May 30, 2012
ST. ANARGYROI, XIX, INC. AND MIVILA CORPORATION, PLAINTIFFS-APPELLANTS,
ATLANTIC TITLE AGENCY, INC. AND WILLIAM MCLAUGHLIN, DEFENDANTS, AND ALINE GROSSMAN, ESQ., DEFENDANT-RESPONDENT.
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-10056-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 13, 2012
Before Judges Messano and Guadagno.
St. Anargyroi XIX, Inc. (St. Anargyroi) agreed to sell its business, the Forum Diner, liquor license and leasehold interest in certain real property for $3.3 million to Leigh and Kevin Ormes, acting on behalf of their company, Woo, LLC (Woo). Consistent with the parties' initial and supplemental agreements, St. Anargyroi was to assign its interests to Mivila Corporation (Mivila).*fn1 A contract, executed in February 2006, provided that at closing, in addition to other consideration, plaintiffs would receive a promissory note in the amount of $1.9 million, and a second promissory note for $200,000, with both notes secured by a second mortgage subject only to a $600,000 first mortgage in favor of Oritani Savings Bank (Oritani). Oritani's $600,000 mortgage was cross-collateralized by a mortgage on commercial property in Upper Saddle River owned by 17 Properties, LLC (17 Properties); the Ormeses were the sole shareholders of 17 Properties. As additional collateral, plaintiffs were to receive a mortgage on the Upper Saddle River property, subordinate only to Oritani's mortgage.
The closing did not take place until March 23, 2007. The Ormeses and their corporate entities were represented by Aline Grossman (Grossman), an attorney with Schepisi & McLaughlin, P.A. (S&M) (collectively, defendants). The Ormeses represented at closing that plaintiffs' mortgage on the Upper Saddle River property was secondary only to the Oritani mortgage, and they executed certain guarantees as part of the closing documents. A pre-closing title search did not reveal any existing mortgages on the Upper Saddle River property.
After closing and upon a default in payments due under the notes, plaintiffs learned that the Upper Saddle River property was also encumbered by a separate $3,000,000 mortgage in favor of Oritani. That mortgage was made pursuant to an agreement signed by Leigh Ormes on behalf of 17 Properties that was witnessed and notarized by Grossman.
In March 2008, plaintiffs filed suit against Woo, 17 Properties, the Ormeses, another corporate entity they controlled, Route 4 Holdings, Inc., and defendants (the First Action). For purposes of this opinion, we need only consider the causes of action alleged against defendants, specifically: professional negligence against Grossman; fraud in the inducement against Grossman; and respondeat superior liability against S&M.
Following some discovery, in May 2009, defendants moved to dismiss because plaintiffs failed to file an affidavit of merit pursuant to N.J.S.A. 2A:53A-27 (the AMS). While that motion was pending, Mrs. Ormes and the various corporate entities filed for bankruptcy.
Plaintiffs opposed defendants' AMS motion, arguing that no affidavit
of merit was required based on the allegations in the complaint. They
also contended that defendants were equitably estopped from now
seeking an affidavit, particularly since no Ferreira*fn2
conference had been held. Nevertheless, in June 2009,
plaintiffs served an affidavit of merit executed by an attorney, Gary
It is undisputed that on October 26, 2009, before the motion was decided and at the apparent urging of the motion judge, plaintiffs and defendants executed a consent order dismissing the complaint without prejudice. Critically, the order also provided:
[A]ny party may assert any claim which was previously asserted or proposed to be asserted by way of a filed Motion for Leave to file an Amended Pleading in a cross-claim, counterclaim or third party complaint previously filed or proposed to be filed in this . . . matter . . . in response to Plaintiffs['] . . . re-filed complaint . .
Plaintiffs . . . will have 120 days to file a new pleading with the appropriate parties with the Complaint for statute of limitations purposes relating back to the filing of the [i]nitial Complaint . . . .
Defendants . . . will retain the right to renew the motion to dismiss based upon the [AMS], based upon the facts of the presently pending motion with [the motion judge] retaining jurisdiction over that particular motion . . . .
