May 4, 2011
WILLIAM M. BURKE, M.D., PLAINTIFF-APPELLANT,
JOHN IZMIRLIAN, DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-759-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 30, 2011
Before Judges Fuentes, Nugent and Newman.
Plaintiff, William M. Burke, M.D., appeals from an order granting summary judgment to defendant, John Izmirlian, resulting in the dismissal of plaintiff's complaint. We are convinced that plaintiff should be equitably subrogated to his deceased wife's court award of counsel fees in a post-judgment proceeding involving her former husband, which fees were paid by plaintiff. Therefore, we reverse.
The salient facts, which are not in dispute, were set forth in the litigation involving Ellen Marshall, the attorney who represented plaintiff's late wife, Laureen Moran, and plaintiff who had refused to pay Marshall's fee awarded by the trial court when he had guaranteed such payment. We quote the relevant factual background from our opinion in Marshall v. Burke, No. A-1858-05 (App. Div. May 24, 2007) (slip op. at 5-7).
The genesis of that matter was in late January-early February 1999 when, during the course of his own post-divorce litigation, defendant arranged a meeting with plaintiff and Moran to discuss plaintiff's representation of Moran in a post-divorce action initiated by Moran's former husband, John Izmirlian.*fn1 Earlier, defendant had conveyed to plaintiff his opinions that Izmirlian was dishonest, concealing his income from both the Internal Revenue Service and Moran, and that he should be made to pay all the child support for the daughter then living with defendant and Moran. By all accounts, that meeting was held at a local country club and thereafter, on February 5, 1999, plaintiff and Moran signed a retainer agreement.
According to plaintiff, the meeting lasted two hours during which they talked almost exclusively about Moran's legal situation. Defendant once again mentioned that Izmirlian was attempting to hide his finances and that he wanted to ensure Izmirlian paid his support obligations. Moran said she was unable to pay for plaintiff's services and plaintiff herself knew that Moran had no steady means of supporting herself, that Izmirlian had no money, and that Moran had previously discharged a fee obligation of approximately $15,000 in bankruptcy proceedings. Consequently, plaintiff raised the issue of payment, asserting that litigation would be expensive and that she could not proceed without payment. According to plaintiff, defendant assured her that he was "willing to throw some money at this, so that that little prick pays to support his kid." With that assurance, plaintiff entered into a retainer agreement, and commenced preliminary work on the case, including arranging a meeting between the parties, which turned out to be unproductive.
Because Moran had become very ill in the meantime, plaintiff cautioned defendant and Moran against proceeding, however, defendant urged plaintiff to continue and again promised to pay, which plaintiff memorialized in a letter of December 16, 1999. Although plaintiff never received payment during her representation of Moran, she did not demand payment during Moran's illness because she relied on defendant's promise and by then had only represented Moran for a short period. Both Moran and defendant, on the other hand, deny that defendant agreed to pay plaintiff's legal fees and costs on behalf of Moran. Defendant, however, admits paying a forensic accountant who aided Moran in tracking down Izmirlian's assets.
At the conclusion of the action between Marshall and defendant, defendant was ordered to "pay a counsel fee of $32,177.29 to Ellen Marshall, Esq. in accordance with the order filed February 22, 2000." A corresponding order of final judgment was entered on October 8, 2005. Id. at 5. We affirmed this order on appeal. Id. at 25.
On May 18, 2007, about six days before Marshall v. Burke was decided, a motion filed by Moran to enforce litigant's rights was granted, ordering defendant to pay counsel fees of $32,177.29 to Marshall. Another order was entered on October 19, 2007 on Moran's motion compelling defendant to pay counsel fees of $32,177.29 to Marshall. On May 23, 2008, on Moran's motion, an order was entered directing defendant to pay plaintiff's counsel fees owed to Marshall, and "[s]ince it appears that the plaintiff's spouse has paid this sum to Ms. Marshall," defendant was ordered to pay Moran directly.
Plaintiff filed a complaint in the present matter on March 10, 2008. Plaintiff alleged that defendant's breach of court orders caused him harm, including compelling his payment of Marshall's fees.
Default judgment against defendant was entered on October 14, 2008, and vacated on July 17, 2009.
Defendant thereafter moved for summary judgment. In granting summary judgment, the trial court found that plaintiff was not entitled to proceed as an equitable subrogee because he had paid Marshall as a volunteer. The trial judge also found that plaintiff's failure to provide notice of defendant's potential liability during the Marshall v. Burke case, pursuant to Rule 4:5-1(b)(2), was inexcusable, and that the case was barred by the entire controversy doctrine and collateral estoppel.
On appeal, plaintiff raises the following issues for our consideration:
BURKE IS ENTITLED UNDER THE DOCTRINE OF EQUITABLE SUBROGATION TO RECOVER FROM IZMIRLIAN THE ATTORNEY'S FEES THAT IZMIRLIAN WAS ORDERED TO PAY TO MARSHALL.
THE TRIAL COURT ERRED IN FINDING THAT THIS ACTION WAS BARRED BY THE ENTIRE CONTROVERSY DOCTRINE OR COLLATERAL ESTOPPEL.
The trial judge found that that there was no assignment of Moran's rights to plaintiff. More importantly, the trial judge ruled that plaintiff was a volunteer because "he put [the obligation to pay Marshall's fees] upon himself voluntarily," and had no expectation that defendant would abide by the court orders directing payment of attorney's fees. The judge also concluded that equitable subrogation was inappropriate because plaintiff had not conferred a benefit to defendant. We disagree.
The doctrine of subrogation "is highly favored in the law, although it is not an absolute right but rather is applied under equitable standards with due regard to the legal and equitable rights of others." Perreira v. Rediger, 330 N.J. Super. 455, 460 (App. Div. 2000), rev'd on other grounds 169 N.J. 399 (2001) (quoting Standard Accident Ins. Co. v. Pellecchia, 15 N.J. 162, 171 (1954)). "[S]ubrogation is a device of equity to compel the discharge of an obligation by one who in good conscience ought to pay it, and even where contractually provided for, is subject to enforcement under equitable principles." American Reliance Ins. Co. v. K. Hovananian at Mahwah IV, Inc., 337 N.J. Super. 67, 74 (App. Div. 2001) (citing Standard Accident Ins. Co., supra, 15 N.J. at 171-72); see also Aybar v. New Jersey Transit Bus Operations, Inc., 305 N.J. Super. 32, 38 (App. Div. 1997).
Subrogation is not available as a remedy to a volunteer, one "who without any duty paid the debt of another." Schmid v. First Camden Nat'l Bank & Trust Co., 130 N.J. Eq. 254, 266 (Ch. 1941). A volunteer, stated differently, is "[a]nyone, being under no legal obligation or liability to pay and having no interest menaced by the continued existence of the debt." Ibid.
Subrogation is appropriately applied to the following circumstances:
It is unquestionably the rule that, when an obligation is discharged by one not primarily liable for it, but who believes himself to be acting either in the performance of a legal duty, or for the protection of a legal right, or at the request of the party ultimately bound, and even in certain other cases, favored by public policy, where none of the above circumstances may be present, the party thus discharging the obligation is entitled in equity to demand, for his reimbursement, and subject to any superior equities, the performance of the original obligation, and the application thereto of all securities and collateral rights held by the creditor. [Id. at 267.]
Allowing plaintiff to proceed against defendant here as an equitable subrogee does not produce an improper application of the equitable remedy of subrogation. Plaintiff has paid the obligation of another, defendant, who in good conscience should have paid the counsel fee award in the first place, particularly in light of several orders compelling him to pay the fees. As such, this case presents a clear and straightforward application of the doctrine of equitable subrogation.
The benefit conferred on defendant here is obvious. Although the trial court reasoned that no benefit was conferred upon defendant as of the inception of the agreement between plaintiff and Marshall, defendant was later found liable for attorney's fees and plaintiff's payment of those fees in light of the orders entered against defendant requiring him to pay clearly benefit him. In any event, equitable subrogation does not require the subrogee to confer any benefit before entitlement to the remedy.
Moreover, plaintiff is not a volunteer who voluntarily assumed a pre-existing debt with no duty or obligation to do so. The trial court was mistaken in describing plaintiff as a volunteer because plaintiff had not agreed to pay a pre-existing debt. While plaintiff voluntarily agreed to pay Marshall's attorney's fees on Moran's behalf, he was found legally obligated to pay them and ordered to do so by a court.
To the extent that defendant relies on Shinn v. Budd, 14 N.J. Eq. 234 (Ch. 1862), such reliance is misplaced. In Shinn, the plaintiff, acting as administrator of an intestate's estate, sold real estate under a court order for the payment of debts of the estate. Id. at 235. After the sale, $112 was not paid by the purchaser. Id. at 236. The purchaser died, and the land was sold under court order to defendant. The plaintiff paid the balance of the mortgage, with his own funds, to the mortgage's assignee and sued defendant for the balance. Ibid. The suit was dismissed because plaintiff was found to be a volunteer.
Id. at 238-39. Unlike Shinn, plaintiff here did not voluntarily assume a pre-existing debt. Moreover, plaintiff was found to have a legal obligation to pay the debt owed to Marshall. Schmid, supra, 130 N.J. Eq. at 266.
Of more relevance is Feigenbaum v. Guaracinis, 402 N.J. Super. 7 (App. Div. 2008). There, this court reversed the application of the equitable remedy of subrogation for reasons that support its application in this case. Id. at 23. In Feigenbaum, the Guaracinis entered into a guaranty agreement with the Feigenbaums. Id. at 19. The Feigenbaums entered into a lease agreement with GSI. Ibid. GSI entered into an indemnity agreement and assignment with Wakefern. Ibid. When the tenant of the property subject to these agreements failed to pay rent, the Feigenbaums sued the Guaracinis and Wakefern. Id. at 14.
The Guaracinis settled with the Feigenbaums and continued to pursue a claim against Wakefern under a theory of equitable subrogation for the money it had paid the Feigenbaums to settle. Ibid. In reversing the trial court's application of equitable subrogation asserted by the Guaracinis against Wakefern, this court found that Wakefern had no knowledge of the Guaracinis guaranty when it contracted with GSI and that the tenant, and not Wakefern, was the party who "in good conscience ought to pay." Id. at 21. We concluded that under these circumstances, the application of equitable subrogation ran contrary to fundamental fairness and the doctrine's very purpose. Ibid.
To be sure, the facts and relationships in this case are not so convoluted. Regardless of whether or not defendant knew of plaintiff's agreement to pay for Moran's attorney's fees, there is no prejudice to defendant in substituting plaintiff in Moran's place by way of subrogation because defendant was well aware of his obligation to pay and the numerous court orders requiring payment be made. Indeed, defendant is the party who "in good conscience ought to pay."
We reject defendant's argument that even putting plaintiff in Marshall's shoes, there can be no claim against defendant because Marshall has no claim against defendant. Here, subrogation operates to put plaintiff, the subrogee, in the shoes of Moran, since it is Moran's right to enforce the order granting attorney's fees that is in effect asserted by plaintiff. See Feigenbaum, supra, 402 N.J. Super. at 20 (stating that the subrogee's claim is wholly dependent on the extent to which the subrogor could have recovered). Plaintiff is therefore entitled to the remedy of equitable subrogation.
Plaintiff contends that the trial court erred in finding plaintiff's failure to disclose defendant to Marshall under Rule 4:5-1(b) when Marshall sued plaintiff to be inexcusable.
Plaintiff further argues that the trial court's application of the collateral estoppel doctrine because there was a final judgment on the merits and a determination that was essential to the prior judgment in Marshall v. Burke was likewise in error.
"In 1998, the Supreme Court adopted a series of rule amendments that eliminated the former party joinder requirements of the entire controversy doctrine and instead imposed a new requirement that a party provide notice in its first pleading of the names of other potentially liable parties." Kent Motor Cars, Inc. v. Reynolds and Reynolds Co., 412 N.J. Super. 1, 4 (App. Div.), certif. granted, 203 N.J. 92 (2010) (citing R. 4:5-1(b) (2); R. 4:29-1(b); R. 4:30A). "If a party fails to comply with this notice requirement, one of the amended rules authorizes a court to impose an appropriate sanction, including dismissal of a subsequent action against a party whose existence was not disclosed." Ibid. Dismissal is not appropriate "unless the failure of compliance was inexcusable and the right of the undisclosed party to defend the successive action has been substantially prejudiced by not having been identified in the prior action." R. 4:5-1(b)(2).
"The purpose of [Rule 4:5-1(b)(2)] is to implement the philosophy of the entire controversy doctrine." Pressler & Verniero, Current N.J. Court Rules, comment 2.1 on R. 4:5-1 (2011). The entire controversy doctrine does not operate to bar claims that are not yet accrued or ripe at the time of the original action. Pressler & Verniero, Current N.J. Court Rules, comment 3.3 on R. 4:30A (2011). Plaintiff's subrogation claim was not ripe until he was held liable to Marshall for the unpaid attorneys fees.
More importantly, even if plaintiff did not comply with Rule 4:5-1(b), defendant has not demonstrated any prejudice as a result. Defendant claims he is prejudiced because now plaintiff is seeking attorney's fees for defending his lawsuit with Marshall. The default judgment that included the fees plaintiff incurred defending the Marshall action was vacated. The argument as to how much defendant may be liable for is irrelevant to the ultimate issue in this case, which is defendant's liability to plaintiff for the counsel fees he was ordered to pay in 2000.
Defendant has not shown he was prejudiced by plaintiff's failure to give the required notice under Rule 4:5-1(b)(2). Consequently, summary judgment should not have been granted on this basis. See Kent Motor Cars, Inc., supra, 412 N.J. Super. at 14 (reversing summary judgment because defendant failed to show prejudice).
The trial court here also found that collateral estoppel precluded plaintiff's claim. In re Estate of Dawson, 136 N.J. 1, 20 (1994); Puder v. Buechel, 183 N.J. 428 (2005).
The party asserting collateral estoppel must show:
(1) the issue to be precluded is identical to the issue decided in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the court in the prior proceeding issued a final judgment on the merits; (4) the determination of the issue was essential to the prior judgment; and (5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding. [In re Estate of Dawson, supra, 136 N.J. at 20 (internal citations omitted).]
Collateral estoppel does not apply to bar plaintiff's claims. Moran never brought a direct claim against defendant for payment of the attorneys fees. More significantly, this is the first time that plaintiff is asserting the claim as a subrogee. Plaintiff's claim is clearly not collaterally estopped because there is no "prior proceeding" to which it can attach. Ibid.
We need not address plaintiff's contention raised improperly for the first time in his reply brief that the trial judge did not review the late-filed deposition transcript of defendant. Goldsmith v. Camden County, 408 N.J. Super. 376, 387-88 (App. Div.), certif. denied, 200 N.J. 502 (2009); Berlin v. Remington & Vernick, 337 N.J. Super. 590, 596 (App. Div.), certif. denied, 168 N.J. 294 (2001). Moreover, the facts in this summary judgment were not dependent on defendant's deposition, but were derived for the most part from our opinion in Marshall v. Burke, supra. Indeed, the deposition focuses on asset discovery, similar to a sub pro proceeding. Nor does the fact that the trial judge did not read this transcript, which apparently could not be located, provide a basis to disqualify the judge from continuing with this case.
Reversed and remanded for further proceedings consistent with this opinion.