Opinion
DOCKET NO. A-4116-13T2
08-25-2016
DAVID SNYDER, individually and derivatively on behalf of LIVINGSTON BAGELS, INC., and as Trustee of the DAVID SNYDER TRUST, Plaintiff, v. RITA SNYDER, DAVID FEINSILVER, BETH SCHLOSSMAN, and LIVINGSTON BAGELS, INC., Defendants, and RITA SNYDER, individually, and RITA SNYDER and BETH J. SCHLOSSMAN, as Co-Trustees of THE SNYDER FAMILY TRUST, RITA SNYDER, as personal representative of the Estate of Sol Snyder; RISOL REALTY, LLC, RISOL REALTY LTD., LIVINGSTON BAGELS, INC., a/k/a LIVINGSTON BAGELS LLC and LIVINGSTON BAGEL AND DELI, and LIVINGSTON BAGEL & DELI, LLC, Third-Party Plaintiffs-Appellants/Cross-Respondents, v. DAVID SNYDER, OLGA SNYDER, WIZEMAN SERVICES, LLC t/a BABUSHKA'S DELI and INVITATIONS ET CETERA, WIZEMAN SERVICES TWO, LLC, WIZEMAN SERVICES 3 LIMITED LIABILITY COMPANY, FISCHBONE RECORDS CO. LLC, d/b/a THE BOSTON ICE CREAM COMPANY, DAVOLGA ENTERPRISES, LLC, HARVEY POE, ESQ., STARR, GERN, DAVISON & RUBIN, P.C., BEDERSON & COMPANY LLP, ROBERT L. FISCHBEIN, C.P.A., individually and as the Trustee of the DAVID SNYDER TRUST, THE DAVID SNYDER TRUST, DIAMOND LEASING CO, LLC, SANDWEG & AGER, P.C., MERCEDES-BENZ FINANCIAL SERVICES, HAROLD J. POLTROCK, ESQ. P.C., CAPITAL ONE BANK, N.A., MARK A. BERMAN, ESQ., and HARTMAN DOHERTY ROSA BERMAN BULBULIA, LLC, Third Party Defendants.
David Feinsilver argued the cause for appellants/cross-respondents (The Feinsilver Law Group, P.C., attorneys; Mr. Feinsilver and H. Jonathan Rubinstein, on the brief). Vito A. Gagliardi, Jr., argued the cause for respondent/cross-appellant Special Fiscal Agent Richard D. Trenk (Porzio Bromberg & Newman and Trenk, DiPasquale, Della Fera & Sodono, attorneys; Mr. Trenk, Mr. Gagliardi, Kevin J. Duffy and Frank A. Custode, on the briefs).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Messano, Simonelli and Carroll. On appeal from the Superior Court of New Jersey, Chancery Division, Essex County, Docket No. C-52-12. David Feinsilver argued the cause for appellants/cross-respondents (The Feinsilver Law Group, P.C., attorneys; Mr. Feinsilver and H. Jonathan Rubinstein, on the brief). Vito A. Gagliardi, Jr., argued the cause for respondent/cross-appellant Special Fiscal Agent Richard D. Trenk (Porzio Bromberg & Newman and Trenk, DiPasquale, Della Fera & Sodono, attorneys; Mr. Trenk, Mr. Gagliardi, Kevin J. Duffy and Frank A. Custode, on the briefs). PER CURIAM
Sol and Rita Snyder were the owners of Livingston Bagels Inc. (LBI), a restaurant in Livingston. Sol also owned Risol Properties, LLC, also known as Risol Realty (Risol), a real estate holding company that owned the shopping center in which LBI was located. The Snyders' son, David, was involved in the operation of LBI from an early age, but tensions grew between family members, and David left the business and moved to New York. His brother, Alan, assumed operations of LBI prior to his sudden death in February 2002.
Because many of those involved are related and share the same last name, we use first names as necessary. We intend no disrespect by this informality.
The parties dispute the circumstances surrounding David's return to LBI, but it coincided with Rita and Sol's gradual and eventual relocation to Arizona, where, in 2008, they became full-time residents. In 2006, Rita suffered medical problems that significantly compromised her ability to manage business affairs. Sol passed away in 2011.
In the interim, intra-family disputes erupted that gave rise to the underlying litigation from which this appeal springs. Because the litigation ultimately settled, we limit our recitation to only the necessary allegations and procedural history that permit us to resolve the issues on appeal.
No testimony was taken during these proceedings and many facts were disputed. We have relied upon the parties' pleadings and written documents and certifications, taking every effort to indicate as necessary when factual allegations are disputed.