On November 10, 2009, plaintiffs filed another complaint (the Second Action). In relevant part, this complaint alleged intentional and negligent misrepresentation by Grossman. On January 29, 2010, Grossman moved to dismiss the complaint based on plaintiffs' initial failure to file an affidavit of merit; she also sought summary judgment. After oral argument on March 5, 2010, the judge reserved decision.
On July 16, 2010, plaintiffs moved to amend their complaint. The proposed amended complaint sought to add an additional count against Grossman alleging fraud, and counts against S&M for intentional and negligent misrepresentation, and fraud. The judge held a second round of oral arguments on September 21, 2010, and again reserved decision.
The judge filed two orders on May 23, 2011. One granted Grossman's motion to dismiss and denied her summary judgment motion as moot. The second order denied plaintiffs' motion to amend the complaint. The judge set forth his reasons for granting the motion to dismiss in a short written opinion which did not address plaintiffs' motion to amend. The order denying the motion to amend simply referenced the order dismissing the complaint. This appeal ensued.
Plaintiffs argue that on the facts presented when defendants moved to dismiss the First Action, the complaint would not have been dismissed for failure to comply with the AMS, and, since they filed an affidavit before the Second Action was filed, it was error to dismiss the complaint for failure to comply with the AMS; they should have been permitted to amend their complaint in the Second Action; the judge treated the motion filed in the Second Action as one seeking summary judgment and erroneously applied summary judgment standards to their complaint; and because the dismissal of the First Action was without prejudice, they were permitted to add new counts in the Second Action pursuant to Rule 4:37-1 and the consent order.
Defendants counter by arguing the complaint was properly dismissed because plaintiffs failed to comply with the AMS, and the judge properly denied the motion to amend the complaint.
We have considered these arguments in light of the record and applicable legal standards. We affirm in part, reverse in part, and remand the matter for further proceedings consistent with this opinion.
The tortured procedural history creates some obstacles to our analysis. Nevertheless, the first issue at hand is whether plaintiffs' complaint in the Second Action was in any way limited by what had previously occurred. We agree with plaintiffs that the dismissal without prejudice of the First Action did not limit their ability to file the Second Action or seek amendment thereafter.
Pursuant to Rule 4:37-1(b), after an action has been joined, it "shall be dismissed at the plaintiff's instance only by leave of court and upon such terms and conditions as the court deems appropriate." "Whether to dismiss with or without prejudice, whether to impose terms, and the crafting of terms that are fair and just in the circumstances, are all matters that lie within the court's sound discretion." Shulas v. Estabrook, 385 N.J. Super. 91, 97 (App. Div. 2006).
Pursuant to the consent order, the dismissal was without prejudice. "A dismissal without prejudice is not an adjudication on the merits and does not bar reinstitution of the same claim in a later action." Woodward-Clyde Consultants v. Chem. & Pollution Scis., Inc., 105 N.J. 464, 472 (1987); see also Pressler & Verniero, Current N.J. Court Rules, comment 1.2 on R. 4:37-1 (2012) ("a dismissal without prejudice, including a voluntary dismissal, adjudicates nothing, and does not itself constitute a bar to reinstitution of the action, subject, however, to the constraints of the statute of limitations").
Moreover, the consent order did not, by its terms, limit plaintiffs' complaint in the Second Action to the precise claims made in the First Action. We note that the judge, in granting Grossman's motion to dismiss the Second Action, did not consider the claims to be barred because they alleged different causes of action. Instead, he properly analyzed them in light of the specific reservation of rights accorded defendants in the consent order, i.e., their ability to pursue the motion to dismiss under the AMS "based upon the facts of the [then-]presently pending motion."
We turn to the crux of the appeal. Did the court properly dismiss plaintiffs' complaint in the Second Action for failure to file an affidavit of merit under the facts that existed in May 2009 when defendants first moved to dismiss the complaint?
Absent statutory extensions not at issue in this case, N.J.S.A. 2A:53A-27 requires a plaintiff "[i]n any action for . . . property damage resulting from an alleged act of malpractice or negligence by a licensed person in his profession or occupation" to file, "within 60 days following the date of filing of the answer to the complaint[,] . . . an affidavit of an appropriate licensed person that there exists a reasonable probability that the . . . skill or knowledge exercised or exhibited in the . . . practice or work . . . fell outside acceptable professional . . . standards." A plaintiff's failure to provide a timely affidavit of merit when required is considered a failure to state a cause of action. N.J.S.A. 2A:53A-29. Under such circumstances, "the plaintiff should expect that the complaint will be dismissed with prejudice provided the doctrines of substantial compliance and extraordinary circumstances do not apply." Ferreira, supra, 178 N.J. at 154.
To determine whether an affidavit is required under the AMS, a court must consider the plaintiff's individual claims and assess (1) whether the action is for "damages for personal injuries, wrongful death or property damages" (nature of injury); (2) whether the action is for "malpractice or negligence" (cause of action); and (3) whether the "care, skill or knowledge exercised or exhibited in the treatment, practice or work that is the subject of the complaint . . . fell outside acceptable professional or occupational standards or treatment practices" (standard of care). [Couri v. Gardner, 173 N.J. 328, 334 (2002) (quoting N.J.S.A. 2A:53A-27).]
In determining whether the cause of action requires an affidavit, the Court said "[i]t is not the label placed on the action that is pivotal but the nature of the legal inquiry." Id. at 340. Thus, "when presented with a tort or contract claim asserted against a professional specified in the statute, rather than focusing on whether the claim is denominated as tort or contract, attorneys and courts should determine if the claim's underlying factual allegations require proof of a deviation from the professional standard of care applicable to that specified profession." Ibid. When such proof is required, the plaintiff must submit an affidavit of merit. Id. at 341.
Because the motion sought to dismiss the complaint for failure to comply with the AMS, we accept as true the allegations contained in the complaint which provide the basis of the facts we recited earlier. In their intentional misrepresentation claim, plaintiffs contended that Grossman witnessed the Ormeses enter into both the $600,000 and $3,000,000 mortgages on the Upper Saddle River property. Despite this knowledge, Grossman failed to disclose the presence of the $3,000,000 mortgage "in any of the Closing documents that she had her clients execute in connection with the Transaction." Plaintiffs alleged that failure "constitute[d] a material misrepresentation or omission[,]" which plaintiffs reasonably relied upon "in order to proceed with the Transaction."
Plaintiffs' claim for negligent misrepresentation alleged that Grossman "allowed her clients to execute and deliver . . . documents that contained materially misleading and improper representations and omissions which [Grossman] knew or should have known were materially false and/or created a false impression with respect to the security interest being created under the Collateral Mortgage." Because they relied on the "materially misleading and improper representations and omissions[,]" plaintiffs were damaged by Grossman's failure to disclose the $3,000,000 mortgage.
As the motion judge noted, the same underlying factual allegations supported plaintiffs' initial claims for professional negligence and fraud in the inducement in the First Action. As to these claims, which the judge concluded sounded in fraud, he distinguished Stoecker v. Echevarria, 408 N.J. Super. 597 (App. Div.), certif. denied, 200 N.J. 549 (2009), "find[ing] that the Current Action lacks the essential facts relied upon by the court in Stoecker, particularly the convincing evidence of intent[.]" Therefore, the judge held that the claims were "essentially a label placed on the allegations to avoid the filing of an affidavit of merit" and dismissed the complaint.
In Stoecker, supra, 408 N.J. Super. at 606-07, the defendant attorney represented the plaintiff who was seeking to sell her property. After plaintiff signed the sales contract, the defendant provided copies to the buyer's attorney. Id. at 607. The buyer's attorney stated that the contract was acceptable, provided the plaintiff agree to several additional terms. Ibid. These additional terms were memorialized in a rider, prepared by both the defendant and the buyer's attorney. Ibid. Thereafter, the defendant advised the plaintiff she had "to sign a new contract," which was actually the rider. Id. at 608. The plaintiff signed the document after the defendant purportedly advised her that she could cancel the contract if closing did not occur within forty-five days. Ibid. When plaintiff sought to cancel the agreement after forty-five days, the defendant advised her that the time period had begun to run when the contract was finalized, not when plaintiff had signed the agreement. Ibid. Accordingly, plaintiff waited and then contacted the defendant after the deadline. Ibid. At that time, the defendant told the plaintiff that the contract could not be cancelled unless he sent the buyer a "time is of the essence" letter to set a new closing date. Ibid. The defendant sent the buyer that letter, a closing was set, and the plaintiff refused to close. Ibid. The buyer then sent plaintiff a "time is the essence" letter setting yet another closing date, and plaintiff failed to appear on that date. Ibid. After the trial court specifically enforced the contract, the plaintiff sued the defendant in a separate action for common law fraud and legal malpractice. Id. at 609-10.
The trial court granted defendant's motion for summary judgment on the fraud claim. Ibid. On appeal, we reversed, finding that the plaintiff "presented sufficient credible evidence to support her claim of fraud against" her attorney. Id. at 618. We expressly rejected the defendant's argument that the plaintiff produced no evidence regarding his intent to commit fraud. Id. at 618-19. Pertinent to the issue at hand, we "conclude[d] that the [AMS] [did] not preclude plaintiff from asserting her fraud claim against [defendant]." Id. at 619. We rejected the defendant's reliance on Couri, supra, 173 N.J. at 340, and his contention that the fraud claim was "substantially indistinguishable from the legal malpractice claim." Ibid.
Here, the motion judge properly characterized plaintiffs' intentional misrepresentation claim as a fraud claim. To establish a common-law fraud claim, a plaintiff must show "(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereupon by the other person; and (5) resulting damages." Stoecker, supra, 408 N.J. Super. at 617 (quoting Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997)) (citation and internal quotation marks omitted). An omission can constitute a misrepresentation. Port Liberte Homeowners Ass'n v. Sordoni Constr. Co., 393 N.J. Super. 492, 507 (App. Div.), certif. denied, 192 N.J. 479 (2007).
However, the motion judge missed the mark because he analyzed the sufficiency of plaintiffs' proofs and failed to limit his analysis to whether an affidavit of merit was required in the first instance. Specifically, the judge concluded "Grossman did not display the same facts with regard to intent as the defendant attorney in Stoecker," "[n]o actions were made by Defendant Grossman to the Plaintiffs displaying her intent to induce their reliance or to misrepresent the circumstances surrounding the commercial transaction similar to that of Stoecker," and "no intent to misrepresent or to induce reliance can be adduced from Defendant Grossman's alleged failure to disclose the previous mortgages while witnessing signatures at the aforementioned closing."
First, issues of intent are particularly unsusceptible to resolution on summary judgment. See Pressler & Verniero, supra, comment 2.3.4 on R. 4:46-2 ("The [summary judgment] motion should ordinarily not be granted where an action or defense requires determination of a state of mind or intent, such as claims of . . . fraud."). More importantly, Grossman's motion in this regard was premised on the failure of plaintiff to file an affidavit of merit.*fn3 Accordingly, the judge erred in dismissing plaintiffs' claim for intentional misrepresentation under the AMS.
However, a different analysis applies to plaintiffs' claim in the Second Action that Grossman was liable for negligent misrepresentation. To sustain a claim for negligent misrepresentation, the plaintiff "must establish that the defendant negligently made an incorrect statement of a past or existing fact, that the plaintiff justifiably relied on it and that his reliance caused a loss or injury." Masone v. Levine, 382 N.J. Super. 181, 187 (App. Div. 2005). Thus, unlike intentional misrepresentation and common-law fraud, negligent misrepresentation does not require a showing of intent. See Stoecker, supra, 408 N.J. Super. at 617. This distinction is especially critical in considering compliance with the AMS, which applies "if the claim's underlying factual allegations require proof of a deviation from the professional standard of care applicable to the specific profession." Couri, supra, 173 N.J. at 340.
