October 3, 2013
ESTATE OF CLAUDIA L. COHEN, by its EXECUTOR, RONALD O. PERELMAN, and RONALD O. PERELMAN, as NATURAL GUARDIAN of his minor child, SAMANTHA PERELMAN, Plaintiffs-Appellants/ Cross-Respondents,
ROBERT COHEN and JAMES S. COHEN, Defendants-Respondents/Cross-Appellants.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued December 12, 2012.
On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-134-08.
Peter G. Verniero argued the cause for appellants/cross-respondents Estate of Claudia L. Cohen, Ronald O. Perelman, Executor, and Ronald O. Perelman, as natural guardian of his minor child, Samantha Perelman (Sills, Cummis & Gross, P.C., attorneys; Mr. Verniero and James M. Hirschhorn, of counsel; Scott B. Murray and Jason L. Jurkevich, on the brief).
Laurence B. Orloff argued the cause for appellant/cross-respondent Lowenstein, Sandler, P.C. (Orloff, Lowenbach, Stifelman & Siegel, P.A., attorneys; Mr. Orloff, of counsel and on the brief; Adam M. Haberfield, Alissa Pyrich, and Matthew T. Aslanian, on the briefs).
Michael Chertoff (Covington & Burling, L.L.P.) argued the cause for appellant/cross-respondent Paul, Weiss, Rifkind, Wharton & Garrison, L.L.P.).
Christopher L. Weiss argued the cause for respondent/cross-appellant Robert Cohen (Ferro, LaBella & Zucker, L.L.C., attorneys; Mr. Weiss, of counsel and on the brief; Russell T. Brown, on the brief).
Benjamin Clarke argued the cause for respondent/cross-appellant James S. Cohen (DeCotiis, FitzPatrick & Cole, L.L.P., attorneys; Frank Huttle III, of counsel; Mr. Clarke, Russell J. Passamano and Erik M. Corlett, on the brief).
Before Judges Sapp-Peterson, Nugent and Haas.
In these back-to-back cases, plaintiffs, the Estate of Claudia Cohen ("the Estate"), her former husband Ronald Perelman as executor, and their daughter Samantha Perelman, appeal from the entry of judgment in A-0713-10 rejecting their claim that Claudia's father, defendant Robert Cohen, promised Claudia that she would share equally in his estate. They also appeal from the trial court's determination in Robert's counterclaim that a transfer of $10 million from Robert to Claudia was a loan and not a gift. Robert and James Cohen, Robert's son, cross-appeal from the court's denial of their request to recover frivolous litigation sanctions against Perelman and to recover certain costs related to electronic (e-) discovery. Robert also appeals from the trial court order fixing the hourly rate for his New York attorneys to that of the so-called "forum rate" of similarly situated New Jersey attorneys. In addition, plaintiffs' attorneys, Lowenstein Sandler, in A-0864-10, and Paul, Weiss, Rifkind, Wharton & Garrison, in A-0941-10, appeal from a nearly $2 million counsel fee awarded to defendants pursuant to the frivolous litigation rule, Rule 1:4-8 ("the Rule").
With the exception of the award of counsel fees pursuant to the Rule, we affirm the orders entered in all respects. We vacate the counsel fees and costs awarded pursuant to the Rule and remand for further proceedings.
This matter has already been the subject of two Appellate Division decisions, In re Cohen, Docket No. A-5852-08 (App. Div. July 5, 2011), certif. denied, 208 N.J. 371 (2011) (Cohen I), and Estate of Cohen v. Booth Computers, 421 N.J.Super. 134 (App. Div.), certif. denied, 208 N.J. 370 (2011). The former involved whether a guardian ad litem should have been appointed for Robert, whom plaintiffs alleged lacked capacity. That case had some overlap with the instant appeals. The latter involved Claudia's interest in Booth Computers, a Cohen family partnership. That case is not relevant to these appeals.
In April 2008, plaintiffs filed an eight-count complaint in the Chancery Division alleging: (1) promissory and equitable estoppel against Robert (count one); (2) tortious interference against James (count two); (3) money had and received against James (count three); (4) unjust enrichment and constructive trust against James (count four); (5) undue influence against Robert and James (count five); (6) actual fraudulent conveyance against Robert and James (count six); and (7) constructive fraudulent transfer against Robert and James (count seven). The complaint was later amended to add an eighth count alleging legal and/or equitable fraud against James.
In May 2008, in lieu of filing an answer, defendants moved to dismiss the complaint. The trial court denied the motion, concluding that whether Robert made an oral promise to Claudia prior to 1978, the cutoff date for permitting oral contracts to make a devise under N.J.S.A. 3B:1-4, could not be gleaned from the complaint. Defendants thereafter filed their respective answers denying the allegations. Robert also asserted a counterclaim seeking to recover $10 million on a promissory note executed by Claudia. On July 25, the court entered a case management order calling for discovery to be completed by December 31. On October 21, the court signed an order appointing Joseph Castiglia as a special discovery master and scheduled trial for April 13, 2009.
In November, James served his first notice and demand upon plaintiffs alleging that the complaint was frivolous. Several months later, he opposed plaintiffs' motion for leave to file an amended complaint, arguing the action was frivolous. The court, however, granted plaintiffs' motion, warning plaintiffs that they were expected to present proof of a pre-1978 promise and noted that defendants were alleging the promise claim was frivolous litigation. James thereafter served a second frivolous litigation notice upon plaintiffs demanding the withdrawal of their complaint. In addition, in June 2009, Robert served a frivolous litigation notice and demand upon plaintiffs, claiming there was no basis for plaintiffs to maintain the cause of action.
Prior to commencement of the trial, plaintiffs moved for a declaration that Robert was incapacitated and required appointment of a guardian. The trial court noted that no capacity complaint had been filed and declined to consider a claim of general incapacitation in the Chancery action. The court bifurcated the trial into two phases, with the first phase specifically focused upon whether Robert was incapacitated for purposes of the trial only, to be immediately followed by trial on the merits of the complaint. The court determined that a cause of action relating to any general determination of Robert's capacity should be filed in the Probate Part.
Based upon that determination, plaintiffs filed a Probate action on April 22, 2009 seeking a declaration that Robert was incapacitated and required appointment of a guardian ad litem. The following day, plaintiffs sought leave to appeal the interlocutory ruling denying their application for the immediate appointment of a guardian ad litem for Robert in the Chancery action, as well as the court's ruling that the parties would proceed directly to trial on the merits. As to the latter ruling, plaintiffs urged they had not had the benefit of completing relevant pretrial discovery.
On April 27, the court signed an order denying plaintiffs' application for a stay of discovery and trial on the merits pending disposition of the guardian ad litem phase, and also denied their application for appointment of a guardian ad litem for Robert. On May 28, we denied plaintiffs' motion for leave to appeal these interlocutory rulings.
On June 1, the court rendered an oral opinion in the Chancery action, declining to appoint a guardian ad litem. Trial commenced the next day.
On June 3, nearing the four o'clock hour and while James was under direct examination by plaintiffs' counsel, his attorney objected to the manner in which questioning was proceeding and accused counsel of "obviously trying to run out the clock today[.]" Plaintiffs' counsel responded that he had not completed his questioning of James and that since the trial was being adjourned for one week for the benefit of defense counsel, there was "no reason to rush this testimony and confine me to a strict limit." The court stated that if the questioning of James was not going to be completed that day, counsel "should present what you perceive to be your most compelling evidence and then proffer with regard to the rest of Mr. James Cohen and whatever other witnesses that you plan to call."
Questioning continued, and when the four o'clock hour arrived, defense counsel interrupted the questioning, stating: "[H]ere we are right into the other parts of the case . . . and there's not any connection to the promise and it's four o'clock." The court expressed that it was a good time to stop but also queried plaintiffs' counsel as to the relevance of this line of questioning. Plaintiffs' counsel explained the relevancy of the questioning and the court advised that it would be "helpful" to the court if plaintiffs' counsel provided a proffer as to "what the rest of your evidence is and that since we have a break until we're coming back, that that would give an opportunity to both sides to submit a concise brief as to whether that evidence is sufficient to go forward on the promise." Plaintiffs' counsel responded, "[Y]ou haven't heard all of our evidence yet. You haven't even heard all of our evidence with respect to James[, ]" and summarized what had been presented to that point. The court nonetheless directed the parties to proceed as it had directed.
