ROBERT COTTONE v. FOX ROTHSCHILD, LLPAnnotate this Case
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
DOCKET NO. A-0
FOX ROTHSCHILD, LLP and
ERIC J. MICHAELS, ESQ.,
September 2, 2014
Before Judges Ashrafi, St. John and Leone.
On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-4966-10.
Robert W. McAndrew argued the cause for appellant.
Brian J. Molloy argued the cause for respondents (Wilentz, Goldman & Spitzer P.A., attorneys; Mr. Molloy and Willard C. Shih, of counsel and on the brief; Daniel J. Kluska, on the brief).
This professional liability matter arises from the representation by defendants Fox Rothschild, LLP and Eric J. Michaels, Esq., of plaintiff Robert Cottone in certain settlement proceedings and in the negotiation of a redemption agreement. The primary issue before us is whether the trial court correctly determined that an attorney owes no duty, as a matter of law, to explain unambiguous business terms in a written agreement, when the client is a sophisticated businessperson who negotiated the terms of the agreement himself. We determine that defendants owed plaintiff a duty of care, as a matter of law, arising from their attorney-client relationship. Instead, the question before the trial court was whether defendants breached their duty of care when they allegedly failed to explain the terms of the agreement to plaintiff. We hold that, viewing the evidential materials presented by plaintiff in the light most favorable to him as the non-moving party, genuine factual disputes existed that were material to determining whether defendants breached their duty of care. These material issues of fact precluded the trial court from resolving the malpractice claim at the summary judgment stage of these proceedings.
We also hold that there are genuine issues of material fact concerning proximate cause and damages. Accordingly, we reverse the grant of summary judgment for defendants and remand for resolution of the factual disputes by the finder of fact.
The evidentiary record before the motion judge reveals the following facts.
A. The Stock Purchase, Warrants and Employment Contracts
Plaintiff was the sole shareholder of Brokerage and Insurance Consulting Inc. (BIC), a commercial insurance brokerage company. In January 2000, plaintiff sold all of his stock in BIC to NIA Group, LLC (NIA) for $1,000,000 and a "Non-Voting Membership Interest Purchase Warrant" (the Original Warrant).1 The Original Warrant entitled plaintiff to purchase 2.75% of NIA's outstanding equity, referred to as "Membership Interests," at a price of $1,237,500. Plaintiff's right to exercise the Original Warrant would vest incrementally over five years, and became fully vested as of January 2006.
Contemporaneous with the sale of BIC, plaintiff entered into a five-year employment contract with NIA. The contract included a provision whereby NIA would compensate plaintiff, as commission for every year in which his revenues exceeded one million dollars, with additional non-voting equity. Pursuant to that agreement, plaintiff would eventually acquire a .32910% equity interest in NIA. Defendant Michaels, a partner at defendant law firm Fox Rothschild, represented plaintiff in these matters, as well as subsequent transactions between plaintiff and NIA.
NIA's purchase of BIC eventually resulted in the formation of a new business entity, NIA Group II, LLC (NIA-II), which then led to a restructuring of the company's ownership interests. Michaels represented plaintiff in a new transaction to transform his NIA interests into equivalent interests in NIA-II. On January 1, 2006, plaintiff and NIA-II entered into a formal conversion agreement, which gave to plaintiff equity interests in NIA-II that were "identical in all respects" to his former interests in NIA. The Original Warrant was replaced by a second warrant (the Warrant). Whereas the former gave plaintiff the right to purchase 2.75% of NIA's Membership Interests, the latter entitled him to purchase 275,000 "units" of equity in NIA-II. The agreement also converted his .32910% in NIA equity, acquired pursuant to the employment contract, into 32,910 Units in NIA-II. By separate agreement, also dated January 1, 2006 NIA-II extended plaintiff's employment to January 2011.
B. Plaintiff's Suit Against NIA-II
In June 2009, plaintiff filed a lawsuit against NIA-II and Paul Gross, its President and Chairman. Among his various claims was an allegation that Gross had misrepresented NIA's value at $50,000,000 during negotiations to purchase BIC, and thus distorted the financial worth of the equity plaintiff could acquire under the Original Warrant and employment contract. Plaintiff alleged that an increase in the total number of outstanding membership interests had diluted his equity interests in NIA.
Plaintiff also asserted claims arising from his attempt in November 2008 to exercise the Warrant and a "put right" to his acquired equity.2 According to plaintiff, Gross dissuaded him from exercising these rights by offering to extend his employment contract and make adjustments to the Warrant. Though plaintiff agreed and withdrew his request accordingly, Gross purportedly reneged on those verbal promises. Plaintiff sought damages based on an array of contractual and equitable causes of action, as well as age discrimination. Domenick Bratti, a litigator at Fox Rothschild, represented plaintiff in the matter.
Around the time plaintiff filed his lawsuit, NIA-II was involved in negotiations for its sale to Marsh & McLennan Agency, LLC (MMA). Accordingly, plaintiff's suit was placed on a due diligence list, which was tasked to Steven Grossberg of NIA-II. Grossberg initiated settlement discussions with plaintiff soon afterwards, sometime around early July 2009. Grossberg's initial settlement offer was rejected by plaintiff, though neither individual could recall the exact terms when deposed. Grossberg then asked plaintiff to "put together a proposal so that I can see where you are coming from."
Plaintiff thereafter presented Grossberg with two alternative settlement options in an undated document titled "Options for Settlement." Under option one, in exchange for dropping his claims, plaintiff would be immediately paid the price "offer[ed]" by Grossberg for his acquired and Warrant-equity and be fully released from his employment contract. In the document, plaintiff did not specify the offer price. Under the second option, plaintiff would dismiss his suit if NIA-II agreed (1) to pay "a fair and reasonable amount giving full consideration of the representations made at the time of purchase of [BIC]," and (2) to extend his employment contract through 2015.
Plaintiff neglected to define what constituted a "fair and reasonable amount." However, in a July 9, 2009 email sent to his Fox Rothschild litigator, Bratti, plaintiff elaborated on his thought process vis- -vis the two proposals. The "fair and reasonable amount" contemplated by plaintiff under option two for his ownership interests (that is, both his acquired and Warrant-exercisable units) was approximately $1.625 million.3
By memorandum dated July 14, 2009, Grossberg responded with his thoughts on the two proposals. He rejected the first option outright. However, he floated a potential counteroffer with respect to option two. First, with respect to plaintiff's acquired units, NIA-II would pay out immediately upon settlement just over $195,000. Turning then to the Warrant interests, Grossberg wrote that the company was offering to modify the Warrant so that plaintiff would be relieved of having to outlay $1,237,500 up front. He did not, however, mention a specific amount of consideration for plaintiff's relinquishing the Warrant. Finally, Grossberg thought it possible to extend plaintiff's employment contract to January 1, 2015, but with reduced renewal commissions.
Plaintiff and Grossberg continued to discuss a possible settlement. On July 27, 2009, plaintiff sent an email to Michaels and Bratti explaining that NIA-II had increased its original offer to $200,000 for selling his acquired units and $412,000 for terminating the Warrant. Two days later, plaintiff sent Grossberg a memorandum conveying his belief that both sides had made "substantial progress on the stock and warrant issue." However, plaintiff asked that the offered amounts be "based upon an immediate payout rather than the three-year term proposed." On July 30, Grossberg agreed that the parties were "getting close," but stated that NIA-II was "not prepared to have an immediate payout with regard to the warrant issue."
At some point after this discussion, Grossberg informed plaintiff of NIA-II's impending sale to a publicly-traded firm and explained that NIA-II was thus offering to provide a kicker on his equity in the event that the company was sold within six months of the settlement agreement.4 According to Grossberg, he told plaintiff that NIA-II would pay him additional money "for his shares of stock" that is, only the units actually owned by plaintiff if the per-unit price at the time of sale exceeded the per-unit price offered for settlement. According to plaintiff, however, his understanding was that Grossberg "was referring to all my equity ownership interests," meaning that he would receive a kicker for both the acquired units and the exercisable units under the Warrant.5 Plaintiff testified at deposition that he subsequently notified Michaels "that the company was being sold, and I'm getting a kicker on what I own, and my equity and it's great news."
C. The Redemption Agreement
It is undisputed that plaintiff solely negotiated the economic terms of the pending agreement with Grossberg, the representative of NIA-II. Neither Michaels, nor any other attorney from Fox Rothschild took part in those direct negotiations.
In late August 2009, NIA-II sent plaintiff an initial draft redemption agreement prepared by its attorneys at Sills Cummis & Gross P.C. (Sills Cummis). Michaels then reviewed the first draft with plaintiff, which both men later recalled taking place over the phone. According to plaintiff, he had "a very difficult time" getting through the document, and told Michaels "this thing is a nightmare." Allegedly Michaels commented that the contract as drafted was "complicated, ugly, [and] difficult to read." At his deposition, plaintiff stated that he did not recall discussing, or asking Michaels to go over, the specific provision dealing with his potential kicker.
According to Michaels, he went through the initial draft with plaintiff "almost in painstaking detail," during which plaintiff flagged any items that concerned him. At deposition, Michaels testified that they talked about the kicker provision, but could not recall the nature of such discussion, and asserted that plaintiff "seemed satisfied with [the] agreement."
Though not contained in the record, apparently several more drafts and revisions were sent back-and-forth between the attorneys. On September 11, 2009, NIA-II forwarded plaintiff a new draft agreement. Later that day, plaintiff emailed Michaels with several changes he wanted made, including a specific revision to the section dealing with plaintiff's kicker. Michaels entered his suggested alterations in a draft dated September 17. It is unclear when NIA-II received that version.
Around mid-September, both plaintiff and Michaels were absent from their respective workplaces; plaintiff spent approximately four days in the hospital beginning September 17, while Michaels was in Europe from September 23 to October 2. On September 23, an attorney at Fox Rothschild emailed plaintiff information from Michaels that Sills Cummis had a "large problem" with the recent alterations to the kicker provision. The message stated that Michaels would try to contact plaintiff via email, but planned to discuss all of Sills Cummis' issues when he returned from his trip.
At some point during this timeframe, Grossberg urged plaintiff to sign a non-binding draft of the agreement, purportedly so NIA-II could demonstrate to MMA that "the process [was] moving forward." According to plaintiff, Michaels authorized him via telephone to sign the draft, noting it was not a final agreement and he would "deal with it later." Michaels denies that any such conversation ever took place. Plaintiff went ahead and signed the draft, labeled "SILLS COMMENTS 9/24/09" (the September 24 draft), though the exact date he did so is unclear. In that draft, Sills Cummis had inserted the language "and, for the avoidance of doubt, not any units underlying the Warrant," apparently absent from earlier drafts, to the section of the document concerning the kicker agreement.
On October 2, 2009, Michaels, having discovered that both sides "met and signed off on a draft agreement," emailed plaintiff about several items previously raised but which were missing from the signed draft. Those missing items were eventually incorporated into the final agreement. There was no mention of anything related to the Warrant or the kicker.
The final version of the agreement (the Redemption Agreement) was signed by plaintiff on October 19, 2009. The preamble, identical in every version submitted to us on appeal, recited that NIA-II desired to redeem plaintiff's various interests and then defined those interests in exceedingly convoluted language. It read, in pertinent part:
[NIA-II] desires to redeem all of the Equity Interests . . . in NIA that are in turn beneficially owned by [plaintiff], including the equity interests of [plaintiff] in [NIA-II] described in Schedule A but excluding Warrant Interests . . . (collectively the "Subject Interest"), and NIA desires to redeem the Subject Interest from [plaintiff].
"Equity Interests" means any equity interest of any kind or nature, including any warrant, option or other instrument or security convertible into or exercisable for any equity interest such as, by way of example, the Warrant Interests . . . .
[NIA-II] further desires to terminate all of the Warrant Interests that are owned, directly or beneficially, by [plaintiff], including the Class A Unit Purchase Warrant, dated January 1, 2006 described in Schedule A (the "Warrant").
"Warrant Interests" means any and all Rights and interests of [plaintiff] arising from any warrant or similar instrument or security that is exercisable for or convertible into any Equity Interest of any kind or nature, in or to NIA or [NIA-II], and any corresponding interest, Right and/or Obligation on the part of NIA and/or [NIA-II] in connection with such warrant or similar instrument or security.
In Section (1)(a), titled "Redemption of the Subject Interest and Termination of the Warrant Rights," NIA II agreed to redeem plaintiff's "Subject Interest" in other words, his acquired units for a "Unit Purchase Price" of $195,214. Additionally, in consideration for terminating his Warrant Interests, plaintiff would be paid $412,500. Under the agreement, plaintiff's Warrant would automatically terminate, without any further action by the parties, on the October 19 effective date.
The dispute leading to this lawsuit centers on Section (1)(c) of the Redemption Agreement (the kicker provision), which addresses NIA-II's agreement to pay plaintiff additional consideration also referred to at other times as a kicker or bump in the event that NIA-II was sold by July 31, 2010. Pursuant to that provision, the "Additional Consideration" to be paid to plaintiff under such circumstances was defined as:
[T]he difference between the price per unit used to calculate the Unit Purchase Price and the net price per unit to be paid to the members of [NIA II] (or distributed to the members of [NIA II] on a pro rata basis relative to unit ownership) in connection with a Sale of the Company (the "Per Unit Sale Price")(for purposes of this Section 1(c), the Per Unit Sale Price is to be calculated as if [plaintiff]'s units were issued and outstanding at the time of such Sale of the Company), multiplied by the number of units being redeemed hereby (and, for the avoidance of doubt, not any units underlying the Warrant).
As previously mentioned, the last parenthetical language "and, for the avoidance of doubt, not any units underlying the Warrant" (the "avoidance of doubt" language) had been absent from earlier drafts but was later inserted by Sills Cummis in the September 24 draft.
MMA ultimately purchased NIA-II in December 2009. After the deal was finalized, plaintiff observed "charts going around" the office listing equity-holders and their corresponding distributions from the sale. Plaintiff asked a company official why he was not on the charts "get[ting] paid with everybody else." He was told to read the Redemption Agreement, that it provided for a bump on his acquired units only. Plaintiff immediately called Michaels.
According to plaintiff's deposition testimony, the following exchange transpired, in substance. Plaintiff demanded, "There could be close to a million dollars involved. What the hell happened?" Michaels pulled the file, reviewed the drafts and Redemption Agreement, and then replied: "[I]n the first draft we can make a case that you should have gotten it.
. . . [In] the final [version], they added language that absolutely kills the bump on the warrants." Michaels then admitted that he had "missed it." For his part, Michaels denied at deposition to having made any such admission.
Plaintiff also testified at his deposition that had Michaels recognized and explained to him that Section 1(c) of the Redemption Agreement, and particularly the "avoidance of doubt" language, excluded a "bump" on his Warrant equity, he would not have executed the agreement. According to plaintiff, he "was an obstacle to a hundred million dollar transaction." Therefore, either NIA-II would have acceded to a kicker on the Warrant, or he would have rejected the Redemption Agreement, held onto the Warrant and exercised it after the MMA sale. Plaintiff also remarked, "I would have been a total fool to accept anything less than my entire interest in NIA."
D. Plaintiff's Malpractice Suit
On May 13, 2010, plaintiff filed a complaint for legal malpractice against Fox Rothschild and Michaels. Following discovery, which included depositions of plaintiff, Michaels, Grossberg and Gross, defendants, moved for summary judgment.
In his opposition materials, plaintiff submitted an expert report prepared by Gary Falkin, Esq. Falkin had access to, and based his conclusions upon, discovery materials such as the depositions of plaintiff, Michaels and Grossberg, emails and other correspondence between the principal actors, and multiple drafts of the Redemption Agreement.
At first, Falkin described the applicable standard of care, citing the New Jersey Rules of Professional Conduct (RPC) and controlling case law. Then, after comprehensively reciting the facts and circumstances of the representation, Falkin opined that Michaels had deviated from accepted standards of legal practice by failing to "fully discuss the matter" with plaintiff and to ensure that the Redemption Agreement "accurately reflected the deal [plaintiff] believed he had made." In reaching that conclusion, Falkin emphasized the following facts: (1) Michaels was aware that plaintiff's priority was to "monetize" his equity interests; (2) Michaels could not recall ever discussing or explaining the kicker provision with plaintiff; (3) Michaels, referring to the exclusion of the Warrant from the kicker provision, allegedly admitted to plaintiff that he had "missed it"; and (4) in discussions with plaintiff subsequent to the MMA sale, Michaels never once countered that he had, in fact, discussed and explained the contested language to plaintiff.
In addition, Falkin found further deviation in Michaels' failure to notice the language inserted by Sills Cummis in the September 24 draft the "avoidance of doubt" language. According to Falkin, the previous drafts were "ambiguous" as to whether NIA-II would be paying additional consideration on the Warrant; the added language removed all doubt, which should have been caught and changed by Michaels.
Finally, Falkin assailed Michaels' contention at deposition that he was a "mere scrivener" throughout the representation, and thus was only responsible for ensuring that the written agreement reflected the terms negotiated by plaintiff.6 To Falkin, this testimony demonstrated that Michaels had abdicated his role as counsel and reinforced his conclusion that Michaels failed to fully address the issues raised by the representation and advise plaintiff accordingly.
E. The Motion Court's Decision
On September 11, 2009, the motion judge heard oral argument from the parties and, in a brief oral decision, granted defendants' motion for summary judgment. The judge concluded that plaintiff had not established breach of a legal duty by defendants. He found the "avoidance of doubt" language to be "unambiguous," and not "hidden away." Noting there was no evidence that plaintiff told Michaels what he wanted or "a list of the points" to look for in the agreement, the judge stated: "We cannot insure or protect a client from something which is not made known to the attorney." The judge further expressed his belief that allowing a jury to decide the question of attorney negligence simply on the ground that an attorney owes a general duty of care to his client would "open the floodgates" for malpractice litigation.
The judge also concluded that plaintiff failed to establish a prima facie case on both proximate causation and damages, finding his claims "purely speculative." Accordingly, the judge granted summary judgment and dismissed the complaint by order dated August 10, 2012. Plaintiff appeals from that order.
On appeal, plaintiff argues that the motion judge erred in concluding that defendants owed him no duty as a matter of law. Plaintiff contends that the grant of summary judgment was inappropriate because there were genuine issues of material fact regarding breach of duty, proximate cause and damages.
We review a grant of summary judgment de novo, applying the same standard under Rule 4:46 that governed the motion court. See Gray v. Caldwell Wood Prods., Inc., 425 N.J. Super. 496, 499 (App. Div. 2012); Chance v. McCann, 405 N.J. Super. 547, 563 (App. Div. 2009). The motion judge's "'interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference[.]'" Estate of Hanges v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 382 (2010) (quoting Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995)). In a legal malpractice action, "summary disposition is appropriate only when there is no genuine dispute of material fact." Ziegelheim v. Apollo, 128 N.J. 250, 261 (1992).
A claim for legal malpractice is "a variation on the tort of negligence" relating to an attorney's representation of a client. Garcia v. Kozlov, Seaton, Romanini & Brooks, P.C., 179 N.J. 343, 357 (2004). It is well settled that to establish a prima facie case of legal malpractice, a plaintiff must demonstrate: (1) the existence of an attorney-client relationship creating a duty of care upon the attorney to the plaintiff; (2) the breach of that duty by the attorney; and (3) such breach was the proximate cause of the damages sustained by the plaintiff. See, e.g., Jerista v. Murray, 185 N.J. 175, 190-91 (2005); McGrogan v. Till, 167 N.J. 414, 425 (2001); Conklin v. Hannoch Weisman, P.C., 145 N.J. 395, 416 (1996); Kranz v. Tiger, 390 N.J. Super. 135, 147 (App. Div.), certif. denied, 192 N.J. 294 (2007). "The client bears the burden of proving by a preponderance of competent credible evidence that injuries were suffered as a proximate consequence of the attorney's breach of duty." Sommers v. McKinney, 287 N.J. Super. 1, 10 (App. Div. 1996).
A lawyer stands as a fiduciary to a client, and thus incurs certain legal obligations, or "duties," once an attorney-client relationship is formed. Estate of Spencer v. Gavin, 400 N.J. Super. 220, 241-43 (App. Div.), certif. denied, 196 N.J. 346 (2008); Kriegsman v. Kriegsman, 150 N.J. Super. 474, 479-80 (App. Div. 1977); cf. Restatement of Lawyers, supra, 16, 49, 50. For instance, like all fiduciaries, an attorney has a duty of loyalty to his or her client. See Estate of Spencer, supra, 400 N.J. Super. at 241-42; see also Michels, New Jersey Attorney Ethics 266 (2014)(explaining that an attorney's duty of loyalty, while not explicitly mentioned in the RPC, "is embodied primarily in the provisions governing conflicts of interest"). Among the other fundamental legal duties attorneys owe to their clients is the duty of care. See, e.g., Ziegelheim, supra, 128 N.J. at 260 ("[L]awyers owe a duty to their clients to provide their services with reasonable knowledge, skill, and diligence."); cf. Restatement of Lawyers, supra, 16 (an attorney, in matters within the scope of the representation, must "act with reasonable competence and diligence").
The scope of a legal duty owed by an attorney "essentially has two facets: (1) the persons or entities to whom that duty is owed, and (2) the conduct required of the lawyer to fulfill the duty." Estate of Spencer, supra, 400 N.J. Super. at 241.
We first examine whether the motion judge properly determined that defendants owed no "duty" to plaintiff as a matter of law under the circumstances presented. The parties' dispute raises thorny issues concerning the allocation of decision-making in a professional malpractice action and highlights the sometimes blurry lines between supposedly distinct duty and breach elements. At its most basic, the lawsuit centered on whether defendants committed malpractice by not explaining to plaintiff that the Redemption Agreement, specifically the language within the kicker provision, failed to provide additional consideration for his Warrant interests.
The motion judge couched his decision in terms of duty, stating that defendants owed no duty to plaintiff to explain what the judge concluded were unambiguous business terms within the kicker provision. The parties dispute whether that decision was addressed to the first element the legal issue of duty of care or the second element the factual issue of breach. Accordingly, they take antithetical positions with respect to whether the appropriate arbiter was the judge or jury. Defendants contend that the mere existence of an attorney-client relationship between the parties did not impose on them a legal duty to explain to plaintiff, a sophisticated client, clear and unambiguous business terms in the Redemption Agreement. Accordingly, defendants argue that courts alone determine if a "duty" is owed, and thus the motion judge properly determined, as a matter of law, that they owed no such duty here. We disagree with defendants' characterization of the duty-breach framework.
New Jersey cases have consistently construed the first element in a legal malpractice action as "the existence of an attorney-client relationship creating a duty of care upon the attorney." Conklin, supra, 145 N.J. at 416 (emphasis added); see also Jerista, supra, 185 N.J. at 190; McGrogan, supra, 167 N.J. at 425; Kranz, supra, 390 N.J. Super. at 147; Gilles v. Wiley, Malehorn & Sirota, 345 N.J. Super. 119, 126 (App. Div. 2001), certif. denied, 171 N.J. 340 (2002); Johnson v. Schragger, Lavine, Nagy & Krasny, 340 N.J. Super. 84, 90 (App. Div. 2001); Sommers, supra, 287 N.J. Super. at 9-10; Albright v. Burns, 206 N.J. Super. 625, 632 (App. Div. 1986). The existence of a duty of care is a matter of law to be decided by the court. Petrillo v. Bachenberg, 139 N.J. 472, 479 (1995); Davin, L.L.C. v. Daham, 329 N.J. Super. 54, 73 (App. Div. 2000); DeAngelis v. Rose, 320 N.J. Super. 263, 274 (App. Div. 1999).
