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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION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 ...