Court Opinion

ID: 7326444
Source: CourtListenerOpinion
Date Created: 2022-07-25 21:59:12.505327+00
Date Added: 2024-06-11T16:20:03.834830
License: Public Domain

VERNIERO, LaVECCHIA, JJ.,
dissenting.
This matter involves the misappropriation or misapplication of assets by an estate’s administrator. The narrow issue is whether the counsel fees incurred by the estate in seeking recovery of those assets are surchargeable against the administration bond. We would affirm the judgment of the Appellate Division substantially for the reasons expressed in Judge Fall’s persuasive opinion. *36In re Estate of Lash, 329 N.J.Super. 249, 747 A.2d 327 (App.Div. 2000). The panel correctly concluded that there is “no authority in this State to surcharge counsel fees against the administration bond.” Id. at 252, 747 A.2d 327. We write to emphasize the following.
I.
Our Court Rule governing the allowance of attorneys’ fees, Rule 4:42-9, adopts the philosophy that “sound judicial administration will best be advanced by having each litigant bear his own counsel fee except in those few situations specially designated in” the Rule. Gerhardt v. Cont’l Ins. Cos., 48 N.J. 291, 301, 225 A.2d 328 (1966). One of the specific exceptions recognized in the Rule is that fees are permitted “[i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant.” R. 4:42-9(a)(6). A surety policy is materially different from an indemnity policy and does not fall within that exception. See Eagle Fire Prot. Corp. v. First Indem. of Am. Ins. Co., 145 N.J. 345, 364-65, 678 A.2d 699 (1996) (explaining difference between surety and indemnity policy and concluding that Court Rule has been strictly construed to limit application only to true liability and indemnity insurance policies); Fengya v. Fengya, 156 N.J.Super. 340, 347, 383 A.2d 1170 (App.Div.1978) (finding that Rule is not applicable to action brought against surety company to enforce its obligation on guardian’s bond); see also Leatherby Ins. Co. v. City of Tustin, 76 Cal.App. 3d 678, 143 Cal.Rptr. 153, 158 (1977) (quoting Somers v. United States Fid. & Guar. Co., 191 Cal. 542, 217 P. 746, 749 (1923)) (stating that “ ‘[t]he essential distinction between an indemnity contract and a contract of guaranty or suretyship is that the promisor in any indemnity contract undertakes to protect his promisee against loss or damage through a liability on the part of the latter to a third person,’ ” whereas “ ‘the undertaking of a guarantor or surety is to protect the promisee against loss or damage through the failure of a third person to carry out his obligations to the promisee’ ”) (internal citations omitted).
*37Nowhere does the Rule provide that fees may be enforced against a surety. A comment to the Rule, however, provides that the Rule “does not preclude an allowance of reasonable counsel fees where the incurring thereof is a traditional element of damages in a particular cause of action.” Pressler, Current N.J. Court Rules, comment 2 on R. 4:42-9 (2001). The sole reported case in New Jersey on that subject in the context of a defalcating administrator of an estate is Ordinary v. Connolly, 75 N.J. Eq. 521, 72 A. 363 (Prerog.Ct.1909). In that case, the court held that counsel fees are an element of damages: “It seems to me clear, ... that a reasonable counsel fee, necessarily incurred in the removal of an administrator, is recoverable as part of the damages resulting from his dereliction and sustained by occasion of the breach of the condition that he would well and truly administer the estate----” Id. at 526, 72 A. 363. The court held that the estate should not be made to bear the burden of those charges. Id. at 527, 72 A. 363.
The Appellate Division below was not persuaded by the decision in Ordinary because the case predated Rule 4:42-9, “which was ‘adopted in response to widespread abuses by courts and attorneys with respect to allowances of counsel fees in Chancery prior to 1948.’ ” In re Estate of Lash, supra, 329 N.J.Super. at 258, 747 A.2d 327 (quoting Fengya, supra, 156 N.J.Super. at 344, 383 A.2d 1170); see N. Bergen Rex Transp., Inc. v. Trailer Leasing Co., 158 N.J. 561, 569, 730 A.2d 843 (1999) (“New Jersey has a strong policy disfavoring shifting of attorneys’ fees.”); Pressler, supra, comment 1 on R. 4:42-9 (stating that in rejecting changes to Rule in 1971 and 1975, Court was concerned that expansion of court’s power to allow counsel fees might well result in impositions upon judicial administration and upon litigants that would outweigh any advantages that might be anticipated).
