Rule 1:4-8 is New Jersey’s frivolous litigation rule. It allows for the award of sanctions, namely attorneys’ fees, against an attorney when he or she files a pleading or motion with an improper purpose; for example, to harass or cause unnecessary delay in the case. The Rule also permits the imposition of sanctions upon an attorney who asserts a claim or defense that lacks the necessary legal or evidentiary support. In Xpekt Corp. v. Fame of New York, Inc., No. A-0857-10 (App. Div. April 19, 2011), the plaintiff’s attorney continued to pursue a claim even though he knew that that it did not have evidentiary support. The trial court declined to impose sanctions, but the Appellate Division reversed, holding that his conduct was frivolous and warranted Rule 1:4-8 sanctions.
In June 2009, the plaintiff filed a complaint against defendants Fame of New York, Inc., Jung Hye Lee, and Sung Kwon Lee (“defendants”) claiming in pertinent part that they engaged in fraudulent money transfers with other co-defendants. The attorney for the plaintiff also represented other litigants in lawsuits against some of those same co-defendants. In answering the plaintiff’s complaint in August 2009, the defendants asserted that the plaintiff’s claim was frivolous and demanded that it be withdrawn. In November 2009, the plaintiff and its attorney decided to not proceed with the fraudulent transfer claim. In fact, they planned to voluntarily dismiss that claim at trial. When the plaintiff’s attorney and defendants and their attorney appeared for trial, however, the plaintiff did not withdraw the claim; instead, the court dismissed the complaint without prejudice because the plaintiff did not appear. Thereafter defense counsel wrote to the plaintiff’s attorney and requested that he withdraw the complaint and warned that he would file a Rule 1:4-8 motion if the plaintiff’s attorney failed to do so. Plaintiff’s attorney telephoned defense counsel to discuss the defense position and left a message, but defense counsel did not respond.
Even though plaintiff’s counsel had previously decided to withdraw the fraud claim, he filed a motion to reinstate the complaint, which was granted. Trial was re-scheduled for January 28, 2010, but defense counsel did not receive notice of that date and, therefore, neither he nor his clients appeared. Rather than voluntarily dismiss the claim, plaintiff’s counsel obtained a default judgment against the defendants. Defendants’ attorney then wrote to plaintiff’s attorney and demanded that he sign a consent order vacating the default and stipulating to a dismissal with prejudice and warned that if he had to file a motion to vacate he would seek sanctions. Plaintiff’s counsel did not respond to that communication.
As a result, defendants filed a motion to vacate the default. The plaintiff opposed the motion, and the trial court denied it. Defendant then filed a motion for reconsideration, with the plaintiff also opposed. Shortly thereafter, the defendants also filed a summary judgment motion, which the plaintiff opposed, arguing that there was outstanding discovery to be completed by the defendants. The trial court granted summary judgment to the defendants, ruling that the discovery period was over and the plaintiff failed to raise any disputed issue of fact to support the fraud claim.
The defendants then filed a motion for sanctions against plaintiff’s attorney under Rule 1:4-8. The trial court denied the motion, finding that plaintiff’s counsel did not act in bad faith and did not unjustifiably proceed with the claim. The Appellate Division reversed.
The Appellate Division first reviewed Rule 1:4-8 and the policies upon which it is based; namely, to deter the filing or pursuit of frivolous litigation and to compensate the party that must defend against frivolous litigation. Under the Rule, litigation is frivolous if no rational argument can be advanced in support of a claim; if the claim is not supported by any credible evidence; or if the claim is completely untenable. However, the Appellate Division noted that the Rule is strictly construed and that sanctions will not be imposed upon an attorney who mistakenly files a claim in good faith. Nonetheless, the court emphasized that continued prosecution of a claim or defense, which may have been meritorious when it was initially pleaded, could lead to sanctions if it becomes apparent to the attorney that the claim is baseless. When an attorney realizes that a claim is baseless and lacks evidentiary support, Rule 1:4-8 requires the attorney to withdraw the claim.
Turning to the facts and procedural history of this case, the Appellate Division concluded that “judge mistakenly exercised his discretion in denying defendants’ motion for sanctions. Although plaintiff’s counsel may have acted in good faith when he filed the complaint, he did not do so when he obtained the default and filed opposition to the motion to vacate and the summary judgment motion. Counsel knew the claim had no, and was not likely to have, legal or evidential support whatsoever, yet he continued to prosecute it. His conduct was frivolous, warranting sanctions pursuant to Rule 1:4-8 for the reasonable attorney’s fees and costs defendants incurred from the date of the filing of the motion to vacate to the grant of summary judgment.”