LICETTE MUSIC CORP FAIRYLAND MUSIC CORP and DORTON MUSIC CORP v. SILLS, CUMMIS, ZUCKERMAN RADIN, TISCHMAN, EPSTEIN & GROSS, P.A., PAUL F. DODA ESQ., JOSEPH L. BUCKLEY, ESQ and ANDREW PETER NAPOLITANO, ESQ and ANDREW PETER NAPOLITANO v. LENTZ &

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-6595-06T26595-06T2

LICETTE MUSIC CORP.,

FAIRYLAND MUSIC CORP.

and DORTON MUSIC CORP.,

Plaintiffs-Appellants,

v.

SILLS, CUMMIS, ZUCKERMAN,

RADIN, TISCHMAN, EPSTEIN &

GROSS, P.A., PAUL F. DODA,

ESQ., JOSEPH L. BUCKLEY, ESQ.

and ANDREW PETER NAPOLITANO, ESQ.,

Defendants-Respondents,

and

ANDREW PETER NAPOLITANO,

Defendant/Third-Party

Plaintiff,

v.

LENTZ & GENGARO, a Partnership,

CHRISTOPHER P. GENGARO, DAVID

LENTZ and REED SMITH LLP,

Third-Party Defendants.

__________________________________________

 

Argued February 11, 2009 - Decided

Before Judges Stern, A. A. Rodr guez and

Payne.

On appeal from Superior Court of New Jersey,

Law Division, Essex County, Docket No.

L-1469-99.

Glenn A. Bergenfield argued the cause for

appellants.

Stephen R. Long argued the cause for

respondents (Drinker Biddle & Reath

LLP, attorneys; Mr. Long and Michael

C. Zogby on the brief).

PER CURIAM

Plaintiffs, Licette Music Corp., Fairyland Music Corp. and Dorton Music Corp. (collectively, Licette or plaintiffs), appeal from an order of summary judgment dismissing plaintiffs' claims against the defendant law firm of Sills, Cummis, Zuckerman, Radin, Tischman, Epstein & Gross, seeking to hold the firm vicariously liable for alleged acts of legal malpractice committed by defendant Andrew Napolitano while a member of the firm.

I.

This suit had its origins in April 1972 when the plaintiff corporations filed suit in the Supreme Court of New York against Abraham Massler and A.A. Records, alleging that defendants committed breach of contract and fraud when they failed to pay royalties on the rights to children's music owned by plaintiffs and committed other acts resulting in a massive underreporting of royalties due to plaintiffs. Jack Benanty, the founder of the plaintiff companies, initiated the suit. Following his death in 1989, his son, Charles Benanty, began managing the litigation.

In April 1992, the New York court ruled in plaintiffs' favor, entering a judgment against defendants in the amount of $4,553,342.42 on the breach of contract claim and $4,948,855.27 on the claim of fraud. In order to collect on the judgments, plaintiffs sought to institute actions in Florida and New Jersey, states where Massler was alleged to own property. In 1993, plaintiffs retained the Sills firm to collect on the New York judgments by executing on property located in New Jersey. On March 30, 1993, Sills filed an action in the Law Division, Somerset County. The judgments were domesticated, and collection efforts were commenced through a levy on master tapes located at a New Jersey warehouse. Joseph Buckley, a member of the Sills firm, oversaw the litigation. He was assisted at various times by attorneys Mark Duckstein and Paul Doda.

Through discovery, it was determined that real estate located in Mountainside and Fairfield, New Jersey may have been fraudulently transferred by Massler to avoid payment of the judgments. In the Fall of 1994, Benanty proposed that Buckley bring suit on a contingency basis to void the transfers. Buckley refused to proceed on that basis, but did prepare a complaint on Benanty's behalf. Additionally, Buckley referred Benanty to Christopher Gengaro, a former Sills attorney and the husband of a member of the Sills firm, as a potential attorney in the matter. As a result, the firm of Lentz & Gengaro was retained.

A complaint alleging fraudulent conveyance by Massler and various other individuals and entities was filed by Gengaro in the Chancery Division, Union County, on August 15, 1995. The action was subsequently dismissed by Judge John Boyle as barred by the applicable statute of limitations.

Following dismissal of the suit, in May 1996, Benanty retained Napolitano, then a member of the firm Reed Smith, to seek reconsideration of the judge's decision. After briefing and oral argument had occurred, the judge determined that the discovery rule was applicable to the matter, restored the action, and ordered that a Lopez hearing be conducted to determine when plaintiffs knew or should have known of facts that would equate in law with a cause of action. A Special Master was appointed for the purpose of conducting the Lopez hearing and making recommendations as to its outcome.

