Opinion
DOCKET NO. A-1648-13T3
07-09-2015
THE BOARD OF TRUSTEES OF THE INTERNATIONAL UNION OF OPERATING ENGINEERS, LOCAL 82 5 PENSION FUND, OPERATING ENGINEERS LOCAL 825 WELFARE FUND, OPERATING ENGINEERS LOCAL 825 APPRENTICESHIP TRAINING AND RE-TRAINING FUND, OPERATING ENGINEERS LOCAL 825 SUPPLEMENTAL UNEMPLOYMENT BENEFITS FUND, OPERATING ENGINEERS LOCAL 825 SAVINGS FUND, and OPERATING ENGINEERS LOCAL 825 ANNUITY FUND, Plaintiffs-Appellants, v. HUTT & SHIMANOWITZ, P.C. and DAVID M. HUTT, individually, Defendants-Respondents.
Pitta & Giblin, LLP, attorneys for appellants (Vincent M. Giblin, on the briefs). Wilentz, Goldman & Spitzer, P.A., attorneys for respondents (Edward T. Kole, of counsel and on the brief; James E. Tonrey, Jr., of counsel and on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Guadagno and Leone. On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-1798-12. Pitta & Giblin, LLP, attorneys for appellants (Vincent M. Giblin, on the briefs). Wilentz, Goldman & Spitzer, P.A., attorneys for respondents (Edward T. Kole, of counsel and on the brief; James E. Tonrey, Jr., of counsel and on the brief). PER CURIAM
Plaintiffs are a collection of "employee benefit" and "multi-employer" plans within the meaning of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C.A. §§ 1001 to 1461. They appeal the trial court's decision granting summary judgment to defendants Hutt & Shimanowitz, P.C. (H & S) and David Hutt (collectively "the defendants") on various causes of action arising out of a forged personal guarantee. We affirm.
I.
Defendant H & S is a law firm with its principal office located in Woodbridge; Hutt is an attorney at H & S. H & S was originally retained by Karabinchak Brothers, Inc. (KBI), an employer located in Edison. Jamie Karabinchak (Jamie) and his mother, Sara Karabinchak (Sara), each held a 50% ownership interest in KBI.
We use the Karabinchaks' first names for ease of reference and intend no disrespect.
KBI was a signatory to an Independent Collective Bargaining Agreement with International Union of Operating Engineers Local Union 825 (Local 825) for the period of January 2005 through September 2009. Under the agreement, KBI was required to make certain benefit fund contributions to plaintiffs.
Evidently, KBI became delinquent in its required contributions in or around 2007, thereby prompting plaintiffs and KBI to submit to binding arbitration. As a consequence of that arbitration, KBI and plaintiffs agreed to a payout stipulation — drafted by plaintiffs' counsel — in or around March 2007, which provided for bi-weekly installment payments that would continue until past due amounts and interest were paid in full. At the time of the payout stipulation, KBI was represented by H & S, and specifically Hutt, who made certain handwritten changes to the draft stipulation of dismissal and "forwarded [the final stipulation] to [plaintiffs] consistent with the settlement of the dispute negotiated by and between the attorneys for KBI and the [plaintiffs]." The payout stipulation was signed by Jamie on behalf of KBI. Jamie also executed a personal guarantee in the payoff stipulation itself.
In addition to certain mandatory scheduled payments, the payout stipulation also required KBI to post a surety bond, as required by the collective bargaining agreement. Because KBI was apparently unable to post a surety bond, plaintiffs demanded that KBI's principals, Sara and Jamie, provide separate personal guarantees in lieu of a surety bond. The payout stipulation provided that the personal guarantees would include "all contribution obligations under this Agreement and as contained in the Local 825 collective bargaining agreement." Plaintiffs' counsel prepared a personal guarantee form that was to be signed by Sara and Jamie. The personal guarantee form document contains no requirement for a witness or notary.
Although he no longer recalled at the time of this litigation, plaintiffs' counsel believed that he sent the unsigned personal guarantee form to Hutt as KBI's counsel. In an email dated two weeks prior to execution of the payout stipulation, plaintiffs' counsel asked Hutt to "forward [the personal guarantee form] to [the Karabinchaks] for signature." We assume for purposes of summary judgment that plaintiffs' counsel sent the unsigned personal guarantee form to Hutt.
In any event, plaintiffs' counsel received back a personal guarantee form which purportedly bore the signatures of Jamie and Sara. As set forth below, it is unclear whether Hutt himself returned the signed personal guarantee form to plaintiffs' counsel. For purposes of summary judgment, we assume it was returned by Hutt. It is undisputed that Hutt did not make any statements about the signatures to plaintiffs or plaintiffs' counsel.
