October 14, 2011
RAND, ALGEIER, TOSTI & WOODRUFF, PLAINTIFF-RESPONDENT,
RAY BRAUN, DEFENDANT-APPELLANT,
RAND, ALGEIER, TOSTI & WOODRUFF, AND DAVID RAND, ESQ., THIRD-PARTY DEFENDANTS/ RESPONDENTS.
On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-2833-02.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 10, 2011
Before Judges Graves, Messano, and Waugh.
Defendant Ray Braun appeals the judgment of the Law Division, following a bench trial, dismissing his counterclaim and third-party complaint for legal malpractice against plaintiff Rand, Algeier, Tosti & Woodruff (RATW) and third-party defendant David Rand, a former RATW partner. We affirm.
This matter was started by RATW as a collection action for attorneys fees it claimed were due from Braun. RATW and Rand had represented Braun in connection with litigation brought in the General Equity Part against him by Barry Novin, co-owner with Braun of a closely-held corporation. Braun filed a counterclaim against RATW and a third-party complaint against Rand, alleging malpractice in connection with their representation of his interests in the underlying litigation.
In that action, Novin successfully sought dissolution of the corporation and the sale of the property that was its sole asset. Braun alleged in his malpractice claim that his attorneys were negligent in failing to press for his desired result, a division of the property into separate buildable lots to be distributed between the two shareholders, so that they could develop their own lots separately.
Because the underlying litigation had been brought in the General Equity Part, in which factfinding is traditionally performed by a judge rather than a jury, the trial judge in this case determined that the "trial within a trial"*fn1 required by Braun's malpractice claim should be a bench trial, despite Braun's demand for a jury trial on all issues. After holding the bench trial, the judge concluded that the division of the property sought by Braun would not have been a viable remedy under the circumstances. Consequently, she dismissed the malpractice action.
On appeal, Braun argues that the trial judge erred in holding a bench trial rather than a jury trial. He further argues that, in any event, the judge's conclusion that division of the property was not a viable remedy was erroneous. Finally, he challenges the judge's decision to exclude his damages expert.
For reasons explained below, we conclude that no trial was necessary to resolve the issue of whether a division of the property was a viable remedy. Consequently, we need not reach the issue of whether the trial within a trial should have been a jury trial or a bench trial.
We discern the following facts and procedural history from the record on appeal.
In 1980, Braun, a certified public accountant, was the treasurer of Hartz Mountain Industries (Hartz Mountain), a corporation that develops land in northern New Jersey and New York. At the same time, he operated his own corporation, known as G&L Associates, which developed real estate in Ocean County. Braun typically bought small tracts of developed land, rehabilitated the properties, and then rented them.
In 1980 or 1981, Braun met Novin through a mutual friend, who told Braun that he and Novin were interested in purchasing a piece of property in Montville and wanted Braun to join them in the purchase. In July 1981, Braun and Novin became the sole shareholders of Montview Associates, Inc. (Montview), a Subchapter S corporation formed by Braun. According to Braun, Montview was created "to provide a somewhat of an umbrella against lawsuits in case there was a problem . . . and to purchase a piece of property in Montville." A contract for the purchase of the property by Montview from the Pine Brook Jewish Center (Jewish Center) was executed later in 1981.
Braun and Novin each held a fifty percent interest in Montview. From the time of its formation through 1996, Montview had no assets other than the contractual right to purchase the property. Montview did not obtain legal title to the property pending approval of the final subdivision, which allowed Montview, as lessee, to benefit from the Jewish Center's tax exempt status.
Braun and Novin never entered into a shareholders' agreement specifying each shareholder's duties and responsibilities with respect to Montview and each other. It was Braun's understanding that all decisions would be made on a "fifty-fifty basis." Braun and Novin had other occupations at the time Montview was created. In 1982, Braun had left Hartz Mountain and started a certified public accounting firm. Novin operated an insurance company.
At the time Montview entered into the contract to purchase the property, it was part of the Jewish Center's cemetery tract and "had to be subdivided" for development purposes. According to Braun, he and Novin initially intended to purchase the property and to develop it together, "start[ing] with the subdivision of the property . . . all the way up to the final sales of the houses."
From 1981 through 1984 or 1985, Braun and Novin spoke cordially "[t]hree times every two months" about the property. According to Braun, they had no difficulty in making decisions about the property. From 1985 onward, however, the shareholders began to have differences.
Patrick English, Braun's attorney in the mid-1980s, testified that Braun and Novin "were working together" until 1997, but "there were times when their relationship was not the best" and "there were definitely differences of opinion on how to proceed in certain aspects." Braun testified that at times "there were little flare-ups." He further testified that, between 1981 and 1987, he and Novin "had [their] differences." For example, Braun thought that Novin was usurping a corporate opportunity when he purchased a lot contiguous to the Montville property.
In a letter dated August 6, 1985, English wrote to Novin's attorney, suggesting that it "would be sensible for our two clients to sit down . . . and attempt to resolve their differences." By letter dated September 30, 1985, Novin's attorney advised English that his client intended "to proceed with the subdivision application on behalf of Montview Associates at the October 23, 1985 meeting of the Montville Planning Board," and suggested that Braun attend the meeting with his attorney. The letter continued:
In the event the Planning Board discusses the kinds of financial and public improvement commitments which relate to the present dispute between the parties . . . [Novin should] simply state to the Board that those items [would] be taken under consideration by the principals[,] . . . to avoid dragging the principals' dispute into a public forum.
Additionally, the letter sought to set up a meeting "to resolve the pending disputes[,] [i]n particular, . . . the possibility of 'partitioning' the property."
In response to the September 30, 1985 letter, English questioned whether the subdivision application was "feasible at th[at] time" due to the costs of public improvements. He proposed instead a partitioning process whereby Braun and Novin would flip a coin, the winner would pick the first lot, the loser would pick the next two lots, and then the parties would alternate lot-by-lot.
In 1986, the Jewish Center and Montview applied to the Township of Montville for preliminary plat subdivision approval, which was granted. Final subdivision approval was not obtained at that time, in part, because of defects in title.*fn2 Lowenstein, Sandler, Brochin, Kohl, Fisher, Boylan & Meanor (Lowenstein) represented Montview at that time. The firm disclosed that it also represented Novin as a shareholder of Montview, and both Braun and Novin consented to the conflict of interest.
By letter dated March 7, 1986, Lowenstein informed English that Montview's subdivision application had "been withdrawn from active consideration pending a resolution of the problems that exist[ed] between Ray Braun and Barry Novin." The letter threatened litigation if the matter could not "be promptly resolved."
In 1987, according to Braun, he and Novin had discussions regarding distribution of the lots in the Montville property, which was "much more complicated at that point [because] none of the roads were in, none of the utilities were in." Braun testified that he and Novin "may have talked about the breakup of the corporation [because they] had different interests."
By letter dated February 5, 1987, English informed Lowenstein that Braun "has not consented to have [a law] firm do any work at all for Montview Associates" because Novin was "moving forward on a subdivision that would have committed" Braun to contribute towards costs for extensive road improvements that would have benefited a contiguous lot owned by Novin.
At some point in the late 1980's, Novin transferred his stock in Montview to a trust established to benefit his family (Novin Trust). Salvadore Delbello was trustee from the trust's inception until 1993, when Joshua Novin (Joshua), Novin's son, became the trustee. Nevertheless, Novin continued to play an active role in the affairs of Montview.
Braun and Novin exchanged several unexecuted agreements regarding dissolution of Montview and distribution of the property between 1986 and 1994. However, neither Novin nor the Novin Trust agreed to such a distribution of the lots.*fn3
By letter dated July 23, 1993, Lowenstein advised Braun that Novin and the Novin Trust "elected to pursue their legal remedies in light of the continuing stalemate between the parties." In a letter dated January 21, 1994, English responded that Novin had been "dragg[ing] his feet on this matter." He further asserted that Braun would "not be dropping his focus on other endeavors at Mr. Novin's whim again. . . . [He would] consider the entire agreement, and any other document . . . de novo."
On August 17, 1994, Lowenstein wrote to Braun, noting that he had "objected to any continued activities by Barry Novin in connection with the operation of the corporation, since Barry [wa]s no longer a shareholder," and "regretfully . . . conclud[ing] that . . . [Lowenstein] must withdraw from taking any further action on behalf of the corporation in light of the impasse."
In the latter part of 1996, Braun learned that Novin was interested in offering him $800,000 for his "[four-and-a-half] lot interest." However, Braun did not discuss the offer with Novin or Joshua as trustee of the Novin Trust. Braun subsequently offered to buy Novin's interest in the Montview property for $800,000. No sale was effectuated.
