An Award of Counsel Fees Under New Jersey Frivolous Litigation Law, Rule 1:4-8 and N.J.S.A. ¶ 2A:15-59.1

Case Summary:  Konefal v. Landau, Superior Court of New Jersey, Docket No. A-0024-20 (App. Div. Nov. 4, 2021)

This case had initially addressed the award of counsel fees under New Jersey frivolous litigation law, Rule 1:4-8 and N.J.S.A. ¶ 2A:15-59.1.  After a bench trial, the trial judge dismissed plaintiff’s complaint and later awarded fees to defendant of just under $40,000 because plaintiff had provided insufficient evidence to support her contentions at trial.  See Konefal v. Landau, No. A-2781-18 (App. Div. May 13, 2020).

Plaintiff Valerie Konefal sued defendant Howard Landau in the Law Division over Howard’s alleged management of funds left to Valerie and her sister, Howard’s wife, Eileen (“Marie”), by their mother.  After their mother’s death in 1995, Valerie raised questions about her share of her mother’s assets.  When Valerie demanded her share, Howard denied ever managing any of the funds and asserted that he did not hold any funds on Valerie’s behalf.

In January 2017, Valerie filed a complaint against Howard, alleging breach of fiduciary duty, fraud, conversion, and unjust enrichment.  Howard’s counsel then sent Valerie’s attorney a notice and demand to withdraw the complaint, pursuant to R. 1:4-8 only.  Valerie did not withdraw the complaint but instead amended her pleadings to name her sister as a defendant, seeking an accounting, disgorgement, and constructive trust relief.  Later, the court declared Marie incapacitated and appointed a guardian for her.

The trial judge conducted a two-day bench trial in November 2018.  The next day, the judge entered an order dismissing Valerie’s complaint with prejudice and issued a written decision setting forth credibility findings, findings of fact, and reasons for dismissing plaintiff’s complaint.  In her comprehensive, 22-page decision, the trial judge found Howard more credible than Valerie, and rejected Valerie’s contentions about Howard managing or investing his late mother-in-law’s money, having access to any such funds, or that Howard owed Valerie any money.

The judge specifically found that contrary to Valerie’s contentions, there was no proof that Valerie’s mother had made an inter vivos gift to Marie.  Rather, the judge found that Marie was handling her mother’s funds under a power of attorney which expired upon death and that the mother’s Will reflected her intent to leave her estate to both daughters.

The judge found that Valerie had offered no evidence of how much money was left at the time of her mother’s death, other than her own testimony about conversations with her sister, Marie, now incapacitated.  Further, the evidence demonstrated that Valerie had never asserted a claim for an accounting until 2012 at the earliest.  The judge did not find Valerie’s testimony credible “on a preponderance of the evidence standard, let alone a clear and convincing standard.”

Howard subsequently filed a motion for legal fees under R. 1:4-8 and N.J.S.A. ¶ 2A:15-59.1.  The trial judge granted the motion.  The judge concluded that Valerie’s claims against Howard were frivolous given that she had failed to prove her mother had any money at the time of her death, she took no action to pursue her claim for approximately 17 years, and never hired an expert to prove the value of her mother’s investments, if any.  The trial judge concluded that Valerie had failed to produce “anything other [than] bare allegations.”

On appeal, the Appellate Division reviewed the counsel fee sanctions under an abuse of discretion standard.  The appellate court concluded that the trial judge did not conduct the required analysis of Howard’s claim for fees and did not adequately set forth her reasons for granting the motion.  Rather, the trial judge only relied upon the finding that Howard was more credible than Valerie, who, for that reason, could not prove her claim.  According to the Appellate Division, this was not a sufficient basis to award fees.  In addition, the judge did not provide any analysis of the separate claims against Valerie and her attorney.