In December 2010, the irrevocable David Snyder Trust (DST) was formed, with Rita ostensibly assigning fifty percent ownership in LBI to the trust. David was the sole beneficiary, and LBI's longtime accountant, Robert Fischbein, a partner at Bederson & Company (Bederson), was the trustee. Rita denied having knowingly signed the trust documents, claiming instead that DST was formed by the collective deceit of David, Fischbein and a New Jersey lawyer retained through Fischbein's efforts. In March 2011, unaware that DST existed, Rita transferred her interests in LBI to the Snyder Family Trust (SFT). Rita and David's former wife, Beth Schlossman, were named co-trustees of the SFT.
Disputes about David's managment of LBI and Risol continued until March 5, 2012 when, acting on LBI's behalf, David Feinsilver, an attorney and Schlossman's husband, terminated David's employment and changed the locks at LBI and other businesses on Risol's property that were operated by David and his wife, Olga Snyder. Two days later, on March 7, 2012, David, individually and on behalf of LBI, and as trustee of DST, filed a complaint against Rita, Schlossman, Feinsilver, and LBI (collectively, defendants). Defendants filed answers and counterclaims against David, as well as third-party claims against numerous entities and individuals, including Fischbein and Bederson. One specific allegation was that David and Fischbein used LBI's assets to form a company and operate an ice-cream store on Risol's property.
Defendants have been represented throughout the litigation and on appeal by Feinsilver.
In May, the parties appeared before the chancery judge, who denied injunctive relief, but appointed attorney Richard Trenk, of Trenk, DiPasquale, Della Fera & Sodono, P.C. (Trenk's firm), as special fiscal agent (SFA) of LBI. Over defendants' objection, the judge entered an order that delineated Trenk's powers. Specifically, the SFA was authorized to take possession of LBI's property and supervise and oversee the day-to-day management of the business. He was also permitted "[t]o employ such counsel, accountants, employees, and other professionals, and other such persons as may be necessary in order to carry out the [SFA]'s duties and to preserve, maintain, and protect LBI." The SFA was "entitled to reasonable compensation for the performance of duties undertaken pursuant to th[e] Order and for the costs of actual out-of-pocket expenses incurred by him. The [SFA]'s compensation and the compensation of any persons hired by him are to be paid upon application and Order of this Court."
On May 10, Feinsilver sent an email to Trenk, noting that during a recent visit, he observed that Trenk's firm was in the same building as the bankruptcy department of Bederson, reiterating that defendants had "significant claims against Bederson" and requesting Trenk to "advise as to the nature and extent (if any) of [his] firm's contacts and/or dealings with Bederson." Trenk responded by letter one week later. He stated that he had advised the judge that Bederson maintained an office in the building, and that Bederson "provide[d] professional services to various parties whom [Trenk's firm] represent[ed] and in cases where [the firm] represent[s] adverse parties in interest." However, Trenk stated that Fischbein was not "involved in the bankruptcy aspect of Bederson's practice." He further stated that he "may have met [Fischbein] at some point," but he did not know him and was never involved in any matter in which Fischbein was involved. In sum, Trenk stated, "I cannot anticipate any issue which will impact my responsibilities as [SFA] for LBI."
On May 23, defense counsel sought further information regarding Trenk's firm's contacts with Bederson. Two days later, the parties were before the judge arguing motions to quash discovery subpoenas defendants issued to various banks. Ultimately, the judge ordered Trenk to examine the banks' records and "make a determination as an independent officer of the Court . . . concerning relevancy and whether this information will lead to relevan[t]" information.
On June 6, Trenk moved for an interim award of fees and disbursements. Defendants opposed the request and moved by way of an order to show cause for Trenk's disqualification as SFA. In addition to objecting to Trenk's performance, defendants alleged that he, his partner and a partner in Bederson were members of a limited liability company (LLC) that owned the building shared by the law firm and Bederson. Defendants also stated that a partner in the law firm and a partner in Bederson both served on the board of directors of a bank, and that Trenk, and a partner in one of the other third-party defendants, served together on the board of a local non-profit. They further noted that Trenk's law firm and Bederson jointly fielded a softball team in support of a local charity. Defendants argued that because Trenk was serving in a "quasi-judicial capacity," he was subject to the Code of Judicial Conduct and these relationships were disqualifying. Alternatively, defendants contended that these relationships violated the Rules of Professional Conduct (RPCs).
On June 12, 2012, the judge entered an order denying defendants emergent relief and treating defendants' order to show cause as a motion, returnable August 8. Trenk engaged the firm of Porzio, Bromberg & Newman (PB&N) to represent him on the disqualification motion. In a certification opposing the motion seeking his disqualification, Trenk explained his relationships with the non-profit organizations. Additionally, he acknowledged a 4.07% ownership interest in the LLC that owned the building where his law firm was housed, and that Bederson rented space in the building as a satellite office. Trenk further certified that he had no recollection of having met Fischbein prior to serving as SFA, or working with or against him in any other matter. He also noted that the "only direct issue [in the litigation] potentially involving" Fischbein was the lease between LBI and the ice-cream store located on Risol's property.
In July, the parties ostensibly reached a mediated settlement of the underlying lawsuit. Pursuant to the settlement placed on the record before the mediator, a retired judge, the parties expressly requested that Trenk's services be terminated. The settlement was not consummated, and on October 11, 2012, defendants moved to enforce the settlement and renewed the request to disqualify Trenk.
For reasons that are not fully explained by the record, the judge did not rule on either application. In December, Trenk filed an order to show cause seeking authority to terminate any employee of LBI. Following argument, the judge entered an order giving the SFA that authority and enjoining defendants from taking any action to interfere with those decisions and "any other aspect of the ongoing business operations."
At a hearing in April 2013, the judge explained that he "didn't want to decide any motions that . . . could interfere [with] the global settlement."
Oral argument on defendants' motion to enforce the settlement was not held until May 2, 2013, at which time the judge enforced the settlement, but did not address Trenk's disqualification or termination under the settlement terms. On August 12, 2013, the judge finally heard oral argument on defendants' motion to disqualify Trenk as SFA. The judge rejected defendants' claim that the issue should be analyzed under the Code of Judicial Conduct because an SFA "does not act in a judicial or quasi-judicial capacity and thus is not subject to the code." Additionally, the judge found that Trenk should not be disqualified under RPC 1:7, which governs conflicts of interest, because he was not representing any party in the case, but rather, was acting as a court-appointed custodian of LBI. Further, the judge rejected the argument that even if the Rules of Professional Conduct applied, a direct conflict of interest existed. The judge entered a conforming order denying the motion for disqualification.
In broad terms, the settlement provided that the alleged transfer of Rita's interest in LBI to the DST was void, meaning that David never had an ownership interest in LBI. Rita agreed to pay David and Olga certain monies. Defendants successfully settled their malpractice claims against Bederman and Fischbein.
On August 28 and 29, 2013, the judge held hearings on fee requests and related issues and filed an order on August 30, 2013, that, among other things, awarded Trenk's firm $193,660.23 in fees and $6670.22 in expenses for service as SFA, and $90,857.35 in fees and $2799.43 in expenses to PB&N for services rendered to the SFA. In doing so, the judge reduced the requested fees by thirty percent. Defendants moved for reconsideration.
The original chancery judge retired in the interim and the matter was now heard before his successor. In December, the judge awarded additional fees and costs to Trenk's firm and to PB&N, and he entered a separate order continuing the powers of the SFA. Defendants' motion for reconsideration was ultimately heard on January 9, 2014, and denied by order dated February 25, 2014.
In March 2014, the judge entered two orders requiring Feinsilver's firm to disburse settlement monies held in its trust account to Trenk, PB&N and others in certain percentages. After a hearing on March 31, 2014, the judge granted defendants' application to discharge the SFA effective April 1. Further, the judge retained jurisdiction in the event that "anyone assert[ed] a claim" against the SFA, but gave defendants the right to seek a transfer and jury trial. After hearing further fee applications, a separate April 1, 2014 order awarded additional fees to Trenk's firm and to PB&N. The judge signed an order of dismissal as to all parties on May 19, 2014.
Defendants contend that Trenk should have been disqualified from serving as SFA under either the Code of Judicial Conduct or the RPCs. As a result, it was error to order the payment of any of Trenk's fees. In particular, defendants claim that Trenk was not entitled to any fees or costs for defending himself against the motion for disqualification or challenges to his fee requests. They also contend it was error to award any fees to PB&N. Defendants also challenge specific costs awarded to Trenk's firm and argue that it was error to deny discovery and a plenary hearing on the fee applications. Finally, defendants argue the judge erred by retaining jurisdiction in the Chancery Division for any future action that may be brought against Trenk.
Trenk argues that it was not a mistaken exercise of judicial discretion to deny motions seeking his disqualification as SFA under any standard, and the compensation awarded to him as SFA, and to PB&N as his counsel, was appropriate. He argues alternatively that even if it was error to deny the disqualification motion, the fee award should be affirmed under the doctrine of quantum meruit.
