CYNTHIA CARBONE v. KONSTANTINOS POTOURIDIS

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-00

CYNTHIA CARBONE, Administratrix

Ad Prosequendum of the ESTATE OF

PAUL CARBONE, Deceased, and

CYNTHIA CARBONE and her husband,

STEPHEN CARBONE, individually,

Plaintiffs-Appellants,

v.

KONSTANTINOS POTOURIDIS, MICHELLE

POTOURIDIS, JOHN MANNARINO,

ANTONIO MANNARINO, and

JAMES CAVALLARO,

Defendants-Respondents,

and

LIBERTY MUTUAL FIRE INSURANCE CO.,

Respondent.

___________________________________

February 19, 2014

Argued October 2, 2013 Decided

Before Judges Sapp-Peterson and Lihotz.

On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-4827-09.

John S. Voynick, Jr., argued the cause for appellants (Renda & Voynick, attorneys; Mr. Voynick, of counsel and on the brief; Michelle Joy Munsat, on the brief).

Stephen O. Mortenson argued the cause for respondent estate of Konstantinos Potouridis (Ruprecht Hart Weeks & Ricciardulli, LLP, attorneys; Mr. Mortenson, on the brief).

Mario Colitti argued the cause for respondent Michelle Potouridis (Viscomi & Lyons, attorneys; Frank A. Viscomi, on the brief).

William P. Krauss argued the cause for respondent Liberty Mutual Fire Insurance Co. (Connell Foley, LLP, attorneys; Mr. Krauss, of counsel and on the brief).

PER CURIAM

In this appeal, plaintiff Cynthia Carbone, as administratrix of her late son, Paul Carbone's estate and individually, along with her husband, Stephen Carbone (collectively referred to as "plaintiffs"), seek to overturn the post-judgment order entered denying their motion to bar any attorney selected by defendant Liberty Mutual to represent defendant Michelle Potouridis and the estate of her late son, Konstantinos Potouridis ("the Estate") in connection with plaintiffs' attempt to collect the balance of a $471,289.36 judgment they obtained following a jury trial, against Konstantinos and others.1 We affirm.

The judgment arose from a July 10, 2007 motor vehicle accident. Paul was a passenger in a motor vehicle operated by Konstantinos. The post-accident investigation revealed Konstantinos had operated his vehicle at such a high rate of speed he was unable to negotiate a curve in the roadway. He lost control of his vehicle, which spun clockwise ninety degrees, struck the curb and a utility pole, went airborne, hit the ground, went airborne again before striking another pole and finally landed on its roof. Paul and Konstantinos were killed instantly.

At the time of the accident, Konstantinos's vehicle, owned by Michelle, was insured by Liberty Mutual. Within months of the accident, plaintiffs attempted to settle their claims against Konstantinos and Michelle, but were unsuccessful. Plaintiffs requested that Liberty Mutual offer the policy limits and provided an Offer to Take Judgment for $250,000. Liberty Mutual did not respond to any of these requests until May 9, 2011, the first day of trial. Plaintiffs rejected the offer extended at that time. The jury awarded plaintiffs $625,000 in damages. It apportioned Konstantinos's liability at 70%, and the remaining 30% to the other defendants.2 Pursuant to Rule 4:42-11(b) and Rule 4:58-2(a) the court awarded plaintiffs pre-judgment interest in the amount of $33,789.36. The court entered judgment against the Estate totaling $471,289.36. Thereafter, Liberty Mutual deposited $250,000 into court, leaving $221,289.36 due and owing to plaintiffs.

On February 16, 2012, plaintiffs' counsel forwarded correspondence to Liberty Mutual's attorney, William P. Krauss, detailing the procedural history surrounding plaintiffs' efforts to resolve their claims with Liberty Mutual. These attempts began prior to filing their complaint and continued up to the day of the trial. The correspondence also noted the outstanding $221,289.36 due on the judgment, exclusive of post-judgment interest and expressed plaintiffs' willingness to "accept the sum of $221,289.36 without post-judgment interest to resolve all claims against Liberty [Mutual] for failing to act in good faith and resolve the matter within the policy limits."

In a March 14, 2012 written response to this correspondence, Krauss stated that Liberty Mutual "at all times acted in good faith in its evaluation of this matter including the offer of policy limits of $250,000 made before trial." Krauss also advised plaintiffs that "Liberty Mutual's policyholder continues to be represented by counsel Frank E. Viscomi, Esq. Any correspondence on behalf of your client to Liberty Mutual's policyholder should be addressed to Mr. Viscomi."

By letter dated March 20, 2012, plaintiffs asserted that Viscomi's continued representation of defendants would constitute an impermissible conflict because Viscomi also represented Liberty Mutual. In his April 11, 2012 responding letter to plaintiffs' counsel, Krauss disagreed with plaintiffs' assertion that Viscomi's continued representation of Michelle, as the representative of the Estate, was a conflict of interest and reiterated Viscomi did not represent Liberty Mutual.

On July 11, 2012, plaintiffs filed a motion seeking to bar Viscomi, any attorney from his law firm, and any attorney chosen by Liberty Mutual from representing defendants in any action to collect the judgment. Liberty Mutual opposed the motion. In support of its opposition, Krauss submitted a certification in which he stated that he, not Viscomi, represented Liberty Mutual, and that:

In response to the threat of collection efforts against the Potouridis family by the Plaintiffs, Liberty Mutual obtained the services of Stephen O. Mortenson, Esq.[,] to represent the interests of the Estate in connection with the threatened efforts to collect the balance of the judgment in this matter. Ms. Potouridis, as the administrator of the Estate of her deceased son, agreed to the representation offered.

Mortenson also submitted a certification outlining his qualifications and experiences in handling litigation, insurance matters, and ethical matters. He stated that he had no professional relationship with Liberty Mutual and although it was compensating him for representing the Estate, he was "fully familiar with the ethical and legal obligations of an attorney retained to represent the interests of an insured where the potential for a conflict with the insurance carrier exists."

Finally, Michelle submitted a certification acknowledging that Viscomi represented her individually and had also represented the Estate during the underlying lawsuit. She expressed her satisfaction with his representation. She stated that in April 2012, Viscomi advised her another attorney would be appointed to represent the Estate, but that he would continue to represent her individually.

Without revealing the substance of the conversations, she certified that she had engaged in a number of telephone conversations with Mortenson and that on June 5, 2012, she and her husband personally met with Mortenson for more than one hour, during which time he explained why he had been retained as a separate attorney to represent the Estate. In her certification, Michelle also stated she and her husband "felt comfortable that Mr. Mortenson had answered all of our questions and given us the information that we needed."

Michelle certified that after taking some time to arrive at a decision, she contacted Mortenson's office on July 17, 2012, and advised him that she did not wish to sign an assignment of rights in this case. She indicated that she met with Mortenson once again the following month during which time she reiterated that she and her husband did not wish to sign an assignment of rights:

We told him, as we had told him in July, that this was an independent decision that my husband and I came to based on the information that had been given to us by Mr. Mortenson and previously by Mr. Viscomi, but it was entirely independent of that information. I thought it was especially important to express to Mr. Mortenson and now, in this Certification to the Court, my strong discomfort with giving the rights of my son, Dean's estate to anyone.

My son did not leave a will when he died. Thus, I would be the administrator of his estate, if there were any estate to administer. I fully understand that it [is] my right to either agree to sign an assignment of rights or not to agree to do so, and after much thought and careful consideration and with the full agreement of my husband, I have decided not to do so.

In his statement of reasons included with the August 17, 2012 order, the judge stated, as he had expressed on the record, although Viscomi was representing both the Estate and Michelle at the time the disqualification motion was filed, Liberty Mutual had retained Mortenson to represent the Estate by the return date of the motion. Thus, the judge expressed that he was treating the motion as one to disqualify Mortenson and his law firm. He stated that while Mortenson's advice to Michelle, in her capacity as the Estate's representative, "may well have been a conflict," the conflict was waivable under RPC 1.7(b) andthat Mortenson had "obtained informed consent from the representative of the Estate[.]" The judge further stated:

[T]o appoint a[n] independent third lawyer to represent or advise the representative of the [E]state, even if this were permissible and were possible who would pay the third lawyer? It would be unfair to Ms. Potouridis who has already lost her son, and has told two lawyers that she does not want to continue this litigation.

The present appeal followed.

On appeal, plaintiffs contend the court erred, as a matter of law, in concluding that any conflict had been waived and that Michelle had given her informed consent to waive the conflict. Additionally, plaintiffs contend the fact that the Estate had no assets did not preclude their action against Liberty Mutual based upon its bad faith actions in failing to settle plaintiffs' claims within its insureds' policy limits. We have considered these contentions in light of the record, arguments advanced, and governing legal principles. We reject each of the arguments advanced.

Initially, we address the standard of review, which guides our disposition of the issues raised on appeal. Unquestionably, the determination of whether an attorney should be disqualified is a question of law, subject to our de novo review. City of Atl. City v. Trupos, 201 N.J. 447, 463 (2010). In reaching that decision, however, the court "ordinarily" considers "the affidavits and documentary evidence submitted," and will not conduct an evidentiary hearing where findings of fact must be made unless "the court cannot with confidence decide the issue on the basis of the information contained in those papers[.]" Id. at 463 (citing Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 222 (1988)). Here, plaintiffs presented no affidavits or documentary evidence contradicting the certifications and documentary evidence submitted by the Estate or Liberty Mutual. Thus, resolution of the dispute only implicates questions of law, for which our de novo standard of review is triggered.

Our Supreme Court has definitively held that no conflict of interest is created when an insurance company retains an attorney to represent its insured and compensates that attorney for the services rendered on behalf of that insured. Lieberman v. Emp'rs Ins. of Wausau, 84 N.J. 325, 338 (1980). While acknowledging the "triadic" relationship which exists between and amongst the insurer, the insured, and the attorney retained to represent the insured and the insurer's interest, the Court made clear that

defense counsel owes the insured the same unqualified loyalty as if he had been personally retained by the insured. The loyalty to the insured may actually even be paramount since that defense is the sole reason for the attorney's representation. There is no diminishment in the ethical obligations and standard of care applicable to insurance defense counsel.

[Id. at 338 (internal quotation marks and citations omitted); see also Montanez v. Irizarry-Rodriguez, 273 N.J. Super. 276, 286 (App. Div. 1994).]

Nonetheless, the Rules of Professional Conduct (RPC), prohibit an attorney from representing a client if the "representation involves a concurrent conflict of interest." RPC 1.7(a). A concurrent conflict exists if: (1) "the representation of one client will be directly adverse to another client," or (2) if "there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client, or a third person or by a personal interest of the lawyer." Ibid. RPC 1.7(a)(1) and (2) must be read together with RPC 1.8(f) and RPC 5.4(c). In re State Grand Jury Investigation, 200 N.J. 481, 494 (2009). The Court noted in In re State Grand Jury that RPC 1.8(f), "makes clear that three factors must coalesce in order to allow a lawyer paid by a third party to represent a client: the client must give informed consent; the lawyer's independent professional judgment and the lawyer-client relationship must be maintained sacrosanct; and no improper disclosures relating or referring to the representation can be made." Id. at 494-95. RPC 5.4(c) states: "A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services."

Here, plaintiff urges that the conflict of interest is created by virtue of two undisputed facts. First, Liberty Mutual retained both Viscomi and later Mortenson, and is compensating them for the services provided on behalf of the insureds. Second, at this point in the litigation, there remains one issue for which the attorneys are providing legal representation, namely, to advise plaintiffs whether they should maintain an action against Liberty Mutual for refusing to settle the underlying litigation within its policy limits. Because the attorneys are being compensated by Liberty Mutual, plaintiffs urge their interests are adverse to their clients and this conflict cannot be waived. We disagree.