During the summer of 1996, Gengaro advised Benanty that the Sills firm might have committed legal malpractice in failing to recognize the dates upon which the statute of limitations would bar suit with respect to the various properties. It was determined by Gengaro and Napolitano that, in accordance with then-existing law, at a minimum, notice of the potential claim needed to be given to Sills and Judge Boyle. Accordingly, either Gengaro or Napolitano drafted a letter for Benanti's signature, addressed to Buckley, in which he informed Buckley of the potential claim. That letter, dated August 27, 1996, provided further:

I have enjoyed our professional relationship and your patience, and have been generally pleased with the services your law firm provided, in particular, that of Paul Doda and his conscientious and dedicated job that he has performed on my behalf.

Nevertheless, in light of this confusing but very real possibility [of a malpractice claim], I have to request that you withdraw as my attorney in the Fair Mark[et] Value Hearing and transfer the file to Lentz & Gengaro.

Upon receipt of Benanty's letter, the Sills firm notified its carrier of the potential claim, and it withdrew from the litigation in Somerset and Union Counties in September 1996. Thereafter, the firm of Lentz & Gengaro appeared for Licette as counsel of record. At the time that Sills withdrew from the litigation, approximately $75,000 in legal fees was owed by Licette to Sills, and had been owed for a considerable time. Napolitano, while still an attorney with Reed Smith, advised payment, and the bill was eventually compromised.

In May 1997, Napolitano joined the Sills firm as a member. In an employment contract, effective May 1, 1997, Napolitano agreed with the firm's statement with respect to fees and other income:

All fees for legal services rendered and all other income you may receive in connection with your activities as an attorney (including from lecturing and authorship) commencing 1 May 1997 will be the property of the Corporation. You will bill clients at such rates as may be mutually agreed upon between us, taking into account the general Member billing structure at this firm.

Napolitano also agreed:

Income earned by you from lecturing and authorship will belong to the Firm . . . but it is agreed you may retain that income as you collect it the total will be credited against any year-end bonus awarded to you.

Additionally, in the agreement, Napolitano stated that he had delivered to the Firm a list of all of his potential clients. However, no such list has been located at Sills, and Napolitano has denied retaining a copy. Napolitano testified at his deposition that he "doubted" that he mentioned his role in the Licette litigation in negotiations with Sills.

Napolitano informed Benanty of his impending move to Sills. At the time, according to Benanty, Napolitano was:

Running the lawsuit. Everything from making the highest level strategic decision to the lowest of an administrative letter to a clerk of the court.

Strategically it was Napolitano in my book. I have to say from the time that Boyle reversed and reinstated the case or whatever, reopened the case, from that point on Napolitano was my man. He was the guy

. . . that I listened to.

The record indicates that Benanty wished Napolitano to continue his role in the litigation after joining the Sills firm. According to Benanty's deposition testimony, Napolitano proposed that the Sills firm would represent Licette as lead attorneys if Benanty agreed to fire Lentz & Gengaro. Upon Benanty's refusal, Napolitano offered to act as lead consulting attorney, so long as all work was done under Lentz & Gengaro's name.

Napolitano testified that he had discussed with Benanty the fact that Sills could not and would not take the Licette case back. Benanty had fired the firm, and the firm had washed its hands of him. Napolitano testified that "[i]t would have required a significant change in [the Sills firm's] thinking and in Mr. Benanty's thinking about each other for [the firm] to have represented him." A private consultancy arrangement was the result. In Napolitano's view, the payments to him made by Benanty for his services as a consultant did not constitute fees for legal services, and he was never called upon by Sills to account for them.

Other members of the Sills firm also testified on the subject of Napolitano's representation of Licette. Buckley stated that he was approached by Napolitano, who suggested the possibility of representation and wished to know whether he would get origination credit for Buckley's former client. Buckley responded by noting the fee collection difficulties experienced by the firm and the conflict of interest existing as the result of Benanty's potential malpractice claim. He stated that representation by the firm was unlikely, but that if it occurred, Buckley would waive any right to origination credit. In a certification submitted in the present matter, Buckley noted that, after Napolitano joined the Sills firm, no notice of appearance by the firm was filed in either the Union County or the Somerset County cases.

