counsel to continue the prosecution of a litigated matter. Of course, payment of the amount required by the retainer agreement cannot serve as a precondition to release of the file to substituted counsel. See Frenkel v. Frenkel, 252 N.J. Super. 214, 219 (App. Div. 1991) (any lien held by withdrawing attorney for fees does not allow attorney to retain the file and refuse to release it to substituted counsel). Moreover, even if we concluded that the termination provision did not conclusively control Arnold's share of the fee, her resort to a number of hours and a designated hourly fee formula must weigh heavily in the evaluation of Arnold's efforts, particularly in light of Arnold's concession at trial that she used a termination provision to mitigate the risk of no recovery and compensation associated with any contingent fee matter.

Having found that the termination provision governed this fee dispute, the judge proceeded to examine the number of hours for which Arnold should be compensated. He did so by examining the certification submitted by Arnold and applying the provisions of RPC 1.5(a). The judge also had the benefit of the testimony of Arnold and others from her office. Dennis Drasco, the expert retained by Arnold to support her fee application, did not render any opinion on whether a specific entry in Arnold's billing records was appropriate, inappropriate or excessive. He limited his opinion to its "trial-ready" status and testified that the case was "substantially ready for trial as to Aramark on the liquor liability" issue. He conceded, however, more work needed to be done.

Arnold prepared billing records of the time spent on the case, but she conceded at trial that these records had been "very poorly kept" and thus had to be "reconstructed" prior to submission to the court. The firm did not add up the total number of hours reflected in their time records, but Arnold estimated that the total was "approximately 2,600" hours. Her brief fixes the number at "2500 hours."

The judge clearly indicated his skepticism about the number of hours expended. Ultimately, he "found these after the fact recreated hourly billing records to be highly dubious. No backup for their creation now exists and the explanation of the destruction of that back-up appears contrived."

The judge then turned his attention to RPC 1.5(a), which lists eight factors to be considered in determining the reasonableness of a counsel fee. The first factor involves "the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly." RPC 1.5(a)(1). The judge found that, "while the case should have required a great deal of time and labor, Ms. Arnold did not expend such an effort," and "there was little showing that counsel was prepared to legally prove public nuisance or any liability other than for the automobile negligence which was routine in light of the circumstances of the accident."

The second factor examines the likelihood that working on plaintiffs' case would have precluded Arnold from engaging in other employment. RPC 1.5(a)(2). The judge discounted this factor because "[t]here was no convincing evidence that the [firm] was deprived [of] any business by this representation." In his consideration of the third factor, the level of counsel fees customarily charged in the locale for similar legal services, RPC 1.5(a)(3), the judge accepted the retainer agreement's "blended rate" of $275 per hour fee set out in the termination provision as a customarily charged fee.

The fourth factor requires an examination, in part, of "the results obtained" by the attorney seeking the fee. RPC 1.5(a)(4). The judge found that the firm had obtained very little for plaintiffs, other than "the tendering of Mr. Verni's own [automobile] insurance policy for $115,000. No offers to settle were ever made to the . . . [firm] for the four and a half years [it] had the file."

The fifth factor requires the judge to examine the time limitation imposed on the firm by plaintiffs or the circumstances of the case. RPC 1.5(a)(5). The judge found that "[t]here were no time limitations imposed by the client and the . . . [firm] wasted most of the abundant time they had to build this case." As to the sixth factor, the nature and length of the attorney's professional relationship with the client, RPC 1.5(a)(6), the judge found "only the barest thread of a professional relationship with Mr. Verni," based on his one-time consultation with Arnold's, sister, Elizabeth, in the past.

The seventh factor considers the "experience, reputation, and ability of the lawyer or lawyers performing the services."

RPC 1.5(a)(7). While the judge recognized that Rosemarie Arnold is "an experienced civil litigator" who had "created" a reputation for herself, the court found both that "she did not expend much actual efforts performing services" for plaintiffs and that "it was her inexperienced sister who the clients believed were [sic] handling the case." Finally, the last factor considers whether the fee was fixed or contingent, and under the termination provision, the fee was for a fixed hourly rate. RPC 1.5(a)(8).

After completing his review of the RPC 1.5(a) factors and determining that those factors weighed largely against Arnold, the judge held that:

Based on all of the factors cited, the evidence produced and the testimony received at the trial the court finds that no more than 827 hours of total time could have been expended by the Law Offices of Rosemarie Arnold on this matter. Therefore a fee of $227,425.00 [827 hours x $275/hour = $227,425] should be awarded to the Law Offices of Rosemarie Arnold from the legal fees previously awarded by this court.

