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Lewandowski v. Hi-Tech Homes, Inc.

Superior Court of New Jersey, Appellate Division

June 21, 2013



Argued October 17, 2012

On appeal from the Superior Court of New Jersey, Law Division, Ocean County, Docket No. L-3474-09.

Harry J. Levin argued the cause for appellants (Levin Cyphers, attorneys; Mr. Levin and Jarrod M. Miller, on the brief).

Iram P. Valentin argued the cause for respondents (Kaufman, Dolowich, Voluck & Gonzo, L.L.P., attorneys; Mr. Valentin, of counsel and on the brief; Edward Patrick Abbott, on the brief).

Before Judges Axelrad and Sapp-Peterson.


Plaintiffs appeal the trial court order voluntarily dismissing their complaint without prejudice, pursuant to Rule 4:37-1(b), and the award of $24, 418.20 in counsel fees in connection with the action. The court justified the award with its reliance upon Mack Auto Imports, Inc. v. Jaguar Cars, Inc., 224 N.J.Super. 254 (App. Div. 1990), where this court held a court may impose counsel fees as a condition of a voluntary dismissal. We affirm the award of counsel fees but vacate the amount of the award because plaintiffs were not given a meaningful opportunity to challenge the amount and reasonableness of the counsel fees sought, and the court failed to articulate the reasons for the amount of the award.

Plaintiffs, Raymond Zawisza and Edward Zawisza, Laurence Quinlan and Maureen Quinlan, and John Lewandowski and Judith Lewandowski, are homeowners who purchased their homes, located in Little Egg Harbor, from Hi-Tech Homes, Inc. (Hi-Tech), a home building company owned and operated by Terrence Moeller (Moeller). Plaintiffs purchased their homes at different times between 1996 and 2000. Although plaintiffs received deeds to their respective properties and purchased title insurance from defendant, clear title was never conveyed.

In May 2004, Freedom Title & Abstract, Inc. (Freedom Title) conducted a refinance closing between Hi-Tech and TEB Associates (TEB) using the Zawiszas', Quinlans' and Lewandowskis' properties to secure a $900, 000 loan. Freedom Title performed a title search and, on the closing date, issued a title commitment to TEB without disclosing plaintiffs' ownership interests in these properties.

Moeller defaulted on the loan, causing TEB to foreclose on Hi-Tech's mortgage in 2007. On September 21, 2009, plaintiffs filed a complaint against Hi-Tech, Moeller, Catherine Moeller, Freedom Title and its owner, Cathleen Mackie (Mackie), [1] alleging fraud and related counts. All parties, except Hi-Tech, filed an answer, and default was entered against the company. Moeller answered the complaint and, in his answer, asserted "[n]one of the allegations apply due to filing personal bankruptcy[.]"

Defendants served requests for admissions and initial interrogatories upon plaintiffs.[2] Plaintiffs responded to the requests for admissions and subsequently responded to the initial interrogatories propounded. Plaintiffs also served the first set of interrogatories upon defendants, to which defendants responded in April 2010. In May 2010, defendants responded to plaintiffs' request to produce documents.

By letter dated March 24, 2010, defendants served notices to take the depositions of plaintiffs on April 7, 8 and 9, 2010. Plaintiffs' counsel advised, by letter dated March 26, that co-counsel was unavailable on the requested dates and proposed five alternative dates. Of the dates offered, defendants agreed to April 29, May 10 and May 12. Approximately two weeks later, plaintiffs' counsel indicated she would be unavailable on April 29, May 10 and May 12, and the depositions were again rescheduled for May 12, June 2, and June 3. By letter dated May 10, 2010, plaintiffs' counsel advised that "we are adjourning all the depositions until a time following our application to the Bankruptcy Court to reopen Mr. Moeller's case to file a [c]omplaint for [n]on-[d]ischargeability."

Defendants subsequently advised plaintiffs' counsel that they "[could] not agree to an indefinite and informal stay of discovery" and sought to reschedule discovery for that summer. Plaintiffs' counsel did not respond, resulting in defendants filing a motion to compel discovery. On September 10, 2010, the court entered an order directing plaintiffs to appear for depositions in October and to produce any expert reports by October 1, 2010.

Defendants thereafter served deposition notices scheduling plaintiffs for dates on October 7, 13 and 14, 2010. By letter dated October 6, plaintiffs again cancelled the depositions and "advised that the Moeller bankruptcy matter is in the process of being reopened." On the same date, plaintiffs filed a motion with the bankruptcy court to reopen Moeller's bankruptcy case.

