JOHN R. BEST et al. v. COOPER PERSKIE APRIL NIEDELMAN WAGENHEIM & LEVENSON, P.A., JAMES L. COOPER et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5185-04T35185-04T3

JOHN R. BEST and LORETTA C. BEST,

Plaintiffs-Appellants,

v.

COOPER PERSKIE APRIL NIEDELMAN

WAGENHEIM & LEVENSON, P.A.,

JAMES L. COOPER and ROBERT E.

SALAD,

Defendants-Respondents.

________________________________________________________________

 

Argued September 13, 2006 - Decided November 1, 2006

Before Judges Wefing, Parker and C.S. Fisher.

On appeal from the Superior Court of New

Jersey, Law Division, Atlantic County,

Docket No. L-543-03.

Andrew J. Kyreakakis argued the cause for

appellants (Mr. Kyreakakis and Anthony P.

Ambrosio, on the brief).

Michael J. Canning argued the cause for

respondents (Giordano, Halleran & Ciesla,

attorneys; Mr. Canning and Catherine J.

Bick, on the brief).

PER CURIAM

In this legal malpractice case, plaintiffs John R. Best and Loretta C. Best appeal from two orders granting summary judgment in favor of defendants. The order entered on March 19, 2004 dismissed plaintiffs' claims against defendant James Cooper, and the order entered on April 22, 2005 dismissed the claims against the defendants Cooper Perskie April Niedelman Wagenheim & Levenson, P.A. (Cooper Perskie) and Robert Salad.

In September 1979, Car Wash Properties I, plaintiffs' predecessor in interest, entered into a limited partnership agreement with defendant Atlantic City Parking Associates, L.P., to form the limited partnership, Atlantic City Public Parking Garage No. 1, L.P. (Partnership).

In December 1993, plaintiffs sued the Partnership and its general partner in a dispute over distribution of proceeds (1993 case). In the 1993 case, plaintiffs alleged that the Partnership attorney had a conflict of interest leading to a breach of duty to plaintiffs and causing a distribution that favored his clients over plaintiffs. In July 1996, the parties executed an Amended and Restated Limited Partnership Agreement (Partnership Agreement) and Release and Settlement Agreement resolving the 1993 case. The Partnership Agreement provided that plaintiffs "would receive certain Preferential Distributions" and that the general partner had "full and exclusive right[s] to manage and control the business, . . . subject to the consent of the Limited Partners" when required under the Partnership Agreement.

On October 13, 1998, a second lawsuit was filed by plaintiffs against the general partner and related parties alleging that the general partner overpaid consulting fees in a condemnation action (1998 case). The 1998 case was dismissed with prejudice pursuant to a consent order entered on December 18, 1998. The consent order provided for distribution of the proceeds of the condemnation and contained the following language respecting Partnership distributions:

[T]he distributions being made pursuant to this paragraph three (3) and all future distributions from the Partnership subsequent to the date hereof shall not be considered Net Cash From Operations as defined in paragraph 8.3 of the Partnership Agreement.

Paragraph 8.3 of the Partnership Agreement provided for distribution to partners:

8.3 All Net Cash From Operations, as hereinafter defined, shall be distributed, at such time and in such manner as the General Partner may determine, but no later than four (4) months after the close of any calendar year, in the following order and priority:

8.3.1 Until such time that the Limited Partners shall have received cash distributions equal to $638,000.00 ("Preferential Distributions") the Limited Partners shall receive One Hundred (100%) percent of the Net Cash from Operations. The Preferential Distribution shall be treated by the Partnership as a guaranteed payment to the Limited Partners. The Preferential Distribution amount is subject to verification by the Partnership's accountant.

8.3.2 After the Limited Partners have received the Preferential Distribution in full, the Net Cash From Operations shall be distributed in accordance with each Partner's percentage interest in Net Income and Net Loss.

8.4 All distributions to the Limited Partners under subparagraph 8.1 above shall be divided among them in equal proportion.

8.5 For the purposes of this Paragraph 8, the term Net Cash From Operations shall be defined as the gross cash proceeds from Partnership operations less the portion thereby used to pay current operating expenses and maintain or establish reasonable reserves for all Partnership expenses, debt payments, capital improvements, replacements and contingencies, all as determined by the General Partner.

Paragraph 8.5 goes on to say:

Net Cash From Operations shall not be reduced by depreciation, amortization, cost recovery deductions or similar allowances. In the event the gross cash proceeds from Partnership Operations is insufficient to pay current operating expenses, any Partner may, but shall not be obligated to, make additional Capital Contributions for the purpose of meeting current operating expenses of the Partnership. The foregoing notwithstanding, the General Partner agrees to make additional capital contributions to meet ordinary and anticipated current operating expenses if in its discretion, such contributions are necessary to consummate a sale and/or contest a condemnation. However, in no event shall the General Partner be required to make additional contributions to pay environmental related expenses or any other extra ordinary expense items.

The 1998 consent order, however, adjusted the distribution scheme set forth in the Partnership Agreement as follows:

8.3 provides for a delay in payments to Partners to insure that only excess cash flow is distributed. The Partnership may receive income and later incur expenses. Only the excess of income over expenses is subject to distribution to the Partners. This paragraph does not govern this distribution of the condemnation award, since this is purchase money and not income as contemplated in Paragraph 8.3.

Moreover, all counsel who participated in the 1998 consent order warranted that they "fully explained all of the terms, conditions and obligations" of the consent order to their clients. Nevertheless, plaintiffs' counsel later attested that he only gave the consent order "a cursory review" rather than review it carefully.

Although plaintiffs represent that defendants' duty to them was clear under the Partnership Agreement and the consent order, it was obviously not clear at the time. In 1999, another dispute arose over distribution of partnership proceeds. On April 14, 1999, plaintiffs filed a motion to interpret and enforce the consent order or, in the alternative, to vacate it. We will refer to this re-opening of the 1993 case as the 1999 litigation. That motion was denied on May 14, 1999. The motion was based on plaintiffs allegations that in October 1998, Salad forwarded a cash and profit distribution pro forma to plaintiff John Best. The pro forma was prepared by the Partnership's accountant, George Hagerty. In February 1999, however, Salad sent plaintiffs a revised pro forma indicating a substantially reduced distribution to plaintiffs and an increased distribution to the general partner. Plaintiffs claimed that they were entitled to "Preferential Distributions" pursuant to the 1996 Partnership Agreement and that the October 1998 pro forma reflected the proper distribution due to plaintiffs.

On July 26, 1999, an order was entered denying plaintiffs' motion without prejudice, but stating that the court retained jurisdiction. The order further stated that the court would conduct a plenary hearing to address the factual disputes between the parties after discovery was completed. Plaintiffs moved to disqualify Cooper Perskie from representing both the general partner and the Partnership in the 1999 litigation. That motion was granted to the extent that Cooper Perskie was disqualified from representing the limited partnership, but not the general partner. Plaintiffs failed to appeal the disqualification order.

After completion of discovery, the parties proceeded to a bench trial in April 2001 to resolve the disputed partnership distribution. On May 21, 2001, judgment was entered against the general partner and in favor of plaintiffs in the total amount of $310,618.53, plus post-judgment interest. With respect to plaintiffs' application for counsel fees and costs, the judgment stated that "plaintiffs' counsel's oral application after this Court's decision for attorneys' fees and expenses is denied with prejudice." (Emphasis added). Plaintiffs' motion for reconsideration was denied on July 6, 2001. In her decision denying the motion for reconsideration of the counsel fee ruling, the trial judge stated:

The parties submitted to me what their claims were. They submitted the written support for their claims. They agreed to waive any testimony. I made a decision on what the amount owed should be under that agreement. And when I made that decision, and after I made that decision, counsel for the first time for the plaintiff said, "I'm going to also ask for counsel fees . . . . We were entitled to that under the agreement." And I said, no, that's not part of what, you know, you - if you wanted to ask for something additional, or ask for that, you need to file for it in your original complaint. The fact of the matter is, we had a trial and it was not part of the issues you presented before me. You can't try this thing in [pieces] . . . . [A]nd therefore, your application for attorneys fees is denied.

At that hearing, counsel said, "Well, then I'm just going to file another lawsuit asking for them." Or something like that. And I said you can't do that. You can't file a second lawsuit after this lawsuit is over asking for the same thing when it's denied in this case. File an appeal if you think I'm wrong. And I basically said the same thing in the letter that you sent out to me.

Now counsel is saying that he has the right to sue for malpractice and part of the damage for malpractice may be counsel fees. I'm not barring you from filing any lawsuits against anybody you want. Whether their valid, frivolous, appropriate, covered by this or not, you cannot sue the same people that are sued in this action again and ask for the same thing unless - and if you do so, you'll be filing a frivolous lawsuit as far as I'm concerned. But it will be addressed, you can file any papers you want that doesn't mean that they'll be frivolous or inappropriate. I can't bar you from filing a complaint. What's done with that complaint will be an issue later. If you have a whole different complaint for malpractice against lawyers, certainly I haven't addressed that in this case.

[Emphasis added.]

Plaintiffs failed to appeal the July 6, 2001 order denying counsel fees. Rather, in March 2003, they filed this legal malpractice action against defendants - who were adversary counsel in the prior lawsuit - alleging negligence, breach of contract, breach of fiduciary duty and conflicts of interest. We will refer to this litigation as the malpractice case. The damages sought were $117,770.88 in counsel fees and costs incurred in the 1999 litigation.

Partial summary judgment was granted on March 19, 2004, dismissing the malpractice claims against defendant James Cooper on the ground that

there is . . . no evidence before this Court that Mr. Cooper ever was engaged in an attorney client relationship with the limited partners [plaintiffs]. There is no competent evidence before this Court that he was ever engaged in a situation where his representation of more than one client created a conflict of interest which resulted in any harm to the limited partners, and there are none of the [sic] exceptions to the general rule that are supported by any competent evidence in this record.

On April 22, 2005, after discovery was completed, summary judgment was granted dismissing the remaining malpractice claims against Salad and Cooper Perskie. The trial judge rendered a lengthy written decision in which he concluded that (1) defendants owed no duty to plaintiffs, as fiduciaries or otherwise; (2) plaintiffs did not demonstrate a conflict of interest in violation of R.P.C. 1.7; (3) the action was not precluded by the entire controversy doctrine; and (4) since defendants owed no duty to plaintiffs, there was no need to address plaintiffs' failure to assert a claim for fees in the underlying action.

In this appeal, plaintiffs argue that (1) the trial court erred in granting defendants' motion for summary judgment and in denying plaintiffs' cross-motion; (2) the trial court erred in finding as a matter of law that defendants did not owe a fiduciary duty to plaintiffs; (3) defendants engaged in a conflict of interest constituting malpractice; and (4) plaintiffs are not precluded from this action based upon the entire controversy doctrine.

I

On cross-motions for summary judgment, the trial court must consider each motion in light of the undisputed facts and determine whether

considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all the legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact.

[R. 4:46-2.]

The Law Division must not decide issues of fact; rather, it must decide whether such issues exist. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995); Judson v. Peoples Bank & Trust Co., 17 N.J. 67, 75 (1954).

We are bound by the same standard in reviewing a grant of summary judgment. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). We must first decide "whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party." Brill, supra, 142 N.J. at 540. Then, we must decide whether the Law Division's legal conclusions are correct. Ibid. If the evidence "'is so one-sided that one party must prevail as a matter of law,'" we must affirm the grant of summary judgment. Ibid. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 2511, 91 L. Ed. 2d 202, 213 (1986)).

Here, rather than argue that there were material facts in dispute, plaintiffs merely recite the undisputed facts they believe support summary judgment in their favor:

Defendants changed the limited partnership's accountant's distribution to the general partner and the Bests as limited partners. They did so to favor their own clients to the detriment of the limited partners. Defendants increased the general partners' [sic] distributions and decreased the limited partners' distribution. They re-distributed to their clients $266,500 which belonged to the Bests. Mr. Salad, who directed the accountant to alter his calculations on the distributions to the parties, was never involved in the transaction between the parties. Defendants invoked a Consent Order in a minor, unrelated case to rationalize their alteration of the distribution. The partnership's accountant testified that he was directed by Mr. Salad to change his pro forma distribution to favor Cooper Perskie's client, the general partner.

The defendants adamantly refused to pay the Bests their true distribution, necessitating the underlying litigation and the plaintiffs' ensuing litigation fees to vindicate their fees and to reinstate the accountant's initial distribution. All these facts are undisputed and entitled plaintiffs to summary judgment below. While not required for granting plaintiffs' cross-motion, Judge Seltzer found that the defendants had a conflict of interest in representing both the limited partnership and the general partner.[]

As we indicated previously, however, defendants' duty to plaintiffs under the Partnership Agreement and 1998 consent order were not necessarily clear in 1999 when the dispute arose. We disagree with plaintiffs that these facts, as found by the trial judge in her 2001 decision resolving the 1999 litigation, "mandate" summary judgment in their favor.

II

As with any negligence claim, legal malpractice requires that plaintiffs demonstrate "'(1) the existence of an attorney-client relationship creating a duty of care upon the attorney; (2) the breach of that duty; and (3) proximate causation.'" Conklin v. Hannoch Weisman, 145 N.J. 395, 416 (1996) (quoting Lovett v. Estate of Lovett, 250 N.J. Super. 79, 87 (Law Div. 1991)).

Here, plaintiffs are alleging that defendants had a duty to them and breached that duty by giving preferential partnership distributions to the general partner, resulting in the re-opening of the 1993 case and costing them in excess of $117,000 in counsel fees.

"[A]ttorneys may owe a duty of care to non-clients when the attorneys know, or should know, that non-clients will rely on the attorneys' representations and the non-clients are not too remote from the attorneys to be entitled to protection." Petrillo v. Bachenberg, 139 N.J. 472, 483-84 (1995) (emphasis added).

The determination of whether the duty undertaken by an attorney extends to a third person not in privity "involves the balance of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant's conduct and the injury suffered, the moral blame attached to the defendant's conduct, and the policy of preventing future harm."

[Albright v. Burns, 206 N.J. Super. 625, 633 (App. Div. 1986) (citations omitted).]

As the trial court noted, an attorney may have a duty to a non-client in certain limited circumstances:

(1) when the attorney has a fiduciary duty respecting property of a third-party, Albright v. Burns, 206 N.J. Super. 625, 632 (App. Div. 1986) (holding attorney violated fiduciary duty to elderly man and his estate by aiding holder of decedent's power of attorney to divest estate of major asset); (2) when the attorney provides documentary information which will be relied upon by third parties, Petrillo v. Bachenberg, supra, [139 N.J. at 483-84, 486-489]; (attorney provided to real estate broker unreliable information regarding percolation tests subsequently relied upon by the purchaser), [Atl.] Paradise Assocs., Inc. v. Perskie, Nehmad & Zeltner, 284 N.J. Super. 678, 682-83 (App. Div. 1995) (attorney provided inaccurate information in public offering statement), certif. denied, 143 N.J. 518 (1996); (3) when the attorney misrepresents information, Davin v. Daham, 329 N.J. Super. 54, 72-78 (App. Div. 2000) (attorney representing landlord inserted covenant of quiet enjoyment in tenant's long-term lease while knowing of likely foreclosure on property); and, (4) when the attorney assumes a duty to act, Stewart v. Sbarro, 142 N.J. Super. 581, 584-88 (App. Div.) (attorney for buyers of stock failed to obtain necessary signatures), certif. denied, 72 N.J. 459 (1976), LaBra[cio] Family [P'ship] v. 1239 Roosevelt [Ave.], 340 N.J. Super. 155, 165 (App. Div. 2001) (purchaser's attorney assumed duty to vendors to record mortgage), R.J. Longo Const. Co. v. Schragger, 218 N.J. Super. 206, 209-10 (App. Div. 1987) (township attorney failed to obtain easement rights-of-way as represented in bid documents and contract).

The trial judge examined the undisputed facts and determined that they did not fall within any of the categories in which an attorney has a duty to a non-client. The trial judge noted that "[i]t is unclear whether representing a General Partner and Limited Partnership, in the context of this case, is a conflict of interest. There appears to be no New Jersey case that addresses the issue."

Plaintiffs urge us to adopt the rationale of the New York Supreme Court in Schwartz v. Guterman, 441 N.Y.S.2d 597 (Sup. Ct. 1981), aff'd, 448 N.Y.S.2d 650 (App. Div. 1982). There, on a motion to disqualify counsel "[t]he principal issue presented . . . [was] whether, in a suit brought by a limited partner against a general partner and the partnership, the two defendants may be represented by the same attorney." Id. at 597. The New York court decided that the attorney was only disqualified from representing the partnership, not the managing partner. Id. at 599. The New York court's decision was based upon an analogy to stockholders' derivative suits in which the corporation is named as a party defendant but, "conceptually, in a derivative action, the corporation is a party plaintiff in the sense that it will benefit from successful prosecution of the suit." Id. at 598.

Here, just as the New York court in Schwartz, the trial court disqualified defendants from representing the Partnership but allowed it to continue representing the General Partner. Plaintiffs maintain, however, that the conflict arose when defendants represented the Partnership and the General Partner in changing the pro forma benefiting defendants' clients to the detriment of plaintiffs.

Plaintiffs were, at all times, represented by their own independent counsel. Indeed, it was their counsel who initiated the 1999 litigation. Plaintiffs cannot claim reliance upon defendants' involvement in revising the pro forma.

In our view, it is the reliance of a non-client upon the actions of an attorney that impose a duty on the attorney with respect to the non-client. In Petrillo, the Court specifically held that it was the reasonably foreseeable reliance by the non-client on the attorney's representation that imposed the duty of care. 139 N.J. at 483-84. More recently, in Banco Popular No. Am. v. Gandi, 184 N.J. 161 (2005), the Court reiterated its holding in Petrillo and subsequent cases that it is the attorney's representations "made to induce reliance" that result in a duty to the non-client. Id. at 183 (emphasis added).

Reliance is an element in each of the cases in which an attorney's duty of care was extended to a non-client. See, e.g., LaBracio Family P'ship, supra, 340 N.J. Super. at 165 (finding that an attorney may be liable to a non-client who relied on the attorney to record a mortgage); Davin, supra, 329 N.J. Super. at 72-78 (holding in favor of a tenant who relied upon the landlord's attorney's representations in entering a long-term lease); Atl. Paradise Assocs., supra, 284 N.J. Super. at 682-83 (finding that an attorney may be liable to a non-client who relies on inaccurate information in a public offering statement prepared by the attorney); R.J. Longo Co., 218 supra, N.J. Super. at 209-10 (holding that a municipal attorney may be liable to a successful bidder who relied on the attorney's preparation of the contract and securing the necessary easement rights upon which to construct the sewer facility); Albright, supra, 206 N.J. Super. at 632-33 (holding that "a member of the bar owes a fiduciary duty to persons, though not strictly clients, who he knows or should know rely on him in his professional capacity"); Stewart, supra, 142 N.J. Super. at 593 (finding that where an attorney assumes a duty, he may be liable where non-clients rely on the attorney's performance of the assumed duty). Indeed, we have found no case in which reliance was not a critical element of liability to a non-client.

Here, plaintiffs cannot claim reliance on the revised pro forma because they relied on their own independent counsel and challenged the revised pro forma immediately after it was issued.

III

Plaintiffs maintain that the judge's finding a conflict of interest in defendants' representation of the Partnership in the 1999 litigation "serves as further proof of defendants' liability." Relying on their expert's report, plaintiffs argue that "R.P.C. 1.7 requires an attorney to obtain consent to the representation 'after a full disclosure' of the conflict.'" Here, however, plaintiffs were fully aware of defendants' representation of the Partnership and General Partner. There was no effort to hide or disguise the representation. Moreover, even if defendants violated the rules of professional conduct, that, in itself, is not the basis for legal malpractice. Baxt v. Liloia, 155 N.J. 190, 204 (1998); Banco Popular No. Am., supra, 184 N.J. at 182-83 n.8. Given our finding that plaintiffs did not rely on any representations made by defendants, we need not belabor this point further.

IV

With respect to the entire controversy doctrine, the trial court held that plaintiffs' claims are not barred by Olds v. Donnelly, 150 N.J. 424, 428 (1997). We agree.

Affirmed.

 

Plaintiff John Best died during the pendency of the litigation and his interests are now represented by Trish Best, the executrix of his estate.

The Partnership attorney in that case differs from the Partnership attorney in the present case.

Defendants were not disqualified from representing the general partner, however, and plaintiffs failed to appeal the disqualification order.

(continued)

(continued)

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A-5185-04T3

November 1, 2006