When trial resumed on June 15, the court asked plaintiffs' counsel what was left, "in the event we continue with the promise" claim. Counsel responded that he was going to request an "adjournment again." Having previously denied the request and noting no additional facts had been presented, the court responded that it was not "soliciting another application to adjourn the matter[, ]" but still permitted counsel to make the adjournment argument before both sides addressed the merits of the promise claim. At the conclusion of the oral argument, the court dismissed the promise claim (count one) and placed its reasons on the record.
The court first stated it was "convinced that there is no reason to continue this phase of the case." The court recounted its repeated requests for a proffer from plaintiffs' counsel "as to any other witnesses, any other evidence that would demonstrate that a promise had been made by Robert Cohen prior to September 1, 1978 . . . . And there has been no evidence that remotely supports such a specific enforceable promise that would run to Samantha Cohen." The court stated:
[T]he evidence is voluminous that Robert Cohen wanted to take care of all three of his children and intended to take care of all three of his children. . . . He was extremely generous and extremely concerned to ensure that his children were taken care of. But there is no evidence of any promise that extends to Samantha. So the plaintiffs' case fails, in my view, on that count alone.
Specifically addressing the claim that Robert promised Claudia that he would distribute his estate equally between her and James, the court found:
I do not think that the evidence supports a promise . . . with the specificity required to overcome wills which were subsequently prepared by Robert Cohen.
. . . [Y]ou have an estate directed by a[n] . . . ex-husband seeking to limit an individual, who is very much with us, from the ability to determine where his wealth will go. And that to me is why you need clear and convincing evidence or an enforceable promise.
And when Robert Cohen wanted to do something, he did it in writing, he did it legally, he had witnesses certify to it. He consulted attorneys. He did not take shortcuts. He did not conduct his business on . . . a handshake [basis] . . . .
. . [T]here is nothing in th[e] testamentary evidence to support the theory that there was an enforceable promise . . . . Not only is there not clear and convincing evidence of that, there's no evidence of that.
And the fact that Michael died . . . and his heir, Michael, the grandson, Michael, did not receive a third of the estate, did not sue seeking a third of the estate, did not sue seeking any kind of enforcement of a promise is not helpful to the plaintiffs' case. If they had other strong evidence of a promise, perhaps they could work themselves around that. But it is not helpful to their case; the fact that his children went from three to two to one and Robert Cohen changed his estate plan, as he very tragically lost his children.
There's just really no evidence here. And to keep seeking more and more and more is -- by way of discovery, which is what I view the plaintiffs as doing, I take as a sign of desperation on their part.
Finally, the court found that no promise was made prior to September 1, 1978:
[T]o continue on investigating testamentary documents and other contracts [to] find out how many shares Claudia might have owned in a business is not going to prove a pre-September 1, 1978 promise. . . .
. . . [P]laintiffs have failed to meet their burden by clear and convincing evidence that there was a pre-September 1, 1978, promise that was enforceable by [plaintiffs].
In an August 19, 2009 written opinion, the court dismissed the remaining counts of plaintiffs' complaint. It incorporated its oral findings placed on the record on June 1 related to the trial capacity claim, incorporated by reference its oral determination in its June 15 decision dismissing the promise claim, and also incorporated its June 26 oral decision in the Probate action dismissing the incapacitation complaint plaintiff filed against Robert.
In February 2010, trial commenced on Robert's counterclaim alleging that the $10 million transfer to Claudia was a loan, not a gift. Upon completion, the court issued a written opinion on April 8, 2010, finding that the $10 million transfer was a loan. The court referenced Robert's reluctance to pay a gift tax, the non-waiver provision in the loan document stating that in the event interest was not collected or other provisions of the promissory note not enforced, the transferred funds would still be considered a loan, and Claudia's receipt of interest as a result of the delay in transferring the final $1 million of the $10 million to her account. The court reasoned:
When Robert transferred the $10 million to Claudia, he had no intention of conveying a gift, knowing the gift tax which would be incurred. Had Claudia lived, Robert, no doubt, would have taken the funds back and found another tax-advantageous vehicle to transfer wealth so as to reassure her that she would be secure financially, without incurring a large tax liability.
Also in April 2010, defendants filed a motion seeking $3 million in counsel fees under the promissory note. In addition, defendants sought $11 million in counsel fees against Perelman as a sanction pursuant to N.J.S.A. 2A:15-59.1, and against plaintiffs' attorneys, pursuant to Rule 1:4-8, on the ground that the promise claim was frivolous. James also sought a reallocation of costs incurred in e-discovery.
On June 9, 2010, the court denied James's request for a general reallocation of the costs of e-discovery and granted defendants' application for imposition of sanctions under the Rule. The court concluded the e-discovery had been conducted "as part of the competency portion of the litigation in connection with plaintiffs' undue influence allegations[, ]" an aspect of the litigation which the court did not deem frivolous. The court additionally noted that this discovery was pursuant to court order as well as an overview by the discovery master.
Addressing the counsel fees sought under the frivolous litigation statute and the Rule, the judge first found plaintiffs failed to prove they were entitled to counsel fees from Perelman under the frivolous litigation statute because they did not establish that Perelman acted in bad faith in bringing and maintaining the action. On the other hand, the judge was satisfied defendants were entitled to an award of counsel fees from plaintiffs' attorneys under the Rule.
In explaining why sanctions against plaintiffs' attorneys, were appropriate, the court characterized plaintiffs' counsel as engaging
in hard-fought litigation that at times crossed the boundary of appropriate litigation tactics. Most notably, [the] examination of Robert Cohen was harsh and painful. . . .
From the beginning . . . plaintiffs' lead counsel asked complex questions. He confronted Robert with a 1976 [quit] claim deed not produced in discovery. All apparently calculated primarily to reveal Robert's functional deficiencies rather than gather evidence. . . .
In spite of the extreme difficulty in obtaining useful evidence from Robert and the obvious discomfort and frustration caused to Robert, [plaintiffs' counsel] insisted on asking difficult questions and asking him to review documents which Robert had great difficulty seeing properly. Robert's capacity could not be determined through this painful process, nor was the process particularly helpful in any other way. . . . [The] questioning was intended to emphasize Robert's deficiency, disregarding the suffering the questioning caused.
The court cited specific examples of plaintiffs' counsel's aggressive tactics, including questioning Robert about whether he remembered a particular doctor, Dr. Paul Greene, while noting that "Robert had been to countless doctors for this litigation and for treatment primarily in New York." The court found that plaintiffs' attorneys' "lack of independent involvement with Samantha" to be "worrisome[, ]" referencing Samantha's deposition during which she testified that the only attorney with whom she had any meaningful interaction throughout the litigation was an attorney from her father's company. The court stated that the letter from plaintiffs' counsel assuring the court that Samantha was an active participant in the litigation had not "allay[ed] the [court's fears] that this lawsuit was not in Samantha's best interest and that Samantha did not have independent advice from an attorney who did not work primarily for her father."
Moreover, the court noted the litigation was contrary to Claudia's wishes, as expressed in her will, where she stated she did not want Samantha's relationship with Robert to be disrupted. The court reasoned that Claudia's wishes and counsel's conduct in questioning Robert were indicative of the "overly aggressive spirit with which this matter was pursued by plaintiffs' counsel." The court stated that "[t]hese three examples do not arise solely in areas which deal with the promise portion of the case, but they help to illuminate the overly aggressive spirit with which this matter was pursued by plaintiffs' counsel."
In concluding the promise claim was baseless, the court found it was "absolutely clear" that the cause of action "would be extraordinarily difficult to sustain." It rejected plaintiffs' argument that the promise claim was supported by precedent, noting that the case law upon which plaintiffs relied to support the claim involved dicta or agreements in the context of mutual wills.
The court further noted that it had warned plaintiffs, at the time of their motion to amend the complaint, that they would be expected to meet the burden of proof required by setting forth the date of the promise claim. The court also noted that James's attorney had already raised the Rule at that time; yet, plaintiffs proceeded with the claim even though there "was no legal or factual basis . . . given the evidence they had and the state of the law in New Jersey."
