A New Jersey appeals court has reinstated a legal malpractice suit against Fox Rothschild, finding, as a matter of law, that attorneys have a duty of care to explain the terms of an agreement to clients, even if those terms are unambiguous and the client is a sophisticated businessperson who personally negotiated those terms.
The Sept. 2 decision in Cottone v. Fox Rothschild reversed a ruling by a Bergen County judge who dismissed the case on summary judgment.
The motion judge had reasoned that allowing a jury to decide the question of attorney negligence simply on the grounds that a lawyer owes a general duty of care to his client would “‘open the floodgates’” for malpractice litigation, according to the appeals court’s opinion.
The agreement at issue was meant to resolve a lawsuit filed in 2009 by plaintiff Robert Cottone against NIA Group, which had bought Cottone’s commercial insurance brokerage company, Brokerage and Insurance Consulting Inc., in 2000, the opinion said.
Cottone claimed that Fox Rothschild partner Eric Michaels in Roseland, N.J., , who was reviewing the agreement as Cottone negotiated it, failed to alert him that language inserted at the eleventh hour by lawyers on the other side would deprive him of the deal he thought he had made, according to the opinion.
NIA had paid Cottone $1 million for his business, according to the opinion. In addition, Cottone got a “warrant,” or right to buy a certain amount of NIA stock at a set price and an employment contract with NIA that gave him equity in the company as a commission for each year his revenue exceeded $1 million.
Another Fox Rothschild lawyer, Dominick Bratti, was handling the suit against NIA, but Michaels, who had handled the 2000 deal, advised Cottone during the settlement negotiations, though neither he nor Bratti took part in them, the opinion said.
NIA, which was in the process of being acquired by Marsh & McLennan, offered to buy out Cottone’s equity interest if he dropped the litigation, according to the opinion.
At some point, NIA told Cottone about the impending sale and said that if it went through within six months of the settlement, it would pay him a “‘kicker’” or “‘bump’” on his equity, the opinion said.
Cottone claims he understood that the kicker would be paid not only on the shares he acquired through his employment with NIA but on those he had the right to buy under the warrant and he testified at deposition that he told that to Michaels, according to the opinion.
When NIA’s lawyers at Sills Cummis & Gross in Newark sent Cottone an initial draft of the so-called “‘redemption agreement’” in August 2009, he reviewed it with Michaels over the phone, the opinion said.
According to the opinion, Michaels testified that he went over the agreement with Cottone “‘almost in painstaking detail,’” and recalled that they addressed the kicker but not what was said, except that Cottone was satisfied.
Drafts and revisions continued to go back and forth and the court referred to a September 2009 draft, on which Cottone emailed Michaels several changes he wanted made, including a revision to the kicker section, after which Michaels entered his suggested alterations, according to the opinion.
Shortly afterward, Sills Cummis indicated it had problems with the alterations to the kicker section and NIA urged Cottone to sign a nonbinding draft of the agreement to assure Marsh & McLennan that things were moving forward.
Cottone claims that he sought and obtained authorization to sign over the phone from Michaels who was then in Europe, the opinion said.
Michaels allegedly noted it was not final and said he would deal with it later. Michaels denies that the conversation occurred, according to the opinion.
The draft signed by Cottone had language added to the kicker section by Sills Cummis that excluded the warrant shares, the opinion said.
Cottone claims that a few weeks later, Michaels, who was aware that both sides had signed off on a draft agreement, emailed him about several items that were missing from the signed draft and were eventually incorporated into the final agreement but made no mention of anything related to the warrant or the kicker, according to the opinion.
The final agreement was signed in October 2009 and Marsh & McLennan bought NIA two months later, triggering the kicker, the opinion said.
Cottone alleges that when he realized he was not getting a kicker on the warrant shares, he called Michaels to ask what happened, according to the opinion.
According to Cottone, Michaels replied that language added in the final version killed the bump on the warrants and he admitted that he had “‘missed it,’” the opinion said. At his deposition, Michaels denied making such an admission.
The court quoted a portion of Michaels’ testimony in which he described his role in the negotiations as that of a “‘scrivener’” and contrasted Cottone with other clients who want him to handle every aspect of a transaction and don’t want to do anything but sign a document at the end.
Cottone sued Fox Rothschild and Michaels.
Superior Court Judge Kenneth Slomienski granted the defendants’ motion for summary judgment, saying Michaels had no duty to explain unambiguous terms in the redemption agreement. He noted that the language added at the end was not “hidden away” and there was no evidence that Cottone told Michaels what he wanted or “a list of the points” to look for in the agreement.
“We cannot insure or protect a client from something which is not made known to the attorney,” Slomienski said.
He also found Cottone failed to establish a prima facie case on proximate causation and damages, calling his claims “purely speculative.”
In reversing, appeals Judges Victor Ashrafi, Jerome St. John and George Leone stated “there is no question that defendants owed plaintiff a duty of care arising from the attorney-client relationship.”
They agreed with the lower court that the language excluding the warrant from the kicker was unambiguous but said “the real question in this litigation is whether Michaels committed malpractice by not inquiring into or explaining the terms of the redemption agreement, that is, whether a competent and diligent attorney acting in similar circumstances would have done so.”
The panel also reversed Slomienski’s holding on proximate cause and damages, finding triable issues of fact.
Cottone’s lawyer, Robert McAndrew of Morristown, N.J., said the takeaway from the decision is that having a sophisticated client “doesn’t absolve the attorney from the obligation to explain in a way that the client will understand and appreciate the risks and rewards of various courses of action.”
He estimated Cottone’s damages as being in the “upper six figures” and said that, with prejudgment interest and the legal fees available for prevailing legal malpractice plaintiffs under Saffer v. Willoughby, Cottone could recover $1 million.
Brian Molloy of Wilentz, Goldman & Spitzer in Woodbridge, N.J., who represents Fox Rothschild and Michaels, said, “We think that the issues were appropriate for summary judgment and the trial court got it right.”
A petition for review by the Supreme Court and other options are being considered, Molloy added.
Contact the reporter at mgallagher @alm.com.