N.J.S.A. ¶ 2A:15-59.1 and Rule 1:4-8 permit a judge to award attorney fees as a sanction against a litigant or an attorney for pursuing a frivolous complaint.  R. 1:4-8 applies only to attorneys or self-represented parties, and N.J.S.A. ¶ 2A:15-59.1 applies to represented parties.  Both the Rule and the statute require that the prevailing party seeking the sanction prove that the non-prevailing party acted in bad faith, “for the purpose of harassment, delay or malicious injury,” or pursued the action “without any reasonable basis in law or equity and could not . . . support [its actions] by a good faith argument for an extension, modification or reversal of existing law.”  Konefal, pp. *7-8 (quoting N.J.S.A. ¶ 2A:15-59.1(b)(1) to (2) (other citations omitted)).

The Appellate Division also noted that courts “must strictly interpret the frivolous litigation statute and Rule 1:4-8 against the applicant seeking attorney’s fees and/or sanctions.”  Id. at *9 (quoting Wolosky v. Fredon Twp., 31 N.J. Tax 373, 390 (2019)).  In other words, courts should exercise restraint in awarding frivolous litigation sanctions.  The goal of the law is to deter baseless litigation without discouraging honest, creative advocacy, while at the same time keeping in mind public policy that litigants should usually bear their own litigation costs.  In short, a judge should only award sanctions for frivolous litigation in exceptional cases.

A finding of bad faith is a requirement for awarding frivolous litigation sanctions.  An unsuccessful plaintiff who may perhaps be overly optimistic in seeking a remedy does not necessarily mean that the litigation was frivolous.  In addition, the trial judge must determine whether the moving party served the requisite written notice and demand that the frivolous claim be withdrawn.

The Appellate Division also pointed out that when a prevailing party seeks sanctions against an attorney under R. 1:4-8 and against a party under N.J.S.A. ¶ 2A:15-59.1, the trial judge must consider the respective responsibility of each.  Id. at *12 (citing Savona v. DiGiorgio Corp., 360 N.J. Super. 55, 63 (App. Div. 2003)).

The Appellate Division vacated the fee award and remanded the matter for reconsideration because the trial judge did not provide a complete analysis of the motion seeking fees under the Rule and the statute.  The trial judge did not address whether the notice sent by Howard was sufficient under the Rule or the statute.  Also, the judge never analyzed whether Valerie or her attorney acted in bad faith.

On the limited remand, the trial court awarded counsel fees to Howard in the amount of $39,391.60.

Valerie appealed, arguing that she was denied due process, that defendant’s notice was deficient, that the trial court did not act impartially, that her complaint was not frivolous, and that the counsel fee award was excessive.  (The remand judge had also vacated her earlier determination awarding counsel fees against Valerie’s counsel and his law firm, but Valerie did not appeal that ruling.)

The Appellate Division rejected plaintiff’s arguments as having been raised in her prior appeal.  The court noted that the remand order expressly directed the trial court to only set forth specific findings as to each element of defendant’s claim for counsel fees and explain the reasoning for awarding fees to defendant.  The court declined to consider issues Valerie asserted beyond the scope of its remand instructions and would not compel the trial judge to conduct a separate hearing on the attorney fee issue, re-examine issues previously resolved, or address issues not raised in plaintiff’s initial appeal.

Based on the trial court’s comprehensive findings on remand, the Appellate Division affirmed the award of fees to defendant.  Here, the judge painstakingly detailed her reasons for finding Valerie’s claims were filed in bad faith.  The judge also considered the factors under RPC 1.5(a) in calculating the amount of the attorney fees awarded.  In fact, given the contentious nature of this litigation, the Appellate Division found that the amount of the attorney fees awarded was “eminently reasonable and relatively conservative.”

The court also commented on its instruction to the trial judge to analyze the sufficiency of Howard’s written demand that Valerie withdraw her complaint under R. 1:4-8.  Specifically, under R. 1:4-8(b)(1), the moving party is required to serve the opposing party with written notice and a demand describing the specific conduct alleged to have violated the Rule.

Here, Howard’s R. 1:4-8 letter, served during the early stages of the case, identified nine reasons why the claims in Valerie’s complaint lacked merit, constituted a frivolous pleading, and were filed in bad faith.  In her July 21, 2020, written decision, the trial judge thoroughly examined Valerie’s claims, reviewed her conduct, and explained the reasons for finding

Valerie filed her pleading in bad faith.

In short, the Appellate Division affirmed the judge’s award of counsel fees to defendant.