LUCY D'ARMIENTO et al. v. MILLMAN & MILLMAN, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6278-04T26278-04T2

LUCY D'ARMIENTO and LEONARD

D'ARMIENTO,

Plaintiffs-Appellants/

Cross-Respondents,

v.

MILLMAN & MILLMAN and ROBERT

MILLMAN, ESQ.,

Defendants-Respondents/

Cross-Appellants.

_________________________________

 

Argued September 11, 2006 - Decided October 5, 2006

Before Judges Lintner, S.L. Reisner and Seltzer.

On appeal from the Superior Court of

New Jersey, Law Division, Essex County,

L-2905-03.

Dan A. Druz argued the cause for appellants/cross-respondents.

Diana C. Manning argued the cause for respondents/cross-appellants (Bressler, Amery & Ross, attorneys; Ms. Manning and Benjamin J. DiLorenzo, on the brief).

PER CURIAM

Plaintiffs, Leonard D'Armiento and his mother Lucy D'Armiento, appeal from a June 7, 2005, order granting summary judgment dismissing their legal malpractice claim against defendants, Robert N. Millman, Esq. and Millman & Millman, as well as a June 24, 2005, order denying plaintiffs' motion for reconsideration. Millman cross-appeals from a June 24, 2005, order denying his motion to impose sanctions, specifically, attorney's fees and costs, under the frivolous cause of action statute, N.J.S.A. 2A:15-59.1. We affirm all three orders.

Leonard D'Armiento is a business teacher at Belleville High School. Leonard is married to, but formally separated from, Kathleen T. D'Armiento, who began working as Millman's legal secretary in 1974. Leonard and Kathleen became good friends with Millman and his wife, socializing and vacationing together. Additionally, Millman represented Leonard and Kathleen in automobile accident matters, real estate transactions, and an infringement matter. Leonard ceased visiting with the Millmans in 2003, after plaintiffs' lawsuit was initiated.

In 1999, Leonard opened his first brokerage account with Charles Schwab. At about the same time, he opened accounts with TD Waterhouse and E-Trade. All three accounts were self-directed. In March 2000, he opened a brokerage account with the Agean Group, into which he transferred the stock that he had been trading in the TD Waterhouse account. On April 7, 2000, Lucy D'Armiento signed an authorization transferring multiple shares of AT&T, Phillips Petroleum Co., Union Carbide Corp., and U.S. West, Inc., valued at approximately $100,000, to Leonard's Agean account. On April 12, 2000, Leonard authored a handwritten letter stating, "I authorize the Agean Group to liquidate my portfolio of all holdings realizing a loss of $250,000 in order to purchase [approximately] $250,000 worth of RIMM [Research In Motion]." Beneath his signature, Leonard wrote, "I do not hold Agean Group responsible for ramifications of this transactions [sic]." The handwritten authorization was required by a compliance officer out of concern about the account. On April 18, 2000, the shares previously belonging to Lucy, except for U.S. West, were sold from Leonard's account in transactions listed as "unsolicited."

In late April, Leonard purchased shares of AT&T Corp., Phillips Petroleum Co., and Union Carbide Corp. in a separate Schwab account. According to Leonard, he borrowed approximately $100,000 on his credit cards to repurchase the stock that his mother had transferred, returning to her the value he had lost. The stock was then sold in 2000, with Lucy realizing a long-term capital gain. Leonard admitted that at that time he was "wheeling and dealing . . . borrowing from any place . . . [he] could to get some cash . . . to keep the stock market going and . . . [his] credit cards afloat." He refinanced his mortgage, increasing his monthly payments from $1400 to $3000.

The value of Leonard's stocks in the three brokerage accounts plummeted. The shares in RIMM also lost value and eventually Leonard's margin account with Agean reflected a negative balance of approximately $25,000. At that time, Adam Weinstein, Leonard's investment executive at Agean, approached Leonard regarding payment of the negative account. Leonard then sought the assistance of Millman.

Leonard and Millman met four or five times during April and May. In answers to interrogatories, plaintiffs admitted that "Millman said that he did not generally handle securities disputes, but that he felt confident that he could settle the matter on [Leonard's] behalf, as long as [Leonard] was willing to [pay] substantial funds to pay off his alleged debt to his stockbrokers." On May 11, 2000, Leonard and Lucy both signed General Release Agreements discharging the Agean Group from liability for any and all claims regarding both Leonard's and Lucy's accounts, including shortfalls. Agean received $15,000 in exchange for a general release, and the U.S. West stock, which had not been sold, was returned to Lucy.

