Opinion
DOCKET NO. A-2429-12T1
09-24-2014
ELITE HOME FASHION LIMITED LIABILITY COMPANY, and CHU TAN, a/k/a DAVID CHU, Plaintiffs-Respondents, v. ELITE HOME FASHIONS, LLC, RICKY LEE, SOPHIA CHEN, a/k/a SOPHIA LEE, and ELEGANT HOME FASHIONS, LLC, Defendants-Appellants.
Michael K. Chong argued the cause for appellants. John R. Altieri argued the cause for respondents.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Fuentes, Fasciale and Haas. On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-4822-12. Michael K. Chong argued the cause for appellants. John R. Altieri argued the cause for respondents. The opinion of the court was delivered by FUENTES, P.J.A.D.
Defendants Elite Home Fashions, LLC, Ricky Lee, Sophia Chen a/k/a Sophia Lee, and Elegant Home Fashions, LLC, appeal the order of the Law Division denying their motion for sanctions against plaintiffs Elite Home Fashion Limited Liability Company and Chu Tan a/k/a David Chu, under Rule 1:4-8. After reviewing the record, and mindful of our standard of review, we affirm.
On June 25, 2012, plaintiffs filed this law suit against defendants in the Law Division, Bergen County vicinage, alleging, inter alia, fraud, breach of fiduciary duty by defendants as plaintiffs' business partners, and improper use of trade secrets. Defendants, who are all residents of the State of Georgia, retained New Jersey counsel who immediately contacted plaintiffs' attorney to advise him that defendants had not had any personal contacts with New Jersey, and were therefore not subject to the jurisdiction of the courts of this State. Defendants' counsel demanded that plaintiffs dismiss their cause of action, and, as required by Rule 1:4-8, also sent plaintiffs' counsel formal written notice, which we quote here in relevant part:
By filing the Complaint in a distant and improper jurisdiction, you are causing Defendants to be burdened with unnecessary costs and legal expenses. Moreover, you are unnecessarily burdening the New Jersey State Superior court with matters that should be litigated in Georgia.
It is entirely frivolous to file the instant action in the Superior Court of the State of New Jersey. Based on the above, and the information that I have been provided, I am obligated to notify you that this letter will serve as written notice, under the
provisions of N.J. Ct. R. 1:4-8, governing frivolous litigation, that the Complaint and pleadings which you have filed in regard to the above referenced matter appear frivolous, and that it is demanded that you immediately withdraw same.
Pursuant to N.J. Ct. R. 1:4-8, be further advised that an application for sanctions will be sought within a reasonable time thereafter if the above pleadings are not withdrawn within twenty-eight (28) days of the service of this demand. Please be guided accordingly.
In lieu of filing a responsive pleading under Rule 4:5-1, defendants filed a motion to dismiss plaintiffs' complaint for lack of jurisdiction over the persons pursuant to Rule 4:6-2. Plaintiffs' counsel requested an extension of time to respond, which defense counsel granted. Despite this accommodation, plaintiffs did not respond to defendants' motion until the day before the matter was scheduled for oral argument. After considering arguments of counsel, the motion judge granted defendants' motion to dismiss for lack of personal jurisdiction.
Defense counsel thereafter moved for the imposition of sanctions under Rule 1:4-8. The trial judge gave the following explanation for denying the motion:
[T]he motion is going to be denied, because the judicial claims in this . . . claim are not frivolous as a matter of law. There are sufficient facts and case law to support claims that New Jersey had both general and specific jurisdiction. And just because
this court did not agree does not make the claim frivolous. So, the motion is denied.
We review a trial court's decision to sanction a party for filing and pursuing frivolous claims under a mistaken exercise of discretion standard. We have recently reaffirmed that this "is demonstrated if the discretionary act was not premised upon consideration of all relevant factors, was based upon consideration of irrelevant or inappropriate factors, or amounts to a clear error of judgment." In re Estate of Ehrlich, 427 N.J. Super. 64, 76 (App. Div. 2012), certif. denied, 213 N.J. 46 (2013) (internal citations omitted). See also United Hearts, L.L.C. v. Zahabian, 407 N.J. Super. 379, 390 (App. Div.), certif. denied, 200 N.J. 367 (2009).
Rule 1:4-8 imposes the responsibility upon the attorney signing the pleading to ensure the legal viability of the cause of action. It requires the attorney or pro se litigant to sign the pleading and certify that:
[T]he signatory has read the pleading, written motion or other paper. By signing, filing or advocating a pleading, written motion, or other paper, an attorney or pro se party certifies that to the best of his or her knowledge, information, and belief, formed after an inquiry reasonable under the circumstances:
(1) the paper is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a non-frivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(3) the factual allegations have evidentiary support or, as to specifically identified allegations, they are either likely to have evidentiary support or they will be withdrawn or corrected if reasonable opportunity for further investigation or discovery indicates insufficient evidentiary support; and
(4) the denials of factual allegations are warranted on the evidence or, as to specifically identified denials, they are reasonably based on a lack of information or belief or they will be withdrawn or corrected if a reasonable opportunity for further investigation or discovery indicates insufficient evidentiary support.
If the pleading, written motion or other paper is not signed or is signed with intent to defeat the purpose of this rule, it may be stricken and the action may proceed as though the document had not been served. Any adverse party may also seek sanctions in accordance with the provisions of paragraph (b) of this rule.
[R. 1:4-8(a)(1) to (4).]
The Frivolous Litigation Statute is intended to discourage individual litigants from pursuing frivolous claims. The statute provides:
A party who prevails in a civil action, either as a plaintiff or defendant, against any other party may be awarded all
reasonable litigation costs and reasonable attorney fees, if the judge finds at any time during the proceedings or upon judgment that a complaint, counterclaim, cross-claim or defense of the nonprevailing person was frivolous.
[N.J.S.A. 2A:15-59.1(a)(1).]
In Estate of Ehrlich, we explained the differences in standards applicable when the frivolous sanction is based on Rule 1:4-8, which applies to the attorneys and their duty to scrutinize the pleading to raise only good faith legal claims, and N.J.S.A. 2A:15-59.1(b)(2), which involves the party/client.
To award costs to a prevailing party for a frivolous claim, the statute requires a showing that "the nonprevailing party either brought the claim in bad faith for harassment, delay, or malicious injury; or 'knew, or should have known that the complaint [or] counterclaim . . . was without [any reasonable] basis in law or equity . . . .'" (quoting N.J.S.A. 2A:15-59.1(b)(2)).
Rule 1:4-8 also permits an attorney to be sanctioned for asserting frivolous claims on behalf of his or her client. An assertion is deemed frivolous when "no rational argument can be advanced in its support, or it is not supported by any credible evidence, or it is completely untenable."
Where a party has a reasonable and good faith belief in the claims being asserted, reallocation of attorneys' fees and expenses will not be awarded. Moreover, "a pleading will not be considered frivolous for purposes of imposing sanctions under Rule 1:4-8 unless the pleading as a whole is frivolous." Thus, when some allegations are
later proved unfounded, a complaint is not rendered frivolous if it also contains non-frivolous claims.
[Estate of Ehrlich, supra, 427 N.J. Super. at 77 (emphasis added) (internal citations omitted).]
This standard is intended to address the tension created by the public policy to discourage frivolous litigation and the need to create a legal environment free of intimidation, where lawyers can argue for the expansion of the boundaries established by precedent. There is one key question the trial judge is expected to answer: Is there a rational argument in favor of sustaining the cause of action? Stated differently, we have not awarded counsel fees as a sanction under this Rule in cases where there is a reasonable, good faith basis to believe that the complaint had merit. S.& R. Assocs. v. Lynn Realty Corp., 338 N.J. Super. 350, 364 (App. Div. 2001).
Here, the company was originally formed and operated in this State. It transferred all of its operations to Georgia in 2006. When this cause of action was filed in 2012, the company had not had any contacts with New Jersey for over six years. However, defendants were in this State in 2006 responding to plaintiffs' request. Although defendants indicated their desire to remain in Georgia, there were sufficient dealings in this State to render the initial filing at least plausible.
Under these facts, defendants have not established sufficient grounds to show plaintiffs' counsel's legal position lacked good faith or was otherwise unreasonable. Indeed, plaintiff himself certified that:
[U]pon information and belief, from 2006 to 2012, EHF GA had gross sales in the amount of $4,000,000.00, with at least $1,000,000.00 of the sales derived from the nationwide retailers outlined above, all of which maintain retail stores in New Jersey. (emphasis added).These retail stores have both a national and international clientele and presence. In short, there is a legal basis for this court to conclude the trial judge's decision to deny defendants' request for sanctions under Rule 1:4-8 did not constitute a mistaken exercise of discretion.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION