Villanueva v. Brown , 103 F.3d 1128 ( 1997 )

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit
1-6-1997
Villanueva v. Brown
Precedential or Non-Precedential:
Docket 95-5072
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 95-5072
JACK VILLANUEVA, ADMINISTRATOR PENDENTE LITE
OF THE ESTATE OF ELLA OSTROFF,
Appellant
v.
G. MICHAEL BROWN; GUY MICHAEL; BROWN & MICHAEL;
GREENBERG MARGOLIS
HELEN CONN; SAMUEL RUBIN; JOSEPH RUBINSTEIN
Third Party Defendant
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(Civil No. 92-CV-02268)
Argued MARCH 22, 1996
Before: BECKER and McKEE, Circuit Judges, and
POLLAK, District Judge*
(Opinion filed: January 8, 1997)
BRUCE S. MARKS, ESQ. (Argued)
Spector, Gadon & Rosen
1700 Market Street, 29th Floor
Philadelphia, PA 19103
Attorneys for Appellant
LAWRENCE P. ENGRISSEI ESQ. (Argued)
Law Offices of Thomas Dempster, III
*
The Honorable Louis H. Pollak, United States District
Judge for the Eastern District of Pennsylvania, sitting by
designation.
1
Centerpointe at East Gate
161 Gaither Drive, Suite 201
Mount Laurel, NJ 08054
Attorneys for Appellees, G. Michael
Brown, Guy Michael and Brown &
Michael
DAVID G. LUCAS, JR., ESQ. (Argued)
Wolff, Helies & Duggan
188 East Bergen Place
Red Bank, NJ 07701
Attorneys for Appellee, Helen Conn
KEITH L. ANDERSON, ESQ.
Law Office of Keith L. Anderson
Washington Professional Campus
728 Black Horse Pike, Suite B-2
Turnersville, NJ 08012
Attorney for Appellee, Samuel Rubin
JOSEPH RUBINSTEIN
501 White Horse Pike
Collingswood, NJ 08108
Appellee, Pro Se
OPINION OF THE COURT
McKEE, Circuit Judge
Jack Villanueva, Administrator pendente lite of the Estate
of Ella Ostroff, appeals from a directed verdict in favor of the
law firm of Brown and Michael, its partners: G. Michael Brown and
Guy Michael (hereinafter the firm and its partners are
collectively referred to as “Brown & Michael”), and Helen Conn, a
notary.1 For the reasons discussed below, we will affirm the
1
As is noted below, Ella Ostroff died prior to the time
this suit went to trial and Jack Villanueva was subsequently
appointed administrator pendente lite. Accordingly, we will refer
to the appellant herein as “the Estate.”
2
judgment in favor of Brown & Michael, but will reverse the
judgment in favor of Helen Conn, and remand for a determination
of (1) whether Ostroff's acts constituted a ratification of the
disbursements of her funds from the attorneys' trust account; and
(2) whether -- if Ostroff's acts did not constitute ratification
-- Conn's negligence caused injury to Ostroff and, if so, what
damages ensued.
I. Background
This case is about a sophisticated investor in the twilight
of her years named Ella Ostroff, her accountant (Joseph
Rubinstein), a “deal maker” (Samuel Rubin), a law firm (Brown and
Michael), its two named partners, and a notary public (Helen
Conn). The issues before us arise from Ms. Ostroff’s involvement
with, and investment in, a real estate project in St. Lucia.
The saga began in 1988 when Samuel Rubin was working on a
project that was to become the St. Lucia Hotel and Casino (the
"Project"). After concluding negotiations with St. Lucian
government officials, Rubin entered into numerous agreements to
incorporate the St. Lucia Hotel Corporation ("Corporation"). In
the spring of 1989, Rubin began to look for "seed money"
investors to pay Corporation expenses until the financing was in
place. Joseph Rubinstein was an accountant at the time, and one
of his clients was Ella Ostroff. The Estate claims that
Rubinstein induced Ostroff to place $250,000 in the trust account
of the New Jersey law firm of Brown and Michael. It is alleged
that Rubinstein told Ostroff that Brown and Michael was the
3
Corporation’s law firm, that her funds were to be used to pay
ongoing Corporation expenses, and that the Project was a good
investment opportunity for her. According to the Estate,
although Ostroff had not met Rubin, she placed the money into the
account pending receipt of additional information about the
Project. The Estate also asserts that, sometime in April of
1989, Rubin and Rubinstein told Ostroff she would receive a 3%
interest in the Project in return for her investment, and that
her investment would be returned to her in stages.
Eventually, Rubin introduced Rubinstein to G. Michael Brown
and Guy Michael, the named partners in the law firm of Brown and
Michael. That firm represented Sam Rubin and the Corporation.
Rubinstein informed Brown and Michael that he was Ostroff's
accountant; however, he apparently did not represent himself to
be Ostroff's financial or business advisor. Messrs. Brown and
Michael were apparently aware that Rubinstein was the accountant
for both Ostroff and the Corporation.
The instant legal dispute is rooted in a series of three
checks that Rubinstein wrote between May 19, 1989, and June 26,
1989. Each of the checks was drawn on Ostroff's account, written
by Rubinstein, signed by Ostroff, and made payable to, and
deposited in, the Brown and Michael trust account. The checks
were in the respective amounts of $25,000, $100,000 and $125,000.
Brown and Michael did not inform Ostroff that they had received
any of these checks nor did they obtain any agreement directly
from Ostroff governing release of the proceeds. Brown and
Michael assert that the money was deposited into their trust
4
account because no bank account had yet been opened in the
Corporation’s name. Brown and Michael asked Rubinstein to
provide them with written consent from both Ostroff and
Rubinstein giving them and the law firm the authority to disburse
the funds from the trust account when requested by either Rubin
or the Corporation.
After the first two checks had been deposited in the trust
account, either Rubin or Rubinstein requested that the law firm
release $25,000 of the proceeds. That request was not
immediately honored, however, Rubinstein as Brown and Michael
refused to release the funds without Ostroff’s written approval.
Consequently, Brown, Michael and Rubinstein agreed that a limited
power of attorney would be furnished that would provide the
requested authorization, and a limited power of attorney was
prepared in mid June of 1989. The Estate contends that this
limited power of attorney was prepared by Brown and Michael, not
by Ostroff, and claims that Rubinstein arranged for Brown and
Michael to receive the power of attorney directly, rather than
giving it to Ostroff. Whether in fact Brown and Michael prepared
the power of attorney is not clear; but it is clear that the
power of attorney stated that Ostroff's name was "Della," rather
than "Ella," in two different places.
Whatever may have been the provenance of the power of
attorney, Rubinstein admitted that he signed Ostroff's name to
it. However, claims that he signed Ostroff's name at her
direction. Helen Conn, a notary public under the laws of New
Jersey, admitted notarizing what purported to be Ostroff’s
5
signature on that document as a favor to Rubinstein. She
concedes that she did so even though she did not witness the
signature and did not know Ostroff. The notarized limited power
of attorney was then returned to Brown and Michael.
It is undisputed that Ostroff never signed the power of
attorney and the Estate claims that she never authorized
Rubinstein to sign for her. The Estate also claims that when
Brown and Michael received the limited power, they noticed the
misspelling of Ostroff’s first name and either they or Rubinstein
corrected the misspelling with “white-out”.
Under the terms of the limited power, Ostroff appeared to
appoint Rubinstein her attorney-in-fact for the limited purpose
of:
[a]uthorizing the law firm of Brown & Michael to
release funds held by it, deposited by me, in
its Attorney Trust Account.
(A1027). In addition to the power of attorney, Brown and Michael
also received a fax transmission of a letter from Rubinstein,
dated June 15, 1989, authorizing Brown and Michael to release the
funds from the firm's trust account upon Rubin’s request. The
letter was addressed to Michael and stated in part:
You are hereby authorized to release funds from your
firm's trust account, upon the request of Sam
Rubin, for the use and benefit of St. Lucia
Hotel Corporation.
(A1029).
Beginning on June 15, 1989, Brown and Michael issued a
series of checks from their trust account pursuant to Rubin’s
requests. The first check was in the amount of $25,000, the
6
second was for $25,000, and the third was for $200,000 which was
the balance of Ostroff’s funds. Brown and Michael did not notify
Ostroff of any of these disbursements, nor did they provide any
accounting to Ostroff. Rather, they relied solely upon the
limited power of attorney, the fax from Rubinstein, and Rubin’s
requests that funds be released.
However, on July 27, 1989, an Investment Agreement
“materialized.” That Agreement, which recites that it is between
the St. Lucia Hotel Corporation and Ella Ostroff and which is
apparently signed by Sam Rubin, as President of the Corporation,
and Ella Ostroff, provides that Ostroff will pay the Corporation
$250,000 in return for a 3% interest in the Corporation, and
specifies how and when she is to be repaid.2 (Sa001-002). The
2
The relevant portion of the Investment Agreement provides:
IT IS, on this 27th day of July, 1989, hereby agreed
between the parties as follows:
1. Ella Ostroff shall pay to St. Lucia Hotel
Corporation the sum of Two Hundred Fifty
Thousand Dollars ($250,000).
2. In consideration of the payment of the Two
Hundred Fifty (sic) Dollars ($250,000)
described in Paragraph 1 above, Ella Ostroff
shall receive a three percent (3%) interest
in St. Lucia Hotel Corporation. This
interest will not be diluted in any way
without the prior written consent of Ella
Ostroff.
3. St. Lucia Hotel Corporation shall apply the Two
Hundred Fifty Thousand Dollars ($250,000)
referred to in Paragraph 1 above as follows:
a. One Hundred Twenty-Five Thousand Dollars
($125,000) shall be applied to the
casino project in Rodney Bay, St.
Lucia.
7
Estate attacks the authenticity of this document and asserts that
neither Brown, Michael, nor Rubin ever saw a signed original, and
that Ostroff did not recall signing it. In addition, the Estate
hints that Rubinstein “doctored” Ostroff’s signature on the
Agreement. Rubinstein claims that Ostroff did sign the
Investment Agreement and that it is genuine. Although Ostroff
apparently intended the funds in the trust account to be held to
pay the Corporation’s legitimate and ongoing expenses, she never
had any contact with Brown & Michael nor did she ever see any
bills. Nevertheless, at her deposition Ostroff contended that:
“That $250,000 was -- I think the checks, it was three,
and they went to Brown & Michael, a law firm
in Atlantic City that I understood
represented the hotel corporation. They were
to pay bills that I approved, not just pay,
but that I knew about and approved of.”
Ostroff deposition at A1192-1193. Ostroff claimed that the money
was not an investment. “Not the way I understood it. . . It was
an escrow. I understood they were holding it in escrow, Brown
b. One Hundred Twenty-Five Thousand Dollars
($125,000) shall be applied to the
condominium project at Rodney Bay,
St. Lucia.
4. St. Lucia Hotel Corporation shall repay to Ella
Ostroff the sum of One Hundred Twenty-Five
Thousand Dollars ($125,000) upon the full and
final funding of bond to be underwritten by
Kirchner Moore & Company estimated to occur
on or before November 30, 1989.
5. St. Lucia Hotel Corporation shall repay to Ella
Ostroff an additional sum of One Hundred
Twenty-Five Thousand Dollars ($125,000) at
such time that construction financing for the
condominium project at Rodney Bay, St. Lucia
is fully received.
8
and Michael.” Id. at 1193-1194.
It is undisputed that Ostroff was actively involved in the
Project from June 1989 through April 1990. She traveled to St.
Lucia, Hong Kong and New York in connection with the Project, and
she paid the firm of Laventhal & Horwath to study the Project.
However, at a meeting in her home, Ostroff told Rubin that she
had no intention of proceeding with the financing that Rubin was
relying upon.
Finally, in April of 1990, Ostroff wrote a letter to
Rubinstein complaining that he had misled her as to the
Corporation’s ownership of the land on which the Project was to
be built. In August or September of 1990, Laventhal & Horwath’s
feasibility study confirmed that the Corporation did not own that
land.
Numerous law suits ensued, the details of which are not
relevant to our inquiry.3 The instant suit was filed against the
law firm of Brown and Michael, G. Michael Brown, Guy Michael and
Greenberg Margolis4 as successor to Brown & Michael. The
defendants in turn filed a third-party complaint for
3
Ostroff v. Rubinstein, No. 90-1601 (C.C.P. Phila., filed
November 8, 1990)(referred to as the Rubenstein Document Suit by
the Estate); Ostroff v. Rubinstein, No. 90-1225 (C.C.P. Phila.,
filed November 8, 1990)(the Rubenstein Fraud Suit); Ostroff v.
Ruben (sic), No. 90-7197 (E.D.Pa., filed November 9, 1990)(the
Rubin Fraud Suit); Ostroff v. Resolution Trust Corp. as Receiver
for Security Savings Bank, 1992 U.S. Dist. Lexis 12639, aff’d,
993 F.2d 225 (3d Cir. 1993).
4
Sometime in 1990 Brown and Michael dissolved their
partnership and joined the law firm of Greenberg, Margolis.
However, after the filing of Ostroff’s complaint, they left
Greenberg, Margolis and re-established Brown & Michael.
9
indemnification against Rubinstein, Rubin and Conn. Conn then
cross-claimed against Rubinstein and Rubin, and Rubin, in turn,
cross-claimed against Ostroff. Ostroff then dismissed Greenberg,
Margolis and amended her complaint to assert a direct claim
against Conn. Prior to the matter going to trial, however, Ms.
Ostroff died and Jack Villanueva was appointed administrator
pendente lite of her estate and was substituted as plaintiff.
That brings us to the instant complaint which alleges that
the release of funds from Brown & Michael’s trust account without
authorization from, or notice to, Ostroff constitutes conversion
and a breach of: the escrow agreement, the fiduciary duty owed
to Ostroff, and the lawyers' duty of good faith and loyalty. The
instant suit also alleges that Conn was negligent, and that she
breached her professional duty as a notary public by notarizing
the limited power of attorney without actually witnessing
Ostroff’s execution of that document.
The suit proceeded to trial, and at the conclusion of
Ostroff’s case, the district court granted the defendants’ motion
for judgment as a matter of law pursuant to Fed. R. Civ. P.
50(a), and entered an order dismissing the complaint.5 The
5
By Orders dated December 20, 1994 and January 10, 1995,
the district court dismissed Ostroff’s complaint against Brown &
Michael, and Conn. The defendants’/third party plaintiffs’
complaint against Conn, Rubin and Rubinstein; and Rubin’s
counterclaim against Ostroff were dismissed by agreement of the
parties. However, the district court's dismissal of Ostroff's
complaint was incorrect because once judgment as a matter of law
was entered, that judgment disposed of the entire case. Thus,
it was improper to also dismiss the complaint. However, since
judgment was entered, we will ignore that procedural anomaly and
address the substance of the court's action.
10
court’s action was based upon its rulings that (1) Brown and
Michael had a right to rely on the limited power of attorney and
the letter from Rubinstein when they made the disbursements from
the trust account; (2) the Estate failed to demonstrate a causal
connection between Ostroff's alleged loss and Brown and Michael
disbursing the funds; and (3) Ostroff’s actions constituted a
ratification of the use of her funds for the Project.
This appeal followed.
II.
The standard for granting judgment as a matter of law is set
forth in Fed. R.Civ. P. 50(a). That Rule provides:
If during a trial by jury a party has been fully heard
on an issue and there is no legally
sufficient evidentiary basis for a reasonable
jury to find for that party on that issue,
the court may determine the issue against
that party and may grant a motion for
judgment as a matter of law against that
party with respect to a claim or defense that
cannot under the controlling law be
maintained or defeated without a favorable
finding on that issue.
Fed.R.Civ.P. 50(a). Our review of the district court’s grant of
judgment as a matter of law is plenary. St. Paul Fire and Marine
Ins. Co. v. Lewis, 935 F.2d 1428, 1431 (3d Cir. 1991). We apply
the same standard as the trial court. Rotondo v. Keene Corp.,
956 F.2d 436, 438 (3d Cir. 1992). The question is whether,
viewing the evidence in the light most favorable to the losing
party, no jury could decide in that person's favor. Walter v.
Holiday Inns, Inc., 985 F.2d 1232, 1238 (3d Cir. 1993). The
11
focus of our inquiry is not on whether there is literally no
evidence supporting the unsuccessful party, but whether there is
evidence upon which a reasonable jury could properly base its
verdict. Gomez v. Allegheny Health Services, Inc., 71 F.3d 1079,
1083 (3d Cir. 1995). A judgment as a matter of law must be
sustained if the record is critically deficient of the minimum
quantum of evidence from which the jury might reasonably afford
relief. Id. However, "[i]f the evidence is of such character
that reasonable [persons], in the impartial exercise of their
judgment may reach different conclusions, the case should be
submitted to the jury." J.I. Hass Co., Inc. v. Gilbane Bldg.
Co., 881 F.2d 89, 92 (3d Cir. 1989)(citation omitted).
III.
It is appellant’s idée fixe that Ostroff was an elderly
woman whose failing health caused her to fall victim to the
outrageous fraud allegedly perpetrated by Rubin and Rubinstein.
The accuracy of that assertion, however, is immaterial to the
resolution of this appeal. The appellant does not allege any
fraudulent conduct on the part of Brown, Michael or Conn.
Although appellant alleges that Rubinstein forged Ostroff's
signature to the limited power of attorney, there is no
allegation that either Brown or Michael knew of the alleged
forgery or had any reason to suspect that the limited power of
attorney was the product of a forgery or was otherwise invalid.
The Estate does mention the misspellings of Ostroff's name on the
limited power of attorney, and Brown and Michael's correction of
12
that error, but concedes that Brown and Michael disbursed the
funds in reliance upon the documents they were presented with.6
The Estate contends that Brown and Michael were not
justified in relying on the limited power in releasing the funds.
The Estate argues that even though there was a limited power of
attorney, Brown and Michael had a duty to (1) notify Ostroff that
her $250,000 had been received; (2) secure a written agreement
governing the disbursement of those funds; (3) provide notice of
the requests to release the funds; and (4) provide Ostroff with
an accounting. In essence, Ostroff argues that, had Brown and
Michael notified her of each requested disbursement, she would
have been in a position to review the request and possibly
withhold approval. However, because Brown and Michael did not
notify her of Rubin’s requested disbursements she lost $250,000.
At trial, Ostroff produced the testimony of Edward Wachs who
testified as an expert.7 Wachs is a New Jersey attorney who
testified that he has practiced real estate and probate law for
over 25 years and has had extensive experience handling attorney
trust accounts. He opined that Brown and Michael "breached the
duty of care which [they] owed to Ostroff based on the standard
6
See ¶ 41 of Amended Complaint (“Brown & Michael relied
upon the Limited Power of Attorney notarized by Conn, a New
Jersey notary, and upon Conn’s Certificate of Acknowledgment in
releasing the funds.”); and Brief of Appellant at 11 ("In
reliance on the altered Limited Power of Attorney, which Brown &
Michael believed to be valid because of Conn's notarization of
Mrs. Ostroff's signature, by check dated June 15, 1989, Brown &
Michael paid $25,000 from Mrs. Ostroff's funds upon Rubin's
request to Carnicon.").
7
The defendants do not contest Mr. Wachs’ status as an
expert witness.
13
of care of the average New Jersey attorney."8 Brief of Appellant
at 16. According to Wachs, the duty of care included a duty to
notify Ostroff of the receipt of each of her three checks; to
obtain a written agreement with Ostroff governing the release of
the funds; and, absent such agreement, to notify Ostroff of each
request for a distribution. He testified that the duty also
included a duty to notify Ostroff that they had received the
limited power of attorney from Rubinstein, to notify her of the
distribution of the funds, and to provide an accounting. Wachs
opined that each duty was independent of the existence of the
limited power of attorney. In short, in Wachs' view, Brown and
Michael were not justified in relying on the limited power of
attorney in making the disbursements from the trust account.
In rejecting this view the district court properly held that
an attorney's duty under New Jersey law is a question of law to
be decided by the court. See Wang v. Allstate Ins. Co., 592 A.2d
527, 534 (N.J. 1991) ("The question of whether a duty exists is
a matter of law properly decided by the court, not the jury, and
is largely a matter of fairness or policy.").
The Estate bases the duty it asserts on three New Jersey
Supreme Court cases. It cites In re Carlsen, 111 A.2d 393, 397
(N.J. 1955), for the general proposition that an attorney's
8
Appellant characterizes this case as one of legal
malpractice and repeatedly speaks of Brown and Michael's breach
of the standard of care of the average New Jersey attorney.
However, it has been neither alleged nor established that there
was ever an attorney-client relationship between Ostroff and
Brown or Michael or their firm. In fact, appellant concedes that
Brown and Michael represented the Corporation and not Ostroff.
14
"professional obligation reaches all persons who have reason to
rely on him even though not strictly clients." It cites In re
Gavel, 125 A.2d 696, 704 (N.J. 1956) for the proposition that
"money of the client or money collected for the client or other
trust property coming into the possession of the lawyer should be
reported and accounted for promptly. . . ." Finally, the Estate
relies heavily upon In re Power, 451 A.2d 666 (N.J. 1982) to
support its contention that Brown and Michael were not justified
in relying upon the limited power of attorney.
However, these cases do not support the proposition urged by
the Estate. In In re Power, a New Jersey attorney (Power),
represented a builder (Day), who agreed to convey a parcel of
land on which he was to build a house for the Handwerkers. Power
prepared a binder for Day, pursuant to which the Handwerkers paid
a deposit of $1,000 which Power deposited into his trust account.
The binder recited that the Handwerkers' $1,000 deposit would be
returned in the event a contract was not executed within 15 days.
No contract was ever executed, and the Handwerkers
eventually wrote to Power and requested that their deposit be
returned. However, before receiving that request, Day had
contacted an architect, and Day owed that architect an
outstanding balance of $955. Day and the Handwerkers disputed
who was responsible for that bill, but despite that dispute,
Power disbursed $955 of the Handwerker’s deposit to Day who used
the money to pay the architect's bill. However, Power
subsequently obtained the money from Day and returned it to his
trust account. Power attempted to rely upon Day’s representation
15
that the Handwerkers had approved the disbursement in defending
against a complaint that the Handwerkers filed with the
Disciplinary Board. The local Ethics Committee and the
Disciplinary Review Board concluded that Power's unauthorized
disbursement in the face of an "express written prohibition" was
conduct that adversely reflected upon his fitness to practice
law. Id. at 667. The Supreme Court of New Jersey agreed saying:
[R]espondent was not justified in relying solely on his
client's representation, particularly in the
face of the written demand from complainants,
who were unrepresented by counsel, that their
deposit be returned. A simple telephone call
or short letter to complainants seeking
confirmation of the disbursement arrangement
would have fulfilled the ethical obligation
and avoided or at least foreshortened an
entirely unnecessary acrimonious dispute.
Id. That is clearly not our case. Here, Brown & Michael had no
written request from Ostroff for the return of her funds. On the
contrary, they had a writing (in the proper form) that
purportedly allowed them to make the disbursements at issue.
In In re Carlsen, an attorney entered into a business
relationship with his client. The attorney misled the client,
and never made the contributions to the deal that he was
obligated to make under agreements between him and the client.
The venture eventually failed, and the client discovered that the
attorney had not lived up to his end of the bargain. The
attorney attempted to justify his conduct by arguing that he was
not functioning as the client’s attorney, but as his business
partner, and therefore, did not owe a heightened duty to
disclose. The court was less than impressed by that argument.
[The attorney] denies there was ever any
16
attorney-client relationship between Bush and
himself insofar as the Puerto Rican venture
was concerned, but we reject this position
without hesitation. Bush was a general client
and was brought to the venture by his general
attorney. True, they . . . both participated
as principals but that did not remove the
trust and confidence of their relationship. .
. . [T]his court [has] expressly recognized
that an attorney who wishes to be a business
man must act in his business transactions
with high standards and that his professional
obligation reaches all persons who have
reason to rely on him even though ‘not
strictly clients.’
17 N.J. at 345-6.
In In re Gavel, an attorney who was trying to sell a
client’s property made false and misleading representations to
that client and to banks involved in financing. In the process
of attempting to extricate the client from financial
difficulties, the attorney conveyed the client's real estate to
his own wife and remortgaged the real estate to pay the client's
debts while retaining the profits from the refinancing for
himself. He also commingled the client’s funds with his own and
regularly used client trust funds for unauthorized purposes. In
finding the attorney had violated the Canons of Professional
Ethics the court spoke specifically of his pattern of
reprehensible conduct, and noted the duty an attorney owes to
clients, and the public in general.
To the public [a lawyer] is a lawyer whether
he acts in a representative capacity or
otherwise. . .
‘The fiduciary obligation of a lawyer
applies to persons who, although not
strictly clients, he has or should have
reason to believe rely on him.
22 N.J. at 265. Here, the limited power of attorney defined the
17
scope of Ostroff's purported reliance. She was relying upon them
to make disbursements when requested; and that is what they did.
Although we agree with the Estate’s contention that Brown
and Michael are required to conduct their practice in accordance
with the Code of Professional Responsibility, the record before
us does not establish that their conduct breached that Code.
Brown and Michael did not receive any funds on Ostroff’s behalf
from a financial institution or any other person or institution.
Instead, they received three checks which Ostroff admittedly
signed and caused to be mailed to them. The Estate cites us to
no authority that supports its position that an attorney who
receives funds properly mailed to him or her has a duty to inform
the sender when those funds are received, and we are aware of no
such authority. Moreover, although it can not be denied that an
attorney owes a duty to the public in general9, the evidence
before the district court was addressed specifically to an
attorney’s duty to Ostroff, and whether Brown and Michael
breached that duty individually, or acting as the law firm.
Significantly, Brown and Michael did not convert Ostroff’s funds
to a personal use. They neither derived any personal gain from
her funds nor did they attempt to. They merely disbursed the
funds to a project that she had intended receive them. The fact
that she later became dissatisfied with the Project she was
9
In Gavel the court noted: "In addition to the duties and
obligations of an attorney to his client, he is responsible to
the courts, to the profession of the law, and to the public . . .
."
22 N.J. at 264.
18
investing in hardly translates into a breach of duty on the part
of Brown & Michael.
We cannot agree with appellant’s rather strained argument
that Brown and Michael had a duty to notify Ostroff of the
receipt of funds she had mailed to them in the first place. Had
Ostroff wanted to be notified when the funds were received she
could have, and we suspect would have, so requested or used a
method of delivery that would have so informed her.
We believe that any duty that Brown & Michael owed to
Ostroff springs not from any duty of an attorney, but from the
law of agency governing powers of attorney. “A power of attorney
is an instrument in writing by which one person, as principal,
appoints another as his agent and confers upon him the authority
to perform certain specified acts or kinds of acts on behalf of
the principal." Kisselbach v. County of Camden, 638 A.2d. 1383,
1386 (N.J. Super. Ct. App. Div. 1994). The primary purpose of a
power of attorney is not to define the authority conferred on the
agent by the principal, but to provide third persons with
evidence of agency authority. Id. “It should be construed in
accordance with the rules for interpreting written instruments
generally.” Id.
Here, Rubinstein presented Brown and Michael with a limited
power of attorney, which contained a notarial seal. Ostroff
thereby purported to appoint Rubinstein her agent, and appeared
to give him the authority to authorize Brown and Michael to
release the funds she had deposited with them. “Authority may be
created by words or conduct that agent reasonably believes
19
indicate principal’s desires, but no more is authorized.” Id.
(citing Restatement 2d of Agency §§ 26 and 33 (1958)).
Rubinstein's alleged forgery of the document does not support an
inference that Brown & Michael were parties to any impropriety.
They were entitled to conclude that they had been given the
authority to make disbursements on behalf of Ostroff.
Furthermore, Rubinstein provided Brown and Michael with a letter
authorizing them to release funds for the use of the Project upon
Rubin’s request. Brown and Michael properly relied upon the
limited power, and Rubinstein’s letter, to make disbursements
from their trust account. We find nothing in the circumstances
before us that would require Brown and Michael to notify Ostroff
each time Rubin made a request for a distribution.
Rather, we find the reasoning of the court in Heine v.
Newman, Tannenbaum, Helpern, Syracuse & Hirschtritt, 856 F. Supp.
190 (S.D. N.Y. 1994), aff’d, 50 F.3d 2 (2d Cir. 1995),
persuasive. There, Heine retained an attorney named Ashley to
help sell a condominium that Heine owned. Ashley did procure a
buyer and so informed Heine. Heine then executed a power of
attorney giving Ashley “the power to ‘take all steps’ necessary
to execute the sale of the condominium.” Id. at 192. Pursuant
to the power, Ashley retained the law firm of Newman, Tannenbaum,
Helpern, Syracuse & Hirschtritt (“Newman, Tannenbaum”) to
represent Heine and to handle the closing. Ashley served as
Heine’s attorney-in-fact at the closing, and Newman, Tannenbaum
served as Heine’s counsel. The proceeds of the sale were
disbursed in five checks, four of which were payable to Ashley,
20
and one of which was payable to Heine. Ashley misappropriated
Heine’s check and Heine sued Newman, Tannenbaum asserting that
despite the existence of the power of attorney, the firm breached
the duty of care it owed to Heine. Heine argued that the breach
occurred by the firm “complying with Ashley’s instructions and by
permitting the checks to be drawn payable to and delivered to
Ashley without first communicating with Heine. . . .” Id. The
court rejected that argument stating:
If parties were required to verify with the
principal each instruction given to them by
an attorney-in-fact, the authority given to
attorneys-in-fact would be eviscerated. No
party to a transaction would rely on the
statements of attorneys-in-fact without
independent verification from the principal,
and, accordingly, an attorney-in-fact would
not be authorized to take any and all acts as
fully as the principal. If a principal were
permitted, at a future point in time, to
decide that a particular instruction should
have been verified, parties to a contract
could not and would not be able to rely on
the statements or instructions of attorneys-
in-fact.
Id. at 195 (citations omitted).
We agree. We realize that here, unlike in Heine, the
validity of the power of attorney is in question. However,
since Brown & Michael did not know that Ostroff's signature was a
forgery that distinction is of no consequence. If Ostroff was a
victim of a fraud, she was a victim of Rubinstein and/or Rubin’s
fraud, and not one perpetrated by Brown & Michael. Accordingly,
the district court did not err in awarding judgment to Brown &
Michael as a matter of law.10
10
The amended complaint also contains a count alleging that
Brown and Michael converted Ostroff’s funds. The district court
21
The Estate seeks to distinguish Heine by pointing out that
it concerned a general power of attorney, not a limited power of
attorney as we have here. See Estate's Brief, at 35-6. That is
a distinction without a difference. It goes only to the scope of
the authority conferred upon the principal. It does not alter or
diminish the right of a third party to rely upon it when dealing
with a principal who appears to be acting within the scope of his
or her authority. Kisselbach, supra.
IV.
As noted above, Ostroff has asserted a direct claim against
Conn alleging that Conn was both negligent and guilty of a breach
of a professional duty in notarizing the limited power of
attorney without actually witnessing Ostroff's signature. The
court did not specifically address the claims against Conn.
