Opinion
DOCKET NO. A-2710-14T1
07-12-2016
CAPITAL INVESTMENT FUNDING, LLC, Plaintiff-Appellant, v. CALVARY ASSET MANAGEMENT, LLC; ROBERT SYPHER, an individual; ELLIOT SALZMAN, an individual; and 457 CARLTON ROAD, LLC, Defendants, and ARTHUR FIELD, an individual, Defendant-Respondent.
Christopher H. Westrick argued the cause for appellant (Carella, Byrne, Cecchi, Olstein Brody & Agnello, PC, attorneys; Mr. Westrick, of counsel and on the briefs; Annmarie F. De Primo, on the briefs). Arthur Field, respondent, argued the cause pro se.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Hoffman, Leone and Whipple. On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-3790-12. Christopher H. Westrick argued the cause for appellant (Carella, Byrne, Cecchi, Olstein Brody & Agnello, PC, attorneys; Mr. Westrick, of counsel and on the briefs; Annmarie F. De Primo, on the briefs). Arthur Field, respondent, argued the cause pro se. PER CURIAM
Plaintiff Capital Investment Funding, LLC (CIF) appeals from a February 15, 2013 Law Division order which dismissed CIF's claims against its former manager, defendant Arthur Field, and disqualified Christopher H. Westrick and the law firm, Tressler LLP, from representing CIF. CIF also appeals from two subsequent orders denying its motions for reconsideration. For the reasons that follow, we reverse and remand in part, and vacate and remand in part, with instructions to the trial court to conduct an evidentiary hearing on the sole issue of Westrick's disqualification pursuant to RPC 3.7.
I.
We glean the salient facts from CIF's complaint. This case arose from a purchase of real property located at 457 Carlton Road in Wyckoff (Wyckoff Property). In early 2002, the Wyckoff Property was owned by a company called SRG 457, LLC (SRG). On March 22, 2002, SRG executed a $600,000 note to Lancaster Resources, Inc. (LRI), secured by a mortgage on the Wyckoff Property. In 2006, SRG defaulted on the mortgage loan, and LRI instituted foreclosure proceedings. On September 17, 2007, the Chancery Division entered a final judgment of foreclosure, declaring SRG and its principal liable to LRI for $1,095,320.55, plus interest, costs, and attorney's fees. On June 6, 2008, LRI assigned its rights in the mortgage to CIF — a South Carolina limited liability company engaged in the business of selling unsecured promissory notes.
When reviewing a complaint dismissed for failure to state a claim, we accept the facts alleged in the complaint as true, granting plaintiff "every reasonable inference of fact." Green v. Morgan Props., 215 N.J. 431, 452 (2013) (quoting Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989)).
LRI had once owned ninety-one percent of CIF's shares, but it sold its ownership interest to Field in 2003.
Following a sheriff's sale, CIF acquired title to the Wyckoff Property as owner of the mortgage. Shortly thereafter, an entity called 457 Carlton Road, LLC (457 Carlton) agreed to purchase the Wyckoff Property from CIF for $394,000, with $300,342.60 due at closing. Accordingly, on October 21, 2008, 457 Carlton's financer, Calvary Asset Management, LLC (Calvary), issued a check to CIF for $305,778.63. This check was accepted by Field — CIF's manager at the time, and a founding member when CIF was created in January 1999 — on CIF's behalf.
The parties' contract provided that 457 Carlton would pay the balance of the purchase price by satisfying various outstanding liens and assessments.
Field never attempted to cash the check he received from Calvary. In a letter written to CIF's receiver in November 2011, Field admitted to knowing that the check was "no good" when he received it. Furthermore, he made no attempts to recover the amount owed to CIF for the sale of the Wyckoff Property.
In 2008, CIF's investors began filing class-action lawsuits against CIF and Field in South Carolina state court. These lawsuits were consolidated and resolved by way of an August 24, 2009 Mediated Global Settlement Agreement and Order Approving Settlement (Settlement Agreement). Pursuant to the Settlement Agreement, Field immediately resigned as CIF's manager, and CIF was placed into receivership. A receiver was appointed to wind down CIF's affairs, distribute CIF's assets to the class-action plaintiffs, and prosecute all lawsuits on CIF's behalf. Notably, the Settlement Agreement expressly provided that the South Carolina Court of Common Pleas "retains jurisdiction over this matter to ensure compliance with this Order."