Charles Demski, chair of the firm's Professional Responsibility Committee and a member of its Management Committee testified that if Napolitano had wished to bring in Licette as a client, he would have had to obtain the firm's permission as the result of the conflict of interest. Demski testified that Buckley inquired about the possibility of representation, and Demski replied that Benanty would have to waive his right to sue Sills in order for such representation to occur. According to Demski, the matter was not pursued further, and permission to represent Licette was not obtained either from the Professional Responsibility Committee or the Management Committee, to which the ultimate decision would have been entrusted. Demski testified further that a search had not disclosed a list of Napolitano's clients when he entered the firm. No file had been opened naming Licette as a client, and no hours had been billed to Licette. Demski confirmed that no attorney could do legal work at Sills unless a file had been opened, a retainer letter had been sent, and a conflicts check had been completed.

Nonetheless, it is clear that Napolitano did represent Licette while a member of the Sills firm, obtaining lump-sum payments by check from Benanty made payable to Napolitano and negotiated personally by him. A total of $39,000 was paid in this fashion. Benanty testified that Napolitano's secretary would call him to request payment, and that no bills or itemized statements of work performed were ever furnished. None of the money was ever transferred by Napolitano to the Sills firm, although Napolitano testified that fees for all other cases in which he acted as a consultant were paid to Sills. Napolitano testified with respect to his fee that "[i]t never occurred to me that it would be of concern to [the firm]." No written agreement with respect to representation was signed and no retainer was forwarded to Benanty.

In contrast to the arrangement with Napolitano, in all previous representation by the various firms that Benanty had retained in connection with the litigation, he had been provided with a retainer agreement and received itemized bills on the firm's letterhead. In general, Benanty stated that he remitted payment to the firm submitting the bill, although he stated that, on occasion, he mistakenly made out his check to the attorney performing the work.

Despite the fact that Benanty's arrangement with Napolitano did not resemble any other legal representation in which Benanty had engaged, despite the conflict of interest created by Benanty's potential malpractice claim, and despite Benanty's acknowledgment that ill feelings existed at Sills because of his potential malpractice claim and his demand that Sills withdraw from representation of Licette, Benanty testified that he understood that the Sills firm represented him in the Union County action. He stated that he did not view Napolitano's procedures as odd, because Napolitano had bragged repeatedly about being able to write his own ticket while at Sills. Benanty regarded the arrangement for Licette's representation as a manifestation of Napolitano's influence in the firm.

Prior to the Lopez hearing, Napolitano unquestionably utilized firm resources in his role as consulting attorney to Benanty and Licette. Gengaro testified that, on one occasion, he sent Lentz & Gengaro letterhead to Napolitano for his use in submitting a letter brief, allegedly written by a Sills associate, to the Special Master. The firm was the site of four depositions of witnesses in connection with the Lopez matter, and on one occasion, the face sheet of a deposition transcript indicates that the Sills firm, by Napolitano, appeared with Gengaro on behalf of plaintiffs. Additionally, meetings with Benanty occurred in Sills' offices, and the Sills firm's letterhead was utilized by Napolitano in three letters to Judge Boyle dated October 21, 1997, October 29, 1997 and November 13, 1997 regarding scheduling.

Further, there is no question but that Buckley, Doda and Gengaro's wife were aware that Napolitano had a continuing role of some sort in the Licette litigation. Testimony by Benanty indicated that Doda had offered to help in the litigation, although there is no evidence in the record as to whether the offer was accepted. Buckley did not recall seeing Benanty at Sills after Napolitano joined the firm, and he was unaware that Napolitano was meeting with Benanty at the firm's offices. However he testified that he had heard, probably from Gengaro, that Napolitano had "some carryover relationship, personal relationship with Benanty, where he felt that he needed to give advice or hold Benanty's hand in some way during proceedings in which Chris Gengaro would be the principal attorney." Buckley understood Napolitano's role to be "unofficial." He did not know that Napolitano was being paid, and thought he was merely helping out a friend.

Napolitano testified that he frequently discussed the case with Buckley and Doda, but he did not specify the content of the conversations, except to say that he had discussed the Lopez hearing with Buckley, which Buckley confirmed. Napolitano also testified that he had informed Doda that it was likely that his deposition would be taken in the matter. Napolitano indicated that Gengaro's wife and Duckstein also understood that he was acting in a consulting capacity in the Licette litigation.

Buckley testified that Gengaro asked Buckley to confirm that Sills had not been retained to represent Licette after Napolitano had joined the firm. After checking the firm's records management and computer systems and talking to various firm members, but not Napolitano, Buckley confirmed that the firm had not been retained. Buckley stated that he pursued the matter to satisfy himself on the representation issue. Buckley testified:

I believe[d] that the firm had not been engaged through Napolitano, that Napolitano was had some kind of special friendship with Benanty that caused him to talk to Benanty about the matters that were going on, but that he had one real lawyer and that was Lentz & Gengaro.

