July 12, 2012
JEAN LEE, PLAINTIFF-RESPONDENT,
ELIZABETH LEE, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Ocean County, Docket No. C-183-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 28, 2012
Before Judges Carchman, Fisher and Nugent.
Following seven days of trial in this partition action, the trial court entered an order for judgment providing, among other terms, that the parties' house be sold; that the net proceeds be allocated two-thirds to plaintiff Jean Lee and one-third to her daughter, defendant Elizabeth Lee, subject to adjustments for credits; and that defendant pay $179,376.05 "for contribution toward the legal fees of plaintiff, Jean Lee." Defendant appeals from the provisions of the April 26, 2011 order that fixed the credit she was to receive from the sale proceeds; and entered judgment against her for contribution toward plaintiff's attorney's fees. She argues that the money she contributed toward the maintenance of her and her mother's home exceeded the credit awarded by the court, and that the court had no authority to award counsel fees to plaintiff.
Having considered the parties' arguments in light of the record and the applicable law, we conclude that the court's determination of the credits due each party was supported by sufficient credible evidence in the record. We further conclude that the court had no authority to shift to defendant plaintiff's obligation to pay her own counsel fees. Accordingly, we reverse the award of counsel fees but otherwise affirm the judgment.
This family dispute centers around the home*fn1 (the property) that Jean Lee and her husband purchased in 1985. When they took possession of the property, their daughter, Elizabeth, who had lived with them all of her life, moved in with them. Although Jean's husband had the property built, he had their three daughters, Elizabeth, Deborah, and Linda,*fn2 named in the deed as joint tenants with rights of survivorship. According to Jean,*fn3 her husband had the property titled in their daughters' names "[b]ecause if anything happened, he'd rather have them have the house. That was from him to his children."
Mr. Lee died in January 1988. In February 1999, Elizabeth, Deborah, and Linda executed a "corrective" deed conveying title to the property to Jean. According to a letter from the attorney who prepared the deed, "the property was suppose[d] to be conveyed to Jean back in 1985 and . . . she wanted to correct the error." Notwithstanding the attorney's statement, Jean explained that the 1999 conveyance occurred after a family dispute about another house that Jean's husband had built in Pennsylvania and deeded to his daughters. According to Jean, her daughters had argued about responsibility for maintenance and expenses of that house. Jean could not afford to maintain the Pennsylvania house, so despite her daughters' objections, she had them sell it. In order to avoid similar problems with the property, Jean had the deed changed so that title to the property was in her name. The deed was recorded on March 16, 1999.
Jean had the deed to the property changed again in October 2002, when she and Elizabeth decided to move into a townhouse. Jean testified that based upon the advice of her accountant concerning tax and other considerations, she had the deed changed to reflect that she and Elizabeth owned the property as "Joint Tenants with Right of Survivorship."*fn4 Elizabeth testified that Jean changed the deed to prevent Deborah and Linda from carrying out threats to eject Elizabeth from the property. After learning of deficiencies in the townhouse, Jean and Elizabeth decided not to purchase it.
In 2004, Elizabeth received a substantial inheritance. Desiring to buy the property, Elizabeth discussed the matter with Jean, who said that she would take $600,000, but Elizabeth would only have to pay her $400,000. Jean intended to gift $200,000 to each of her other daughters.
In 2005, Elizabeth had an attorney prepare a contract of sale in which she agreed to purchase the property for $400,000. The contract recited that both "[Jean] and [Elizabeth] have borrowed $250,000 for purposes of improvement of the Property which is secured by a mortgage on the Property which [Elizabeth] paid exclusively[.]" The contract further recited that the value of the property was $850,000, that Jean desired to gift one-third of the net proceeds to Elizabeth, and therefore Elizabeth would purchase the home at the reduced price of $650,000 less the mortgaged debt, for a net purchase price of $400,000.
The attorney also prepared other closing documents. When Elizabeth's attorney mailed Deborah and Linda affidavits of title and other documents, they did not reply to the letter. According to Deborah, she knew nothing about the proposed sale until she received the documents. Deborah testified that neither Jean nor Linda knew about the sale, and that Jean had not received any documents concerning the sale.
The letter was dated November 10, 2005. Deborah and Linda were upset about the letter and were also upset that neither they nor Jean knew anything about the proposed sale of the property. The situation generated considerable ill will among Jean and her daughters. The ill will and animosity peaked around Thanksgiving.
Jean spent Thanksgiving at Linda's home. Elizabeth testified that while her mother was staying with Linda, Elizabeth received a telephone message informing her that her mother had died and got paddled back[, and] it was my fault. They told me my mother said to tell me that I was not my father's child, and that she didn't want a girl, that she had tried to buy a boy, and she tried to buy my aunt's son for her child.
The message indicated that Jean was in the hospital and that Elizabeth was to be given no further information. Linda apparently had a "block system" on her phone that blocked Elizabeth's calls. Panicked, Elizabeth called area hospitals to try to obtain information concerning her mother, but she learned nothing. The situation continued for ten days.
Approximately ten days after Elizabeth received the initial message, Jean called Elizabeth and asked why Elizabeth had not telephoned. When Elizabeth told Jean about the messages, Jean said that the events described in the message did not happen. Jean also said that Linda and Deborah were livid about the property and "wanted the house." According to Elizabeth, Jean also said that Elizabeth's sisters wanted to get her out of the property; however, Jean intended to protect her because the property was Elizabeth's, and both Deborah and Linda had homes.
During the same time period, Elizabeth left numerous messages on answering machines at Linda's and Deborah's homes. Linda testified that the substance of the messages was that if she did not sign the papers sent to her by Elizabeth's attorney, Elizabeth would sue her and Deborah and "drag [the lawsuit] out forever."
Deborah received similar messages and recorded several on a tape recorder. In those messages, Elizabeth said that she intended to gate the property so that Deborah would not have access. Elizabeth also threatened to have her lawyer rip Deborah, Linda, and Jean to shreds, and told Linda that she better have a large amount of money because her lawyers would drag out the lawsuit and be vicious. Elizabeth also said that if Jean, Deborah, or Linda died, she did not want to know. Elizabeth stated: "I'll fix you all. Trying to steal this away from me after I put so much money into it . . . ." Elizabeth used vulgar epithets to refer to her mother and sisters, and repeatedly threatened to have her lawyers file a lawsuit, drag it out, and be as vicious as possible.*fn5
Jean did not remain with Linda; she returned to the property and continued to reside there with Elizabeth until April 2009.
Elizabeth never purchased the property from her mother. According to Elizabeth, when she asked her mother to sign the contract, her mother said it was unnecessary because the property was Elizabeth's. Jean testified that she grew increasingly concerned about settling her financial affairs, and persisted in asking Elizabeth when she was going to pay for the property. Jean's relationship with Elizabeth had deteriorated over the years, culminating in an incident on May 1, 2009, when Jean had to be hospitalized following a violent argument with Elizabeth. Afterwards, Jean left the property to reside with Deborah.*fn6
In addition to Jean's intentions concerning the property and her daughters, the parties disputed the amount of their respective financial contributions toward maintaining and improving the property. In 2002, when Jean had title to the property transferred to herself and Elizabeth as joint tenants, the property was subject to a mortgage that secured a $25,000 revolving line of credit with an outstanding balance of $23,849. In February 2003, the parties were granted a home equity line account that secured up to $110,000 in credit. They paid off the balance and closed the revolving line of credit. In July 2004, they increased the limit of the home equity line to $249,000. Finally, in May 2008, Elizabeth obtained a new credit line with a limit of $300,000. Elizabeth used $248,489.58 from the new credit line to pay off and close the old credit line.
Elizabeth testified that she and Jean made substantial improvements to the property. Among other things, they completely remodeled the kitchen; replaced all of the property's windows; upgraded or installed new plumbing, heating, ventilation, and air conditioning; upgraded all three bedrooms; and purchased a new shed. They used a portion of the first $25,000 revolving credit line to replace the roof, and thereafter obtained the home equity loan with the $249,000 limit to fund the improvements. When Elizabeth obtained the line of credit with the $300,000 limit, she believed that she would own the property upon Jean's death. That was why she was willing to assume responsibility for the entire line of credit, and the mortgage that secured it.
Elizabeth acknowledged that she used some of the money from the revolving loan and credit accounts for her personal use. In July 2004, she transferred $29,772 from the home equity credit line to a personal investment account, believing that when her mother died she would own the property and be responsible for the credit line. Elizabeth also used the credit line to pay her credit card balances and legal expenses and fees for lawsuits unrelated to this partition action. Elizabeth could not recall why she incurred the credit card expenses, but speculated they were probably incurred to either purchase furniture or make improvements to the property. She also used the home equity line to buy a new Mercedes for herself for $49,439.80, and possibly to purchase two Hondas. She was unsure about the Hondas, but if the she did use the credit line to buy them, she believed she reimbursed the credit line account.
On July 27, 2009, Jean filed a single-count complaint demanding that the property be partitioned and sold; that Elizabeth be ordered to satisfy the outstanding equity loan; and that she be awarded counsel fees and costs. Jean subsequently amended the complaint to allege a second cause of action for breach of contract.
Elizabeth filed an answer and counterclaim in which she alleged, among other things: that since 2004 she had paid carrying costs on the property totaling approximately $425,000; that she had made improvements to the property that she paid for in part with funds from the secured home equity loans; and that Deborah was exerting undue influence over Jean. Elizabeth demanded that Jean be declared incapacitated. Elizabeth also demanded that she be awarded costs of suit and reasonable attorney's fees. At trial, Elizabeth introduced a written summary of checks drawn on her personal checking account and testified that the payments were for improvements to the property.
The trial court detailed in its opinion the procedural history of the case following Elizabeth's filing of her answer and counterclaim:
On August 5, 2009, Plaintiff filed an Order to Show [Cause] seeking a de bene esse deposition to preserve Plaintiff's testimony. On August 14, 2009, the court signed an order requiring the de bene esse deposition of Plaintiff within 30 days of the order or as mutually agreed. On October 23, 2009, Defendant's motion to disqualify the firm of Skoloff and Wolfe P.C., was denied, as [were] her motions to dismiss the case and to stay the proceeding pending appointment of a guardian. On December 17, 2009, this court ordered the parties to exchange medical records for "attorney's eyes only" and ordered Defendant to pay for the court appointed expert, Dr. Beverlee Tedeger, to perform a competency evaluation. Dr. Tedeger concluded that Jean Lee was competent. On February 5, 2010, this court granted Plaintiff's motion to dismiss defendant's counterclaim to appoint a guardian pursuant to R. 4:86-1, but permitted the Defendant to argue undue influence. This court also quashed a subpoena which Defendant served on Plaintiff's counsel.
On March 18, 2010, this court granted Defendant's motion for a medical/psychiatric examination for the purpose of analyzing undue influence which was never pursued. On May 11, 2010, the deposition of Defendant was ordered for May 26, 2010. Then again it was ordered on July 1, 2010 for July 14, 2010. For a third time it was ordered on August 11, 2010. It was apparent that the Defendant was using whatever excuse she could to delay and protract this case. This court halted all other depositions until the Defendant finally agreed to be deposed.
In response to Plaintiff's request, this court ordered that title not pass by operation of law should Plaintiff not survive this action. The court also ordered on October 1, 2010, Defendant advance the costs of Plaintiff's home health aide without prejudice and also determined that if Plaintiff was unavailable to testify at trial, her de bene esse deposition testimony could be read into the record. On October 19, 2010, this court held a conference addressing in part Defendant's failure to abide by the October 1, 2010 order. The court directed the Defendant to comply and the Plaintiff to provide contact information and social security numbers for home health care providers.
On November 18, 2010, this court appointed Peter Strohm, Esq., as Medical Guardian empowered to sell the property to raise funds for the Plaintiff's necessary medical care. Thereafter that order was vacated on December 17, 2010, and [the court] appointed Mr. Strohm as Receiver. Mr. Strohm convinced the court that Mrs. Lee was able to make her own medical decisions. The property has been listed for sale with a listing price of $785,000.
Elizabeth first contends that the trial court erred by awarding counsel fees to Jean. Elizabeth argues that the "American Rule" requires each party to bear his or her own legal expenses, and that no applicable statute or court rule authorized the trial court to shift that responsibility from Jean to her.
Jean responds that the trial court has inherent authority to assess counsel fees against a party. Jean also asserts that "the Appellate Division may recognize other bases for the trial court's award of counsel fees," and argues that the frivolous litigation statute, N.J.S.A. 2A:15-59.1, provides a basis for such relief.
The trial court cited no authority to support its award of counsel fees. The court noted that Jean had prevailed on her request to partition the property; determined that Jean demonstrated that Elizabeth breached her agreement to purchase the property; and found that there was no evidence that Jean had been unduly influenced or that she was mentally incompetent. The court concluded that Elizabeth brought the latter claims in bad faith in furtherance of her promise to be vicious in litigation. The court also concluded that Elizabeth caused Jean to incur substantial attorney's fees because of unjustified litigation. The court cited Elizabeth's conduct during discovery, including her failure to produce "checks to at least support some of her claims for contributions." Lastly, the court found "most telling" Elizabeth's "vow to cause her mother to expend large sums of legal fees."
The court concluded that Jean should only be responsible for those fees "one would reasonably expect to incur in prosecuting a straight forward claim for partition," and that "[s]he is directly responsible for a total of $50,000 for the ordinary cost of this litigation which would have included a brief trial, plus all of her out-of-pocket expenses in the amount of $1,638.58, for a total of $51,638.58." The court then imposed an attorney's lien on the proceeds of the sale due Jean, and ordered Elizabeth to pay the balance of Jean's attorney's fees in the amount of $179,376.05.
New Jersey generally follows the American Rule concerning fee shifting, which "precludes a party from recovering counsel fees from his or her adversary in that litigation." In re Estate of Lash, 169 N.J. 20, 30 (2001). See also Pressler & Verniero, Current N.J. Court Rules, comment 1 on R. 4:42-9 (2012) (commenting that the New Jersey Supreme Court has remained committed to the so-called American rule").
The shifting of attorney's fees is disfavored. Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 385 (2009). Nonetheless, a litigant can recover attorney's fees if the recovery is authorized under the terms of a contract, by a court rule, or by statute. Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 440 (2001). Consistent with those principles, Rule 4:42-9(a), entitled "Actions in Which Fee Is Allowable," provides that except in the actions enumerated in the Rule, "[n]o fee for legal services shall be allowed in the taxed costs or otherwise[.]"
We reject Jean's sweeping generalization "that the Chancery Court has the inherent authority to assess counsel fees." To support that proposition, Jean cites Dziubek v. Schumann, 275 N.J. Super. 428 (App. Div. 1994). In Dziubek, we acknowledged that "[i]t is generally accepted that courts have inherent powers beyond those specifically delegated or confirmed by statute or court rule to do what is reasonably necessary for the orderly and efficient administration of justice within the scope of their jurisdiction." Id. at 439. We then explicitly stated, however, that it was unnecessary to "decide whether our courts have the inherent power to assess counsel fees as a sanction for an attorney's improper or wrongful conduct." Ibid. We determined that, "[e]ven assuming the existence of such inherent power," the facts did not warrant the award of counsel fees against the principals of a law firm based upon the conduct of an associate, where the principals did not act in bad faith. Id. at 439-41. We did not hold that courts have the inherent power to engage in fee shifting.
Jean next argues that the "Appellate Division may recognize other bases for the trial court's award of counsel fees," and cites N.J.S.A. 2A:15-59.1, the frivolous litigation statute, which provides in part:
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.
Jean's suggestion that we "may" find statutory authority for the court's fee award in the frivolous litigation statute is an implicit concession that the trial court did not render the award pursuant to the authority of that statute. The trial court never cited the statute as a basis for its decision. And Jean does not contend that she made any effort to comply with Rule 1:4-8.
The "safe harbor" provision of Rule 1:4-8(b)(1) requires that the party seeking fees serve on the offending party a written demand setting forth with specificity the basis for the belief that a pleading or paper is frivolous, demanding that the paper be withdrawn, and giving notice that if the offending paper is not withdrawn, an application for sanctions will be made. 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 . . . pursuant to N.J.S.A. 2A:15-59.1." If an applicant seeking an award against an opposing party does not comply with the Rule, the applicant must explain to the trial court "what made timely compliance impracticable." Toll Bros., Inc. v. Twp. of W. Windsor, 190 N.J. 61, 72 (2007). "[T]he Rule requires a court that hears an application against a party to assess whether it is practicable under all the circumstances to require strict adherence to the requirements of Rule 1:4-8." Ibid.