Field, as manager of CIF, retained Westrick in June 2008 to represent CIF in efforts to recover assets CIF had invested in New Jersey. As part of his responsibilities, Westrick was involved in the foreclosure action and assignment from LRI. The parties dispute, however, whether Westrick was involved with the subsequent sale of the Wyckoff Property to 457 Carlton.
On May 16, 2012, Westrick filed a complaint in the Law Division on behalf of CIF against 457 Carlton, Calvary, Robert Sypher, and Elliot Salzman (Carlton defendants), along with Field, asserting breach of contract, fraud, negligent misrepresentation, unjust enrichment, conversion, breach of fiduciary duties, common-law waste, and civil conspiracy. On December 26, 2012, Field filed a motion to dismiss the claims against him and to disqualify Westrick and his firm, Tressler LLP, from representing CIF. In a February 15, 2013 order, the trial court granted Field's motion. Relying heavily on the previous litigation that had taken place in South Carolina, the court dismissed CIF's claims pursuant to the first-to-file rule, "res judicata and/or collateral estoppel," and forum non conveniens. Additionally, the court disqualified Westrick and Tressler LLP from representing CIF pursuant to RPCs 1.7 and 3.7. Although the disqualification issue appeared to be a moot point since the claims against Field had been dismissed, the court explained that it was including the disqualification order because "the dismissal is without prejudice," and thus CIF's claims against Field could be reinstated at a later time.
CIF filed a motion for reconsideration on May 8, 2013, which the trial court denied. In a June 10, 2013 order, the court explained that its February 15, 2013 order dismissed the claims against Field with prejudice, and that CIF failed to submit its reconsideration motion within twenty days of that order. CIF then filed a motion for leave to appeal, which we denied as interlocutory "[b]ecause the underlying case remains open and active as to [the Carlton defendants.]"
In April 2014, CIF filed a second motion for reconsideration, primarily challenging the trial court's application of preclusion doctrines to bar CIF's claims. In support of its motion, CIF cited to an October 1, 2013 decision by Circuit Court Judge Edward M. Miller, who retained jurisdiction of the consolidated class-action matter in South Carolina pursuant to the Settlement Agreement. Following a contempt proceeding in South Carolina, Judge Miller made "the following additional [f]indings of [f]act" regarding misrepresentations made by Field regarding the Settlement Agreement:
a. Arthur Field has misrepresented to the other Courts that the Global Settlement Order disposed of all claims that were or could be brought by [CIF] against Arthur Miller.
b. Arthur M. Field has misrepresented to other Courts that the Global Settlement Order specifically included any dispute regarding a certain piece of real property in Wyckoff, New Jersey.
c. Arthur M. Field has misrepresented to other Courts that this Court retained jurisdiction over any and all claims [CIF] could have against Arthur M. Field at any time, and that any future
claim by [CIF] against Arthur M. Field must be brought before this Court[.]The trial court also denied this motion, stating that "[t]he court is not persuaded by [CIF's] argument that in light of Judge Miller's findings of fact, this court should reconsider its orders."
On January 8, 2015, CIF entered into a consent order with the Carlton defendants, dismissing the claims against them with prejudice. CIF then filed this appeal on February 12, 2015, raising the following arguments regarding the dismissal of its claims against Field and the disqualification of Westrick and Tressler LLP:
POINT I
THE TRIAL COURT ERRED IN THE DISMISSAL OF [THE CLAIMS AGAINST FIELD] ON THE BASIS OF RES JUDICATA AND COLLATERAL ESTOPPEL. IT WAS BASED UPON A MISTAKEN APPLICATION OF THESE LEGAL DOCTRINES AND A MISTAKEN UNDERSTANDING OF THE FACTS SURROUNDING THE SOUTH CAROLINA [SETTLEMENT AGREEMENT].
A. THE DOCTRINE OF RES JUDICATA WAS MISAPPLIED BY THE TRIAL COURT BECAUSE THERE WAS NO ADJUDICATION ON THE MERITS.
B. THE DOCTRINE OF COLLATERAL ESTOPPEL WAS MISAPPLIED BY THE TRIAL COURT BECAUSE THE ISSUE WAS NOT ACTUALLY LITIGATED.
C. THE TRIAL COURT ERRED IN ITS APPLICATION OF THE [SETTLEMENT AGREEMENT] FINDING THAT RES JUDICATA AND COLLATERAL ESTOPPEL BAR THE PLAINTIFF'S CLAIMS.