Determining whether a duty of care exists is facilitated when the parties have entered into a written retainer agreement setting forth the scope of representation by the attorney. For example, in the context of civil family actions, except where no fee is to be charged, the agreement for legal services must be in writing signed by the attorney and client. R. 5:3-5(a). The agreement must include, among other items, "(1) a description of legal services anticipated to be rendered; [and] (2) a description of the legal services not encompassed by the agreement, such as real estate transactions, municipal court appearances, tort claims, appeals, and domestic violence proceedings[.]" Ibid. In the context of a written retainer agreement, if the scope of services is sufficiently delineated, a duty of care with regard to those services exists. We also recognize that in many matters the amounts involved may be minor or the client's ability to pay an attorney may be constrained, such that it is in the client's interest to explicitly limit the scope of the attorney's representation.
Here, the record does not disclose a written retainer agreement. However, the parties do not contest that the defendants were retained to represent the plaintiff on the litigation and settlement discussions, which included the disposition of the Warrant, and on those issues a duty of care existed.
Once a duty of care is owed,7 the attorney's representation of the client must satisfy a minimum, objective level of performance, the so-called standard of care. The failure of attorneys to comport their conduct with that standard of care constitutes a breach of the duty of care, and will render them liable for legal malpractice if the injured client is also able to prove both proximate cause and actual damages. See Davin, supra, 329 N.J. Super. at 71-72; Restatement of Lawyers, supra, 48 & comment c.
"Generally speaking, a lawyer is required to exercise that 'degree of reasonable knowledge and skill that lawyers of ordinary ability and skill possess and exercise.'" Brach, Eichler, Rosenberg, Silver, Bernstein, Hammer & Gladstone, P.C. v. Ezekwo, 345 N.J. Super. 1, 12 (App. Div. 2001) (quoting St. Pius X House of Retreats, Salvatorian Fathers v. Diocese of Camden, 88 N.J. 571, 588 (1982)), abrogated in part by Segal v. Lynch, 211 N.J. 230, 261-64 (2012). In essence, the standard of care measures the challenged conduct of the attorney against normative standards of the legal profession. See Model Jury Charge (Civil), 5.51A, "Legal Malpractice" (1979)[hereinafter Model Jury Charge]. A competent attorney represents that he or she "has the degree of knowledge and skill ordinarily possessed and used by others engaged in the general practice of law
. . . . [which] must be judged by the standard legal practice at the time the attorney represented the client." Model Jury Charge, supra, 5.51A. Moreover, the duty to exercise reasonable care will vary, depending upon the circumstances of the specific case, Ziegelheim v. Apollo, 128 N.J. 250, 260 (1992), and must be considered "with reference to the type of service the attorney undertakes to perform." St. Pius X House of Retreats, supra, 88 N.J. at 588. The steps necessary to a proper handling of the representation "will include, among other things, a careful investigation of the facts of the matter, the formulation of a legal strategy, the filing of appropriate papers, and the maintenance of communication with the client." Ziegelheim, supra, 128 N.J. at 261.
Of course, attorneys are not guarantors of a successful outcome, nor are they answerable for every "error of judgment in the conduct of a case or for every mistake which may occur in practice." 2175 Lemoine Ave. v. Finco, Inc., 272 N.J. Super. 478, 486 (App. Div.), certif. denied, 137 N.J. 311 (1994); see also Model Jury Charge, supra, 5.51A ("The law recognizes that the practice of law according to standard legal practice will not necessarily prevent a poor result.").
As with the imposition of a duty of care, the formulation of standards defining such a duty is a function of the courts. Estate of Desir ex rel. Estiverne v. Vertus, 214 N.J. 303, 322 (2013). The Court has emphasized that common law rules concerning not only the existence, but also the scope, of a duty of care must "generate intelligent and sensible rules to govern future conduct." Id. at 323 (quoting Hopkins v. Fox & Lazo Realtors, 132 N.J. 426, 439 (1993)). The scope of a duty imposed by the law must be neither so specific as to reach only the outcome in a particular case nor so broad that it "unintentionally impos[es] liability in situations far beyond the parameters" of the case under review. Ibid.
In accordance with this reasoning, courts have defined the standard of care imposed on attorneys "in rather broad terms," since an attorney's responsibilities in any given representation will "vary with the circumstances presented." Ziegelheim, supra, 128 N.J. at 260; see also St. Pius X, supra, 88 N.J. at 588 ("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."); Conklin, supra, 145 N.J. at 413 ("Malpractice in furnishing legal advice is a function of the specific situation and the known predilections of the client.").
The particular conduct required of an attorney to meet the broadly-delineated standard of care is "ordinarily circumstantially dependent." Gilles, supra, 345 N.J. Super. at 127. This makes sense because the standard of care asks what competent and diligent attorneys would do under circumstances similar to those of the particular attorney accused of malpractice. Restatement of Lawyers, supra, 52. What constitutes satisfactory diligence, for example, turns on factors including, but not limited to "the scope of the representation," "the client's instructions," "the importance of the matter to the client," "the cost of the effort, customary practice, and the time available." Restatement of Lawyers, supra, 52 comment d; cf. St. Pius X, supra, 88 N.J. at 588 (reasonable degree of care is determined by considering "the type of service the attorney undertakes to perform."); Lerner, supra, 359 N.J. Super. at 217-18 (the degree of care owed by the attorney "is framed," and can be limited by, the agreed-upon undertaking). Another relevant circumstance is the client's sophistication or lack thereof. Conklin, supra, 145 N.J. at 415 ("[S]ome clients may sufficiently understand aspects of a financial transaction . . . so as not to impose [an obligation] on their lawyer to explain the transaction in detail."); In re Wallace, 104 N.J. 589, 593 (1986)(where the client was "elderly and infirm and particularly dependent on her attorney's judgment," the attorney breached fiduciary duty by merely following the client's instructions). With respect to competency, application of the standard requires consideration of circumstances such as "time pressures, uncertainty about facts or law, the varying means by which different competent lawyers seek to accomplish the same client goal, and the impossibility that all clients will reach their goals." Restatement of Lawyers, supra, 52 comment b.
As we have previously stated, the role of our courts "in defining the contours of a legal duty is particularly important in the context of attorney conduct, as our State judiciary, since 1947, has exercised exclusive constitutional authority over the practice of law." Estate of Spencer, supra, 400 N.J. Super. at 240 (citing N.J. Const. art. VI, 2, 3). In certain cases, courts have delved beyond the broadly-defined standard of care and identified particular actions required of attorneys, as a matter of law, to satisfy their duty of care. See, e.g., Ziegelheim, supra, 128 N.J. at 261 (necessary steps to providing proper representation "will include, among other things, a careful investigation of the facts of the matter, the formulation of a legal strategy, the filing of appropriate papers, and the maintenance of communication with the client"); St. Pius X, supra, 88 N.J. at 588 (where a lawyer is retained to investigate title to real estate, he or she is obligated "to make a painstaking examination of the records and to report all facts relating to the title"); 2175 Lemoine Ave., supra, 272 N.J. Super. at 483, 487 (where lawyer's services included advising and drafting documents in connection with a loan transaction, lawyer must be informed about the applicable law); Hoppe v. Ranzini, 158 N.J. Super. 158, 163-64 (App. Div. 1978)(absent reasonable justification, an attorney must commence the client's action before expiration of the statute of limitations); Stewart v. Sbarro, 142 N.J. Super. 581, 591-92 (App. Div.)(attorney's failure to advise his clients of certain risks violated the requisite standard of reasonable care), certif. denied, 72 N.J. 459 (1976); Passanante v. Yormark, 138 N.J. Super. 233, 238-39 (App. Div. 1975)(attorney must "prepare, file and serve pleadings essential to the proper presentation of the client's cause"), certif. denied, 70 N.J. 144 (1976); see also Restatement of Lawyers, supra, 52 comment g (explaining that sometimes a particular act or omission by an attorney is so obviously a breach of the duty of care that it may be determined, without expert testimony, by the court as a matter of law).
When a malpractice claim is brought against an attorney retained to represent a client in the drafting and review of written agreements, with respect to complex transactional matters, involving, as here, significant financial issues, depending upon the particular facts and the expert testimony presented, we perceive several actions which may be considered by a jury in determining whether the attorney breached the standard of care. First, did the attorney ascertain the client's business objectives through appropriate consultation. See Restatement of Lawyers, supra, 16 comment c. Was reasonable advice provided to the client "on the various legal and strategic issues" bearing on those identified business objectives. Ziegelheim, supra, 128 N.J. at 261; see also Conklin, supra, 145 N.J. at 413 ("An attorney in a counseling situation must advise a client of the risks of the transaction in terms sufficiently clear to enable the client to assess the client's risk.").
During the drafting process, did the attorney scrutinize the proposed agreement to ensure that the writing effectuates the business objectives defined by the client. Did the attorney review the written agreement with the client, to determine that the client understood the material terms that might reasonably affect the client's decision to execute it. See Passanante, supra, 138 N.J. Super. at 238 (attorney is obligated to inform the client "promptly of any known information important to him [or her]"); Michels, supra, at 282 (attorney should "'review all important provisions with the client before proceeding to an agreement'" (quoting Model Rules of Prof'l Conduct 1.4 comment (2000)). Were the various provisions to accomplish each of the client's stated objectives pointed out or, if they were not, did the attorney ensure that the client assents to the omission of any such objective.
We do not suggest that all of these actions are always required. However, if the scope of representation includes one or more of these activities, failure to perform an included act in a reasonably competent manner may indicate a breach of the standard of care.
Application of the standard of care in legal malpractice cases is quite distinct from that in ordinary negligence cases, as acknowledged in our model instruction:
Negligence is conduct which falls below a standard of care required by law for the protection of persons or property from foreseeable risks of harm. In the usual negligence case, it is not necessary for plaintiff to prove the standard of care by which defendant's conduct is to be measured. In the usual case, such as an automobile negligence action, it is sufficient for plaintiff to prove what the defendant did or failed to do, and what the circumstances were, and then it is for the jury to determine whether the defendant exercised such care as a reasonably prudent person would have exercised for the safety of others. The standard of care is reasonable prudence to avoid injury to another, and the jury, in effect, supplies that standard by deciding what a reasonably prudent person would have done in the circumstances.
In the usual legal malpractice case, however, jurors are not qualified to supply the standard of care by which to measure the defendant's conduct.
[Model Jury Charge, supra, 5.51A.]
Accordingly, in most legal malpractice cases, the testimony of an expert is necessary to supply the standard of care against which the lawyer's conduct is to be evaluated. Stoeckel v. Twp. of Knowlton, 387 N.J. Super. 1, 14 (App. Div.)("Because the duties a lawyer owes to his client are not known by the average juror, a plaintiff will usually have to present expert testimony defining the duty and explaining the breach."), certif. denied, 188 N.J. 489 (2006); Taylor v. DeLosso, 319 N.J. Super. 174, 179 (App. Div. l999).
In this case, there is no question that defendants owed plaintiff a duty of care arising from the attorney-client relationship. We do not read the motion judge's decision as reaching a contrary conclusion. Rather, in stating that defendants owed plaintiff no "duty" to explain terms in the Redemption Agreement that were unambiguous, the judge was, in essence, concluding that defendants did not breach their standard of care.
The existence of a duty of care and the standards defining such a duty are legal questions determined by the court as a matter of law. See Estate of Desir, supra, 214 N.J. at 322; Ziegelheim, supra, 128 N.J. at 261-62. Once the standards are defined by the court, whether or not an attorney's representation of a client has satisfied the standard of care required is a factual question.
If, upon a motion for summary judgment, the evidential materials presented by the parties do not raise any genuine issues of material fact, a court may grant the motion if the movant if entitled to judgment as a matter of law. Kaplan v. Skoloff & Wolfe, P.C., 339 N.J. Super. 97 (App. Div. 2001) (affirming grant of summary judgment for defendant attorney in malpractice action where the report of the client's expert set forth "no evidentiary support establishing the existence of a standard of care" against which defendant's conduct could be measured); see also Restatement of Lawyers, supra, 52 comment b (noting that, "in appropriate circumstances," a court faced with a summary judgment motion "may determine whether a lawyer has satisfied the duty [of care].").
It is not enough, however, that the evidentiary record reveals disputes of fact. See Sommers, supra, 287 N.J. Super. at 9 (citing Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 529 (1995)). The motion judge must determine if the contested facts are material, that is, whether a resolution of those factual disputes in the non-movant's favor would entitle him or her to judgment as a matter of law. Ibid.
In malpractice cases challenging an attorney's representation in a transactional matter, as with a settlement agreement, plaintiffs must allege "particular facts in support of their claims of attorney incompetence." Ziegelheim, supra, 128 N.J. at 267. A cause of action for malpractice cannot substitute as a remedy for a client who later becomes dissatisfied with the contents of the deal. See generally Guido v. Duane Morris LLP, 202 N.J. 79 (2010); Puder v. Buechel, 183 N.J. 428 (2005); Ziegelheim, supra, 128 N.J. 250.
Upon review of the record, viewing the facts in the light most favorable to plaintiff, we conclude that plaintiff's claim should not have been resolved on summary judgment because there were genuine issues of material fact. First, the parties dispute whether the deal orally negotiated by plaintiff and Grossberg included a kicker for his Warrant interests. At this procedural stage, we are compelled to credit plaintiff's deposition testimony that the negotiated terms included additional compensation for his Warrant in the event that NIA-II was purchased within the specified time period. Second, there are conflicting factual contentions regarding whether plaintiff communicated to Michaels his desire and expectation that the Redemption Agreement include a kicker for his Warrant. According to plaintiff, he explained to Michaels that he would be "getting a kicker on what [he] owned, and [his] equity." Third, plaintiff claims that Michaels admitted fault after the import of the final kicker provision became clear, specifically alleging that Michaels confessed to having "missed it." While plaintiff may not be able to satisfy his burden of proof with respect to his version of events, defendants should not have prevailed on that factual issue on a motion for summary judgment. Ziegelheim, supra, 128 N.J. at 266.
Finally, plaintiff presented the opinion of his expert Falkin, who proffered a standard of care and concluded that Michaels had deviated from it by failing (1) in the first instance, to ensure that the Redemption Agreement provided for a kicker on plaintiff's Warrant in accordance with his stated objective to "monetize" his equity interests, and (2) to notice or inquire into the exclusion of the Warrant from the kicker provision. Falkin underscored the fact that Michaels allegedly admitted to "missing it" and pointed to Michaels' deposition testimony in which he stated that his only role vis- -vis the economic terms in the deal was as a "scrivener." The parties quarrel over the propriety of the motion judge's conclusion that the Redemption Agreement was unambiguous. Defendants contend that contract ambiguity is determined by the court as a matter of law, while plaintiff argues that his expert's opinion that the contract was ambiguous created a fact dispute for a jury to resolve. We agree with the judge that the Redemption Agreement's "avoidance of doubt" language was unambiguous and precluded plaintiff from receiving a kicker on his warrant equity. Thus, the real question in this litigation is whether Michaels committed malpractice by not inquiring into or explaining the terms of the Redemption Agreement, that is, whether a competent and diligent attorney acting in similar circumstances would have done so.
Falkin's opinion, "clearly based on factual evidence of record, to which he applied generally accepted standards of care," Carbis Sales, Inc. v. Eisenberg, 397 N.J. Super. 64, 80 (App. Div. 2007), should have been credited by the motion judge for purposes of summary judgment. See Ziegelheim, supra, 128 N.J. at 262.
In sum, if the foregoing factual disputes were resolved in plaintiff's favor, they would support a finding that defendants breached their duty of care. The contested facts were material, and thus summary judgment should not have been granted to defendants on this issue. Before we can decide whether that ruling necessitates reversal, we must address the grant of summary judgment on the proximate cause and damages.
Plaintiff also ascribes error to the motion judge's conclusion that plaintiff failed to establish a prima facie case that defendants' alleged malpractice was a proximate cause of actual damages. Plaintiff argues that the exclusion of the Warrant from the kicker provision resulted in significant economic loss, and that a rational jury could find that defendants' alleged negligence was a substantial factor in such loss.
An attorney who breaches his or her duty of care to a client is liable only for the losses proximately caused by such breach. 2175 Lemoine Ave., supra, 272 N.J. Super. at 487-88; Lamb v. Barbour, 188 N.J. Super. 6, 12 (App. Div. 1982), certif. denied, 93 N.J. 297 (1983). "To establish the requisite causal connection between a defendant's negligence and plaintiff's harm, plaintiff must present evidence to support a finding that defendant's negligent conduct was a 'substantial factor' in bringing about plaintiff's injury, even though there may be other concurrent causes of the harm." Froom v. Perel, 377 N.J. Super. 298, 313 (App. Div.)(quoting Conklin, supra, 145 N.J. at 416-20), certif. denied, 185 N.J. 267 (2005). The burden of proving the causal relationship rests with the client and cannot be satisfied by "mere conjecture, surmise or suspicion." Sommers, supra, 287 N.J. Super. at l0.
The client must have sustained actual, as opposed to merely speculative, damages. Olds v. Donnelly, 150 N.J. 424, 437 (1997). In malpractice cases, damages are generally measured by the amount that a plaintiff "would have received but for the attorney's negligence." Froom, supra, 377 N.J. Super. at 313 (quoting 2175 Lemoine Ave., supra, 272 N.J. Super.at 487-88).
"[O]pen issues of causation and damage are plainly amenable to expert testimony," Estate of Spencer, supra, 400 N.J. Super. at 255, particularly in legal malpractice claims involving complex commercial transactions, see 2175 Lemoine Ave., supra, 272 N.J. Super. at 489-90; Froom, supra, 377 N.J. Super. at 298. Indeed, we have found the failure to provide expert testimony concerning the element of proximate cause fatal to a malpractice plaintiff's claim. 2175 Lemoine Ave., supra, 272 N.J. Super. at 490.
As we have previously explained:
[I]n cases involving transactional legal malpractice, there must be evidence to establish that the negligence was a substantial factor in bringing about the loss of a gain or benefit from the transaction. Where . . . a plaintiff alleges that he suffered a loss in a particular transaction because an attorney failed to take steps to protect his interest, the plaintiff must present evidence that, even in the absence of negligence by the attorney, the other parties to the transaction would have recognized plaintiff's interest and plaintiff would have derived a benefit from it.
[Froom, supra, 377 N.J. Super. at 315 (emphasis added)(citing 2175 Lemoine Ave., supra, 272 N.J. Super. 427; Lamb, supra, 188 N.J. Super. 6).]
2175 Lemoine Avenue, supra, involved a claim against an attorney who had committed malpractice by structuring a transaction in violation of state law. 272 N.J. Super. at 482-83. After a bench trial, the judge concluded that the attorney proximately caused the client's damages, reasoning that the transaction could have been legally structured. Id. at 488-89. While concurring with the malpractice finding, we nevertheless reversed because the judge's "assumption that there were legitimate means for structuring th[e] agreement" was not demonstrated by the record. Id. at 489. We noted that the plaintiff did not present evidence from a legal expert showing that the transaction could have been legally structured. Id. at 490. Moreover, there was no evidence that the other parties would have been willing or able to agree to such a transaction. Ibid.
Similarly, in Froom, supra, the client alleged that the defendant law firm committed malpractice by failing to protect his purported fifty-percent interest in a development project. 377 N.J. Super. at 302, 308. We held that, even if we assumed that the firm was negligent in failing to protect the plaintiff's alleged interest in the project, the evidence did not support a finding that the negligence was a proximate cause of the loss of the plaintiff's interest. Id. at 315. We noted that there was no evidence indicating that the transaction would have gone forward with the other parties agreeing to allow the plaintiff to retain a fifty-percent interest. Id. at 317.
Here, the motion judge concluded that plaintiff's asserted injury was "just purely speculative" and thus granted defendants' motion for summary judgment. Unlike 2175 Lemoine Ave. and Froom, which were decided on a fully-developed record following trials, this matter was decided by way of summary judgment. Viewing the facts in the light most favorable to plaintiff, we conclude that plaintiff's claim raises genuine issues of material fact with respect to proximate cause and damages. Specifically, a rational trier of fact could decide that NIA-II would have recognized plaintiff's interest and plaintiff would have derived a benefit from it. Froom, supra, 377 N.J. Super. at 315.
Though defendants call our attention to the fact that NIA-II's president testified that NIA-II would never have agreed to pay plaintiff additional consideration on his Warrant, plaintiff has offered evidence demonstrating that NIA-II was anxious to settle his lawsuit in contemplation of the MMA sale. More importantly at this procedural stage, as noted by plaintiff's expert report, plaintiff was not obligated to execute the Redemption Agreement, and thus could have exercised his unexpired Warrant in time to receive additional compensation from the sale of NIA-II to MMA.
We also disagree that determination of plaintiff's damages would be "purely speculative," since plaintiff could calculate his loss by multiplying the number of equity units he was entitled to acquire under the Warrant by the value of an equity unit paid by MMA for the acquisition of NIA-II, minus his cost to purchase the units.
For the foregoing reasons, we reverse the Law Division's order of August 10, 2012, and remand the matter for proceedings consistent with our opinion. On remand, we deem it in the interests of justice to afford the parties an opportunity for supplemental discovery to arrange new or amended expert reports addressing the applicable standard of care, the presence and extent of the alleged breach and whether such breach proximately caused financial injury to plaintiff. See Estate of Spencer, supra, 400 N.J. Super. at 255-56. We do not retain jurisdiction.
1 A warrant, also known as a stock warrant, is "[a]n instrument granting the holder a "long-term (usu[ally] a five- to ten-year) option to buy shares at a fixed price." Black's Law Dictionary 1617 (8th ed. 2004).
2 A put option, or "put," is an option to sell, or the right to compel another to buy, a security "at a fixed price even if the market declines." Black's Law Dictionary, supra, at 1128.
3 In plaintiff's email to Bratti, that figure was derived by calculating his roughly 2.9% ownership interest in NIA-II at a current company valuation of $100 million $2.9 million and subtracting that amount by the (slightly-off) Warrant exercise price of "$1.375" million. As previously mentioned, the actual exercise price of the Warrant was $1,237,500.
4 Though Grossberg's recollection differs, we are compelled at summary judgment to credit plaintiff's deposition testimony that the kicker issue was raised by Grossberg subsequent to the negotiations discussed just above.
5 At deposition, plaintiff could not recall the specific words used by Grossberg and admitted that no one at NIA-II "specifically used the word 'warrants.'" Nevertheless, he testified that he "left that meeting with the knowledge and assurance that [he] was walking away with a kicker on all of the equity [he] had in [NIA-II]."
6 Specifically, Michaels testified at his deposition that he had been "primarily a scrivener" during the Redemption Agreement deal, while "things that involved business issues were more on [plaintiff]'s side." He explained:
I interacted with [plaintiff] differently than I interacted with other clients. . . . Some clients asked me to handle every aspect of their transaction and negotiations and didn't want to have anything other than a document ready to be signed put in front of them. Other clients wanted me to act as [a] scrivener, which is [how] I acted here.
7 Unlike ordinary negligence, in the legal malpractice context, the existence of a duty of care is generally not at issue if there is a bona fide attorney-client relationship. The issue comes up frequently, however, in cases where a third-party non-client alleges that the attorney owed him or her a duty of care. Of course, the degree of care required of the attorney in any given representation will vary with the particular circumstances of that representation. For instance, if a client gives informed consent to an otherwise valid limitation on the scope of the representation, a lawyer's failure to perform certain "services he or she might otherwise perform absent such consent" does not constitute a breach of the standard of care. Lerner v. Laufer, 359 N.J. Super. 201, 217-18 (App. Div.), certif. denied, 177 N.J. 223 (2003); cf. Restatement of Lawyers, supra, 50 comment d.