Arnold argues that this finding is deficient due to the absence of specific findings of fact to explain the manner in which the judge discounted the documented 2500 hours to obtain the allowed 827 hours. Mazie seems to recognize the problem identified by Arnold because he asserts that the trial judge had no obligation to explain how he calculated the number of hours allowed. The problem for this court is that the judge identified a specific number, 827 hours, rather than find that at least one-third or one-half of the hours expended contributed no value to the ultimate recovery.

The record certainly provides a basis for the trial judge to discount the hours Arnold asserts she spent on the Vernis' case. Arnold presented the judge with reconstructed time records. The number of hours expended were derived from after-the-fact estimates because Arnold did not keep contemporaneous time records. Furthermore, a dispute arose at trial whether the documents used to refresh her recollection and to assist the reconstruction had been discarded. Although some documents were produced in court during the trial, the record strongly supports the judge's finding that some were never produced. Under these circumstances, the judge's skepticism concerning the accuracy of the time expended and the tasks undertaken is understandable.

Furthermore, the record clearly reveals no trace or fruit of many hours claimed. For example, Arnold certified that she expended 400 hours on legal research; yet the expert retained by Arnold found not a single memorandum to reflect the fruits of this enormous amount of time.

The record also supports the judge's finding that the firm "never took any substantial action on this case after the filing of the complaint" in December 2000, until it participated in depositions along with Ronald Verni's counsel, Christian Steuben, in January 2003. There is abundant evidence in the record to support this finding, including the April 19, 2004 letter from Arnold to Judge Yannotti, the trial judge assigned to manage the case. Well over three years after the complaint had been filed and less than eight months before the firm December 6, 2004 trial date, Arnold outlined the extensive discovery she had yet to obtain from the Aramark defendants, NFL and the Giants (the football defendants), Daniel Lanzaro (the driver of the car that struck the Verni car), and defendants associated with the claim against Toyota (the manufacturer of the car driven by Ronald Verni). Moreover, Arnold also outlined the need to obtain expert reports from an alcohol expert, an automobile and biomechanical expert, and an economist. She estimated she required at least an additional six months for discovery. Indeed, Drasco conceded much needed to be done to prepare the case for trial. Although Drasco opined that Arnold had expended substantial effort on behalf of the Vernis, he conceded the file was not trial ready.

Arnold argues that the trial judge failed to recognize the complications presented by the criminal charges against the driver. She does not adequately explain, however, why so little transpired regarding the other defendants before the resolution of the criminal case in 2003. In addition, the record reflects that a good deal, if not most, of the documentary evidence in the file when it was transferred to Mazie was generated by the prosecutor to support the criminal charges against Lanzaro.

These circumstances support a fee award of less than the one-half sought by Arnold. Here, however, the judge discounted the hours advanced by Arnold by two-thirds. This is a drastic reduction. Moreover, applying the retainer agreement formula of hours multiplied by hourly rate, the judge allowed Arnold less than 5% of the fee award. Such a drastic discount requires substantially more specific findings than the judge provided in this case. The judge cited factors, referred to facts in the record, and rendered conclusions as to each factor. The analysis appears superficially adequate; yet a close examination of his opinion yields little to inform this court or the litigants how he derived the ultimate number of hours allowed. Stated differently, the judge does not explain why only 827 hours over three and one-half years contributed value to the case. More is expected. We, therefore, reverse and remand for specific findings of fact and conclusions of law.

In light of our decision that more specific findings of fact must be provided, we address Arnold's argument that the decision we review was tainted by an evident bias of the trial judge in favor of Mazie. She cites the decisions by the judge to seal the friendly proceeding and any and all information about the settlement, other than the fact of settlement, and the judge's treatment of her expert. Arnold contends the judge intruded unnecessarily into the presentation of her expert's opinion culminating in the sua sponte exclusion of a portion of his testimony.

We have already addressed the order sealing the judgment and the friendly hearing. In our November 28, 2008 opinion, we held that neither the clerk's record nor the friendly proceeding should have been sealed. Verni II, supra, 404 N.J. Super. at 28-29. We are unable to conclude that decisions to seal the Rule 4:44-3 proceeding and the terms of the settlement tainted the disposition of this fee dispute. The judge's involvement in and treatment of Arnold's expert is another matter.

