2175 Lemoine Ave. Corp. v. Finco, Inc.

• Decision Date: 26 April 1994
• Citation: 272 N.J.Super. 478,640 A.2d 346
• Parties: 2175 LEMOINE AVENUE CORPORATION, Plaintiff, v. FINCO, INC., Germano Valle, 2175 Finco, AmEuro Capital Corporation, and Morgran Stiftung, Defendants. FINCO, INC. and Germano Valle, Third-Party Plaintiffs-Respondents and Cross-Appellants, v. William WATTIKER, Third-Party Defendant, and Karen N. Wattiker, Esq., Third-Party Defendant-Appellant and Cross-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 478

272 N.J.Super. 478

640 A.2d 346

2175 LEMOINE AVENUE CORPORATION, Plaintiff, v. FINCO, INC., Germano Valle, 2175 Finco, AmEuro Capital

Corporation, and Morgran Stiftung, Defendants.

FINCO, INC. and Germano Valle, Third-Party Plaintiffs-Respondents and Cross-Appellants, v. William WATTIKER, Third-Party Defendant, and Karen N. Wattiker, Esq., Third-Party Defendant-Appellant and Cross-Respondent.

Superior Court of New Jersey,

Appellate Division.

Argued Feb. 8, 1994.

Decided April 26, 1994.

William B. McGuire, Newark, argued the cause for appellant and cross-respondent Karen N. Wattiker (Tompkins, McGuire & Wachenfeld, attorneys; Mr. McGuire, of counsel; Marianne M. DeMarco, on the brief).

Lawrence D. Ross, Morristown, argued the cause for respondents and cross-appellants Finco, Inc. and Germano Valle (Bressler, Amery & Ross, attorneys; Mr. Ross, of counsel; Mr. Ross, Brian F. Amery and Jordan S. Weitberg, on the brief).

Before Judges MICHELS, SKILLMAN and KESTIN.

The opinion of the court was delivered by

MICHELS, P.J.A.D.

Third-party defendant Karen N. Wattiker (Ms. Wattiker) appeals and third-party plaintiffs Finco, Inc. (Finco) and Germano Valle (Valle) cross-appeal from portions of a judgment of the Law Division entered after a lengthy bench trial in this extremely complex matter. Specifically, Ms. Wattiker appeals from that portion of the judgment that awarded Finco damages in the sum of $111,283 for her legal malpractice. Finco and Valle cross-appeal from the damages portion of the judgment contending that the trial court erred in failing to award them attorneys fees in connection with the underlying declaratory judgment action. ¹

The facts and procedural history giving rise to this appeal are set forth in the trial court's letter opinions of December 6, 1990 and July 19, 1991, and need not be recounted here. It is sufficient for our purposes to point out that the underlying action was instituted by plaintiff 2175 Lemoine Avenue Corporation, the owner of real property located at 2175 Lemoine Avenue, Fort Lee, New Jersey, against defendants Finco, Valle, 2175 Finco, a partnership, AmEuro Capital Corporation and Morgran Stiftung, a Lichtenstein Corporation, seeking a declaration that an option granted to Finco to purchase a fifty percent interest in the Lemoine Avenue property and the granting of a one-half of one percent interest in the 2175 Finco partnership to Finco were void and unenforceable. Plaintiff claimed generally that it was defrauded and that Finco improperly obtained the option and the partnership interest. In addition to denying the allegations of the complaint and filing a cross-claim against AmEuro Capital Corporation and a counterclaim against plaintiff, Finco and Valle filed a third-party complaint against Ms. Wattiker and her husband, third-party defendant William Wattiker, the principal stockholder of plaintiff, charging Ms. Wattiker with legal malpractice and charging both Ms. Wattiker and her husband with intentional interference with a prospective economic advantage, fraud, prima facie tort, conspiracy and defamation in connection with a loan transaction involving the Lemoine Avenue property.

At the conclusion of the proofs, the trial court declared that Finco's option to purchase a fifty percent interest in the Lemoine Avenue property and Finco's interest in the 2175 Finco partnership were invalid because they violated the New Jersey Real Estate License Act, N.J.S.A. 45:15-1 et seq. In reaching this conclusion, the trial court, in part, reasoned:

To recapitulate, the Act is clear. Anyone who attempts, offers to or negotiates a loan secured by real estate is a broker. Valle certainly negotiated the terms of the 2175 loan with William Wattiker, the owner of the real estate, and with Karen Wattiker, 50% owner of AmEuro, the mortgagee. Valle certainly arranged the financing from Morgran to AmEuro. He negotiated "a loan secured or to be secured by a mortgage or other encumbrance upon or transfer of real estate for others" ( N.J.S.A. 45:15-3). This activity constitutes real estate brokerage activities, and the law clearly states that "No person shall engage either directly or indirectly in the business of a real estate broker ... without being licensed to do so as herein provided." ( N.J.S.A. 45:15-1, emphasis added). Merely establishing a contract between parties to a real estate transaction by an unlicensed person violates the statute. Corson v. Keane, supra [, 4 N.J. 221 (1950) ]. Valle certainly was compensated for these activities by receipt of an option and a partnership interest in 2175.

Since neither Valle nor Finco had a New Jersey Real Estate Brokers license, they acted in violation of the Act and of the strong public policy of this State. This option, given as consideration for arranging financing is illegal and consequently cannot be enforced.

Accordingly, 2175's Declaratory Judgment action is granted, and the option is hereby declared void and unenforceable. Therefore, it is unnecessary to decide whether said option constitutes a clog on the equity of redemption. Even if the option did so, this Court will not assist a party to the illegal contract creating that clog in removing it. However, the Court is convinced the option did not create a clog.

* * * * * *

Here, the option is not a disguised security device. To the contrary, it was clearly given as compensation for obtaining more than 100% of the financing for 2175. Exercise of the option was not contingent upon a default. It has a fixed expiration date, as well as a price.

There is nothing unconscionable or oppressive about this option; it was just illegal! The option was granted as consideration for placing a loan to be secured by a mortgage, although the parties tried to disguise same by terming it a security, sold by AmEuro to Morgran, which claim this Court has rejected. The idea of the option and the drafting of the option was done by a New Jersey attorney, Karen Wattiker. Whether this, in and of itself, or in connection with other conduct on the part of Ms. Wattiker, is legal malpractice which entitles Valle to damages is an issue to be decided infra. But it is certainly not a clog on the equity of redemption.

The trial court then dismissed Finco and Valle's claims against Ms. Wattiker and her husband for interfering with their prospective economic advantage on the ground that Valle's negotiating loans secured by mortgages required his appropriate licensure and since Valle could not legally engage in this business, Finco and Valle were barred by statute from maintaining this action. The trial court also dismissed their claims based on theories of prima facie tort, conspiracy and fraud.

However, the trial court held that Ms. Wattiker was guilty of legal malpractice in connection with the transaction. The trial court found that Ms. Wattiker "negotiated and structured the transaction on both sides, prepared all the documents, undertook responsibility for New Jersey law, and solely handled the closing" of the loan from Morgran Stiftung to plaintiff placed by Finco through AmEuro Capital Corporation. The trial court held that Ms. Wattiker "had a duty to Finco/Valle, as clients, former clients, and even as non-clients," and that she

had a duty to know the law relative to the New Jersey Brokerage Statute, N.J.S.A. 45:15-1 et seq., and to inform Valle/Finco of same and of its possible effect on the option she was preparing. Procanik by Procanik v. Cillo, 226 N.J.Super. 132, 150 (1988), certif. den., 113 N.J. 357 (1988).

Ms. Wattiker knew all the facts which might cause a violation of the statute. She had prepared three similar options for Finco, but never advised it of any potential legal difficulty, although she testified she "looked into" the law relating to brokers. The Act was in effect prior to preparation of the option. She had a responsibility to educate herself about the applicable law. Ignorance of statutes on the part of an attorney justifies a finding of negligence. By preparing an option stating that the consideration was "the placement of a first Purchase Money Mortgage", DV-86, she prepared a document invalid on its face. The ordinary, reasonably competent attorney would have known that such an option, as consideration for placement of a loan secured by real estate, would be void ab initio in New Jersey.

Various Rules of Professional Conduct as implicated here. They include RPC 1.7 Conflict of Interest: General Rule, RPC 1.8 Conflict of Interest: Prohibited Transactions and RPC 1.9 Conflict of Interest: Former Client. [Footnotes omitted].

* * * * * * Ms. Wattiker claims that the interests of 2175 and AmEuro in the 2175 transaction were adverse to Valle. Yet, she represented Valle simultaneously in Ocala at the same time, without seeking or obtaining Valle's consent or fully disclosing the circumstances. See RPC 1.7, which prohibits this conduct.

Karen Wattiker does not deny she repeatedly communicated with Valle throughout the 2175 transaction. Yet, she asserts that SKS [Schwartz, Klink & Shreiber, a law firm retained by Finco/Valle] represented Finco/Valle and Morgran and she did not. This is violative of R.P.C. 4.2. See Estate of Vafiades v. Sheppard Bus Service, 192 N.J.Super. 301, 314 (Law Div.1983).

RPC 1.6 provides:

(a) a lawyer shall not reveal information relating to representation of a client unless the client consents after consultation ...

This Court believes that Karen Wattiker used information she learned about Valle during her representation of him and/or Morgran in efforts to damage Valle. She conveyed information to Pellaton, the IRS, and the INS.

RPC 1.8 is clearly implicated because there was a business relationship between Karen Wattiker (as 50% shareholder of AmEuro) and Finco/Valle, since AmEuro was to be the borrower of the funds from Morgran, which mortgage was being placed by Finco/Valle, and AmEuro, in turn, was lending the money to the...