Defendants filed a motion to dismiss or alternatively for summary judgment on October 14, 2010. Plaintiffs filed a motion to extend discovery on November 2, and filed a brief in opposition to defendants' motion to dismiss and in support of their motion to extend discovery on November 23. Defendants filed a reply brief on November 29.

The trial court heard oral arguments on both motions on December 3, 2010.[3] The court delayed its decision on the motion to dismiss until January 21, 2011, but entered an order extending discovery until March 8, 2011. The order provided that depositions of the parties and the witnesses were to be completed by January 15, 2011, and an expert report was to be provided by plaintiffs by February 1, 2011.

Defendants once again served deposition notices on plaintiffs scheduling depositions for January 4, 6, and 11, 2011. Plaintiffs' counsel cancelled the depositions, stating "the depositions in this matter, scheduled for January 4, January 6 and January 11, 2011, will not be moving forward[, ]" offering as an explanation for the cancellation that the bankruptcy court had granted plaintiffs' motion to reopen the bankruptcy proceedings. The next day, plaintiffs filed a complaint for non-dischargeability of debt, asserting the same claims against defendants and Moeller as had been asserted against them in the Law Division.

On January 19, 2011, plaintiffs notified the Law Division of the reopened bankruptcy proceedings, stating that "in light of the U.S. Bankruptcy Court action, the Law Division matter should be dismissed by [the] [c]ourt, thus allowing the Bankruptcy action to continue as the sole legal action." Defendants responded on January 20, 2011, assuring the Law Division that it had jurisdiction but urging that "to the extent the [c]ourt would grant . . . [p]laintiffs' request for a voluntary dismissal, . . . it is respectfully requested that the [c]ourt award . . . [d]efendants their reasonable counsel fees expended in this matter to date as these efforts would need to be duplicated in federal court."

The parties appeared before the court for oral argument seeking voluntary dismissal of their complaint without prejudice. The court advised plaintiffs that if they wanted a voluntary dismissal, "they will have to pay defendants' counsel fees. If not, I'll proceed with counsel's motion for [s]ummary [j]udgment." At the request of plaintiffs' counsel, the trial court directed defendants to provide a Certification of Services to help plaintiffs decide how to proceed. The court then rescheduled the motion.

Defendants provided the Certification of Services and plaintiffs sought a further two-week adjournment as plaintiffs' counsel was "in the process of reviewing" the Certification of Services and had "not had an opportunity to evaluate the extent of said Certification with [his] clients[.]" The trial court granted this request and, when plaintiffs sought yet another adjournment, claiming a deficiency in the Certification of Services, the trial court granted an additional two-week adjournment.

Immediately after seeking this adjournment and four days before the discovery deadline, plaintiffs filed a cross-motion for leave to file an amended complaint and to extend discovery "to allow the [p]arties sufficient time to reconcile the jurisdictional issues that have arisen in connection with the Terrence Moeller Bankruptcy Adversary Action and avoid needless and costly duplicative litigation." Plaintiffs also requested that the Superior Court proceedings be "placed on the inactive trial list" to allow the bankruptcy proceeding to proceed without limitation. Defendants filed opposition on March 14, 2011.

On March 18, 2011, the trial court heard oral argument on the pending motions. The court addressed plaintiffs' request for a more specific bill. The court echoed defense counsel's contention that "the way [the] firm's computer system is set up, they would expend so many more man hours getting more specifics and would also have questions of privilege and strategy and attorney work product." The court concluded that "for the purposes of this motion[, ] I let the bill as it presently stands suffice." The court also noted the bill could be subject to reduction, once the court took a closer look at it. Again presented with the option of paying defendants' counsel fees, plaintiffs' counsel opted to take the voluntary dismissal and have the court rule on what a reasonable fee would be.

On March 31, 2011, plaintiffs' counsel submitted a Supplemental Certification of Services, noting the hourly rate of the attorneys who worked on the matter and requesting $57, 862.77 in counsel fees. By letter dated April 27, 2011, plaintiffs urged the court not to award fees to defendants in connection with the dismissal and asserted "[i]t is impossible for . . . [p]laintiffs to appreciate the extent of work conducted by . . . [d]efendants as said [d]efendants have refused to provide our office with copies of their invoices -whether redacted or in original form - evidencing the services actually performed." On May 16, 2011, the court entered an order dismissing plaintiffs' complaint without prejudice and awarding defendants $29, 418.20 for counsel fees as a condition of dismissal.

