Law Lessons from CUYLER BURK, LLP v. ROBERT M. SILVERMAN, ESQ., App. Div., A-0208-06T2, October 9, 2007:

New Jersey adheres to the “American rule” that each party bears their own legal fees. Van Horn v. City of Trenton, 80 N.J. 528, 538 (1979). Thus, fee-shifting is allowed only when expressly authorized by statute, court rule or contract. State Dep’t of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 504 (1983). Consistent with our tradition, exceptions to the general rule are “rigorously enforced, lest [the exceptions] grow to consume the general rule itself.” Van Horn, supra, 80 N.J. at 538.

N.J.S.A. 2A:15-59.1, the frivolous litigation statute, is one of the few exceptions to the general rule. Relief under this statute is approached cautiously so that baseless litigation is deterred but the right of access to the courts is not unduly infringed. Gooch v. Choice Entertaining Corp., 355 N.J. Super. 14, 18 (App. Div. 2002).

To qualify for an award of attorneys’ fees under this statute, the party seeking fees must be a prevailing party. It is not necessary that the party seeking fees must proceed to trial and obtain a judgment in its favor. A party may be considered a prevailing party, if the matter settles, First Atlantic Federal Credit Union v. Perez, 391 N.J. Super. 419, 432 (App. Div. 2007), or if the complaint is dismissed on jurisdictional grounds, Ibelli v. Maloof, 257 N.J. Super. 324, 338 (Ch. Div. 1990). In the case of a settlement, the facts must be examined carefully and, if the result achieves the primary relief sought in the complaint or is tantamount to a surrender of all claims against a party, a party can be considered a “prevailing party” for purposes of this statute. Chernin v. Mardan Corp., 244 N.J. Super. 379, 383 (Ch. Div. 1990). See also Warrington v. Vill. Supermarket, Inc., 328 N.J. Super. 410, 421 (App. Div. 2000) (holding plaintiff, whose complaint precipitated the removal of a construction feature that barred access to store by handicapped persons, a prevailing party).

In Chernin, the court held that the party omitted as a defendant on the filing of an amended complaint was a prevailing party for purposes of the statute. The plaintiff amended the complaint after the plaintiff became convinced that a cause of action could not be asserted against the originally named and subsequently omitted defendant. Chernin, supra, 244 N.J. Super. at 381. To be sure, the withdrawal of a claim soon after recognition that it is baseless, ordinarily will not trigger sanctions, particularly when a claim must be asserted in a timely manner. Iannone v. McHale, 245 N.J. Super. 17, 19 (App. Div. 1990). Nevertheless, when the party asserting the claim recognizes or is presented with information indicating that the claim is baseless and continues to prosecute the claim, sanctions may be in order. Id. at 21-22.

An applicant for fees under N.J.S.A. 2A:15-59.1 must also demonstrate that the claim was filed in bad faith, solely for the purpose of delay or harassment, or the non-prevailing party knew or should have known that the counterclaim was without any reasonable basis in law or equity. N.J.S.A. 2A:15-59.1b(1)(2).

An honest attempt to resolve a perceived, but ill-founded, claim is not bad faith, particularly when the plaintiff disclosed the relevant facts to her attorney and the plaintiff relied on the advice of the attorney. McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 563 (1993). The failure to dismiss a complaint immediately following revelation of the absence of a factual basis to support the claim is also not bad faith. Gilbert v. Electro-Steam Generator Corp., 328 N.J. Super. 231, 235 (App. Div. 2000). On the other hand, the assertion of a counterclaim to complicate and to delay a simple action on a book account is bad faith. Gooch, supra, 355 N.J. Super. at 19-20; Deutch & Shur, P.C. v. Roth, 284 N.J. Super. 133, 139 (Law Div. 1995).

Deutch & Shur is particularly instructive. The plaintiff law firm filed a complaint seeking unpaid attorneys’ fees. The defendant client did not respond to the complaint and eventually a default judgment was entered. 284 N.J. Super. at 135. A writ of execution issued and the plaintiff levied on personal property belonging to the defendant. Ibid. A month after the levy, the defendant successfully moved to vacate the judgment. Ibid. He filed an answer and counterclaim in which he asserted a legal malpractice claim. Ibid. The plaintiff’s motion to dismiss the counterclaim was promptly granted and the plaintiff’s motion for summary judgment on its complaint was also granted. Id. at 136.

In granting the plaintiff’s motion for attorneys’ fees pursuant to N.J.S.A. 2A:15-59.1a, the judge found that the counterclaim was asserted in bad faith. Id. at 139. The judge explained his ruling that the counterclaim had been asserted in bad faith for the purpose of harassment and delay as follows:

Unlike the plaintiff in McKeown, the defendant in this case prosecuted his claim in “bad faith.” First, it was not until plaintiff had levied upon defendant’s personal property that defendant took any action in this case, whether defending against the claim or bringing the counterclaim. Second, unlike the plaintiff in McKeown, the defendant in this case had absolutely no basis for believing that he somehow had been wronged by the plaintiffs. . . . In the within matter, it is hard to see what purpose this counterclaim served except to “scare” the plaintiff into compromise or to make collection more expensive. The fact that the defendant may have relied on counsel is in no way dispositive of the issue. Such reliance must be in good faith. I find that defendant could not have sincerely believed that he had a legitimate claim against his former counsel.

In the end, judging the defendant’s conduct as a whole, I conclude that the defendant’s counterclaim was brought in bad faith, for the purpose of delay and harassment. Therefore, defendant’s counterclaim constitutes “frivolous litigation” under N.J.S.A. 2A:15-59-1.

[Ibid.]

When an award of attorneys’ fees is authorized, the quantum of any fee award is considered a matter vested in the discretion of the judge. This decision will not be disturbed unless there has been a clear abuse of discretion. Furst v. Einstein Moomjy, Inc., 182 N.J. 1, 25 (2004); Rendine v. Pantzer, 141 N.J. 292, 317 (1995). Whether a counsel fee award derives from a fee-shifting statute, such as the Law Against Discrimination, or from a statute or rule, the award of counsel fees should not be the springboard for further litigation. Rendine, supra, 141 N.J. at 334. Thus, when a judge examines the reasonableness of the hourly rate, the tasks performed and the amount of time expended on those tasks and provides findings of fact that are amply supported in the record, a reviewing court will not disturb those findings. Id. at 317.

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