In June 2000, plaintiffs filed an arbitration claim with the Office of Dispute Resolution of the National Association of Securities Dealers, Inc. against the Agean Group and Weinstein. Plaintiffs claimed that Weinstein persuaded Leonard to open an account with him by guaranteeing him profits in specific stock based on inside information. Plaintiffs also claimed that Weinstein persuaded the reluctant Lucy to transfer approximately $100,000 worth of stocks to Leonard by promising her that the stocks would be used only as collateral and would never be sold. Weinstein filed a motion to dismiss the claim on the basis that Lucy and Leonard had executed general releases that barred the action from proceeding. The arbitration panel granted the motion and dismissed the claim without prejudice on January 3, 2002.

Plaintiffs' malpractice complaint alleged that Millman committed legal malpractice during the course of representing plaintiffs by failing to preserve their rights to recover damages against the brokerage firm and its representative. The complaint also alleged that Millman failed to disclose an alleged conflict of interest regarding prior and contemporaneous representation of Leonard's estranged wife.

Millman answered on June 2, 2003. On August 23, 2004, defense counsel wrote plaintiffs' counsel, expressing the belief that the complaint violated the New Jersey Frivolous Litigation Statute and demanding dismissal within 28 days. On September 20, 2004, defense counsel advised that Millman intended to seek attorney's fees, costs, and sanctions.

Oral argument in the Law Division on Millman's motion for summary judgment was held on April 15, 2005. In support of the motion, Millman attached the two expert reports relied upon by plaintiffs. Jaime Annexy, a securities expert, opined that Weinstein and Agean violated specific rules of the National Association of Security Dealers, Inc. It was also his opinion that Weinstein "was not truthful in his deposition testimony as to his securities record," pointing to his failure to account for his ten-year employment history in the securities industry, and to report prior arbitration proceedings. Annexy, however, acknowledged:

I understand that a rules violation does not necessarily equate to the basis for a claim in legal terms; the arbitration process is considered part of the regulatory scheme by the industry and the arbitrators are charged with reporting such infractions to the regional disciplinary committees that adjudge the conduct of individual stockbrokers.

Accepting Lucy's version, Annexy believed that Weinstein fraudulently induced Lucy to turn over her stock certificates to him, resulting in the securities being sold without her authority. Annexy also opined that it was "unsuitable" to place Lucy's securities in Leonard's margin account and that Leonard's transaction activity coupled with the losses he incurred "was excessive." Conspicuously absent was any conclusion as to what, if any, damages were sustained as a proximate result of Weinstein's rules violation, or the unsuitability of investing Lucy's shares.

Andrew G. Feda, Esq. rendered a report respecting the alleged legal malpractice. Feda opined that Millman's attempt to delimit the scope of his representation to investigate the debt was "unavailing," that he had a duty to express the scope of his representation in writing and to investigate what transpired between plaintiffs and the brokerage firm, as well as plaintiffs' potential claims. According to Feda, Millman's admission that he had no experience in securities matters, together with his failure to either consult an expert in the field or inquire into the events leading up to the debt, represented a breach of his duty as an attorney, as did the conflict of interest, specifically, the close personal and professional relationship Millman had with Leonard's estranged spouse. Concerning proximate cause, Feda pointed to the dismissal of the arbitration without an award and the plain language of the release, which prevented plaintiffs from obtaining their damages.

Feda then opined, without any explanation as to how he arrived at his conclusion, that Lucy's claim was worth about $80,000, whether obtained through an arbitration award or settlement, and Leonard's damages were approximately $250,000 if tried, or about $125,000 if settled. Citing the requirement that he prove the case within a case, Feda explained that, had Millman investigated, he would have found out that Weinstein was untrustworthy because he never went to Lucy's home to pick up her stock certificates, he had inaccurately certified his disciplinary record, and, according to Annexy, had a suspect professional character. He opined that the arbitration would most likely have been settled in such a way that Lucy would have received full damages and Leonard's claim would have been reduced by half if fully arbitrated, or three quarters if settled, because of contributory negligence. Again, Feda does not indicate anywhere in his report how he arrived at the damage figures or how they are proximately related to Weinstein's alleged fraudulent conduct.