It is also undisputed that KBI initially fulfilled its financial obligations under the payout stipulation. However, in September 2009, plaintiffs conducted a payroll audit of KBI that revealed that KBI had a benefit obligation of $238,930.08. Apparently, this benefit obligation arose from the earlier collective bargaining agreement, incorporated into the personal guarantees by the payout stipulation.
KBI thereafter filed for bankruptcy in November 2009, listing plaintiffs as its primary creditor. In February 2010, plaintiffs filed a verified complaint in the Law Division seeking to collect the unpaid benefit obligation from Jamie and Sara personally, based on the personal guarantee form signed in conjunction with the 2007 payout stipulation.
After the suit was filed, plaintiffs discovered that Sara's purported signature on the personal guarantee form had been forged. Sara denied having any knowledge of having personally guaranteed any money owed by KBI. Sara also denied having any conversation with Hutt or H & S concerning a personal guarantee. Plaintiffs' forensic handwriting analysis subsequently found no evidence that the document had been signed by Sara and concluded that it was likely "not authentic." Plaintiffs thereafter entered into a stipulation of settlement with Sara in November 2011. The stipulation of settlement states that, "Hutt & Simanowitz, P.C., received the [p]ersonal [g]uarantee purporting to bear the signature of [Sara] and forwarded the same to [p]laintiff's counsel consistent with the settlement of the dispute negotiated by and between the attorneys for KBI and [plaintiffs]."
Plaintiffs' forensic handwriting analysis also concluded, however, that Jamie's signature was "very probably . . . authentic." Jamie subsequently entered into a stipulation of settlement for the judgment in December 2011. However, Jamie lacked assets to pay the judgment.
During the litigation against Sara and Jamie, plaintiffs sought to depose Hutt concerning his communications with Sara about the personal guarantee. In response, Hutt submitted a certification dated June 21, 2011 stating simply that he received the personal guarantees at his office "already signed" and "merely forwarded them to [plaintiffs' counsel]."
In January 2013, during the present actions against defendants, Hutt submitted a second certification, stating that H & S and he "realized that they did not in fact forward the [p]ersonal [g]uarantees to [p]laintiffs, and den[ied] that they were involved in the negotiation and/or execution of the [p]ersonal [g]uarantee."
In May 2012, plaintiffs instituted the present action in the Law Division against H & S and Hutt. Although largely styled as a legal malpractice claim, plaintiffs' complaint asserted a variety of causes of action including: general negligence, negligent mispresentation, breach of fiduciary duty, breach of contract, breach of warranty and of the covenant of good faith and fair dealing, and negligent supervision.
Plaintiffs amended the complaint to add Sara as a defendant under a breach of contract theory, but the trial court granted her motion to dismiss.
Following discovery, defendants moved for summary judgment in August 2013. Plaintiffs cross-moved for summary judgment in September 2013. After hearing oral argument, Judge Kenneth J. Grispin granted defendants' motion for summary judgement and denied plaintiffs' cross-motion.
With regard to defendants' motion for summary judgment, the trial court found that, although "this was a sloppy, unprofessional transaction," there was "no attorney or client relationship between plaintiffs and defendants." For this same reason, the court also found it of "no moment" that Hutt had vacillated when describing his involvement in the transaction. As the court saw it, "there was no . . . reasonable way that the plaintiffs were relying upon [Hutt] to do anything." Further, as plaintiffs admitted, Hutt had no duty to "scour the document, [or] to make a series of phone calls . . . to make sure that the document, was, in fact, signed by [Sara]." Consequently, the court ruled that defendants did not owe a duty to plaintiffs as a matter of law and that summary judgment was appropriate. The court issued its resulting order dismissing the complaint to defendants on October 25, 2013.
II.
Plaintiffs appeal. Among other things, plaintiffs maintain that material issues of fact preclude summary judgment. Specifically, plaintiffs posit that Hutt's recantation regarding his involvement with the personal guarantees, at a minimum, establishes a question of credibility. Additionally, plaintiffs contend that the trial court erred in finding that Hutt owed them no duty.
A trial court must grant a summary judgment motion if "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c). "An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." Ibid.; see also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
If the evidence submitted on the motion "'is so one-sided that one party must prevail as a matter of law,' the trial court should not hesitate to grant summary judgment." Brill, supra, 142 N.J. at 540 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 2512, 91 L. Ed. 2d 202, 214 (1986)). On appeal we employ the same summary judgment standard. Townsend v. Pierre, 221 N.J. 36, 59 (2015). We must hew to our "de novo" standard of review. Ibid.
"'[T]he appellate court should first decide whether there was a genuine issue of material fact, and if none exists, then decide whether the trial court's ruling on the law was correct.'" W.J.A. v. D.A., 210 N.J. 229, 237-38 (2012) (citation omitted). Here, plaintiffs argue it is material whether Hutt himself transmitted the signed personal guarantee form. As the trial court properly ruled, this disputed issue of fact "is of no moment" and is not material. Even if Hutt transmitted the signed personal guarantee form, plaintiffs proffered no evidence that Hutt was aware Sara's signature had been forged. Without such knowledge, it is also immaterial whether Hutt negotiated with plaintiffs the deal that included the personal guarantees, or whether he received and transmitted the unsigned personal guarantee form to Sara and Jamie.