Although, on cross-appeal, Trenk contends the judges erred in reducing by thirty percent the fees and costs awarded to him and PB&N from the amounts actually requested.
We have considered these arguments in light of the record and applicable legal standards. We affirm in part, reverse in part and remand for further proceedings consistent with this opinion. We dismiss the cross-appeal.
I.
We first consider what standard should apply in evaluating whether a judicially-appointed SFA has a disqualifying circumstance. We reject defendants' argument that the RPCs govern the situation. RPC 1:7 provides that an attorney shall not represent a client if "the representation of one client will be directly adverse to another client," or "there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client, or a third person or by a personal interest of the lawyer." RPC 1.7(a)(1) and (2). The first judge concluded that the RPC did not apply because none of the parties were Trenk's clients, and we agree.
Defendants also assert that an SFA is subject to the Judicial Code of Conduct, which requires, in relevant part, that a judge recuse himself or herself "when there is any . . . reason which might preclude a fair and unbiased hearing and judgment, or which might reasonably lead counsel or the parties to believe so." R. 1:12-1(g). In support, defendants argue that Trenk was the equivalent of a "special master."
Relying upon unique circumstances, we have held that a Mount Laurel special master is "subject to substantially the same conflict of interest rules as judges." Deland v. Twp. of Berkeley Heights, 361 N.J. Super. 1, 12 (App. Div.), certif. denied, 178 N.J. 32 (2003), and certif. denied, 179 N.J. 185 (2003). Our holding in Deland, however, has not been extended to any non-Mount Laurel situation.
In this case, none of the formalities required by our Court Rules for the appointment of a master were followed. See R. 4:41-1 to -4; see also Zehl v. City of Elizabeth Bd. of Educ., 426 N.J. Super. 129, 136-39 (App. Div. 2012) (discussing the Rules and inherent limitations upon non-consensual appointment of masters in certain cases). As noted, the judge did refer some discovery issues to Trenk for initial review, but, by and large, Trenk's powers were intended to be exercised outside the litigation itself. In other words, while Trenk was empowered to investigate and gather facts surrounding David's, LBI's and Fischbein's financial records and decide issues of relevancy, he was given this responsibility in order to operate the business. We therefore must look elsewhere to find the appropriate standard.
We begin by recognizing that "the Chancery Division has discretion in appointing a receiver or special fiscal agent." N.J. Realty Concepts, LLC v. Mavroudis, 435 N.J. Super. 118, 123 (App. Div. 2014) (citing Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen, P.C. v. Lowenstein Sandler, P.C., 365 N.J. Super. 241, 249 (App. Div. 2003); Roach v. Margulies, 42 N.J. Super. 243, 246 (App. Div. 1956)). "However, the appointment of a receiver is 'an extraordinary remedy,' and can have the effect of 'injuring the business in its relations with the public and its' customers . . . .'" Id. at 125 (quoting first Ravin, supra, 365 N.J. Super. at 249; and then quoting Roach, supra, 42 N.J. Super. at 246). Thus, the appointment of a receiver requires compliance with certain procedural safeguards, and "[a] court may appoint a receiver 'only for the short period of time required to protect assets pending a final resolution of litigation or a dissolution of the business enterprise.'" Ibid. (quoting Kassover v. Kassover, 312 N.J. Super. 96, 100 (App. Div. 1998)). On the other hand, "'[t]he appointment of a "special fiscal agent" to oversee the disbursements of a solvent corporation [is] a "pendente lite device . . . contrived to avoid more stringent measures"'" such as appointment of a receiver. Ibid. (quoting Kassover, supra, 312 N.J. Super. at 100) (quoting Roach, supra, 42 N.J. Super. at 246).
In this case, the order of appointment bestowed vast powers on Trenk. It gave him access to LBI's records "for the purpose of investigating the allegations, operation of the business, transfers of any assets, and all related matters . . . ." He was empowered to take possession of LBI's property, supervise the management of its operations, employ other professionals, "determine or abrogate" in his sole discretion as permitted by law any agreement or contract entered into by "any" defendant and open new utility and bank accounts in LBI's name. We conclude that the label applied to the appointment — whether SFA or receiver — mattered little in light of the powers contained in the order.
Our courts have long held that receivers are officers of the court. See Wilzig v. Sisselman, 209 N.J. Super. 25, 32 (App. Div. 1986) (receiver is "officer of the court"), certif. denied, 104 N.J. 417 (1986), and certif. denied, 107 N.J. 109 (1987), and certif. denied, 108 N.J. 188 (1987); see also Seidler v. Branford Rest., Inc., 97 N.J. Eq. 531, 535 (E. & A. 1925) ("Receivers are but the arms of chancery, appointed to preserve the property of corporate and similar entities for the benefit of all parties in interest . . . ."); 65 Am. Jur. 2d Receivers § 84 (2011) (receivers are "officer[s] of court").