D. THE TRIAL COURT NOT ONLY IMPROPERLY ACCEPTED A SUR-REPLY BUT RELIED UPON THE SUR-REPLY IN ITS JUNE 5, 2013 ORDER.We address these arguments in turn.
POINT II
THE TRIAL COURT ABUSED ITS DISCRETION WITH THE DISMISSAL ON THE BASIS OF THE FIRST-FILED DOCTRINE.
POINT III
IT WAS AN ABUSE OF DISCRETION FOR THE TRIAL COURT TO DISMISS ON THE BASIS OF FORUM NON-CONVENIENS.
POINT [IV]
IT WAS AN ABUSE OF THE TRIAL COURT'S DISCRETION TO DENY CIF'S MOTIONS FOR RECONSIDERATION ON TIMELINESS GROUNDS BECAUSE THE APPELLATE DIVISION HAS RULED THAT THE FEBRUARY 2013 AND JUNE 2013 ORDERS ARE INTERLOCUTORY.
POINT [V]
IT WAS A CLEAR ERROR OF LAW FOR THE TRIAL COURT TO DISQUALIFY WESTRICK AND TRESSLER [LLP].
A. THE TRIAL COURT MISAPPLIED [RPC] 1.7 AND IGNORED [RPC] 1.9 AND [RPC] 1.13.
B. THE TRIAL COURT ABUSED ITS DISCRETION BY NOT CONDUCTING A HEARING, WHERE THERE WERE ISSUES OF CREDIBILITY, TO DECIDE THE MOTION TO DISQUALIFY.
C. THE TRIAL COURT COMMITTED ERROR BY FAILING TO APPLY THE PLAIN MEANING OF [RPC] 3.7.
II.
We begin our analysis by reviewing the dismissal of CIF's claims against Field based on preclusion doctrine. CIF argues that res judicata and collateral estoppel should not bar this action because, in the South Carolina litigation, there was no previous adjudication on the merits and CIF's claims against Field were not actually litigated. We agree.
Res judicata bars re-litigation of claims that have already been adjudicated. Velasquez v. Franz, 123 N.J. 498, 505 (1991). Under this doctrine, a cause of action between parties that has been finally determined on the merits cannot be re-litigated by those parties in a new proceeding. Ibid. "By insulating courts from the [re-litigation] of claims, res judicata prevents the judicial inefficiency inherent in multiplicitous litigation[,]" ensures the finality of judgments, and advances the interest of fairness "[b]y preventing harassment of parties[.]" Watkins v. Resorts Int'l Hotel & Casino, 124 N.J. 398, 409 (1991).
For an action to be barred based on res judicata, "there must be (1) a final judgment by a court of competent jurisdiction, (2) identity of issues, (3) identity of parties, and (4) identity of the cause of action." Brookshire Equities, LLC v. Montaquiza, 346 N.J. Super. 310, 318 (App. Div.) (citation omitted), certif. denied, 172 N.J. 179 (2002). "[A] consent judgment has the same res judicata effect as any other judgment." Joseph L. Muscarelle, Inc. v. State, by Trans. Dep't, 175 N.J. Super. 384, 395 (App. Div. 1980) (citation omitted), appeal dismissed, 87 N.J. 321 (1981). Further, "[t]he preclusive effect of res judicata applies not only to matters which were raised in a prior action but also to matters which could have been raised." Ibid. (citations omitted).
Unlike res judicata, collateral estoppel can preclude re-litigation of issues in suits that arise from different causes of action. To bar a claim based on collateral estoppel, the moving party must establish the following elements:
(1) the issue to be precluded is identical to the issue decided in the prior proceeding;
(2) the issue was actually litigated in the prior proceeding;
(3) the court in the prior proceeding issued a final judgment on the merits;
(4) the determination of the issue was essential to the prior judgment; and
(5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding.
[Selective Ins. Co. v. McAllister, 327 N.J. Super. 168, 173-74 (App. Div.) (quoting In re Estate of Dawson, 136 N.J. 1, 20 (1994)), certif. denied, 164 N.J. 188 (2000).]
