JENNIFER MORAN KIARA MORAN v. NICHOLAS CONSTANTINE CLEARONE COMMUNICATIONS INC MARISOL MORAN JEFFREY MORAN (2013)

Plaintiffs Jennifer and Kiara Moran appeal from the January 18, 2012 order finding them and their attorneys jointly and severally liable to ClearOne Communications ¹ (ClearOne) for attorney fees and costs under the Frivolous Litigation Statute, N.J.S.A. 2A:15–59.1. For the reasons that follow, we reverse.

The facts leading to the imposition of the challenged sanction are not in dispute.   Plaintiffs were passengers injured in an automobile accident on August 14, 2009.   They sued the driver of the other vehicle, defendant Nick Constantine, and the owner, listed on the police report as Clear Tone Communications, Inc.

In the complaint filed August 9, 2011, plaintiffs omitted the “T” in Clear Tone, listing as a defendant “ClearOne Communications, Inc.,” a company based in Salt Lake City, Utah. Clear Tone Communications is based in Staten Island, New York.

On October 18, 2011, ClearOne was served with a copy of the complaint in Utah. On October 20, 2011, counsel for ClearOne, unsuccessfully attempted to speak with plaintiffs' counsel and, instead, left a message.   Receiving no response, Utah counsel called again on October 24, 2011, and learned that the attorney who signed the complaint was no longer working at the firm.   After being directed to another attorney in the firm, she left another message, which was not returned.

That same day, Utah counsel sent a certified letter to the firm, informing it that ClearOne had been named as a defendant in error.   Parrish requested that plaintiffs voluntarily dismiss ClearOne from the suit on or before November 8, 2011 in order for ClearOne to respond to the complaint by November 22, 2011.   The letter informed plaintiffs' counsel that after November 8, ClearOne would obtain New Jersey counsel and seek litigation costs and attorney fees pursuant to N.J.S.A. 2A:15–59.1.

By November 8, 2011, when plaintiffs had not responded, ClearOne retained New Jersey counsel.   When contacted by New Jersey counsel on November 9, 2010, plaintiffs' attorney acknowledged Parrish's voicemails and efforts to contact him.   Plaintiffs' counsel admitted that the police report listed “Clear Tone Communications” as the owner of the other vehicle, but noted that his process server believed that ClearOne was the proper defendant as the result of a “skip trace” which led to the Utah company.

ClearOne's New Jersey counsel contacted plaintiffs' attorney again the next day and told him that research indicated that “Clear Tone Communications” was a Staten Island company not far from the location of the accident.   Plaintiffs' attorney agreed that ClearOne was almost certainly the wrong defendant, but stated that he needed another week or two to investigate.   ClearOne's counsel objected to additional delay and indicated that counsel fees would be sought for the refusal to dismiss.

Thereafter, on November 14, 2011, ClearOne filed a motion for summary judgment and a motion for attorney fees and litigation costs as a sanction under the Frivolous Litigation Statute, N.J.S.A. 2A:15–59.1. On November 21, 2011, twenty-eight days after the date of the letter demanding that plaintiffs dismiss the complaint, plaintiffs attempted to file a voluntary dismissal of ClearOne from the action, pursuant to Rule 4:37–1(a).   The trial court stamped the document as “received but not filed,” because of the pending motions.   The next day, plaintiffs filed an amended complaint that eliminated ClearOne as a defendant.

The motions were scheduled to be heard on December 16, 2011.   Two days before, on December 14, 2011, plaintiffs filed opposition to the motion for attorney fees and costs, acknowledging the error in service but denying that the delay in submitting the dismissal was due to any malice or intentional disregard of ClearOne.

On December 16, 2011, the motion judge granted ClearOne's motion for summary judgment and dismissed plaintiffs' complaint against them with prejudice.   The judge also granted ClearOne's motion for reasonable litigation costs and attorney fees pursuant to N.J.S.A. 2A:15–59.1, finding plaintiffs and their counsel “jointly and severally liable” for the amount.   The judge ordered ClearOne to submit an affidavit as to its fees and costs.   On January 18, 2012, the motion judge entered an order awarding ClearOne fees in the amount of $15,107.70 and costs in the amount of $412.70.   This appeal followed.

On March 9, 2012, the motion judge filed an amplification of his decision, pursuant to Rule 2:5–1(b), explaining that ClearOne should never have been named as a defendant in this action because the police report “clearly” indicated that Clear Tone Communications was the owner of the vehicle and “a brief internet search” revealed that there was a company with that name in a neighboring state.   Giving plaintiffs the benefit of the doubt with respect to the initial pleadings, the court found that “this litigation is unequivocally classified as frivolous after counsel was notified on four occasions that ClearOne was an improper [d]efendant” and “[p]laintiffs ha[d] no rational argument for continuing to pursue this claim, and not entering a voluntary dismissal, for almost one month.”

A trial court's determination on the availability and amount of fees and costs for frivolous litigation is reviewed for abuse of discretion.  Masone v. Levine, 382 N.J.Super. 181, 193 (App.Div.2005).   Reversal is warranted when “the discretionary act was not premised upon consideration of all [the] relevant factors, was based upon consideration of irrelevant or inappropriate factors, or amounts to a clear error in judgment.”  Ibid.

The Frivolous Litigation Statute permits a court to award reasonable counsel fees and litigation costs to a prevailing party in a civil action if the court determines that the complaint, counterclaim, cross-claim or defense is frivolous.  N.J.S.A. 2A:15–59.1. There are two bases on which a claim could be considered frivolous:

(1) The complaint, counterclaim, cross-claim or defense was commenced, used or continued in bad faith, solely for the purpose of harassment, delay or malicious injury;  or

(2) The nonprevailing party knew, or should have known, that the complaint, counterclaim, cross-claim or defense was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law.

[N.J.S.A. 2A:15–59.1(b).]

A claim may be found to be frivolous even if other counts of the same complaint are found not to be frivolous.  Lake Lenore Estates v. Twp. of Parsippany–Troy Hills Bd. of Educ., 312 N.J.Super. 409, 421–23 (App.Div.1998).  “The test of whether a complaint should be regarded as ‘frivolous,’ ․ must be based on a reading of the pleading ‘as a whole.’ ”   Id. at 423 (quoting Iannone v. McHale, 245 N.J.Super. 17, 32 (App.Div.1990)).   However, “sanctions under the Frivolous Claims Statute may be sought based on one separate and severable count of a complaint, at least when that count forms a significant and substantial part of the overall complaint.”  Id. at 424.   The statute applies only to actions of the parties, not the attorneys representing them.  McKeown–Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 560 (1993).

A claim is considered frivolous when:  “no rational argument can be advanced in its support”;  “it is not supported by any credible evidence”;  “a reasonable person could not have expected its success”;  or “it is completely untenable.”  Belfer v. Merling, 322 N.J.Super. 124, 144 (App.Div.), certif. denied, 162 N.J. 196 (1999).  “[F]alse allegations of fact [will] not justify [an] award ․ unless they are made in bad faith, ‘for the purpose of harassment, delay or malicious injury.’ ”  McKeown–Brand, supra, 132 N.J. at 561 (quoting N.J.S.A. 2A:15–59.1(b)(1)).   An honest attempt to pursue a perceived, though ill-founded, claim is not considered to be frivolous.  Id. at 563.   The burden of proving bad faith is on the party who seeks the fees and costs.  Id. at 559.

When seeking sanctions for frivolous litigation, a moving party must comply with Rule 1:4–8.   The motion for sanctions must describe the specific conduct alleged to have violated the Rule, and include a certification that the applicant served written notice and demand on the attorney who signed or filed the challenged paper.   R. 1:4–8(b)(1).  “No motion shall be filed if the paper objected to has been withdrawn or corrected within 28 days of service of the notice and demand[.]”  Ibid.

The notice and demand must include a demand that the paper be withdrawn, and notice that an application for sanctions will be made within twenty-eight days of service.  Ibid. This is known as the “safe harbor” provision.  Toll Bros., Inc. v. Twp. of W. Windsor, 190 N.J. 61, 69 (2007).   The safe harbor provision of the rule is designed to give prompt warning to those engaged in frivolous litigation, and the opportunity to take remedial action.  Id. at 72.

In this case, the award of fees must be reversed because ClearOne failed to comply with the “safe harbor” provision of Rule 1:4–8(b)(1).   ClearOne filed its motion for sanctions only twenty-one days after sending the notice demanding the complaint be withdrawn.   It did not, indeed could not, certify that plaintiffs had failed to dismiss the case within twenty-eight days nor did it claim any ongoing emergency situation or significant harm that would result from not providing the full time allotted for remediation under the Rule. See ASHI–GTO v. Irvington Pediatrics, 414 N.J.Super. 351, 364 (App.Div.) certif. denied, 205 N.J. 96 (2010) (noting that the notification procedures may be waived if such procedures “leave a party without any effective remedy”).

We agree that plaintiffs could have acted more swiftly in dismissing the complaint when ClearOne notified them of the error.   However, after ClearOne demanded that the error be corrected, plaintiffs dismissed the complaint within the time allotted by Rule 1:4–8.   Defendant ClearOne prematurely filed its motion before the twenty-eight day safe harbor period expired without certifying full compliance with the Rule. The record does not show any unusual or emergency situation or reveal any ongoing harm that would have left ClearOne without a remedy unless the safe harbor period was waived.   Plaintiffs attempted to submit the voluntary dismissal on November 21, 2011, exactly twenty-eight days after the October 24, 2011, demand letter was mailed.   Under the Rule, if the objectionable pleading is withdrawn within the prescribed time period, then there is no exposure to sanctions.   R. 1:4–8(b)(1).   Thus, we conclude that the award of counsel fees to ClearOne's attorneys was a mistaken exercise of discretion and must be reversed.

Reversed.

FOOTNOTES

FN1. ClearOne is erroneously referred to as Clear One in plaintiffs' caption..  FN1. ClearOne is erroneously referred to as Clear One in plaintiffs' caption.

PER CURIAM