In this case, plaintiffs' claim for negligent misrepresentation arose directly from Grossman's work as an attorney representing the Ormeses. The allegations, therefore, squarely implicate the question of whether Grossman violated the professional standard of care governing her conduct to her clients and to plaintiffs. See Petrillo v. Bachenberg, 139 N.J. 472, 483-84 (1995) (holding that an attorney owes a duty to a non-client in certain circumstances). Accordingly, the AMS statute was triggered and dismissal was appropriate because plaintiff failed to comply.
Plaintiffs argue that Grossman's motion to dismiss, when originally filed, was barred by laches and estoppel. They assert that Grossman never moved to dismiss for failure to comply with the AMS until the litigation was well-advanced and substantial discovery had taken place.
Plaintiffs' reliance on Knorr v. Smeal, 178 N.J. 169 (2003) is misplaced. In that case, the defendant waited fourteen months after the filing deadline had passed before seeking dismissal. Id. at 179. The defendant delayed making a motion even though his co-defendant had successfully filed a timely motion for the same relief. Ibid. Moreover, the plaintiffs' attorney was "under the false impression that his expert's affidavit of merit had been forwarded to defendant" soon after the statutory deadline had passed but more than a year before the motion was made. Id. at 179-80. The Court concluded "[d]efendant's failure to file a dismissal motion surely induced plaintiffs to believe that the case was on course." Id. at 180. As a result, the plaintiffs "incurred significant expert and deposition costs, as well as emotional stress." Ibid.
The motion judge properly distinguished the facts in this case from those presented in Knorr. He observed that although defendants waited some time to file their motion, "virtually all discovery" conducted during that time involved the allegations against the Ormeses and "would have gone forward with or without the involvement of [Grossman]." Furthermore, the parties had not completed discovery at the time defendants filed their motion to dismiss, and, in fact, there was a pending motion to extend the discovery period. In short, this was not a situation where defendants "r[a]n . . . plaintiff[s] through the discovery process, learn[ed] that the complaint was supported by competent evidence and an expert's report, and only then move[d] to dismiss on the technical ground that the plaintiff failed to clothe the expert opinion in the form of an affidavit." Knorr, supra, 178 N.J. at 176-77. Indeed, in their opposition to the original motion, plaintiffs argued a mistaken belief that no affidavit was required based upon the nature of the allegations. For this reason, too, the doctrine of laches does not apply. See id. at 181 (noting laches invokes the "core equitable concern" that "a party has been harmed by the delay").
Plaintiffs also argue that the judge failed to hold a Ferreira conference in the First Action which would have addressed and resolved plaintiffs' failure to file an affidavit of merit. The argument is unpersuasive.
The Court resolved the effect of failing to hold a Ferreira conference in Paragon Contractors v. Peachtree Condominium Association, 202 N.J. 415, 425 (2010). The Paragon Court held "that the absence of the conference" does not provide "a safe harbor from the [AMS's] requirements." Ibid. The Court cautioned that "reliance on the scheduling of a Ferreira conference to avoid the strictures of the [AMS] statute is entirely unwarranted and will not serve to toll the statutory time frames." Id. at 426.
The Court again addressed the need for a Ferreira conference in its recent decision, Buck v. Henry, 207 N.J. 377 (2011). In that case, the plaintiff sued his physician for malpractice and filed two timely affidavits of merit to support his claim. Id. at 382. Ignoring the defendant's request, the trial court did not conduct a Ferreira hearing. Ibid. About three weeks after plaintiff filed his second affidavit, defendant filed a motion for summary judgment, arguing that the affidavits were inadequate because the defendant "treated plaintiff in his role as a practitioner in family medicine and because [the] plaintiff did not file an affidavit by an equivalent specialist." Id. at 383, 386. The trial court agreed, dismissed the case, and we affirmed. Id. at 383.