In this case, the trial court found that "the doctrine of res judicata and/or collateral estoppel apply to the facts herein as the [Settlement Agreement] is a dispositive finding that this court is bound to follow." CIF was not a plaintiff in the investor-initiated South Carolina litigation; however, the court nonetheless precluded CIF's claims against Field in New Jersey because "the damages potentially recovered by CIF" in New Jersey would ultimately "be returned to CIF['s] principals and its holders/creditors," who were the plaintiffs in the South Carolina litigation. The court also held that the Settlement Agreement "'disposed of all claims between or among all parties, raised or which might have been raised by them,' and any issues thereafter were to be dealt with before" the South Carolina court.
After reviewing the record, we are convinced that CIF's claims against Field should not have been dismissed pursuant to either preclusion doctrine. The South Carolina litigation was initiated by CIF's investors against both CIF and Field. The Settlement Agreement which resulted from that litigation resolved the specific claims by the investors against CIF and Field; it did not resolve, or even address, any potential claims by CIF against its former manager and co-defendant Field. Moreover, there is no indication in the record that the sale of the Wyckoff Property was ever a point of contention, or "actually litigated," in the South Carolina litigation. Absent actual litigation of the claims and issues raised by CIF in this lawsuit, dismissal of CIF's claims was inappropriate to the extent it was based on the preclusive effect of the Settlement Agreement.
Judge Miller's October 1, 2013 contempt order provides strong support for our conclusion. Judge Miller, who presided over the South Carolina litigation and entered the order memorializing the Settlement Agreement, found Field to be in contempt for misrepresenting the preclusive effect of the Settlement Agreement to the trial court in this matter. Despite Judge Miller's clear rejection of Field's claim that the Settlement Agreement has preclusive effect, the trial court inexplicably gave the Settlement Agreement such effect.
We conclude that there was insufficient evidence in the record regarding the issues actually litigated in the South Carolina litigation to apply res judicata and collateral estoppel in this case. Accordingly, the trial court erred by dismissing CIF's claims pursuant to these doctrines. Furthermore, in light of Judge Miller's express clarification of the limited scope of the settlement agreement, we find that the trial court abused its discretion in denying CIF's motion for reconsideration.
CIF next argues that the trial court erred by dismissing its claims against Field based on the first-to-file rule. We review dismissals pursuant to this doctrine for an abuse of discretion. Sensient Colors, Inc. v. Allstate Ins. Co., 193 N.J. 373, 397 (2008). We agree with CIF that the trial court's application of the first-to-file rule here constituted an abuse of discretion.
The first-to-file rule is a principle of comity that is well-established in our nation's jurisprudence. See Riggs v. Johnson Cnty., 73 U.S. 166, 196, 18 L. Ed. 768, 776 (1868) (stating that "the court that first obtains possession of the controversy, or of the property in dispute, must be allowed to dispose of it without interference or interruption from the co-ordinate court"); Smith v. M'Iver, 22 U.S. 532, 535, 6 L. Ed. 152, 154 (1824) ("In all cases of concurrent jurisdiction, the court which first has possession of the subject must decide it.").
"Comity, in a legal sense, is neither a matter of absolute obligation on the one hand nor of mere courtesy and good will upon the other." Fantony v. Fantony, 21 N.J. 525, 533 (1956). In other words, the applicability of the first-to-file rule does not divest the second court of the power to act. See Sensient Colors Inc. v. Allstate Insurance Co., 193 N.J. 373, 386-87 (2008) ("The question is not whether a state court has the power to exercise jurisdiction over a case filed within its jurisdiction, but whether the court should restrain itself and not exercise that power." (citations omitted)).
Our Supreme Court outlined the contours of the first-to-file rule in Sensient Colors. To obtain a dismissal or stay of a New Jersey case for comity reasons, the moving party bears the burden to establish two facts: (1) there is an earlier-filed action in another court; and (2) the earlier-filed action "involve[s] substantially the same parties, the same claims, and the same legal issues" as the second-filed action. Id. at 391 (quoting Am. Home Prods. Corp. v. Adriatic Ins. Co., 286 N.J. Super. 24, 37 (App. Div. 1995)). If the party seeking the stay or dismissal satisfies these two prerequisites, then the party advocating the exercise of jurisdiction in the second-filed action bears the burden to "show that it will not have the opportunity for adequate relief in the first-filed jurisdiction." Id. at 392.
Applying these principles, the trial court held that CIF could not litigate its claims against Field in New Jersey in light of the class-action lawsuits that had already been brought against him in South Carolina. The court determined that "[t]he actions in South Carolina and the subject New Jersey action involve many of the same parties and alleged conduct of Mr. Field for the same time period which were, or could have been, addressed in the South Carolina litigation." Even though the South Carolina matter was settled well before CIF filed its lawsuit in New Jersey, the court nonetheless barred the action in New Jersey because the South Carolina court "[retained] jurisdiction over this matter."
An extensive comity analysis is not necessary to see that the trial court misapplied the first-to-file rule to this case. The court based its decision to bar CIF's claims in New Jersey on the South Carolina litigation that was filed in 2008 and resolved by way of the Settlement Agreement in 2009. Comity, however, is only necessary when the earlier-filed action in another forum is still pending. Am. Home Prods., supra, 286 N.J. Super. at 34 (citing Yancoskie v. Del. River Port Auth. 78 N.J. 321 (1978)). A New Jersey court should not decline to exercise jurisdiction over a case in New Jersey based on the first-to-file rule if the earlier-filed case in the other forum is no longer ongoing. The South Carolina class-action suit concluded three years before this New Jersey action was filed in 2012; therefore, we discern no reason to dismiss this case on comity grounds.
Next, we address CIF's argument that the trial court erred by barring its claims against Field pursuant to the doctrine of forum non conveniens. Decisions regarding application of this doctrine "are entrusted to the trial court's sound discretion." Tatham v. Tatham, 429 N.J. Super. 502, 516 (App. Div.) (citation omitted), certif. denied, 215 N.J. 486 (2013).
"The doctrine of forum non conveniens is an equitable doctrine founded on the notion that a court should decline to exercise jurisdiction over a dispute when its disposition in another jurisdiction 'will best serve the convenience of the parties and the ends of justice.'" Ibid. (quoting Gore v. U.S. Steel Corp., 15 N.J. 301, 305, cert. denied, 348 U.S. 861, 75 S. Ct. 84, 99 L. Ed. 678 (1954)). In New Jersey, the plaintiff's choice of forum is "entitled to preferential consideration." Yousef v. Gen. Dynamics Corp., 205 N.J. 543, 557 (2011). Determination of the appropriateness of the forum requires weighing public and private interest factors, including the accessibility of proof, availability of witnesses, administrative difficulties, local interest in the trial, and the availability of a much more appropriate forum. Mowrey v. Duriron Co. Inc., 260 N.J. Super. 402, 409-10 (App. Div. 1992). A court should not dismiss a matter on the ground of forum non conveniens "unless the choice of forum is 'demonstrably inappropriate.'" Yousef, supra, 205 N.J. at 557 (quoting Kurzke v. Nissan Motor Corp., 164 N.J. 159, 170 (2000)).
Despite the deference ordinarily given to a plaintiff's choice of forum, the trial court held that South Carolina was the more appropriate forum for litigating CIF's claims against Field. The court based this decision on the fact that CIF is a South Carolina entity, and that Field — who was purportedly a South Carolina resident — was suffering from an illness that prevented him from traveling to New Jersey for litigation. Additionally, the trial court accepted Field's representation that he was under house arrest, and "may only leave the State of South Carolina with the formal permission of the Department of Probation . . . ."
We agree with CIF that Field failed to demonstrate that New Jersey was a "demonstrably inappropriate" forum. The Wyckoff Property, the sale of which is the focal point of this litigation, is located in New Jersey. The purportedly bad check was signed and mailed from New Jersey, by entities that operated businesses in New Jersey. Certainly, New Jersey is an appropriate forum for the resolution of a dispute that arose in New Jersey and centers around a New Jersey property. A corollary to this conclusion is that South Carolina is not a more appropriate forum for resolving this matter.