Gengaro also gave testimony on this subject. Gengaro observed that he didn't think that Napolitano publicized the fact that he was working on Licette, although Napolitano never instructed Gengaro to keep the matter a secret. Gengaro stated:

to me there was always some impropriety on his part, quite candidly, in doing this, you know. And so I don't know if I thought of what he was doing in terms of gee, that's a conflict of interest, so much as, you know, what's the big secret? Why are you representing him but yet it can't be on the caption? I mean this all was like very uncommon.

Following the Lopez hearing, conducted between July 29 and August 1, 1997, on October 31, 1997, the Special Master rendered a decision in which she found plaintiffs' action with respect to two of the properties was barred by the statute of limitations. Napolitano advised against contesting her recommendations either before Judge Boyle, whom Napolitano believed would ratify the Special Master's report, or in the Appellate Division. Thereafter, upon Napolitano's advice, a settlement was reached in the Union County action, and ownership of the one remaining property was transferred to plaintiffs. A stipulation of dismissal was filed on July 23, 1998.

On February 8, 1999, plaintiffs filed their initial legal malpractice complaint against their Florida lawyers, the Sills firm, and attorneys Duckstein, Doda and Buckley. With respect to the Sills defendants, plaintiffs claimed that they had failed to file a complaint for fraudulent conveyance and encumbrance against Massler and A.A. records in a timely fashion, and failed to advise the plaintiffs that the statute of limitations was running during the period of the firm's representation.

In a first amended complaint dated March 25, 2002, claims against the Florida attorneys were deleted as the result of settlement, and a claim was added against Napolitano. With respect to Napolitano, the first amended complaint stated:

18. It appears that the decision of the Special Master contained an error in . . . computing the statute of limitations concerning 1 011 Route 22 Mountainside, New Jersey property.

19. Based upon the decision of the Special Master, and the failure to discover the error, Defendant, Napolitano, advised the Plaintiffs to relinquish [their] claims against the 1 011 Route 22 Mountainside, New Jersey property.

20. Based upon the advice of Defendant, Napolitano, Plaintiffs settled the Union County action for far less than they should have received, had they gotten proper legal advice.

21. Defendant, Napolitano, failed to advise the Plaintiff that it may have a valid claim for the imposition of a constructive trust against the members of the Massler family, including Howard Massler.

As a consequence of the negligence of Napolitano, it was alleged additionally that no appeal was taken from the Special Master's decision. Respondeat superior liability was asserted on the part of the Sills firm as the result of Napolitano's conduct. Following the filing of the first amended complaint, Napolitano filed a third-party complaint against David Lentz, Gengaro, and their firm.

In a second amended complaint, plaintiffs also alleged negligence occurring as the result of failing to advise plaintiffs that a conflict of interest existed in the continued representation of plaintiffs by Sills and Napolitano. Napolitano was also alleged to have wrongly advised plaintiffs to pay outstanding Sills' bills in the approximate amount of $75,000 despite knowledge of Sills' malpractice.

Plaintiffs' claims against Duckstein were voluntarily dismissed. Thereafter, summary judgment was granted in favor of Buckley and Doda, leaving only the claims of vicarious liability on the part of Sills as the result of Napolitano's conduct, the claims against Napolitano, and Napolitano's third-party action.

On March 30, 2007, Sills moved for summary judgment on plaintiffs' claim of vicarious liability for the acts of Napolitano. The motion was granted after the motion judge concluded:

Much debate has gone on in the papers about what Mr. Benanty did or did not know. In the court's view that's an irrelevant debate. Both Mr. Napolitano and Sills, Cummis agree Mr. Napolitano did not have any actual authority to represent Licette Music or Mr. Benanty. To the extent the argument is made regarding apparent authority, the court notes in this case no bills went to Mr. Benanty from Sills, Cummis. Mr. Benanty never paid Sills, Cummis. He made payments to Andy Napolitano himself. And, most importantly, there is nothing in this record that indicates that Mr. Benanty relied upon Mr. Napolitano being at Sills, Cummis in connection with his actions. And, in fact, the record shows the complete opposite. Mr. Benanty himself made clear he did not care where he was, he just wanted Mr. Napolitano.

