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Kas Oriental Rugs, Inc v. Matt Ellman

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


April 21, 2011

KAS ORIENTAL RUGS, INC., PLAINTIFF-APPELLANT/ CROSS-RESPONDENT,
v.
MATT ELLMAN, DEFENDANT-RESPONDENT/CROSS-APPELLANT.

On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-525-04.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 30, 2011

Before Judges Fisher, Sapp-Peterson and Simonelli.

This is the third appeal in this case. In the first, we determined that defendant Matt Ellman, a former salesman, was entitled to less in damages from plaintiff Kas Oriental Rugs, Inc., than awarded at the conclusion of the non-jury trial. Kas Oriental Rugs, Inc. v. Ellman (Kas I), 394 N.J. Super. 278 (App. Div.), certif. denied, 192 N.J. 74 (2007). That reduction in the amount of Ellman's judgment placed him in the cross-hairs of the fee-shifting provisions of the offer-of-judgment rule, Rule 4:58; consequently, we remanded for consideration of fees based on that rule as well as the fee-shifting provisions of the Sales Representatives' Rights Act (SRRA), N.J.S.A. 2A:61A-1 to -7. Id. at 289-91.

Subsequent proceedings in the trial court led to an award in favor of Kas based on the offer-of-judgment rule, which we reversed in the second appeal. Kas Oriental Rugs, Inc. v. Ellman (Kas II), 407 N.J. Super. 538 (App. Div.), certif. denied, 200 N.J. 476 (2009). Again, we remanded for a resolution of the competing claims for fees based on the SRRA, as well as Kas's claim for fees based on an application of the frivolous litigation statute, N.J.S.A. 2A:15-59.1. We held that Ellman was entitled to fees on his claim for the payment of pre-termination fees, which had to be quantified; we also recognized the possibility that Kas might be entitled to fees and remanded for a determination as to whether Ellman's claim for post-termination commissions was frivolous and, if so, a quantification of such an award. Kas II, supra, 407 N.J. Super. at 563-70.

Following our last remand, the motion judge*fn1 determined that Ellman was entitled to $11,777.76 in counsel fees in pursuing his claim for the payment of pre-termination commissions. She also concluded that the claim for post-termination commissions was frivolous but that certain categories of fees incurred by Kas were not reimbursable; for example, the judge awarded nothing to Kas for fees incurred in pursuing or providing pretrial discovery or in the work done on appeal in Kas I, concluding they were "hazards of litigation." In addition, the judge discounted the award to Kas because the judge believed that, as an individual, Ellman could not bear a large award like a corporation or other business entity.

Kas appealed, and Ellman cross-appealed. In its appeal, Kas argues:

I. THE MOTION COURT IMPROPERLY FAILED TO MAKE THE REQUISITE LODESTAR FINDINGS UNDER R. 1:7-4 AND ERRONEOUSLY AND ARBITRARILY REDUCED THE FEE AWARD TO KAS BECAUSE ELLMAN IS AN INDIVIDUAL AND KAS IS A CORPORATION.

II. THE MOTION COURT ERRONEOUSLY GRANTED ELLMAN FEES AND COSTS FOR ELLMAN'S FORMER NEW JERSEY COUNSEL EVEN THOUGH VIRTUALLY ALL SUCH FEES AND COSTS WERE INCURRED ENTIRELY FOR UNSUCCESSFUL EFFORTS AND OTHERWISE BARRED.

A. Ellman Was Barred from Receiving Fees Under Best v. C&M Door Controls, Inc.[, 200 N.J. 348 (2009)].

B. The Motion Court Erroneously Granted Ellman Fees for Unsuccessful Efforts.

C. Ellman Was Judicially Estopped, In Any Event, From Seeking Fees and Costs on Remand.

In his cross-appeal, Ellman argues:

I. A PARTY WHO HAS SURVIVED A MOTION FOR SUMMARY JUDGMENT CANNOT BE FOUND TO HAVE ENGAGED IN FRIVOLOUS LITIGATION.

II. THE COURT BELOW IGNORED ABUNDANT EVIDENCE IN THE RECORD THAT ELLMAN'S CLAIMS WERE NOT FRIVOLOUS.

III. KAS FAILED TO APPEAL THE AWARD OF FEES TO ELLMAN.

We find insufficient merit in Kas's Point II and Ellman's Point III to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).*fn2

It is striking that the merits of the parties' pleaded claims were resolved over four years ago with our decision in Kas I on March 6, 2007, but the parties have yet to go their separate ways. The disputes now before us, which require our examination of the granting and denying of fees, including the claim for fees incurred in seeking fees, have become "a sideshow of a side-show."*fn3 We conclude that mistakes were made in the motion judge's disposition of some of the claims for fees, and to bring a swifter end to this litigation, we take original jurisdiction over certain aspects. As to others, we must again remand.