The court cited plaintiffs' failure to offer evidence supporting the promise claim, specifically as part of Perelman's testimony. In addition, it pointed to what it described as the "changing nature" of the purported promise throughout the course of the litigation as indicative of its frivolousness. Finally, the court cited Robert's wills, which gave no indication that Claudia would share equally in the estate, and determined that "[n]o competent attorney could have missed the frivolous nature of this promise claim once the unhelpful testamentary documents were received. . . . prior to the filing of the amended complaint."
Moreover, the court found that plaintiffs' attorneys were sufficiently put on notice by defendants that the claim violated Rule 1:4-8. It noted that James sent letters to plaintiffs claiming the cause of action was frivolous, and that Robert sent a similar letter to plaintiffs. Thus, the court concluded:
[G]iven the facts of this case, it would be contrary to law, equity and reason not to find the litigation frivolous as of the filing of the amended complaint on March 20, 2009. By that time . . . plaintiffs' counsel knew, or at the very least should have known, that they not only lacked any evidentiary support for their position, but also any applicable legal authority to proceed with their claim that an enforceable promise was ever made.
Plaintiffs by this time had received Robert's testamentary documents which produced no evidence of a promise . . . . Any hope of the plaintiffs that the testamentary documents would form a basis for the promise claim evaporated upon their review.
Plaintiffs were also given sufficient notice that their litigation was frivolous prior to filing their amended claim. . . .
Plaintiffs' counsel did not heed these many warnings. . . . As the required notice was provided, it is only proper to make counsel fees recoverable back to the point at which the litigation clearly became frivolous.
The court also found that while the undue influence claim was not frivolous, this did not preclude it from awarding counsel fees based on other aspects of the litigation that were frivolous.
The court further noted that counsel fees were permitted under the promissory note, that compound interest was appropriate, and that prejudgment interest on the note would run from when the note was executed, May 15, 2004, until judgment was entered. The court additionally determined that the counsel fees of defendants' New York counsel should be reduced to the rate of similarly-experienced New Jersey counsel. It added: "In many instances we have similarly experienced New Jersey counsel in this case, so the task should not be overly difficult." The court charged Castiglia "with trimming the hourly fees of defendants' New York counsel to those of similarly experienced New Jersey counsel" and directed that he "review submissions and prepare a report of the actual reasonable fees and costs for Robert's collection on the note as well as the costs incurred by both defendants as a result of the promise litigation as of . . . March 20th, 2009, when the amended complaint was filed."
In determining the actual amount of counsel fees to be awarded, the court, in its August 20, 2010 written decision, incorporated its oral decision from June 9, 2010 and further expounded upon why it believed the monetary sanctions were necessary. It rejected the firms' argument that the damage to their reputations in the eyes of the public should relieve them of a monetary sanction.
The court stated that the two firms in question were highly ranked in terms of income, and that the dispute involved a large amount of money that was lucrative for the attorneys. Thus, the court reasoned a monetary sanction would serve to discourage frivolous litigation in general and impress upon counsel the need to make greater efforts to avoid such litigation in the future. Further, the court found the firms' plan to appeal the frivolous litigation determination as indicative of a lack of remorse: "Without remorse, or any acknowledgement of wrongdoing, how can they reassure the court that this behavior will not reoccur?"
The court relied upon the special discovery master's report. Castiglia reduced the fees and costs sought by James from $1, 424, 927.82 to $484, 066.65, and Robert's requested fees and costs from $3, 100, 415.93 to $1, 223, 100.32. Based upon supplemental submissions provided after Castiglia issued his report, the court increased the amounts to $554, 766 for James and $1, 406, 215 for Robert.
In finding Castiglia's report to be reasonable, the court stated:
The court finds that the approach implemented by Castiglia in reaching his conclusion was reasonable and appropriate under the circumstances. Having reviewed the billing submissions of counsel, the court finds that they meet the requisite level of specificity under the circumstances. Defense counsel cannot be expected to have prepared billing records with the knowledge that only work connected with one issue would be compensated. Castiglia's conservative approach minimized the risk of including fees unconnected to the post-amended complaint promise portion of the case.
The court further found that defense counsel "did an admirable job of preparing a joint defense where the tasks were allocated among all counsel and only a de minimus amount of duplication occurred." Thus, the court endorsed Castiglia's decision not to reduce his recommendation based on duplication, "especially in light of the fact that plaintiffs' counsel never alleged having billed fewer hours on any task than did defense counsel."
The court proceeded to find the following as proper: the hourly rates set by Castiglia, the fifty percent award for the costs incurred on the application for sanctions, 100% for the fees associated with three depositions conducted after the promise claim had been dismissed, and 100% for six other depositions whose primary purpose was to uncover evidence of a pre-September 1978 promise. In addition, the court increased the $72, 000 awarded for preparation of Robert's trial testimony by $5040, and upheld Castiglia's award of 50% of the fees associated with preparation during the capacity phase of the trial, $140, 500, thereby rejecting Paul Weiss's argument that there was no way to discern how much time was spent on the promise claim during that time. The court explained that it
had directed counsel to be ready to litigate the promise claim immediately following the conclusion of the capacity trial. Counsel thus had no choice but to prepare for the promise litigation and try the capacity case simultaneously. The promissory estoppel claim being the more substantive legal matter, as well as the claim with the greatest financial stake[.]
With respect to costs related solely to James, the court upheld Castiglia's recommendation that James be permitted to recover 25% of his claim for e-discovery costs, $33, 750, related solely to the promise claim. The court also upheld Castiglia's $70, 000 award for James's costs in defending against the promise claim.
Finally, the court awarded defendants an upward adjustment for work conducted after June 9, 2010, the date the court issued its oral opinion related to the frivolous litigation claim, because the work related to the promise claim. Specifically, it awarded Robert an additional $15, 572 and James an additional $24, 154.53. The ensuing appeals and cross-appeals followed:
On appeal in A-0713-10, plaintiffs raise the following points:
PLAINTIFFS HAVE STANDING TO LITIGATE THEIR CLAIM OF UNDUE INFLUENCE BECAUSE ROBERT COHEN LACKS THE PRESENT CAPACITY TO CONTROL THE DISPOSITION OF HIS SUBSTANTIAL PROPERTY BY WILL OR BY INTER VIVOS TRANSFER.
A. PLAINTIFFS HAVE STANDING TO REMEDY JAMES COHEN'S UNDUE INFLUENCE IF ROBERT COHEN LACKS THE PRESENT CAPACITY TO CONTROL THE DISPOSITION OF HIS PROPERTY.
B. THE RELEVANT STANDARD OF CAPACITY IS ROBERT COHEN'S CAPACITY TO DISPOSE OF HIS PROPERTY BY WILL OR INTER VIVOS TRANSFER.
C. CAPACITY INCLUDES BOTH THE ABILITY TO UNDERSTAND AND THE ABILITY TO COMMUNICATE THE INDIVIDUAL'S INTENTIONS.
D. ROBERT COHEN LACKS CAPACITY TO CONTROL THE DISPOSITION OF HIS PROPERTY BY INTER VIVOS TRANSFER OR WILL.
1. THE DENIAL OF A GUARDIAN AD LITEM DID NOT ESTABLISH THAT ROBERT COHEN POSSESSED TESTAMENTARY CAPACITY.
2. THE CHANCERY JUDGE ERRED IN EXCLUDING THE ISSUE OF GENERAL AND TESTAMENTARY CAPACITY.
3. THE CHANCERY JUDGE'S FINDING THAT ROBERT COHEN POSSESSES GENERAL CAPACITY IS WITHOUT EVIDENTIARY SUPPORT.
E. ROBERT COHEN WAS NOT COMPETENT TO TESTIFY WITH RESPECT TO HIS CAPACITY.
1. ROBERT COHEN'S INABILITY TO COMMUNICATE MAKES HIM INCOMPETENT TO TESTIFY.
2. THE CHANCERY COURT ABUSED ITS DISCRETION BY DESIGNATING ROBERT COHEN'S PERSONAL SPEECH THERAPIST AS THE SOLE INTERPRETER OF HIS UTTERANCES.
F. PLAINTIFFS HAVE STANDING EVEN IF ROBERT COHEN IS ADJUDGED TO HAVE GENERAL OR TESTAMENTARY CAPACITY.
THE CHANCERY COURT ERRED IN DISMISSING PLAINTIFFS' PROMISSORY ESTOPPEL CLAIM WITHOUT ALLOWING PLAINTIFFS TO PRESENT THEIR FULL CASE.
A. THE CHANCERY COURT VIOLATED RULE 4:37-2(b) BY CUTTING OFF PLAINTIFFS' PRESENTATION OF THEIR CASE BEFORE PLAINTIFFS HAD RESTED.
B. CIRCUMSTANTIAL EVIDENCE OF TWENTY YEARS OF ROBERT COHEN'S ESTATE PLANNING WAS MATERIAL TO THE PROMISSORY ESTOPPEL CLAIM.
C. THE CHANCERY COURT PREMATURELY DECIDED THE CREDIBILITY AND WEIGHT OF THE EVIDENCE OF A PROMISE.
D. THE PROMISE TO CLAUDIA WAS SUFFICIENTLY SPECIFIC.
CUMULATIVE ERROR REQUIRES THAT PLAINTIFFS' CLAIMS RECEIVE A NEW TRIAL.
THE COUNTERCLAIM SHOULD BE DISMISSED BECAUSE ROBERT COHEN'S $10 MILLION TRANSFER TO CLAUDIA WAS INTENDED AS A GIFT.
A. THE CHANCERY COURT ERRED IN PLACING THE ULTIMATE BURDEN OF PROOF ON THE ESTATE.
B. THE CHANCERY COURT'S FINDING THAT THE TRANSACTION WAS A LOAN IS NOT SUPPORTED BY SUBSTANTIAL CREDIBLE EVIDENCE.
1. ROBERT COHEN'S CLOSE AND LOVING RELATIONSHIP WITH HIS DAUGHTER IS EVIDENCE OF DONATIVE INTENT.
2. CLAUDIA COHEN'S ACCOUNT OF WHAT HER FATHER TOLD HER DEMONSTRATES HIS DONATIVE INTENT.
3. THE ADMINISTRATION OF THE TRANSFER DEMONSTRATES THAT IT WAS NOT A LOAN.
4. THE EXPERT TESTIMONY DEMONSTRATES THAT THE TRANSACTION WAS A GIFT AND NOT A LOAN.
In the A-0713-10 cross-appeal, defendant Robert raises the following points:
THE TRIAL COURT SHOULD HAVE AWARDED SANCTIONS AGAINST PLAINTIFFS.
THE TRIAL COURT IMPROPERLY LIMITED ROBERT'S COSTS OF COLLECTION ON THE PROMISSORY NOTE TO A HYPOTHETICAL "FORUM RATE" FOR WILSON SONSINI'S RATES.
In the A-0713-10 cross-appeal, defendant James raises the following points:
THE TRIAL COURT ERRED IN FAILING TO ASSESS SANCTIONS AGAINST RONALD PERELMAN PERSONALLY.
THE MASSIVE COSTS GENERATED BY PLAINTIFFS' OVERBROAD AND LEGALLY BASELESS E-DISCOVERY DEMANDS AND SEARCH PROTOCOL SHOULD HAVE BEEN RE-ALLOCATED TO PLAINTIFFS.
In A-0864-10, appellant Lowenstein Sandler, P.C., raises the following points:
THE TRIAL COURT ERRED IN DETERMINING THAT COUNSEL HAD VIOLATED R[ULE] 1:4-8 IN PURSUING ON BEHALF OF ITS CLIENTS THE PROMISSORY ESTOPPEL CLAIM PURSUANT TO THE AMENDED COMPLAINT.
. . . .
B. THE TRIAL COURT WAS CLEARLY AND IMPROPERLY INFLUENCED IN ITS EVALUATION BY EXTRANEOUS AND IRRELEVANT VIEWS OF COUNSEL'S LITIGATION APPROACH AND OTHER REACTIONS TO THE PARTIES INVOLVED.
C. THERE WAS A GOOD FAITH AND RATIONAL BASIS UNDER THE LAW AND THE AVAILABLE FACTS FOR PLEADING AND PURSUING THE PROMISSORY ESTOPPEL CLAIM.
(i) THE ISSUE HERE IS WHETHER THERE WAS ANY CREDIBLE EVIDENCE AND A RATIONAL BASIS TO SUPPORT THE CLAIM.
(ii) THE TESTAMENTARY PROMISE CAN BE PROVED BY CIRCUMSTANTIAL EVIDENCE.
(iii) THE PROMISE CLAIM HAD SUPPORT BASED ON NEW JERSEY CASES THAT CONSTRUED SIMILAR FACTS AS EVIDENCE OF A TESTAMENTARY PROMISE.
(iv) RELIANCE ON WILLS AND OTHER DOCUMENTS HAD A RATIONAL BASIS IN THE CASE LAW.
(v) THERE WAS A RATIONAL, GOOD FAITH BASIS FOR ASSERTING THAT THE ESTATE, AS WELL AS SAMANTHA, HAD STANDING TO ENFORCE THE ALLEGED PROMISE.
THE JUDGMENT BELOW AGAINST COUNSEL SHOULD BE REVERSED BECAUSE DEFENDANTS FAILED TO COMPLY WITH THE NOTICE AND DEMAND REQUIREMENTS OF R[ULE] 1:4-8(b).
THE TRIAL COURT'S SANCTIONS AWARD EXCEEDED THE AMOUNT NECESSARY TO DETER REPETITION OF THE CONDUCT WHICH THE COURT DEEMED SANCTIONABLE.
A. SANCTIONS AGAINST COUNSEL UNDER R[ULE] 1:4-8 SHOULD BE LIMITED TO NECESSARY DETERRENCE CONSIDERATIONS.
B. ADVERSE PUBLICITY PROVIDES A SIGNIFICANT INDEPENDENT DETERRENT EFFECT AND SHOULD HAVE BEEN A MAJOR FACTOR IN THE SANCTIONS DETERMINATION.
C. THE TRIAL COURT MENTIONED BUT DID NOT APPLY THE FACT THAT LOWENSTEIN HAS ENACTED INTERNAL PROCEDURAL PROTECTIONS AS PART OF ITS ONGOING EFFORT TO FULLY COMPLY WITH ITS ETHICAL OBLIGATIONS.
D. THERE WAS NO "NEED" TO COMPENSATE DEFENDANTS FOR $1.96 MILLION IN LEGAL FEES.
E. ANY AWARD SHOULD BE REDUCED BECAUSE OF DEFENDANTS' FAILURE TO ATTEMPT TO ACCELERATE DISPOSITION BY OBVIOUS MOTION PRACTICE.
THE TRIAL COURT ERRED IN PUNISHING LOWENSTEIN FOR NOT EXPRESSING "REMORSE" AND ANNOUNCING ITS INTENTION TO APPEAL THE FINDING OF SANCTIONABLE CONDUCT.
THE TRIAL COURT'S FOCUS ON COUNSEL'S GENERAL REVENUES AND SUSPECTED PROFITS FROM THE LITIGATION WAS IMPROPER.
NEITHER THE SPECIAL MASTER NOR THE TRIAL JUDGE CRITICALLY ANALYZED THE REASONABLENESS OF THE HOURS EXPENDED BY DEFENDANTS' COUNSEL, OR MADE SPECIFIC FINDINGS OF FACT RELATING THERETO.
THE TRIAL COURT ERRED IN AWARDING FEES AND EXPENSES FOR SERVICES NOT DIRECTLY RELATED TO THE CONDUCT DETERMINED TO BE FRIVOLOUS.
In A-0941-10, appellant Paul, Weiss, Rifkind, Wharton & Garrison, L.L.P., raises the following points:
THE TRIAL COURT ABUSED ITS DISCRETION IN AWARDING SANCTIONS BECAUSE THE PROMISSORY ESTOPPEL CLAIM HAD BOTH LEGAL AND EVIDENTIARY SUPPORT.
A. THE SANCTIONS AWARD MUST BE REVERSED UNLESS THERE WAS NO CREDIBLE EVIDENCE AND NO RATIONAL ARGUMENT IN SUPPORT OF THE PROMISE CLAIM.
B. THE SANCTIONS AWARD SHOULD BE REVERSED BECAUSE THE PROMISE CLAIM WAS SUPPORTED BY EXISTING LAW AND CREDIBLE EVIDENCE.
1. COUNSEL HAD A GOOD FAITH BELIEF, BASED ON EXISTING PRECEDENT, THAT PLAINTIFFS' EVIDENCE WAS SUFFICIENT TO ESTABLISH THE PROMISE.