Granting summary judgment and dismissing plaintiffs' claims, the motion judge concluded that plaintiffs presented no evidence establishing that Millman breached any duty owed to them or that they incurred any damages proximately caused by the alleged breach.

On appeal, plaintiffs essentially assert: (1) there were sufficient facts to establish that Millman was retained by plaintiff to pursue all their claims against Weinstein and Agean, not just settle the brokerage debt, and that the judge improperly relied on their interrogatory admission concerning the scope of Millman's representation because such a limitation should have been set forth in writing; (2) Millman's friendship with Leonard's estranged wife, together with purported threats of violence Leonard alleges Millman made after learning of the filing of plaintiffs' complaint, led to a favorable inference that Millman did not diligently fulfill his duties to plaintiffs; and (3) RPC 1.2(c), which permits limited representation, is not meant as a loophole to permit an attorney to "shirk" his fiduciary responsibilities. Plaintiffs also contend that the judge improperly relied on facts as undisputed, specifically, the written release language in Leonard's order to purchase the RIMM stock and his return of Lucy's stock. They argue that the judge overlooked Leonard's claims respecting Millman's relationship with Leonard's estranged wife as showing that Millman failed to diligently prosecute plaintiffs' claims against Weinstein and Agean. Plaintiffs also argue that they presented a prima facie case that Millman breached his duty of care, which proximately caused them to sustain damages.

Lastly, plaintiffs assert that the judge overlooked Millman's statement of undisputed facts filed in support of the motion for summary judgment by ignoring R. 4:46-2(a), which requires citation to document and page. They also claim that the judge improperly commented on the propriety of affidavits filed in support of plaintiffs' opposition, thus "unfairly [demonstrating] great liberality towards [Millman]."

Initially, we note that the record does not support plaintiffs' procedural claim that the judge improperly relied upon Millman's submissions. Contrary to plaintiffs' assertion, raised here for the first time on appeal, Millman's challenged statement of material facts contained sufficient citation to lead the reader to the applicable portions of the record. Plaintiffs' contentions to the contrary do not warrant further discussion in a written opinion. R. 2:11-3(e)(1)(E). So too, plaintiffs' argument that they were not treated fairly at the motion is not based on facts, but is merely conclusory. Accordingly, we need not consider them on appeal. Miller v. Reis, 189 N.J. Super. 437, 441 (App. Div. 1983).

Addressing the substantive merits, we conclude that the motion judge correctly found that plaintiffs failed to establish that they could succeed on the underlying case against Weinstein and Agean because they did not sustain an ascertainable loss as a proximate result of the challenged conduct. In order to succeed in an action for common law fraud, a plaintiff must show: "(1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages." Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997) (emphasis added) (citing Jewish Ctr. Of Sussex County v. Whale, 86 N.J. 619, 624-25 (1981)). Generally, the measure of damages is the amount of money reasonably necessary to compensate the plaintiffs for their loss. Correa v. Maggiore, 196 N.J. Super. 273, 283 (App. Div. 1984).

Plaintiffs' proofs failed to establish the requisite showing that their damages were proximately caused by any of the alleged misrepresentations. The claim that Weinstein fraudulently induced Lucy to turn her stock over to him, thus resulting in the sale of the stock absent her authority, is contradicted by the record, which established that Lucy transferred her stock to Leonard's account. Although sold shortly thereafter by Leonard, he repurchased the shares for Lucy within a period of approximately two weeks. There was no proof that Lucy lost value in those stocks as a result of the sale and subsequent repurchase. Indeed, in her 2000 tax return, Lucy reported a long-term capital gain for the stocks which had been transferred and returned to her, indicating that she held the stock for more than one year. The failure to report the interim transactions is consistent with Leonard's deposition testimony that Lucy lost no money during the time that Leonard held, sold, and repurchased the stock for his mother.

It was Leonard who traded and authorized the liquidation of all his $250,000 holdings and released Agean from liability for his decision to purchase an equal amount of RIMM stock, which subsequently lost value resulting in the negative balance in his margin account, thus nullifying the elements of reliance and proximate damages. Although Annexy commented on Weinstein's rule violations and opined that Weinstein was not truthful about his disciplinary record, he conceded that rule violations do not necessarily equate to the basis for a claim in legal terms. The judge correctly found that plaintiffs' proofs failed to establish an actionable case within a case against Agean and Weinstein as a matter of law, thus rendering their legal malpractice against Millman nugatory. See Conklin v. Hannoch Weisman, 145 N.J. 395, 417 (1996). Accordingly, we need not address the issue raised respecting whether Millman committed malpractice for not preserving a claim against Agean and Weinstein.