Plaintiffs moved for reconsideration or, in the alternative, a stay of the May 16 counsel fee order, reasserting their position that an award of fees "was unwarranted, especially in the absence of the opportunity by . . . [p]laintiffs to review, and respond, to . . . [d]efendants['] [e]xhibit to their Affidavit of Services."

The present appeal followed, with the trial court submitting an amplification of the record pursuant to Rule 2:5-1(b) on August 17, 2011. In its amplification, the court reasoned that "considering the length of time this case has been ongoing and the considerable discovery that had been done, it was unfair to force . . . [d]efendant[s] to bear the cost of duplicating much of the [L]aw [D]ivision litigation in the Bankruptcy Court case." In reviewing the history of the case, the court noted that after three prior adjournments at plaintiffs' request, it refused to adjourn the motion again "[a]s Mr. Levin's office had called on motion day to say he was sick on at least one other occasion on the same motion[.]" The court also noted that it had conducted an in-camera review of all of defendants' attorneys' invoices "because the invoices set out in great detail exactly what research was done and strategies utilized [and as] the claims were to be litigated again in Bankruptcy Court, it would have been improper to require [d]efendants to reveal the detail in the invoices."

The court additionally explained that approximately one-half of the fees sought should not be borne by plaintiffs "because the work would not have to be duplicated." The court found, however, that

$29, 418.20 of the fees were for responding to discovery, pleadings, motions and other litigation expenses that will have to be replicated in the Bankruptcy Court case. Thus, this [c]ourt found it was appropriate to condition a dismissal without prejudice on the payment of those fees that must be duplicated, which is supported by Mack Auto, supra.

On appeal, plaintiffs raise the following points for our consideration.


The standard for setting aside a trial court's award of counsel fees requires that we find a clear abuse of discretion. Litton Indus., Inc. v. IMO Indus., 200 N.J. 372, 386 (2009) (citations omitted). Based upon our review of the record we discern no such abuse of discretion in the decision to award counsel fees but remand for further proceedings as to the reasonable amount of fees to be awarded.


After a defendant has served a responsive pleading, a plaintiff may voluntarily dismiss an action "only by leave of court and upon such terms and conditions as the court deems appropriate." R. 4:37-1(b). Although not expressly stated in the rule, such "terms and conditions" have been construed to include reimbursement of a defendant's expenses, including counsel fees. Mack Auto, supra, 244 N.J.Super. at 260; Shulas v. Estabrook, 385 N.J.Super. 91, 104 (App. Div. 2006).

"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, supra, 385 N.J.Super. at 97. "[F]ee determinations by trial courts will be disturbed only on the rarest of occasions, and then only because of a clear abuse of discretion." Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 444 (2001). As we have previously stated:

A motion based on R. 4:37-1(b) involves three sequential inquiries: (a) whether the matter should be dismissed without prejudice, (b) if so, whether terms should be imposed, and (c) if so, what terms will alleviate any prejudice to the defendant and prevent injury to the efficient administration of justice generated by the ensuing delay and duplication of effort.
[Shulas, supra, 385 N.J.Super. at 98.]

Once a court decides to dismiss an action without prejudice, the court must then decide what, if any, terms should be imposed. Ibid. The terms and conditions which the court may impose "are for the protection of the rights of the defendant." Home Owners' Loan Corp. v. Huffman, 134 F.2d 314, 317 (8th Cir.1943)[4]; see also Le Compte v. Mr. Chip, Inc., 528 F.2d 601, 604 (5th Cir. 1976) ("Allowing the court to attach conditions to the order of dismissal prevents defendants from being unfairly affected by such dismissal."). Where an action is dismissed without prejudice, the defendant's rights are vindicated by the reimbursement of the expenses incurred in defending the dismissed state action. Mack Auto, supra, 244 N.J.Super. at 250. On the other hand, fees are denied where "it cannot be said that a subsequent action would involve [defendant] with the expenditure of duplicate counsel fees in litigating the same issue." Union Carbide Corp. v. Litton Precision Products, Inc., 94 N.J.Super. 315, 318 (Ch. Div. 1967).

Here, plaintiffs concede there is another action pending in bankruptcy court "including the same parties and allegations involved in the Law Division matter[.]" The record disclosed that plaintiffs learned of Moeller's bankruptcy in November 2009, approximately two months after they filed their complaint in the Superior Court. However, they failed to file a motion to reopen the bankruptcy proceedings until October 2010 and did not communicate their intent to do so to defendants until May 2010. In the interim, rather than seeking a stay of the Superior Court proceedings, plaintiffs continued to participate in the Superior Court proceedings, albeit perfunctorily, and defendants continued to litigate the matter, ultimately moving for summary judgment in October 2010. Before plaintiffs filed the motion to reopen with the Bankruptcy Court, defendants had already answered plaintiffs' complaint, served and responded to interrogatories, scheduled depositions, responded to motions and appeared in court on multiple occasions. The bankruptcy proceedings will require the filing of new motions, at additional cost to defendants.

