Opinion
DOCKET NO. A-2150-12T2
08-29-2014
NEWBY TOMS, Plaintiff-Appellant, v. KENNETH L. LEIBY, JR., and SHACKLETON & HAZELTINE, Defendants-Respondents, and EMERALD INVESTORS LIMITED, Party in Interest-Respondent.
Newby Toms, appellant pro se. Shackleton & Hazeltine attorneys for respondents Kenneth L. Leiby, Jr., and Shackleton & Hazeltine (Kenneth L. Leiby, Jr., of counsel and on the brief). Craig J. Albert, attorney for respondent Emerald Investors Limited (Craig J. Albert, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Sapp-Peterson, Lihotz and Hoffman. On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-1570-12. Newby Toms, appellant pro se. Shackleton & Hazeltine attorneys for respondents Kenneth L. Leiby, Jr., and Shackleton & Hazeltine (Kenneth L. Leiby, Jr., of counsel and on the brief). Craig J. Albert, attorney for respondent Emerald Investors Limited (Craig J. Albert, on the brief). PER CURIAM
Plaintiff Newby Toms appeals from Law Division orders, entered on December 4, 2012, denying his motion to file a second amended complaint and granting defendants' motion to dismiss. Plaintiff challenges the court's conclusion that collateral estoppel barred him from re-litigating issues that were decided in a previous action, and that his proposed amended complaint could not survive a motion to dismiss. For reasons that follow, we affirm.
I
This case results from plaintiff's efforts to collect on two promissory notes, issued in 1994 and secured by subordinated mortgages on two office buildings in Parsippany. In 1994, the buildings were owned by two partnerships, Gaunt Parsippany Partners, and 99 Cherry Hill Associates, L.P. The partners included plaintiff and two other individuals. Plaintiff, a tax attorney, created the subordinated mortgages in favor of the partners to protect their equity in the properties from partnership creditors; this occurred when the properties were refinanced with the United Bank of Kuwait.
The partners agreed to treat $2 million as a loan from them, rather than from United Bank of Kuwait, to the entities that owned the Parsippany properties, even though the bank supplied the $2 million. In exchange, each of the two entities owning the Parsippany properties gave each of the partners a note for $333,333.33 secured by a mortgage that was subordinate to the bank's senior mortgage. The notes bore a 12% annual rate of interest and were due on December 31, 1999. The subordinated mortgages gave the appearance the partners were secured creditors, instead of equity owners, with respect to $2 million.
Plaintiff later separated from his partners and, in 1998, assigned his notes and mortgages to Emerald Investors Trust (the Trust), which he established in 1996. In July, 1998, plaintiff incorporated Emerald Investors Limited (Limited) in the British Virgin Islands, and that entity became the beneficiary of the Trust in August 1998. Eventually, plaintiff's wife, Laurie Kraus, became the de facto beneficiary of the Trust as the sole shareholder of Ever Service, Inc. (ESI).
Plaintiff incorporated ESI in Delaware in 1993 and transferred all stock in the corporation to Kraus in January 1996; plaintiff and Kraus married in December 1996. Plaintiff's affidavit of June 19, 2012 confirms the sole beneficiary of the Trust is Limited, and ESI is the sole shareholder of Limited, and Laurie Kraus is the sole shareholder of ESI.
To collect on the promissory notes, in November 2001, the Trust, Limited, and plaintiff retained the services of Shackleton, Hazeltine, & Bishop, entering into a four-page "Legal Services Agreement" (LSA). The LSA specifically authorized plaintiff "to make all decisions required . . . during the course of this representation[,]" including distribution of any of the proceeds. At this time, plaintiff received a one-year power-of-attorney from Limited authorizing him to give instructions to the Law Firm under the LSA.
Defendant Shackleton & Hazeltine is the successor firm to Shackleton, Hazeltine, & Bishop. Defendant Kenneth L. Leiby, Jr. signed the agreement for the law firm. We refer to Leiby and the law firm collectively as "the Law Firm."
