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Leslie Smith v. Bette R. Grayson

December 19, 2011


On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-2444-08.

Per curiam.


Argued October 17, 2011

Before Judges Parrillo, Grall and Skillman.

In this legal malpractice action, plaintiff Leslie Smith sued her former attorney, defendant Bette Grayson, alleging professional negligence in advising plaintiff to take an inadequate divorce settlement. Grayson then filed a third-party negligence complaint against Jeffrey Epstein and his former law firm, Wilentz, Goldman, and Spitzer, P.A. (Wilentz), who was retained by plaintiff as a consultant in her then pending divorce action. As part of discovery, plaintiff obtained an expert report from a matrimonial attorney who concluded Grayson was negligent. Following discovery, Grayson sought summary judgment on plaintiff's complaint and to strike plaintiff's expert report as a net opinion. Epstein and Wilentz also sought summary judgment on Grayson's third-party complaint. The trial judge granted both motions and dismissed all claims. As to the former, the court held plaintiff was equitably estopped from suing Grayson because the terms of the settlement had been set forth on the record and plaintiff testified she believed the settlement was fair and equitable. The court also found that plaintiff's expert rendered a net opinion, and, without it, she could not prove breach, causation or damages. In dismissing Grayson's third-party action against Epstein and Wilentz, the court found that there was no expert proof of their professional negligence. Both plaintiff and defendant filed appeals, which were consolidated. For reasons that follow, we affirm the summary judgment dismissal of the third-party action and reverse the dismissal of plaintiff's complaint and remand.

On May 10, 2000, plaintiff retained defendant to obtain a divorce from her husband of twenty-two years, Lorre Smith. At the time, plaintiff, an audiologist, was forty-six years old with an earning history averaging $42,000 per year dating from 2000, the year she returned to full-time work. Her husband was forty-eight years old and an attorney with a solo practice and average reported income of $246,000 for the years 1998 to 2000. There were two children of the marriage born in 1985 and 1989.

Plaintiff filed her divorce complaint in September 2000. By all accounts, the ensuing litigation was acrimonious and contentious, exacerbated by the fact that the couple continued to reside together in the marital home. Frustrated at the pace of the litigation, plaintiff retained Epstein, then of Wilentz, in November 2001. According to plaintiff, Epstein was retained as a "consultant" and he and Grayson were "hired to do two different things." Grayson was to "get the case settled, to get [plaintiff] a fair settlement, or to go to trial." Epstein, meanwhile, was "to propose different settlement agreements that . . . Grayson could revise to help get the case moving along."

Settlement negotiations commenced in June 2001 when the husband proposed limited duration alimony of $28,600 per year for ten years and child support of $300 per week. Plaintiff countered with a demand for $100,000 annual permanent alimony and weekly child support of $850. Privately, Grayson advised plaintiff that given the length of the marriage, she was likely entitled to permanent alimony in the approximate amount of thirty percent of the difference in the couple's respective yearly incomes. Their strategy, then, was to "stop the bleeding" and use permanent alimony as leverage or a bargaining chip to obtain assets for plaintiff to which she otherwise might not be entitled in equitable distribution. Consequently, a draft property settlement agreement, prepared by Epstein on February 14, 2002, provided that plaintiff retain the marital home, appraised at $750,000, less $75,000 representing the husband's share of its equity, in return for agreeing to waive permanent alimony and accepted limited-duration alimony, stepped-down for nine years. See infra at 24, n.7.

On April 3, 2002, plaintiff and Grayson, together with their accountant, appeared in court for a settlement conference. The judge informed the parties that their matter would be transferred to another judge's calendar for trial and that they would not likely receive a trial date until late 2002 or early 2003. All-day settlement talks ensued, with plaintiff's accountant doing most of the back-and-forth shuttling and negotiations.*fn1

At the end of the day, Grayson informed plaintiff that an agreement had been reached and urged her to accept it. The agreement called for, among other things, plaintiff to leave the marital residence and receive $240,000, as her one-half share of the equity in the home; a $90,000 lump sum payment representing plaintiff's interest in her husband's law practice; limited duration alimony of $50,000 per year for five years and $35,000 per year thereafter for four years; and a $50,000 lump sum payment for her waiver of any claim to permanent alimony.

After the settlement was reached, the parties returned to court to explain its terms on the record and give their assent. Plaintiff testified that she understood the settlement, had conferred with Grayson and Epstein, had taken part in negotiations, understood that she was giving up her right to lifetime alimony and voluntarily decided to do so, and believed the settlement was a reasonable one. Plaintiff later confirmed in her deposition that at the time the agreement was reached, she believed she was getting the best settlement possible.

It was not until several years later - when plaintiff consulted Epstein on a post-judgment matter in 2006 and Epstein supposedly told her that Grayson should not have recommended the buyout of plaintiff's interest in the house together with the limited-duration alimony - that plaintiff suspected defendant of being professionally negligent in her legal representation of plaintiff's divorce. According to plaintiff, her removal from the marital home was not proposed until the very end of the negotiations, "came out of nowhere," and Grayson "encouraged and pushed" her to accept the deal lest she "was never going to get divorced."

In her legal malpractice action filed on March 20, 2008, plaintiff's core complaint against Grayson focused on this change from plaintiff retaining the marital home to having her interest therein bought out by her ex-husband. To this end, plaintiff retained as her expert a matrimonial attorney, who prepared a twenty-two page expert report concluding that Grayson was professionally negligent in not counseling plaintiff to reject the settlement, which was well below the range she would have received at trial. The expert first opined that plaintiff was entitled to permanent alimony based on the applicable factors of N.J.S.A. 2A:34-23, including the length of the marriage, the age of the parties and their comfortable standard of living, and the substantial disparity in their income and earning capacity.

As to the quantum of alimony, the expert pointed to a rule of thumb amongst matrimonial practitioners that alimony should be one-third of the difference in the parties' incomes. Based on the husband's historical earning capacity of between $225,000 and $250,000,*fn2 the expert opined that plaintiff would have been awarded permanent alimony at trial in the range of $60,000 to $72,000 per year. Of course, this figure may be adjusted upwards or downwards depending on the statutory factors. In the expert's view, "in a long-term marriage with older parties, an established standard of living and a large disparity not only in income but in the ability to generate future income, the alimony will be substantially more." An additional consideration weighing in favor of a higher award to plaintiff is the fact that alimony is tax deductible to the payor and taxable to the payee.

Despite the certainty of such an outcome at trial, the expert nevertheless recognized that the parties are "free to negotiate for duration of alimony less than the court would award in a permanent alimony case." In fact, the expert acknowledged that it would have been advantageous for plaintiff in this case to trade permanent alimony for either additional assets in equitable distribution, a higher amount of alimony for a shorter period of time, a satisfactory buyout of the permanent alimony obligation, or any combination of these alternatives, none of which, however, plaintiff obtained in the settlement.

As to one of these options, the expert attempted to calculate the husband's cost to buyout his permanent alimony obligation. According to the expert, the appropriate methodology "would have been to calculate the amount that would otherwise be paid as permanent alimony. This amount is then reduced by the taxes [plaintiff] would be required to pay and is further adjusted by a present value discount factor since she is receiving the money, theoretically, up front." Using this approach, and assuming a seven-year term, the expert calculated the lump sum buyout would be in the range of $225,000 to $300,000. So measured, the expert concluded "[t]here is no justification for the $50,000 payment in lieu of permanent alimony" in this case and that Grayson's failure to engage in this calculation "was a deviation from the standards of matrimonial practice." Instead, the expert concluded, a waiver of the husband's interest in the marital home, assuming his equity share to be $240,000,*fn3 "would have been a reasonable compromise in a settlement." The expert went on to estimate plaintiff's damages in the range from $240,000 to $320,000 plus ...

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