An appeals court has reinstated a malpractice claim that accuses one of southern New Jersey’s largest firms, Cooper Levenson, of giving bad advice that caused a client to sell four McDonald’s restaurants at a loss of up to $2 million.
The ruling last week in Goldsworthy v. Eric Browndorf and Cooper Levenson April Niedelman & Wagenheim, et al., is a reminder that clients who take their lawyers’ advice and settle underlying cases are barred from suing the lawyers for malpractice only in narrow circumstances.
George Goldsworthy of Naples, Fla., deep in debt to the fast food giant and a bank, hired Cooper Levenson partner Eric Browndorf in 1997 to help him.
Browndorf spent months trying to negotiate a way out of the mess, but when that failed, he shepherded Goldsworthy through a bankruptcy settlement that included the sale of the outlets in 1998.
But in 2004, within the six-year statute of limitations, Goldsworthy sued Browndorf and the 64-lawyer firm for malpractice, alleging they failed to advise him that New Jersey’s Franchise Practices Act provides remedies, including causes of action against McDonald’s, that he could have used to save his businesses.
Mercer County Superior Court Judge Mary Jacobson granted summary judgment to the firm last year on grounds that Goldsworthy’s agreement to the bankruptcy settlement that included the sales judicially estopped him from claiming the firm was liable.
Under a line of recent cases, litigants who agree to good-faith settlements, knowing all the facts, risk surrendering their rights to sue the lawyer who championed the settlement.
But in last week’s ruling, Appellate Division Judges Ariel Rodriguez and Christine Miniman said those cases don’t apply to what Goldsworthy did, and there are disputed facts that made the case unripe for summary judgment.
The opinion says that Goldsworthy, who has owned and operated McDonald’s franchises since 1977, followed the company’s recommendation and bought restaurants in Ocean City, Cape May, Wildwood and North Wildwood in 1995. But the businesses weren’t as good as he thought they would be.
He had to invest $800,000 to bring them up to McDonald’s standards, and payments on his loans to MetLife became troublesome. He hired Cooper Levenson in 1997, and when the chain and the bank declared him in default, Browndorf negotiated an extension and finally advised Goldsworthy to file for Chapter 11 reorganization.
The opinion quoted Browndorf as cautioning Goldsworthy that the only litigation that could be brought against McDonald’s would be a fraud claim, which “would be extraordinarily difficult to win.” The firm didn’t advise Goldsworthy of his rights under the Franchise Practices Act, the opinion says.
According to the theory of the malpractice suit, Goldsworthy believed McDonald’s had misrepresented to him the value of the restaurants when he bought them and he could have won a case against the chain � or at least wrung concessions � by suing under the act. Instead, he auctioned off the stores � one to McDonald’s and three to another owner � for a total of $2.62 million that allowed him to obtain dismissal of the bankruptcy.
“Under all the facts and circumstances, I believe the dismissal of this matter represents the cost effective and efficient manner to resolve this matter,” Goldsworthy said in a certification to the bankruptcy court.
In her grant of summary judgment last August, Jacobson found that Goldsworthy had all the facts he needed to make the decision to settle.
While there may have been no record of a discussion about the Franchise Practices Act, Goldsworthy “was informed sufficiently of his franchise options in terms of ongoing litigation” to be estopped from suing the firm.
She cited Newell v. Hudson, in which a matrimonial client was estopped from suing her lawyer for allegedly misleading her into taking a disadvantageous property settlement. The lawyer won summary judgment because the client, an accountant, had lied under oath at the settlement and knew what she was doing.
Jacobson said Newell applied to Goldsworthy because Goldsworthy also was a sophisticated client who knew what he was doing when he made the settlement.
But the appeals court said Newell doesn’t control what Goldsworthy did.
“Rather, he states that he believed he was telling the truth but was ignorant of his rights under the Franchise Practices Act as a result of the malpractice of Browndorf and the Cooper firm,” the judges wrote per curiam. “He asserts that but for such ignorance he would not have settled with McDonald’s and sold his four restaurants.”
Goldsworthy’s lawyer, Hackensack solo Robert Vort, said the decision gives him an opportunity to prove that the firm failed to give Goldsworthy the proper advice about the franchise law, that Goldsworthy didn’t have knowledge from other sources and that he could have used the advice to keep his restaurants.
He said Goldsworthy estimated in a deposition that his damages were $15.5 million � between $1 million and $2 million in direct losses from the bankruptcy sale and the rest in lost profits over the years.
The firm, on the other hand, will have an opportunity to present evidence that Goldsworthy was aware of the act from other sources and that even if he had exercised all the rights the law afforded, the outcome would have been the same.
Cooper Levenson’s lawyer, Michael Canning of Giordano Halleran & Ciesla, was the winning defense lawyer in Newell.
Canning said: “We believe that Judge Jacobson properly granted summary judgment on the grounds of judicial estoppel as there was a mountain of evidence presented which established that Mr. Browndorf and the Cooper Levenson firm diligently and zealously represented Mr. Goldsworthy and he was well aware of his ability to pursue a claim against McDonald’s under the Franchise Practices Act.
“As a result of Mr. Browndorf’s efforts, Mr. Goldsworthy obtained a very favorable result in his bankruptcy action which he certified to the bankruptcy court in order to secure a dismissal of his bankruptcy action.
“We believe there were alternative grounds for affirming the grant of summary judgment which the Appellate Division did not consider in its decision and we intend to file a motion for reconsideration on these issues.”
This article originally appeared in the New Jersey Law Journal , a publication of ALM.