Innes v. Marzano-Lesnevich (074291) , 224 N.J. 584 ( 2016 )

SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized.)
Peter Innes v. Madeline Marzano-Lesnevich, Esq. (A-16-14) (074291)
Argued October 27, 2015 -- Decided April 26, 2016
SOLOMON, J., writing for a majority of the Court.
The issue in this appeal is whether, in prosecuting a fiduciary malfeasance action against an attorney who
intentionally violates an escrow agreement, the prevailing beneficiary may recover attorneys’ fees.
Plaintiff Peter Innes and his wife, Maria Jose Carrascosa, were involved in a contentious divorce and
custody battle over their daughter Victoria. Innes is a citizen of the United States and a resident of New Jersey.
Carrascosa is a Spanish national and a permanent resident of New Jersey. They were married in Spain in 1999, and
Victoria, their only child, was born in New Jersey in 2000. Victoria is a dual citizen of the United States and Spain.
During the course of their domestic relations litigation, the parties entered into an agreement whereby Carrascosa’s
attorneys would hold Victoria’s United States and Spanish passports in trust to restrict travel outside of the United
States with Victoria without written permission of the other party (the Agreement).
Carrascosa’s attorney at the time the Agreement was entered into was Mitchell A. Liebowitz, Esq. Innes
was represented by third-party defendant Peter Van Aulen. Carrascosa discharged Liebowitz and retained
defendants Madeline Marzano-Lesnevich, Esq., and Lesnevich & Marzano Lesnevich, Attorneys at Law. Defendant
Marzano-Lesnevich received Carrascosa’s file from Liebowitz, including the Agreement and Victoria’s United
States passport. In December 2004, Carrascosa obtained Victoria’s United States passport from defendants, and
used the passport to remove Victoria from the United States to Spain on January 13, 2005.
Innes filed a petition under the Hague Convention on the Civil Aspects of International Child Abduction
for Victoria’s return to the United States and traveled to Spain for a hearing on the petition. The Spanish court
denied the petition and ordered Victoria to remain in Spain until age eighteen. Meanwhile, the parties’ domestic
relations litigation continued in New Jersey. The Family Part judge entered a judgment of divorce and granted Innes
sole legal and residential custody of Victoria. The judgment gave Carrascosa ten days to bring Victoria back to the
United States, but Carrascosa failed to comply with the order.
In October 2007, Innes filed a complaint in the Law Division against defendants, Van Aulen, and
Liebowitz. Innes alleged, in part, that they improperly released Victoria’s United States passport to Carrascosa and
intentionally interfered with the Agreement. Innes requested relief, including damages and attorneys’ fees. Before
trial, the court granted Van Aulen and Liebowitz’s motions for summary judgment and sua sponte severed the third-
party complaint against Carrascosa. However, the trial court denied defendants’ motion for summary judgment,
concluding that defendants owed a duty to Innes, and also denied defendants’ motion to exclude any claim for
counsel fees.
At the conclusion of trial, the only issue submitted to the jury was whether defendants were negligent in
releasing Victoria’s United States passport to Carrascosa. The jury determined that defendants were negligent and
awarded damages to Innes and Victoria. The trial court denied defendants’ motion for a new trial and their motion
for judgment notwithstanding the verdict, but granted Innes’ motion to amend the judgment for counsel fees and
costs. The judge explained that an award of attorneys’ fees was appropriate because “the jury decided . . . that the
defendants deviated from the standard of care and thereby breached a duty owed to Peter and Victoria Innes when
they gave Ms. Carrascosa Victoria’s passport[]. As such, the traditional rule that warrants an award of fees in legal
malpractice cases extends to the matter at bar.”
Following defendants’ appeal, the Appellate Division concluded that awarding Innes attorneys’ fees was
appropriate even though no attorney-client relationship existed between Innes and defendants. In doing so, the panel
concluded that defendants intentionally violated the Agreement. The Supreme Court granted defendants’ petition
for certification, limited to the issue of “whether the attorney-defendants can be liable for attorneys’ fees as
consequential damages to a non-client under Saffer v. Willoughby, 143 N.J. 256 (1996).” 220 N.J. 37 (2014).
1
HELD: Defendant attorneys can be held liable for counsel fees if, as trustees and escrow agents for both Innes and
Carrascosa, they intentionally breached their fiduciary obligation to Innes by releasing Victoria’s United States
passport to Carrascosa without Innes’ permission.
1. In the field of civil litigation, New Jersey courts historically follow the “American Rule,” which provides that
litigants must bear the cost of their own attorneys’ fees. With the exception of eight enumerated circumstances,
New Jersey’s court rules evince a strong public policy against shifting counsel fees. R. 4:42-9. In addition, this
Court has “created carefully limited and closely interrelated exceptions to the American Rule” that are not provided
for by statute, court rule, or contract. In re Estate of Vayda, 184 N.J. 115, 121 (2005). (pp. 11-12)
2. In Saffer, the Court concluded that it is appropriate to award attorneys’ fees to a prevailing plaintiff in a
malpractice action because such fees are “consequential damages that are proximately related to the malpractice.”
Saffer, supra, at 272. In Packard-Bamberger & Co. v. Collier, this Court extended Saffer to claims against attorneys
for intentional misconduct, and held “that a successful claimant in an attorney-misconduct case may recover
reasonable counsel fees incurred in prosecuting that action.” 167 N.J. 427, 443 (2001). Notably, the Court found
that fee-shifting is appropriate in misconduct cases involving an attorney-client relationship, even though the
misconduct did not constitute legal malpractice. (pp. 12-15)
3. Other fee-shifting cases decided by this Court discuss the underpinnings of Saffer and Packard-Bamberger and
conclude that counsel fees are appropriate in cases of breach of a fiduciary duty. For example, In re Estate of Lash
recognized an exception to the American Rule in a case involving an estate administrator malfeasance claim covered
by the terms of a surety bond. 169 N.J. 20, 35 (2001). The Court explained, however, that Lash was distinguishable
from, and thus not an extension of, Saffer and Packard-Bamberger because the holdings in Saffer and Packard-
Bamberger depended upon the attorney-client relationship. Following Lash, this Court decided In re Niles Trust,
176 N.J. 282 (2003) and awarded counsel fees to a prevailing party where defendant, an estate executor and trustee,
was not an attorney. Thus, Niles Trust extended the American Rule to trustee undue influence cases “based on the
fiduciary’s intentional misconduct regardless of his or her professional status.” Id. at 299-300. (pp. 15-19)
4. Departures from the “American Rule” are the exception and the Court has never held that a non-client is entitled
to a fee-shifting award for an attorney’s negligence. Packard-Bamberger, Lash, and Niles Trust involved fiduciaries
who, by their intentional misconduct, violated their fiduciary duties and inflicted damage upon the beneficiaries.
Consistent with that case law, a prevailing beneficiary may be awarded counsel fees incurred to recover damages
arising from an attorney’s intentional violation of a fiduciary duty. Here, defendants were holding Victoria’s United
States passport as trustees and escrow agents and were thus fiduciaries for the benefit of both Carrascosa and Innes.
Defendants, however, breached their fiduciary obligation to Innes and released Victoria’s United States passport to
Carrascosa without Innes’ written permission. Accordingly, consistent with post-Saffer jurisprudence, Innes would
be entitled to counsel fees if there had been a finding that defendants, as attorneys, intentionally breached their
fiduciary responsibility to Innes, regardless of the existence of an attorney-client relationship. The jury, however,
did not make a specific finding that defendants intentionally breached the Agreement. As the Appellate Division
concluded, there is substantial support in the record from which to conclude that defendants’ misconduct was
intentional. Nevertheless, the Court must remand the case to the trial court for it to decide whether defendants
intentionally violated their fiduciary duty to Innes when they breached the Agreement. (pp. 19-22)
The judgment of the Appellate Division is AFFIRMED AS MODIFIED, and the matter is REMANDED
to the trial court for further proceedings consistent with the Court’s opinion.