We, however, make the following brief observations concerning retainer agreements that limit the scope of an attorney's representation. R. 1:21-7(g) and RPC 1.5(c) require only contingent fee agreements to be in writing. Written retainer and compensation agreements with clients are required to be retained for a period of seven years. RPC 1.2(c) expressly permits an attorney, with the consent of the client following consultation, to limit the scope of representation. Recognizing that "'what constitutes a reasonable degree of care is not to be considered in a vacuum but with reference to the type of service the attorney undertakes to perform,'" we cautioned that where "the service is limited by consent, . . . the degree of care is framed by the agreed service." Lerner v. Laufer, 359 N.J. Super. 201, 217 (App. Div.) (quoting Ziegelheim v. Apollo, 128 N.J. 250, 260, (1992)), certif. denied, 177 N.J. 223 (2003). That being said, we agree with the judge's observations that it is clearly better practice for an attorney to spell out in writing, acknowledged by the client, the scope of representation when such scope is limited by the consent of a client.

We also note that plaintiffs' assertion that Millman's representation was not limited in scope is directly contrary to Leonard's answers to interrogatories, leading to the judge's conclusion that there was no genuine issue of material fact as to the nature of Millman's representation. We agree with the judge that Leonard's answers to interrogatories resolved the factual conflict as to the scope of Millman's representation. We are not convinced, however, that permitting a client to execute a general release absolving the released party of all liability is necessarily warranted where the representation is limited in scope. Of course, that would depend on the circumstances of the negotiations between the parties. Nevertheless, as we have previously pointed out, any failure to preserve plaintiffs' rights against Agean and Weinstein was not actionable here because plaintiffs suffered no ascertainable loss as a result of that failure.

Finally, we address Millman's cross-appeal. The principles are well settled. "A claim will be deemed frivolous or groundless when no rational argument can be advanced in its support, when it is not supported by any credible evidence, when a reasonable person could not have expected its success, or when it is completely untenable." Belfer v. Merling, 322 N.J. Super. 124, 144 (App. Div.) (citing Fagas v. Scott, 251 N.J. Super. 169, 189 (Law Div. 1991)), certif. denied, 162 N.J. 196 (1999). Attorney fees sanctions are not justified where a party has a reasonable good faith belief in the merit of an action. DeBrango v. Summit Bancorp, 328 N.J. Super. 219, 227 (App. Div. 2000). An action is frivolous if it was "commenced, used or continued in bad faith, solely for the purpose of harassment, delay or malicious injury; or The nonprevailing party knew, or should have known, that the [action] was without any reasonable basis in law or equity." N.J.S.A. 2A:15-59.1b. By signing a pleading, an attorney certifies that the pleading is not being presented for an improper purpose, that the claims are warranted by law and that the factual allegations and denials have evidentiary support. R. 1:4-8(a). We have construed R. 1:4-8(d) to authorize sanctions against an attorney where the attorney has violated the rule by acting in bad faith. Port-O-San Corp. v. Teamsters Local Union No. 863 Welfare & Pensions Funds, 363 N.J. Super. 431, 437 (App. Div. 2003). Both N.J.S.A. 2A:15-59.1 and R. 1:4-8 are to be interpreted restrictively so as not to interfere with advocacy and access to the courts. Id. at 440.

We need not reiterate our prior observations regarding the better practice of reducing limited scope retainer agreements to writing and the propriety, depending on the circumstances, of acquiring a general release when representing a party on a limited basis. Considering these same observations, however, we are satisfied that the judge properly exercised her discretion in finding that plaintiffs did not prosecute their claim in bad faith but instead, based upon an honest belief, though perhaps ill-founded, in the merits of their claim.

Affirmed.

 

Because plaintiffs' allegations of legal malpractice are limited to Robert Millman's actions, we refer to Robert and the firm singularly as Millman.

Plaintiffs' complaint was filed on March 28, 2003.

The U.S. West stock was not sold in April 18, 2000, due to a glitch in the system and was eventually returned to Lucy.

Lucy's 2000 Federal Tax Return indicates a capital gain of

$41, 428.

(continued)

(continued)

16

A-6278-04T2

October 5, 2006