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Xpekt Corporation A/K/A Dodeka v. Fame of New York

April 19, 2011

XPEKT CORPORATION A/K/A DODEKA, PLAINTIFF-RESPONDENT,
v.
FAME OF NEW YORK, INC., JUNG HYE LEE AND SUNG KWON LEE, HIT WEAR, INC., JEONG H. KIM, HYE OK LEE, CLOSET FASHION, INC., SEONG OK SPRING, SEONG PIL LEE, BRYUN SUN LEE, DEFENDANTS-APPELLANTS.



On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-2313-10.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 6, 2011

Before Judges Sapp-Peterson and Simonelli.

Defendants Fame of New York, Inc., Jung Hye Lee and Sung Kwon Lee (collectively defendants) appeal from the denial of their motion for sanctions against plaintiff's attorney pursuant to Rule 1:4-8. We reverse and remand for further proceedings.

The facts are straightforward. On June 4, 2009, plaintiff XPEKT Corporation filed a complaint against defendants alleging, in part, that they engaged in the fraudulent transfers of money from co-defendants. Plaintiff's counsel also represented other litigants in other cases against some of the co-defendants in this case. In their answer filed on August 12, 2009, as a defense, defendants asserted that the claim was frivolous, and demanded its withdrawal.

In mid-November 2009, plaintiff and its attorney decided not to proceed with the fraudulent transfer claim (the claim) and planned to voluntarily dismiss it at trial. Defendants, their attorney and plaintiff's attorney appeared for trial on November 19, 2009. Plaintiff's counsel, however, did not voluntarily withdraw the claim, instead, the trial judge dismissed the complaint without prejudice because plaintiff failed to appear.

Defense counsel then wrote to plaintiff's counsel on November 24, 2009, requesting that he withdraw the complaint because it "was filed in violation of the Entire Controversy Doctrine, and for the sole purpose of harassment and unnecessary litigation." Counsel also warned he would file a motion for sanctions pursuant to Rule 1:4-8 if the complaint was not withdrawn within twenty-eight days. Plaintiff's counsel did not agree the entire controversy doctrine applied. He telephoned defense counsel and left a message asking for clarification of defendants' position. Defense counsel did not respond.*fn1

Despite having decided to withdraw the claim, plaintiff's counsel filed a motion to reinstate the complaint, which the court granted on December 18, 2009. Trial was then re-scheduled for January 28, 2010; however, defense counsel received no notice, and thus, he and his clients did not appear. Instead of voluntarily dismissing the claim as planned in November, plaintiff's counsel obtained a default against defendants.

Defense counsel wrote to plaintiff's counsel on January 28, 2010, demanding that he execute a consent order vacating the default and a stipulation of dismissal with prejudice, which provided for payment of defendants' attorney's fees. Defense counsel also warned, "[i]f we are forced to file a motion to vacate the default and to defend this action in [c]court we will file a motion seeking costs and sanctions for frivolous litigation."

Plaintiff's counsel did not respond to the letter or sign the stipulation of dismissal. Nevertheless, he could have, but did not, seek leave of court to dismiss the claim. See R. 4:37-1(b).

Defendants filed a motion to vacate the default, which plaintiff's attorney opposed. The judge denied the motion. Defendants sought reconsideration. Plaintiff's attorney opposed the motion despite having received defense counsel's April 27, 2010 letter demanding that he withdraw the claim "within 28 days of this demand or we will make an application seeking sanctions pursuant to [Rule] 1:4-8(b)(1)."

On May 26, 2010, defendants filed a summary judgment motion. Plaintiff's counsel represented to the judge that the parties had agreed to voluntarily dismiss the matter. Defense counsel responded there was no such agreement and plaintiff could not voluntarily dismiss without a stipulation or court order, as required by Rule 4:37-1.

Again, plaintiff's counsel did not seek leave of court to dismiss the claim. Instead, he opposed the summary judgment motion arguing it was premature because he was awaiting discovery from defendants, and the claim was not frivolous and had merit. The judge granted summary judgment concluding that discovery had ...


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