Plaintiffs assert that Hutt's original certification caused them to not to depose him in their suit against the Karabinchaks, and that his later certification was not credible. However, plaintiffs, despite having subsequently deposed Hutt, have not alleged that their suit against Sara would have had a different outcome had Hutt been deposed earlier. Moreover, although Hutt's reversal of his position left the trial court "singularly unimpressed," the court properly concluded it was irrelevant whether Hutt received the signed personal guarantee form.
We assume for purposes of summary judgment that Hutt negotiated the deal with plaintiffs, transmitted the unsigned personal guarantee form, and then transmitted the signed personal guarantee form. Plaintiffs still must establish that defendants had a duty to them.
Because we make that assumption, we need not address plaintiffs' argument that Hutt's change in position was barred by judicial estoppel. See Cummings v. Bahr, 295 N.J. Super. 374, 385-89 (App. Div. 1996).
III.
We next address the question of whether defendants owed plaintiffs a duty of care in these circumstances. "The determination of the existence of a duty is a question of law for the court." Petrillo v. Bachenberg, 139 N.J. 472, 479 (1995).
A claim for legal malpractice is "a variation on the tort of negligence." Garcia v. Kozlov, Seaton, Romanini & Brooks, P.C., 179 N.J. 343, 357 (2004). 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); Kranz v. Tiger, 390 N.J. Super. 135, 147 (App. Div.), certif. denied, 192 N.J. 294 (2007).
The matter here is complicated by the fact that the parties never entered into an attorney-client relationship. Generally, an attorney-client relationship is a prerequisite to maintaining a legal malpractice action against an attorney. Banco Popular No. Am. v. Gandi, 184 N.J. 161, 179 (2005). However, "'[t]he absence of an attorney-client or fiduciary relationship does not necessarily bar a legal malpractice claim by a non-client where an independent duty is owed.'" Estate of Albanese v. Lolio, 393 N.J. Super., 372 (App. Div.) (citation omitted), certif. denied, 192 N.J. 597 (2007). Nonetheless, "the grounds on which any plaintiff may pursue a malpractice claim against an attorney with whom there was no attorney-client relationship are exceedingly narrow." Green v. Morgan Props., 215 N.J. 431, 458 (2013). Plaintiffs assert one such narrow ground here. Under Petrillo, supra, 139 N.J. at 483-84, "attorneys may owe a duty of care to non-clients when the attorneys know, or should know, that non-clients will rely on the attorneys' representations and the non-clients are not too remote from the attorneys to be entitled to protection." Plaintiffs claim that defendants owed them a duty under Petrillo because plaintiffs reasonably relied on Hutt to explain the material terms of the personal guarantee form to the Karabinchaks and obtain their agreement, and that Hutt's failure to do so constitutes a breach of his duty of care to them as a third party. We disagree.
Other circumstances where attorneys may owe a duty to a non-client include instances where the attorney "participated in a civil conspiracy with the goal of assisting a client to engage in a fraudulent transfer of assets to the detriment of a lender," LoBiondo v. Schwartz, 199 N.J. 62, 102 (2009) (citing Banco Popular, supra, 184 N.J. at 177-78), or where the "'attorney had reason to foresee the specific harm which occurred,'" Estate of Albanese, supra, 393 N.J. Super. at 368-69 (citation omitted).
Plaintiffs here are sophisticated litigants who were represented by counsel throughout the entire litigation. Plaintiffs admittedly did not ask defendants to verify the signatures. Additionally, the personal guarantee form was drafted by plaintiffs' law firm without any negotiation with KBI or defendants. Had plaintiffs wanted additional assurances as to the authenticity of the signatures, they could have done so, or simply drafted the personal guarantee form to require the signature to be witnessed or notarized.
More importantly, plaintiffs have failed to provide any evidence that Hutt knew of any wrongdoing concerning the personal guarantee at the time of the payout stipulation. Moreover, there is no evidence to suggest that Hutt made any representations to plaintiffs that the signatures were authentic, or that Hutt knowingly harmed plaintiffs. Cf. Petrillo, supra, 139 N.J. at 485-88 (finding that an attorney's affirmative misrepresentation, coupled with the knowledge that the misrepresentation would induce reliance, were sufficient to sustain liability). In fact, the document's drafter admitted that he could not recall any conversation with Hutt regarding the signatures' authenticity. As such, there is no evidence to suggest that Hutt "induce[d] reasonable reliance." Banco Popular, supra, 184 N.J. at 180.
