DENNIS SPANOS v. LINDA ANTONAKAKIS

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4985-04T34985-04T3

DENNIS SPANOS,

Plaintiff-Appellant,

v.

LINDA ANTONAKAKIS,

Defendant-Respondent.

__________________________________

 

Argued October 16, 2006 - Decided November 22, 2006

Before Judges S.L. Reisner, Seltzer and C.L. Miniman.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-5008-03.

Mary Ann Duffy argued the cause for appellant (Willard Geller, attorney, on the brief).

John L. Slimm argued the cause for respondent (Marshall, Dennehey, Warner, Coleman & Goggin, attorneys; Mr. Slimm, of counsel and on the brief).

PER CURIAM

Plaintiff Dennis Spanos appeals from a summary judgment dismissing his legal malpractice claims against defendant Linda Antonakakis on the ground that the claims were barred by the doctrine of judicial estoppel. We reverse.

Because this is an appeal from the grant of summary judgment, the motion judge was required to assume that plaintiff's version of the facts were true and to give plaintiff the benefit of all favorable inferences. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 536 (1995). On appeal we apply the same standard as that governing the trial court. Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998); Antheunisse v. Tiffany & Co., Inc., 229 N.J. Super. 399, 402 (App. Div. 1988), certif. denied, 115 N.J. 59 (1989). Plaintiff's version of the facts follows.

I.

Plaintiff loaned Nicholas Bouzos $100,000 on May 15, 1995. Bouzos and Dennis Krousos, who was Bouzos' accountant and is plaintiff's nephew, had an interest in B.K. Realty, which owned property on Route 22 in Branchburg. B.K. Realty needed operating funds and Krousos sought to borrow the money from his uncle, who agreed to make the loan, secured by a mortgage on commercial property in Chatham in which Bouzos had a 64% interest.

Plaintiff hired defendant to represent him at the closing of the loan, which was structured by plaintiff's accountant and Krousos, his nephew. Plaintiff never spoke directly with defendant; all communications were through Krousos. Defendant reviewed the title search, prepared and filed a Notice of Settlement, and reviewed the note and mortgage, but did not negotiate or draft the terms of the deal. Rather, the terms were negotiated between plaintiff, Bouzos, and Krousos.

The note provided for interest at 7% per annum and interest and principal were due one year later. Bouzos paid plaintiff a $6500 origination fee at the closing, which plaintiff understood to represent six and a half "points" in addition to the 7% interest due one year later, making the effective interest rate for the one-year loan 13-1/2%. The note further provided:

If Borrower fails to pay the principal and interest on May 15, 1996, the interest will accrue on the unpaid balance at a yearly rate of 20% or the highest rate allowed pursuant to the usury laws of New Jersey, whichever is less, until the Note is paid in full.

In preparing the closing statement, defendant described the $6500 payment as a "deposit" rather than an origination fee. Defendant admitted in her deposition that this was "an oversight on my part." In addition, plaintiff contends that defendant, who was a certified public accountant as well as an attorney, failed to include language making it clear that the default interest rate was to be compounded, as Bouzos had agreed.

Bouzos defaulted and when the loan still had not been repaid by October 2000, plaintiff filed a Law Division action on the note and a mortgage foreclosure in the Chancery Division. Defaults were entered against Bouzos in both actions. When Bouzos moved to vacate the defaults, plaintiff opposed the application. In plaintiff's February 8, 2001, certification he described the loan transaction and stated that "I had my attorney, Linda Antonakakis, prepare a note, mortgage and mortgage closing statement."

When the parties could not settle these matters, Bouzos filed a Chapter 13 Petition in the United States Bankruptcy Court for the District of New Jersey. Plaintiff was the major creditor and filed a notice of claim seeking payment of $304,056.13 as of May 31, 2001. Bouzos made a motion to reduce plaintiff's claim, contending that the $6500 paid at closing was a partial prepayment of the $7000 payment of interest due one year later. He also contended that the default rate was not enforceable, that it should be calculated on a simple interest basis, and that the amount of attorney's fees sought under the note was unreasonable. Plaintiff opposed this motion and his attorney submitted a letter brief dated June 19, 2001, in which he wrote that "Mr. Spanos asserts that Ms. Antonakakis was not his counsel either. The Debtor fails to provide any proof either that Ms. Antonakakis did not represent him or that she did represent Mr. Spanos." Counsel then wrote, "Mr. Spanos asserts that the $6,500.00 is consideration paid to Mr. Spanos for taking on the risk of this loan. See Exhibit "B," the Certification of Dennis Spanos dated February 8, 2001 . . . ."

The Bankruptcy Court conducted a hearing on the motion to reduce the claim on July 11, 2001. During argument, the judge asked plaintiff's bankruptcy counsel: "As to the nature of the $6,500 at issue on the closing statement it is not disputed that Mr. Spanos' attorney drafted those documents, is it, Mr. Pasquariello?" The attorney responded:

I have [a] certification of Mr. Spanos. Mr. Spanos says that he did not retain Ms. Antonakakis. Antonakakis never had a retainer letter with Mr. Spanos. We believe . . . [that] debtor's accountant and business associate, Dennis Cruzos, may have retained Antonakakis for this purpose, but Mr. Spanos . . . says he did not retain her.