The trial court based its decision to dismiss the case on Field's representations, under oath, that he was suffering from illness and restrained by house arrest in South Carolina. However, Field did not support either of these representations with any documentary evidence. Absent any evidence in the record to corroborate Field's representations, we discern no justification for dismissing CIF's claims based on those representations alone. To a large extent, Field's credibility is a key issue in this litigation; in fact, Field was completely discredited by Judge Miller during the South Carolina contempt proceedings. By resorting to the extreme remedy of dismissal, based solely on Field's representations under oath, the trial court abused its discretion.
Field was indicted in South Carolina and charged with eleven counts of securities fraud, two counts of conspiracy, and one count of forgery. On May 6, 2013, Field pled guilty to all charges pursuant to a plea agreement. He received a five—year term of probation. Although Field's probation may prevent him from leaving South Carolina without prior permission, he appeared in Trenton for oral argument in this matter.
We also note that the trial court abused its discretion by denying CIF's motion for reconsideration on timeliness grounds. The court's initial February 15, 2013 order dismissing CIF's claims against Field was entirely ambiguous as to whether dismissal was to be with or without prejudice. Despite the trial court's insistence on reconsideration that the dismissal was with prejudice, its February 15, 2013 order and corresponding rider to the order state at least four times that the dismissal was without prejudice. Regardless, the February 15, 2013 order was interlocutory because CIF's claims against the Carlton defendants remained pending.
"[T]he time prescriptions set forth in Rule 4:49-2 apply to final judgments and orders, not interlocutory orders, which are reviewable at any time" until final judgment. Sullivan v. Coverings & Installation, Inc., 403 N.J. Super. 86, 96 (App. Div. 2008). "Motions for reconsideration of interlocutory orders shall be determined pursuant to R. 4:42-2." R. 1:7-4(b). Such orders are "subject to revision at any time before the entry of final judgment in the sound discretion of the court in the interest of justice." R. 4:42-2; see Lombardi v. Masso, 207 N.J. 517, 534-36 (2011). Accordingly, the motion for reconsideration was not untimely. See DeAngelis v. Rose, 320 N.J. Super. 263, 271 (App. Div. 1999).
In any event, the ambiguity in the trial court's order and rider would have had a material impact on CIF's ability to ascertain the deadline for filing its reconsideration motion. If the dismissal was without prejudice, CIF would have been permitted to file its motion for reconsideration "at any time until final judgment in the court's discretion and in the interests of justice." Pressler & Verniero, Current N.J. Court Rules, comment 1 to R. 4:49-2 (2016). Since the ambiguity in whether the dismissal of CIF's claims was with or without prejudice was created by the inconsistent language in the trial court's own order, CIF's reconsideration motion should not have been barred on timeliness grounds, and the trial court abused its discretion by doing so.
We also note that dismissals pursuant to doctrines such as comity and forum non conveniens should be without prejudice. See, e.g., Camden Iron & Metal, Inc. v. Klehr, Harrison, Harvey, Branzberg, & Ellers, LLP, 384 N.J. Super. 172, 181-82 (App. Div.), certif. denied, 187 N.J. 83 (2006).
III.
Finally, we address the trial court's disqualification of Westrick and Tressler LLP from representing CIF in its claims against Field. Disqualification decisions involve issues of law, which we review de novo. Ibid.
This would have been a moot point had we affirmed the dismissal of CIF's claims against Field.
In this case, the trial court based the disqualification order on its application of RPCs 1.7 and 3.7. In applying RPC 1.7, the court held that, "Given Counselor Westrick's extensive involvement with Mr. Field when he served as manager of CIF, the attorney-client privilege would protect all communications between same." In applying RPC 3.7, the court held that, "Counselor Westrick is not only likely to be called as a witness, but also could be a substantive witness integral to the success of the plaintiff's case."
RPC 1.7, in relevant part, states:
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client, or a third person or by a personal interest of the lawyer.
With regard to the disqualification pursuant to RPC 1.7, CIF argues on appeal that RPC 1.7 should not have been applied; rather, since Field was no longer employed by CIF, CIF argues that disqualification should have been considered under RPC 1.9, which governs conflicts with former clients. Additionally, CIF argues that the court should have considered RPC 1.13, which states that "[a] lawyer employed or retained to represent an organization represents the organization as distinct from its directors, officers, employees, members, shareholders or other constituents." We agree.
