On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-3684-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Rodríguez, Reisner and Yannotti.
Plaintiffs John E. Sullivan, Peter G. Stewart, Raymond M. Durkin, and Leonard M. Schneider, are former directors of West Jersey Community Bank, Inc. (WJCB) and its holding company, West Jersey Bancshares, Inc. (WJB). They sued the law firm Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross (Sills Cummis) and its employees, Steven E. Gross, Frederick Tudor, and Victor H. Boyajian (collectively "the Sills Cummis defendants"), alleging that defendants committed legal malpractice in drafting a merger agreement between WJB and Sovereign Bancorp (Sovereign), the holding company for Sovereign Bank. Plaintiffs contend that defendants' negligence resulted in loss of fees and stock options they would have received as members of a post-merger advisory board because defendants failed to incorporate into the agreement oral promises made by Sovereign executives. Judge Maurice Gallipoli granted summary judgment to defendants, finding that the complaint was barred by the statute of limitations; and, alternatively, that plaintiffs' claims lacked merit. We affirm.
These are the relevant facts. Plaintiffs are very experienced in the world of banking. Durkin and Schneider also had substantial experience in the world of finance. Stewart was a director and Chairman of the Board of WJB and WJCB. Sullivan served as director on both the WJCB and the WJB boards and was the owner and Chief Executive Officer (CEO) of Heritage Financial Resources. Durkin was the vice president of both WJB and WJCB, and a founder of WJB. Schneider, a CPA for approximately twenty-five years, was a director on WJCB's board.
In July 1994, WJB engaged Ryan, Beck & Co. (Ryan Beck) to act as its financial advisor and to explore merger possibilities with companies of equal value. One year later, WJB decided to also pursue the potential of merging with larger companies. Over the course of a few months, WJB met with several of those larger financial institutions, including Sovereign, a Pennsylvania corporation. Sovereign's proposal offered the most favorable terms.
At the time the merger was contemplated, Sovereign's assets were approximately $7.9 billion, including a "network of 120 community banking offices, located in Pennsylvania, New Jersey, and Delaware." Comparatively, WJB's assets totaled approximately $95.3 million, and WJCB "engage[d] in the commercial banking business throughout northern New Jersey, with primary emphasis on Fairfield Township and surrounding northern Essex County . . . communities."
Stewart was selected as head of the WJB's mergers and acquisitions committee and was responsible for negotiating the merger terms with Sovereign. Sullivan, who was a member of the WJB's executive and long range planning committees, also was selected to serve on the mergers and acquisitions committee.
In August 1995, Stewart, along with John Van Voorhis, the president and CEO of WJB, met informally with Jay Sidhu, the CEO of Sovereign. The following month, Stewart, Sullivan, Van Voorhis, and James Hill, the senior vice president of Ryan Beck, met with Sidhu and Richard Mohn, Sovereign's board chairman. According to Stewart, the meeting was intended "to begin discussions about . . . deal points." The possibilities of a West Jersey advisory board and Sovereign stock options for directors were discussed, although Sovereign was not planning an option plan at that time. Plaintiffs alleged that they were orally promised options at the same level as those offered to Mohn. However, Stewart admitted in his deposition that no agreement was reached. In Mohn's deposition, he denied plaintiffs' allegation, calling it "ludicrous."
WJB retained Sills Cummis to represent it with respect to the merger. WJB worked specifically with Gross, Tudor and Boyajian. Stewart and Schneider admitted that the Board members understood the firm only represented the WJB Board as an entity, and not each of them as individuals. Stewart, who was selected to act as the liaison between the Board and the attorneys, also noted that Gross informed the Board members that they could obtain their own individual counsel.
On the day of retention, Sills Cummis sent a letter to Stewart with an attached memorandum "outlining the duties of the members of the Board of Directors in connection with the consideration of strategic business matters." Stewart was instructed to forward copies of the memo to all Board members. Among the actions necessary for satisfying the requisite duty of care, the memorandum included "consulting and reviewing documentation with independent outside legal counsel," and "carefully reviewing all documents and other information presented." In contrast, the memo also listed "actions and omissions . . . viewed unfavorably by courts[,]" including "blind reliance on the opinions of legal or financial advisors without independent fact gathering or decision-making," and "lack of deliberate, informed decision-making."
Despite this advice, Stewart admitted that he did not believe his duty required him to read the draft agreements. He believed he was obligated to review the documents and information connected with the merger, however, he also believed that he fulfilled that obligation by reading only final versions because drafts were "subject to change." Thus, Stewart admitted that he never read the draft documents, relying instead on Sills Cummis to inform him of changes and issues to be resolved. Similarly, Durkin did not read any of the drafts and admitted to relying on Stewart to tell him what was included. Schneider could not recall reading drafts, although he claimed to have read the final agreement. Finally, Sullivan stated that he only looked over the final agreement for about ten or fifteen minutes.
On September 20, 1995, Sovereign's counsel presented the initial draft agreement to Sills Cummis. The agreement provided that WJB would "merge with and into Sovereign" and cease to exist, although WJCB would "be operated as a separate division of Sovereign Bank under the name 'West Jersey Federal Savings Bank' for at least three years." Section 1.02(d)(vi) of the agreement provided that, on the effective date (closing date as per Article I) Sovereign would "create an advisory board of directors of the West Jersey Community Bank division of Sovereign bank" consisting of seven directors who would serve for at least three years and would receive the same meeting fees as they were receiving prior to September 19, 1995. Section 4.11(c), dealing with the stock option plan, stated in pertinent part:
If Sovereign adopts a stock option plan for the benefit of the directors of Sovereign Bank, the members of the advisory Board of Directors of the West Jersey Community Bank division of Sovereign Bank will be permitted to participate in such plan until a date no later than three years from the Effective Date.
On September 21, 1995, Boyajian sent a memorandum to Stewart entitled "Summary of Material Terms of Proposed Agreement and Plan of Merger". The memorandum noted that the draft agreement did "not provide for options yet to be granted to directors." Both Stewart and Sullivan acknowledged receiving the memorandum. Nonetheless, Stewart insisted in his deposition that:
Boyajian . . . always and repeatedly stated that there would be language in the agreement regarding the ability of West Jersey Bank to participate in the Sovereign ...