At the outset, there is no concurrent conflict of interest because neither Viscomi in the underlying action nor Mortenson in the context of any post judgment action, represent Liberty Mutual. Lieberman, supra, 84 N.J. at 338. As noted earlier, the fact that Liberty Mutual has retained counsel on behalf of the insureds and is compensating them for their legal representation of defendants, standing alone, creates no conflict of interest. Id. at 338-40. We acknowledge, as we did in Montanez, supra, that such a relationship "creates difficult ethical problems." 273 N.J Super. at 286. Nonetheless, it remains clear that that "insurance counsel is required to represent the insured's interest as if the insured hired counsel directly." Ibid. Nothing in the record before the trial court evidenced any conduct or circumstances that either Viscomi, in the first instance, and thereafter Mortenson, offended this principle in their advice and counsel on behalf of the insureds.

Moreover, while Liberty Mutual disagrees that there was a conflict of interest, out of an abundance of caution, it retained Mortenson to represent the interests of the Estate, while Viscomi continued to represent Michelle's interests in her individual capacity. The certifications submitted by Mortenson and Michelle, demonstrate that even if we were to conclude that the nature of the attorney-client relationship between Mortenson and the Estate created a conflict, there was a clear waiver of any conflict when examined pursuant to the factors the Court articulated in In re State Grand Jury, supra, 200 N.J. at 495. Mortenson explained to Michelle the reason why he had been retained as separate counsel for the Estate, the nature of an assignment of rights, and other factors to assist her in determining whether she would elect to execute an assignment of rights to plaintiffs. Ibid. There is no evidence in the record that Liberty Mutual attempted to direct, regulate or interfere with Viscomi's or Mortenson's judgment in representing Michelle. Ibid. There is no and has not been an attorney-client relationship between Liberty Mutual and Mortenson. Ibid. Mortenson certified that he was fully aware that his loyalty and his ethical obligations are to the Estate and not to Liberty Mutual. Further, there is no evidence in the record to suggest that Mortenson has been in communication with Liberty Mutual as to the substance of his legal representation of the Estate. Ibid. Finally, there is no indication that Liberty Mutual has declined to pay any legal bills submitted by Mortenson. Ibid. Thus, under these circumstances, even if we were to have found that a conflict exists, a valid waiver of such conflict has occurred.

Finally, we find no merit to plaintiffs' contention that the certification upon which the judge relied in finding that Michelle gave informed consent was unreliable because there were a number of factors that Michelle should have considered before giving informed consent, which plaintiffs' counsel believed were not discussed with her including: (1) "she and her family would not have had to endure the rigors of trial if Liberty Mutual had offered its policy limit during the four and one-half years prior to the day of trial"; (2) "of all the facts which formed the basis of the Rova Farms3 suit outlined in his correspondence to Liberty Mutual"; (3) "Liberty Mutual failed to negotiate in good faith by waiting until an hour prior to jury selection to offer its policy limit"; (4) the proceeds of the lawsuit against Liberty Mutual can be apportioned between the [E]state of her son and [E]state of Carbone, thereby bringing a potential large sum of money to the estate of her son"; and (5) she "would not necessarily have to be involved at all in the case other than assigning an assignment, as a litigation would proceed without her because really her testimony would be . . . of no great import in the . . . Rova Farms case."

In her certification Michelle stated that Mortenson discussed the concept of Rova Farms and assignment of rights. She stated that Mortenson also explained the meaning of an excess verdict and the liability of all parties with respect to the excess verdict, her son's assets, and her satisfaction with the legal representation provided on her behalf by both Viscomi and Mortenson. In view of Michelle's statements contained in her certification plaintiffs' counsel's assertions as to what Michelle was not told or what she did not understand are nothing more than speculative assertions insufficient to defeat the undisputed facts stated in Michelle's certifications, given with the knowledge she is subject to punishment for any willfully false statement.

1 Because the parties bear the same surnames, we refer to them by their first names. In doing so, we intend no disrespect.

2 The jury assessed no liability against Michelle or Anthony Mannarino. Prior to trial Mannarino entered into a high/low settlement agreement with plaintiffs, thus dismissing him from the case.

3 See Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474 (1974).