The representation at issue in this case does not concern a concurrent conflict that would be governed by RPC 1.7; Field is not a current client of either Westrick or Tressler LLP. Rather, this case is more like a scenario contemplated by RPC 1.9 regarding advocacy against former clients, as Field was no longer the manager of CIF. Even application of RPC 1.9, however, would not be appropriate, because Westrick never actually represented Field in an individual capacity. Although Westrick worked closely with Field, he only ever worked with Field in his capacity as CIF's attorney. Field was never a personal client of Westrick, and therefore neither RPC 1.7 nor RPC 1.9 provides a basis to disqualify Westrick from prosecuting CIF's claims against Field.
The Rule states, in relevant part, that: "(c) A lawyer who has formerly represented a client in a matter . . . shall not thereafter: (1) use information relating to the representation to the disadvantage of the former client . . . [.]" RPC 1.9(c). --------
Moreover, in McCarthy v. John T. Henderson, Inc., 246 N.J. Super. 225 (App. Div. 1991), we determined that a law firm can represent a corporate client against former principals of the corporate client. Id. at 230-35. Relying on RPC 1.13(a), we held that principals of a closely-held corporation, upon leaving the corporation, were not "clients" pursuant to RPC 1.9. Id. at 231-32. We reasoned that even if principals own a large share in a corporation that is represented by a law firm, the principals are not considered clients of the law firm unless the firm undertook personal representation of the principals at some point. Id. at 231.
The case at hand is analogous. The trial court based its decision largely on Field's ninety-one-percent ownership of CIF, as well as the close interaction between Field and Westrick throughout Field's time as CIF's manager. However, we made clear in McCarthy that close interaction between a corporation's principals and attorney, even in conjunction with a large ownership interest in the corporate client, is insufficient to justify disqualification of the law firm from representing the corporate client against the former principal.
A party seeking disqualification has the burden of proving entitlement to that remedy. City of Atlantic City v. Trupos, 201 N.J. 447, 463 (2010). Disqualification is considered a harsh remedy that should only be granted sparingly. Cavallaro v. Jamco Prop. Mgmt., 334 N.J. Super. 557, 572 (App. Div. 2000). In light of these guiding principles, we conclude that the trial court erred by disqualifying Westrick and Tressler LLP based on RPC 1.7.
Furthermore, the court erred by summarily disqualifying Westrick as someone who is "likely to be a necessary witness," pursuant to RPC 3.7, without conducting a hearing to determine the extent to which Westrick's testimony would be material in this case. Our Supreme Court has provided guidance in these situations:
"[A]n evidentiary hearing should be held . . . when the court cannot with confidence decide the [RPC] issue on the basis of the information contained in [the parties' papers], as, for instance, when despite that information there remain gaps that must be filled before a factfinder can with a sense of assurance render a determination, or when there looms a question of witness credibility."In this case, there remains a key dispute regarding the scope of Westrick's involvement in the sale of the Wyckoff Property. This dispute is material, as its resolution will determine whether or not Westrick has key information about the sale that would be material to CIF's action against Field. The trial court erred by declining to hold an evidentiary hearing to resolve this dispute.
[Dewey v. R.J. Reynolds Tobacco Co., 109 N.J. 201, 222 (1988).]
Even if RPC 3.7 supported disqualification of Westrick, it would not support disqualification of the law firm, Tressler LLP. The rule expressly provides that "[A] lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless precluded from doing so by RPC 1.7 or RPC 1.9." RPC 3.7(b). Accordingly, even if Westrick had been properly disqualified, there was no basis to disqualify Tressler LLC from representing CIF, so long as Westrick did not act as an advocate at trial.
For the reasons set forth above, we reverse the trial court's order dismissing CIF's claims against Field, vacate the order disqualifying Westrick and Tressler LLP, and remand to the trial court for an evidentiary hearing to determine whether Westrick is a "necessary witness" pursuant to RPC 3.7.
Reversed and remanded, in part, and vacated and remanded, in part. We do not retain jurisdiction. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION
Furthermore, RPC 3.7 states:
(a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless:
(1) the testimony relates to an uncontested issue;
(2) the testimony relates to the nature and value of legal services rendered in the case; or
(3) disqualification of the lawyer would work substantial hardship on the client.
(b) A lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless precluded from doing so by RPC 1.7 or RPC 1.9.