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NJ: Settle and Sue Continued, Puder Rejected

Gorjuice Wrap, Inc. v. Okin, Hollander & De Luca, LLP, N.J. App. Div., January 12, 2011 (Unpub.)

Facts:  Kang retained Attorney Watkins to assist her in negotiating a commercial lease with the Talmos.  Unbeknownst to Kang, Watkins had been a longtime attorney for the Talmos.  In fact, he had represented them in their purchase of the property Kang now wanted to lease.  Kang relied on Watkins’ advice that the property was suitable for her business purposes.  Further, Kang asked Watkins to petition the Planning Board to allow Plaintiff to commence its business operations. Watkins, however, failed to take action and Kang retained another attorney. 

Several months later, the Talmos, with the assistance of Watkins, sold a contiguous parking lot to another business.  As a result of this sale, the Planning Board determined that the available parking was insufficient to support Plaintiff’s business.  

Moreover, Plaintiff learned of leaks and structural issues which the Talmos never fixed.  Apparently, Watkins had been aware of these concerns but never brought them to Kang’s attention.  

After serious flooding damaged Plaintiff’s property, Kang filed a claim with the insurance carrier for loss of business revenue and property damage.  Indeed, Kang later testified that the day of the flood was the last day Plaintiff was in business.  

In the meantime, Plaintiff had defaulted on its rent obligation and was locked out of the premises. Kang alleged that she was never provided the opportunity to remove valuable computer equipment, disks, books, and records.  At that point, Kang retained De Luca to secure the return of the personal property, and another firm to commence a malpractice action against Watkins.

According to De Luca, the Talmos notified him that they would allow Kang to enter the premises and gather her belongings in or around June 13, 2001.  Kang disputes that De Luca ever forwarded the message to her.  According to Kang, the new owners of the building allowed her to enter in or around November, 2001.  By that time, however, all of her property had allegedly been removed.  

In the meantime, Kang settled with the insurance carrier for $152,000 for "the whole loss and damage" caused by the flood.  She acknowledged that a portion of the payment was for "business loss."  

Plaintiff’s action against Watkins alleged conflict of interest, failure to file an appropriate and timely site plan approval, failure to advise Plaintiff of its right and remedies against the Talmos, and other violations of the Rules of Professional Conduct.  Watkins’ carrier settled the matter for $250,000.

Plaintiff then filed suit against De Luca for his failure to secure the removal of its property after the lockout.  In this regard, Plaintiff served damage reports claiming lost profits of approximately $8,000,000.

The trial court granted De Luca’s motion for summary judgment and Plaintiff appealed.

Issue:  Did De Luca violate the applicable standard of care.  If so, could Plaintiff establish proximate cause and damages? 

Ruling:  De Luca violated the standard of care, but Plaintiff could not establish proximate cause and damages for lost profits.

In granting De Luca’s motion for summary judgment, the trial court relied on Puder v. Buechel for the proposition that Plaintiff could not settle its case and then sue its attorney for an additional recovery. The Appellate Division held that the trial court’s application of Puder was erroneous.  First, the Appellate Division noted that Plaintiff had not indicated that the settlements in the underlying matters were "fair" or "acceptable."  Moreover, De Luca was not involved in the underlying settlements.  The Appellate Division noted that "[n]othing in Puder prevents [Plaintiff] from asserting a malpractice action against De Luca that does not arise out of legal services provided in connection with the settlement of those prior matters."

The trial court also relied on "judicial estoppel" in granting De Luca’s motion for summary judgment. The Appellate Division held that to be erroneous as well:

[T]he doctrine of judicial estoppel only applies when a court has accepted a party’s position, a party ordinarily is not barred from taking an inconsistent position in successive litigation if the first action was concluded by a settlement.

Nevertheless, the Appellate Division granted De Luca’s motion in part because Plaintiff could not establish proximate cause and damages.  The Appellate Division found that De Luca’s failure to secure the return of the property had nothing to do with Plaintiffs’ lost profits, since the business had been shut down even before the lockout.  Moreover, lost profits were not available as "damages" under the new business rule:

[A]lleged lost profits that are dependent on entry into unknown markets, or the success of a new and unproved enterprise, cannot be recovered because the business venture is so risky as to preclude recovery of lost profits in retrospect.

The Appellate Division reversed the trial court in part to allow a jury to determine when De Luca advised Kang that she could reenter the premises to retrieve any property left behind, and if he did not timely advise her, for a determination as to the value of the property lost.

Lesson: Puder’s holding is not applicable to a malpractice suit commenced against an attorney where the attorney did not provide legal advise in related underlying settlements.  Further, showing a violation of the standard of care is not enough to win in a legal malpractice action.  Establishing proximate cause and damages are essential to recovery.  

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Posted in: But for-Proximate Cause, Conflicts of Interest, Damages, New Jersey, Proximate Cause, Rules of Professional Conduct (RPCs), Standard of Care, Substantial Factor-Proximate Cause