Since the decision in Ordinary, this Court on several occasions has relied on the principle of surety law that “‘a surety is chargeable only according to the strict terms of its undertaking and its obligation cannot and should not be extended either by *38implication or by construction beyond the confines of its contract.’ ” Eagle Fire Prot. Corp., supra, 145 N.J. at 354, 678 A.2d 699 (quoting Monmouth Lumber Co. v. Indem. Ins. Co. of N. Am., 21 N.J. 439, 452, 122 A.2d 604 (1956)). Indeed, in Eagle Fire Protection Corp., this Court disallowed an award of attorneys’ fees against an argument that Rule 4:42-9(a) authorized such an award, noting that twice before the Supreme Court had rebuffed recommendations from the Civil Practice Committee to amend Rule 4:42-9(a) to allow awards of counsel fees in a broader range of suits brought by insureds against insurers. Id. at 364, 678 A.2d 699. The Court reaffirmed that a surety contract is not the equivalent of an indemnity policy or liability policy and therefore does not fall within the reach of the Court Rule:
The insurance contract in this case did not constitute a commitment by First Indemnity to pay Eagle Fire’s liability to a third party or to indemnify Eagle Fire for such liability. Bather, the bond simply required First Indemnity to pay Eagle Fire for its work if Olsen did not do so. Because this is not a case where the insurer agreed to protect the insured from third-party claims, R. 4:41 — 9(a)(6) is inapposite. Accordingly, we hold that given the narrow scope of R. 4:42 — 9(a)(6), Eagle Fire is not entitled to legal fees.
[Id. at 365, 678 A.2d 699.]
Nevertheless, the majority finds support for its conclusion that the surety may be surcharged for counsel fees over and above the amount of the bond from the decision in Jugan v. Friedman, 275 N.J.Super. 556, 646 A.2d 1112 (App.Div.), certif. denied, 138 N.J. 271, 649 A.2d 1291 (1994). In Jugan, the defendant fraudulently transferred his assets to other members of his family to avoid paying the plaintiffs judgment. Id. at 560-61, 646 A.2d 1112. In a subsequent action, the court permitted the plaintiff to recover the litigation costs associated with suing the defendant’s family members to recover the assets. Id. at 560, 646 A.2d 1112. The court referred to the general rule in New Jersey that each party must bear his or her own litigation expenses, including attorneys’ fees. Id. at 573, 646 A.2d 1112. The court then observed that there is an exception to the rule when the commission of a tort proximately causes litigation with parties other than the tortfeasor. Ibid. In those circumstances, the plaintiff was entitled to *39recover damages measured by the expense of that litigation with the third parties. Ibid, (citing Feldmesser v. Lemberger, 101 N.J.L. 184, 186-88, 127 A. 815 (E. & A.1925)).
The Appellate Division correctly distinguished Jugan from this case. The majority contends that the estate should be permitted to recover the amount of money it expended in litigating with the surety, now characterized as a third-party, to collect on its $800,000 Florida judgment. The Court reasons that Lopez’s defalcation as administrator of the estate is the proximate cause of the litigation that ensued between the estate and the surety and therefore the surety should be liable for the fees the estate spent in correcting the administrator’s misdeeds. That reasoning is circular and avoids the essential question that still remains: whether the surety is responsible in tort for attorneys’ fees as part of its contractual liability for the administrator’s defalcation to the estate. We believe that the answer to that question must be no.
In Jugan, the liability was born solely of tort principles. Here we are addressing liability founded only in contract. The contract defines the exposure. That exposure cannot be altered by attempting to identify the surety as a “third party.” The surety is not a third party. It is a direct participant in this matter as a result of its direct contractual relationship to the estate.
The Court finds the surety liable for the fees because “the liability of a surety on a personal representative’s bond is coextensive with that of the representative for losses occasioned by official acts and defaults.” Ante at 28, 776 A.2d at 770 (citing 31 Am.Jur.2d Executors and Administrators § 349 (1989)). But, that characterization is too broad and, therefore, does not appropriately describe the surety’s liability in this setting. More completely, American Jurisprudence states that “the surety has a right to stand strictly upon the contract, which neither the courts nor the parties can vary.” 31 Am.Jur.2d Executors and Administrators § 349 (1989); see also 34 C.J.S. Executors and Administrators § 900 (1998) (“[T]he principal and sureties are equally and primarily liable in case of a breach of its conditions.... The *40obligation of the sureties, however, rests solely in contract and they cannot be held liable contrary to or beyond the condition of the bond.”) (emphasis added). As for attorneys’ fees, that section of Corpus Juris Secundum refers only to Lawyers Surety Corp. v. Larson, 869 S.W.2d 649, 653 (Tex.App.1994), in which the court allowed attorneys’ fees to be assessed against the surety after finding that the applicable Texas statute permitted recovery of fees against the surety resulting from the administrator’s failure to meet statutory obligations.
In New Jersey, however, the statute governing sureties and the actual surety agreement involved here do not include provisions requiring the surety to be responsible for counsel fees when sued on its own bond. N.J.S.A. 3B:15-5 provides for the conditions of the bond on intestate administration, and N.J.S.A. 3B:15-26 concerns proceedings to satisfy judgment on the bond. Neither section provides that the surety is responsible for attorneys’ fees. The majority’s view 'of the surety’s exposure to damages in the form of attorneys’ fees, premised on a theory of tort liability, simply is wide of the mark. As this Court said a few short years ago, the surety is chargeable only according to the strict terms of its undertaking, and its contractual obligations “cannot and should not be extended by implication or by construction.” Eagle Fire Prot. Corp., supra, 145 N.J. at 354, 678 A.2d 699 (quoting Monmouth Lumber Co., supra, 21 N.J. at 452, 122 A.2d at 611); see also Cruz-Mendez v. ISU/Ins. Servs., 156 N.J. 556, 571, 722 A.2d 515 (1999) (same).
Other courts have addressed whether attorneys’ fees are recoverable against the surety as an element of damages. In Faulkner Concrete Pipe Co. v. United States Fidelity & Guaranty Co., 218 So.2d 1, 2 (Miss.1968), the City of Laurel contracted with the American Construction Company to add additional lines to the city’s sewer system. As part of the contract, the construction company entered into a surety agreement with Fidelity & Guaranty whereby the contractor would promptly make all payments to those supplying labor or materials for the project. Ibid. Nowhere *41in the surety agreement was there a provision for the payment of attorneys’ fees. Ibid. In the contract between the city and the construction company, however, there was a provision that stated that the construction company would be liable for “all attorneys’ fees and costs of collection.” Ibid. A subcontractor sued the construction company for its alleged failure to pay for the subcontractor’s services and included a claim for attorneys’ fees. Ibid. The question arose whether the surety could be responsible for the fees. Id. at 3. In rejecting that claim, the court stated: “We have no statute making the surety on a contractor’s bond liable for attorney’s fees incurred by the obligee in case of default by the principal and suit on the bond, and neither the contract nor the bond in the case at bar contained any such provision.” Ibid. (quoting Nat’l Sur. Co. v. Trs. of Runnelstown Consol. Sch., 146 Miss. 277, 111 So. 445, 448 (1927)).
Another example is New Amsterdam Casualty Co. v. Texas Industries, Inc., 414 S.W.2d 914 (Tex.1967). In that case, the respondent was not paid for materials furnished to a contractor. He sued the contractor and the surety and, in addition to damages, claimed $19,773.62 in attorneys’ fees against the surety. Ibid. The court held that attorneys’ fees are not recoverable against the surety on the payment bond, nor are attorneys’ fees recoverable in an action for tort or contract unless provided by statute or contract between the parties. Id. at 915. See L.S. Tellier, Annotation, Surety’s Liability for Obligee’s Attorney Fees Under Provisions of Performance Bond of Public Contractor or Subcontractor, 69 A.L.R.2d 1046 (1960) (summarizing cases in which surety was held not liable for attorneys’ fees in absence of provision expressly creating that liability in surety bond or under statutory law).
We would conclude that the surety is not liable beyond its obligation under statute and the express terms of the bond. There is no provision in the bond or in any statute in New Jersey that provides that the surety may be surcharged for counsel fees. Neither tort principles nor general invocations of equitable princi*42pies ought to be imported here to recast the obligation that the surety has undertaken. Its contractual obligation is to restore the monies to the estate that were taken by the administrator.
Although the estate sued the surety to compel payment on the bond, the attorneys’ fees incurred in that suit are not part of the surety’s liability. Attorneys’ fees expended in litigation with the surety do not fit within that contractual obligation. Nor do our statutes governing bonds given in intestate administration require such coverage. The surety is entitled to stand on the limits of the obligations it bargained for in its contract.
As a practical matter, insurers writing surety bonds in New Jersey now will have reason to regard their exposure on their bonds as greater than that for which they bargained. We can expect that they will price their bonds to reflect that new undefined exposure. The impact will be borne by none other than our citizens when they are required to obtain a surety bond, pursuant to N.J.S.A. 3B:15-1 to -6, as part of the administration of estates in this State.
II.
Our conclusion is consistent with the American Rule. That rule requires each side to bear the cost of litigation and is a well-established feature of our jurisprudence. N. Bergen Rex Transp., Inc., supra, 158 N.J. at 569, 730 A.2d 843. The Court attempts to reconcile its disposition with the American Rule by denominating the fees incurred by the estate as an element of damages that are thus not implicated by the rule. The majority also would award fees on equitable grounds. In our view, the Court’s approach conflicts with the American Rule, or at the least, conflicts with the policies undergirding the rule.
The American Rule is the antithesis of the English Rule. As the name implies, that latter rule traces its roots to England, whose courts have been authorized to award counsel fees to successful plaintiffs since as early as 1278. Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 717, 87 S.Ct. 1404, 1406, 18 L.*43Ed.2d 475, 478 (1967). “It is now customary in England, after litigation of substantive claims has terminated, to conduct separate hearings before special ‘taxing Masters’ in order to determine the appropriateness and the size of an award of counsel fees.” Ibid. In contrast, the American Rule “has long been that attorney’s fees are not ordinarily recoverable in the absence of a statute or enforceable contract providing therefor.” Id. at 717, 87 S.Ct. at 1407, 18 L.Ed.2d at 478.
The purposes behind each rule are straightforward. Succinctly stated, “[w]hile the English Rule focuse[s] on providing full compensation to the winner, the American Rule emphasize[s] equal access to justice.” Mihalik v. Pro Arts, Inc., 851 F.2d 790, 793 (6th Cir.1988). One commentator has elaborated:
The American Rule has been perpetuated because it represents a democratic ideal. Unfettered access to the courts for all citizens with genuine legal disputes has become a cornerstone of the American concept of justice. All persons are entitled to their day in court, however poor they may be and however rich their opponents. The courts fear that injured parties, particularly those of modest means, would be discouraged from invoking the judicial system if the cost of losing an action included payment of one’s opponent’s legal bills____
The American Rule also reflects an equitable principle that penalizing a party for merely defending or prosecuting a lawsuit is unfair. The Supreme Court [of the United States] has recognized that the results of litigation are frequently uncertain and that making an inaccurate prediction of how a court will resolve a case does not warrant a penalty. Finally, the American Rule provides a convenient administrative scheme. By not shifting fees, courts are not burdened with the somewhat arbitrary calculation of the ‘reasonable costs’ incurred by a prevailing party.
[Neal H. Klausner, Note, The Dynamics of Rule 11: Preventing Frivolous Litigation by Demanding Professional Responsibility, 61 N.Y.U. L.Rev. 300, 304-05 (1986) (footnotes omitted).]
This Court has described the policies undergirding the American Rule as “strong.” N. Bergen Rex Transp., Inc., supra, 158 N.J. at 569, 730 A.2d 843. Our courts have been justifiably circumspect in departing from the rule, doing so only when there is “express authorization by statute, court rule, or contract,” Dep’t of Envtl. Prot. v. Ventron Corp., 94 N.J. 473, 504, 468 A.2d 150 (1983), or when the interests of equity demand it, Red Devil Tools v. Tip Top Brush Co., 50 N.J. 563, 575-76, 236 A.2d 861 (1967).
*44In addition, we have permitted the award of counsel fees to successful litigants in cases involving attorney negligence and attorney misconduct. Saffer v. Willoughby, 143 N.J. 256, 272, 670 A.2d 527 (1996) (permitting counsel-fee award as element of consequential damages suffered by former client in attorney-malpractice setting); Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 771 A.2d 1194 (2001) (extending holding of Saffer to attorney misconduct cases). In those instances, however, the Court has emphasized that to recover such fees, a prevailing plaintiff must demonstrate that the underlying action arose within the context of an attorney-client relationship. Packard-Bamberger & Co., supra, 167 N.J. at 443, 771 A.2d 1194.
In the fee-shifting setting, we have also declared that the authority to regulate and discipline attorneys “is the exclusive province of this Court.” McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 554, 626 A.2d 425 (1993) (interpreting statute authorizing counsel fees against non-prevailing party within context of frivolous lawsuits to apply to clients, not attorneys). Our unique role in regulating the bar and our specific concern for public trust in the bar provide sound bases on which to permit an award of fees in actions by clients against their former attorneys. We find no similar ground on which to extend the holdings of Saffer and Packardr-Bamberger in the absence of an attorney-client relationship.
In sum, none of the specific exceptions to the American Rule applies in this case. No statute or rule of court authorizes a grant of attorneys’ fees, nor does the surety bond contemplate such an award by express language. Additionally, as noted, equity does not support an award of fees in this circumstance. Lastly, because the estate’s action did not arise out of an attorney-client relationship, the holdings of Saffer and Packard-Bamberger are inapplicable.
III.
For the reasons stated, we would affirm the judgment of the Appellate Division. Accordingly, we dissent.
*45For affirmance in part, reversal in part and remandment— Chief Justice PORITZ and Justices STEIN, COLEMAN, LONG, and ZAZZALI — 5.
For affirmance — Justices VERNIERO and LaVECCHIA — 2.