Reversing, the Court held that the plaintiff had made good-faith efforts to satisfy the statute. Id. at 395. Importantly, "the never-held Ferreira conference . . . likely would have led to the filing of a judicially acceptable affidavit and obviated the need for the summary-judgment motion that led to the dismissal of plaintiff's cause of action." Id. at 393. Distinguishing Paragon, the Court stated that this was "not a case of a plaintiff sleeping on his rights and ignoring statutorily imposed deadlines." Id. at 395. The Court therefore remanded the case for the trial court to hold a Ferreira conference. Id. at 396.
Although plaintiffs in this case argue that Buck should apply, we think the facts are clearly distinguishable. Here, plaintiffs never filed any affidavit despite allegations in the complaint that clearly required one since the complaint in the First Action actually included a count for "professional negligence." Although plaintiffs subsequently filed an affidavit after defendants' motion to dismiss was made, plaintiffs continued to argue that the nature of their complaint did not require one. Plaintiffs agreed in the consent order to have defendants' already-filed motion decided under the facts then-existing when the motion was made. As a result, they cannot now seek "a safe harbor from the [AMS's] requirements" because a Ferreira conference was not held. Paragon Contractors, supra, 202 N.J. at 425.
We next consider whether the judge erred in denying plaintiffs' motion to amend their complaint. In opposing the motion, Grossman argued that it was untimely and otherwise violated the consent order. For the reasons already stated, the consent order did not restrict plaintiffs from filing a complaint in the Second Action that added additional counts against either Grossman or S&M. The motion to amend was filed approximately nine months after the complaint in the Second Action was filed, and, it would appear that discovery was ongoing. This delay was, in and of itself, not so egregious as to foreclose plaintiffs' request.
Motions for leave to amend should be liberally granted. Notte v. Merchs. Mut. Ins. Co., 185 N.J. 490, 501 (2006); see also R. 4:9-1 (if a motion to amend is submitted more than ninety days after a responsive pleading is filed, "a party may amend a pleading . . . by leave of court which shall be freely given in the interest of justice."). A motion to amend a pleading is addressed to the trial court's sound discretion. N.J. Dep't of Envtl. Prot. v. Dimant, 418 N.J. Super. 530, 547 (App. Div.), certif. granted, 208 N.J. 381 (2011). However, the judge may consider whether the amendment would be futile even if permitted. Notte, supra, 185 N.J. at 501.
Before us, Grossman's sole argument is that amendment of the complaint was futile because plaintiffs failed to comply with the AMS. Plaintiffs relied solely upon the alleged negligence of S&M's agent, Grossman, as the basis of their claim for negligent misrepresentation against S&M in the proposed amended complaint. For the reasons already stated, to the extent the proposed amended complaint alleged negligent misrepresentation against S&M, it cannot proceed. However, for other reasons already stated, we conclude the judge mistakenly exercised his discretion by denying the motion to amend in its entirety. In other words, since the AMS did not apply to plaintiffs' proposed causes of action against Grossman for fraud, and intentional misrepresentation and fraud against S&M, the judge mistakenly exercised his discretion in denying plaintiff's motion to amend in its entirety.
The focus of Grossman's opposition below, and the oral argument that ensued on plaintiffs' motion, only addressed the AMS. As noted, the judge did not explain his reasons for denying the motion to amend, other than by reference to the conclusions he reached regarding application of the AMS. We therefore hasten to add that we reach no conclusion on the adequacy of plaintiffs' amended complaint against S&M.
In sum, we affirm those portions of the orders under review that dismissed with prejudice plaintiffs' complaint in the Second Action against Grossman for negligent misrepresentation, and denied plaintiffs' motion to amend their complaint to add a similar count against S&M. We reverse that portion of the order that dismissed with prejudice plaintiffs' complaint in the Second Action against Grossman for intentional misrepresentation, and we reverse the order denying plaintiffs' motion to amend their complaint to add claims of fraud against Grossman, and intentional misrepresentation and fraud against S&M. We remand the matter to the trial court for further proceedings consistent with this opinion. We do not retain jurisdiction.