On May 7, 2007, a settlement was reached between plaintiffs, the Sills firm and Napolitano, as well as on Napolitano's third-party claims. This appeal followed. In it, plaintiffs contest only the finding on the issue of vicarious liability.

II.

The Professional Service Corporations Act provides that a "professional corporation shall be liable up to the full value of its property for any negligent or wrongful acts or misconduct committed by any of its officers, shareholders, agents or employees while they are engaged on behalf of the corporation in the rendering of professional service." N.J.S.A. 14A:17-8.

The Restatement (Third) of the Law Governing Lawyers 58 (2000) similarly provides:

(1) A law firm is subject to civil liability for injury legally caused to a person by any wrongful act or omission of any principal or employee of the firm who was acting in the ordinary course of the firm's business or with actual or apparent authority.

Comment d. to that section states:

Even when liability results from the act of a firm's principal or employee that was not within actual or apparent authority, the firm . . . is liable if the act was in the ordinary course of the firm's business (see Revised Uniform Partnership Act 305 (1993); Uniform Partnership Act 13; Restatement Second, Agency 219). When an actor has apparent authority to act for the firm and an injured person has relied on that authority, the firm is subject to liability for certain of the actor's torts, for example negligence and fraud, and on contracts the actor entered into. Restatement Second, Agency 159, 219, 248, 254, 257, 261, 265 and 267.

The references to the Restatement (Second) of Agency set forth above have been superseded as the result of the publication of the Restatement (Third) of Agency (2006). Section 7.07 is relevant in the present context, since it provides:

(1) An employer is subject to vicarious liability for a tort committed by its employee acting within the scope of employment.

(2) An employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer's control. An employee's act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer.

This section is explained in comment b., which states:

An employee's conduct, although tortious, may be within the scope of employment as defined in subsection (2). If an employee commits a tort while performing work assigned by the employer or while acting within a course of conduct subject to the employer's control, the employee's conduct is within the scope of employment unless the employee was engaged in an independent course of conduct not intended to further any purpose of the employer.

See also Restatement (Second) of Agency 228.

In accordance with the Restatement (Second) of Agency, the New Jersey Supreme Court has held that, in order for an act to be found within the scope of the actor's employment, it must be of the kind that the agent or servant is employed to perform; it must occur within the authorized time and space limits; and it must be actuated, at least in part, by a purpose to serve the master. See, e.g., Carter v. Reynolds, 175 N.J. 402, 410-12 (2003); Abbamont v. Piscataway Bd. of Educ., 138 N.J. 405, 416 (1994); Di Cosala v. Kay, 91 N.J. 159, 169 (1982).

Application of the principles that we have set forth compels us to conclude as a matter of law that Napolitano was not acting within the scope of his employment in his representation of Licette because there is no evidence in the record that, in assuming the role of consultant, Napolitano was actuated to any extent by a purpose to serve the Sills firm. It might be argued that Napolitano's work indirectly benefited Sills because its purpose was to undercut Judge Boyle's initial conclusion that Licette's fraudulent transfer claims were barred by the statute of limitations and, concomitantly, to remove the foundation for the potential malpractice claim by plaintiffs against Sills. The difficulty with this argument is that, viewing the record in a light most favorable to plaintiffs, Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995), there is no evidence that Napolitano harbored such a dual purpose or that he substantively considered the potential malpractice claim at all when agreeing to advise Benanty in a consulting capacity and when fulfilling that role. The evidence suggests that Napolitano entered into his agreement with Benanty solely to benefit Benanty and himself, and did not engage in the representation in order to benefit Sills. Thus Sills cannot be held liable on this basis. Staron v. Weinstein, 305 N.J. Super. 236, 240 (App. Div. 1997) (discussing Homa v. Friendly Mobile Manor, Inc. 612 A.2d 322, 334 (Md. App. 1992), cert. granted, 617 A.2d 1085, and cert. dismissed, 624 A.2d 490 (1993)), certif. denied, 153 N.J. 214 (1998); see also Podolan v. Idaho Legal Servs., 854 P.2d 280, 287-88 (Idaho Ct. App. 1993).

