On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-2150-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Wefing, Payne and Baxter.
This is a legal malpractice case in which plaintiffs asserted that their lawyer negligently failed to seek emergent relief when plaintiffs' commercial landlord locked them out of the leased premises. Plaintiffs Gorjuice Wrap, Inc., d/b/a Computer World (Gorjuice), and its president, Young Kang, appeal from an April 15, 2009 Law Division order that granted summary judgment to defendant James De Luca and to his law firm, Okin, Hollander & De Luca LLP (OH&D), thereby dismissing the legal malpractice case with prejudice. Plaintiffs also appeal from a second order entered the same day, which denied their cross-motion for summary judgment on liability.
We disagree with the motion judge's conclusion that plaintiffs' malpractice complaint was barred by the Puder doctrine, see Puder v. Buechel, 183 N.J. 428 (2005), judicial estoppel and the entire controversy doctrine. We therefore reverse the dismissal of plaintiffs' claim for damages related to the disposal of their personal and commercial property after Gorjuice's landlord locked Gorjuice out of the leased premises, and we remand for trial on that issue.
In contrast, we affirm the judge's grant of summary judgment dismissing Gorjuice's claim for lost profits, although we do so for different reasons than those expressed by the judge. Viewing the evidence in the light most favorable to plaintiffs, as required in the summary judgment context, we are nonetheless satisfied that: 1) the alleged malpractice was not a proximate cause of Gorjuice's failure, as Gorjuice was already failing before defendants' involvement; and 2) any such lost profit damages were purely speculative and therefore prevented under the "new business rule."
We also affirm the dismissal of plaintiffs' claim for punitive damages, as plaintiffs failed to raise a genuine issue of material fact on whether defendants' conduct was willfully and wantonly reckless or malicious. We also affirm the denial of plaintiffs' cross-motion on liability, as defendants presented a genuine issue of material fact on the question of proximate cause that was sufficient to entitle them to a denial of plaintiffs' cross-motion.
We thus affirm in part and reverse in part.
In the fall of 1998, while she was a graduate student in Education at Columbia University, plaintiff Kang established a company known as Edreamcom, Inc. (Edream), which offered a series of computer-aided educational courses for children and adults. Edream operated from a small retail space located in Closter. According to Kang, Edream was relatively successful, earning a total of $150,000 in gross revenue during its first two years of operation.*fn1 Toward the end of 1999, Kang decided to expand Edream by offering a greater variety of courses and activities, incorporating the new venture as Gorjuice Wrap, Inc. According to Kang, like Edream, "Gorjuice's core business" was "a computer lounge and facility that offered educational services." However, the new business was designed to provide various other services to create a new family-oriented, community center combining educational, recreational and entertainment services for children, teens, and adults in one modern facility. In addition, Gorjuice would provide computer access and training at all levels of sophistication, classrooms for lectures, workshops, and tutoring in English, math, science and other subjects; recreational rooms with billiards, table tennis and other games; auditorium rental space for parties and other gatherings; a snack bar that specialized in healthy fare such as smoothies and sandwich wraps; and a tea room with special Korean . . . premium teas. . . . Gorjuice [was intended] to be the first in a new franchise of "family centers" in other affluent, family-oriented neighborhoods.
The space occupied by Edream at 211 Closter Dock Road in Closter consisted of only 1,500 square feet. Because the expanded activities of Gorjuice required considerably more space, Gorjuice entered into a lease for a 10,000 square foot property on three levels located at 40 Homans Avenue in Closter with a ten-year lease term beginning January 1, 2000. The building was owned by Robert and Sylvia Talmo, t/a Talmo Real Estate Partnership. The Homans Avenue property had formerly been used as a sports bar, and needed considerable renovation, but it had several parking spaces immediately adjacent to the building, with additional parking available "contiguous" to the building.
Gorjuice was represented in the lease negotiations by David Watkins, a lawyer whom the Talmos had recommended. Kang asked both the Talmos and Watkins whether they had an attorney-client relationship, but neither disclosed that Watkins had been a longtime attorney for the Talmos and had represented them when they acquired the Homans Avenue property.
During the lease negotiations, Watkins advised Kang that the lease had to be executed immediately to expedite the zoning process. In deciding to lease the premises, Gorjuice relied on Watkins's advice and the Talmos' assurances that the premises were suitable for Kang's intended purposes.
Kang also retained Watkins to petition the Closter Planning Board for site plan approval so Gorjuice could commence its business operations. Despite his representations that he would file the required applications, Watkins failed to do so in a timely manner, causing Kang to fire Watkins and retain new counsel to obtain the necessary site plan approval.
By letter dated March 2, 2000, the Closter Planning Board advised Kang that its Site Plan Subcommittee had approved her site plan application, contingent upon "the stipulation that no food, alcohol or beverages be served, no live entertainment be offered, the word 'lounge' be removed from the sign currently in the window and that the premises not be used as a video game arcade." After receiving partial zoning approval, Gorjuice began making repairs and renovations, installing the fixtures and equipment necessary to convert the premises to the uses Gorjuice intended.
On May 11, 2000, the Talmos sold the parking lot contiguous to the premises to Bergen Food Enterprises, Inc., d/b/a Nathan's Hot Dogs. Kang learned about the sale after it had occurred, and also discovered that Watkins had represented the Talmos in the transaction. As a result of that sale, the Closter Planning Board determined that the remaining parking spaces available to Gorjuice were insufficient to support Gorjuice's business. Consequently, Gorjuice was unable to obtain full zoning approval.
When Gorjuice opened for business in June 2000, it began to experience significant problems from leaks and structural problems in the building. According to Kang, the Talmos assured Gorjuice they would make the necessary repairs, but never did.
Gorjuice failed to make its initial and second monthly rent payments, which were due on May 1 and June 1, 2000. On June 11, 2000, the Talmos threatened collection and eviction proceedings. On June 24, 2000, Gorjuice paid the Talmos a portion of the overdue rent.
Gorjuice also defaulted on its July and August rent. By letter dated August 4, 2000, the Talmos again threatened litigation if the past due rent was not paid immediately. In response, Kang advised the Talmos that because of the reduction in parking spaces available to Gorjuice, the Planning Board had refused to issue Gorjuice full zoning approval. She also told the Talmos that the Board had limited the number of pool tables in the basement, and prohibited Gorjuice from offering classes for adults and from renting a party room or offering entertainment. She told the Talmos that in light of these restrictions, she did not believe she was able to develop a profitable business plan for Gorjuice. She explained that the restrictions imposed by the Planning Board had caused her to fall behind in her rent. In an undated letter, she wrote:
If I can't have [a] profitable plan, or even I can't have any sort of make-up for the loss . . ., there is no reason for me to keep working to death. Specially now, my baby is most important to me. I do not want to get myself stressed out.
Gorjuice remained in arrears on its payment of rent. On November 16, 2000, the Talmos' counsel advised Gorjuice that it was "habitually in arrears" on its rent obligations, and specifically in breach of its lease for its failure to the pay rent due on November 1, 2000. On January 5, 2001, Kang wrote to Sylvia Talmo and advised her of Gorjuice's financial problems, stating:
As you know well, it has been impossible to survive here. I have been borrowing a lot of money to pay rent and make this place nice. So, I tried to get money from Korea to purchase this building as you offered back in April, but Warren said you do not want to sell the building any more, then there seems like no other way to survive within those business restriction caused by parking limit from town [sic].
Then, I would like to get business partner, or loan to payoff debt and pay rent and expenses to settle down.
Gorjuice's inadequate revenue stream continued to impact the payment of its rent. On February 7, 2001, the Talmos' counsel again advised Gorjuice that its rent was past due and as a result a late charge had been assessed for the February 2001 rent. Gorjuice responded, blaming its inability to pay rent on the condition of the property, specifically, the interior and the roof, even though the lease placed on Gorjuice all responsibility for maintaining and repairing the interior and the roof. The Talmos sent additional letters on February 28, and March 22, 2001, again complaining that Gorjuice's rent was past due.
On April 3, 2001, Kang met with defendant De Luca to discuss the possibility of retaining OH&D to represent Gorjuice against the Talmos in its lease disputes. Although no retainer agreement had been executed at that time, De Luca drafted, for submission by Gorjuice, a proposed standstill agreement regarding the parties' various lease disputes.
That same day, April 3, 2001, a leak from the water heater and drain pipes in an adjacent property, the Greek Grill, caused serious flooding in the basement of the Talmos' building, damaging plaintiffs' property. Thereafter, Gorjuice filed a claim with its insurance carrier, Zurich-US Commercial Insurance Co. ("Zurich") for loss of business revenue and damage to its property. Gorjuice also sought reimbursement from Zurich for rental trucks and three self-storage units Gorjuice was forced to rent as a result of the flooded basement. Kang would later testify at her deposition that Gorjuice's last day of operations was April 3, 2001, the day of the flood. In her correspondence with Zurich, Kang advised the claims representative that Gorjuice was in the process of obtaining another location "to relocate our business" and hoped to be able to reopen by November 1, 2001.
Gorjuice remained in arrears, not paying any rent in March or April 2001. On April 6, 2001, the Talmos made a proposal to Gorjuice to resolve its default. Gorjuice never responded.
On the evening of April 10, 2001, pursuant to the requests of the insurance adjuster, and to facilitate the assessment of the property damage, Kang removed some equipment and files. Warren Talmo, the Talmos' son and agent for Talmo Real Estate Partnership, saw Kang removing property from the building.
The next day, Warren returned and spoke with Hamin Kang, plaintiff Kang's father. Citing reports of recent burglaries in the area, he told Hamin that all of the locks in the building needed to be replaced. After changing the locks, Warren forcibly removed Hamin from the premises without allowing him to re-enter, and without giving him keys to the new locks. At his deposition, however, Warren insisted that before changing the locks, he inspected the premises and saw no computer equipment, disks, books, records, safe or jewelry left behind. The building "was just abandoned"; "[n]othing of value remained."
That afternoon, April 11, 2001, Kang faxed to De Luca a handwritten list of items that she alleged remained in the building. Later that evening, she filed a complaint with the Closter Police Department against Warren Talmo alleging an unlawful lockout.
Although OH&D still had not been officially retained by Gorjuice, on April 12, 2001, De Luca drafted a second letter for Gorjuice, this time demanding immediate re-entry into the premises and access to Gorjuice's corporate, and Kang's personal, property. Kang's sister and father attempted to enter the building to retrieve her personal property, but they were stopped and ordered out by the police.
On April 16, 2001, Kang met with De Luca and with Peter A. Ouda, of the law firm Voorhees & Ouda, to discuss the handling of Gorjuice's claims against Watkins and the Talmos. The next day, De Luca forwarded a retainer agreement to Kang, which specified that De Luca's firm was being retained to, among other things, secure the "return of personal property currently at the Closter Property." A few days later, Ouda forwarded a retainer agreement to Kang governing his firm's representation of Gorjuice in a legal malpractice suit against Watkins. Ouda confirmed that while ...