In explaining the rationale for our disposition of these cross-appeals, we examine: (1) the finding that Ellman's claim for post-termination commissions was frivolous; and (2) the arguments regarding the fee award rendered in favor of Kas that includes a discussion of the fees generated in both the trial court and appellate courts.

I

Ellman takes issue with the motion judge's finding that his claim for an award of post-termination commissions was frivolously asserted and prosecuted. We find insufficient merit in that argument to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We would add only the following comments.

As briefly observed in Kas I, supra, 394 N.J. Super. at 289, and as more amply demonstrated by the record, the trial judge determined that the custom in the industry was that, upon termination, representatives would not receive compensation for commissions earned after termination, and Ellman was well aware of this. Indeed, Ellman's argument that the industry was moving toward such a custom demonstrated the custom did not exist when he contracted with Kas years before he was terminated. Ibid. Notwithstanding, Ellman continued to pursue his claim for such an award until we rejected it in Kas I and the Supreme Court denied certification.

In challenging the motion judge's finding that his post-termination claim was frivolous, Ellman alludes to the trial judge's denial of summary judgment and his award of damages in excess of pre-termination commissions at the conclusion of the non-jury trial. Although we reversed that award, Ellman contends his temporary success precludes a finding that he proceeded frivolously. In support, he refers us to our decision in Best v. C&M Door Controls, Inc., 402 N.J. Super. 229, 239 (App. Div.), rev'd in part on other grounds, 200 N.J. 348 (2009), where we observed that "the trial judge's determination not to dismiss plaintiff's CEPA claim and to submit the case to the jury forecloses any further consideration that the claim 'was without [any] basis in law or fact.'"

We do not view this comment in Best as creating an impervious shield against claims for frivolous litigation fees merely because a frivolous claim has avoided an earlier dismissal. Although the circumstances in Best may have warranted a conclusion that the denial of a motion to dismiss demonstrated the particular claim asserted there was not completely void of merit, we reject the notion that a claim's survival of a dispositive motion always bars a later contention that the claim was frivolous. Just because a litigant has convinced a court that his claim is viable does not mean that the litigant is insulated from claims for frivolous litigation fees when the court's view of the claim is later recognized as erroneous. We, thus, reject Ellman's contrary interpretation of Best.

The motion judge's determination that the post-termination commission claim was frivolous is well supported by the evidence adduced at trial and the legal principles applied in Kas I that led to a reversal of the trial judge's award of damages on that claim in favor of Ellman.

II

In applying for fees under either the SRRA or the frivolous litigation statute, based on the finding that Ellman's pleading and pursuit of a claim for post-termination commissions was frivolous, Kas identified the following nineteen categories for which it sought to be compensated (the amounts sought, including expenses, are in parentheses)*fn4