2. THE COURT'S DISTINGUISHING OF SOME OF THE ORAL PROMISES CASES DEMONSTRATES THAT THE PROMISE CLAIM WAS NOT FRIVOLOUS.
3. THE TESTAMENTARY DOCUMENTS DID NOT ESTABLISH THAT THE PROMISE CLAIM WAS FRIVOLOUS.
4. EVEN IF THE TESTAMENTARY DOCUMENTS WERE UNHELPFUL, PLAINTIFFS AND THEIR COUNSEL WERE ENTITLED TO CONDUCT ADDITIONAL DISCOVERY.
5. THE PURPORTED DIFFERENT VERSIONS OF THE PROMISE DO NOT DEMONSTRATE THAT THE PROMISSORY ESTOPPEL CLAIM WAS FRIVOLOUS.
C. THE TRIAL COURT ABUSED ITS DISCRETION BY TREATING COUNSEL'S CONDUCT OF THE LITIGATION AS RELEVANT TO WHETHER THE PROMISE CLAIM WAS FRIVOLOUS.
D. COUNSEL HAD A GOOD FAITH BELIEF THAT PLAINTIFFS COULD ENFORCE A PROMISE MADE TO CLAUDIA COHEN.
1. COUNSEL HAD A GOOD FAITH BASIS FOR ARGUING THAT THE ESTATE COULD ENFORCE THE PROMISE.
2. COUNSEL HAD A GOOD FAITH BASIS FOR ARGUING THAT SAMANTHA PERELMAN COULD ENFORCE THE PROMISE.
THE AMOUNT OF SANCTIONS AWARDED SHOULD BE REVERSED BECAUSE IT WAS UNREASONABLE AND EXCESSIVE.
A. A SANCTIONS AWARD MUST BE LIMITED TO THE AMOUNT NECESSARY TO DETER FUTURE VIOLATIONS OF RULE 1:4-8.
B. THE SANCTIONS ARE UNREASONABLE AND EXCESSIVE BECAUSE THEY ARE GREATER THAN NECESSARY TO DETER FUTURE VIOLATIONS.
1. MONETARY SANCTIONS WERE UNNECESSARY IN LIGHT OF NEGATIVE PUBLICITY AND PAUL, WEISS'S HISTORY.
2. THE COURT IMPOSED MONETARY SANCTIONS BASED ON IMPERMISSIBLE FACTORS, INCLUDING PAUL, WEISS'S INTENT TO APPEAL AND ITS PRESUMED PROFITS.
C. THE AWARD OF FEES AND COSTS FOR FILING THE SANCTIONS MOTION WAS UNREASONABLE AND EXCESSIVE.
D. FEES SHOULD NOT HAVE BEEN AWARDED WHERE THE RECORD DID NOT ESTABLISH THAT THEY WERE DIRECTLY RELATED TO THE PROMISE CLAIM.
In the A-0864-10 and A-0941-10 cross-appeals, defendant Robert raises the following point:
THE TRIAL COURT ABUSED ITS DISCRETION IN APPLYING THE FORUM-RATE RULE TO ROBERT'S NEW YORK COUNSEL'S FEES.
After a careful review of the record presented, with the exception of the counsel fees and costs awarded under the Rule, we reject all of the points raised in the appeals and cross-appeals and affirm substantially for the reasons expressed by the trial court in its cogent, thorough and well-reasoned written and oral opinions of June 1, 2009, June 15, 2009, August 9, 2009, April 8, 2010, June 9, 2010 and August 20, 2010.
The primary focus of our discussion will be the trial court's award of counsel fees and costs pursuant to the Rule. However, before doing so, we address two points we believe warrant discussion, plaintiffs' standing to litigate the undue influence claim and the court's decision, sua sponte, to dismiss the promise claim prior to plaintiffs' presentation of all of their evidence.
In Point I, plaintiffs contended they have standing to litigate the claim of undue influence because Robert lacked capacity to control the disposition of his substantial property by will or by inter vivos transfer. Robert died on March 15, 2012. Plaintiffs appealed the trial court's June 26, 2009 order determining that Robert was not incapacitated and rejecting plaintiffs' application that a guardian ad litem be appointed. On appeal, we affirmed in an unpublished opinion. Cohen I, supra, slip op. at 48. The Supreme Court denied certification. In re Cohen, supra, 208 N.J. at 371. Thereafter, Robert's counsel, in correspondence to this court, noted that in our unpublished opinion, we found that Robert was competent to testify under N.J.R.E. 601 and that the use of a speech pathologist at trial did not constitute reversible error. Cohen I, supra, slip op at 46. As such, given the Court's denial of certification in Cohen I, Robert urged that to the extent plaintiffs continued to pursue these issues in this present appeal, those issues were now conclusively resolved against plaintiffs.
In response, quoting Pressler & Verniero, Current N.J. Court Rules, comment 3.5 on R. 1:36 (2012), plaintiffs maintained that "the New Jersey Supreme Court's denial of certification . . . has no substantive meaning in terms of precedential value." Ibid. (citing PTI v. Director, 404 N.J.Super. 287, 291 (App. Div. 2008), rev'd on other grounds, 201 N.J. 126 (2009)). Consequently, plaintiffs urged that to the extent relevant to the disposition of the issues pending in this appeal, we were "free to evaluate the manner in which the lower court conducted and treated the overlapping Chancery and Probate proceedings, including questions of capacity." In light of our affirmance of the trial court rulings in all respects, save the counsel fees and costs awarded pursuant to the frivolous litigation rule, we decline further comment on the capacity-related issues.
B. Involuntary Dismissal
A trial court's involuntary dismissal of a plaintiff's case is governed by Rule 4:37-2(b), which provides:
(b) At Trial--Generally. After having completed the presentation of the evidence on all matters other than the matter of damages (if that is an issue), the plaintiff shall so announce to the court, and thereupon the defendant, without waiving the right to offer evidence in the event the motion is not granted, may move for a dismissal of the action or of any claim on the ground that upon the facts and upon the law the plaintiff has shown no right to relief. Whether the action is tried with or without a jury, such motion shall be denied if the evidence, together with the legitimate inferences therefrom, could sustain a judgment in plaintiff's favor.
In our review of the trial court's ruling we employ a mechanical formula:
The judicial response to a motion for involuntary dismissal at trial "is quite a mechanical one." Dolson v. Anastasia, 55 N.J. 2, 5 (1969). "The trial court is not concerned with the worth, nature or extent (beyond a scintilla) of the evidence, but only with its existence, viewed most favorably to the party opposing the motion." Id. at 5-6. Under that standard, "dismissal is appropriate when no rational jury could conclude from the evidence that an essential element of the plaintiff's case is present." Pressler & Verniero, supra, comment 2.1 on R. 4:37–2.
[Perez v. Professionally Green, LLC, ___ N.J. ___, ___ (2013) (slip op. at 25-26).]
On the other hand, "[i]f, accepting as true all the evidence which supports the position of the party defending against the motion and according him [or her] the benefit of all inferences which could reasonably and legitimately be deduced therefrom reasonable minds could differ, the motion must be denied." Monaco v. Hartz Mountain Corp., 178 N.J. 401, 413 (2004). (internal quotation omitted).
The very language of Rule 4:37-2(b) contemplates that a defendant will affirmatively seek dismissal after a plaintiff has presented "evidence on all matters." Ibid. However, in Perth Amboy Iron Works, Inc., v. American Home Assurance Co., 226 N.J.Super. 200, 213 (App. Div. 1988), aff'd o.b., 118 N.J. 249 (1990), two and one-half days into the plaintiff's case, the trial court, sua sponte, involuntarily dismissed the plaintiff's legal fraud claim after an offer of proof. We reversed, holding that the trial court's action was procedurally inappropriate: "To have found a failure of proof at a time when plaintiff was about to present witnesses who allegedly would have supported its claim was error." Id. at 215. We viewed the trial court's action as "an incorrectly imposed involuntary dismissal" which could only take place after the plaintiff had finished presenting its case. Ibid. However, we added:
This is not to say that a judge who senses that an issue may be disposed of, even during trial, by a summary judgment motion or mini-trial within the case may not give the parties an opportunity to make proffers based upon certifications or even brief testimony. . . . This, however, was not done here.
Thus, the ability, albeit sparingly, to dismiss an action mid-trial recognizes the court's inherent authority to manage the conduct of a case "and to make rulings, even those with substantive effect, that stem from procedural considerations or reflect the manner in which the parties have litigated the case." Cosme v. E. Newark Twp. Comm., 304 N.J.Super. 191, 202 (App. Div. 1997), certif. denied, 156 N.J. 381 (1998). Such rulings are accorded substantial deference. Ibid.
Accepting plaintiffs' allegations as true, namely, that Robert made a pre-1978 promise to Claudia that she and James would share equally in his estate, plaintiffs could not prevail on the promise claim, whether pursued based upon an extension of contract principles or promissory estoppel. Therefore, the trial court did not commit reversible error in its sua sponte dismissal of the promise claim mid-trial.
It is undisputed that there was no pre-1978 nor post-1978 contract between Robert and Claudia in which Robert agreed to dispose of his estate equally between Claudia and James. All that was being pursued was a claim based upon Robert's alleged, pre-1978 oral promise. A stated intention to leave property to a child does not constitute an enforceable contract. Robertson v. Hackensack Trust Co., 1 N.J. 304, 308 (1949). Rather, for there to be a contract, there must be valuable consideration. See also Klockner v. Green, 54 N.J. 230, 234-35 (1969) (finding that "[d]ecedent bargained for plaintiffs' services and obligated herself to bequeath the property to them when they performed"); Ballard v. Schoenberg, 224 N.J.Super. 661, 666 (App. Div.) (holding that worker who counterclaimed for specific performance of oral contract in which the decedent agreed to devise the farm to worker if worker did all farm work and carried on farm business during the decedent's lifetime had enforceable oral contract), certif. denied, 113 N.J. 367 (1988).
Since there were no facts establishing a contract between Robert and Claudia, N.J.S.A. 3B:1-4, by its terms, is not applicable. Thus, the September 1978 date is of no consequence. As a result, specific performance is not available as a remedy because it requires an enforceable contract. Jackson v. Manasquan Sav. Bank, 271 N.J.Super. 136, 144 (Law Div. 1993).
Nor was the alleged promise enforceable under a theory of promissory estoppel. Enforcement of a promise based upon application of the doctrine of promissory estoppel requires: (1) a clear and definite promise; (2) made with the expectation that the promisee will rely on it; (3) reasonable reliance; and (4) definite and substantial detriment. Toll Bros., Inc. v. Burlington Cnty. Bd. of Chosen Freeholders, 194 N.J. 223, 253 (2008). Even if we were to accept that the evidence plaintiffs produced established "a clear and definite promise, " plaintiffs could not prevail on the promise claim based upon promissory estoppel because the element of detrimental reliance is lacking.
Plaintiffs' reference to Pop's Cones v. Resorts Int'l Hotel, 307 N.J.Super. 461, 469 (App. Div. 1998) to support the promise claim is misplaced. In Pop's Cones, we recognized that in the context of promissory estoppel, there was an increasing trend to relax strict adherence to the need for clear and definite proof of a promise where detrimental reliance, rather than specific performance, is claimed. Id. at 469-70. We expressed concern for the need to avoid the injustice that could result where the promise reasonably induced action or forbearance on the part of the person to whom the promise was made. Id. at 470-72. Thus, Pop's Cones highlighted the need for detrimental reliance.
While the record reveals various iterations of the alleged promise, as the trial court observed, it essentially boiled down to Robert promising Claudia that she would share equally in his estate with James. Plaintiffs, however, failed to establish detrimental reliance on Claudia's part. There was no evidence that she took any action in reliance upon Robert's promise, to her detriment. Plaintiffs attempted to transform Claudia's decision to sign pre- and post-nuptial agreements with Perelman into detrimental reliance, but produced no evidence, direct or circumstantial, establishing that Claudia would not have signed these agreements without Robert's promise. Therefore, because plaintiffs could not present any evidence of Claudia's detrimental reliance, they could not prevail on the promise claim based upon promissory estoppel.
Moreover, as the trial court noted, even if Robert's promise were enforceable, there was nothing in the record indicating that he wanted his promise to Claudia to extend to Samantha in the event Claudia predeceased him. Nor is there evidence that Robert stated, upon Claudia's death, that he wanted Samantha to share equally in his estate with James. Robert revised his will following Claudia's death and it evidenced no intent by Robert that Samantha share equally in his estate with James. Additionally, the very nature of the alleged promise, his children were to share in his estate, obviated the conclusion that Robert wanted his grandchildren to share in it.
Additionally, we discern no abuse of discretion in curtailing discovery regarding the promise claim. Piniero v. N. J. Div. of State Police, 404 N.J.Super. 194, 204 (App. Div. 2008). Extensive discovery had already been conducted when the court declined to delay the trial in order that plaintiffs could pursue further discovery. Plaintiffs failed to show that additional discovery would have established the detrimental reliance necessary for a successful promissory estoppel claim. Further, the July 2008 case management order directed that discovery be completed by December 31, 2008, well before the start of the promise phase of the trial in June 2009. At best, additional discovery may have revealed documents reflecting equal distribution of many of Robert's assets amongst the children prior to 1978, none of which were sufficient either singly or collectively to establish the alleged promise. Therefore, the court did not abuse its discretion in denying any further adjournment of the trial for discovery purposes.
In short, giving plaintiffs the benefit of all favorable inferences, the trial court did not err in its sua sponte dismissal of the promise claim. Nor did it abuse its discretion in declining to adjourn the trial in order to afford plaintiffs additional time to conduct discovery on the promise claim.
Turning to the court's imposition of sanctions for frivolous litigation, a trial court's determination on the availability and amount of fees and costs for frivolous litigation is reviewed under an abuse of discretion standard. Masone v. Levine, 382 N.J.Super. 181, 193 (App. Div. 2005). The Supreme Court adopted the Rule following its decision in McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546 (1993), where it construed the frivolous litigation statute, N.J.S.A. 2A:15-59.1, as being limited to imposing sanctions for frivolous litigation to parties and did not extend to a party's attorney. Pressler & Verniero, Current N.J. Court Rules, comment 1 on R. 1:4-8 (2005). The statute and rule are interpreted strictly to ensure that persons are not dissuaded from accessing the courts. First Atl. Fed. Credit Union v. Perez, 391 N.J.Super. 419, 432 (App. Div. 2007); DeBrango v. Summit Bancorp., 328 N.J.Super. 219, 226 (App. Div. 2000). They are not intended to vitiate the general rule that each litigant should bear his or her own litigation costs, even when the litigation is of marginal merit. Venner v. Allstate, 306 N.J.Super. 106, 113 (App. Div. 1997). Both the statute and rule serve a dual purpose: punitive, by seeking to deter frivolous litigation; and compensatory, by seeking to reimburse the party who has been the subject of the frivolous action. Alpert, Goldberg, Butler, Norton & Weiss, P.C. v. Quinn, 410 N.J.Super. 510, 545 (App. Div. 2009); Ferolito v. Park Hill Ass'n, 408 N.J.Super. 401, 407 (App. Div. 2009). The sanction consists of reasonable counsel fees and litigation costs. Ibid.
A claim is considered frivolous when no rational argument can be advanced in its support, it is not supported by any credible evidence, a reasonable person could not have expected its success, or it is completely untenable. Belfer v. Merling, 322 N.J.Super. 124, 144 (App. Div.), certif. denied, 162 N.J. 196 (1999). False allegations of fact will not justify an award unless they are made in bad faith, for the purpose of harassment, delay or malicious injury. McKeown-Brand, supra, 132 N.J. at 561. An honest attempt to pursue a perceived, though ill-founded, claim is not considered to be frivolous. Id. at 563. The burden of proving bad faith is on the party who seeks the fees and costs. Id. at 559. Thus, an award of attorney's fees is not warranted where the plaintiff's attorney had a reasonable, good faith belief in the merits of the action. Wyche v. Unsatisfied Claim & Judgment Fund of N.J., 383 N.J.Super. 554, 561 (App. Div. 2006). Moreover, honest and creative advocacy should not be discouraged. Ibid.
We first address the law firms' procedural challenge to imposition of sanctions under the Rule. They claim defendants failed to comply with the notice and demand requirement of the Rule because the notices they provided lacked sufficient specificity, did not mirror the grounds on which the court imposed the sanction, and in the case of Robert, the promise claim was dismissed within the safe harbor period. We disagree.
