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"Bad Faith": A Prerequisite to NJ Frivolous Litigation Sanctions

Torgro Limousine Service, Inc v. 76 Carriage Co., Inc., Superior Court of New Jersey, Appellate Division, May 25, 2010

Facts:  The defendant filed suit against the plaintiff in Pennsylvania for breach of contract.  Defendant obtained a default judgment and docketed the judgment in New Jersey.  Plaintiff then unsuccessfully attempted to reopen the default judgment in Pennsylvania.  Plaintiff’s counsel then unsuccessfully pursued a suit in New Jersey for breach of contract and defendant moved to dismiss on the basis of res judicata. 

Notwithstanding the dismissal, Plaintiff’s counsel filed another complaint for breach of the same contract, breach of the covenant of good faith and fair dealing, and consumer fraud.  Defendant responded with a "Notice & Demand" pursuant to New Jersey Court Rule 1:4-8.  Torgro’s counsel. however, failed to withdraw the allegedly frivolous complaint in the time prescribed by Rule 1:4-8.  76 Carriage, in turn, filed a motion to dismiss, followed by a motion for sanctions under Rule 1:4-8.  The trial court awarded sanctions against Torgro’s attorney in the amount of $6,500.

Issue:  Did counsel’s behavior constitute a violation of Rule 1:4-8?

Ruling:  Perhaps. 

An award of sanctions under the rule is dependent upon a finding that the attorney filed the offending pleading in bad faith…Further, we have explained that the concept of bad faith in relation to an application for sanctions under Rule 1:4-8 means that the harm was inflicted intentionally and without justification for excuse…In addition, we have stressed the necessity of a trial court making detailed factual findings when it determines that an award under Rule 1:4-8 is appropriate.

The Appellate Division remanded the case to the trial court, since the court had failed to make a finding that counsel acted in bad faith when the second action was filed.  More specifically, the trial court needed to make a determination as to whether counsel’s actions were motivated by an "improper purpose" and whether counsel "knew, or should have known, that the complaint’s factual allegations lacked any evidentiary support".  Furthermore, the trial court must explain how the amount of sanctions imposed on counsel were necessary "to deter repetition". 

Lesson:  An award of sanctions under New Jersey Court Rule 1:4-8 must be accompanied by a finding of bad faith on the part of counsel and that the amount of the award was tailored to avoid such conduct in the future.

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Posted in: Commercial, Litigation, New Jersey