We now turn to the issue of whether the Sills firm can be held liable for Napolitano's conduct in connection with his representation of Licette on theories of actual or apparent authority. "When an agent acts with actual authority, the agent reasonably believes, in accordance with manifestations of the principal, that the principal wishes the agent so to act." Restatement (Third) of Agency 7.04 cmt. b. We find no evidence of actual authority to exist. As Demski testified, as the result of the conflict of interest that arose from Licette's potential legal malpractice claim, in order for Napolitano to obtain authorization to represent Licette, he would have to have obtained the authorization of the firm's Professional Responsibility Committee and its Management Committee. Neither was formally sought, nor obtained. No conflicts check was performed, no file was opened, no retainer letter was prepared, no hours were billed to the case, and no bills were issued by the firm. Thus no actual or implied evidence of actual authority has been presented. We reject plaintiffs' position that evidence of Napolitano's actual authority to practice law while a Sills suffices in this circumstance. It has been demonstrated in this case that authority to provide legal representation was determined at Sills on a case-by-case basis. We discern no reason to depart from this practice in connection with our legal analysis.

Under New Jersey precedent, an employer can be held vicariously liable for the torts of its employee, even when the employee was acting outside the scope of his employment if "the servant purported to act or to speak on behalf of the principal and there was reliance upon apparent authority, or he was aided in accomplishing the tort by the existence of the agency relation." Hardwicke v. American Boychoir, 188 N.J. 69, 101 and n.13 (2006) (quoting Restatement (Second) of Agency 219); see also Restatement (Third) of Agency, 2.03 and 3.03; Gaines v. Bellino, 173 N.J. 301, 312 (2002). To establish apparent authority, plaintiffs were required to establish:

(1) that the principal has manifested his consent to the exercise of such authority or has knowingly permitted the agent to assume the exercise of such authority; (2) that the third person knew of the facts and, acting in good faith, had reason to believe, and did actually believe, that the agent possessed such authority; and (3) that the third person, relying on such appearance of authority, has changed his position and will be injured or suffer loss if the act done or transaction executed by the agent does not bind the principal.

[Staron, supra, 305 N.J. Super. at 240 (quoting Homa, supra, 612 A.2d at 335 (quoting 3 Am. Jur 2d Agency 80)).

With respect to the second condition, "The key question 'is whether the principal has by his voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question.'" Basil v. Wolf, 193 N.J. 38, 67 (2007) (quoting Hudson Coop. Loan Ass'n v. Horowytz, 116 N.J.L. 605, 608 (Sup. Ct. 1936)). This requirement has been summarized in the Restatement (Third) of Agency as follows:

Th[is] doctrine . . . applies to any set of circumstances under which it is reasonable for a third party to believe that an agent has authority, so long as the belief is traceable to manifestations of the principal. A principal's conduct does not occur in a vacuum. A third party's reasonable understanding of the principal's conduct will reflect general business custom as well as usage that is particular to the principal's industry and prior dealings between the parties. A belief that results solely from the statements or other conduct of the agent, unsupported by any manifestations traceable to the principal, does not create apparent authority unless

. . . the agent's conduct has been directed by the principal. An agent's success in misleading the third party as to the existence of actual authority does not in itself make the principal accountable.

[Id. 2.03 cmt. c.]

In the present case, Sills argues apparent agency cannot be established utilizing this test because the informal arrangement between Benanty and Napolitano, reached after Napolitano had joined the Sills firm, differed so dramatically from Benanty's prior arrangement with Sills, and indeed, his arrangement with all other law firms retained by him that he could not reasonably believe that Napolitano's authority to act flowed from Sills. Benanty's knowledge of the conflict of interest arising from his proposed legal malpractice suit and his own act of firing Sills as a result of that conflict provides additional support for Sills' position. Although Benanty testified that he believed that he was represented by Sills in connection with the Lopez hearing, he cites to no conduct on Sills part that would have fostered that belief. See Rodriguez v. Hudson Cty. Collision Co., 296 N.J. Super. 213, 221 (App. Div. 1997) (noting lack of evidence that actions of the principal misled the third party into believing that authority to act existed). At best, Benanty can cite to Napolitano's assertion that Sills permitted him to write his own ticket. But that statement did not originate from the principal, but rather from the tortfeasing agent, and thus cannot be considered in this context.

In the circumstances of this case, knowledge by Sills partners and others that legal activities involving Benanty were being conducted on the firm's premises did not constitute ratification of Napolitano's conduct. Ratification requires acceptance by the principal of the benefits of the agent's act with full knowledge of the facts and circumstances or an affirmative election indicating an intention to adopt the unauthorized arrangement. Julien J. Studley, Inc. v. Gulf Oil Corp., 282 Fed. Supp. 748, 752 (S.D.N.Y. 1968), rev'd on other grounds, 407 F.2d 521 (2d Cir. 1969); see also In re Chandler, 76 B.R. 927, 931 (E.D.N.Y. 1987) (requiring, among other thing, knowledge of all material facts); Wirum & Cash, Architects v. Cash, 837 P.2d 692, 701 (Alaska 1992); In re Lester, 386 N.Y.S.2d 509, 514 (Sup. Ct. 1976). Evidence does not support a claim that Sills adopted either of these courses of action.