1. Coordinating with Minnesota counsel regarding Ellman's Minnesota action ($4,018.90).

2. Opposing Ellman's unsuccessful motion to dismiss this action because of the pending Minnesota action ($7,682.52).

3. Production of documents during discovery ($17,361.77).

4. Deposition of Kas's principal, Prasadarao Yarlagadda ($6,870.40).

5. Moving for summary judgment ($33,652.31).

6. Deposition of Ellman ($11,035.70).

7. Interviewing fact witnesses ($2,403).

8. Opposing Ellman's motion for summary judgment ($21,587.38).

9. Trial preparation ($14,471.49).

10. Arguing the form of the order regarding the summary judgment motions ($877.50).

11. Document discovery regarding Ellman's claim for post-termination commissions ($1,527.75).

12. Expert discovery ($33,916.49).

13. The exchange of pretrial information ($22,758.72).

14. Trial ($31,040.40).

15. The appeal in Kas I ($166,812.42).

16. Participating in the CASP proceeding in Kas I ($5,549.53).

17. Ellman's reconsideration motion and Kas's opposition to Ellman's petition for certification in Kas I ($18,700.24).

18. Discharge of the supersedeas bond ($2,889.50).

19. Preparation and prosecution of fee applications both before and after Kas II ($90,518.83).

In her decision, the motion judge concluded that Kas was entitled to all the fees sought in the first and second categories, and half the fees sought in the fifth category. She also held Kas was not entitled to any of the fees sought in the remaining categories, concluding that discovery and appeals constitute "hazards of litigation." We reject this unsupported conclusion. All that occurred in this or any other case might be similarly classified as a hazard of litigation, but there is nothing in the fee-shifting statutes applied here that exempt fees incurred in discovery or on appeal. The question is not whether certain categories fall within the scope of those fees to which a wronged party might be entitled but whether the services rendered were reasonable and caused by the assertion and prosecution of the frivolous claim. In other words, an appropriate fee award is ascertained by first calculating the lodestar, which consists of the "number of hours reasonably expended by the successful party's counsel in the litigation, multiplied by a reasonable hourly rate." Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 386 (2009). In determining the "hours reasonably expended," the court might find that it was not reasonable for counsel to expend time in a particular pursuit. If that was the motion judge's intention, the record simply does not support the blanket rejection of all the time expended by counsel in this matter with the exception of the first, second, and fifth categories. Kas is entitled to be compensated for fees reasonably incurred in more than just those three categories.

In attempting to bring this seven-year old lawsuit to a more rapid conclusion and because some of the fees sought were incurred in appellate proceedings, we deem it appropriate to assume original jurisdiction over the fifteenth, sixteenth, seventeenth, and eighteenth categories of Kas's fee application. As to the remainder, we are required to again remand to the motion judge for the quantification of an award in conformity with this opinion.

A

Our assumption of original jurisdiction over that part of the fee application that relates to appellate proceedings in this suit is based not just on a desire to bring this matter closer to a conclusion but because we are more familiar with the services rendered by counsel for Kas on appeal than the motion judge. In examining counsel's efforts in Kas I,*fn5 and in determining what amount of hours were reasonably incurred by counsel in advocating for Kas in that aspect of the litigation, we are of course guided by our own knowledge of the case and the submissions and proceedings in Kas I.

Our opinion in Kas I reveals that the parties debated multiple issues; none of those issues, however, posed any great difficulty or complexity. Indeed, we find it somewhat contradictory for Kas to argue that five seasoned attorneys were required to expend in excess of 350 hours -- along with an additional 70 hours of paralegal and assistant time -- in the perfecting and prosecuting of an appeal that sought reversal of an element of a claim it believes -- and correctly so -- to be frivolous. We do not mean to suggest that the hours were not actually incurred or that counsel's work was less than first rate. To the contrary, Kas's submissions were thorough, persuasive, and of the highest quality. But the nature of the issues on appeal were not so problematic*fn6 that we may conclude that all 420 hours were reasonably incurred within the meaning of the fee-shifting statutes upon which Kas relies. Based on our familiarity with the proceedings in this court, the nature and relative simplicity of the issues, and the parties' written and oral submissions at the time, we conclude that a reasonable amount of hours for the work summarized in the fifteenth category is 90 hours. Applying an hourly rate of $380*fn7 to those 90 hours produces a reasonable fee for that category of $34,200.

The sixteenth and eighteenth categories encompass relatively two minor events: the unproductive settlement conference with CASP*fn8 and the discharging of the supersedeas bond obtained by Kas to prevent Ellman's execution of the judgment pending appeal. As to the former, Kas claimed 12.80 hours of attorney time and 0.75 hours of a legal assistant's time were incurred; we conclude that 3.0 hours of attorney time for the settlement conference and related events is reasonable. As to the latter category, Kas asserted that 7.50 hours of attorney time and 0.50 hours of a legal assistant's time were incurred; we find that 1.50 hours of attorney time is reasonable. Accordingly, we award $1140 on the sixteenth category and $570 on the eighteenth category.

