Opinion
DOCKET NO. A-1589-13T2
01-12-2015
THE ESTATE OF PETER J. FINNEGAN, DECEASED, Plaintiff-Respondent, v. MICHAEL FINNEGAN, Defendant-Appellant.
Kelly Law Offices, LLC, attorneys for appellant (Thomas P. Kelly III, on the briefs). Archer & Greiner P.C., attorneys for respondent Estate of Peter J. Finnegan, Deceased (Donald P. Craig, on the brief). Cooper Levenson, P.A., attorneys for respondent Neal Rosenberg, Esq. (Brian D. Barr, of counsel and on the brief). Broder Law Group, P.C., attorneys for respondent Seth N. Broder, join in the brief of respondent Estate of Peter J. Finnegan, Deceased.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Simonelli and Leone. On appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-0236-13. Kelly Law Offices, LLC, attorneys for appellant (Thomas P. Kelly III, on the briefs). Archer & Greiner P.C., attorneys for respondent Estate of Peter J. Finnegan, Deceased (Donald P. Craig, on the brief). Cooper Levenson, P.A., attorneys for respondent Neal Rosenberg, Esq. (Brian D. Barr, of counsel and on the brief). Broder Law Group, P.C., attorneys for respondent Seth N. Broder, join in the brief of respondent Estate of Peter J. Finnegan, Deceased. PER CURIAM
Defendant Michael Finnegan appeals from the October 16, 2013 Law Division order, which denied his motion pursuant to Rule 1:4-8 for frivolous litigation sanctions against the attorneys who represented his father, Peter J. Finnegan (Finnegan), and plaintiff Estate of Peter J. Finnegan (the Estate), and granted cross-motions for frivolous litigation sanctions against his attorney, Thomas P. Kelly, III, Esq. (Kelly). We affirm in part, reverse in part, and remand for further proceedings.
The notice of appeal filed in this matter indicates that defendant is the appellant. Respondents have not contested his standing to appeal the fee award against Kelly.
We derive the following facts from the record. In 2004, Finnegan, then age seventy, executed a Power of Attorney (POA) naming his daughter, Lisa Finnegan Coffey (Coffey), as his agent. In 2011, defendant's attorney asked Coffey to contact him to discuss Finnegan's care. Coffey's attorney replied that Finnegan's personal records indicated he made a loan to defendant in July 2001, defendant stopped making payments in 2009, and defendant owed $74,071.86. In response, defendant's attorney claimed that in 2009, Finnegan forgave the loan.
At the time, defendant was represented by Thomas P. Kelly, Jr., a member of the same law firm as Kelly.
Coffey's attorney is not involved in this appeal.
Seth N. Broder, Esq. of the Broder Law Group, P.C. represented Finnegan through Coffey's POA. Broder advised defendant's attorney that defendant defaulted on his loan payments and owed Finnegan $74,071.86. Broder stated that Finnegan was a certified public accountant who kept detailed records of the loan payments and reported the interest on his tax returns. Broder also denied that Finnegan forgave the loan and demanded payment of the outstanding balance within ten days. When defendant failed to pay, Broder filed a complaint against him on Finnegan's behalf through Coffey's POA. The complaint alleged that on July 15, 2001, Finnegan loaned defendant $100,000 payable with interest at the rate of 6.5% per annum in 240 monthly payments. The complaint also alleged that defendant defaulted and owed $74,071.86 plus interest as of January 3, 2012.
Defendant never filed an answer in this case and the record on appeal contains no certification or affidavit from him supporting his attorney's claim that Finnegan forgave the loan. Nevertheless, Kelly filed a motion on defendant's behalf to dismiss pursuant to Rule 4:6-2(e) for failure to state a claim upon which relief can be granted, arguing, in part, that Finnegan forgave the loan in 2009. As evidence, he submitted a stipulation of dismissal that Finnegan allegedly signed on February 20, 2012, stating that the matter was resolved and Finnegan consented to and requested dismissal of the complaint with prejudice (the stipulation). The stipulation did not bear Kelly's name or the name of his law firm, and neither Kelly nor defendant explained how it was procured. In addition, although a witness allegedly signed the stipulation, the signature was illegible and the witness's name did not appear under the signature. Kelly rejected Broder's demand to provide the witness's name.
In opposition to defendant's motion, Coffey submitted a certification from Finnegan's treating physician, which called into question Finnegan's competency to sign the stipulation. The doctor stated that he had examined Finnegan on February 14, 2012, six days before Finnegan allegedly signed the stipulation, and determined that Finnegan's cognitive abilities were severely limited. The doctor opined as follows, in pertinent part:
As a result of [Finnegan's] disability, he cannot make complex decisions. . . .
. . . .
