Guido v. Duane Morris LLP

• Decision Date: 03 June 2010
• Citation: 995 A.2d 844,202 N.J. 79
• Parties: Joseph M. GUIDO and Teresa Guido, husband and wife, Plaintiffs-Respondents, v. DUANE MORRIS LLP a Limited Liability Partnership, Frank A. Luchak, Esq., and Patricia Kane Williams, Esq., Defendants-Appellants.
• Court: New Jersey Supreme Court

995 A.2d 844

202 N.J. 79

Joseph M. GUIDO and Teresa Guido, husband and wife, Plaintiffs-Respondents, v. DUANE MORRIS LLP a Limited Liability Partnership, Frank A. Luchak, Esq., and Patricia Kane Williams, Esq., Defendants-Appellants.

A-31 September Term 2009.

Supreme Court of New Jersey.

Argued January 20, 2010.

Decided June 3, 2010.

As Corrected June 8, 2010.

Joseph P. La Sala argued the cause for appellants (McElroy, Deutsch, Mulvaney & Carpenter, LLP, attorneys; Mr. La Sala, William F. O'Connor, Jr., and James J. DiGiulio, Morristown, on the brief).

Donald P. Fedderly, Flanders, argued the cause for respondents.

Diana C. Manning, Florham Park, argued the cause for amicus curiae Trial Attorneys of New Jersey (John C. Simons, President, attorney; (Ms. Manning and Mr. Simons, on the brief).

Robert B. Hille argued the cause for amicus curiae New Jersey State Bar Association (Allen A. Etish, President, Graham Curtin, Kalison, McBride, Jackson & Murphy, and Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, attorneys; Mr. Hille, Mr. Etish, and Christopher J. Carey, of counsel; Mr. Hille, Mr. Carey, Theodore H. Hilke, Morristown, Evelyn R. Storch, Newark, and Paul L. Croce, on the brief).

Justice RIVERA-SOTO delivered the opinion of the Court.

In this appeal, we revisit the effect, if any, the settlement of an underlying lawsuit has on a subsequent legal malpractice action arising out of that settled lawsuit. In Puder v. Buechel, 183 N.J. 428, 874 A.2d 534 (2005), we determined that a client's unconditional declaration of satisfaction with the fairness and terms of a settlement of a lawsuit precludes a later legal malpractice action based on that settlement. Unlike Puder and its predecessor Ziegelheim v. Apollo, 128 N.J. 250, 607 A.2d 1298 (1992), the client in this case did not seek to vacate or otherwise repudiate the settlement entered into in the earlier lawsuit. Instead, the client alleged that he entered into the now complained-of settlement based on negligent advice from his lawyers. In those circumstances, we conclude that a legal malpractice plaintiff need not first seek to vacate a settlement, but may proceed directly against those lawyers the plaintiff asserts provided the negligent advice that culminated in the settlement.

I.

Because this appeal arises from the trial court's grant of reconsideration of a summary judgment determination—where the trial court first granted defendants' motion for summary judgment and, on a motion for reconsideration, vacated that judgment—we must consider the facts in the light most favorable to the non-moving party. Roa v. Roa, 200 N.J. 555, 562, 985 A.2d 1225 (2010); Lee v. First Union Natl. Bank, 199 N.J. 251, 254, 971 A.2d 1054 (2009); Leang v. Jersey City Bd. of Educ., 198 N.J. 557, 567-68, 969 A.2d 1097 (2009).

We need not recite at length the rather tortured factual history of this appeal, as its procedural history is more germane to the issues on appeal. Suffice it to note that plaintiff Joseph Guido¹ was the majority shareholder and chairman of the board of directors of Allstates Worldcargo, Inc. (Allstates). In October 2004, plaintiff sued Allstates and several of its officers and directors, alleging certain corporate governance concerns. On October 27, 2004, the day before the return date on plaintiff's order to show cause, James J. Ferrelli, Esq., a lawyer with and a partner in defendant Duane Morris, LLP (the Law Firm),² wrote to plaintiff and explained as follows:

I previously faxed you a copy of the Voluntary Dismissal without Prejudice, and will file that with the Court tomorrow morning per our discussion this afternoon. That will end the current case against the defendants and would enable you to reinitiate action in the event that you do not come to written terms with the defendants, or assert other claims as you advised you may want to do.

As we discussed this afternoon, we advise against any agreement with the president and also a member of the board of directors of Allstates and the other defendants that includes as a term any limitation on your rights as majority shareholder of Allstates, whether to change the composition of the Board of Directors, otherwise amend the By-Laws, or take other action. In essence, by requesting that you agree to such terms, the president of Allstates is taking away your ability to control the company, which substantially undermines your majority ownership.

(Emphasis supplied).

Ferrelli's letter was prophetic. He explained further that "if the case is not dismissed or settled on the record, the Court will order mediation." He noted that, "if mediation were to proceed, an impartial mediator would be appointed to help the parties reach an agreement." He reasoned that "this would be one way for you to obtain a better settlement with the president of Allstates, one that protects your interests and does not diminish the value of your stock." He remarked further:

We understand that the president of Allstates is talking about extending your employment agreement for five (5) years and increasing your salary. He also wants you to enter into an agreement not to vote your stock in anyway that would increase the Board without the consent of all Board members.

A binding agreement limiting how you vote your stock severely diminishes the value of your stock, which we understand is your primary asset. The president of Allstates is not offering to pay you for this. Rather, in return for an agreement which will reduce and possibly destroy the value of your stock, the president of Allstates is offering a five (5) year employment contract and a to-be-determined raise.

In lieu of an agreement not to change the board of directors, we believe that you should be exploring other alternatives, including a sale of the company and/or the sale of your stock. If the president of Allstates wants to control the company and limit your rights as majority shareholder to do so, he should pay you for that by buying your stock or arranging for a sale of the company. Such options could be pursued through mediation.

(Emphasis supplied).

Ferrelli's letter concluded as follows:

The ultimate decision is, of course, yours. However, we recommend that if you settle, you do so without undermining your ability and right as majority shareholder to change the board of directors, amend the By-Laws, or take other appropriate action, and that you take all steps to protect, to the greatest extent possible, the value of your stock. You should also obtain repayment of your attorneys' fees, as provided in your Employment Agreement.

The next day, on October 28, 2004 and as foreseen by Ferrelli, the trial court denied plaintiff's request for temporary restraints and referred the matter to mediation; the parties entered into a voluntary dismissal without prejudice, as provided in Rule 4:37-1(a); and entered into a settlement that was placed on the record. The parties, however, were unable to reduce the settlement terms to writing and, ultimately, Allstates "withdrew its settlement proposal and elected to proceed with the litigation of this matter."

As a result, in February 2005, plaintiff filed a second suit against Allstates, again seeking injunctive relief; that complaint was filed by the Law Firm, was signed by defendant Frank A. Luchak, and was verified by plaintiff. The trial court also referred that action to mediation, which ultimately resulted in the settlement plaintiff now claims was inadequate due to defendant's failure to represent plaintiff in a competent manner. That settlement incorporates all of the items that caused concern to, and were counseled against by, Ferrelli in his letter to plaintiff. At a hearing held on April 5, 2005 where plaintiff was represented by Luchak and defendant Patricia Kane Williams, both of whom were lawyers from the Law Firm,³ the terms of the settlement reached before the mediator were placed on the record. Following that, the trial court addressed plaintiffs as follows:

THE COURT: Mr. and Mrs. Guido, you've had an opportunity to come to court on two or three occasions. You've also had settlement discussions on your own, and you've also had the assistance of retired Judge Havey in mediating this and bring closure in accordance with the terms that were described in court. Did you understand the terms?

MR. GUIDO: Yes, sir.

MRS. GUIDO: Yes.

THE COURT: You do. Is there any question you have?

MR. GUIDO: No, sir.

THE COURT: No. Mrs. Guido?

MRS. GUIDO: No.

THE COURT: And you agree to be bound by those terms?

MR. GUIDO: Yes, sir.

THE COURT: And you're both in reasonably good health, there's nothing that would impact your ability to understand the terms and accept responsibility for the terms, as well as the fruits of this agreement; is that acceptable to you?

MR. GUIDO: Yes, sir.

THE COURT: Mrs. Guido?

MRS. GUIDO: Yes.

THE COURT: All right. Counsel, do either of the plaintiff's counsel wish to supplement my series of questions in any way? Either side?

MR. LUCHAK: I have no further questions.

THE COURT: Okay. Counsel for Allstates?

COUNSEL: No. sir.

Almost two years later, on February 15, 2007, plaintiffs filed their legal malpractice complaint against the Law Firm, Luchak and Williams, claiming that defendants "failed to exercise the knowledge, skill and ability ordinarily possessed and exercised by members of the legal profession similarly situated, and failed to employ reasonable care and prudence in connection with their representation of" plaintiffs. Based on that claimed breach of duty, plaintiffs sought both compensatory damages and a refund of approximately $358,000 in legal fees plaintiffs paid defendants; plaintiffs also sought "attorneys' fees, costs of suit, and such other and further relief as the Court deems just and proper."

Defendants moved for summary judgment, pursuant to Rules 4:46-1 and -2. By a letter opinion and order dated June 11, 2008, the trial court entered summary judgment in favor of d...