On April 25, 2002, the Law Firm filed suit on behalf of the Trust in the United States District Court of New Jersey. While this suit remained pending, Kraus notified the Law Firm, in a letter dated August 24, 2004, that she no longer wanted plaintiff included in any decision making. She also specifically rescinded plaintiff's authority to direct distributions of any recovery. As Kraus explained in a July 17, 2012 certification, when the LSA was signed, she and plaintiff
were happily married and I trusted him implicitly and relied upon his judgment as a Harvard educated lawyer to assist me in asserting the Trust's rights. . . . By 2004, however, the relationship of trust had evaporated as [plaintiff] and I separated. I have since sued [plaintiff] for divorce and he has made me a defendant in numerous law suits filed by him in the State of New York.
Leiby responded to the instruction from Kraus to terminate plaintiff's authority under the LSA in a September 9, 2004 letter addressed to plaintiff, Kraus, and Michael Houllis:
Houllis served as trustee for the Trust.
As you will recall, you entered into a retainer agreement with this law firm in December[] 2001 with respect to [Emerald Investors Trust v. Gaunt Parsippany Partners]. The arrangement was somewhat complicated as the "owner" of the claims or causes of action is a trust known as Emerald Investors Trust. The promissory notes had originally been owned by Newby Toms and been assigned by him to the Trust. The beneficiary of the trust was reported to me to be Emerald Investors Limited, a British Virgin Islands Company, of which the sole shareholder was Ever Service, Inc. of which Laurie Kraus was the President. Accordingly, I asked that Newby Toms[] and Emerald Investors Limited sign a retainer agreement as well and that clear lines of authority be established. In that vein, paragraph 10 of the agreement reads in pertinent part as follows:
On August 30, 2004, I received a letter from Ms. Kraus . . . in which she states that she no longer wishes to be bound by the retainer agreement. My obligations as an attorney are more complex than the simple provisions of the contract which we all entered. Accordingly, I will not make any distribution of the proceeds of a recovery without the agreement of all parties. If agreement cannot be reached, I will have to consider bringing an interpleader action and depositing the funds in court. I note that
All of You specifically authorize Newby Toms to make all decisions required of you during the course of this representation. It is specifically also agreed that the Law Firm may distribute any recovery among You in accordance with the instructions of Newby Toms, including a direction to distribute the entire sum to Newby Toms.
in the absence of an agreement to the contrary, it is most likely that the funds will go to Emerald Investors Trust and it may be that both the Trust and I will interplead the funds.
I have in the past communicated mostly with Mr. Toms on the assumption that Mr. Houllis did not need to be consulted and that Ms. Kraus was being consulted with by Mr. Toms. That no longer seems to be the case. Accordingly, future communications will be directed to all three parties. Hopefully in conferring with each of you, I will be able to continue to move the case forward. If we reach an impasse in which I do not perceive a clear consensus, I will have to consider carefully how I obtain authority to take any particular course of action. Again, the principal client is ultimately Emerald Investors Trust and if a choice must be made, it is likely that Emerald Investors Trust will control the course of the litigation.
A bench trial proceeded in federal court in January 2005, with the defendants in that action disputing subject matter jurisdiction, claiming lack of diversity. The court concluded it had subject matter jurisdiction based on diversity of citizenship, and granted foreclosure on both properties if the defendants did not pay $583,333.33 in principal and interest, plus prejudgment interest, on each of the two notes. Emerald Investors Trust v Gaunt Parsippany Partners, No. 02-CV-1939 (D.N.J. July 21, 2005).