For these same reasons, we find unpersuasive plaintiffs' reliance on Stewart v. Sbarro, 142 N.J. Super. 581 (App. Div.), certif. denied, 72 N.J. 459 (1976). Although Stewart is superficially similar in that it dealt with an attorney's failure to obtain required signatures, Stewart does not require reversal here.
In Stewart, when an attorney's clients failed to appear at the closing of the sale of a corporation's shares to the plaintiffs, the attorney was to take a first mortgage and bond to obtain his clients' signatures. Id. at 585. Though he had failed to obtain the signatures, the attorney then prepared, had executed, and delivered a second mortgage from the corporation, "knowing that this would effectively prevent the corporation from fulfilling its obligation to plaintiffs under the agreement." Id. at 593 (emphasis added). We found the attorney breached a duty to the plaintiffs, not because he failed to obtain the signatures, but because he participated in creating a second mortgage, knowing but not advising the plaintiffs that the signatures on the first mortgage had never been obtained. Id. at 593-94.
Here, as opposed to Stewart, there is no evidence to suggest that Hutt knew or should have known that Sara's signature was forged. Similarly, there is no evidence to indicate that Hutt knowingly took any additional step causing damage to plaintiffs.
Rather, plaintiffs' theory seeks to impose liability on Hutt based on what they believe to be Hutt's negligent actions in failing to consult with Sara and obtain her agreement to the personal guarantee. Even assuming for the purposes of summary judgment that Sarah was Hutt's client and that Hutt did not consult with Sara and obtain her agreement to the personal guarantee before sending out the personal guarantee form, plaintiffs are still not entitled to relief. Plaintiffs' theory satisfies none of the three elements of legal malpractice. See Jerista, supra, 185 N.J. at 190-91.
By contrast, defendant's answer asserted that "the Karabinchaks agreed to sign . . . a Personal Guarantee." At his deposition, Hutt could only state that he had represented Sara, individually "sometime" within the "last ten years[.]" --------
First, plaintiffs have not shown defendants owed plaintiffs a duty that Hutt would consult with Sara. It is undisputed Hutt did not make any representations to plaintiffs at the time of the transaction about whether he had consulted with Sara before sending out the personal guarantee form. Plaintiffs cite no written or oral agreement requiring such prior consultation.
It is only to their client that lawyers owe a duty to "keep a client reasonably informed," and to "explain a matter to the extent reasonably necessary to permit the client to make informed decisions." RPC 1.4(b), (c). Violation of such an ethical rule "does not give rise to a cause of action" even for a client. Green, supra, 215 N.J. at 458. It certainly does not give rise to a cause of action for a non-client on the other side of a transaction.
Second, the absence of prior consultation would not necessarily constitute a breach of a duty to the client, let alone plaintiffs. A client may be capable of making some decisions without prior consultation. In that scenario, Hutt's receipt of the personal guarantee form apparently bearing Sara's signature might indicate her agreement and obviate the need for consultation.
Third, even assuming that consultation was required to a breach for Hutt's duty to Sara, it would not have prevented plaintiffs' damages. Consultation with Sara prior to sending out the personal guarantee form would not have foreclosed the forgery of her signature by a third party who intercepted the personal guarantee form.
We reject plaintiffs' wide-ranging theory, which would grant non-clients rights equal to those of the clients themselves. We decline to expand the narrow category of liability of a lawyer to a non-client. We agree with the trial court that defendants owed plaintiffs no such legal duty.
IV.
We also reject plaintiffs' contention that defendants breached a contractual duty by failing to obtain Sara's valid signature on the personal guarantee form. A prerequisite for any breach of contract action is the existence of a contract. See Burgos v. State, ___ N.J. ___, ___ (2015) (slip op. at 26).
Here, plaintiffs admitted that no written or oral contract existed between them and defendants. Moreover, plaintiffs have failed to establish a triable fact for any of the required elements.
Plaintiffs claim that Hutt agreed to get the Karabinchaks' signatures on the personal guarantee form, and thus created an oral contract with plaintiffs. However, even if Hutt agreed to get the signatures, he already had a pre-existing duty to his client to perform the same task. Such an agreement to perform an existing obligation lacks consideration. Segal v. Lynch, 211 N.J. 230, 253 (2012); see also Williston on Contracts § 7:42 (4th ed. 2008).
Having thus determined, as a matter of law, that defendants owed no legal duty, contractual or otherwise, to plaintiff, we need not entertain plaintiffs' remaining causes of action, which plaintiffs have not otherwise addressed in their appellate briefs. See Levinson v. D'Alfonso & Stein, 320 N.J. Super. 312, 315 (App. Div. 1999); see also Peguero v. Tau Kappa Epsilon, 439 N.J. Super. 77, 96 (App. Div. 2015) (finding defendants owed no legal duty to prevent certain harm to plaintiff and declining to address ancillary issues on appeal).
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION