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The Implications of New Jersey’s Limitation of the Fee Shifting Standards

September 1, 2016

By Jeremy J. Zacharias, Esq.*

Key Points:

  • The New Jersey Supreme Court holds that a non-client would be awarded counsel fees only in cases where there is a finding that the attorney intentionally breached a fiduciary duty.
  • This decision is of importance to New Jersey defense attorneys because the court defined the narrow circumstances in which a non-client may recover fees in a malpractice case.

 

In Innes v. Marzano-Lesnevich, 2016 N.J. LEXIS 331, the New Jersey Supreme Court held that defendant attorneys can be held liable for counsel fees. If, in acting as trustees and escrow agents, attorneys intentionally breach their fiduciary obligations, counsel fees may be awarded.

Peter Innes and his wife Maria Jose Carrascosa were involved in a contentious divorce and custody battle over their daughter Victoria. Innes was a citizen of the United States and a resident of New Jersey. Carrascosa was a Spanish national and a permanent resident of New Jersey. Victoria, their only child, was born in New Jersey in 2000 and is a dual citizen of the United States and Spain. During their divorce proceedings, the parties entered into an agreement whereby Carrascosa’s attorneys would hold Victoria’s United States and Spanish passports in trust in order to restrict Victoria’s travel outside of the United States without written permission of the other party.

Mitchell A. Liebowitz, Esquire was Carrascosa’s attorney. Innes was represented by third-party defendant Peter Van Aulen, Esquire. Carrascosa discharged Liebowitz and retained defendants Madeline Marzano-Lesnevich, Esquire and Lesnevich & Marzano Lesnevich, Attorneys-at-Law. Marzano-Lesnevich received Carrascosa’s file from Liebowitz, including the agreement and Victoria’s United States passport. In December 2004, Carrascosa obtained Victoria’s United States passport from the defendants and used it to remove Victoria from the United States to Spain on January 13, 2005.

In October 2007, Innes filed a complaint in the Law Division against the defendants, Van Aulen and Leibowitz. Innes alleged that they improperly released Victoria’s passport to Carrascosa and intentionally interfered with the domestic relations agreement. Before trial, the court granted Van Aulen and Leibowitz’s motion for summary judgment. However, the trial court denied Marzano-Lesnevich’s motion for summary judgment, concluding that the defendants owed a duty to Innes.

At the conclusion of trial, the only issue submitted to the jury was whether the defendants were negligent in releasing Victoria’s United States passport to Carrascosa. The jury determined that the defendants were negligent and awarded damages to Innes and Victoria. In assessing an award of counsel fees, the judge explained that that award of attorney’s fees was appropriate because the defendants deviated from the standard of care and breached a duty owed to Peter and Victoria Innes when they gave Carrascosa Victoria’s passport. On appeal, the Appellate Division concluded that awarding Innes attorney’s fees was appropriate, even though no attorney-client relationship existed between Innes and the defendants.

The Supreme Court, in granting Marzano-Lesnevich’s petition for certification, limited the issue to whether an attorney defendant can be liable for attorney’s fees as consequential damages to a non-client under Saffer v. Willoughby, 670 A.2d 527 (N.J. 1996). In affirming the judgment of the Appellate Division, the Supreme Court held that in the field of civil litigation, New Jersey courts had historically followed the “American Rule,” which provides that litigants must bear the cost of their own attorney’s fees. The Innes court made it clear that New Jersey has limited exceptions to the American Rule. Id. (citing In re Niles Trust, 824 A.2d 1 (N.J. 2003)(“[n]o fee for legal services shall be allowed in the taxed costs or otherwise, except” in eight enumerated circumstances). See also, N.J.Ct. R. 4:42-9(a) (permitting award of attorney’s fees in a family action; out of court fund; probate action; mortgage foreclosure action; tax certificate foreclosure action; action upon liability or indemnity policy of insurance; as expressly provided by rules in any action; and all cases where attorneys’ fees are permitted by statute). The Supreme Court also made it clear that any departures from the American Rule are the exception. In Innes, the Supreme Court held that a non-client would be awarded counsel fees only in cases where there is a finding that the attorney intentionally breached a fiduciary duty.

The Innes court referenced In re Niles Trust, in which the court awarded counsel fees to a prevailing party where the defendant, an estate executor and trustee, was not an attorney. In that case, it was that, “[w]hen an executor or trustee commits the pernicious tort of undue influence, an exception to the American Rule is created that permits the estate to be made whole by an assessment of all reasonable counsel fees against the fiduciary that were incurred by the estate.”

It should be noted that the Supreme Court, in In re Estate of Folcher, 135 A.2d 128 (N.J. 2016)—decided on the same day as Innes—declined to expand the Niles exceptions to the American Rule. Counsel fees could not be awarded against a person who did not owe a fiduciary responsibility to the estate and its beneficiaries, no matter how repugnant the conduct.

The Innes court made it clear that New Jersey has limited exceptions to the American Rule, and the court, in deciding In re Estate of Folcher, declined to expand these exceptions when a fiduciary responsibility is not owed. This issue is particularly important for defense attorneys and insurance adjusters working in New Jersey because knowledge of the narrow holding of Innes will provide a key defense when a non-client demands an attorney fee award in a third-party malpractice case.

*Jeremy, an associate in our Cherry Hill, New Jersey office, can be reached at jjzacharias@mdwcg.com or 856.779.6103.

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Defense Digest, Vol. 22, No. 3, September 2016. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2016 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

 

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