The judge asked, "Which certification of Mr. Spanos is that?" The attorney responded that he would find it, and then asked for a minute to do so. At that point, bankruptcy counsel for Bouzos interrupted and said:

Your Honor, if I may, I believe Mr. Pasquariello is look for something, but he remembers -- he's disremembering it. There is a certification from Mr. Spanos about Linda Antonakakis being an attorney in this case, but the certification says that it's Mr. Spanos's attorney. Perhaps that's what he's thinking of. That's Exhibit E attached to Mr. Spanos' certification in this matter, and specifically paragraph 3(b) in the . . . pre-petition certification of Mr. Spanos, says, eventually I agreed to lend Mr. Bouzos the money. As a result I had my attorney, Linda Antonakakis, prepare a note, mortgage and mortgage closing statement.

Further down in . . . subparagraph (d) of that same paragraph he refers to the trust check coming from -- or the check proceeds coming from the attorney -- my attorney's trust account. So I think that's pretty conclusive that Linda Antonakakis was his attorney and drafted the documents.

Plaintiff's bankruptcy counsel then acknowledged that his client did certify that Antonakakis was his attorney for the loan transaction, and the judge found that plaintiff was bound by that certification.

After a hearing on September 5, 2001, the bankruptcy judge placed the burden of proof as to the amount due and owing upon plaintiff and concluded that the $6500 was a partial prepayment of the 7% interest due on May 15, 1996. The judge also found that the default rate of interest was unenforceable as unreasonable under the circumstances, being almost a 300% increase over the initial 7% rate, and that both interest rates were simple and not compound. As a consequence, plaintiff's claim was reduced by more than half.

As a result of the bankruptcy judge's ruling, plaintiff contends that defendant's failure to properly characterize the $6500 payment caused him to lose not only that amount, but also to suffer a reduction in the default rate. This, he contends, is because the bankruptcy judge would not have found the default rate unreasonable if the effective rate of interest for the first year had been 13-1/2%, as it was intended to be.

Defendant filed a summary judgment motion contending that plaintiff was bound by his bankruptcy counsel's statement that defendant was not plaintiff's counsel during the loan transaction. As a consequence, defendant argued that there was no attorney-client relationship and she owed no duty nor bore any liability to plaintiff. In addition, defendant contended that the damages sought were not proximately caused by her.

In deciding the summary judgment motion, the motion judge placed the following decision on the record:

[T]he application brought by the . . . defendant . . . for summary judgment . . . is granted. The doctrine of judicial estoppel clearly applies in this case.

I put no particular stock in the fact that the representations made by the [a]ttorney, then representing the plaintiff, make the doctrine of judicial estoppel . . . inapplicable. Clearly, he made representations before the Bankruptcy Court in order to enhance his position in that litigation. Now, in this case, he takes exactly the opposite position. And it's just inappropriate. It's . . . a matter . . . which has been made to mislead either this [c]ourt or the other [c]ourt. And I don't know where the [a]ttorney would have ever gotten that information, if not from the client. Clearly, he was the client's agent at the time that the representations were made. And[,] accordingly, the application for summary judgment, on those grounds, is granted.

Reconsideration was denied on June 10, 2005. Plaintiff, on appeal, contends that the motion judge erred when he applied the doctrine of judicial estoppel to plaintiff's version of the facts in this case.

II.

The doctrine of judicial estoppel has been long recognized in this country. Its fundamental precepts were identified by the United State Supreme Court as early as 1895:

It may be laid down as a general proposition that, where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him.

[Davis v. Wakelee, 156 U.S. 680, 689, 15 S. Ct. 555, 558, 39 L. Ed. 578, 584 (1895).]

We discussed the parameters of this doctrine at length in Kimball Int'l, Inc. v. Northfield Metal Prods., 334 N.J. Super. 596, 606-08 (App. Div. 2000), certif. denied, 167 N.J. 88 (2001), and the New Jersey Supreme Court expressly approved our formulation of the doctrine in Ali v. Rutgers, 166 N.J. 280, 287-88 (2000). We said:

The purpose of the judicial estoppel doctrine is to protect "the integrity of the judicial process." Cummings v. Bahr, 295 N.J. Super. 374, 387 (App. Div. 1996). A threat to the integrity of the judicial system sufficient to invoke the judicial estoppel doctrine only arises when a party advocates a position contrary to a position it successfully asserted in the same or a prior proceeding. "[T]o be estopped [a party must] have convinced the court to accept its position in the earlier litigation. A party is not bound to a position it unsuccessfully maintained." In re Cassidy, 892 F.2d 637, 641 (7th Cir.), cert. denied, 498 U.S. 812, 111 S. Ct. 48, 112 L. Ed. 2d 24 (1990). "The principle is that if you prevail in Suit # 1 by representing that A is true, you are stuck with A in all later litigation growing out of the same events." Eagle Found., Inc. v. Dole, 813 F.2d 798, 810 (7th Cir. 1987). Consequently, "[a]bsent judicial acceptance of the inconsistent position, application of [judicial estoppel] is unwarranted because no risk of inconsistent results exists. Thus, the integrity of the judicial process is unaffected; the perception that either the first or second court was misled is not present." Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 599 (6th Cir. 1982).