Generally, a trial judge has broad discretion to question witnesses in order to clarify existing testimony or to elicit facts that are necessary for trial. State v. Medina, 349 N.J. Super. 108, 131 (App. Div.), certif. denied, 174 N.J. 193 (2002). A trial judge may intervene when testimony is unclear and confusing. State v. Cohen, 211 N.J. Super. 544, 552-53 (App. Div. 1986), certif. denied, 107 N.J. 115 (1987). When doing so, however, the judge must maintain the atmosphere of impartiality and not demean or disparage the witness. See State v. Ray, 43 N.J. 19, 25 (1964); Band's Refuse Removal, Inc. v. Borough of Fair Lawn, 62 N.J. Super. 522, 548 (App. Div.), certif. denied, 33 N.J. 387 (1960).

The limitations upon questioning by a trial judge have usually been considered within the framework of a jury trial. However, the necessity of judicial self-restraint is no less important where the judge sits alone; if he participates to an unreasonable degree in the conduct of the trial, even to the point of assuming the role of an advocate, what he does may be just as prejudicial to a defendant's rights as if the case were tried to a jury. [Band's Refuse Removal, supra, 62 N.J. Super. at 549.]

This was a bench trial. We are not concerned, therefore, that questions posed by the judge or comments made by the judge or a gesture or tone of voice will influence the finder of fact. This record reveals, however, considerable impatience by the trial judge and considerable irritation and skepticism about the opinion offered by Arnold's expert. The expert's testimony followed Arnold's testimony. Arnold testified at length about her efforts, the number of hours expended, and the value of those efforts. Our review of the record indicates she did not seem in full command of many facts that would advance her claim to a considerable portion of a hefty fee. The record also suggests that the judge had formed an opinion regarding not only Arnold's credibility but also the quantity and quality of the time expended on the case by the time Arnold's expert commenced his testimony. In short, the record demonstrates that the judge was not disposed to receive favorably the testimony of her expert.

We requested copies of the tape recordings from which the official transcript was transcribed. We have listened to many hours of testimony and have heard and read the interaction between the judge and counsel. There were several instances when the judge seemed impatient with both counsel. He clearly desired to spend no more than a morning on the testimony of Arnold's expert, and he concluded the trial before lunch. In the course of the expert's testimony, the judge pressed both counsel to proceed quickly.

The early stages of the direct examination of Drasco are particularly troublesome. The trial judge asked repeated questions. In fact, the judge dominated the voir dire and the initial portion of his testimony. After a testy exchange, the judge summarily struck the expert's opinion that Arnold created and developed the culture of intoxication theme, characterizing it as a net opinion. See Verni I, supra, 387 N.J. Super. at 186. The judge acted sua sponte, inasmuch as Mazie had made not a single objection. Then the following exchange occurred:

THE COURT: Now do you have any other questions for this lawyer -- this expert?


THE COURT: Okay. Ones that don't come --ones that are based on the evidence in this case.


THE WITNESS: Well, I don't think I finished my answer to that question.

THE COURT: Well, I have finished your answer and I've stricken it. Okay.

THE WITNESS: But you --THE COURT: Now you can ask him another --are you quibbling with me?

THE WITNESS: No, Your Honor, but I -

THE COURT: You can step right down right now, if you'd like, sir.

Go ahead and ask a question, [Arnold's attorney].

Thereafter, Arnold's attorney asked the expert a question and the direct examination proceeded with little intrusion by the trial judge.

The cited exchange is unfortunate. The dismissive manner in which the trial judge rendered his sua sponte ruling to strike a portion of the expert's opinion displayed arrogance and impatience by the judge. If this had occurred before a jury, a reversal would be warranted. In a jury setting, the judge must avoid at all times any display of incredulity or arrogance or impatience that would infect the fact-finding function of the jury. The need to remain impartial throughout a trial is as critical in a non-jury trial. It is imperative that the parties believe that the evidence adduced at trial is fully and fairly considered. In light of the overbearing and dismissive manner in which the trial judge treated Arnold's expert, we have no confidence that the judge fully and fairly considered all of the evidence in this case.

Therefore, the remand we have ordered must be conducted by another judge. The remand is not limited to a review of the existing record. Due to the trial judge's undue intrusion in the testimony offered by Arnold's expert, he must be re-called. Otherwise, we leave to the remand judge's discretion whether other witnesses should be re-called.

Remanded for a new hearing consistent with this opinion. We do not retain jurisdiction.

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