We decline to speculate about the basis for the trial court's decision. We note only that had Jean complied with the requirements of Rule 1:4-8, or filed the application required by N.J.S.A. 2A:15-59.1, Elizabeth would have had an opportunity to respond to the specific allegation claimed by Jean to be frivolous. See R. 1:4-8(b)(1) and (c) (requiring the party seeking sanctions, or the court when it acts on its on initiative, to specify the conduct that appears to violate the rule); N.J.S.A. 2A:15-59.1(c)(1) (requiring the party seeking sanctions to specify, among other things, "the amount of the allowance applied for[ and] an itemization of the disbursements for which reimbursement is sought").
Jean's suggestion that she consistently requested counsel fees for each of the motions she filed is unavailing. See R. 1:4-8(e) (stating explicitly that the "rule does not apply to disclosures and discovery requests, responses, objections, and discovery motions that are subject to the provisions of R. 4:23").
Elizabeth next contends that the court erred by significantly undervaluing her credit for the contributions she made toward the property's maintenance and improvement, and by rejecting a credit for the money she spent from her personal checking account for improvements to the property. We disagree.
After carefully evaluating the basis for Elizabeth's claim, the trial court made the following findings:
As regards to her claim for a total of $232,256.93 for home improvements from 2004 to the current time, defendant has not produced copies of check[s], contracts, or invoices other than a summary of her check register. Even assuming they were lost or stolen or disposed of, at least the more recent checks could have been produced to demonstrate the accuracy of the register. Furthermore [a] substantial number [of] home improvements were paid for from the home equity line. The court is being asked to accept that well over $400,000 was expended on improvements to this home in the last seven years. No evidence was proffered by either side as to how these improvements enhanced the value of the property and each are looking for a dollar for dollar credit for their alleged out of pocket contributions. I have no doubt however that Elizabeth willingly utilized some of her funds for the upkeep and maintenance of the home. Part of those funds represent fair rental for being able to live in a home initially paid for by her parents, and part of those funds were to preserve one third of the asset she was going to receive as a credit in the purchase of the property.
Unfortunately, Elizabeth used the home equity line and her own personal funds interchangeably, making it extraordinarily difficult for the court. Elizabeth took $102,675 from the home equity line for her personal use. She has produced a check register without backup documents corroborating the capital improvements demanding credit of $232,256 demanding a dollar for dollar credit. Elizabeth Lee has failed to meet her burden of proof entitling her to credit for contributions she alleges she made towards the home with exception of the $19,850 figure determined above. In as much as she must have used some of her funds toward the home, she should be given the opportunity to protect her investment.
The court's allocation of credits between the parties is "governed by the basic justice and fairness of the situation." Baird v. Moore, 50 N.J. Super. 156, 173 (App. Div. 1958). Moreover, our scope of appellate review of a judgment entered in a non-jury case is limited. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 483-84 (1974). The findings of fact on which the judgment is based "should not be disturbed unless 'they are so wholly [u]nsupportable as to result in a denial of justice[.]'" Ibid. (quoting Greenfield v. Dusseault, 60 N.J. Super. 436, 444 (App. Div.), aff'd o.b., 33 N.J. 78 (1960)). "Thus, '[w]e do not weigh the evidence, assess the credibility of witnesses, or make conclusions about the evidence.'" Mountain Hill, L.L.C. v. Twp. of Middletown, 399 N.J. Super. 486, 498 (App. Div. 2008) (quoting State v. Barone, 147 N.J. 599, 615 (1997)). "Because a trial court 'hears the case, sees and observes the witnesses, [and] hears them testify,' it has a better perspective than a reviewing court in evaluating the veracity of witnesses." Pascale v. Pascale, 113 N.J. 20, 33 (1988) (quoting Gallo v. Gallo, 66 N.J. Super. 1, 5 (App. Div. 1961)).
The court's decision was based upon credibility determinations and facts that were more than amply supported by sufficient credible evidence in the record. The trial court correctly noted Elizabeth had not demonstrated that her expenditures increased the value of the property. See Donnelly v. Capodici, 227 N.J. Super. 310, 311 (Ch. Div. 1987) (imposing an equitable lien in favor of plaintiffs because their "improvements had increased the value of the real property by $7,500 more than the defendants' improvements"). There is no basis for disturbing the trial court's determinations.
Affirmed in part, reversed in part.