JUSTICE LaVECCHIA, DISSENTING, joined by JUDGE CUFF (temporarily assigned), expresses
the view that what started as a limited, common law exception to the American Rule has been altered through a
series of cases, which now culminates with today’s majority decision, dealing the American Rule yet another blow
by expanding awards of attorneys’ fees to non-clients of attorneys in escrow settings.
CHIEF JUSTICE RABNER and JUSTICE ALBIN join in JUSTICE SOLOMON’s opinion.
JUSTICE LaVECCHIA filed a separate, dissenting opinion, in which JUDGE CUFF (temporarily assigned)
joins. JUSTICES PATTERSON and FERNANDEZ-VINA did not participate.
2
SUPREME COURT OF NEW JERSEY
A-16 September Term 2014
074291
PETER INNES and VICTORIA
SOLENNE INNES, by her
Guardian PETER INNES,
Plaintiffs-Respondents,
v.
MADELINE MARZANO-LESNEVICH,
ESQ., and LESNEVICH &
MARZANO-LESNEVICH, Attorneys
At Law, i/j/s/a,
Defendants/Third-Party
Plaintiffs-Appellants,
v.
MITCHELL A. LIEBOWITZ, ESQ.,
PETER VAN AULEN, ESQ., and
MARIA JOSE CARRASCOSA,
Third-Party Defendants.
Argued October 27, 2015 – Decided April 26, 2016
On certification to the Superior Court,
Appellate Division, whose opinion is
reported at 435 N.J. Super. 198 (App. Div.
2014).
Christopher J. Carey argued the cause for
appellants (Graham Curtin, attorneys; Mr.
Carey and Jared J. Limbach, on the briefs).
James H. Waller argued the cause for
respondents Peter Innes and Victoria Solenne
Innes.
1
Fruqan Mouzon argued the cause for amicus
curiae New Jersey State Bar Association
(Miles S. Winder III, President, attorney;
Paris P. Eliades, of counsel; Mr. Eliades,
Mr. Mouzon, Dennis J. Drasco, and Arthur M.
Owens, on the brief).
Steven J. Tegrar submitted a brief on behalf
of respondent Peter Van Aulen, Esq. (Law
Office of Joseph Carolan, attorney; Mr.
Tegrar and George H. Sly, Jr., on the
brief).
William F. O’Connor, Jr., submitted a brief
on behalf of respondent Mitchell A.
Liebowitz, Esq. (McElroy, Deutsch, Mulvaney
& Carpenter, attorneys; Mr. O’Connor and
Lawrence S. Cutalo on the brief).
JUSTICE SOLOMON delivered the opinion of the Court.
Plaintiff Peter Innes and his wife, Maria Jose Carrascosa,
were involved in a contentious divorce and custody battle over
their daughter Victoria. During the course of their domestic
relations litigation, the parties entered into an agreement
whereby Carrascosa’s attorneys would hold Victoria’s United
States and Spanish passports in trust to restrict travel outside
of the United States with Victoria without written permission of
the other party (the Agreement).1 Nevertheless, Carrascosa’s
attorneys released Victoria’s United States passport to
Carrascosa, who used it to remove Victoria to Carrascosa’s
1 Carrascosa’s attorney at the time the Agreement was entered
into was Mitchell A. Liebowitz, Esq. He was discharged by
Carrascosa, and defendants Madeline Marzano-Lesnevich, Esq., and
Lesnevich & Marzano Lesnevich, Attorneys at Law, thereafter
undertook the representation of Carrascosa.
2
native Spain, where Victoria has remained for the past ten
years. By order of a Spanish court, Innes has been prevented
from contacting his daughter.
Innes filed a complaint against Carrascosa’s attorneys and,
following a jury trial, recovered damages for their negligence
in releasing Victoria’s United States passport to Carrascosa.
Innes then filed a post-trial motion to amend the judgment to
award counsel fees. The trial court granted the motion, and the
Appellate Division affirmed the award.
We are called upon to consider whether, in prosecuting a
fiduciary malfeasance action against an attorney who
intentionally violates an escrow agreement, the prevailing
beneficiary may recover attorneys’ fees. We refine our tightly
circumscribed exception to New Jersey’s general rule against
awarding counsel fees to prevailing parties and hold that,
because defendants were attorneys acting in a fiduciary capacity
as trustees and escrow agents for both Innes and Carrascosa, if
they intentionally breached their fiduciary obligation to Innes
by releasing Victoria’s United States passport to Carrascosa
without Innes’ permission, defendants can be held liable for
counsel fees. However, since the jury did not make a specific
finding that defendants’ misconduct was intentional, we remand
to the trial court, pursuant to R. 4:39-1, for a finding as to
whether defendants’ breach of the Agreement was intentional.
3
I.
A.
Understanding the parties’ dispute over attorneys’ fees
requires a review of the pertinent facts in the domestic
relations litigation between Innes and Carrascosa.
Innes is a citizen of the United States and a resident of
New Jersey. Carrascosa is a Spanish national and a permanent
resident of New Jersey. They were married in Spain in 1999, and
their only child, Victoria, was born in New Jersey in 2000.
Victoria is a dual citizen of the United States and Spain.
According to Innes, the couple experienced escalating
marital discord, and he ultimately moved out of the family home
in May 2004. During their marital difficulties, Innes was
represented by third-party defendant Peter Van Aulen, and
Carrascosa by third-party defendant Mitchell A. Liebowitz.
In October 2004, Liebowitz drafted the Agreement whereby
the signatories, the couple and their attorneys, agreed that
Liebowitz would hold Victoria’s United States and Spanish
passports in trust so as to restrict either parent from
traveling with Victoria outside of the United States without the
written permission of the other. Specifically, the Agreement
provided, in part,
[n]either . . . Carrascosa nor . . . Innes may
travel outside the United States with Victoria
4
. . . without the written permission of the
other party. To that end, Victoria[’s] . . .
United States and Spanish passport [sic] shall
be held in trust by Mitchell A. Liebowitz, Esq.
Victoria[’s] . . . Spanish passport has been
lost and not replaced, and its loss was
reported to the Spanish Consulate in New York
. . . . Carrascosa will file an application
for a replacement Spanish passport within
[twenty] days of today.2
[(Emphasis added).]
On November 19, 2004, Carrascosa informed Liebowitz that
she was terminating their attorney-client relationship and that
she retained defendant Madeline Marzano-Lesnevich (Marzano-
Lesnevich) of the law firm of Lesnevich & Marzano-Lesnevich,
Attorneys at Law (LML). That same day, Sarah Jacobs (then Sarah
Tremml), an associate at LML, sent a letter to Liebowitz
informing him of LML’s representation of Carrascosa and
requesting release of Carrascosa’s file. Liebowitz responded,
“[a]s you may know, I am holding her daughter’s United States
passport. I would prefer if you arranged for the original file
to be picked up by messenger with the messenger acknowledging
2 At the time the Agreement was signed, Carrascosa advised the
parties that Victoria’s Spanish passport had been lost. After
retaining defendants, Carrascosa advised Jacobs that the Spanish
passport had been stolen. When Carrascosa was deposed, however,
she testified that she always had Victoria’s Spanish passport
and that it was never lost or stolen. Nevertheless, Thomas
Kilbride, Department of Homeland Security Immigration and
Customs Enforcement (ICE), testified that the ICE database shows
Victoria left the country from Newark Liberty International
Airport using her United States passport.
5
receipt of the passport.” Defendant Marzano-Lesnevich received
Carrascosa’s file from Liebowitz on or about December 8, 2004;
it included the Agreement and Victoria’s United States passport.
In December 2004, Carrascosa obtained Victoria’s United
States passport from LML, and used the passport to remove
Victoria from the United States to Spain on January 13, 2005.
During proceedings before the Family Part in February 2005,
Innes and his then counsel discovered that Victoria left the
country with her maternal grandfather.
Innes filed a petition under the Hague Convention on the
Civil Aspects of International Child Abduction for Victoria’s
return to the United States and traveled to Spain for a hearing
on the petition. The Spanish court denied the petition and
ordered Victoria to remain in Spain until age eighteen.