A litigant seeking sanctions under Rule 1:4-8 must file a separate motion describing the specific conduct alleged to violate the rule. Toll Bros., Inc., supra, 190 N.J. at 69. The motion must be sufficiently specific and detailed to provide an opportunity to withdraw the allegedly offending pleadings. Ferolito, supra, 408 N.J.Super. at 408. As has been stated:
In the context of a claim against a party who is represented, a proper notice and demand . . . serves the additional benefit of bringing the weakness of the claim to the attention of a client who is presumably acting on the advice of the attorney. In contrast, a notice and demand articulating an objection on one legal theory does not serve to alert the client or the attorney to other weaknesses. Consequently, a prevailing party's obligation to give proper notice as a condition of recovering an award of fees and costs is not fulfilled by a notice that alerts a party to the frivolous nature of a different claim. The purpose of the notice and demand is to inform, not distract and confuse.
[Id. at 409.]
In Ferolito, a condominium owner brought an action against a condominium association after it refused to approve the installation of a satellite dish. The defendants' notice and demand claimed that a count of the complaint alleging a violation of a federal regulation was frivolous. Id. at 410. However, the defendants prevailed in the action on the ground that the complaint was premature and because the association's decision to post approval of the owner's request was a reasonable step taken in good faith. Ibid. Therefore, we held that the defendants' failure to serve notice and demand on the issue on which they prevailed precluded an award of fees and costs. Ibid.
James, in his first notice and demand letter, asserted that plaintiffs had no good faith basis for alleging that Robert had made a pre-September 1978 promise to Claudia that she would share equally with James in the distribution of Robert's estate. James demanded that plaintiffs dismiss the claim. Robert, in his notice and demand letter, alleged the lack of evidence to support the promise claim. We are satisfied the notice and demand letters from both James and Robert were sufficiently clear and mirrored the basis upon which the trial court imposed the sanction, continuation of the promise claim after March 20, 2009.
Nor do we find any merit to plaintiffs' claim that Robert is precluded from recovering counsel fees under the Rule because the promise claim was dismissed within the twenty-eight-day safe harbor period of the Rule which provides: "No motion shall be filed if the paper objected to has been withdrawn or corrected within 28 days of service of the notice and demand or within such other time period as provided herein. R. 1:4-8(b)(1). Robert's notice and demand letter were dated May 20, 2009. The promise claim was dismissed on June 15, 2009, although the dismissal was not memorialized in an order until September 17, 2009. The Rule requires that the offending pleading be "withdrawn" or "corrected" within the requisite time period in order to come under the safe harbor provision. There is nothing to indicate in the text of the Rule or the case law that the granting of a motion to dismiss constitutes a withdrawal for purposes of the Rule.
Next, focusing the balance of this opinion upon the trial court's determination that counsel fees under the Rule were appropriate, we are satisfied the trial court properly rejected defendants' contention the promise claim was baseless at its inception. That the cases upon which plaintiffs relied to support the promise claim were, as the trial court found, distinguishable, does not mean there was not a good faith basis to commence the litigation based upon the promise claim argument. Nor should the fact that plaintiffs sought to extend to an oral promise the general rule governing contracts, namely, that a right of action founded upon a contract survives the person entitled to sue on that contract, so that the right passes upon the person's death to his or her personal representative. Drewen v. Bank of the Manhattan Co. of the City of N.Y., 31 N.J. 110, 118 (1959). See Gaiardo v. Ethyl Corp., 835 F.2d 479, 483 C.A.3 (3rd. Cir. 1987) (noting that Rule 11, after which Rule 1:4-8 has been patterned, is not triggered because a novel theory is advocated, and further noting the concerns expressed by Rule 11 drafters that "'[t]he rule is not intended to chill an attorney's enthusiasm or creativity in pursuing factual or legal theories'"). Thus, the court did not abuse its discretion in limiting imposition of frivolous sanctions to the time period as of March 20, 2010, the date the amended complaint was filed. There is substantial credible evidence in the record for the court to have concluded that March 20, 2009, and going forward was the applicable time period for its consideration of the frivolous litigation application.
Prior to filing the amended complaint, plaintiffs received testamentary documents, which clearly evidenced Robert's intent not to distribute his estate equally between Claudia and James. These documents should have alerted plaintiffs that there was no longer a good faith basis to pursue the promise claim.
In DeBrango, supra, 328 N.J.Super. at 226, the plaintiffs argued that they were defrauded by a bank as a result of actions taken by a financial advisor who worked for the bank. During discovery, the plaintiffs received a letter which indicated that their funds had been depleted before the financial advisor was employed by the bank. Id. at 227. Nonetheless, the plaintiffs continued their action against the bank, and summary judgment was ultimately granted to the bank. Id. at 222. We held that once the plaintiffs received the letter, their action against the bank became frivolous because it lacked sufficient evidentiary support. Id. at 228.
Here, comparable evidence to the letter in DeBrango consisted of the testamentary documents plaintiffs received during discovery, prior to filing their amended complaint. Notwithstanding the receipt of this evidence and the court's warning, at the time plaintiffs sought to amend their complaint, that they would be expected to meet the burden of proof required, plaintiffs failed to produce or proffer any credible evidence of a pre-1978 promise sufficient to continue the litigation. Thus, it was not a question of whether plaintiffs presented any credible evidence to support continuing with the promise claim. Plaintiffs failed to present any competent evidence of a pre-1978 promise by Robert that he would distribute his estate equally between James and Claudia. Perelman's testimony of the oral promise was all the evidence plaintiffs had of the alleged promise before the amended complaint was filed and after the amended complaint was filed. We have previously held that "continued prosecution of a claim or defense may, based on facts coming to be known to the party after the filing of the initial pleading, be sanctionable as baseless or frivolous even if the initial assertion of the claim or defense was not." Iannone v. McHale, 245 N.J.Super. 17, 31 (App. Div. 1990). See also Throckmorton v. Twp. of Egg Harbor, 267 N.J.Super. 14, 21 (App. Div. 1993); Sjogren, Inc. v. Caterina Ins. Agency, 244 N.J.Super. 369, 374-75 (Ch. Div. 1990).
The firms argue that the court erred in awarding counsel fees and costs under the Rule because it relied on improper factors in making its determination. These impermissible factors included: the firms' "overagressive spirit"; their lack of remorse; the action's disruption of family relations, including manipulation of Samantha; and the effect the litigation had on Robert's health. We agree that none of these factors were appropriate.
As noted, Rule 1:4-8 has a punitive purpose to deter frivolous litigation and also seeks to compensate the party against whom the litigation was brought. Alpert, supra, 410 N.J.Super. at 545. Sanctions under the Rule are imposed when there is no rational basis for the claim, the claim is not supported by credible evidence, or it is completely untenable. United Hearts, L.L.C. v. Zahabian, 407 N.J.Super. 379, 389 (App. Div. 2009). The primary focus, therefore, is on the nature of the claim and the evidence to support it and the attorneys' conduct in that context, not the trial conduct of the attorneys or the effect their trial conduct had on the parties.
Likewise, the lack of contrition evidenced by the firms' expressed intent to appeal sanctions imposed under the Rule was an inappropriate factor for the trial court to consider. Resolution of a trial court's counsel fee determination by way of appeal does not contradict the goal of deterrence. Moreover, the firms would have waived their right to challenge the frivolous litigation determination had they admitted the continued prosecution of the promise claim was frivolous in order to exhibit, to the court's satisfaction, contrition.
Additionally, highlighting plaintiffs' counsel's aggressive trial strategy was also an inappropriate factor. The court referenced specific examples and particularly focused upon the direct examination of Robert, who, unquestionably, was under tremendous physical strain at the time he underwent questioning.
Robert's fragile health was evident. The court made appropriate accommodations in response to his physical infirmities, including having his testimony taken by deposition at his office. At one point during his direct testimony, the court suggested that even though the questioning was occurring in Robert's office, the fact that it was taking place in the presence of a judge "adds a significant stress . . . to any witness who is testifying under oath." As a result, the court directed counsel to provide the court with the "parameters" of questioning "either in the number of questions or the time."
