January 27, 2012
THOMAS J. MALLON, PLAINTIFF-RESPONDENT,
ROY SCOTT, SCOTT STERN, REMAX VILLAGE SQUARE-SOUTH ORANGE, MICHAEL J. DELVACCHIO, JR., ANGELA DELVACCHIO, GENE GODOWSKI, LAND AMERICA PROPERTY INSPECTION SERVICES, DEFENDANTS, AND MLZ CORPORATION, LLC AND MICHAEL ZIMMERMANN, DEFENDANTS-APPELLANTS.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-2192-10.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 7, 2011
Before Judges Waugh and St. John.
Defendants MLZ Corporation, LLC (MLZ), and its principal Michael Zimmermann appeal from the order of the Law Division denying their motions for an award of counsel fees against plaintiff Thomas J. Mallon and his attorneys Randall L. Tranger and Michael D. Halbfish. We affirm.
On April 30, 2010, Mallon filed suit against MLZ, Zimmermann, and others with respect to damage caused by groundwater leaking into the basement of his residence, which had been built by MLZ and Zimmermann. Earlier litigation against MLZ and Zimmermann brought by prior owners of the residence had been settled and dismissed with prejudice.
In June 2010, MLZ and Zimmermann served a frivolous litigation notice on Mallon pursuant to Rule 1:4-8, demanding that the complaint be dismissed. The notice asserted that Mallon's claim was barred by the doctrine of res judicata because of the dismissal with prejudice of the suit filed by his predecessors in title and was not otherwise well founded in fact or law. A second notice was served in November, premising the demand for dismissal on the additional ground that Mallon's suit was barred by the applicable statute of limitations. Mallon declined to withdraw the complaint in response to either notice.
MLZ and Zimmermann moved for summary judgment, arguing that Mallon's claims were barred by both res judicata and the statute of limitations. Following the argument on March 18, 2011, the motion judge delivered an oral decision in which he found that Mallon's claims against MLZ and Zimmermann were not barred by res judicata. However, the judge concluded that the claims were barred by the statute of limitations. He entered an order of dismissal with prejudice.
On March 31, 2011, MLZ and Zimmermann filed a motion seeking sanctions by way of counsel fees against Tranger and Halbfish, pursuant to Rule 1:4-8, and against Mallon, pursuant to N.J.S.A. 2A:15-59.1. The motion was argued before a different judge on May 27, 2011. The second judge denied the motion in an oral decision. She entered an appropriate order the same day. This appeal followed.*fn1
On appeal, MLZ and Zimmermann argue that the second judge erred in refusing to award counsel fees. Mallon, Tranger, and Halbfish argue that the judge did not abuse her discretion because they had a good faith belief that Mallon's claim was legally and factually viable.
As a general proposition, the parties in civil litigation must bear their own counsel fees, even if they are the prevailing party. There are exceptions to the general rule, as set forth in Rule 4:42-9. They include fee shifting permitted by court rule and statute. R. 4:42-9(a)(7), (8).
Both N.J.S.A. 2A:15-59.1 and Rule 1:4-8 permit a prevailing party to seek counsel fees and expenses by way of sanction for the filing of frivolous claims. The statute provides for sanctions against parties, while the rule applies to counsel and selfrepresented parties.
N.J.S.A. 2A:15-59.1(a)(1) provides that:
[a] party who prevails in a civil action, either as plaintiff or defendant, against any other party may be awarded all reasonable litigation costs and reasonable attorney fees, if the judge finds at any time during the proceedings or upon judgment that a complaint, counterclaim, cross-claim or defense of the non-prevailing person was frivolous.
For the purpose of the statute, a finding that the pleading is "frivolous" must be based upon a finding that:
(1) The complaint, counterclaim, cross-claim or defense was commenced, used or continued in bad faith, solely for the purpose of harassment, delay or malicious injury; or
(2) The non-prevailing party knew, or should have known, that the complaint, counterclaim, cross-claim or defense was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law. [N.J.S.A. 2A:15-59.1(b).]
The considerations for awarding sanctions under Rule 1:4-8 are similar. They are directed to the conduct of counsel or pro se parties who file pleadings in violation of the certification required by Rule 1:4-8(a).
Rule 1:4-8(f) provides that, "[t]o the extent practicable, the procedures prescribed by this rule shall apply to the assertion of costs and fees against a party other than a pro se party pursuant to N.J.S.A. 2A:15-59.1." See Toll Bros., Inc. v. Twp. of W. Windsor, 190 N.J. 61, 72 (2007) ("[T]he public policies underlying N.J.S.A. 2A:15-59.1 militate in favor of requiring that claims against parties meet the Rule's procedural requirements to the fullest extent possible.").
We review a judge's decision concerning sanctions pursuant to the statute or the rule under an abuse of discretion standard. Shore Orthopaedic Grp., LLC v. Equitable Life Assur. Soc'y of the U.S., 397 N.J. Super. 614, 623 (App. Div. 2008), aff'd o.b., 199 N.J. 310 (2009); Ferolito v. Park Hill Ass'n, 408 N.J. Super. 401, 407 (App. Div.), certif. denied, 200 N.J. 502 (2009). "Reversal is warranted when 'the discretionary act was not premised upon consideration of all relevant factors, was based upon consideration of irrelevant or inappropriate factors, or amounts to a clear error in judgment.'" Ferolito, supra, 408 N.J. Super. at 407 (quoting Masone v. Levine, 382 N.J. Super. 181, 193 (App. Div. 2005)).
At oral argument before us, MLZ and Zimmermann informed us they were not alleging that Mallon and his attorneys had been acting in "bad faith, solely for the purpose of harassment, delay or malicious injury." N.J.S.A. 2A:15-59.1(b)(1). Instead, they premised the claim for sanctions on their assertion that Mallon and his attorneys "knew, or should have known, that the complaint . . . was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law." N.J.S.A. 2A:15-59.1(b)(2). Consequently, we focus our review on that provision.
The first issue is whether Mallon's complaint should have been withdrawn after MLZ and Zimmermann served their notice asserting that the claim was barred by res judicata. The first motion judge disagreed on the merits of that assertion, finding that the claim was not barred because there had been no true determination on the merits of the claim and Mallon had not been a party to the prior litigation. We are of the view that frivolous claim sanctions are not ordinarily available when the trial court has found the argument at issue sufficiently viable to have accepted it as legally correct, even were we to conclude that it was incorrect. There is nothing about this case that would warrant a different result.
The second issue was whether Mallon's claims were so clearly barred by the applicable statute of limitations that the failure to withdraw them after the second notice from MLZ and Zimmerman warrants sanctions. Here, the first motion judge found against Mallon on the merits of the limitations issue, but the second motion judge nevertheless concluded that sanctions were not warranted.
The first motion judge framed the issue as whether Mallon knew or should have known about the "hidden" pipe on the property prior to the close of the limitations period in June 2009. Because Mallon knew that there had been flooding in the basement prior to purchasing the residence in 2008, the first judge concluded that Mallon would have discovered the facts necessary to make a claim against MLZ and Zimmermann within the limitation period had he exercised the required due diligence. The second judge concluded that Mallon and his attorneys nevertheless had a good faith basis to believe their discovery rule argument, that the running of the statute was tolled until Mallon's actual discovery of the hidden pipe, was reasonably viable, such that their refusal to withdraw the complaint did not warrant sanctions. We are satisfied that the second judge's conclusion in that regard was not an abuse of discretion warranting reversal.