In 1997, the Jewish Center filed a lawsuit against Montview, which held an option to purchase another parcel of its land next to the cemetery. According to Braun, he and Novin did not discuss the litigation. Braun wanted to defend the litigation, and appointed English to represent Montview without Novin and Joshua's consent.*fn4 Braun's objective was for Montview to purchase the extra lot. According to Novin and Joshua, Braun wanted to counterclaim against the Jewish Center for funds owed to Montview. The litigation was ultimately settled in 1999 or 2000. Montview eventually purchased the lot.
In June 1997, Braun and English, Novin and his counsel, and Joshua and counsel for the Novin Trust attended a meeting at English's office. According to English, counsel for the Novin Trust was "extremely aggressive," stating "that the only thing that they were interested in discussing was a buyout of Mr. Braun's position." Joshua testified that the "meeting quickly deteriorated and ended up with a screaming match," and he and his counsel "were quickly escorted out of Mr. English's office." English testified that Braun indicated to him at the meeting "that he had no desire to be bought out."
According to Joshua, Novin and the Novin Trust's position at the June 1997 meeting was that they were "unwilling . . . after . . . 1996 to continue on with the history of 10 years of animosity that [the shareholders of Montview] had between each other . . . . [T]he only mechanism for . . . go[ing] forward either with th[e] property and with th[e] corporation was a buyout of either shareholder's interest in the corporation."
Joshua and Novin testified that, as of 1997 and 1998, several infrastructure issues needed to be addressed before the Montville property could be subdivided and the lots distributed, which included moving an easement, creating water and sewer connections, vacating road designations, executing a developer's agreement between Montview and the Township of Montville, obtaining road opening permits for installation of sewer laterals, and resolving the Jewish Center litigation. Due to those pending issues, Joshua and Novin "were not willing to continue to work with [Braun] because of [their] history and the contemptuous relationship that [they] had had in the past."
Joshua and Novin testified that Montview was deadlocked in that "there were bills due and owing to Lowenstein," which had asserted a charging lien. Braun testified that he had not paid his share of the bills because he believed that the firm had not completed what he had asked it to do. The fees were ultimately paid by the receiver, subsequently appointed in the dissolution litigation.
According to Novin, he and Braun had an "acrimonious relationship." In particular, Braun owed Novin money for reimbursement of expenses, including engineering and attorneys' fees, and "was unwilling to set up an escrow account" to pay off the debts. Novin explained that he believed Braun was unwilling to work with him in distributing the lots, pointing to Braun's "cancellation of meetings, numerous meetings, . . . legal fees . . . weren't paid, many, many different issues were never supported by an agreement."
In a letter dated July 24, 1997, English acknowledged to counsel for the Novin Trust that there was a disagreement between the parties regarding the payment of property taxes. By letter dated January 14, 1998, English informed counsel for the Trust that Braun had not paid his share of the property taxes because "[n]o notice . . . was previously sent . . . [but] Braun . . . ha[d] advised [English] that he [wa]s prepared to forward half of the amount due immediately upon review of the underlying bills."
In June 1997, English was notified that the Novins were preparing an order to show cause, seeking a buyout of Braun's interest in Montview. The order to show cause and verified complaint were not filed by the Novins until February 20, 1998. It sought dissolution of Montview and appointment of a receiver pursuant to N.J.S.A. 14A:12-7. Braun retained Rand and RATW to represent him in connection with the litigation. However, no responsive pleadings were filed on Braun's behalf.
In May 1998, the General Equity judge appointed a receiver "to dissolve and liquidate" Montview. The receiver testified that it was her impression from the beginning of her involvement in the matter that the parties could not work together because the Novins "had become frustrated beyond the point of . . . returning to an amicable relationship with . . . Braun," and Braun was "stuck talking about past agreements and past proposed settlements and past discussions." The Novins told the receiver that they could no longer trust Braun because he had failed to maintain the legal status of Montview, pay taxes on Montview, and resolve the litigation regarding the Jewish Center.
The receiver considered a distribution in kind of the lots, but concluded that such a distribution was not feasible because of the "unresolved issue concerning the Jewish Center[,] . . . the unresolved issue concerning the taxes owed to the town of Montville[,] . . . an unresolved legal fee issue to former attorneys[,] . . . [and] the unresolved status of the corporation itself." She was also concerned that the property had not been completely subdivided, and the parties would need to cooperate to clear up the "moratorium in the town of Montville at the time for road building."
The receiver recommended to the judge that an auction bidding process be implemented, under which only the Montview shareholders could bid on the property, and the highest bidder would receive the entire property. The judge approved the receiver's recommendation by order dated August 10, 1998. Braun moved to amend the August 10, 1998 order by emergent application, which was denied by order dated September 23, 1998.
Novin ultimately outbid Braun and purchased all of the property owned by Montview for $1,001,000. In June 1999 Novin sold the property to another developer for $2,400,000.
On March 30, 1999, RATW filed its complaint against Braun, seeking $28,754.80 in unpaid attorneys' fees. Braun filed his answer, counterclaim, and third-party complaint for legal malpractice. Braun demanded a trial by jury on the claims raised in his counterclaim and third-party complaint.
RATW and Rand filed a motion for summary judgment on April 2, 2004. They sought: (1) dismissal of Braun's counterclaim and third-party complaint on the basis that Braun had not suffered any damages; (2) an order barring Braun's malpractice expert from testifying about whether a motion to enforce a settlement would have been successful in the underlying shareholder dispute; and (3) a judicial determination that the issue of whether a partition action would have been successful must be decided by the trial judge and not by a jury. On April 26, 2004, Braun filed a cross-motion for partial summary judgment on the question of liability for his affirmative claims, and the dismissal of RATW's complaint.
By oral decision on June 10, 2004, the motion judge denied RATW and Rand's motion to dismiss the counterclaim and third-party complaint, granted the motion to bar Braun's malpractice expert from testifying, denied Braun's cross-motion for summary judgment, and reserved decision on whether a judge or jury should decide the division of land issue.*fn5
On July 21, 2004, RATW and Rand filed a motion to exclude the testimony of Braun's damages expert. For the reasons set forth on the record on August 20, 2004, the judge granted the motion. On the same day, the judge ruled on the reserved issue, concluding that the trial within a trial would proceed before a judge rather than a jury.*fn6
On September 14, 2004, Braun filed a motion for leave to appeal the judge's interlocutory rulings. We denied the motion by an order filed on October 19, 2004.
The judge held a bench trial on whether a General Equity judge would have found a division of the land to be an appropriate remedy in the underlying shareholder dispute between July 25 and July 29, 2005. In an oral decision delivered on November 2, 2005, the judge found that a division of the land between the shareholders would not have been an available remedy. On February 15, 2006, the judge entered an order dismissing Braun's counterclaim and third-party complaint.
On December 11, 2006, the parties appeared before a Law Division judge for proceedings related to RATW's remaining claims against Braun for legal fees. At that proceeding, counsel for RATW informed the court that Braun wished to appeal the order dismissing the counterclaim and third-party complaint. Recognizing that such an appeal would be interlocutory while the fee dispute was outstanding, the parties agreed that RATW would voluntarily dismiss its complaint against Braun without prejudice. They agreed that, if we were to affirm the dismissal of Braun's counterclaim and third-party complaint, RATW's claims against Braun for legal fees would be submitted to binding arbitration. In the alternative, if we were to reverse the dismissal of Braun's counterclaim and third-party complaint, all of the claims would be tried together in one proceeding before a jury. The parties' agreement was memorialized by order dated January 5, 2007.
Braun filed a notice of appeal. We dismissed the appeal as interlocutory in an unpublished opinion. Rand, Algeier, Tosti & Woodruff v. Braun, No. A-3184-06T2 (App. Div. July 30, 2008). On February 4, 2010, RATW dismissed its fee claims against Braun with prejudice. This appeal followed.
The core issue raised on appeal is whether the trial judge correctly determined that Braun could not have prevailed in his efforts to obtain a division of the property owned by Montview so that each owner of Montview would acquire buildable lots. Braun argues that she utilized the wrong procedure by holding a bench trial and that, in any event, she reached the wrong result. We have concluded that the issue was amenable to determination as a matter of law, based on the record of the parties' relationship with each other, and that, consequently, a trial within a trial, whether a judge or a jury, was not needed.
Novin and the Novin Trust brought their action for the dissolution of Montview under N.J.S.A. 14A:12-7. That statute governs the involuntary dissolution of corporations. It provides, in pertinent part, as follows:
(1) The Superior Court, in an action brought under this section, may appoint a custodian, appoint a provisional director, order a sale of the corporation's stock as provided below, or enter a judgment dissolving the corporation, upon proof that
(b) The directors of the corporation . . . are unable to effect action on one or more substantial matters respecting the management of the corporation's affairs.
There can be no doubt from the record in this case that Braun and the Novin Trust were unable to "effect action on one or more substantial matters respecting the management of the corporation's affairs." The question before the General Equity judge was how best to resolve the deadlock. The court-appointed receiver recommended that Montview be dissolved and the property sold in an auction involving the two shareholders.
Braun asserts that he preferred an in-kind division of the property and distribution of building lots between the shareholders, and that the judge would have ordered that relief had it not been for the alleged malpractice of his attorneys. The record before us reflects that Braun and Novin had several discussions of such a division of the property over the years, but that no agreement in that regard was ever reached. It is clear from the record of the ongoing disputes and distrust between the parties that such an agreement was not going to result from a voluntary agreement between the shareholders. The question then becomes whether the General Equity judge would have ordered such relief over the Novins' objections if the point had been rigorously litigated by RATW and Rand.
Partition is an equitable remedy by which property, held by at least two people or entities as tenants in common or joint tenants, may be divided. Newman v. Chase, 70 N.J. 254, 260-61 (1976); see also N.J.S.A. 2A:56-1 to -44; R. 4:63-1. When property is subject to partition, a physical division of the property is one possible remedy. N.J.S.A. 2A:56-2 provides that "[t]he superior court may, in an action for the partition of real estate, direct the sale thereof if it appears that a partition thereof cannot be made without great prejudice to the owners, or persons interested therein." The manner in which property is partitioned is "within the discretion of the court." Greco v. Greco, 160 N.J. Super. 98, 102 (App. Div. 1978) (citing Newman, supra, 70 N.J. at 263). Nevertheless, "the law favors partition in kind." Swartz v. Becker, 246 N.J. Super. 406, 412 (App. Div. 1991).
The property at issue in this case, however, was owned solely by Montview, rather than jointly by Braun and the Novin Trust as tenants in common or joint tenants. Although it could have been jointly owned, Montview was formed so that Braun and Novin could benefit from the protections afforded by a corporate structure. Consequently, the property was not directly subject to an action for partition brought under N.J.S.A. 2A:56-2.
The General Equity judge would have had the discretion to order the property conveyed to the two shareholders as a way of disposing of Montview's sole asset on its dissolution. See Brenner v. Berkowitz, 134 N.J. 488, 514 (1993) (holding that the court "retains . . . discretion to fashion equitable remedies" not listed in N.J.S.A. 14A:12-7). A partition of the property, either in kind or by sale, could then have been ordered.
Nevertheless, the adversarial relationship between the shareholders, whatever the merits of who was at fault for their dysfunctional relationship, was simply not conducive to such a result. For such a distribution to work, Braun and the Novin Trust would have had to work together to a significant degree to effectuate an in-kind partition of the property into separate building lots and then in the development of their own lots despite their separate ownership. The history of their contentious relationship strongly suggests that they would not have been able to do so.
We are satisfied, based upon our review of the record, that it was highly unlikely that a General Equity judge would have ordered such relief over the objection of one of the shareholders. Our review of the record further convinces us that, although there were many issues of fact as to the merits of the dispute between the shareholders and the attribution of fault with respect to their difficulties, there can be no genuine issue of material fact (1) that there was a sufficiently dysfunctional relationship to warrant dissolution of the corporation and a remedy that would not require any continuing cooperation between Braun and the Novin Trust and (2) that a General Equity judge would, more likely than not, have refused to fashion a remedy requiring the transfer of the property to the shareholders and its subsequent in-kind partition based upon their relationship without regard to which of the parties was more at fault for the dysfunction.
Because an appeal is taken from the judge's ruling rather than the reasons for the ruling, we may rely on grounds other than those upon which the trial judge relied. See State v. Maples, 346 N.J. Super. 408, 417 (App. Div. 2002); State v. DeLuca, 325 N.J. Super. 376, 389 (App. Div. 1999), aff'd as modified, 168 N.J. 626 (2001). In essence, we treat the bench trial as the functional equivalent of cross-motions for summary judgment. We do not rely on the judge's findings of fact, instead we rely on the record before us, which demonstrates that the relationship between the parties precluded the relief sought by Braun, whatever the rights and wrongs of the difference between Braun and the Novins.