The court, in its June 9, 2009 oral opinion, stated that plaintiffs' counsel's trial advocacy "at times crossed the boundary of appropriate litigation tactics." The court found that the questioning of Robert was "[m]ost notably . . . harsh and painful." It also referenced questioning Robert about whether he remembered going to see Dr. Paul Greene despite the fact that Robert "had been to countless doctors." However, at the direction of the court, plaintiffs' counsel's questioning of Robert was intended to serve as plaintiffs' opportunity to question Robert on all issues before the court, including his capacity and the alleged promise. The court concluded that "Robert's capacity could not be determined by this painful process, nor was the process particularly helpful in any other way."
While the court, as the factfinder, was certainly permitted to conclude plaintiffs' trial strategy was not helpful to the court's factfinding, such a conclusion should not have been a factor in its consideration of whether to impose sanctions under the Rule, especially when it did not interrupt the questioning to warn or caution counsel as to the manner of the questioning. During the two days of Robert's testimony in April and May 2009, the court did not, at any time, interrupt the questioning by plaintiffs' counsel to admonish counsel for overly-aggressive advocacy during the questioning. Moreover, while Robert's attorney characterized the questioning as "tortuous, " none of his objections to the questions posed to Robert related to the manner in which his client was being questioned.
It is the trial court that is charged with the responsibility to "exercise reasonable control over the mode and order of interrogating witnesses and presenting evidence so as to (1) make the interrogation and presentation effective for the ascertainment of the truth, (2) avoid needless consumption of time, and (3) protect witnesses from harassment or undue embarrassment." N.J.R.E. 611. Where the court elects not to "exercise reasonable control" over what it later characterizes as conduct that at times "crossed the boundary of appropriate litigation tactics, " the court mistakenly exercises its discretion in considering such conduct in fashioning its award of sanctions under the Rule. Had the court believed a remedy was warranted for the conduct of the attorneys, it should have sua sponte intervened to address this conduct. If the conduct continued after the court's admonition, other options were available, including a contempt proceeding under Rule 1:10-2 or referral to the Office of Attorney Ethics. See Dziubek v. Schumann, 275 N.J.Super. 428, 438 (App. Div. 1994).
We are nonetheless satisfied that notwithstanding the court's consideration of these inappropriate factors, counsel fees and costs under the Rule may be warranted based solely upon the court's consideration that plaintiffs' attorneys continued the litigation despite having received testamentary documents before they filed the amended complaint. However, because it is unclear how much of the court's decision to award counsel fees and costs under the Rule and the actual amount awarded were influenced by the court's view of plaintiffs' counsels' conduct versus the decision to continue the litigation as of March 20, 2009, we vacate the counsel fees and costs awarded and remand for consideration anew, on the existing record, without consideration of the inappropriate factors. To the extent the court determines that counsel fees and costs are to be awarded, we affirm, in all respects the trial court's adoption of the special discovery master's approach to the calculation of fees and costs and the imposition of the "forum rate" for Robert's New York attorneys.
In view of the remand, we provide additional guidance. The law firms contend nearly $2 million in counsel fees and costs the court awarded was unprecedented and contrary to the purpose of Rule 1:4-8, thereby constituting an abuse of discretion. They maintain that the negative publicity stemming from the frivolous litigation determination would have been a sufficient sanction and that the court impermissibly considered the firms' profits as well as their intent to appeal. Finally, the firms maintain the court failed to specify which billing entries related to the promise claim, and improperly awarded fees related to the sanction motion.
The amount of sanctions awarded for a violation of the Rule is a matter committed to the sound discretion of the trial court, and will not be disturbed on appeal unless the trial court failed to consider all the relevant factors, based its decision on inappropriate considerations, or reflects a clear error in judgment. Masone, supra, 382 N.J.Super. at 181.
Under Rule 1:4-8(d):
A sanction imposed for violation of paragraph (a) of this rule shall be limited to a sum sufficient to deter repetition of such conduct. The sanction may consist of (1) an order to pay a penalty into court, or (2) an order directing payment to the movant of some or all of the reasonable attorneys' fees and other expenses incurred as a direct result of the violation, or both. Among the factors to be considered by the court in imposing a sanction under (2) is the timeliness of the movant's filing of the motion thereof. In the order imposing sanctions, the court shall describe the conduct determined to be a violation of this rule and explain the basis of the sanction imposed.
As noted earlier, the Rule is patterned after its federal counterpart, Rule 11. However, there is an important distinction between the two rules. Rule 11 expressly permits non-monetary sanctions: "A sanction imposed under [Rule 11] must be limited to what suffices to deter repetition of the conduct or comparable conduct by others similarly situated. The sanction may include nonmonetary directives[.]" On the other hand, Rule 1:4-8 expressly contemplates a monetary sanction: "[A] sum sufficient to deter repetition of the conduct." Other than the timeliness of a motion for sanctions, the Rule does not set forth the factors the court should consider in imposing the amount of the sanction. However, the use of the language "[a]mong the factors to be considered by the court in imposing a sanction under (2)" ("reasonable attorneys' fees and other expenses incurred as a direct result of the violation") suggests that the court is vested with discretion to consider a myriad of factors. Because Rule 1:4-8, in part, mirrors Rule 11, we look to federal decisions for guidance. Tractenberg v. Township of West Orange, 416 N.J.Super. 354, 368-69 (App. Div. 2010) (noting our Court's long history of looking to federal decisions interpreting rules or statutes "where there is a dearth of state court decisions interpreting a [similar] state statute or rule").
The principal goal of Rule 11 sanctions is deterrence, with compensation being a secondary goal. Orlett v. Cincinnati Microwave, Inc., 954 F.2d 414, 419 (6th Cir. 1992). Courts imposing sanctions under Rule 11 are directed to impose the least severe sanction likely to deter. Ibid. The basic principle governing the choice of sanctions is that the least severe sanction adequate to serve the purpose should be imposed. Ibid. Additionally, among the factors the courts should consider in fixing the amount of the sanction is whether this was a first time offense by the attorney or part of a history of frivolous litigation. Eastway Constr. Corp. v. City of New York, 637 F.Supp. 558, 571-72 (E.D.N.Y. 1986), modified and remanded, 821 F.2d 121 (2d Cir.), cert. denied, 484 U.S. 918, 108 S.Ct. 269, 98 L.Ed.2d 226 (1987). Further, "[a]ttorney fee awards of the full market value of services rendered should be reserved for extremely frivolous cases, while more moderate awards should be given for frivolous filings near the border. This approach harmonizes with the deterrent approach of [Rule 11]." Id. at 574.
Specifically addressing first offender law firms, the court in Eastway added: "[T]he court should be more lenient with first offenders with an otherwise good reputation than with attorneys or clients who have a history of filing frivolous actions. . . . [L]awyers may be distinguished and ethical . . . who slipped on a single occasion and need no punishment to prevent future problems." Id. at 573.
Here, the trial court, in its August 20, 2010 written opinion, noted that Lowenstein Sandler "set up a new system in their firm in the fall of 2009 which they hope will safeguard against the pursuit of frivolous litigation in the future." The court found "this process, which began before the frivolous litigation finding in this case, appears salutary." The court referenced Paul Weiss's contention that in the law firm's one hundred-year history, it had never been found to have engaged in frivolous litigation. Yet the court found "plaintiffs' counsel do not present any mitigation." There is nothing in the record contradicting the firms' assertions.
Thus, the trial court's conclusion that plaintiffs' counsel failed to "present any mitigation" is not supported by the record. The absence of a prior history of bringing or maintaining frivolous litigation is an appropriate factor to consider in determining the amount of counsel fees and costs to be awarded. See Doering v. Union County Bd. of Chosen Freeholders, 857 F.2d 191, 195 (3rd. Cir. 1988) (for the first time directing district courts to consider various mitigating factors in their calculation of the total monetary compensation owed by lawyers who have been found to have violated Rule 11). Such mitigating factors may include, "the attorney's history of filing frivolous actions or alternatively, his or her good reputation" Id. at 197 n6 (citing Eastway supra 637
F.Supp. at 573) Therefore upon remand the court is directed to consider the absence of a prior history of frivolous litigation the firms' good reputation as well as the preventive measures implemented by one of the law firms which the court found to be salutary
Reversed as to the counsel fees and costs awarded pursuant to Rule 1:4-8 and remanded for further proceedings consistent with this opinion Affirmed in all other respects We do not retain jurisdiction