On certification to the Superior Court, Appellate Division.
The opinion of the court was delivered by: Judge Wefing
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Julia Gere v. Frank A. Louis, Esq., and John DeBartolo, Esq.
Argued November 7, 2011 -- Decided March 6, 2012
WEFING, P.J.A.D. (temporarily assigned), writing for a unanimous Court.
In this appeal, the Court considers whether plaintiff's legal malpractice claim is barred under Puder v. Buechel, 183 N.J. 428 (2005).
Defendant Frank A. Louis, Esq., represented plaintiff Julia Gere in connection with plaintiff's divorce from Peter Ricker. Pursuant to the property settlement agreement, plaintiff had a six month window, which ended in October 2000, to decide how she wished to proceed with respect to the parties' ancillary real estate investments. Plaintiff's understanding was that she would retain a one-half interest in those assets unless she affirmatively advised Ricker within six months that she did not wish to do so. One of those assets was Navesink Partners, which owned both the real estate and business operations of a marina. Based on Louis's interpretation of plaintiff's wishes after a discussion with her friend, Louis sent a letter dated October 11, 2000, to Ricker's attorney stating, "this will confirm that except for the Marina, Mrs. Ricker wishes to maintain one-half interest in all other properties." Subsequently, a dispute arose in which Ricker maintained that plaintiff had waived any interest in Navesink Partners, and plaintiff contended that she did not waive her interest, that she wanted to continue her ownership interest in the marina's real estate, and that she was entitled to fair value for her interest in the marina's business operations. A post-judgment litigation was commenced.
Defendant John DeBartolo, Esq., succeeded Louis as plaintiff's attorney. The parties agreed to a sixty-day discovery period, after which they filed cross-motions for summary judgment. The trial court denied the motions in August 2003 and ordered a plenary hearing, which was not scheduled until 2006. Shortly before the plenary hearing, Carl Soranno, Esq., succeeded DeBartolo as plaintiff's attorney. Soranno learned that DeBartolo did not conduct discovery with respect to plaintiff's interest in Navesink Partners. The trial court only permitted Soranno limited discovery. The eight-day plenary hearing concluded on October 12, 2006. In addition, the trial court equitably tolled the statute of limitations for initiating a malpractice claim against Louis until May 11, 2007. Prior to the trial court's decision, on July 27, 2007, the parties achieved a settlement in which plaintiff agreed to receive a reduced interest to avoid the risk of the trial court finding that she was not entitled to anything. The agreement provided that as of January 1, 2007, plaintiff would have a one-half interest in Ricker's ownership in the marina's real estate and a forty percent interest in his ownership in the marina's business operations. The agreement also preserved plaintiff's right to pursue claims against her former attorneys. In response to Ricker's attorney's inquiry into whether plaintiff believed the agreement was fair and reasonable to her, she answered "Yes. I'm signing it. It's the best I could do."
In November 2007, plaintiff filed a malpractice action against Louis and DeBartolo alleging that each had been negligent and that as a consequence, she received less in the July 2007 settlement than she was entitled to under the original settlement. The trial court granted summary judgment to both defendants, finding that Puder barred plaintiff's action and that plaintiff's claim against Louis was time-barred. The Appellate Division affirmed, finding that plaintiff's claim against Louis was time-barred and Puder precluded her claim against DeBartolo because she voluntarily entered into the July 2007 settlement agreement, which she testified was fair and reasonable. The Court granted certification, limited to the issue of whether Puder barred plaintiff's malpractice claim against DeBartolo. 205 N.J. 271 (2011).
HELD: Because the situation here is materially distinguishable from that which was considered in Puder, plaintiff's legal malpractice claim is not barred.
1. Because this appeal arises from the grant of summary judgment, the Court's review of the legal conclusions reached by the trial court and the Appellate Division is de novo. New Jersey has a strong public policy in favor of the settlement of litigation. (pp. 20-21)
2. In Puder, Virginia Puder, Esq., represented Mrs. Buechel in a divorce action against Dr. Buechel. Before trial, although Puder had not conducted significant discovery, Puder negotiated a property settlement agreement. After Mrs. Buechel authorized Puder to accept the settlement and the court was advised that the matter had been settled, but prior to the completion and execution of a written settlement, another attorney advised Mrs. Buechel that the terms were inadequate. Mrs. Buechel told Puder that she would not comply with the settlement, discharged Puder, and hired another attorney. Dr. Buechel then moved to enforce the settlement, and a plenary hearing was ordered. A separate action was initiated in which Mrs. Buechel alleged that Puder had been negligent in negotiating the settlement. The enforcement matter proceeded before the malpractice action and, after six days of testimony, a settlement was reached. Mrs. Buechel testified that she entered the settlement voluntarily and considered the agreement a fair compromise. Subsequently, Puder filed a motion for summary judgment in the malpractice action. The trial court granted the motion, finding that plaintiff, by agreeing to the second settlement before the validity of the first settlement had been determined, had waived her right to pursue a malpractice action against Puder for her work in connection with the first settlement. The Appellate Division reversed, concluding that under Ziegelheim v. Apollo, 128 N.J. 250 (1992), "a former client [may] bring a legal malpractice action against an attorney for professional negligence in divorce litigation where a settlement ensued." This Court reversed, concluding that any alleged deficiency resulting from the first settlement was ameliorated by the second settlement that Mrs. Buechel deemed to be fair and equitable. This Court noted that unlike the plaintiff in Ziegelheim, Mrs. Buechel made a calculated decision to accept the second settlement before the trial court could decide whether the first settlement was enforceable, and Mrs. Buechel entered the second settlement aware of the discovery deficiencies leading up to the first settlement. In that posture, this Court declined to permit Mrs. Buechel to pursue her legal malpractice claim. (pp. 21-26)
3. Puder did not erect an absolute bar to a claim of malpractice if a former client enters into a settlement with regard to the underlying action before obtaining a decision with respect to the complained-of conduct of the attorney. Puder represented a limited equity-based exception to Ziegelheim's general rule, and that exception is not warranted by the facts of this matter. Puder barred the client's malpractice claim because her testimony demonstrated that the second settlement cured the deficiencies she perceived in the first settlement and placed her in the situation she contended she should have occupied at the outset. That is not the situation here. Plaintiff, unlike Mrs. Buechel, made no claim of malpractice with respect to the negotiation of the original property settlement agreement; rather, her claim arose out of Louis's post-settlement actions. (pp. 26-27)
4. Plaintiff's claim with respect to DeBartolo is also distinguishable from that asserted in Puder. While the second Puder settlement essentially placed Mrs. Buechel in the same position as she had been at the outset, the second settlement here did not have that effect. Plaintiff contended that under the first settlement agreement, she had, at the end of the six-month window in October 2000, an interest in all of Navesink Partners' assets. Under the settlement to which she acceded, her interest in Navesink Partners was computed as of January 2007. As a result, she lost nearly six and one-half years of participation in the partnership. In addition, plaintiff's statement that the July 2007 settlement was "fair" and "reasonable" does not preclude her from now seeking damages from DeBartolo. The assessment of the settlement's fairness and reasonableness must account for plaintiff's allegation that DeBartolo's failure to engage in meaningful discovery severely hampered her successor attorney's ability to establish her claim, and because this matter was decided by way of summary judgment, the Court is compelled to credit plaintiff's assertion in that respect. (pp. 27-29)
The judgment of the Appellate Division is REVERSED and the matter is REMANDED to the trial court for further proceedings consistent with the Court's opinion.
CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, HOENS and PATTERSON join in JUDGE WEFING's opinion.
Judge Wefing (temporarily assigned) delivered the opinion of the Court.
We granted certification in this matter to consider whether plaintiff's legal malpractice claim is barred under Puder v. Buechel, 183 N.J. 428 (2005), when, as part of her resolution of a property dispute with her former spouse, plaintiff entered a settlement agreement that included a reservation of rights to sue her former attorneys. The Appellate Division, in an unpublished opinion, affirmed an order of the trial court that dismissed plaintiff's legal malpractice claim, finding it barred under Puder. Because we deem this situation to be distinguishable from that which we considered in Puder, we conclude that her malpractice action is not barred. We thus reverse the judgment of the Appellate Division and remand this matter for further proceedings.
Plaintiff Julia Gere was married to Peter Ricker for more than thirty years; eventually, in 1997, they commenced divorce proceedings that were, unfortunately, acrimonious. The couple had acquired substantial assets over the course of their marriage, and they finally resolved the economic issues attendant to their divorce proceedings in a property settlement agreement dated March 13, 2000. Each of the parties was represented by sophisticated counsel in connection with the negotiation, preparation, and execution of that property settlement agreement. Plaintiff had the assistance of an accountant and a financial adviser as well.
Under the property settlement agreement, plaintiff was to receive alimony for a fixed term of seven years, in the set amount of $250,000 per year. The parties agreed that the amount of that alimony could neither be increased nor decreased and that the seven-year period could not be extended.
The agreement further provided in great detail for the equitable distribution of the parties' various assets. Article 17 of the agreement dealt with what they referred to as "Ancillary Real Estate Investments." Article 17.1(a) provided in pertinent part:
The parties acknowledge having acquired interest [sic] in various parcels of real estate . . . . [Plaintiff] shall have a period of 6 months from 4-1-2000 . . . to review all financial records concerning these investments. . . . Prior [to] the expiration of six months, [plaintiff] shall be required to notify [Ricker] of her decision concerning the status of these investments. If [plaintiff] determines she no longer wishes to  remain an equal partner in these assets, then and in that event, she shall relinquish any and all claims, legal or equitable, as to the distributability of these properties . . . .
In the event [plaintiff] opts to waive her interest in these assets, then and in that event, [Ricker] shall fully and completely indemnify [plaintiff] as to any obligations arising out of these assets.
Article 17.3 provided in further pertinent part:
In the event [plaintiff] fails to notify [Ricker] in writing within the six month period subsequent to final execution of this Agreement, then and in that event, the parties shall maintain these assets jointly and equally in a fashion to be set forth in a Partnership Agreement consistent with all of the terms and conditions of [Ricker's] present partnership agreement to be prepared at that time. . . .
Defendant Louis was the attorney who represented plaintiff in the divorce proceedings and the negotiation of the property settlement agreement. He testified in his deposition that the property settlement agreement included this six-month window for plaintiff to decide how she wished to proceed with respect to these ancillary real estate investments. The six-month period would allow plaintiff to consider the economic implications of whatever choices she made as well as to consider whether she wished to remain in any business relationship with Ricker at all. Plaintiff's understanding of these provisions was that she would retain a one-half interest in all of her former husband's interest in the ancillary real estate investments unless she affirmatively advised him within six months that she did not wish to do so.
One of the assets included under the umbrella term "Ancillary Real Estate Investments" was Navesink Partners, LLC (Navesink Partners), which owned a marina. The assets of Navesink Partners included three tracts of land on which stood a restaurant, a two-story office building, a boat-repair shop, and a parking area. The land also held two marinas, one of which had 126 boat slips, the other nine. In addition to this real estate, Navesink Partners also owned and operated the business operations of the marina, such as repairs, fuel services, storage, leasing, and related activities.
Under 17.1(a) and 17.3 of the property settlement agreement, plaintiff was to notify Ricker in October 2000 of her decision with respect to these various ancillary investments.
On October 4, 2000, Ricker, not having heard from plaintiff, wrote to defendant Louis to request a written statement with respect to her decision regarding these assets. Upon receipt of this letter, Louis called plaintiff to inquire with respect to her decision.
Louis's call was answered by plaintiff's friend John Hope, on whom, Louis knew, plaintiff relied for advice. Louis testified in his deposition that in light of the close relationship between plaintiff and Hope, he viewed his conversation with Hope as the equivalent of a conversation with plaintiff. He asked Hope whether plaintiff had made a decision with respect to the marina, and Hope responded, "real estate, yes, marina, no." In his deposition, Louis was not certain whether he spoke directly to plaintiff during this conversation or whether he relied solely on Hope's response. Nor did he recall any discussion about the fact that one entity owned both the business operations of the marina and the land on which it was located.
Hope submitted a certification detailing his recollection of this telephone call. He said that Louis did not speak to plaintiff and did not ask to do so and, further, that he was never authorized to make any decisions on plaintiff's behalf. Hope said his understanding, and plaintiff's understanding, was that by the time of this telephone call, the six-month period had already expired, with the result that plaintiff held a one-half share of her husband's interest in these various real estate investments, including Navesink Partners. Hope said the thrust of what he communicated to Louis in this conversation, which he characterized as "short" and "abrupt", was that plaintiff wished to retain her interest in the marina's real estate but to be bought out with respect to its business operations.
Based on his interpretation of Hope's response, Louis prepared the following letter dated October 11, 2000, for Ricker's attorney: "In accordance with the option provided Julia Ricker under the real estate portion of the Property Settlement Agreement, this will confirm that except for the Marina, Mrs. Ricker wishes to maintain one-half interest in all other properties." He did not send a draft of this letter to either plaintiff or Hope before he sent it to Ricker's attorney.
Plaintiff testified in a deposition that she did not speak to Louis during his telephone conversation with Hope and did not even hear Hope speaking with him. In a deposition she was asked whether she had authorized Louis to send the October 11, 2000, letter and she responded, "Yes, I guess," but in a subsequent hearing she testified that she had been under stress ...