Although receivers might be officers of the court, no reported case holds that the Judicial Code of Conduct applies to them. Indeed, we have recognized that a court cannot delegate "judicial powers" to a receiver. Maragliano v. Maragliano, 321 N.J. Super. 78, 82 (App. Div. 1999).
Rather, receivers have been likened to other fiduciaries.
A person appointed receiver should be indifferent between the claimants or litigants. That is, a receiver should be impartial and disinterested, and no one ordinarily may be appointed receiver whose personal interests would substantially conflict with his or her unbiased judgment and duties as a receiver. A receiver may not place itself in a position where its personal interests may be antagonistic to those of the estate it is administering."A receiver may not deal with the property under his or her control in such a way as to benefit himself or herself or his or her associates." Id. at § 91. As in other contexts involving fiduciaries, the essence of the relationship rests upon the fiduciary's "duty of loyalty and [] duty to exercise reasonable skill and care." Innes v. Marzano-Lesnevich, 224 N.J. 584, 598 (2016).
[65 Am. Jur. 2d, supra, § 80.]
Here, Trenk owed a duty of undivided loyalty to LBI and its property. Of course, who actually owned LBI was the subject of fierce contest. The question posed early in the litigation, therefore, was whether any relationship between Trenk, Bederson and Fischbein could possibly compromise the obligation Trenk owed to all of the combatants in the litigation, including defendants.
Defendants made specific allegations, of course unproven, against Bederson and Fischbein. For example, they alleged that one or both orchestrated a sham transfer of stock from Rita to the fraudulently-created DST and thereafter helped David transfer LBI's assets to his own businesses and the ice cream business Fischbein allegedly owned with David. At the outset of the litigation, defendants brought to the judge's attention that Bederson and Trenk's law firm had offices in the same building, that the building was owned by an LLC whose members included Bederson partners (although not Fischbein) and Trenk, and that Bederson and Trenk's firm had a business relationship referring work between themselves. We reiterate that the order appointing Trenk as SFA gave him broad powers, and, as the litigation progressed, the judge bestowed other de facto powers on him, for example, to review bank records and determine their relevancy to the litigation.
We view other allegations about impropriety regarding various shared charitable interests and memberships on boards to be less material.
A fiduciary's duty of loyalty
extends to all transactions, where the individual's personal interest may be brought into conflict with his acts in a fiduciary capacity, and it works independently of the questions of whether there was fraud, or whether there was good intention. Where the possibility of such a conflict exists, there is the danger intended to be guarded against by the absoluteness of the rule.Obviously, Trenk had no direct financial interest in Bederson, leading the judge to conclude any relationship was "too tenuous." However, the appropriate standard required the judge to consider whether the vast powers he bestowed upon the SFA presented the possibility of a conflict between fiduciary obligations and personal interests. The judge failed to do so.
[Dufford v. Nowakoski, 125 N.J. Eq. 262, 269 (E. & A. 1939) (emphasis added).]
At argument before us, although acknowledging the standard to be applied was that of a receiver, Trenk contended that since neither the Code of Judicial Conduct nor the RPCs applied, disqualification turned on whether his personal interests were "inherently incompatible" with his service as SFA. See, e.g., Isaacson v. Isaacson, 348 N.J. Super. 560, 565 (App. Div.) (concluding the role of court-appointed mediator and guardian ad litem were "so inherently incompatible that one individual cannot serve in this dual capacity in the same ongoing litigation"), certif. denied, 174 N.J. 364 (2002). The authority we cite above, however, convinces us the appropriate standard is otherwise. If the judge had properly assessed the particular facts in light of defendants' allegations, he should have granted defendants' motion to disqualify.
We next consider the implications of that conclusion. The litigation continued for many months with the issue unresolved because the judge refused to make a decision. During that time, Trenk served as SFA, and while defendants attack Trenk's performance, there was never a determination that his disqualifying relationships actually affected his performance as SFA, or that he breached his fiduciary obligations in any way. In large part, this segues into Trenk's alternative argument, which is that regardless of whether he should have been disqualified nunc pro tunc, he performed SFA services in good faith and was entitled to an award of fees on the theory of quantum meruit.
To recover under a theory of quantum meruit, the requestor must establish: "'(1) the performance of services in good faith, (2) the acceptance of the services by the person to whom they are rendered, (3) an expectation of compensation therefor, and (4) the reasonable value of the services.'" Starkey, Kelly, Blaney & White v. Estate of Nicolaysen, 172 N.J. 60, 68 (2002) (quoting Longo v. Shore & Reich, Ltd., 25 F.3d 94, 98 (2d Cir. 1994)). Defendants argue that because Trenk was less than candid about his relationships and should have been disqualified at the inception of the litigation, he did not perform his duties as SFA in good faith. See Glick v. Barclays De Zoete Wedd, Inc., 300 N.J. Super. 299, 311 (App. Div. 1997) ("Where the attorney is discharged for good cause, he or she may not be entitled to any recovery, except reimbursement of the reasonable costs incurred in the representation.").
At this time and on this record, we reject defendants' unabashed claims that Trenk must disgorge all fees because he told the judge there was no conflict, failed to appraise the judge of the relationships until defendants filed their motions and "aided and abetted David and Fischbein in diverting funds from LBI." Certainly as to this last assertion, defendants display a proclivity for transforming their bald allegations into undisputed facts.
As a result, we are constrained to reverse the August 12, 2013 order that denied defendants' motion to disqualify Trenk from serving as SFA. We remand the matter to the trial court for consideration of Trenk's entitlement to fees and costs for his services as SFA under the theory of quantum meruit.
In light of our discussion in Part III below, we leave to the trial court's sound discretion the case management issues that may inevitably result from attempts to resolve issues of compensation under quantum meruit and competing allegations, if they are made, of a breach of fiduciary duties.
II.
We next address whether Trenk and PB&N were entitled to an award of counsel fees and costs for opposing defendants' motion to disqualify Trenk as SFA and in support of their respective fee requests. Both sides rely upon the Court's decision in Segal v. Lynch, 211 N.J. 230 (2012), for support.
In Segal, the Court considered whether the court-appointed parenting coordinator, herself an attorney, was entitled to counsel fees for representing herself in, among other things, responding to grievances filed by one of the parents, participating in discovery about the grievances and pursuing an award of fees. Id. at 234. The parenting coordinator argued that even though she was an attorney, she should be permitted to recover her fees as a parenting coordinator seeking to enforce an award of fees. Id. at 259. The Court found her arguments unpersuasive, reasoning, "to the extent that she asserts that she was acting as a parenting coordinator who was seeking to enforce a previously awarded fee, we see no reason to treat her any more indulgently than every other pro se litigant," who is not compensated for their time. Ibid.
Certainly, in the context of an attorney who acted as a parenting coordinator and who thereafter sought to enforce her entitlement to parenting coordinator fees, it is consistent with our broader approach to the treatment of those who represent themselves. We reach no different result to the extent that [the parenting coordinator] performed the work on behalf of the other lawyers in her law firm who had been subpoenaed for depositions or represented her firm in connection with the motions for reconsideration.Based on this rationale, we conclude it was improper to award counsel fees and costs to Trenk for efforts expended in obtaining approval of fees for serving as SFA, or to PB&N for its fees and costs in securing its own counsel fee award as a result of Trenk's retention.
[Id. at 264.]
The Segal Court, however, reached a different result with respect to the fees sought by the parenting coordinator in responding to the disgruntled parent's grievances. For a variety of reasons — a "confluence of factors that [were] perhaps unique to th[e] record" — the Court affirmed the award. Id. at 256. Trenk contends that similarly we should affirm the award of fees and costs associated with his opposition to defendants' motion seeking his disqualification as SFA, and fees and costs incurred by PB&N as his counsel in this regard. These issues present close questions, complicated by the peculiar facts and procedural history of this case.
We are concerned that if an SFA — whether or not an attorney — is not allowed to recover fees and expenses for time spent responding to disqualification motions, disgruntled litigants may assert non-existent conflicts to rid themselves of a disfavored SFA. However, as the Segal Court recognized, the court always retains its inherent power to sanction a party's behavior that is vexatious, burdensome or harassing. Id. at 255.
On the other hand, the prospect of not being compensated for time spent on disqualification applications would encourage potential receivers and SFAs to carefully consider potential conflicts before accepting the appointment. In Segal, one factor in affirming the award of fees was that all of the disgruntled parent's grievances were ultimately deemed to be without merit. Id. at 256. In this case, we have now held that defendants' motion to disqualify Trenk as SFA should have been granted.
We could find no precedent as to whether a receiver or SFA should be awarded fees for his or her opposition to a disqualification motion, and certainly none where the motion for disqualification should have been granted. In the end, the court's goal is to have a conflict-free SFA serve and protect the interests of the business. Allowing an SFA to serve with potentially disqualifying conflicts does not assist the court, the business or the parties in dispute, and delaying the decision regarding such a challenge only exacerbates the problem. Although Trenk was not responsible for the delay, his opposition to the motion, though assumedly made in good faith, was without merit. As a result, Trenk's firm was not entitled to costs and fees associated with his defense of the disqualification motion brought by defendants.
We also conclude that PB&N was not entitled to fees and costs associated with representing Trenk in opposing the disqualification motion. The first judge concluded the SFA's retention of counsel to contest the motion for disqualification was permitted by the original appointing order. However, the language of the order only permitted the retention of counsel "in order to carry out the [SFA's] duties and to preserve, maintain and protect LBI." (Emphasis added). The second judge seemingly understood this limitation. In an amplification of reasons for awarding PB&N additional fees, he reasoned that although the prior fees "were court-approved, they were not integral to the day-to-day operations and maintenance of [LBI]." He relied expressly upon the prior ruling of the first judge in approving additional fees.
We have recognized similar limits upon a fiduciary's ability to retain professional counsel in other contexts. In Mears v. Addonizio, 336 N.J. Super. 474, 476-77 (App. Div. 2001), the trustee-bank sought court approval for trustee commissions and counsel fees, much of which resulted from the bank's involvement in litigation involving the trust. The trial court concluded that the bank was entitled to employ counsel "'for the administration of the trust estate,'" but the bank "had employed attorneys to engage in 'litigation beyond the administration of the trust estate.'" Id. at 478. It denied the application, concluding the bank's involvement was unnecessary "'considering its neutral position in the case,'" and the bank, not the trust, should bear the costs of its counsel fees. Id. at 478-79.
The bank appealed. We recognized:
Trustees are "entitled to the advice and help of counsel in the performance of their duties." Gardner v. Baldi, 24 N.J. Super. 228, 232 (Ch. Div. 1952), but a trustee has "no right to subject the trust fund unnecessarily to charges for counsel and attorney's fees." Holcombe v. Executors of Holcombe, 13 N.J. Eq. 413, 415 (Ch. 1861).Considering the bank's limited involvement in the litigation, we found that the trial judge had not mistakenly exercised his discretion and affirmed the denial of counsel fees associated with the litigation. Id. at 481. However, with limited discussion, we reversed the trial court's denial of the bank's commissions. Id. at 482.
[Id. at 480.]
We then considered whether the bank was entitled to charge the trust for its counsel fees associated with preparation of accountings for the court. Ibid. We noted:
The "usual rule" is one denying payment from the trust for "fees to bookkeepers or lawyers for keeping trustee's books or for preparing an account," because such services are the "responsibility of the fiduciary." In re Trust of Brown, 213 N.J. Super. 489, 494 (Law Div. 1986). Consequently, "a law firm representing a corporate fiduciary" (as is the case here) "cannot be paid for estate accounting services" from the trust, "unless payment is charged against the fiduciary's commissions, i.e., paid by the fiduciary." Ibid. See In re Wharton, 47 N.J. Super. 42, 46 . . . (App. Div. 1957).In Wharton, supra, 47 N.J. Super. at 46, considering the trustee's application for counsel fees associated with an accounting, we said:
[Ibid.]
The services for which compensation is here sought must actually have been rendered to the trust, and may not include those rendered to the estate. The counsel fee must be limited to payment for those legal services which the trustees could not perform and should not have been expected to perform. Counsel cannot be paid from the trust for services which did not require professional legal skill or which should or could have been performed by the trustees, particularly where, as here, one of the trustees is a trust company which holds itself out as particularly skilled and competent in the administration of trusts.Yet, we recognized that in certain circumstances "[l]egal services rendered in connection with the preparation and filing of the account, answering the exceptions filed by the appellant, and other matters leading to the approval of the account, are unquestionably of the kind for which compensation should be given." Id. at 47 (emphasis added).
[Ibid. (emphasis added).]
In this case, under the appointing order, the SFA was permitted to retain counsel in order to perform his duties, i.e., "to preserve, maintain and protect LBI." We can envision a circumstance where a fiduciary, in order to protect the assets entrusted to him, is required to defeat objections made by others, including those made in the context of litigation, and may be entitled to retain counsel as permitted by the governing documents. In other words, an action brought against the fiduciary has the potential to deplete the very assets entrusted to him. However, that was not this case.
As we have already noted, Trenk should have been disqualified from further service as SFA, and his retention of PB&N to stave off defendants' objection to his continued service did not "preserve, maintain and protect" the assets of LBI. Unlike the facts in Segal, upon which Trenk relies, PB&N was hired, not to respond to defendants' "grievances" with his performance as SFA, something that Trenk clearly could have done and did do on his own, but rather to defend Trenk's personal position that he had no disqualifying conflict. We reverse the award of counsel fees and costs to PB&N.
Trenk argues that defendants waived any objection to PB&N's retention because they never raised the issue below. We are unpersuaded. When PB&N first appeared representing Trenk, there was no indication, expressed or implied, that its fees would be charged against LBI. Defendants did, however, repeatedly object when applications were made for the payment of PB&N's fees and costs. We are hard-pressed to conclude that defendants therefore waived any objection.
In sum, we are constrained to reverse the provisions of those orders under review that awarded Trenk's firm the fees and costs associated with his response to the disqualification motion and his attempts to secure his fees as SFA. On remand, the judge shall exclude those amounts from any calculation of SFA fees due to Trenk's firm under the theory of quantum meruit. We also reverse those provisions of the orders under review that awarded PB&N fees and costs and vacate those awards.
We briefly address defendants' specific contention that it was error to include secretarial and paraprofessional time, as well as administrative costs, in the award to Trenk's firm. The issue can only be addressed in the context of the remand, but we emphasize the court's discretionary authority to award the SFA reasonable fees and costs in his capacity as SFA, not as an attorney, is exceedingly broad and subject only to review for an abuse of that discretion.
As a result of our decision, we dismiss the cross-appeal as moot. --------
Lastly, we do not agree with defendants' assertion that discovery and a plenary hearing were necessary to address the disqualification motion or the fee award. In large part, the argument is premised upon defendants' assertion, once again, that Trenk did not perform his duties as SFA with impartiality. As we discuss briefly below, defendants are free to pursue such claims in a separate action.
III.
Defendants contend that it was error for the second judge to retain control over any future claims they might bring against Trenk by ordering that they be filed in the Chancery Division. They argue this violates their right to a jury trial. Trenk argues that the chancery judge has broad authority to fashion any equitable remedy which we should not otherwise disturb on appeal. See, e.g., Marioni v. Roxy Garments Delivery Co., Inc., 417 N.J. Super. 269, 275 (App. Div. 2010).
Under Rule 4:3-1(a)(1), the Chancery Division General Equity part hears actions "in which the plaintiff's primary right or the principal relief sought is equitable in nature . . . ." A claim for "breach of fiduciary duty is a tort theory" entitling the successful claimant to an award of money damages. In re Estate of Lash, 169 N.J. 20, 27 (2001) (citations omitted).
Usually, a receiver is not a party to the suit in which he is appointed. 65 Am. Jur. 2d, supra, § 85. However, in J.L.B. Equities, Inc. v. Dumont, 310 N.J. Super. 366 (App. Div.), certif. denied, 156 N.J. 406 (1998), we held that a potentially aggrieved creditor of a debtor-in-receivership was required to bring a claim for negligence against the receiver in the Chancery Division receivership action. Id. at 372-74. We further concluded that the debtor's claim against the receiver filed in the Law Division was untimely, but also that "[a] new cause of action in the Law Division [was] inappropriate in any event." Id. at 374.
Under these particular circumstances, we disagree with defendants that it was error to require any new claim against Trenk to be filed, in the first instance, in the Chancery Division. This is particularly so because, as noted above, we have remanded for the chancery judge to resolve whether Trenk is entitled to an award in quantum meruit for fees and expenses resulting from his good faith services as SFA to LBI. Issues that defendants might raise in a separate lawsuit regarding Trenk's actual performance, and whether it was negligent or breached a fiduciary duty, might be critical to such an assessment as well as any claim for damages defendants allegedly suffered as a proximate result. We therefore affirm that portion of the March 31, 2014, order that provided for the chancery judge to retain jurisdiction over any claim "assert[ed] . . . against the SFA." As the order specifically provided, we do so without prejudice to the parties' ability to seek other relief if additional claims are filed.
In sum, we reverse the August 12, 2013 order that denied defendants' motion to disqualify Trenk as SFA; we vacate the awards of fees and costs to Trenk's firm and PB&N in the orders under review, and remand the matter to the trial court for consideration of an award of fees and costs to Trenk's firm solely for its service as SFA to LBI under a theory of quantum meruit; we affirm the provision of the March 31, 2014 order that compelled any further claims by defendants against the SFA to be filed, in the first instance, in the Chancery Division.
Affirmed in part; reversed in part; and remanded. We do not retain jurisdiction. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION