November 29, 2011
ROBERT CARRIL, IRENE CARRIL, AND M OF NEW BRUNSWICK, L.L.C., A LIMITED LIABILITY COMPANY, PLAINTIFFS-APPELLANTS,
ROBERT LYON, SUZANNE LYON, ROBERT A. LYON, III, DOUBLE R EQUITY PARTNERS, L.L.C., Q OF NEW BRUNSWICK, L.L.C., Q AND MOOS MANAGEMENT, L.L.C., Q&M MANAGEMENT COMPANY, L.L.C., DEFENDANTS, AND ROBERT LYON AND Q OF NEW BRUNSWICK, L.L.C., SUZANNE LYON, DOUBLE R EQUITY PARTNERS, L.L.C., THIRD-PARTY PLAINTIFFS-RESPONDENTS,
MAGGIEMOO'S INTERNATIONAL, L.L.C.,*FN1 THIRD-PARTY DEFENDANT-RESPONDENT.
On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-2675-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 12, 2011
Before Judges Payne and Reisner.
Plaintiffs Robert and Irene Carril and their counsel, Sarmasti, P.L.L.C., appeal an order imposing sanctions of $2,500 on them pursuant to Rule 1:4-8, the frivolous pleading rule, for having filed a motion to join third-party defendants MaggieMoo's International, L.L.C. and its successor entities as direct defendants in violation of an oral ruling by the Civil Presiding Judge, on February 5, 2010. In that ruling, the judge granted the request of plaintiffs' counsel for a first adjournment of the trial, scheduled for March 9, 2010, as the result of personal and professional considerations, but barred further motions except "third party defendant's motion [for summary judgment] premised on the outcome of [the motion judge's*fn2 ]
rulings [on pending motions by plaintiffs and defendants for summary judgment] on February 19th, 2010" and any motions for reconsideration. In granting an adjournment to May 24, 2010, the Presiding Judge stated:
I'm preventing any new or additional motions because I granted an adjournment. The adjournment is granted solely for personal conflict of counsel. The adjournment is not intended to be a vehicle to a wholesale . . . opening of either discovery or motions. As far as this court is concerned, the discovery end date is past, and the summary judgment motions have been made. The only exception will be a summary judgment motion by third-party defendant.
I cannot preclude any counsel from ever filing a motion for reconsideration, or I can't prevent counsel from filing an interlocutory appeal. But I can prevent the review of motions that are made simply on the luxury of getting an adjournment, and that's my ruling today.
The judge's ruling was not memorialized in an order.
The underlying dispute in this matter concerns allegations of fraud arising out of the sale of a MaggieMoo's ice cream franchise and sublease of a preapproved location for the operation of that franchise. In April 2009, defendants Robert Lyon and Q of New Brunswick, L.L.C. filed a third-party complaint against MaggieMoo's International, L.L.C. and successor entities seeking contribution and indemnity. After third-party defendants responded with a motion to dismiss the pleading, third-party plaintiffs sought, and by order dated September 25, 2009 were granted, the right to file amended pleadings. Amended third-party complaints for contribution were filed in October 2009 by defendants Robert Lyon and Q of New Brunswick, L.L.C. and by Suzanne Lyon and Double R Equity Partners, L.L.C. claiming that any nondisclosure or fraud was committed by third-party defendants. A motion to dismiss the third-party complaints was denied on November 20, 2009, and answers to the third-party complaints were filed on December 17, 2009, approximately one month after discovery had ended. There is no indication in the record that discovery was sought by third-party defendants or obtained from them.
On February 3, 2010, prior to the adjournment request and approximately one and one-half months after third-party defendants had answered the third-party complaints, plaintiffs filed a motion to bifurcate the trial of defendants from the trial of defendants' third-party claims or in the alternative to name MaggieMoo's International, L.L.C. as a direct defendant. The motion was denied by order dated March 18, 2010. The order also memorialized the motion judge's rulings on motions for summary judgment by plaintiffs and defendants, as well as its denial of defendants' application to remove plaintiffs' counsel as their attorney in the litigation.
On April 8, 2010, plaintiffs filed a motion seeking reconsideration of paragraph one of the court's March 18, 2010 order, denying plaintiffs' motion for summary judgment on Count One of the defendants' counterclaim, and paragraph two, granting defendants' motion for summary judgment on the second Count Eight*fn3 and Count Nine of plaintiffs' complaint. Additionally, in their motion, plaintiffs Robert and Irene Carril sought leave to amend their complaint to add third-party defendants as direct defendants. Prior to filing the motion, counsel called the motion judge's chambers to determine if the motion could be heard on short notice. The judge's law clerk informed counsel that he understood the Presiding Judge to have barred the filing of any further motions.
As a result of that conversation, in a letter to the motion judge in support of their motion, plaintiffs' counsel stated:
Plaintiffs believe that if Defendants have the right to accuse Maggie Moo's of having responsibility to Plaintiffs for the damages they have incurred, the Plaintiffs as the victims of the wrongdoing should not be barred from amending their complaint to directly seek the same from the third-party defendants. As Your Honor will note from Plaintiffs' papers, the scope of the factual allegations Plaintiffs wish to raise against the third-party defendants through their amended complaint is no greater than what the Defendants began alleging against the third-party defendants for the first time in late October 2009 (less than one month prior to the discovery end date). Therefore, the third-party Defendants already have notice, and presumably have been preparing to defend such allegations during trial.
Additionally, plaintiffs' counsel argued that newly discovered evidence made it necessary to name third-party defendants as direct defendants "in order to avoid inevitable depletion (if not complete elimination) of their damages."
Counsel's letter then addressed the Presiding Judge's ruling at the time that an adjournment of trial was granted, stating that he did not understand the judge "to forbid any of the parties from seeking leave to amend their pleadings, which generally shall be granted in the interest of justice." However, he enclosed a copy of the transcript of the adjournment hearing, and stated further:
If [the] Order from February 5, 2010 was meant to also bar the parties from seeking leave to amend their pleadings, and I have misunderstood, please inform me in writing and I will withdraw that portion of Plaintiffs' motion which seeks leave to amend (though I will have to do so with reservation of Plaintiffs' rights).
A copy of the letter was sent to the Presiding Judge.
On April 9, 2010, counsel for the third-party defendants wrote to the motion judge, noting that plaintiffs' motion was untimely and inquiring whether it would be considered. Additionally, third-party defendants' counsel stated that he believed plaintiffs' motion to amend their pleadings violated the Presiding Judge's ruling, and for that reason, he had sent a "safe harbor" letter, pursuant to Rule 1:4-8, to plaintiffs' counsel. However, third-party defendants' counsel stated that if his interpretation of the Presiding Judge's order were incorrect and plaintiffs' counsel was permitted under that order to amend plaintiffs' pleadings, "we will retract that portion of the Safe Harbor letter."*fn4 No response was made to either counsel's letter.
Thereafter, on April 21, 2010, third-party defendants' counsel cross-moved for sanctions pursuant to Rule 1:4-8. A hearing was held on the cross-motions on April 30, 2010 before the motion judge. Following argument, the judge denied plaintiffs' motion to amend their complaint to name third-party defendants as direct defendants. The judge disclosed that when the Presiding Judge had granted plaintiffs' adjournment request, he had advised the motion judge that there would be no other motions other than motions for reconsideration and/or leave to appeal. In the motion judge's view, plaintiffs' motions for bifurcation*fn5 and for leave to amend their complaint were in direct contravention of the Presiding Judge's February 5, 2010 ruling. Additionally, he determined that the amendment would cause third-party defendants undue prejudice and would result in significant delays. Although third-party defendants had been parties to the litigation only since December 17, 2009, the judge also premised his ruling on the doctrine of laches. Additionally, the motion judge granted third-party defendants' motion for sanctions, again noting incorrectly that plaintiffs' counsel had filed two motions in clear contravention of the Presiding Judge's ruling. A sanction of $2,500 was established by order of May 3, 2010. A motion for reconsideration was denied. This unopposed appeal from the motion judge's orders followed.
Rule 1:4-8(a) provides:
The signature of an attorney . . . constitutes a certificate that the signatory has read the pleading, written motion or other paper. By signing, filing or advocating a pleading, written motion, or other paper, an attorney . . . certifies that to the best of his or her knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:
(1) the paper is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the factual allegations have evidentiary support or, as to specifically identified allegations, they are either likely to have evidentiary support or they will be withdrawn or corrected if reasonable opportunity for further investigation or discovery indicates insufficient evidentiary support; and
(4) the denials of factual allegations are warranted on the evidence or, as to specifically identified denials, they are reasonably based on a lack of information or belief or they will be withdrawn or corrected if a reasonable opportunity for further investigation or discovery indicates insufficient evidentiary support.
Subparagraph (b) of the rule provides a procedural mechanism for an award of monetary sanctions should the signature rule be violated, and subparagraph (d) authorizes sanctions "limited to a sum sufficient to deter repetition" of the conduct at issue.
Our review of the record of this matter satisfies us that the motion judge mistakenly exercised his discretion in imposing sanctions in this matter. See United Hearts, L.L.C. v. Zahabian, 407 N.J. Super. 379, 390 (App. Div.) (recognizing abuse of discretion as standard for review of an award of sanctions), certif. denied, 200 N.J. 367 (2009). As we have stated:
For purposes of imposing sanctions under Rule 1:4-8, an assertion is deemed "frivolous" when "'no rational argument can be advanced in its support, or it is not supported by any credible evidence, or it is completely untenable.'" First Atl. Fed. Credit Union v. Perez, 391 N.J. Super. 419, 432 (App. Div. 2007) (quoting Fagas v. Scott, 251 N.J. Super. 169, 190 (Law Div. 1991)).
"Where a party has [a] reasonable and good faith belief in the merit of the cause, attorney's fees will not be awarded." Ibid. (citing DeBrango v. Summit Bancorp., 328 N.J. Super. 219, 227 (App. Div. 2000); K.D. v. Bozarth, 313 N.J. Super. 561, 574-75 (App. Div.), certif. denied, 156 N.J. 425 (1998)). When considering sanctions under Rule 1:4-8, the court must give a "'restrictive interpretation'" to the term "'frivolous'" in order to avoid limiting access to the court system. Id. at 433 (quoting McKeown-Brand v. Trump Castle Hotel and Casino, 132 N.J. 546, 561-62 (1993). [United Hearts, supra, 407 N.J. Super. at 389-90.]
In the present case, the evidence fails to support the motion judge's conclusion that plaintiffs' motion was frivolous or that it was presented for an improper purpose. Indeed, motions by plaintiffs to assert direct claims against third-party defendants are a commonplace. See R. 4:8-1(b) (authorizing procedure). Nor, in circumstances in which defendants sought to pass through any liability found to exist to third parties, could a motion by plaintiffs to assert direct claims against those third parties be deemed groundless. The problem identified by the judge in his ruling was not that plaintiffs' motion was frivolous, but that it was arguably unauthorized. As such, we question the applicability of Rule 1:4-8 as a sanction in the matter and suggest that, if a sanction were to be imposed, plaintiffs' counsel would have to be adjudged in contempt of court.
Moreover, we find no evidence in the record to support a claim that plaintiffs' counsel willfully disregarded the ruling of the Presiding Judge by filing a motion that, in counsel's view, would not delay trial in the matter or occasion the need for further discovery. Indeed, as we have stated previously, it does not appear that any discovery was exchanged between defendants and third-party defendants, thereby suggesting that such discovery was unnecessary. Additionally, counsel expressed his uncertainty as to the scope of the Presiding Judge's ruling in his letter to the motion judge, furnished a transcript of the adjournment hearing to him for reference, informed the Presiding Judge of his uncertainty by copying him on the letter, and expressed his willingness to withdraw the motion should he be instructed in writing to do so. Counsel for third-party defendants similarly agreed to retract his sanctions motion if his contrary understanding of the Presiding Judge's ruling was in error. However, no instruction was given by either judge.
Although not argued by the parties, we also note that the March 18, 2010 order indicates that plaintiffs not only sought bifurcation, but also moved in the alternative for leave to name the third-party defendants as direct defendants. Thus, plaintiffs' April 8, 2010 motion can be deemed a motion for reconsideration, which was not barred by the terms of the Presiding Judge's ruling.
As a consequence of the foregoing, we reverse the orders under review, concluding that sanctions are not warranted as the result of plaintiffs' counsel's conduct.