It is my opinion, based on my examination that due to the severity of [Finnegan's] condition, he is incapacitated
and unable to govern himself and manage his affairs. Specifically, with regard to medical and financial decision[s]. His disability is [not likely] reversible and incurable. Because of this disability, he will require supervision and care for the rest of his life.
Moreover, it has come to my attention that [Finnegan] allegedly signed a legal document on February 20, 2012. It is my professional opinion within a reasonable degree of medical certainty that [Finnegan] would not understand what he [was] signing as he [did] not possess the mental capacity to do so.
In an oral opinion, the judge denied defendant's motion without prejudice, finding there were factual disputes concerning the validity of the stipulation. The judge permitted defendant to depose Finnegan and have him professionally examined within thirty days to determine his competency to sign the stipulation.
The judge presided over all motions filed in this case.
Finnegan was never deposed or examined. He died testate on June 25, 2012. On July 9, 2012, his Last Will and Testament was admitted to probate and Coffey was appointed executrix of the Estate. The Will devised his residual estate equally between Coffey and defendant. Thereafter, the complaint was dismissed without prejudice.
Neal Rosenberg, Esq. filed an amended verified complaint on behalf of the Estate, raising the same claims as the original complaint. Rosenberg attached to the pleading copies of Finnegan's records confirming the existence of the loan and defendant's default. Rosenberg also attached copies of an accounting, which established the outstanding loan balance as $74,071 .86 as of Finnegan's date of death and $92,436.32 as of December 28, 2012.
Kelly filed a second motion on defendant's behalf to dismiss pursuant to Rule 4:6-2(e), again arguing that Finnegan forgave the loan in 2009 and signed the stipulation. Kelly also argued that because Finnegan signed a deed on March 20, 2012, transferring title to his home, which Coffey witnessed, Coffey could not prove by clear and convincing evidence that he was legally incapable of signing the stipulation on February 20, 2012.
Coffey again disputed Finnegan's competency to sign the stipulation. She also submitted a certification explaining that in February 2012, she executed a contract as POA to sell her father's home, signed the deed as POA, not as a witness to his signature, and someone from the title company thereafter crossed out the "POA" next to her name and wrote the word "witness."
In an oral opinion, the judge denied the motion to dismiss, finding that the amended verified complaint established a cause of action and there were still factual disputes concerning the validity of the stipulation that required discovery and a trial. Donald P. Craig, Esq. of Archer & Greiner, P.C. then substituted as counsel for the Estate.
The parties never conducted any discovery before settling the case after extensive settlement conferences with the judge. Pursuant to the settlement, defendant implicitly acknowledged the loan and default by agreeing to pay the Estate $60,000 to satisfy the loan. Because defendant was a residual devisee, the sum of $30,000 was deducted from his distribution and added to Coffey's distribution. Defendant signed a release confirming the settlement terms and releasing Coffey from all claims.
As a result of the settlement, on July 22, 2013, the judge entered an order of dismissal. That did not end the litigation, however, because nine days later, Kelly filed a motion on defendant's behalf pursuant to Rule 1:4-8 for frivolous litigation sanctions against Broder, Craig, their law firms, and Rosenberg. Kelly argued that the attorneys pursued the litigation in bad faith knowing that Finnegan had forgiven the loan. The attorneys filed cross-motions for Rule 1:4-8 sanctions against Kelly, arguing the motion was frivolous. Broder, Craig, and their laws firms appeared pro se, and the firm of Cooper Levenson, P.A. represented Rosenberg.
In an oral opinion, the judge denied defendant's motion and granted the cross-motions. The judge found that because this matter had survived two motions to dismiss, and because there were factual disputes concerning the stipulation that required discovery and a trial, the litigation was not frivolous. For the same reasons, and because defendant settled on terms that acknowledged the loan and required him to re-pay it, the judge found that defendant's motion was frivolous and brought in bad faith. The judge ordered Kelly to pay attorney's fees and costs in the amount of $2000 to each attorney pursuant to Rule 1:4-8(d)(2). This appeal followed.
The mistaken reference to N.J.S.A. 2A:15-59.1 in the order is immaterial. The statute was not mentioned either at oral argument of the motion and cross-motions or in the judge's oral opinion.
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On appeal, defendant contends that because he had a reasonable belief that the litigation was frivolous, and because the motion for sanctions was filed in good faith and with ample factual support, the award of sanctions against Kelly was inappropriate. Defendant also contends that the judge erred in viewing the settlement as an absolute bar for him to affirmatively obtain Rule 1:4-8 sanctions against his adversaries, failing to describe the conduct that violated the Rule, failing to explain the basis for the sanctions imposed, and awarding sanctions to attorneys and law firms that appeared pro se. Because we determine there was legal error in the award of attorney's fees and costs to Broder, Craig, and their respective law firms, we shall consider defendant's contention raised for the first time on appeal that the judge plainly erred in granting their cross-motions. See R. 2:10-2.
"Rule 1:4-8 permits an attorney to be sanctioned for asserting frivolous claims on behalf of a client." United Hearts L.L.C. v. Zahabian, 407 N.J. Super. 379, 389 (App. Div.), certif. denied, 200 N.J. 367 (2009). As we have explained,
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.The Rule provides for imposition of sanctions where the attorney files a pleading or a motion with an "improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation," R. 1:4-8(a)(1), or by asserting a claim or defense that lacks the legal or evidential support required by Rule 1:4-8(a)(2), (3), and (4). State v. Franklin Sav. Account No. 2067 , 389 N.J. Super. 272, 281 (App. Div. 2006). Sanctions may consist of "an order to pay a penalty into court, or . . . an order directing payment to the movant of some or all of the reasonable attorneys' fees and other expenses incurred as a direct result of the violation or both." R. 1:4-8(d)(1)-(2).
[In re Estate of Ehrlich, 427 N.J. Super. 64, 77 (App. Div. 2012), certif. denied, 213 N.J. 46 (2013) (internal quotation marks and citations omitted).]
The nature of litigation conduct warranting sanctions under Rule 1:4-8 has been strictly construed. See K.D. v. Bozarth, 313 N.J. Super. 561, 574-75 (App. Div.), certif. denied, 156 N.J. 425 (1998). Accordingly, Rule 1:4-8 sanctions will not be imposed against an attorney who mistakenly files a claim in good faith. See Horowitz v. Weishoff, 346 N.J. Super. 165, 166-67 (App. Div. 2001); see also First Atl. Fed. Credit Union v. Perez, 391 N.J. Super. 419, 423 (App. Div. 2007) (holding that an objectively reasonable belief in the merits of a claim precludes an attorney fee award); Wyche v. Unsatisfied Claim & Judgment Fund, 383 N.J. Super. 554, 560-61 (App. Div. 2006) (holding that a legitimate effort to extend the law on a previously undecided issue precludes the award of sanctions); and K.D., supra, 313 N.J. Super. at 574-75 (declining to award counsel fees where there is no showing that the attorney acted in bad faith). "Sanctions are not warranted where the plaintiff has a reasonable good faith belief in the merit of its position. S & R Assocs. v. Lynn Realty Corp., 338 N.J. Super. 350, 364 (App. Div. 2001).
We consider the imposition of Rule 1:4-8 sanctions under the abuse of discretion standard. United Hearts, supra, 407 N.J. Super. at 390. "An 'abuse of discretion 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.'" Ibid. (quoting Masone v. Levine, 382 N.J. Super. 181, 193 (App. Div. 2005)).
We discern no abuse of discretion here. We are satisfied there was ample legal and evidentiary support for the claims against defendant and a reasonable good faith basis to file the pleadings against defendant in this matter; however, there was no support or good faith basis for defendant's motion for sanctions. Defendant never filed an answer or certification denying the claims against him and there is no competent, credible evidence in the record before us that Finnegan forgave the loan. Even if defendant had answered the pleadings or certified this fact, the three attorneys properly proceeded with the litigation because Finnegan's competency remained in dispute. Defendant never countered the credible evidence Coffey provided that Finnegan lacked the mental capacity to sign the stipulation. Defendant did not depose Finnegan or have him examined to determine his competency, and never engaged in discovery that may have assisted in this determination, such as deposing Finnegan's treating physician, the witness who allegedly saw Finnegan sign the stipulation, or the staff at the assisted living facility where Finnegan resided at the time he allegedly signed the stipulation. In our view, there was no basis whatsoever for Kelly to file the motion for sanctions.
Despite reaching this conclusion, we determine that the judge erred in granting the cross-motions of Broder, Craig, and their respective law firms, who appeared pro se, without making certain factual determinations. "[A]n attorney appearing pro se is not entitled to fees unless they are actually incurred as opposed to imputed." Alpert, Goldberg, Butler, Norton & Weiss, P.C. v. Quinn, 410 N.J. Super. 510, 547 (App. Div. 2009), certif. denied, 203 N.J. 93 (2010). To award attorney's fees pursuant to Rule 1:4-8(d)(2), the court must set forth findings pursuant to Rule 1:7-4 that reasonable attorney's fees were actually incurred as a direct result of a frivolous claim as opposed to imputed. Ibid. The judge made no such findings here. Accordingly, we reverse the grant of the cross-motions to Broder, Craig, and their respective law firms, and remand for the court to consider whether there were fees actually incurred as opposed to imputed, or whether to order Kelly to pay a penalty into court, with regard to Broder and Craig. We affirm in all other respects.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with this opinion. 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