New Jersey Law Journal: Relief for Frivolous Claims Remains Difficult to Obtain

Relief for Frivolous Claims Remains Difficult to Obtain
Despite the Appellate Division’s recent award of fees and costs in an FCA case

For 27 years, parties and attorneys alike have been bound by the requirements of the Frivolous Claims Act (FCA), codified at N.J.S.A. 2A:15-59.1. The statute is supposed to provide a safeguard against litigants who abuse the court system by requiring parties or attorneys who file pleadings or other court “papers” that have no merit, to pay the opposing party’s legal fees and associated costs. Throughout that period, however, there are only a few instances where fees and costs have been awarded pursuant to the FCA, and fewer still that have withstood appellate scrutiny.

However, earlier this summer, in Fulton v. Sunhillo Corp., Docket No. L-5310-09, (N.J. Super. App. Div. July 20, 2015), the Appellate Division affirmed an award of attorney fees and costs totaling just under $200,000, and added the fees and costs of the appeal as well. As a result, although Fulton v. Sunhillo Corp. may be unusual, there is now at least one recent decision from an appellate court which stands for the proposition that when parties or their counsel abuse the legal system by filing a frivolous paper, there may be financial consequences for the party or its counsel. Nevertheless, because the underlying facts presented in Fulton v. Sunhillo Corp. are extreme—the plaintiff had no legal or factual basis for his claims, and the trial court found evidence that the claims were prosecuted to harass or extort the defendant—the decision is as much a demonstration that courts make awards pursuant to the FCA only where the evidence of frivolity is grave, as it is that the FCA is a true means to combat frivolous pleadings.

The FCA’s basic framework is that when a party files a complaint, or takes a position in a case that is frivolous, the trial court is permitted to shift the costs and fees associated with a response to the party or attorney that made the frivolous filing. The procedure to request such costs is straightforward and permits the party or attorney accused of making a frivolous filing an opportunity to correct their error. The FCA works in conjunction with R. 1:4-8 of the Rules of Court and permits a sanction only if the offending party refuses to withdraw the frivolous pleading after being given a written notice. See R. 1:4-8(f) (requiring that FCA application be made in compliance with the rules for attorney sanction); see also McKeown-Brand v. Trump Hotel & Casino, 132 N.J. 546, 563 (1993).

Pursuant to the FCA and R. 1:4-8, when a party is served with a frivolous complaint, counterclaim, motion or other similar “paper” (as such filings are described in the Rules of Court), the party must give the opposing attorney and party an opportunity to correct the error. See, e.g., Venner v. Allstate, 306 N.J. Super. 106 (App. Div. 1997) (overturning sanction because record did not demonstrate compliance with rule). Specifically, the procedure pursuant to R. 1:4-8 provides that in order to make a later application for fees or costs, the party in receipt of the offending paper must send a letter warning the frivolous litigant that their pleading is without merit. That letter must provide the adversary 28 days to withdraw the offending paper, and state that the party in receipt of the offending paper will seek sanctions, including an award of attorney fees and costs, pursuant to the FCA or R. 1:4-8. This so-called “safe harbor” letter must be included as part of a certification in support of the motion for sanctions, and if it is not, the motion will in all probability be denied.

The application of the 28-day safe harbor period is more complicated for motions, which are typically resolved in less than 28 days. Pursuant to R. 1:4-8(b), which governs the motion for sanctions, if the frivolous paper is a motion returnable within the 28-day safe harbor period, the safe harbor letter must give the offending litigant the option of either adjourning the motion beyond the 28-day period, or waiving the 28-day safe harbor period. According to the rule, if the offending litigant does not request an adjournment, that litigant is deemed to have waived the safe harbor period.

In the time since the FCA was adopted, most of the decisions interpreting it have held that it must be narrowly construed in order to protect the right of litigants to make claims in the judicial system. The FCA statute itself sets a very high bar, permitting the award of attorney fees to the prevailing party solely if the nonprevailing party asserts a claim either: (a) “in bad faith, solely for the purpose of harassment, delay or malicious injury”; or (b) if “[t]he 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)(1- 2).

Courts interpreting this standard have focused on New Jersey’s strong public policy of open access to the courts and have interpreted the definition of a frivolous claim narrowly, “consistent with the premise that in a democratic society citizens should have ready access to all branches of government, including the judiciary.” McKeown-Brand, 132 N.J. at 561-62. Put another way, “even when the litigation is of little merit, if the plaintiff’s conduct bespeaks of an honest attempt to press a perceived, though ill-founded and perhaps misguided claim, he or she should not be found to have acted in bad faith.” Belfer v. Merling, 322 N.J. Super. 124, 144-45 (App. Div.), certif. denied 162 N.J. 196 (1999).

The Appellate Division’s decision in Dare v. Freefall Adventures, 349 N.J. Super. 205 (App. Div.), certif. denied 174 N.J. 43 (2002), affirmed the denial of attorney fees pursuant to the FCA even where plaintiff was unable to present any evidence in support of his claim. The Appellate Division held that although the plaintiff had “absolutely no evidence” to support the underlying claims, because the complaint was not filed “in bad faith,” no sanctions could be issued. There are, of course, a few decisions in which fees or costs were awarded, but they remain unusual and require both an extreme lack of evidence and the pursuit of claims without any legitimate basis. See, e.g., Halfond v. County of Bergen, 279 N.J. Super. 149 (App. Div.), certif. denied 141 N.J. 96 (1995) (awarding costs and fees where the plaintiffs had already obtained the relief they sought, but continued to litigate the matter nonetheless).

The Appellate Division’s decision last summer in Fulton v. Sunhillo Corp. presents the unusual circumstance where the Appellate Division affirmed an award of attorney fees and costs pursuant to the FCA. In Fulton v. Sunhillo Corp., the trial court awarded the defendant Sunhillo Corp. all of the fees and costs it incurred from the time it sent its R. 1:4-8 letter, until the plaintiff’s claims were dismissed through a motion for summary judgment. The total amount of the award was $191,652.44, to which the Appellate Division added the attorney fees and costs associated with the appeal of that award.

The facts presented to the trial court in Fulton v. Sunhillo Corp. at the time of the fee application were rather stark. The plaintiff, who appeared pro se both in the underlying litigation and in the motion practice addressing the attorney fees and costs issue, admitted during his deposition that he had no basis for his allegation that the defendant’s conduct violated the implied covenant of good faith and fair dealing. And, ominously, the trial court held that the plaintiff continued to prosecute his claims for purposes related to “harassment” or “extortive motion.” As the trial court explained, the plaintiff’s “only purpose in pursuing the litigation was to harass and cause financial harm to” the defendant.

As a result of Fulton v. Sunhillo, the New Jersey jurisprudence remains as it has long been; attorney fees and costs will be awarded in extreme circumstances. Not only must the aggrieved party demonstrate that the underlying claim had no basis in the law or fact, but also that the party or attorney asserting it did so for an improper purpose. Thus, the proper reading of the Appellate Division’s decision is that it remains exceedingly difficult for a party that faces a frivolous complaint, answer, motion or other paper to obtain relief.•

Reprinted with permission from the October 5, 2015 online issue of the New Jersey Law Journal. © 2015. ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.