With respect to the third condition stated in Staron, "[o]f particular importance is whether a third party has relied on the agent's apparent authority to act for a principal." Sears Mortg. Corp. v. Rose, 134 N.J. 326, 338 (1993). Here, the motion judge found lack of reliance to have been critical to her decision to grant summary judgment. We agree.

Our review of the record similarly reflects no reliance on the part of Benanty upon Napolitano's authority to act for Sills. As the motion judge found, Benanty wished to retain Napolitano's services regardless of his professional affiliation. As Gengaro testified, after Judge Boyle granted reconsideration of his dismissal of the Licette litigation and ordered a Lopez hearing, Benanty viewed Napolitano as "a savior, he saved the whole case." Gengaro stated that Benanty "was always very much the sort who believed this sort of heavyweight was necessary and had great influence" over both the Special Master and Judge Boyle. If there was a difference in views between Gengaro and Napolitano, Benanty would favor Napolitano.

Benanty himself testified similarly. He stated:

Once Napolitano came on board, and again I can't be precise, but I know that I almost always looked to Napolitano. He was the man in my book at the time. He was able almost instantly to have this case reopened and considered. . . .

So at that point Mr. Napolitano, I looked to him for my strategic advice and he either told Mr. Gengaro what to do or conferred with him but they did it jointly.

According to Benanty, from that point on, nothing was done without Napolitano's approval.

My comfort level was really with Mr. Napolitano and whatever Mr. Gengaro and Mr. Napolitano and/or I discussed about anything Mr. Napolitano always won out.

I always took his advice over almost everything I guess. I don't recall, but I took his advice over Mr. Gengaro because of his experience. He was a judge who was a law professor.

He obviously had a very good relationship with Judge Boyle and that really impressed me.

Benanty continued: "Basically, Mr. Gengaro I guess would talk to me but I was really listening to Mr. Napolitano." "I was really looking for guidance from Mr. Napolitano so he's the one that I directed my energy to his advice . . . to give me an idea of what needed to be done." Napolitano was, in Benanty's view, "the attorney that I looked [to] to lead." Napolitano was "the guy who called the shots and the guy who gave me the advice that I would take. The guy who I dealt with on the strategy . . . ." After Benanty refused to fire Gengaro, according to Benanty, Napolitano "agreed to continue everything that he was doing . . . . He continued telling Gengaro what to do, telling me what needed to be done and strategizing. To me that was the leadership I needed."

Notably, there is no reference to the Sills firm in any of the foregoing and no reference in the record as a whole to reliance by Benanty upon Sills in connection with the representation provided by Napolitano. Benanty commenced his relationship with Napolitano while Napolitano was a member of Reed Smith. As Benanty has admitted, when Napolitano determined to move to Sills, Benanty continued his relationship with Napolitano, not because Napolitano was now at the Firm that Benanty had formerly retained, then fired, but because Napolitano had succeeded in restoring his case; because he was a prominent lawyer, a former judge and a law professor; and because he appeared to be esteemed by the Special Master and Judge Boyle. That Sills was Napolitano's employer simply did not figure in Benanty's determination to continue his legal relationship with Napolitano. Accordingly, we find that summary judgment was properly granted.

We decline to address plaintiffs' argument that because Napolitano utilized Sills letterhead in three letters to Judge Boyle, the firm is judicially estopped from disclaiming representation of Licette. We conclude that the argument that the acts of the alleged agent bind the principal in the circumstances presented has insufficient merit to warrant discussion in a written opinion. R. 2:11-3(3)(1)(E).

Affirmed.

 

__________________________________________

STERN, P.J.A.D., concurring

All fees for legal services rendered by Andrew Napolitano, and all income for legal work performed by him, were to become property of Sills. Hence, it was contemplated that Napolitano would have no independent practice, and he would perform all legal services as a member of the firm. For purposes of summary judgment we must accept that the firm resources and personnel were used in connection with plaintiffs' case, depositions were conducted at the firm, and plaintiffs' principal, Charles Benanty, met Napolitano there. Letters to the court were written on behalf of plaintiffs on Sills letterhead.