Subsequently, Carrascosa filed numerous criminal complaints
against Innes in Spain, and Innes has been prevented from
contacting his daughter by order of a Spanish court.
Meanwhile, the parties’ domestic relations litigation
continued in New Jersey. It included a domestic violence
complaint by Carrascosa which was later dismissed, and a
challenge to the court’s jurisdiction. After determining that
New Jersey had jurisdiction, the Family Part judge entered a
judgment of divorce and granted Innes sole legal and residential
custody of Victoria. The judgment gave Carrascosa ten days to
6
bring Victoria back to the United States, but Carrascosa failed
to comply with the order.3 Innes testified that he last saw
Victoria in the fall of 2005 when he was in Spain for legal
proceedings, and that, because of the notoriety of the case in
the Spanish media as well as the criminal complaints filed
against him by Carrascosa, he feared incarceration if he
returned to Spain to visit his daughter. Innes maintains that
Carrascosa’s family, with whom Victoria resides in Spain, has
rejected his efforts to contact his daughter for the past ten
years, and that they have refused to accept phone calls or
Christmas and birthday presents he sends to Victoria.
B.
In October 2007, Innes filed a complaint in the Law
Division against defendants alleging, in part, that they
improperly released Victoria’s United States passport to
Carrascosa and intentionally interfered with the Agreement.
Innes requested relief, including damages and attorneys’ fees.
3 Carrascosa was arrested in November 2006 and was indicted by a
Bergen County Grand Jury on eight counts of interference with
custody and one count of contempt of court. She was sentenced
to a fourteen-year term of incarceration in state prison on
December 23, 2009. Carrascosa was paroled from the state prison
in 2014, but was transferred to the Bergen County Jail on
contempt of court charges for violating the order to bring
Victoria back to the United States. Carrascosa was released
from Bergen County Jail on April 24, 2015.
7
Before trial, the court granted Van Aulen and Liebowitz’s
motions for summary judgment and sua sponte severed the third-
party complaint against Carrascosa. However, the trial court
denied defendants’ motion for summary judgment, concluding that
defendants owed a duty to Innes.4 The court also denied
defendants’ motion to exclude any claim for counsel fees.
At the conclusion of trial, the only issue submitted to the
jury was whether defendants were negligent in releasing
Victoria’s United States passport to Carrascosa. Innes v.
Marzano-Lesnevich, 435 N.J. Super. 198, 214 n.7 (App. Div. 2014)
(noting that, although Innes’ complaint alleged several causes
of action, “ultimately the case was submitted to the jury only
as to the claim that defendants breached their professional
duty”). Specifically, the jury was asked to answer the
following question: “Did Madeline Marzano-Lesnevich and/or the
Marzano-Lesnevich law firm deviate from the standard of care
4 Defendants contended at trial and on appeal that they were not
bound by the Agreement entered into by their predecessor. This
contention, which is without legal or factual support, was
disregarded by the Appellate Division. We note only that
defendants acknowledged reading the Agreement prior to releasing
Victoria’s passport to Carrascosa. Therefore, defendants knew
about the Agreement and the obligations it imposed upon them.
See RPC 1.15(a) (duty to appropriately safeguard property of
clients or third persons that is in a lawyer’s possession); see
also RPC 1.15(b) (duty to promptly notify the client or third
person after receiving property in which a client or third
person has an interest).
8
applicable to lawyers regarding its treatment of the United
States Passport of Victoria Innes?”5
The jury determined that defendants were negligent in
releasing Victoria’s passport to Carrascosa and awarded damages
to Innes and Victoria. The trial court denied defendants’
motion for a new trial and their motion for judgment
notwithstanding the verdict but granted Innes’ motion to amend
the judgment for counsel fees and costs for both Innes and
Victoria. Attached to the amended order for judgment was the
judge’s explanation that an award of attorneys’ fees was
appropriate because “the jury decided . . . that the defendants
deviated from the standard of care and thereby breached a duty
owed to Peter and Victoria Innes when they gave Ms. Carrascosa
Victoria’s passport[]. As such, the traditional rule that
warrants an award of fees in legal malpractice cases extends to
the matter at bar.”
Following defendants’ appeal, the Appellate Division
concluded that awarding Innes attorneys’ fees was appropriate
even though no attorney-client relationship existed between
Innes and defendants.6 Id. at 244. In doing so, the panel
concluded defendants intentionally violated the Agreement.
5 The jury was also given questions regarding proximate cause and
monetary compensation.
6 Although the Appellate Division affirmed all aspects of the
judgment with respect to Innes, the panel reversed all parts of
9
The attorney fee award is particularly
appropriate in this case, since defendants
were holding Victoria’s passport in trust and
knew Innes and his attorney were relying upon
the Agreement. Nevertheless, they
intentionally violated the Agreement and gave
the passport to Carrascosa upon her request.
[Ibid.]
We granted defendants’ petition for certification, limited
to the issue of “whether the attorney-defendants can be liable
for attorneys’ fees as consequential damages to a non-client
under Saffer v. Willoughby, 143 N.J. 256 (1996).” Innes v.
Marzano-Lesnevich, 220 N.J. 37 (2014).
II.
Defendants, relying on Saffer, supra, and Packard-Bamberger
& Co. v. Collier, 167 N.J. 427 (2001), argue fee-shifting in
attorney malpractice and misconduct cases is appropriate only
when it arises out of an attorney-client relationship, which is
not present here.
Amicus New Jersey State Bar Association (NJSBA) also
contends the trial court and the Appellate Division
inappropriately extended Saffer, supra, and Packard-Bamberger,
the judgment pertaining to Victoria, including the award of
counsel fees. Innes, supra, 435 N.J. Super. at 248. The panel
reversed the award of damages for Victoria because there was
insufficient evidence of the purported emotional damages and
reversed her award of counsel fees because she was no longer a
prevailing party. Id. at 241, 244.
10
supra, to a non-client’s negligence claims against attorneys.
According to the NJSBA, the notion that attorneys’ fees are
consequential damages would eviscerate the general rule against
providing counsel fees to prevailing parties because attorneys’
fees could always be considered consequential damages.
Innes urges this Court to affirm the Appellate Division’s
award of counsel fees and allow him to recover the expenses he
incurred due to defendants’ misconduct. Innes argues that
Saffer, supra, should be extended to situations where an
attorney breaches his or her fiduciary duty to a non-client.
III.
A.
In the field of civil litigation, New Jersey courts
historically follow the “American Rule,” which provides that
litigants must bear the cost of their own attorneys’ fees.
Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372, 404
(2009). This Court has noted that “[t]he purposes behind the
American Rule are threefold: (1) unrestricted access to the
courts for all persons; (2) ensuring equity by not penalizing
persons for exercising their right to litigate a dispute, even
if they should lose; and (3) administrative convenience.” In re
Niles Trust, 176 N.J. 282, 294 (2003).
11
Indeed, our court rules evince New Jersey’s strong public
policy against shifting counsel fees, id. at 293, and provide,
“[n]o fee for legal services shall be allowed in the taxed costs
or otherwise, except” in eight enumerated circumstances. R.
4:42-9(a) (permitting award of attorney’s fees in family action;
out of court fund; probate action; mortgage foreclosure action;
tax certificate foreclosure action; action upon liability or
indemnity policy of insurance; as expressly provided by rules in
any action; and all cases where attorneys’ fees are permitted by
statute).
This Court has “created carefully limited and closely
interrelated exceptions to the American Rule that are not
otherwise reflected in the text of Rule 4:42-9” and that are not
provided for by statute, court rule, or contract. In re Estate
of Vayda, 184 N.J. 115, 121 (2005). Saffer, supra, and Packard-
Bamberger, supra, are part of this line of cases.
Saffer involved a fee dispute between an attorney and his
former client, who filed a legal malpractice action against the
former attorney. 143 N.J. at 260. One of the issues in Saffer
was the effect a finding of malpractice should have on the fee
dispute and on the former client’s damages. This Court held
that “[o]rdinarily, an attorney may not collect attorney fees
for services negligently performed,” and that “a negligent
attorney is responsible for the reasonable legal expenses and
12
attorney fees incurred by a former client in prosecuting the
legal malpractice action.” Id. at 272. The Court reasoned that
a client “‘may recover for losses which are proximately caused
by the attorney’s negligence or malpractice,’” and that “[t]he
purpose of a legal malpractice claim is ‘to put a plaintiff in
as good a position as he [or she] would have been had the
[attorney] kept his [or her] contract.’” Id. at 271 (quoting
Lieberman v. Emp’rs Ins. of Wausau, 84 N.J. 325, 341 (1980)).
Accordingly, the Court concluded that it is appropriate to award
attorneys’ fees to a prevailing plaintiff in an attorney
malpractice action because such fees are “consequential damages
that are proximately related to the malpractice.” Id. at 272.
In Packard-Bamberger, this Court extended Saffer to claims
against attorneys for intentional misconduct. 167 N.J. at 443.
Packard-Bamberger involved a corporation’s attorney who
intentionally withheld information and usurped a corporate
opportunity. Id. at 437-38. The Law Division found that the
attorney’s actions did not constitute legal malpractice, but it
awarded attorneys’ fees to plaintiffs because it concluded that
“authorization exists when an attorney commits intentional
misconduct.” Id. at 439. The Appellate Division disagreed,
concluding that an award of attorneys’ fees was not authorized
under Saffer because the malpractice claim was dismissed. Id.
at 442.
13
In reversing the Appellate Division, this Court held “that
a successful claimant in an attorney-misconduct case may recover
reasonable counsel fees incurred in prosecuting that action.”
Id. at 443.
Stated plainly, an attorney who
intentionally violates the duty of loyalty
owed to a client commits a more egregious
offense than one who negligently breaches the
duty of care. A client’s claim concerning the
defendant-attorney’s breach of a fiduciary
duty may arise in the legal malpractice
context. Nonetheless, if it does not and is
instead prosecuted as an independent tort, a
claimant is entitled to recover attorneys’
fees so long as the claimant proves that the
attorney’s breach arose from the attorney-
client relationship.
[Ibid. (emphasis added).]
Notably, the Court found that fee-shifting is appropriate in
misconduct cases involving an attorney-client relationship, even
though the misconduct did not constitute legal malpractice.
We emphasize that a plaintiff must demonstrate
the existence of an attorney-client
relationship as a prerequisite to recovery.
Such a requirement is consistent with the goal
in Saffer of holding attorneys responsible for
professional conduct that causes injury to
their clients. It is likewise consistent
with the policy, also suggested in Saffer,
that a client should be able to recover for
losses proximately caused by the attorney’s
improper performance of legal services. That
policy is intended to assure that the client
be placed in as good a position as if the
attorney had performed properly.
[Ibid. (emphasis added).]
14
The Court also noted that the defendant, in his dual roles as
corporate director and corporate attorney, owed fiduciary duties
to the plaintiff and concluded that “[b]ecause [defendant]
violated the duty he owed to [the plaintiff] as legal counsel,
the trial court’s award of attorneys’ fees was proper.” Ibid.
B.
Other fee-shifting cases decided by this Court discuss the
underpinnings of Saffer and Packard-Bamberger and conclude that
counsel fees are appropriate in cases of breach of a fiduciary
duty. For example, In re Estate of Lash recognized an exception
to the American Rule in a case involving an estate administrator
malfeasance claim covered by the terms of a surety bond. 169
N.J. 20, 35 (2001). In that case, the administrator of an
estate breached his fiduciary duty by misappropriating estate
funds. Id. at 24. When the estate could not recover from the
administrator, the estate filed a complaint against Fireman’s
Fund Insurance Company (Fireman’s Fund), which issued a surety
bond on the estate. Id. at 25. The question in Lash was
whether the estate could recoup from the surety on the bond,
Fireman’s Fund, counsel fees incurred in proceedings to recover
the misappropriated monies. Id. at 23.
A majority of this Court held that the attorneys’ fees
incurred by the estate in its action on the surety bond should
15
be assessed against Fireman’s Fund. Id. at 35. The Court
reasoned that “under principles of suretyship, [Fireman’s Fund]
is liable for the full extent of the damages caused by [the
administrator] . . . including the attorneys’ fees incurred in
the proceeding on the bond.” Id. at 28-29. We also noted that
this conclusion did not conflict with the American Rule or Rule
4:42-9 because neither prohibits an award of counsel fees
incurred in litigation with a third party (Fireman’s Fund), when
that litigation flows from the commission of a tort. Id. at 31-
32; see also Pressler & Verniero, Current N.J. Court Rules,
comment 2.9 on R. 4:42-9 (2015) (explaining attorney’s fees
permitted when incurred in prosecution or defense of action
caused by third party’s tortious conduct).
We explained that Lash was distinguishable from, and thus
not an extension of, Saffer and Packard-Bamberger because the
holdings in Saffer and Packard-Bamberger depended upon the
attorney-client relationship.
Those cases authorize an award of attorneys’
fees against an attorney-defendant when those
fees were incurred as a result of the
litigation to establish the attorney-
defendant’s liability. Such an award is
directly contrary to the American Rule’s
prohibition, but was authorized in those cases
due to the significance of the attorney-client
relationship.
[Lash, supra, 169 N.J. at 33 (emphasis
added).]
16
The Court explained that, under Saffer, the plaintiffs in Lash
would not have been entitled to an award of attorneys’ fees
against the administrator for breach of his fiduciary duty
because the breach did not occur in the context of an attorney-
client relationship.
[T]he estate may not have been entitled to an
award of fees based simply on the fact that
[the administrator] owed the estate a
fiduciary duty. Packard-Bamberger makes clear
that the fact that a person owes another a
fiduciary duty, in and of itself, does not
justify an award of fees unless the wrongful
conduct arose out of an attorney-client
relationship.
[Id. at 33-34 (emphasis added).]
Following Lash, a majority of this Court decided Niles
Trust and awarded counsel fees to a prevailing party where
defendant, an estate executor and trustee, was not an attorney.
176 N.J. at 300. The Court held that “when an executor or
trustee commits the pernicious tort of undue influence, an
exception to the American Rule is created that permits the
estate to be made whole by an assessment of all reasonable
counsel fees against the fiduciary that were incurred by the
estate.” Id. at 298-99. We noted that “[a] fiduciary
relationship exists between a trustee and the trust similar to
the attorney-client relationship,” and that “[b]oth the attorney
and a trustee act as officers of the court when acting on behalf
of clients and beneficiaries.” Id. at 297. The Court concluded
17
that the defendant’s “non-attorney” status should not prevent an
award of attorneys’ fees in suits against trustees for undue
influence.
Undue influence committed by an executor or
trustee to obtain a significant
financial benefit for himself is especially
pernicious regardless of whether the fiduciary
is an attorney. Undue influence by an
attorney who becomes executor-beneficiary
under a will, and undue influence by a non-
attorney who becomes trustee-beneficiary,
should be treated the same regarding the
payment of counsel fees required to remove the
person as a fiduciary. See
generally Haynes, supra, 87 N.J. at 177-
83. The only difference between the two is
that the lawyer used his authorization to
practice law as a license to steal and the
trustee, having been named to that office,
used the office to do the same. It is a
difference with little meaning. In both
instances, the removal proceedings are based
on fraud or other intentional wrongdoing
perpetrated against the settlor or testator
and the beneficiaries.
[Id. at 299.]
Thus, Niles Trust extended the American Rule to trustee
undue influence cases “based on the fiduciary’s intentional
misconduct regardless of his or her professional status.” Id.
at 299-300. The majority noted that “[t]he exception we have
created directly follows from the special status of the undue
influence tort.” Id. at 300.
This Court declined to extend Niles Trust to a case in
which a “non-attorney” executor of an estate acted negligently
18
and in bad faith in his administration of the estate, but was
not found to have committed undue influence. Vayda, supra, 184
N.J. at 124. In declining to assess attorneys’ fees against the
negligent executor, the Court reasoned that Rule 4:42-9(a)(3)
provided the appropriate remedy by specifically allowing
attorneys’ fees in probate actions to be paid from the estate.
Ibid. The Court also took the occasion to reaffirm its
commitment to “New Jersey’s ‘strong public policy against the
shifting of attorney’s fees.’” Ibid. (quoting Niles Trust,
supra, 176 N.J. at 293).
IV.
Departures from the “American Rule” are the exception. We
have awarded counsel fees to a prevailing plaintiff in a legal
malpractice action premised upon professional negligence because
of the unique nature of the attorney-client relationship. See
Saffer, supra, 143 N.J. at 272. We have never held that a non-
client is entitled to a fee-shifting award for an attorney’s
negligence. Packard-Bamberger, Lash, and Niles Trust involved
fiduciaries who, by their intentional misconduct, violated their
fiduciary duties and inflicted damage upon the beneficiaries.
Consistent with our case law, we reaffirm that a prevailing
beneficiary may be awarded counsel fees incurred to recover
damages arising from an attorney’s intentional violation of a
19
fiduciary duty. As this Court has observed, a “fiduciary’s
obligations to the dependent party include a duty of loyalty and
a duty to exercise reasonable skill and care.” McKelvey v.
Pierce, 173 N.J. 26, 57 (2002) (accord Restatement (Second) of
Trusts §§ 170, 174 (1959)). Accordingly, “‘[o]ne standing in a
fiduciary relationship with another is subject to liability to
the other for harm resulting from a breach of duty imposed by
the relation.’” Niles Trust, supra, 176 N.J. at 295 (quoting
Restatement (Second) of Torts § 874).
Here, defendants were holding Victoria’s United States
passport as trustees and escrow agents. As such, they were
fiduciaries for the benefit of both Carrascosa and Innes.
Colegrove v. Behrle, 63 N.J. Super. 356, 366 (App. Div. 1960)
(“A fiduciary relationship is created by and inherent in the
nature of an escrow agreement.”); see also id. at 365 (“An
escrow agreement imports a legal obligation on the part of the
depository to retain the . . . documents until the performance
of a condition or the happening of an event, at which time the .
. . documents are to be delivered in accordance with the terms
of the agreement.”). Innes relied on defendants to carry out
their fiduciary responsibilities under the Agreement and prevent
Carrascosa from taking Victoria away from him. Defendants,
however, breached their fiduciary obligation to Innes and
released Victoria’s United States passport to Carrascosa without
20
Innes’ written permission. Accordingly, consistent with our
post-Saffer jurisprudence, Innes would be entitled to counsel
fees if there had been a finding that defendants, as attorneys,
intentionally breached their fiduciary responsibility to Innes,
regardless of the existence of an attorney-client relationship.
The dissent reiterates concerns expressed in prior dissents
from Lash and Niles Trust, and rails against the conclusion we
reach today as further erosion of our adherence to the American
Rule. Yet, the dissent fails to persuasively dispute that the
majority is restating and refining binding precedent -- that a
prevailing beneficiary may be awarded counsel fees incurred to
recover damages arising from an attorney’s intentional violation
of a fiduciary obligation, see Packard-Bamberger, Lash, and
Niles Trust -- not expanding our prior rule.
We note, however, that the jury did not make a specific
finding that defendants intentionally breached the Agreement.
Innes, in his complaint, specifically pleaded that defendants
intentionally interfered with the Agreement, but the trial court
did not submit an interrogatory to the jury on that issue, and
neither party demanded its submission. As a result, the jury’s
verdict did not resolve the issue. Under these circumstances,
the right to have the jury decide the issue was waived. See
Campione v. Soden, 150 N.J. 163, 186 (1997) (accord R. 4:39-1)
(“If . . . the court omits any issue of fact raised by the
21
pleadings . . . , each party waives his right to a trial by jury
of the issues so omitted unless before the jury retires he
demands its submission to the jury.”)
As the Appellate Division concluded, there is substantial
support in the record from which to conclude that defendants’
misconduct was intentional. Nevertheless, we must remand the
case to the trial court for it to decide whether defendants
intentionally violated their fiduciary duty to Innes when they
breached the Agreement. See Stella v. Dean Witter Reynolds,
Inc., 241 N.J. Super. 55, 72 (App. Div.) (“Since . . . there is
sufficient evidence in the record to justify, but not to
require, a finding of [fact in dispute], we will remand the case
to the trial judge for a finding on this issue.”), certif.
denied, 122 N.J. 418 (1990).
V.
The judgment of the Appellate Division is affirmed as
modified, and this matter is remanded to the trial court for
further proceedings consistent with this opinion.
CHIEF JUSTICE RABNER and JUSTICE ALBIN join in JUSTICE
SOLOMON’s opinion. JUSTICE LaVECCHIA filed a separate,
dissenting opinion, in which JUDGE CUFF (temporarily assigned)
joins. JUSTICES PATTERSON and FERNANDEZ-VINA did not
participate.
22
SUPREME COURT OF NEW JERSEY
A-16 September Term 2014
074291
PETER INNES and VICTORIA
SOLENNE INNES, by her
Guardian PETER INNES,
Plaintiffs-Respondents,
v.
MADELINE MARZANO-LESNEVICH,
ESQ., and LESNEVICH &
MARZANO-LESNEVICH, Attorneys
At Law, i/j/s/a,
Defendants/Third-Party
Plaintiffs-Appellants,
v.
MITCHELL A. LIEBOWITZ, ESQ.,
PETER VAN AULEN, ESQ., and
MARIA JOSE CARRASCOSA,
Third-Party Defendants.
JUSTICE LaVECCHIA, dissenting.
Paying lip service to the American Rule, the Court today
again refines what it terms “our tightly circumscribed exception
to New Jersey’s general rule against awarding counsel fees to
prevailing parties” and orders the awarding of fees against
attorneys who breached escrow responsibilities owed to the
client of an adversary. Ante at __ (slip op. at 3).
In Saffer v. Willoughby, 143 N.J. 256 (1996), this Court
held that a successful legal malpractice plaintiff could recover
1
attorneys’ fees, but only against the former lawyer with whom
the attorney-client relationship existed. What started as a
limited, common law exception to the American Rule has been
altered through a series of cases, which now culminates with
today’s decision. In its present adjustment to our case law
governing fee shifting, the majority deals the American Rule yet
another blow by expanding awards of attorneys’ fees to non-
clients of attorneys in escrow settings.
In my view, the Court’s fee award is unsupported by
existing case law, statutory law, or court rule. I can endorse
neither the majority’s rationale nor this further encroachment
on the American Rule. Respectfully, I dissent.
I.
In 1948, this Court was presented with “a choice of
philosophies” -- a choice between the English Rule, which
allowed for the liberal award of counsel fees to prevailing
litigants, and the American Rule, which did not. See State v.
Otis Elevator Co., 12 N.J. 1, 26 (1953) (Jacobs, J.,
dissenting).
We picked the latter, and for good reason. The Court of
Chancery at the time “had discretionary power to allow counsel
fees in such amounts as appeared to it to be reasonable.” Alcoa
Edgewater Fed. Credit Union v. Carroll, 44 N.J. 442, 446 (1965).
That predictably led to growing abuses. With no outer cap on
2
fee awards, save a narrow exception, some members of the bar
received excessive allowances. Ibid. Faced with the looming
prospect of an outsize fee award, “prospective litigants with
presumably just causes had been discouraged from instituting
actions in equity.” Ibid.; see also Sunset Beach Amusement
Corp. v. Belk, 33 N.J. 162, 167 (1960) (recognizing that Court
of Chancery practice “proved unduly onerous upon litigants and
spawned charges of favoritism”).
Through court rule, this Court, accordingly, placed New
Jersey firmly in the American Rule camp, “barring counsel fees
except . . . ‘as provided by these rules or by law with respect
to any action, whether or not there is a fund in court.’” John
S. Westervelt’s Sons v. Regency, Inc., 3 N.J. 472, 475 (1950)
(quoting and upholding then-Rule 3:54-7 as permissible use of
Court’s rulemaking authority). When, in 1950, the Legislature
attempted to roll back the new limits on fee awards, it was met
with Governor Driscoll’s veto pen. The legislation, according
to the Governor, “would revive an unhappy practice that has been
generally repudiated.” Otis Elevator Co., supra, 12 N.J. at 27
(Jacobs, J., dissenting) (quoting Veto Messages of Hon. Alfred
E. Driscoll, Governor of New Jersey 76 (1950)).
The current Rule 4:42-9 represents New Jersey’s adherence
to the American Rule. That rule has served us well. Ensuring
that litigants are not discouraged from pursuing redress in our
3
courts because of the fear that, if unsuccessful, they must
carry their opponent’s legal fees, the American Rule promotes
“[u]nfettered access to the courts for all citizens with genuine
legal disputes.” In re Estate of Lash, 169 N.J. 20, 43 (2001)
(Verniero & LaVecchia, JJ., dissenting) (quoting Neal H.
Klausner, Note, The Dynamics of Rule 11: Preventing Frivolous
Litigation by Demanding Professional Responsibility, 61 N.Y.U.
L. Rev. 300, 304 (1986)). Put simply: “[W]hile the English
Rule focuse[s] on providing full compensation to the winner, the
American Rule emphasize[s] equal access to justice.” Ibid.
(quoting Mihalik v. Pro Arts, Inc., 851 F.2d 790, 793 (6th Cir.
1988)). The American Rule is also administratively efficient,
unburdening our trial courts from continually making “the
somewhat arbitrary calculation of the ‘reasonable costs’
incurred by a prevailing party.” Ibid. (quoting Klausner,
supra, 61 N.Y.U. L. Rev. at 305).
II.
We held closely to our policy choice against ad hoc fee
shifting for nearly fifty years. See, e.g., Grober v. Kahn, 47
N.J. 135, 151 (1966) (“[T]he question whether a fraud or a
breach of a fiduciary obligation should warrant imposition of
counsel fees is a policy issue which was resolved when our rules
of court were formulated. If a change is to be made, it should
4
be made with directness and in relevant terms. Meanwhile the
policy of our rule should be honored.”).
Then came Saffer, supra, in which this Court carved out an
exception to the American Rule, allowing successful legal
malpractice plaintiffs to recover counsel fees. 143 N.J. at
271-72. Recognizing that the goal of a legal malpractice claim
is to place the client in the same position in which he or she
would have been had the attorney rendered capable service, the
Court held that “a negligent attorney is responsible for the
reasonable legal expenses and attorney fees incurred by a former
client in prosecuting the legal malpractice action.” Id. at 272
(emphasis added). The fee award was appropriate, the Court
reasoned, as part of the “consequential damages that are
proximately related to the malpractice.” Ibid.
In Packard-Bamberger & Co., Inc. v. Collier, 167 N.J. 427
(2001), this Court broadened Saffer to reach claims against
attorneys for intentional misconduct. In that case, an attorney
owed a corporation dual fiduciary duties, both as a director and
as legal counsel. Id. at 436-37. The trial court found that he
committed intentional misconduct in his role as counsel and,
applying Saffer, ordered a fee award. Id. at 438-39. The
Appellate Division reversed, finding Saffer inapplicable. Id.
at 440. To the panel, because the plaintiffs had not succeeded
5
on a malpractice claim, Saffer could not support a fee award.
Ibid.
This Court reversed the Appellate Division. Saffer’s
extension -- from attorney negligence to intentional misconduct
-- was based on a simple principle: “[A]n attorney who
intentionally violates the duty of loyalty owed to a client
commits a more egregious offense than one who negligently
breaches the duty of care.” Id. at 443. It would, this Court
said, be an “incongruous result” if a plaintiff could recover
counsel fees for attorney malpractice but not for “an
intentional violation of a fiduciary duty arising as a result of
the attorney-client relationship.” Id. at 442. The Court made
it a point to highlight that, even in cases of intentional
misconduct, establishing “the existence of an attorney-client
relationship [is] a prerequisite to recovery.” Id. at 443
(emphasis added). That requirement harmonized the Court’s
holding with Saffer’s twin goals of “holding attorneys
responsible for professional conduct that causes injury to their
clients” and allowing clients to recover “for losses proximately
caused by the attorney’s improper performance of legal
services.” Ibid.
The Court closed by emphasizing that breach of a fiduciary
duty, alone, did not support the fee award. Although the
defendant in Packard-Bamberger owed dual, overlapping fiduciary
6
duties, it was only because he violated his duty to the
plaintiff as legal counsel that the fee award was justified.
Id. at 443. Had he not assumed that role, and had he not
rendered any legal services, “attorneys’ fees would not have
been appropriate unless authorized by contract, statute, or some
other specific rule.” Ibid.
Both Saffer and Packard-Bamberger relied on the attorney-
client relationship as a condition to a fee recovery in
attorney-misconduct cases. Nothing in either of those cases
supports the idea that a fiduciary relationship, outside of the
attorney-client relationship, can support a fee award. See
Lash, supra, 169 N.J. at 34 (“Packard-Bamberger makes clear that
the fact that a person owes another a fiduciary duty, in and of
itself, does not justify an award of fees unless the wrongful
conduct arose out of an attorney-client relationship.”).
Because there is no attorney-client relationship here, it is
plain that neither Saffer nor Packard-Bamberger support the
majority’s holding.
Neither does this Court’s series of fee-shifting cases
involving a fiduciary. The first case the majority relies on is
In re Estate of Lash, which deserves to be placed in its factual
context.
Lash was a surety case; the administrator of an estate
misappropriated estate funds. Id. at 24. Fireman’s Fund
7
Insurance Company provided the surety bond, protecting the
estate against fraudulent actions by the estate’s administrator.
Ibid. After the administrator’s malfeasance, the estate alleged
that Fireman’s Fund, as surety, was liable not only for the
estate’s loss but also for counsel fees incurred in proceeding
on the bond. Id. at 25.
Relying on surety and tort principles, this Court held that
the counsel fees could be charged to the surety. First, the
Court determined that the administrator could be liable for the
estate’s counsel fees in proceeding on the surety bond. Citing
to the Restatement (Second) of Torts § 914(2), the Court
explained that if a plaintiff has been forced into litigation
against a third party because of a tortfeasor’s wrongful
conduct, the plaintiff can recover those counsel fees from that
litigation from the tortfeasor. Id. at 26. The Court concluded
that “[t]hose fees are merely a portion of the damages the
plaintiff suffered at the hands of the tortfeasor.” Ibid.
Because the administrator’s wrongdoing caused the estate to file
an action against the surety, the court reasoned that the
administrator is responsible for the estate’s counsel fees. Id.
at 27-28.
The Court then considered whether Fireman’s Fund, as
surety, could be liable for those fees. Answering that question
in the affirmative, the Court explained that upon breach of an
8
administration bond, “[t]he surety is required to bear any
injurious consequences arising from loss to the estate.” Id. at
28 (quoting 31 Am. Jur.2d Executors and Administrators § 350
(1989)). The Court held that because the surety was liable to
the full extent of the administrator’s damage, its obligation
included the fees incurred in proceeding on the bond. Id. at
28-29.
Last, the Court considered whether its fee award violated
the American Rule. It did not, the Court explained, stating
that “[t]hose fees do not implicate the American Rule because
they were incurred in the litigation on the bond, rather than
the litigation against [the administrator].” Id. at 32. The
Court emphatically declared that its decision was not “an
application of Saffer and Packard-Bamberger.” Id. at 33. Those
cases authorized a fee award directly against a defendant-
attorney -- a result that, although contrary to the American
Rule, “was authorized . . . due to the significance of the
attorney-client relationship.” Ibid. Instead, the Court’s fee
award in Lash was declared “distinct from Saffer because the
fees are damages incurred in litigation other than to establish
[the administrator’s] liability.” Id. at 34.
Next, the Court decided In re Niles Trust, 176 N.J. 282
(2003). In that matter, through undue influence, a mother and
son, Serena and Salvatore Bono, acting in concert, convinced a
9
wealthy, elderly heiress to name Salvatore executor of her will
and trustee of her revocable trusts. Id. at 288-89. “With his
newfound power, [Salvatore] embarked on a sixteen-month looting
spree of [the] estate.” Id. at 289. Our Court faced the
question of whether the estate should be reimbursed for the
counsel fees it incurred in the litigation against Salvatore and
Serena. Id. at 296. A three-justice majority, over a dissent,
created another exception to the American Rule. Id. at 297.
This time, the Court’s majority had to confront directly the
strictures of the American Rule, because, as the majority
acknowledged, to charge the fiduciary with counsel fees “is
tantamount to charging the losing parties with the prevailing
parties’ counsel fees.” Id. at 296.
But, to the Niles majority, the interests of equity
demanded the creation of a new exception to the American Rule.
The Court compared the fiduciary relationship there to the
attorney-client relationship in Saffer and Packard-Bamberger:
“Like an attorney who commits . . . undue influence while
representing a testator, settlor or an estate, a trustee of an
estate who exercises undue influence over a testator
intentionally has breached a fiduciary relationship in a manner
at least as egregious as the administrator’s intentional
wrongdoing in Lash, or an attorney who has intentionally
breached his fiduciary duty.” Id. at 298. The Court therefore
10
held that “when an executor or trustee commits the pernicious
tort of undue influence, an exception to the American Rule is
created that permits the estate to be made whole by an
assessment of all reasonable counsel fees against the fiduciary
that were incurred by the estate.” Id. at 298-99.
However, the Niles majority assured that its holding would
not “open the ‘floodgates.’” Id. at 299. The majority
specifically limited the new exception “to cases in which an
executor’s or a trustee’s undue influence results in the
development or modification of estate documents that create or
expand the fiduciary’s beneficial interest in the estate.”
Ibid. Emphasizing that “undue influence represents such an
egregious intentional tort that it establishes a basis for
punitive damages in a common law cause of action,” the Court
promised that “[t]he exception we have created directly follows
from the special status of the undue influence tort.” Id. at
300 (emphasis added).
Our Court’s unanimous decision in In re Estate of Vayda,
184 N.J. 115 (2005), at least until today, stopped the Court-
sanctioned rupture of the American Rule. That case centered on
a will dispute between two siblings. The decedent’s most recent
will named one sibling, Peter, executor of the estate, contrary
to all prior versions. Id. at 118. But after the will was
admitted to probate, Peter did little to administer the estate.
11
Ibid. The other sibling, Katherine, sued, alleging that the
will was the product of undue influence and that Peter breached
his fiduciary duty as executor. Id. at 119. The trial court
removed Peter as executor, holding that Peter had abandoned his
responsibilities as executor. Ibid. However, the will was not
determined to be the product of undue influence. Ibid. Yet the
trial court considered the circumstances to warrant the
imposition of counsel fees, even without an undue influence
finding. Ibid.
This Court declined to extend Niles to reach a non-attorney
executor who was removed because of a breach of a fiduciary duty
-- but notably not because of a finding of undue influence. Id.
at 123. The court rules provided a specific remedy: in certain
probate actions, Rule 4:42-9(a)(3) allows an award of attorneys’
fees “to be paid out of the estate” and not another source. Id.
at 124. That Katherine would not be made entirely whole -- part
of the cost of maintaining the action against Peter would be
paid from her portion of the estate -- was “insufficient impetus
to warrant a further exception to the American Rule, one to
which we have repeatedly averted as ‘a well-established feature
of our jurisprudence.’” Ibid. (quoting Lash, supra, 169 N.J. at
42). In a footnote, the Vayda unanimous opinion commented on
the scope of Niles: “Had Katherine established that the
decedent’s will was the result of undue influence, Peter’s
12
performance as executor would have been squarely governed by the
holding of In re Niles, supra.” Id. at 123 n.4. Thus, the
Vayda Court took the Niles Court at its word and pointedly
declined to extend its reach beyond the context of undue
influence by an executor or trustee fiduciary.
III.
From Packard-Bamberger, Lash, and Niles, the majority in
this matter draws the ultimate conclusion that an attorney,
acting in a fiduciary capacity to a non-client with regard to an
escrowed item, who engages in any intentional misconduct is
liable for attorneys’ fees.7 However, those cases do not support
that proposition at all. If this Court wishes to use its
authority to modify the court rules, through judicial decision,
and create a new exception to the American Rule -- though in my
view unwise -- it certainly can. See State v. Clark, 162 N.J.
201, 205 (2000) (“[T]he Court’s authority to engage in rule
making includes the exclusive power to establish or modify Court
Rules through judicial decisions.”). However, the majority
should abandon any pretense that today’s result flows naturally
from our prior cases, when it clearly does not. Because
Packard-Bamberger made it a point specifically to explain that a
1 Despite the majority’s declaration, there is no finding of
intentional misconduct in this record. The jury verdict was
based on negligence.
13
fiduciary duty, apart from an attorney-client relationship,
could not justify a fee award, it provides no support for the
majority’s decision. Because Lash did not, according to its
majority opinion, directly confront the American Rule, it
provides no support for the majority’s decision. And because
Niles was limited to intentional fiduciary misconduct
surrounding the “pernicious” tort of undue influence, it also
provides no support for the majority’s decision. Vayda
unanimously upheld those distinctions, and they were ratified in
dicta by In re Estate of Stockdale, 196 N.J. 275, 306-07 (2008).
With today’s decision, credibility dissipates from the
Niles Court’s breezy assurance that its new exception to the
American Rule would not open the floodgates because its holding
would be strictly limited to the tort of undue influence. It
was not a serious limitation then. See Niles, supra, 176 N.J.
at 304 (LaVecchia, J., dissenting) (“Once the Court decides that
it can pick and choose from among individual cases when to
deviate from the traditional requirement that there must be a
statute, rule, or contract allowing an award of counsel fees,
there is no discernible difference between fees in a case of
fraud by a trustee and fees in the case of any other intentional
tort.”). The majority’s holding, in effect if not in its words,
undercuts reliance on that facade today.
14
In terms of our jurisprudence, it is unclear what to make
of the breadth of the majority’s decision. Although the
majority’s holding describes the fee-shifting expansion in terms
of the case’s factual context -- attorneys acting as a fiduciary
in an escrow setting -- the analysis blurs two distinct analytic
lines of case law. Either the majority is expanding the Saffer
and Packard-Bamberger precedent by allowing fee-shifting against
attorney defendants to extend now to non-client relationships,8
or the majority is no longer limiting fiduciary fee-shifting to
the singular context of undue influence claims. The former is
narrower in its likely future impact because it affects only
lawyers, as a class of defendants, and therefore does less
2 Implicit in the majority’s determination is an unresolved
question: what is the theoretical underpinning to Saffer and
Packard-Bamberger that led to fee-shifting for clients in
attorney-misconduct litigation against their former lawyer? Did
the Court initially go down that path on the rationale that fees
spent to prosecute legal malpractice actions are consequential
damages? Or, was Saffer and Packard-Bamberger fee-shifting
based on the special considerations inherent in the lawyer-
client relationship, over which the Court has supervisory
control. The more solid rationale is the lawyer-client basis.
Both decisions were firmly rooted in the attorney-client
relationship. Saffer mentions the consequential damages angle,
but it is not its takeaway principle. In my view, one should
not read out of the Saffer and Packard-Bamberger opinions all of
their limiting language about the attorney-client premise to
their holdings. And subsequent decisions have since emphasized
the limiting principle to those holdings. If Saffer and Packard-
Bamberger are read otherwise, the consequential damages theory –
- untethered to the attorney-client justification for fee-
shifting in such relationships -– broadly undercuts the American
Rule and can be stretched to an extensive range of claims. See
infra at ___ (slip op. at 19).
15
damage to the American Rule. But it does treat attorneys worse
than all others who may act in an escrow capacity, and other
non-lawyer people and entities do perform escrow
responsibilities. Further case law will tell whether the line
of distinction will remain fixed at lawyers acting as escrows.
However, the majority’s emphasis on intentional conduct in its
fee-shift rationale in this matter could portend future fee-
shift requests from others injured by anyone who was charged
with acting in a fiduciary capacity. And that risks a much
broader exception to the American Rule, one that would expose a
host of actors to new, expanded liability.
Arising in a vast array of factual settings, fiduciary
relationships are many: doctors to their patients; agents to
their principals; partners to their other partners; corporate
officers to their shareholders; brokers, including insurance,
real estate, and securities brokers, to their clients; and
public officials to their constituents.9 That list is just a
3 See Howard v. Univ. of Med. & Dentistry of N.J., 172 N.J. 537,
547 (2002) (noting fiduciary relationship between doctor to
patient); Hirsch v. Schwartz, 87 N.J. Super. 382, 389 (App. Div.
1965) (“Where a principal-agent relationship exists, . . . it
follows that the agent as a fiduciary was required to exercise
good faith in his relationship with his principal[.]”);
Neustadter v. United Exposition Serv. Co., 14 N.J. Super. 484,
493 (Ch. Div. 1951) (“Each partner stands in a fiduciary
relationship to every other partner.”); Eliasberg v. Standard
Oil Co., 23 N.J. Super. 431, 441 (Ch. Div. 1952) (“The directors
of a corporation are, of course, fiduciaries, and in their
16
sampling, as “[a] fiduciary relationship arises between two
persons when one person is under a duty to act for or give
advice for the benefit of another on matters within the scope of
their relationship.” F.G. v. MacDonnell, 150 N.J. 550, 563
(1997) (citing Restatement (Second) of Torts § 874 cmt. a
(1979)). If read broadly, the majority’s holding could be
interpreted as opening all fiduciary actors to liability for fee
awards so long as they engage in intentional misconduct. If so,
it would take significant effort by the Legislature to unravel
the potential fee-shifting cracked open for argument by the
majority.
To be clear, as escrow agents, there is no doubt that
defendants here owed a fiduciary duty to Innes -- the client of
their adversary. See In re Hollendonner, 102 N.J. 21, 26 (1985)
dealings with the corporation and the stockholders the utmost
fidelity is demanded.”), aff’d, 12 N.J. 467 (1953); Aden v.
Fortsh, 169 N.J. 64, 78 (2001) (“Insurance intermediaries in
this State must act in a fiduciary capacity to the client . . .
.”); Silverman v. Bresnahan, 35 N.J. Super. 390, 396 (App. Div.
1955) (noting settled nature of fiduciary relationship between
real estate broker and property owner); McAdam v. Dean Witter
Reynolds, Inc., 896 F.2d 750, 767 (3d Cir. 1990) (signaling
similar fiduciary obligation for stockbrokers); Driscoll v.
Burlington-Bristol Bridge Co., 8 N.J. 433, 474 (“The members of
the board of chosen freeholders and of the bridge commission are
public officers holding positions of public trust. They stand
in a fiduciary relationship to the people whom they have been
elected or appointed to serve.”), cert. denied, 344 U.S. 838, 73
S. Ct. 25, 97 L. Ed. 652 (1952).
17
(“It is well settled that an escrow holder acts as an agent for
both parties.”). They breached that duty when they turned over
the child’s passport without Innes’s permission in this ongoing
contentious divorce and custody proceeding. Although they are
attorneys, defendants were not Innes’s attorneys, taking this
appeal out of the attorney-client realm of Saffer and Packard-
Bamberger. And they surely did not commit the undue influence
tort, making Niles equally inapplicable. Without an attorney-
client relationship, and without an undue influence finding, a
fee award cannot be justified under present law. That leaves
only a painful but nonetheless straightforward breach of a
fiduciary responsibility, which our law, until today, held
insufficient to shift fees. See Packard-Bamberger, supra, 167
N.J. at 443 (“[I]f [defendant] had not been counsel to [the
corporation], his fiduciary duty to [that corporation] would
have arisen solely from his status as a director. He would not
have rendered any legal services to the corporation and,
therefore, attorneys’ fees would not have been appropriate
unless authorized by contract, statute, or some other specific
rule.”).
The majority has therefore extended our law beyond Saffer,
beyond Packard-Bamberger, beyond Lash, and beyond Niles -- an
extension, and further erosion of the American Rule, that I
resist.
18
It is true that absent an award of attorneys’ fees, the
prevailing party in this breach-of-a-fiduciary-responsibility
litigation is not fully compensated for the loss suffered. But
that is true in practically every context in which damages must
be recovered through legal action. In any standard contract or
tort claim, the cost of maintaining the action prevents a
prevailing plaintiff from realizing the full measure of damages.
Since its inception, the American Rule has rejected the idea
that counsel fees are necessary to fully compensate the
prevailing party in litigation. See Thomas D. Rowe, Jr., The
Legal Theory of Attorney Fee Shifting, 1982 Duke L.J. 651, 657
(1982) (“[T]he American [R]ule’s effect of reducing a successful
plaintiff’s recovery by the amount of his lawyer’s fee conflicts
with the make-whole idea underlying much of the law of
remedies.”). The majority’s policy choice in this matter tosses
aside that basic premise.
Finally, the way in which the majority reaches its result
deserves mention. The majority’s holding, permitting the
possibility of fee-shifting in this attorney-breach-of-an-
escrow-fiduciary-duty matter, is grounded on intentional
misconduct by an attorney in respect of fulfilling escrow
duties. In doing so, it may be surmised that the majority
recognizes that even under its interpretation of the law, fees
would not be available based on negligent conduct. However,
19
this case was presented by experienced counsel and was submitted
to the jury based on negligent conduct. The majority now makes
this case a different one than that which was tried by the
parties and counsel. There may have been considered
consequences, including insurance availability, which
strategically led to the decision to try the case in the manner
that the parties and all counsel presented it. In my view, this
Court should refrain from refashioning the trial choices of the
parties and professionals who handled this matter.
IV.
To be sure, there is good cause to be dismayed at the
fiduciary breach here. It had tragic consequences -- separating
a young child from her father. But a desire to do equity in a
sympathetic case cannot substitute for adherence to our Court’s
policy choice that the administration of justice is best served
when parties to litigation bear their own counsel fees, a policy
that dates back almost as far as the institution of our modern
Court itself. That policy holds that absent statute, court
rule, or contract authorizing fee-shifting, counsel fees are not
recoverable as damages. Because the “policy of our rule should
be honored,” Grober, supra, 47 N.J. at 151, I respectfully
dissent.
20
SUPREME COURT OF NEW JERSEY
NO. A-16 SEPTEMBER TERM 2014
ON CERTIFICATION FROM Appellate Division, Superior Court
PETER INNES and VICTORIA
SOLENNE INNES, by her
Guardian PETER INNES,
Plaintiffs-Respondents,
v.
MADELINE MARZANO-LESNEVICH,
ESQ., and LESNEVICH &
MARZANO-LESNEVICH, Attorneys
At Law, i/j/s/a,
Defendants/Third-Party Plaintiffs-
Appellants,
v.
MITCHELL A. LIEBOWITZ, ESQ.,
PETER VAN AULEN, ESQ., and
MARIA JOSE CARRASCOSA,
Third-Party Defendants.
DECIDED April 26, 2016
Chief Justice Rabner PRESIDING
OPINION BY Justice Solomon
CONCURRING/DISSENTING OPINION BY
DISSENTING OPINION BY Justice LaVecchia
AFFIRM AS
CHECKLIST DISSENT
MODIFIED/REMAND
CHIEF JUSTICE RABNER X
JUSTICE LaVECCHIA X
JUSTICE ALBIN X
JUSTICE PATTERSON -----------------
JUSTICE FERNANDEZ-VINA -----------------
JUSTICE SOLOMON X
JUDGE CUFF (t/a) X
TOTALS 3 2