On appeal, the Third Circuit vacated the judgment, finding the district court, in looking only to the citizenship of the beneficiary of the Trust instead of the citizenship of both the trustee and the beneficiary of the Trust, applied an incorrect standard in determining the presence of subject matter jurisdiction. Emerald Investors Trust v Gaunt Parsippany Partners, 492 F.3d 192, 205, 208 (3d Cir. 2007). The Third Circuit remanded the case to determine if diversity of citizenship jurisdiction was present. Ibid. Following further discovery, the district court granted defendant's motion to dismiss the case for lack of diversity jurisdiction. Emerald Investors Trust v. Gaunt Parsippany Partners, No. 02-CV-1939 (D.N.J. Aug. 12, 2008).
After dismissal of the federal court action, the Law Firm then filed a foreclosure action in the Chancery Division, Morris County, in 2009. The Law Firm maintained contact with plaintiff during the litigation. With a trial date of June 28, 2012 approaching, on June 7, 2012, the Law Firm sent a letter to plaintiff informing him of its position that Kraus alone had the authority to direct the litigation and agree to any settlement; the letter also informed him that it would be inappropriate to interplead any recovery. On June 20, 2012, settlement discussions commenced in the foreclosure case, with the parties reaching an agreement in principle two days later. Plaintiff was not included in these discussions nor would Kraus give the Law Firm permission to share the settlement terms with plaintiff.
On June 21, 2012, plaintiff filed a separate complaint in the Law Division in Morris County, the case under review, against the Law Firm, requesting a declaration of the enforceability of the LSA and an order requiring the Law Firm to comply with the LSA. The complaint also listed Limited in the caption as a "Party in Interest." Plaintiff filed an amended complaint on June 28, 2012, requesting the court set aside "any purported settlement" in the foreclosure action, and prohibit the Law Firm from disbursing any portion of the settlement.
On July 20, 2012, plaintiff moved in the Chancery Division to intervene in the foreclosure action; he also sought to have the court order the Law Firm to follow his instructions in that litigation. On September 28, 2012, Judge Stephan C. Hansbury denied the motion, rejecting what he described as plaintiff's claim of an "ephemeral equitable interest" in Limited. The judge cited plaintiff's certification in the district court litigation that "[t]he assignments [of the notes] . . . were executed by [him] and were intended to convey all of [his] right, title and interest to the Notes and Mortgages to [the Trust]." Further, in a brief filed in support of his motion to intervene, plaintiff acknowledged he shifted "ownership and control of Limited to Kraus in 2002."
Judge Hansbury found the power of attorney given to plaintiff of no significance, noting it expired ten years before; he further found plaintiff was "not a principal and has no legal interest relating to [Limited] and has no authority to act on its behalf." Since plaintiff was neither an owner nor authorized representative of Limited, the judge determined he had no right to intervene, nor any basis for requiring the Law Firm to follow his instructions.
As for the LSA, Judge Hansbury determined the agreement confirmed that plaintiff was a client in 2001, but in a representative capacity based upon the power of attorney executed in November 2001, which expired one year later; thus, plaintiff had no independent right to insert himself into the foreclosure litigation. As a result, the court granted the Law Firm's motion to "take its instructions solely from the party plaintiff, [Limited]," and denied plaintiff's motion to intervene and to require the Law Firm to follow his instructions.
Plaintiff moved for reconsideration, which Judge Hansbury denied. Plaintiff reargued, without success, that his potential marital interest rose to the level of an interest needed to intervene. Judge Hansbury specifically acknowledged that any recovery on the notes may be "an asset of the marriage between [plaintiff] and [Kraus]. However, that is a matter to be resolved in the New York court relating to the pending dissolution matter. It does not provide a basis for [plaintiff] to participate as a decision maker in this litigation." Moreover, the judge noted the foreclosure matter had already settled, so the parties to the action would suffer prejudice if the motion were granted. Plaintiff did not appeal any of Judge Hansbury orders.
The parties to the foreclosure proceedings signed a stipulation of dismissal on November 9, 2012, which they filed on November 27, 2012.
--------
Regarding plaintiff's Law Division action, the Law Firm and Limited filed answers, raising a number of affirmative defenses. On September 4, 2012, plaintiff moved to file a second amended complaint, which included counts against the Law Firm for breach of contract and professional malpractice; plaintiff also sought to name Limited as a direct defendant, seeking damages for breach of contract. The Law Firm opposed the motion and filed a cross-motion to dismiss, with prejudice.
After oral argument, the Law Division denied plaintiff's motion to file a second amended complaint and granted the Law Firm's cross-motion to dismiss. In a December 4, 2012 oral opinion, Judge David B. Rand concluded it would constitute an abuse of discretion to grant plaintiff leave to file an amended complaint because the amendment would be futile. Judge Rand cited Judge Hansbury's determination that plaintiff had no right to participate in the foreclosure action because he has no interest in the notes at issue. He thus concluded that plaintiff "cannot sustain an action related to equitable or monetary relief with regard to the subject matter of . . . this action."
Judge Rand further determined that plaintiff was estopped from attempting to re-litigate the same claim he brought in the foreclosure proceeding because the issues were litigated to completion in the Chancery Division, the issues were identical, and the conduct came from the same transaction or chain of events. As a result, Judge Rand dismissed plaintiff's case with prejudice. This appeal followed.
II.
Rule 4:9-1 allows a party, after a responsive pleading has already been served, to amend a pleading "only by written consent of the adverse party or by leave of court which shall be freely given in the interest of justice." Although leave to amend is to be liberally granted, Notte v. Merchs. Mut. Ins. Co., 185 N.J. 490, 501 (2006), a decision on a motion to amend "is generally left to the sound discretion of the trial court, and its exercise of discretion will not be disturbed on appeal, unless it constitutes a 'clear abuse of discretion.'" Franklin Med. Assocs. v. Newark Pub. Sch., 362 N.J. Super. 494, 506 (App. Div. 2003) (internal citation omitted) (quoting Salitan v. Magnus, 28 N.J. 20, 26 (1958)). "That exercise of discretion requires a two-step process: whether the non-moving party will be prejudiced, and whether granting the amendment would nonetheless be futile." Notte v. Merchs. Mut. Ins. Co., 185 N.J. 490, 501 (2006). Although courts should determine motions for leave to amend without considering the ultimate merits of the amendment, "courts are free to refuse leave to amend when the newly asserted claim is not sustainable as a matter of law." Ibid. (citation omitted).
It is well settled that
[f]or the doctrine of collateral estoppel to apply to foreclose the relitigation of an issue, the party asserting the bar must show that: (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."A party is precluded by collateral estoppel from relitigating matters or facts which the party actually litigated and which were determined in a prior action, involving a different claim or cause of action, and which were directly in issue between the parties." Id. at 522.
[Olivieri v. Y.M.F. Carpet, Inc., 186 N.J. 511, 521 (2006) (quoting In re Estate of Dawson, 136 N.J. 1, 20-21 (1994) (citations and parentheticals omitted)).]
"[C]laim preclusion applies to all claims growing out of the same facts that could have been brought, but issue preclusion applies only to those issues that were actually litigated and decided." Watkins v. Resorts Hotel & Casino, 124 N.J. 398, 422 (1991). "[W]hen an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim." Id. at 423 (citation and internal quotation marks omitted). Estoppel provides "finality and repose; prevention of needless litigation; avoidance of duplication; reduction of unnecessary burdens of time and expenses; elimination of conflicts, confusion and uncertainty; and basic fairness." Olivieri, supra, 186 N.J. at 522 (citations and internal quotation marks omitted).
In this case, Judge Rand reasoned that it would have been futile to grant plaintiff's motion to file a second amended complaint because the additional claims in the proposed second amended complaint were previously "litigated to completion in the Chancery Division." Based on our independent review of the record, we conclude there is substantial credible evidence to support the trial court's decision, and we find no abuse of discretion. See Interchange State Bank v. Rinaldi, 303 N.J. Super. 239, 257 (App. Div. 1997) (noting "'there is no point to permitting the filing of an amended pleading when a subsequent motion to dismiss must be granted.'") (quoting Mustilli v. Mustilli, 287 N.J. Super. 605, 607 (Ch. Div. 1995)). Judge Rand correctly determined that collateral estoppel applied and prevented plaintiff from re-litigating the issues decided against him by Judge Hansbury. Those adverse decisions dictated the outcome of the motions before Judge Rand.
The record clearly indicates that Kraus has been the beneficial owner of the promissory notes, as the sole shareholder of ESI, since January 2002; plaintiff has no beneficial interests in the notes. The record also clearly indicates he was a party to the LSA in a representative capacity only, as Limited executed a power of attorney authorizing plaintiff to control the litigation at the same time. The power of attorney was only valid for one year; regardless, plaintiff failed to cite any authority that would permit a person, who is a party to an agreement in a representative capacity, to bring a claim of this nature, contrary to the clearly-stated position of his or her principal.
Plaintiff's arguments on appeal demonstrate a lack of appreciation of the limited nature of a power of attorney. As our Supreme Court stated over forty years ago,
a power of attorney[,] of course[,] is not an instrument of gift. In itself, it is no more than the term, power of attorney, imports -- an authorization to the attorney to act for the principal. . . . [T]he instrument [does] not authorize the agent to make off with the principal's money.
[State v. Kennedy, 61 N.J. 509, 512-513 (1972).]
Plaintiff's arguments further indicate he viewed the power of attorney, and the LSA, as providing him with the equivalent of a general power of appointment. No authority supports such a position. Instead, the power of attorney executed in favor of plaintiff imposed a fiduciary duty upon him to act solely for the benefit of Limited, his principal. See D'Amato by McPherson v. D'Amato, 305 N.J. Super. 109, 115 (App. Div. 1997).
III.
The standard applicable to our review of an order entered on a motion to dismiss under Rule 4:6-2(e) is well established. First, this court's review is plenary. Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 746 (1989). No special deference is afforded to the trial court's "interpretation of the law" or "the legal consequences that flow from established facts . . . ." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Second, in our review, we apply the same test as the trial court. We examine the adequacy of the pleading, considering "whether a cause of action is 'suggested' by the facts." Printing Mart, supra, 116 N.J. at 746 (citation and internal quotation marks omitted). We search the allegations of the pleading "'in depth and with liberality to ascertain whether the fundament of a cause of action may be gleaned even from an obscure statement of claim, opportunity being given to amend if necessary.'" Ibid. (citation and internal quotation marks omitted).
Dismissal is appropriate only after "accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, plaintiff is not entitled to relief." Smerling v. Harrah's Entm't, Inc., 389 N.J. Super. 181, 186 (App. Div. 2006). "A pleading should be dismissed if it states no basis for relief and discovery would not provide one." Rezem Family Assoc. v. Millstone, 423 N.J. Super. 103, 113-14 (App. Div. 2011). As suggested, at such a preliminary stage in the litigation, we grant "every reasonable inference of fact" in a plaintiff's favor and are not concerned with a plaintiff's actual ability to prove the allegation set forth in a complaint. Printing Mart, supra, 116 N.J. at 746.
Granting every indulgence to the facts stated in plaintiff's complaint, and after carefully considering plaintiff's arguments, we fail to see any viable cause of action against the Law Firm. By plaintiff's own admission, Limited became the beneficiary of the Trust in 1998, and ownership and control of Limited was shifted to Kraus in 2002. Plaintiff raised the issues relating to the LSA and the power of attorney in the Chancery Division proceedings and they were decided against him. For whatever reason, plaintiff chose not to appeal those rulings. Plaintiff had his day in court before Judge Hansbury. He does not get another bite of the apple by re-litigating those same issues before another judge. All other contentions plaintiff raises in his brief are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION