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D ock e t 98-5074,98-5128

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. e du/thir dc ir c uit_1999/32Filed February 8, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 98-5074 and 98-5128

JOEL M. SEIBERT;

STACEY J. SEIBERT

v.

NUSBAUM, STEIN, GOLDSTEIN, BRONSTEIN & COMPEAU, P.A., f/k/a Nusbaum, Stein, Goldstein & Bronstein, P.A.; LEWIS STEIN,

Appellants in No. 98-5074

JOEL M. SEIBERT; STACEY J. SEIBERT,

Appellants in No. 98-5128

v.

NUSBAUM, STEIN, GOLDSTEIN, BRONSTEIN & COMPEAU, P.A., f/k/a Nusbaum, Stein, Goldstein & Bronstein, P.A.; LEWIS STEIN

On Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 92-04645) District Judge: Honorable John W. Bissell

Argued January 15, 1999

BEFORE: GREENBERG and RENDELL, Circuit Judges, and POLLAK,* District Judge

___________________________________________________ ______________

*Honorable Louis H. Pollak, Senior Judge of the Uni ted States District court for the Eastern District of Pennsylvania, sit ting by designation.(Filed February 8, 1999)

Clifford M. Solomon (argued) Corwin, Solomon & Tanenbaum
501 Fifth Avenue New York, NY 10017

Attorneys for Appellants in

No. 98-5128

Thomas A. Egan (argued) Flemming, Zulack & Williamson One Liberty Plaza

35th Floor New York, NY 10006

Attorneys for Appellants in No. 98-5074, Cross-Appellees

OPINION OF THE COURT

GREENBERG, Circuit Judge.

This matter comes on before this court on appeal an d cross-appeal from the final judgment entered in the district court in this case on January 7, 1998. The case aro se from the most commonplace of events, an intersection automobile accident on September 4, 1985. Neverthel ess, the litigation which has ensued in the aftermath of the accident for more than 12 years has been truly extraordinary. While it would be desirable somehow to bring this litigation to an end, we are constrained to reverse in part and to require further proceedings. On cert ain issues, however, we will affirm and, as we explain, we do
not reach other issues.

The following historical and procedural events have taken the case to its present posture. The plaintiffs, Jo el M. Seibert and Stacey J. Seibert, are husband and wife and at
all material times have been citizens of New York S tate. On September 4, 1985, Joel M. Seibert, who, as a matte r of convenience we singularly shall call Seibert, was o perating a motor vehicle in Burlington County, New Jersey, o wned by his employer, Caldor Inc., when he was involved in an

2accident at a controlled intersection with a vehicl e owned

and operated by Ruth Sexton, a New Jersey citizen. Seibert was injured in the accident. Sexton's vehicle was i nsured by CIGNA Insurance Company in a policy with $50,000 liability limit. National Union Fire Insurance Comp any insured the Caldor vehicle in a policy which includ ed underinsured motorist coverage.

Seibert individually had an automobile liability po licy issued in New York on his own vehicle by Travelers Insurance Company which also included underinsured motorist coverage. The Travelers policy provided th at the underinsured motorist coverage would not apply if S eibert "shall, without written consent of [Travelers], mak e any settlement with or prosecute to judgment any action against any person or organization who may be legal ly
liable therefor."

Seibert engaged the New Jersey law firm of Nusbaum, Stein, Goldstein, and Bronstein and, in particular, Lewis Stein of that firm, to seek damages for his injurie s. We refer to the firm and Stein individually simply as Stein. Stein then, on September 3, 1986, brought a diversity act ion in the District of New Jersey against Sexton but by De cember
1987 Stein settled the case on behalf of Seibert wi th CIGNA for the $50,000 policy limits. With that settlement , Seibert's district court action against Sexton was dismissed and thus, as far as we can ascertain, Sexton has had no further
involvement in this matter.

Thereafter Stein, on behalf of Seibert, demanded th at Travelers pay the $250,000 underinsured motorist co verage to Seibert. Travelers, however, rejected the demand by a letter of September 1, 1988, addressed to Stein, on the sole ground that Seibert had settled the Sexton claim wi thout its consent. On September 14, 1989, Stein brought a n action in the district court in New Jersey on behal f of Seibert against Travelers seeking to establish that it was responsible for the underinsured motorist coverage. Travelers filed an answer admitting that it had iss ued a policy insuring Seibert but disclaiming any knowled ge of the remaining allegations in Seibert's complaint. I n addition, Travelers set forth eight separate defens es of a general nature which, except for a defense that it reserved

3its right to seek to apply New York law, seem not

particularly addressed to the circumstances of Seib ert's complaint.

Thereafter, Travelers moved for summary judgment on the ground that Seibert had settled the Sexton acti on without its consent. The district court in that act ion, Seibert v. Travelers, Civ. No. 89-3966 (D.N.J. Jan. 8, 1991), by opinion dated January 8, 1991, granted Travelers ' motion. While the court recognized that consent to settle clauses are against New Jersey public policy, see L ongworth v. Van Houten, 538 A.2d 414 (N.J. Super. Ct. App. D iv. 1988), the court held that New York law was control ling on the basis of New Jersey choice of law principles wh ich it applied in that diversity of citizenship case. See Shuder v. McDonald's Corp., 859 F.2d 266, 269 (3d Cir. 1988). The
court found that the consent to settle clause did n ot violate New York law as that state recognizes the use of su ch clauses to facilitate the subrogation rights of the insurance company. On appeal, we affirmed by judgment order o n October 23, 1991. Seibert v. Travelers Indem. Co., 947 F.2d 936 (3d Cir. 1991). Upon our affirming the district court's summary judgment, any possibility that Seibert coul d recover from Travelers was gone.

Between the time of the district court's order gran ting summary judgment in the Travelers action and our judgment order affirming the summary judgment, Stei n, on behalf of Seibert, instituted the third case arisin g out of the accident, i.e., Seibert v. National Union Fire Ins. Co., MRS-L4298-91, in the Superior Court of New Jersey, Law Division, Morris County. In that action, Seibert so ught, inter alia, to recover under the underinsured motor ist coverage provisions of the National Union policy. Subsequently, other counsel was substituted for Ste in and ultimately the National Union action was dismissed when National Union agreed to arbitrate Seibert's claim. The case eventually was settled for $140,000 which National Union paid on its underinsured motorist coverage.

While the National Union action was pending, Seiber t started this New Jersey district court action, the fourth case arising from the accident, against Stein. It i s this case which now is on appeal before us. While there were

4numerous allegations in the complaint, its principa l theory

is that Stein wrongfully settled the Sexton action without Travelers' consent, thus forfeiting Travelers' unde rinsured motorist coverage.

Following protracted proceedings in the district co urt, the parties filed cross motions for summary judgment wh ich resulted in the district court issuing opinions on August 20, 1997, and December 31, 1997, which we describe in s ome detail. In its initial opinion, the district court set forth the background of the case and then pointed out that th is action was for legal malpractice. The court recogni zed that a legal malpractice case could require a "trial wit hin a trial," but that the matter was before the court on motions for summary judgment. The court indicated that Stei n sought summary judgment on the alternative theories that (1) he did not deviate from accepted standards of l egal practice; and (2) even if he did, Seibert suffered no damages so Stein could not be liable. On the other hand, Se ibert sought a summary judgment that Stein was liable for legal malpractice.

The district court indicated that in New Jersey a p laintiff in a legal malpractice action must demonstrate: (1) the existence of an attorney-client relationship creati ng a duty of care upon the attorney; (2) breach of that duty; and (3) proximate causation of damages. See Lovett v. Estat e of Lovett, 593 A.2d 382, 386 (N.J. Super. Ct. Ch. Div. 1991).
The court said that Seibert based his claim on the district court's opinion in the Travelers action because Ste in's "failure to notify Travelers under the consent to s ettle provision of its policy [fell] far below the minima l standard and duty of care which [Stein] owed to [Seibert]." The court then indicated that Stein's "default was the proxim ate cause of Travelers' successful refusal to pay any p art of the potentially available underinsured coverage." Thus, to that extent, it granted Seibert's motion for summary jud gment.

The court indicated, however, that it had not been established in Seibert's action against Travelers t hat he in fact would have recovered on the Travelers policy. All that
was established was that Travelers had a defense to
Seibert's claim.

5The court then indicated that while the declaration s page

of Seibert's policy with Travelers listed certain endorsements, i.e., 33122 and 33150, as being part of the policy, "it is unclear whether these endorsements, either in whole or in part, were ever physically attached to the policy or otherwise specifically brought to Mr. Seibert's attention." The significance of endorsement 33122 is that it li mited underinsured motorist coverage to accidents which o ccur in the State of New York. In any event, the court held that New York Insurance Law S 3420(f)(2) requires that underinsured motorist coverage in New York apply "i n any state or Canadian province." Consequently, the cour t
believed that the limitation in endorsement 33122 t o New York accidents was ineffective. Thus, the court hel d that the $250,000 underinsured motorist coverage was ava ilable to Seibert who, because of "Stein's malpractice in failing to
seek Travelers' consent to settle the Sexton suit" was denied
access to the funds. The court then indicated that the parties recognized that the reasonable settlement v alue of Seibert's claim far exceeded $50,000. Thus, Stein's malpractice injured Seibert.

The court recognized that Stein argued "that the on ly right which [Seibert] lost because Travelers effect ively denied coverage . . . was the right to arbitrate an y claim or dispute against that company." The court, however, indicated that "it is by no means certain that Trav elers would have pushed Mr. Seibert to arbitration had [S tein] sought Travelers' consent-to-settle in a timely fas hion." Indeed, the court thought that it was "unlikely" th at
Travelers would have contended that the underinsure d motorist coverage was not applicable to the New Jer sey accident and that, in any event it was applicable, and arbitration would not have produced a different res ult.

In its December 31, 1997 opinion, the court conside red damages. The court pointed out that in the National Union case Seibert recovered $140,000 in a settlement. 1 The court

___________________________________________________ ______________

1. The National Union action also was against Caldo r. Although the
district court referred to the case as the Caldor a ction, we understand that National Union actually paid the settlement. F or our purposes, it does not matter whether Caldor or National Union pa id the $140,000.

6recognized that while Seibert might have recovered more or

less from Travelers, "the $140,000 settlement sum i s a reasonable and just figure to use as a base for cal culations of interest due from [Stein] to [Seibert]." This ba se figure was important inasmuch as the court intended to fix damages on an interest theory to compensate Seibert for the loss of the use of the money because of the del ay in making the settlement as the coverage sought from Travelers had been lost. Ultimately, the court foun d that damages would be calculated on the basis of prejudg ment interest for nine years. The court also awarded dam ages on the basis of Seibert's attorney's fees and costs in this action. The court, however, refused to award puniti ve damages against Stein, to allow Seibert to amend hi s complaint to seek such damages, or to require Stein to disgorge the fees he collected from negotiating the Sexton settlement. The parties then filed this appeal and crossappeal.

On this appeal, Stein raises three points. First, h e contends that the Travelers policy would not have g iven Seibert coverage in this action even if Stein compl ied with the consent to settle clause. Second, he contends t hat even if the Travelers policy provided for underinsured m otorist coverage, the court erred in granting summary judgm ent to Seibert because he made a full recovery from Nation al Union and there is no proof that he would have reco vered on the Travelers policy. Third, he contends that th ere was no basis for damages for the loss of use of money b y reason of delay in recovering from National Union instead of Travelers, and for counsel and expert fees. As far as we can ascertain, however, Stein does not contend that he was not negligent in settling the claim against Sexton with out complying with the consent to settle clause, althou gh he does contend that without damage (and he contends t here was none) he cannot be liable for malpractice.

Seibert cross-appeals with respect to damages. He
contends that the district court should have fixed a higher rate of interest, allowed him to amend his pleading s to claim punitive damages, and compelled Stein to disg orge his fees from the Sexton action.

7In view of the circumstance that the district court

decided this case on cross motions for summary judg ment, we are exercising plenary review on this appeal. Pe truzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., 998 F.2d 1224, 1230 (3d Cir. 1993). We can affirm only if we conclude that the pleadings, depositions, answer to interrogatories and admissions on file, together wi th the affidavits, show that the party who obtained summar y judgment on a point was entitled to that judgment a s a matter of law and that there was no genuine dispute of material fact standing in his way. Fed. R. Civ. P. 56(c).

At the outset of our discussion, we must acknowledg e that the district court had a most difficult task. Moreover, it is evident that the court was striving to reach a just and equitable result and, indeed, may have done so. Tha t said, we are convinced that the court engaged in fact fin ding inappropriate in the procedural posture of the case and thus in large part we must reverse.

To start with, the court surely erred when it predi cated its disposition on the theory that Seibert would ha ve recovered $140,000 from Travelers if Stein had not erred with respect to the consent to settle clause. While we do not doubt that the $140,000 figure could have been a reasonable settlement of a claim against Travelers, neither we nor the district court can usurp the fact findin g function of the jury and find that Seibert could have recove red that sum from Travelers. In fact, for all we know, Trave lers would not have settled and ultimately would have pr evailed at arbitration on the theory that Sexton was not li able. Moreover, contrary to the district court, we are no t confident that if Travelers had taken the position that as a matter of law its coverage was inapplicable had it not prevailed on the consent to settle clause (a possib ility on which we only can speculate), it would not have bee n successful. In this regard, we point out that the c ourt indicated that it was unclear whether the disputed endorsements were attached to Seibert's policy. Suc h a situation hardly is a springboard to a summary judg ment
order.

The situation before us involves reviewing a judgme nt predicated on facts which we cannot know at this ti me. For

8example, how can anyone know on the basis of the re cord

before us what position Travelers would have taken on the legal issues if it had not prevailed originally on its summary judgment motion? We only know for sure that Travele rs did not raise some of the issues in the litigation agai nst it that Stein raises on this appeal. But, as Stein pointed out at oral argument, how do we know what Travelers would have done had it lost its motion for summary judgment?

Perhaps, as Stein suggested, it would have raised o ther defenses. On the other hand, it might have agreed t o arbitrate, as did National Union, and at arbitratio n only argued that Sexton was not liable on negligence pri nciples. In that event, Stein's argument that Travelers did not provide applicable underinsured motorist coverage w ould be irrelevant. Yet Travelers might have prevailed o n the theory that Sexton was not liable. In the circumsta nces, we have concluded that, except to the extent that the orders of August 20, 1997, and December 31, 1997, are predica ted on a finding that Stein committed malpractice by se ttling the Sexton action without notice to Travelers, thos e orders, insofar as they impose liability on Stein, must be reversed as must the judgment of January 7, 1998.

We make three further points with respect to Stein' s appeal. First, we reject Seibert's contentions that Stein is barred by estoppel and waiver principles by reason of having brought the action against Travelers from contending that Travelers' policy did not afford Se ibert underinsured motorist coverage. Naturally, a plaint iff's attorney in filing an action takes the position tha t the action is justified. If the attorney through some e rror precludes the case from being litigated on the meri ts, then the concept of a trial within a trial is not consis tent with estopping the attorney from contending that if he h ad not made an error in any event he could not have been

successful.

Second, we reject Seibert's contention that the dis trict
court in the Travelers action established that Seib ert would
have recovered from Travelers but for Stein's error . It is
true that in the Travelers action the court said th at because of Seibert's failure through Stein to comply with t he
consent to settle clause he is "not now entitled to the

9underinsurance coverage [he] could have otherwise

received." Yet clearly what it meant by this statem ent was that Seibert lost the possibility of recovering. Af ter all, the court obviously did not consider the other insuranc e issues
Stein advances nor did it consider Sexton's liabili ty to
Seibert.

Third, we recognize that we might as a matter of la w adjudicate at this time whether, as Stein contends, the Travelers policy did not provide underinsured motor ist coverage to Seibert for the Sexton accident or, if it did, the Travelers coverage was, as Stein contends, excess t o the National Union policy. We, however, resist the temp tation to do so as that determination may rest on disputed fa cts and in any event it may appear conclusively on the rema nd that
Travelers would not have made those contentions had it not prevailed on its summary judgment motion. Moreover, we simply cannot grant Stein summary judgment at this time on a theory that the Travelers policy did not affor d coverage, because viewing the matter on the record most favorably to Seibert with respect to Stein's motion ,"we cannot say that the evidence thus far submitted so clearly established [noncoverage] such that no reasonable j uror could conclude otherwise." Albee Assocs. v. Orloff, Lowenbach, Stifelman, and Siegal, 1999 WL 6537, at *7 (N.J. Super. Ct. App. Div. Jan. 11, 1999).

While we largely reverse on the appeal, we reach a different result on the cross-appeal. After a caref ul review of this case, we have concluded that Stein is entitled to a judgment as a matter of law with respect to Seibert 's claim for punitive damages and for disgorgement of his fe e for settling the Sexton case. A plaintiff cannot pursue a claim for punitive damages where, as here, no hint of suc h a claim was contained in the pleadings or the pretria l order. Furthermore, the undisputed facts of this case simp ly cannot support a punitive damages award.

In view of the aforesaid, we will reverse the order s of August 22, 1997, and December 31, 1997, and the judgment of January 7, 1998, except to the extent t hat they establish that Stein was guilty of malpractice by s ettling the Sexton claim without Travelers' consent (which is n ot to say that he is liable for malpractice), and except to t he extent

10that Seibert's punitive damages and disgorgement cl aims

have been foreclosed. The punitive damages and disgorgement claims are out of this case. In view o f our disposition, we do not reach the damages issues rai sed on this appeal. The parties will bear their own costs on this appeal.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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