Rather, the court ruled that the defendants did not breach any
duty, and if they did, Ostroff’s conduct amounted to a
ratification of the defendants’ actions thereby absolving them of
any liability. However, Conn’s conduct here is quite different
from that of Brown & Michael. We must first decide if she
breached any duty and, if she did, we must decide if the record
establishes a ratification by Ostroff.
Conn notarized the limited power of attorney without
witnessing Ostroff's execution of it and Ostroff's purported
ratification of the disbursements by Brown and Michael is
did not discuss this particular allegation. However, it is clear
that appellant produced no evidence that either Brown or Michael
used any funds Ostroff deposited in the trust account for their
own purposes.
22
irrelevant to any determination of whether Conn breached her duty
as a notary in doing so. A notary is a public officer and owes a
duty to the public to discharge his or her functions with
diligence. Immerman v. Ostertag, 199 A.2d 869, 872-873 (N.J.
Super. Ct. Law Div. 1964). However, under New Jersey law, a
notary is not an insurer and is not liable except for negligence.
Commercial Union Ins. Co. v. Burt Thomas-Aitken Construction
Co., 253 A.2d 469, 471 (N.J. 1969). A notary has a duty to
refrain from acts or omissions which constitute negligence. That
is “a duty which he owes not only to persons with whom he has
privity but also to any member of the public who, in reasonable
contemplation, might rely on the officer’s certification.”
Immerman v. Ostertag, 199 A.2d at 872. “With respect to the
identities of signers, the law requires nothing more of the
notary than the use of a reasonable care to satisfy himself or,
in other words, to become satisfied in his own conscience that
the signers are the persons they purport to be.” Id. at 873.
It is apparent that Conn affixed her notarial seal to the
limited power of attorney only as a favor to Rubinstein without
taking any steps reasonably calculated to insure the genuineness
of the signature. This was clearly negligent and breached the
duty that Conn owed to the public as a notary.
However, it is not enough that a notary’s negligence be
shown in order for a plaintiff to recover against a notary. A
causal relationship between the notary’s negligence and Ostroff’s
loss must be shown. Id. at 874. From the record developed thus
far, it appears that Brown & Michael relied upon the authority
23
they thought the notarized power of attorney evidenced.11
Accordingly, we must determine if the district court correctly
concluded that Ostroff ratified the disbursements from the trust
account. If Ostroff did ratify the disbursements, Conn’s
negligence was of no consequence.
In Thermo Contracting Corp. v. Bank of New Jersey, 354 A.2d
291, the New Jersey Supreme Court wrote:
Ratification is defined in Section 82 of the
Restatement of Agency 2d (1957):
Ratification is the affirmance by a person of a
prior act which did not bind him
but which was done, or professedly
done on his account, whereby the
act, as to some or all persons, is
given effect as if originally done
by him.
Ratification requires intent to ratify plus full
knowledge of all the material facts.
Ratification may be express or implied, and
intent may be inferred from the failure to
repudiate an unauthorized act, from inaction,
or from conduct on the part of the principal
which is inconsistent with any other position
than intent to adopt the act.
A ratification, once effected, cannot later be revoked,
even where the ratification may have been
induced by the anticipation of benefits which
fail to accrue.
**********************
A principal must either ratify the entire transaction
11
We cannot determine from the record whether Conn was
employed by Brown & Michael. Nonetheless, we note that a private
employer of a notary public is not vicariously liable for the
notary’s negligence or breach of duty unless the private employer
participated in the breach or negligence or unless the private
employer led another to believe that the notary was acting for it
and on its behalf. Commercial Union Ins. Co. of New York v. Burt
Thomas-Aitken Const. Co., 230 A.2d 498, 501 (N.J. 1967). Here,
there is no allegation in the amended complaint that either basis
of vicarious liability is present.
24
or repudiate it entirely, and cannot pick and
chose only what is advantageous to him.
(emphasis added). 354 A.2d at 361-362. In holding as a matter of
law that Ostroff ratified the disbursements, the district court
made the following findings.12 First, the power of attorney and
the letter from Rubinstein to Brown & Michael indicated a
"continuing authorization to deal with the funds." (A1010).
Second, the Investment Agreement itself contains no conditions
and no restraints on the release of the funds. (A1011-12). Third,
Ostroff brought three lawsuits against Rubin and Rubinstein and
in each lawsuit she used the Investment Agreement as evidence
that she invested her $250,000 in the Project.13 (A1012).
Fourth, a note written by the plaintiff which indicates that she
is to be repaid $125,000. The court found the use of the word
"re-pay" to be "consistent with the Investment Agreement."
(A1013). Fifth, Ostroff was an active player in the Project.
She attempted to arrange financing, traveled to St. Lucia, New
York and Hong Kong, and paid to have a study done by Laventhal
and Howarth. (A1013-14). On the basis of all these occurrences,
the court concluded:
12
The district court did not issue a written opinion. The
court’s ruling on the defendants' Rule 50(a) motion was given
from the bench. Thus, the citations and references from the
district court’s opinion are references to the appellant’s
appendix which contains the transcript of the court’s ruling.
13
The district court was mistaken in its finding that
Ostroff used the Investment Agreement as evidence that she
invested $250,000 in the Project in the three different lawsuits
she filed against Rubinstein and Rubin. The Investment Agreement
and Ostroff’s investment in the Project are referred in only two
of the suits, i.e. in the Rubinstein Fraud Suit at ¶¶ 6 and 25
and in the Rubin Fraud Suit at ¶¶ 5 and 6. There is no reference
to the Investment Agreement in the Rubinstein Document Suit.
25
Therefore, without evidence in the record, this court
can't have this jury speculate that the
monies that were spent would not have been
authorized by her because in fact it came at
a time when, if anything, she was working to
insure the success of the project. It if
(sic) failed in that early stage because of
lack of financing, why is it not reasonable
to conclude that it was because of her
inability to line up financing. But it's not
for us to speculate whether or why there was
the failure of the project, but just to view
what her activities were at that time. Now
it could very well be that she was deceived
by Rubin and Rubinstein. But a party who
deals through agents can't then turn around
and have the failures of that agent visited
upon someone else without that someone else
having some information, some notice which
appears to be the very thing that the
plaintiff was attempting to do here with
respect to Brown and Michael.
And I do feel that under all the circumstances and
certainly there is more in the record that
all her activities and actions indicate that
she was an active participant, fully aware of
what the up-to-date financing of the project
was. She was the prime mover up to that
point. She expended money from the
Corporation. She cannot now without any
record facts turn around and say I've
suffered a loss of two hundred fifty thousand
dollars, a loss that was never alleged in
prior litigation.
(A1015-16).
We disagree with the conclusion of the learned trial judge.
We do not believe that this record supports a finding of
ratification as a matter of law. First, Ostroff claims that she
had no recollection of signing the Investment Agreement and the
original Agreement apparently no longer exists. The authenticity
of that document is therefore, clearly in dispute. Second, even
if Ostroff did sign the Investment Agreement, she did so on July
27, 1989, which was well over a year before the time when Ostroff
26
claims she first became aware of the disbursements from the Brown
& Michael trust account. Her act of signing the Investment
Agreement clearly does not ratify an event which had not yet
occurred. She can not ratify an action that she is not aware of.
Thermo Contracting Corp., 354 A.2d at 361. All of Ostroff’s
activities on behalf of the Project took place before October of
1990, when it is alleged that she first learned of the
disbursements. Once Ostroff learned of the disbursements in
October of 1990, she immediately started suit against Rubinstein
and Rubin to recover the $250,000. The institution of two
lawsuits to recover the funds is certainly not consistent with
ratification of the disbursements. Third, as the Estate argues,
even if the Investment Agreement is genuine, its terms do not
expressly contradict the contention that no funds would be
disbursed from the trust account without Ostroff’s approval.
We believe that the evidence here is of such a character
that “reasonable [persons], in the impartial exercise of their
judgment may reach different conclusions” on the resolution of
the ratification issue. J.I. Hass Co., Inc. v. Gilbane Bldg.
Co., 881 F.2d at 92. Thus, we find that the district court’s
grant of judgment as a matter of law on the ratification issue
improperly deprived the appellant of a jury fact-determination as
to Conn's liability. Accordingly, we must remand to the district
court for a factual determination of the ratification issue as to
Conn.
In addition, because the district court inappropriately
granted judgment as a matter of law as to Conn, there remains the
27
further issue of whether Conn’s negligence was the proximate
cause of any loss or damage to Ostroff should it ultimately be
determined that Ostroff’s actions did not constitute
ratification. Although it could be argued that any damages the
Estate can prove are equal to the amount of Ostroff's deposits
into the trust account, we do not think that the matter can be so
easily resolved. On this record, it appears that all of
Ostroff's funds did go to the Project that she intended to
finance. While she did not receive the return that she no doubt
anticipated when she sent the checks to Brown & Michael, that may
be because the Project was not a profitable one, not because her
funds were diverted to an unintended use. Therefore, it is
possible that, notwithstanding Conn's breach and notwithstanding
a lack of ratification, the Estate will not be able to prove that
it was damaged to the extent claimed. However, we take no
position as to the Estate's ability to establish whether Ostroff
suffered any damages or the amount of any such damages. Rather,
upon remand the district court will have to determine the amount
of damages, if any, to which the Estate is entitled if it is
determined that Ostroff did not ratify the disbursements, and
that Conn's breach caused such damages.
V.
Finally, the Estate contends that the district court
improperly precluded it from introducing evidence of Rubinstein’s
conviction for wire fraud and Ostroff’s alleged poor health. The
Estate wanted to introduce evidence of Rubinstein’s wire fraud
conviction to show "a signature pattern of fraud, i.e., modus
28
operandi." Appellant's Brief at 40. It wanted to introduce
testimony about Ostroff’s alleged poor health in order “to
provid[e] a rationale for the belief of Rubinstein and Rubin that
they could succeed with the fraud, which is self-evident: they
thought (correctly) that she was going to die and thus there
would be no witness against their version of the transaction."
Appellant's Brief at 41-42.
The Estate forgets that this case is against Brown & Michael
and Conn. There are no allegations that they participated in any
fraud against Ostroff or that they believed Rubinstein or Rubin
were victimizing her. Thus, any evidence of Rubinstein’s prior
conviction or of Ostroff’s health is totally irrelevant to the
claim against these defendants.
VI.
For the above reasons, we will affirm the grant of judgment
as a matter of law to the law firm of Brown and Michael, G.
Michael Brown and Guy Michael, reverse the grant of judgment as a
matter of law to Helen Conn, and remand for further proceedings
consistent with this opinion.
29