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George Goldsworthy v. Eric Browndorf


August 24, 2011


On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-2177-04.

Per curiam.


Argued May 23, 2011

Before Judges A. A. Rodriguez, Grall and LeWinn.

George Goldsworthy appeals from the November 4, 2010 summary judgment in favor of Eric Browndorf, Esq. and Cooper, Levenson, April, Niedelman & Wagenheim, P.A. (collectively "the Cooper firm"); and the December 3, 2010 denial of his motion for reconsideration. We affirm.

We detailed the facts giving rise to this appeal in our January 16, 2008 unpublished opinion.*fn1 We reiterate only those facts that are relevant to the present appeal.

Goldsworthy owned and operated four McDonald's franchises in southern New Jersey. After several financially difficult years, Goldsworthy hired the Cooper firm to assist with refinancing his debt. With Browndorf's help, Goldsworthy filed a Chapter 11 bankruptcy petition on May 12, 1998, that listed tax liabilities exceeding $500,000. He owed the City of Wildwood $17,400; Middle Township, $13,561; North Wildwood $11,181; the Internal Revenue Service, $202,546; the State of New Jersey, $260,578; and various other state taxes in the amount of $49,245. New Jersey had also obtained a judgment for unpaid taxes against Goldsworthy on July 6, 1998, in the amount of $102,983.81.

During the bankruptcy proceedings, McDonald's sought an order authorizing Goldsworthy to sell his assets. In connection with this motion, McDonald's submitted the certification of David T. Murphy (the Murphy certification), a senior regional manager. Murphy certified that a sale of the restaurants was necessary because those restaurants were "continuing their trend of losing sales, which reflects an erosion of the goodwill at the location caused by mismanagement."

Murphy also certified that McDonald's had sent Goldsworthy "a Notice of Default/Termination requesting cure" of two defaults: a debt of $58,533.42 owed to McDonald's; and a $200,000 unsecured debt owed to MetLife Capital. The notice instructed Goldsworthy to cure these defaults within sixty days. Instead of curing those defaults, Goldsworthy had "exacerbated the default" by "fail[ing] to report and pay sales tax."

Goldsworthy ultimately entered into a settlement agreement with MetLife and McDonald's in which he agreed to sell his McDonald's restaurants. He sold all four restaurants and his bankruptcy petition was dismissed on October 22, 1998.

Goldsworthy sued the Cooper firm for malpractice on August 19, 2004. He alleged that Browndorf had not apprised him of the New Jersey Franchise Practices Act (NJFPA), N.J.S.A. 56:10-1 to -29 and other causes of actions that he may have had against McDonald's relating to the termination of his franchises.

The Cooper firm moved for summary judgment on September 2, 2010. It argued that Goldsworthy's failure to pay taxes was a substantial breach of the franchise agreement that would have provided McDonald's with a valid defense to any NJFPA claim asserted by Goldsworthy, pursuant to N.J.S.A. 56:10-9.*fn2

Therefore, Goldsworthy could not have suffered any damages from the Cooper firm's alleged malpractice.

Judge Thomas W. Sumners Jr. found that "the failure of the plaintiff to pay . . . state sales tax constitute[d] a material breach of the franchise agreement," that would have precluded any NJFPA claim as a matter of law. Thus, "a reasonable fact finder would conclude" that McDonald's would have terminated Goldsworthy's franchises had he not filed a bankruptcy petition.

Further, Goldsworthy did not rebut the Cooper firm's evidence that Goldsworthy "did not have the financial capacity to satisfy" his debts in 1998. Thus, the judge granted summary judgment to the Cooper firm.

Goldsworthy moved for reconsideration, arguing that the testimony of his expert, Peter Broege, Esq., demonstrated his ability to pay the sales tax he owed. He also contended that the Murphy certification was inadmissible hearsay.

Judge Sumners denied the motion. He explained that the Murphy certification had not been introduced to prove the truth of its contents, but rather to prove that McDonald's was aware that Goldsworthy had "defaulted on his payment of taxes, and it was one of the bases that [McDonald's] used in determining [that Goldsworthy] should no longer have a franchise." Because McDonald's was aware of Goldsworthy's breach, N.J.S.A. 56:10-9 clearly afforded it a defense to any NJFPA claim.

The Murphy Certification

On appeal, Goldsworthy contends that the judge erred in admitting the Murphy certification because it was inadmissible hearsay. We disagree.

We typically afford "substantial deference to a trial court's evidentiary rulings." State v. Morton, 155 N.J. 383, 453 (1998). Consequently, we review those decisions subject to the abuse of discretion standard, reversing only where the judge's decision was a "'clear error of judgment.'" Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 383-84 (2010) (quoting State v. Koedatich, 112 N.J. 225, 313 (1988), cert. denied, 488 U.S. 1017, 109 S. Ct. 813, 102 L. Ed. 2d 803 (1989)).

A litigant may submit an affidavit to support a motion provided it is "made on personal knowledge, setting forth only facts which are admissible in evidence to which the affiant is competent to testify." R. 1:6-6. The requirement of evidentiary competence is strict. See Jeter v. Stevenson, 284 N.J. Super. 229, 233-34 (App. Div. 1995).

N.J.R.E. 801(c) defines hearsay as "a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." Where statements are offered only to prove that "they were in fact made and that the listener took certain action as a result thereof, the statements are not deemed inadmissible hearsay." Russell v. Rutgers Cmty. Health Plan Inc., 280 N.J. Super. 445, 456 (App. Div.), certif. denied, 142 N.J. 452 (1995).

Here, the Murphy certification indicated that Goldsworthy had exacerbated his default by failing to pay sales taxes. This was not offered to prove that Goldsworthy actually owed taxes. As Judge Sumners correctly determined, the Murphy certification was offered to prove that McDonald's was aware of Goldsworthy's continued default and failure to pay sales taxes. Therefore, the judge did not err in admitting the Murphy certification.

The Malpractice Action

Goldsworthy next contends that the judge "erred in granting summary judgment because NJFPA precludes a franchisor from terminating a franchisee for a default that was not referenced in a notice of termination." We disagree.

Judge Sumners did not find that the Murphy certification qualified as notice of grounds for terminating Goldsworthy's franchise within the meaning of N.J.S.A. 56:10-5. Instead, the judge determined that it was indisputable that McDonald's was aware of Goldsworthy's tax delinquency and that he did not have the financial wherewithal to cure this default. The judge found that McDonald's would have asserted this breach of the franchise agreement as an affirmative defense to a NJFPA action. Without a valid NJFPA claim, Goldsworthy could not prove a causal relationship between the Cooper firm's alleged malpractice and his damages.

We apply the same standard as the trial judge when reviewing summary judgment. Prudential Prop & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). We must determine whether any genuine issues of fact exist, and whether the trial judge correctly applied the law. Walker v. Atl. Chrysler Plymouth Inc., 216 N.J. Super. 255, 258 (App. Div. 1987); R. 4:46-2(c). We review any "interpretation of the law and the legal consequences that flow from established facts," de novo. Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995).

To prove legal malpractice, a plaintiff must establish three elements: "'(1) the existence of an attorney-client relationship creating a duty of care by the defendant attorney, (2) the breach of that duty by the defendant, and (3) proximate causation of the damages claimed by the plaintiff.'" Jerista v. Murray, 185 N.J. 175, 190-91 (2005) (quoting McGrogan v. Till, 167 N.J. 414, 425 (2001)). To oppose a motion for summary judgment on such a claim, plaintiff must prove that he could have "presented a prima facie case in the [underlying] action" to prove the proximate relationship between his attorney's alleged breach and the damages for which he seeks recompense. Id. at 191.

This "case-within-a-case" requires a judge to conduct a retrospective analysis of a claim to determine whether it would have led to a favorable result for the plaintiff. Stoeckel v. Twp. of Knowlton, 387 N.J. Super. 1, 14-16 (App. Div.), certif. denied, 188 N.J. 489 (2006). A plaintiff must demonstrate three elements: "that (1) he would have recovered a judgment in the action against the main defendant, (2) the amount of that judgment, and (3) the degree of collectability of such judgment." Hoppe v. Ranzini, 158 N.J. Super. 158, 165 (App. Div. 1978). The first of these factors requires us to determine whether Goldsworthy could have asserted a valid NJFPA claim against McDonald's.

New Jersey Franchise Practices Act

The NJFPA "reflects the legislative concern over longstanding abuses in the franchise relationship," caused by the power disparity between franchisors and franchisees. Gen. Motors Corp. v. Gallo GMC Truck Sales Inc., 711 F. Supp. 810, 814 (D.N.J. 1989); see also Westfield Ctr. Serv. Inc. v. Cities Serv. Oil Co., 86 N.J. 453 462-63 (1981); N.J.S.A. 56:10-2. It prohibits a franchisor from terminating, canceling or failing to renew a franchise without written notice explaining good cause for the threatened action sixty days in advance. N.J.S.A. 56:10-5.

Good cause is "limited to [the] failure by the franchisee to substantially comply with those requirements imposed upon him by the franchise." Ibid.; see also Consumers Oil Corp. of Trenton v. Phillips Petro. Co., 488 F.2d 816, 819 (3d Cir. 1973) ("[O]nly delinquency or dereliction of the franchisee is stated as 'good cause' . . . ."). Although substantial compliance escapes precise definition, it is incontrovertible that "a franchisee who has willfully violated the statutes and regulations governing the operation of his business contra the terms of the franchise agreement, has failed to substantially perform . . . within the intendment of the [NJFPA]." Amerada Hess Corp. v. Quinn, 143 N.J. Super. 237, 252 (Law Div. 1976). This allows a franchisor to "protect its trade name, trademark and good will interests." Id. at 251.

For example, in Dunkin' Donuts of Am., Inc. v. Middletown Donut Corp., 100 N.J. 166, 171-72 (1985), Dunkin' Donuts notified a franchisee of the impending termination of its franchise for "intentional underreporting of gross sales." The Supreme Court held that the franchisee could not maintain a NJFPA action because the franchisee's intentional violation of the franchise agreement "constituted good cause for termination." Id. at 180.

Because the NJFPA permits the termination of a franchise for good cause, the NJFPA also provides that in any action against a franchisor, "[i]t shall be a defense . . . if it be shown that said franchisee has failed to substantially comply with requirements imposed by the franchise and other agreements ancillary or collateral thereto." N.J.S.A. 56:10-9. This comports with the legislative purpose of the NJFPA to protect "the innocent franchisee when the termination occurs at the franchisor's convenience." Westfield, supra, 86 N.J. at 466 (emphasis added).

Notice of Termination: N.J.S.A. 56:10-5.

It is necessary to determine whether the Murphy certification qualifies as "notice" within the meaning of N.J.S.A. 56:10-5. We hold that it does not.

A franchisor violates the NJFPA by terminating a franchise without "having first given written notice setting forth all the reasons for such termination . . . at least 60 days in advance of such termination." Ibid. Our courts have not specifically addressed what qualifies as "notice," and the legislative history is "sparse" and unhelpful on this point. N.J. Am., Inc.

v. Allied Corp., 875 F.2d 58, 63 (3d Cir. 1989). Previous cases demonstrate that notice is typically a letter informing the franchisee of the franchisor's intent to terminate the franchise for noncompliance with the franchise agreement. See, e.g., Dunkin' Donuts, supra, 100 N.J. at 171; Amerada, supra, 143 N.J. Super. at 242; Goldwell of N.J., Inc. v. KPSS, Inc., 622 F. Supp. 2d 168, 180-81 (D.N.J. 2009); Maple Shade Motor Corp. v. Kia Motors of Am., Inc., 384 F. Supp. 2d 770, 773 (D.N.J. 2005); Gen. Motors Corp. v. New A.C. Chevrolet, Inc., 91 F. Supp. 2d 733, 737 (D.N.J. 2000), aff'd, 263 F. 3d 296 (3d Cir 2001); Atl. City Coin & Slot Serv. Co., Inc. v. IGT Corp., 14 F. Supp. 2d 644, 658-59 (D.N.J. 1998); Coast Cities Truck Sales v. Navistar Int'l. Transp. Co., 912 F. Supp. 747, 756 (D.N.J. 1995); Jiffy Lube Int'l. v. Weiss Bros. Inc., 834 F. Supp. 683, 689 (D.N.J. 1993); see also Gelardi Corp. v. Miller Brewing Co., 421 F. Supp. 237, 240 (3d Cir 1976) (notice sent by telegram). At a minimum, therefore, it is clear that notice must be a communication directed to the franchisee notifying it of its default and the possibility of non-renewal or termination of the franchise agreement.

Here, McDonald's sent a letter notifying Goldsworthy of its intent to terminate his franchises for defaults which did not include his outstanding tax debt. This indisputably qualifies as notice within the meaning of N.J.S.A. 56:10-5, and is easily distinguishable from the Murphy certification. The Murphy certification was submitted to the bankruptcy court, and not intended to inform Goldsworthy of the possibility of termination of the franchise relationship. Therefore, it does not qualify as notice within the meaning of N.J.S.A. 56:10-5.

Because the Murphy certification was not sufficient notice and the McDonald's notice did not reference Goldsworthy's failure to pay taxes, we must determine whether a franchisor asserting a franchisee's substantial noncompliance as a defense pursuant to N.J.S.A. 56:10-9 must rely only on those breaches of the franchise agreement that were explicitly referenced in the notice.

Substantial Noncompliance Defense: N.J.S.A. 56:10-9

As noted, N.J.S.A. 56:10-9 provides that "[i]t shall be a defense . . . to any action brought under this act . . . if it be shown that [the] franchisee has failed to substantially comply with requirements imposed by the franchise . . . agreement[]." Our courts have not addressed whether a franchisor must reference in its default notice the specific violation of the franchise agreement on which the franchisor will later rely in asserting N.J.S.A. 56:10-9 as a defense.

Earlier case law describes the NJFPA as conditioning a franchisee's recovery on compliance with the franchise agreement. For example, in Westfield, the Court held that "a franchisor who in good faith and for a bona fide reason terminates, cancels or fails to renew a franchise for any reason other than that franchisee's substantial breach of its obligations has violated N.J.S.A. 56:10-5 and is liable to the franchisee." 86 N.J. at 469 (emphasis added).

The plain language of N.J.S.A. 56:10-9 supports the holding in Westfield. It provides that noncompliance with the franchise agreement will be a valid defense "to any action brought under this act by a franchisee." N.J.S.A. 56:10-9 (emphasis added). See Zaro Licensing, Inc. v. Cinmar, Inc., 779 F. Supp. 276, 286 (S.D.N.Y. 2001) (holding that franchisees could not proceed with NJFPA claim because they had breached their "agreement for failing to make royalty payments.").

Thus, the notice requirement is intended to protect an innocent franchisee facing wrongful termination. A franchisee receiving notice of termination has the opportunity to cure the defaults, dispute the defaults, or seek an injunction pursuant to the NJFPA. However, the NJFPA was not designed to diminish the franchisor's legitimate right to terminate a franchise agreement with a franchisee who has failed to cure violations of the franchise agreement.

Goldsworthy relies heavily on Gelardi. In that case, the defendant "ha[d] attempted to assert other reasons for termination" of the franchise agreement that were not in the original notice to terminate. Gelardi, supra, 421 F. Supp at 246, n.19. Because N.J.S.A. 56:10-5 requires that "'all the reasons for such termination' be set forth in the notice of termination," the district court found that the defendant could not rely on any violations of the franchise agreement that were not cited in the original communication. Gelardi, supra, 421 F. Supp at 246, n.19.

Gelardi, however, is distinguishable for two reasons. First, Gelardi was not interpreting N.J.S.A. 56:10-9. At issue in Gelardi was whether the defendant-franchisor's stated reasons for termination qualified as "good cause" within the meaning of N.J.S.A. 56:10-5. Gelardi, supra, 421 F. Supp at 246.

The court was explaining that the franchisor could not rely on defaults not placed in the notice in establishing good cause for termination. Ibid. This is logically consistent with the requirement that the franchisor actually have good cause to terminate at the moment it sent the notice.

Here, Goldsworthy does not dispute that McDonald's had good cause to send its original notice of default. Therefore, McDonald's would not have had to assert additional defaults to establish good cause for sending the termination notice.

Gelardi is also distinguishable because it is a federal case that took pains to avoid a New Jersey case that is applicable here. Id. at 246, n.19. The court noted that:

[i]n Amerada . . . the court permitted the assertion of an additional reason at the time of trial. However, the court never addressed itself to the question of whether this was an appropriate procedure. Moreover, the reason added at the time of trial played no part in the court's ultimate decision. We think it is more consistent with the statutory language and policy to prohibit the assertion of additional reasons subsequent to the notice of termination.


We do not accept this interpretation of Amerada as accurate. The judge's decision in Amerada to permit the franchisor to add an additional reason for termination to its notice by leave of court comports with the policy of the NJFPA. NJFPA's purpose is to shelter an innocent franchisee from abuses caused by the power imbalance between it and the franchisor. Consequently, a franchisee is owed the privilege of receiving written notice of violations with sixty days for it to cure those defaults.

In sharp contrast, the NJFPA was not designed to protect a franchisee that cures one default, but continues other substantial violations of the franchise agreement after the sixty-day cure period. Therefore, no franchisee may prosecute an NJFPA action if it continues to violate its franchise agreement. N.J.S.A. 56:10-9; see also Dunkin' Donuts, supra, 100 N.J. at 178 (noting that the NJFPA "sensibly authorizes damages only to aggrieved franchisees and does not compensate those franchisees who have lost their franchise as a result of their own neglect and misconduct").

Here, the McDonald's franchise agreement required Goldsworthy to "comply with all federal, state and local laws, ordinances and regulations affecting the operation of the Restaurant." The agreement also provided that McDonald's would terminate the franchise if any judgment was entered against the premises in excess of $5000. It is undisputed, therefore, that Goldsworthy's tax debts and the State's tax judgment were significant violations of the franchise agreement in addition to those set forth in McDonald's original notice of default. Thus, Goldsworthy's violations of the franchise agreement would have precluded him from seeking the benefit of the NJFPA.

Lastly, notice would not have changed the result in the present case. Goldsworthy did not dispute the testimony of the Cooper firm's expert who opined that Goldsworthy would not have been able to settle his tax defaults within the sixty-day cure period considering the enormity of his debt in 1998. Consequently, any damages he suffered relating to the termination of his franchise was not proximately caused by the Cooper firm's failure to inform him of the NJFPA.

Summary Judgment

Goldsworthy also contends that the judge "improperly granted an inference in favor of the moving party that McDonald's would have amended its notice of termination to include another basis for termination or that McDonald's would have asserted non-payment of taxes in defense to an action under the NJFPA." We disagree.

It is well-settled that courts may decide the issue of proximate cause on a motion for summary judgment where "reasonable minds could not differ on whether that issue has been established." Fleuhr v. City of Cape May, 159 N.J. 532, 543 (1999). In the legal malpractice arena, a plaintiff must prove proximate cause by "introducing evidence establishing the viability and worth of the claim that was irredeemably lost." Guatam v. De Luca, 215 N.J. Super. 388, 397 (App. Div.), certif. denied, 109 N.J. 39 (1987). Accordingly, a plaintiff must demonstrate that he could have asserted a prima facie claim in the underlying action were it not for counsel's errors. Jerista, supra, 185 N.J. at 191.

Because Goldsworthy's tax debts constituted substantial and incurable noncompliance with the McDonald's franchise agreement, McDonald's had good cause to terminate Goldsworthy's franchise agreement and could have asserted N.J.S.A. 56:10-9 as an affirmative defense to any NJFPA action. McDonald's also complied with the procedural protections in the NJFPA by giving Goldsworthy written notice of its intent to terminate the franchise agreement within the time limit specified in N.J.S.A. 56:10-5. Applying the summary judgment standard to these facts, it is clear that Goldsworthy would not have been able to present a prima facie case for recovery pursuant to the NJFPA.

Goldsworthy's Expert

Finally, with respect to his motion for reconsideration, Goldsworthy contends that the judge "erred in finding that his expert failed to render an opinion as to whether he would have been able to cure his state sales tax delinquency where the expert had no reason to address it in his written report since it was not a stated reason for termination and where, nonetheless, the expert testified at his deposition that a sales tax delinquency would be cured through a confirmable plan of reorganization." We disagree.

A motion for reconsideration is appropriate where the "1) the [c]court has expressed its decision based upon a palpably incorrect or irrational basis, or 2) it is obvious that the [c]court either did not consider, or failed to appreciate the significance of probative, competent evidence." D'Atria v. D'Atria, 242 N.J. Super. 392, 401-02 (Ch. Div. 1990). It is not a vehicle for a litigant to advance a new theory where "[t]he factual predicates of [a party's] new theory were available when plaintiff responded to [a] motion for summary judgment." Cummings v. Bahr, 295 N.J. Super. 374, 384 (App. Div. 1996).

In Cummings, the plaintiff sought recovery for personal injuries against the defendant pursuant to premises liability principles. Id. at 380-82. After the judge granted summary judgment to the defendant, the plaintiff moved twice for reconsideration. Id. at 382-84. In the second motion for reconsideration, the plaintiff argued for the first time that the evidence revealed that plaintiff was an invitee entitled to recovery. Id. at 383. The judge denied the motion. Ibid.

We affirmed, explaining that a party may not raise new theories for the first time in a motion for reconsideration where that evidence was previously available to the party. Id. at 384-85. Thus, evidence submitted after a summary judgment motion will not be made part of the record for appeal. See Ji v. Palmer, 333 N.J. Super. 451, 463-64 (App. Div. 2010) ("In reviewing a summary judgment, we can 'consider the case only as it had been unfolded to that point' and the evidential material submitted on that motion.") (quoting Bilotti v. Accurate Forming Corp., 39 N.J. 184, 188 (1963)).

Much like Cummings, Goldsworthy offered a new theory--that he had the ability to pay all of his tax debts in 1998--in a motion for reconsideration based expert testimony that was available to Goldsworthy during the pendency of the summary judgment motion. Consequently, the judge did not err in denying Goldsworthy's motion.

Moreover, Broege's testimony does not establish that Goldsworthy would have been able to cure his tax defaults.

Broege explained that "there probably were some outstanding taxes which very well may have been a default under the franchise agreement," but he had not been given any information from Goldsworthy for the preparation of his report as to extent or amount of those debts. Although Broege was confident that "you're normally allowed to repay delinquent tax obligations over an extended period of time," he could not opine as to Goldsworthy's ability to cure his tax debts in 1998. Thus, the record does not support Goldsworthy's argument that he rebutted the Cooper firm's assertion of his inability to cure his tax debts.


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