August 14, 2012
WILENTZ, GOLDMAN & SPITZER, P.A., PLAINTIFF-RESPONDENT,
LINDA PAGANO,*FN1 DEFENDANT/THIRD-PARTY PLAINTIFF-APPELLANT,
DAVID WILDSTEIN, ESQ. AND ALBERTINA WEBB, ESQ., THIRD-PARTY DEFENDANTS-RESPONDENTS.
On appeal from Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-3080-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued May 30, 2012
Before Judges Payne, Reisner and Simonelli.
Defendant, counterclaimant and third-party plaintiff, Linda Pagano, appeals from an order of the trial court dismissing her counterclaim for legal malpractice against plaintiff, the law firm of Wilentz Goldman & Spitzer, P.A. (Wilentz), and her third-party complaint against the firm's attorneys, David Wildstein and Albertina Webb, as the result of her inability to prove damages. We affirm.
The record reflects that, in November 2005, Pagano retained Wilentz to represent her in connection with matrimonial matters. Thereafter, Pagano's husband, Erich Kurt Berger, represented by James Yudes, filed a complaint for divorce in Ocean County. On June 14, 2006, prior to a case management conference in the matter, Pagano, her sister and Berger met, without the parties' attorneys, for several hours in the cafeteria of the Ocean County Courthouse to discuss a proposed property settlement agreement encompassing alimony, child custody and support, and the parties' marital estate, which included a waterfront marital home; two commercial properties; a condominium in Florida; a number of businesses; seven boats; various motor vehicles including three motorcycles, a two trucks and a Hummer; cash; and investments. They used as the basis for their discussion a counterproposal prepared by Wildstein on June 2, 2006 in response to an initial settlement proposal by Yudes. Among the terms of the counterproposal was one that dealt with the marital home in Brick, New Jersey that provided:
The marital home . . . shall be sold forthwith and the net proceeds shall be divided equally. In the alternative, Mr.
Berger shall have the option to be exercised within 30 days, to buy out [Pagano's] 50% interest for $900,000 less 1/2 of the first and second mortgages. If he exercises this option, he shall close within 60 days and [Pagano] shall vacate 45 days thereafter.
At the time, there was a first mortgage of approximately $164,000 on the property, and a second mortgage of approximately $14,000. Pagano claims that, during the course of their meeting, Pagano and Berger came to an agreement regarding equitable distribution of the marital home, as set forth in a marked-up version of Wildstein's counterproposal. Despite the fact that the parties had not reached an agreement on Pagano's demand for rehabilitative alimony*fn2 or her share of the value of the commercial properties, Pagano claims that, following the cafeteria meeting, the parties were willing to cancel the case management conference, place their settlement on the record, and proceed with an uncontested divorce.
However, upon being informed of their plan, Wildstein convinced Pagano not to proceed that day, advising her not to enter into a settlement until he had obtained answers to a limited number of interrogatories, to be served on Berger, and until he had obtained Berger's case information statement. Thereafter, five drafts of a property settlement agreement were exchanged in the period from July 18, 2006 and August 30, 2006. During this period, on August 6, 2006, Berger sent an e-mail to Yudes regarding a draft agreement that Yudes had circulated. With respect to the marital residence, the e-mail stated:
Also note that item 18 now has an option. This is an option that we are also in agreement with and currently exploring the financing. The reason we have agreed to this option, I would have my house back and Linda would have a guaranteed amount of money rather than chancing the possible sale price. This would also give Linda immediate cash.
The option was based on a sale price of 1.6 million dollars, not the 1.8 million contained in the counterproposal. Pagano was to receive one-half of the net proceeds from the sale price, less the first mortgage and closing costs. It was estimated that Pagano's recovery would be approximately $715,000 less closing costs.
On August 31, 2006, Wildstein served interrogatories on Yudes, to be answered by Berger. Yudes responded:
I have received your letter of August 31, 2006 with regard to the above matter.