Yet no file was opened at Sills with respect to plaintiffs as a client of the firm or Napolitano while he was there; no retainer was paid, no formal appearance was entered by the firm on behalf of plaintiffs, and no bill was rendered. The majority concludes there is no evidence that Napolitano was acting on behalf of the firm or intending to benefit it, and clearly there was no firm authorization for his representation of plaintiffs. I am in complete agreement that Napolitano did not have actual authority to do so.

The real question is whether Napolitano's apparent authority gives rise to vicarious liability on the part of the firm. I recognize that the statements or conduct of the agent cannot bind the principal unless "the agent's conduct has been directed by the principal." Restatement (Third) of Agency, 2.03 comment c. But the principal may place the agent in a setting which can give the appearance of authority to a reasonably prudent third party, as the Restatement (Third) of the Law Governing Lawyers 58 (2000) suggests. We simply cannot say that an agent has no apparent authority merely because the principal did not intend the agent to so act. Certainly, an employer cannot be liable for all unintended and unauthorized acts, but it can be if the agent's acts should be the foreseeable consequence of the position in which the agent is placed.

I join the court in affirming the judgment in light of the undisputed facts. The majority states that the record "reflects no reliance on the part of Benanty upon Napolitano's authority to act for Sills." As developed in Staron v. Weinstein, 305 N.J. Super. 236, 240 (App. Div. 1997), certif. denied, 153 N.J. 214 (1998), one of the elements necessary for vicarious liability under the doctrine of apparent authority is the plaintiff's reliance on the appearance of authority. Yet here it is clear, as emphasized by the Law Division and the majority, it didn't matter to Benanty whether Napolitano was a partner at Sills. As the majority so well develops, Benanty wanted Napolitano's advice, if not his counsel, and where his office was located was of no consequence. The role of Sills was immaterial to the relationship Benanty wanted with Napolitano.

The overriding fact, as well developed by the majority, is that plaintiffs desired the representation and advice of Napolitano even if he was at a firm that could not, or would not, represent them. There is no claim of liability or malpractice by Sills independent of Napolitano. I agree that Sills cannot be vicariously liable in this setting.

 

Lopez v. Swyer, 62 N.J. 267 (1973).

See Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 142 N.J. 280 (1995), overruled in Olds v. Donnelly, 150 N.J. 424 (1997).

Napolitano stated in answers to interrogatories that the idea of firing Lentz & Gengaro originated with Benanty, and that Napolitano had rejected the suggestion.

A check dated June 26, 1997 for $9,000 was issued that bore the legend "July Aug. Sept. Consulting." Additional checks were issued on November 17, 1997 for $10,000; on March 10, 1998 for $5,000, on April 25, 1998 for $5,000, and on July 7, 1998 for $10,000.

Neither the brief nor the associate has been identified.

Sills asserts this appearance was noted in error and that no reference to Napolitano appears in the body of the deposition an assertion that is unrefuted.

The record also contains a Sills fax cover sheet dated October 29, 1997. Although Licette is named on the sheet as client, no client matter number is given.

As stated previously, this conduct occurred while Napolitano was at Reed Smith.

The parties rely additionally on the Uniform Partnership Law (UPL) (repealed and replaced by the Uniform Partnership Act, N.J.S.A. 42:1A-1 to -56, approved on December 7, 2000), which provided that:

Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.

[N.J.S.A. 42:1-9(1) (replaced by N.J.S.A. 42:1A:-15).]

Sills relies particularly on N.J.S.A. 42:1-9(2), which provided that "[a]n act of a partner which is not apparently for the carrying on of the business of the partnership in the usual way does not bind the partnership unless authorized by the other partners." Plaintiffs place reliance upon N.J.S.A. 42:1-15, which provided that "[a]ll partners are liable . . . [j]ointly and severally for everything chargeable to the partnership under section[] 42:1-13 . . . of this title." Because the UPL is merely declaratory of the common law, we will not specifically discuss it further.

Although the relevant principles of the Restatement (Second) of Agency have been specifically adopted by the New Jersey Supreme Court, that Court has not had occasion to consider the analogous principles set forth in the Restatement (Third) of Agency, nor has any other New Jersey court.

I respectfully take issue with the majority's belief that the type of relationship Benanty had with other law firms, or previously with Sills, did not permit plaintiffs to "reasonably believe that Napolitano's authority to act flowed from Sills." While Benanty's checks were drawn to Napolitano, whereas checks for services rendered by Sills were presumably written to the firm, I don't see how a client can be charged on summary judgment with understanding the consequences of a firm's billing policy.

(continued)

(continued)

3

A-6595-06T2

 

 

July 16, 2009