. . . .

It is also generally recognized that judicial estoppel is an "'extraordinary remedy,'" which should be invoked only "'when a party's inconsistent behavior will otherwise result in a miscarriage of justice.'" Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 365 (3d Cir. 1996) (quoting Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 424 (3d Cir.) (Stapleton, J., dissenting), cert. denied, 488 U.S. 967, 109 S. Ct. 495, 102 L. Ed. 2d 532 (1988)). Thus, as with other claim and issue preclusion doctrines, judicial estoppel should be invoked only in those circumstances required to serve its stated purpose, which is to protect the integrity of the judicial process.

[Kimball, supra, 334 N.J. Super. at 606-08 (citations and footnotes omitted).]

To summarize, in order to apply the doctrine of judicial estoppel to bar a claim, (1) a party must currently advocate a position contrary to a position the party previously advocated, (2) the party must have been successful in advancing the prior position by convincing the court to accept it, and (3) the party's inconsistent behavior will result in a miscarriage of justice. Ibid.; see also Kress v. La Villa, 335 N.J. Super. 400, 412 (App. Div. 2000), certif. denied, 168 N.J. 289 (2001); Ramer v. N.J. Transit Bus Operations, Inc., 335 N.J. Super. 304, 311-13 (App. Div. 2000); Fineberg v. Fineberg, 309 N.J. Super. 205, 216-17 (App. Div. 1998); Cummings v. Bahr, 295 N.J. Super. 374, 387 (App. Div. 1996) ("Prior success does not mean that a party prevailed in the underlying action, it only means that the party was allowed by the court to maintain the position." (emphasis added)).

Applying this law to the facts at issue here plainly precludes application of judicial estoppel. In the collection and foreclosure actions, plaintiff submitted a certification in which he represented that defendant was his attorney at the closing of the loan. His bankruptcy counsel filed that certification in the bankruptcy action in defending the application to reduce the amount of plaintiff's claim. Despite the content of plaintiff's certification, his bankruptcy counsel argued in his brief that defendant was not plaintiff's attorney at the closing of the loan. By making this argument in the brief and filing the certification from the state actions, two diametrically opposite positions were presented to the bankruptcy judge by plaintiff. When plaintiff's bankruptcy counsel began to make that argument before the bankruptcy judge, the debtor's counsel immediately objected that he was "disremembering" his client's certification. The bankruptcy judge agreed, and immediately barred counsel from arguing any further that defendant was not plaintiff's attorney. Indeed, the bankruptcy judge applied judicial estoppel to preclude plaintiff's counsel from denying that defendant had been his attorney for the loan transaction. Thus, it is eminently clear that plaintiff's counsel failed to convince the Bankruptcy Court to consider his position. The application of judicial estoppel to bind plaintiff to his counsel's failed argument caught plaintiff, who apparently engaged in no wrongdoing in the transaction, between Scylla and Charybdis without a remedy for his losses. Nothing could be more inconsistent with the integrity of the judicial process. Instead of preventing a miscarriage of justice, it created one. There is no place here for judicial estoppel.

III.

Defendant argues that the alternate ground for summary judgment predicated on the absence of proximately caused damages should result in our affirmance of the result below. Inasmuch as the motion judge did not address this issue, we decline to do so in the first instance on appeal. Gac v. Gac, 186 N.J. 535, 547 (2006); Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 761 (1989). We do note in passing that defendant seems to mischaracterize the record somewhat in this regard. Defendant admitted in her testimony that it "was just an oversight" when she characterized the nature of the $6500 as a deposit, because "the parties understood" that it was not a deposit against interest "based on the terms, as they were explained to [her]". Thus, it would seem that plaintiff would not need to prove that Bouzos would have accepted terms different from that contained on the loan document, because defendant's testimony acknowledged that Bouzos did accept those terms.

Reversed and remanded for further proceedings consistent with this opinion.

 

Because the loan was a commercial loan, it was not subject to the usury laws, and, thus, the default interest rate was 20%.

There is no certification in the record on this appeal in which plaintiff certified to the Bankruptcy Court that Antonakakis was not his attorney at the time of the loan transaction. Although plaintiff's bankruptcy counsel took this position, there was no evidential support for it before the Bankruptcy Court.

Presumably, plaintiff's bankruptcy counsel wished to distance his client from defendant as the scrivener of the loan documents to avoid having ambiguities in them construed against plaintiff.

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A-4985-04T3

November 22, 2006