We next consider the seventeenth category, which encompassed the hours expended with regard to Ellman's motion for reconsideration in Kas I and in opposing Ellman's petition for certification. Kas asserts that its attorneys expended 35.30 hours in dealing with those aspects of this litigation. Considering our court rules do not permit a response to a motion for reconsideration unless requested by the court, Rule 2:11-6(a), and that any opposition to the petition for certification would obviously not have required much, if any, research not already encompassed in the work performed in the fifteenth category, we conclude that 16 hours of attorney time would be reasonable in advocating to the Supreme Court why there was no need for intervention in these proceedings. Accordingly, we award $6080 for the seventeenth category.

Combining the results we have derived from these four categories, we conclude that $41,990 represents a reasonable fee for the efforts incurred by Kas in obtaining relief regarding the post-termination claim in Kas I.

Kas is also entitled to be reimbursed for any expenses reasonably incurred in the performance of the services described in the fifteenth, sixteenth, seventeenth, and eighteenth categories. The application contains a lump sum for those expenses; the nature of the expenses included within those lump sums has not been made clear. The motion judge should determine what amount would compensate Kas for its reasonable expenses as to these categories.

B

Having resolved Kas's application insofar as it sought fees for appellate proceedings -- specifically, the fifteenth, sixteenth, seventeenth, and eighteenth categories -- we remand for the motion judge's determination of the fees sought by Kas in the remaining categories. We have already mentioned that the notion that certain events are "hazards of litigation" is an erroneous basis by which to deny relief. The court, however, may ultimately determine that certain particular services constituted unreasonable or unnecessary steps in Kas's pursuit of the legitimate goal of defeating the frivolous post-termination commission claim, but as a general matter, Kas's participation in discovery, in moving and responding to summary judgment motions addressing that issue, and in preparing for and participating at trial are areas in which Kas should be compensated. What constitutes a reasonable amount of time in representing Kas in those areas is something that the motion judge is in a better position to assess than are we.

In addition, Kas is entitled to a reasonable fee in seeking a fee award. Grubbs v. Kroll, 376 N.J. Super. 420, 431 (App. Div. 2005). To deny a fee for this purpose would otherwise cause the dilution of the reasonable fee to which a litigant is entitled.

Lastly, we reject the motion judge's holding that the fees sought by Kas should be discounted because Ellman is "a private citizen, not a corporation or another party that might be better suited to absorb a large fee award." This notion that fee-shifting statutes should be applied differently when one of the disputants is an individual and the other is a corporation has not been recognized by either the Legislature, in its enactment of these fee-shifting statutes,*fn9 or by our courts' interpretation of these statutes. Indeed, we can take judicial notice of the fact that there are many individuals who possess far greater wealth and a far greater "ability to absorb a large fee award" than a great many corporations. Moreover, to the extent the judge's holding was intended to express a rule that would permit the reduction of a reasonable fee because of the parties' respective wealth, there is nothing in the record to suggest Ellman cannot bear a fee award based on the lodestar method or that Kas is so fabulously wealthy that receipt of such an award would have little impact on its balance sheet, thereby rendering an award ruinous from Ellman's standpoint and trivial from Kas's. In adhering to our mandate, the motion judge should simply ascertain the fee due Kas by application of the lodestar method without applying any such discount.

III

To summarize, we affirm that part of the order under review that awarded Ellman $11,777.76 in fees pursuant to the SRRA. Although we do not question the reasonableness of the fee awarded to Kas as to what has been referred to as the first, second, and fifth categories, we nevertheless vacate that award, so the motion judge's determination of a reasonable fee, based on the lodestar method and the principles announced in this opinion, may now occur as to all categories, with the exception of the fifteenth, sixteenth, seventeenth, and eighteenth categories. As for these four categories, we have assumed original jurisdiction and determined that a reasonable fee for those services is $41,990. The motion judge is directed to ascertain the reasonable and appropriate expenses incurred by Kas in connection with Kas I as well as the other categories over which we have not assumed jurisdiction.

Upon her determination of the fees and expenses to which Kas is entitled for the work performed in those categories over which we have not assumed jurisdiction, the judge is directed to enter a judgment in favor of Kas in the amount of those fees, less the damages and fee award previously rendered in favor of Ellman. To the extent existing orders may ostensibly permit execution on the judgment previously obtained by Ellman against Kas, we hereby stay execution pending completion of the proceedings required by today's mandate.

Affirmed in part; vacated and remanded in part. We do not retain jurisdiction.


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