Thus, the trial court's decision to impose counsel fees does not constitute an abuse of discretion. Plaintiffs' contention that they should not be responsible for any fees incurred by defendants because defendants were aware of the possibility of further expenses in the bankruptcy case is without merit because in the absence of a stay from the court, defendants were obliged to defend the action.


Turning to the actual counsel fees awarded, the trial judge reviewed defendants' counsel's invoices in-camera and, after "review[ing] every individual entry in the logs to determine which work would have to be duplicated in the Bankruptcy Court case[, ]" found:

Of the total amount claimed by [d]efendants, this [c]ourt found that approximately half of the fees should not be borne by [p]laintiffs because the work would not have to be duplicated. For example, any in-house memos and meetings regarding strategy and defenses were determined not billable to [p]laintiffs because the same memos and strategies could be used in the Bankruptcy Court case[.]"

Plaintiffs cite Scott v. Salerno, 297 N.J.Super. 437, 452 (App. Div. 1997), and urge that they should have been permitted to weigh in on the reasonableness and extent of the fee award. They submit that the court's failure to articulate the basis upon which the award of fees was calculated requires reversal.

In Scott, the third-party defendant insurer appealed the grant of summary judgment in favor of the insureds who sought a declaration that they were entitled to coverage under a policy issued by the insurer. Id . at 441. The insurer contended that there was no coverage, and that the trial court's award of attorney's fees was unjustified. Id . at 444. We affirmed the grant of summary judgment but remanded to the trial court for reconsideration of the award of counsel fees. Id . at 451. We found the trial court erred in awarding the defendant counsel fees and costs based solely on affidavits and its in-camera review of the insured's counsel's files, without affording the insurer an opportunity to review those files and to examine the insured's attorney as to the necessity of the services rendered and the reasonableness of the fees requested. Id . at 432.

Scott is, however, factually distinguishable from the present matter because in Scott, unlike the present case, the matter came to an end with the grant of summary judgment, whereas in this case, litigation involving the same claims against the same parties is ongoing in another forum. As such, different concerns are implicated by the disclosure of defense counsel's invoices to plaintiffs.

Generally, "[d]ocuments which are strictly 'mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation' are privileged and protected from disclosure except when they are the subject of the controversy itself." In re Envtl. Ins. Declaratory Judgment Actions, 259 N.J.Super. 308, 319 (App. Div. 1992). Accordingly, correspondence or other materials that reveal legal theories, such as researching particular areas of law, also ordinarily fall within the privilege. In re Grand Jury Witness, 695 F.2d 359, 362 (9th Cir. 1982). As such, it is appropriate that documents of this nature are reviewed in-camera to avoid violating this privilege. See In re Envtl. Ins., supra, 259 N.J.Super. at 320 (noting resolution of discovery requests as to information alleged to be privileged must be decided by the trial judge in-camera). As the trial court observed following its in-camera review, "the invoices set out in great detail exactly what research was done and strategies utilized." Under these circumstances, the trial court did not abuse its discretion in conducting an in-camera review of the invoices.

Moreover, we disagree that the court failed to provide plaintiffs with the opportunity to respond to defendants' Certification. By letter dated March 2, 2011, plaintiffs' counsel responded to the Certification of services, highlighting the perceived deficiencies in the certification, specifically explaining that he had "absolutely no idea who performed the work, what that work was, or even if the work performed was related to this case."

We observe that defense counsel's certification identifies the attorneys who were involved in the litigation, their years of experience and hourly rates. The certification also identifies the specific litigation costs defendants incurred and for which a counsel fee award was being sought:

In litigating this matter, this firm has incurred costs with respect to the initial investigation of the claims, research, drafting and serving a responsive pleading, and drafting and responding to a number of discovery requests, including requests for admissions, interrogatories, and requests for production. Additionally, this firm has filed a [m]otion to [c]ompel . . . [p]laintiffs' [d]epositions, which was granted by the [c]ourt. Further, . . . [d]efendants have drafted the pending [m]otion for [s]ummary [j]udgment, as well as the numerous supplemental submission. For all intents and purposes, we have litigated this matter to the summary judgment stage.