This is to confirm that there is no agreement with the parties at this juncture and that there will be no agreement until discovery is completed. Accordingly, my client's offer of settlement as contained in the Property Settlement Agreement recently submitted to you is withdrawn. I have forwarded your letter of August 31, 2006 to my client and we will respond more definitively as it relates to your request for discovery at that time.
Following additional negotiations, a matrimonial settlement agreement was executed by the parties on March 2, 2007 and an uncontested divorce hearing took place on April 25, 2007.*fn3 With respect to the marital residence, the agreement provided:
The Marital Home will be immediately listed for sale with Century 21 Solid Gold Realty at 4% commission. The Wife will be the listing agent for 120 days. The Wife will continue to have exclusive occupancy of the Marital Home until the time of its sale. The parties shall equally share in the proceeds of the sale of the Marital Home and equally be responsible for capital gains.
As of the date of entry of the order on appeal, the house had not been sold. At some point, Pagano had moved from the residence, which was then occupied by Berger. The circumstances of the change in possession are not set forth in the record.
Following the divorce, Wilentz filed suit against Pagano seeking payment of outstanding attorney's fees. The matter was settled. However, Pagano refused to sign a release of her potential claim for legal malpractice. As a consequence, following motion practice, the matter was restored to the trial calendar, and Pagano was authorized to file a counterclaim for legal malpractice against the Wilentz firm and a third-party complaint against the attorneys who had represented her, Wildstein and Webb.
During the period for discovery, Pagano retained Peter Ouda as her legal malpractice expert. Ouda issued a report, dated April 18, 2011, in which he stated that "[a]ll of the legal fees charged by the Wilentz firm after August\September of 2006 [were] unreasonable and unnecessary, in that these fees would not have been incurred if Mr. Wildstein had not 'killed' the settlement that much time and effort was expended to reach."
However Ouda did not otherwise address Pagano's damages. Pagano did not retain an economic expert to provide a comparative valuation of the two property settlement agreements or an appraisal of the value of the marital residence at the time that the final property settlement agreement was executed.
Following the scheduling of the case for trial, the Wilentz firm filed motions in limine including a motion to strike Pagano's damage claim as unsupported and speculative. The motion was argued on August 1, 2011 and denied. However, the trial court agreed to enter a stay to permit the firm to file an interlocutory appeal. On August 1, the parties also entered into a stipulation that if Pagano was not successful at trial in establishing that the Wilentz firm had committed professional negligence, Pagano would owe the fees claimed by the firm. At that time it was stated on the record that the issue for trial was whether Wildstein offered negligent advice when he suggested to Pagano on June 14, 2006 that she not proceed with settlement until he had conducted discovery of Berger's assets.
Thereafter, Wilentz requested that the court provide a statement of its reasons for denying the motion to strike. In response, the court asked for supplemental briefing, and following its receipt, the court rescinded its prior decision, ruling in favor of the Wilentz firm and its attorneys. In a decision placed on the record on August 17, 2011, the court rejected Pagano's position that, in seeking damages, she was not required to compare the economic and other benefits offered by each of the property settlement agreements, but that she could instead focus solely on provisions concerning the marital residence and in doing so, claim that her loss consisted of the amount that she would have received if Berger had exercised his option to purchase under the terms negotiated on June 14, 2006. The court instead accepted the position of the Wilentz firm that this method of calculation would result in a windfall to Pagano, who would receive both the option price as damages in the litigation and her one-half interest in the marital residence upon its sale as the result of the terms of the property settlement agreement.
Determining whether it focused on the property settlement agreements as a whole or on the value of the marital residence, economic testimony that Pagano lacked would be necessary, the court granted the motion of the Wilentz firm to strike Pagano's damages claim, and as a consequence, it dismissed her suit and granted the Wilentz firm the relief it had sought in its complaint. A judgment in favor of the Wilentz firm in the amount of $92,018.17 was entered on August 19, 2011 together with a stay pending appeal of the matter.
This appeal followed.
On appeal, Pagano argues that the court erred in finding that she could not prove her damages and in dismissing her counterclaim and third-party complaint. She asserts that "she was entitled to be restored to the position she would have been in absent the malpractice: receipt of approximately $700,000 for her share of the marital home in 2006."
The appropriate measure of damages is a legal determination, to be reviewed de novo. Mosteller v. Naiman, 416 N.J. Super. 632, 637 (App. Div. 2010) (citing Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995)). "Legal-malpractice actions (for negligence . . . and for fiduciary breach . . .) are subject to generally applicable principles of causation and damages." Restatement (Third) of the Law Governing Lawyers § 53, cmt. a (1998). Further, it is clearly established that: "One to whom another has tortiously caused harm is entitled to compensatory damages for the harm if, but only if, [s]he establishes by proof the extent of the harm and the amount of money representing adequate compensation with as much certainty as the nature of the tort and the circumstances permit." Restatement (Second) of Torts § 912 (1977).
In a legal malpractice context, a cause of action accrues only "'when an attorney's breach of professional duty proximately causes a plaintiff's damages.'" Olds v. Donnelly, 150 N.J. 424, 437 (1997) (quoting Grunwald v. Bronkesh, 131 N.J. 483, 495 (1993); see also Mant v. Gillespie, 189 N.J. Super. 368, 372 (App. Div. 1983). Such damages must be real and substantial, not speculative, as here. Grunwald, supra, 131 N.J. at 495.
Pagano argues that, as the result of the position of the Wilentz firm, she will be deprived of damages until such time as the marital residence is sold, if ever. However, such is not the case. Assuming the provisions of the property settlement agreement to have been separable, if Pagano had proven malpractice on the part the Wilentz firm's attorneys in advising her not to settle on June 14, 2006, and assuming that she had proven that Berger was financially capable of exercising the option at that time and had chosen to do so, she would have been entitled to collect the difference between the net proceeds she would have received as a result and her half share of the value of the residence at the time that the final property settlement agreement containing different terms was finalized in March 2007.
Pagano argues further that, in the circumstances presented, the Wilentz firm bore the burden of proving any diminution in her recovery as the result of the sale of the marital residence. In support of her position that she was entitled to be made whole, regardless of the likelihood of a double recovery, Pagano cites Hoppe v. Ranzini, 158 N.J. Super. 158 (App. Div. 1978). However, in our view, Hoppe does not support Pagano's position.
In Hoppe, the issue presented was whether an attorney who was found guilty of malpractice could limit damages by showing that any judgment that might have been secured by competent practice would have been uncollectible. A panel of this court declined to adopt a general rule on the issue, determining that additional factfinding was necessary. Id. at 170. However, with respect to the case before it, the court ordered a bifurcated trial: the first phase of which would address issues of negligence and damages and the second of which would determine how much would have been collectible against defendant, if the trial court determined that collectibility was a valid issue. The panel held: "It is the amount so determined that constitutes the damages for which the legal malpractice defendants are liable, provided the trial judge rules, after the second proceeding, that collectibility of the judgment is an appropriate consideration in establishing plaintiff's damages."
Id. at 171. Thus, the decision in Hoppe supported the position of the Wilentz firm, not that of Pagano. No windfall was permitted.
Pagano relies on language in the Hoppe opinion that
"[w]here it is certain that some damage has resulted, mere uncertainty as to the amount need not preclude the right to recovery. In that event, it is left to the good sense of the jury, as reasonable men, to determine from the evidence the best estimate that can be made under the circumstances of the amount of compensatory damages. [Id. at 166.]
However, that particular passage concerned an award in circumstances in which the negligence of the defendant was a proximate cause of damages, but there may have also been intervening causes, and it referred to uncertainty as to the proper allocation of damage to the defendant. The passage cannot be read as permitting mere speculation on the part of the factfinder, a position we have rejected. See, e.g., Desai v.
Bd. of Adj. of Phillipsburg, 360 N.J. Super. 586, 595-96 (App. Div.) (affirming the rejection of damages for lost profits based solely on the "mere opinion" of the plaintiff), certif. denied, 177 N.J. 492 (2003); Ellsworth Dobbs, Inc. v. Johnson, 92 N.J. Super. 271, 282 (App. Div. 1966) (affirming dismissal of counterclaim that was not supported by evidence of damages), rev'd on other grounds, 50 N.J. 528 (1967).