What, however, is not reflected in the Certification or the spreadsheet is the amount of time spent on each of the above areas identified in the Certification. Nor does the spreadsheet provide any insight into who performed the work, which is critical because the fees charged varied slightly amongst the lawyers. Instead, the spreadsheet merely reflects an invoice number, the amount of the invoice, and the running balance. Although the court was in receipt of a copy of the spreadsheet prior to March 18, 2011, at oral argument the court inexplicably accepted defense counsel's explanation why a more specific certification could not be provided:

THE COURT: So at this time, [counsel for plaintiffs], do you intend to pay . . . is it . . . plaintiffs' position that they will pay . . . defendants' counsel fees subject to perhaps a review by the [c]ourt? I understand that you had an issue, [plaintiffs' counsel] had an issue with the format [in which] the certification of fees was presented to the [c]ourt and they wanted more detail. And when I asked [defense counsel] - -
[DEFENSE COUNSEL]: That's correct.
THE COURT: - - for a more specific bill, he said that unfortunately the way your firm's computer system is set up, they would expend so many more man hours getting more specifics and would also have questions of privilege and trial strategy and attorney work product. So for the purposes of this motion I let the bill as it present stands suffice. But I believe [defense counsel] understood that it could be subject to reduction by the [c]ourt once I took a more intense look at it, and that was also conveyed to your office as far as the amount would still be subject to some review by the [c]ourt. But I wasn't going to order them to spend even more time and effort to get a more detailed version. so that essentially you were looking at something in the neighborhood, more or less, in terms of a fee that you would be responsible for.

Even if we were to accept defense counsel's explanation, what was submitted for consideration by the court was woefully inadequate.

As noted earlier, Paragraph 8 of the Certification of Services specifically identified the nature of the legal services performed for which a counsel fee award was being sought. The accompanying spreadsheet reflects a mere fifteen invoices over a two-year period. It is inconceivable that a supplemental certification that includes a breakdown of what was actually performed, e.g., summary judgment motion, responses to interrogatories, etc., by whom the service was performed, and the amount of time expended on the task could have been provided in order to afford plaintiffs' counsel a meaningful opportunity to respond.

After reviewing the documents in-camera, the court found $29, 418.20 of the $62, 825.27[5] defendants requested for counsel fees was for work that would have to be replicated in the bankruptcy case and awarded defendants this sum. The court, however, failed to make specific findings as to the reasonableness of the legal services provided and the reasonableness of the fees charged for those services.

Rule 4:42-9, which authorizes the award of attorney fees in a voluntary dismissal, see Pressler & Verniero, Current N.J. Court Rules, comment 2.7 on R. 4:42-9 (2012), requires the filing of an affidavit of service addressing the factors enumerated in RPC 1.5(a). "'[A] trial court must analyze the [relevant] factors in determining an award of reasonable counsel fees and then must state its reasons on the record for awarding a particular fee.'" R.M. v. Supreme Court of N.J., 190 N.J. 1, 12 (2007) (quoting Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 21 (2004)).

Here, no statement of reasons was attached to the order awarding the $29, 418.20 in counsel fees to defendants. Nor does it appear any oral statement of reasons as to how the court arrived at its decision was placed on the record in advance of the entry of the order. Finally, the court's amplification, prepared pursuant to Rule 2:5-1(b), did not explain how the court arrived at the amount of the award. While the court significantly reduced the award, the reduced amount still requires a statement of reasons explaining how the court arrived at this amount.

Thus, defendants' failure to submit a Certification of Services that afforded plaintiffs' counsel a meaningful opportunity to respond, together with the absence of specific findings from the trial court explaining the reasons for the particular counsel fee awarded, requires a remand.


Finally, plaintiffs take exception to the trial court's reference to their attorney's requests for adjournments "as a basis for determining that an award of fees was warranted." Plaintiffs argue counsel's legitimate request for an adjournment should never be a basis for an award of counsel fees and to insert this into the record by way of amplification does nothing more than prejudice plaintiffs. Defendants assert plaintiffs' attack on the trial court's amplification of reasons is without basis.

Under Rule 2:5-1(b) a trial court may file and mail to the parties an amplification of a prior statement opinion or memorandum The amplification clearly and unambiguously explains that fees were imposed because the court found it unfair that defendants bear the cost of duplicating much of the Law Division case in the bankruptcy proceeding Plaintiffs' claim otherwise is without merit

Affirmed as to the decision to award counsel fees vacated as to the amount of counsel fees and remanded for further proceedings consistent with this opinion We do not retain jurisdiction

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