We similarly find Wolpaw v. General Accident Insurance Co., 272 N.J. Super. 41 (App. Div.), certif. denied, 137 N.J. 316 (1994) factually inapposite to the present matter, since in that case, we merely recognized that a judgment against a then-judgment-proof party who was the victim of malpractice was valid for twenty years, and we held that the party did not have to declare bankruptcy to mitigate her damages. Id. at 50.*fn4
Nor do we find DiStefano v. Greenstone, 357 N.J. Super. 352 (App. Div.), certif. denied, 176 N.J. 278 (2003) to offer precedent that would support Pagano's position in this case. In DiStefano, plaintiff, while represented by counsel, had settled her malpractice action against her underlying attorney, Greenstone, for $90,000. We held that "plaintiff [wa]s entitled to recover the entire $90,000 without reduction for the original one-third contingent fee, or $30,000, and [wa]s also entitled to recover as consequential damages in the malpractice case against Greenstone her agreed upon fee with her present attorney, now pursuing this action, also one-third of the total recovery or $30,000." Id. at 354. In doing so, we recognized that plaintiff thus received a windfall. Ibid. However, we held that the result was compelled by the principles expressed in Saffer v. Willoughby, 143 N.J. 256 (1996). Ibid. We observed:
Three principles or general rules emerge from the Saffer case: (1) the negligent attorney is precluded from recovering his attorney fee and the total amount of the malpractice claim recovery goes to the plaintiff. (2) [O]rdinarily, an attorney may not collect attorney fees for services negligently performed, and (3) "in addition, a negligent attorney is responsible for legal expenses and attorney fees incurred by a former client in prosecuting the legal malpractice action." [DiStefano, supra, 357 N.J. Super. at 357 (internal citations omitted).]
As this summary illustrates, the decision in Saffer was confined to an attorney fee context, and the principles expressed in that case specifically addressed the attempted setoff by an attorney of damages for his own negligence by the fee he would have collected if he had not been negligent, and that attorney's responsibility for the costs of recovering damages resulting from the negligence. We have been offered nothing that would suggest that the principles of Saffer extend beyond that limited context.
We also reject Pagano's reliance on Academy Spires v.
Brown, 111 N.J. Super. 477 (Dist. Ct. 1970). As the Wilentz firm correctly recognized, the court in that landlord-tenant matter permitted a percentage diminution in the tenant's rent as the result of the landlord's breach of its warranty of habitability, determining in light of the small sum involved that retention of an expert by the tenant would have been cost-prohibitive. Id. at 486. The case is thus not factually analogous.
As a final matter, Pagano argues that a side-by-side evaluation of the proposed and finalized property settlement agreements would be "irrelevant" since she singled out only one element, and that the remainder, achieved by compromise, was ultimately satisfactory to her. However, her position in this respect is not legally supported. See Kaplan v. Skoloff & Wolfe, P.C., 339 N.J. Super. 97, 104 (App. Div. 2001) (affirming the dismissal of a malpractice case, alleging the drafting of an inadequate property settlement agreement, in part, because plaintiff's expert "failed to render a comparison of similar property settlement agreements").
In summary, we find none of Pagano's contentions to warrant a decision different from that reached by the trial court. Having reviewed the record in light of the parties' arguments and applicable law, we are satisfied that the trial court was correct in ruling (1) that Pagano could not isolate one element from her property settlement agreement as a basis for a damage award without consideration of the entire agreement and an expert's economic comparison of the benefits and detriments of the two agreements and (2) that recovery of the net amount of Berger's proposed option payment without a set-off for the appraised value of the marital residence at the time of the execution of the final property settlement agreement - a figure that she had not obtained through expert evidence - would lead to a windfall for which there was no legal support. Because Pagano was unable to prove damages, an essential element of her counterclaim and third-party complaint, those pleadings were properly dismissed.