Court Opinion

ID: 4546693
Source: CourtListenerOpinion
Date Created: 2020-07-08 14:07:49.679309+00
Date Added: 2024-06-11T12:49:50.123070
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any cour t." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-1062-18T3

W. JAMES MAC NAUGHTON,

          Plaintiff-Appellant,

v.

SHAI HARMELECH, USA
SATELLITE & CABLE, INC.,
CABLE AMERICA, INC., and
NORTH AMERICAN CABLE
EQUIPMENT COMPANY, INC.,

          Defendants-Respondents,

and

RUSSIAN MEDIA GROUP, LLC,

     Defendant.
_____________________________

                   Argued telephonically June 3, 2020 –
                   Decided July 8, 2020

                   Before Judges Koblitz, Gooden Brown and Mawla.

                   On appeal from the Superior Court of New Jersey, Law
                   Division, Sussex County, Docket No. L-0442-12.
            William J. Mac Naughton, appellant, argued the cause
            pro se.

            Lynette Siragusa argued the cause for respondents Shai
            Harmelech, USA Satellite & Cable, Inc. and Cable
            America, Inc.

            Joseph Daniel Cronin, attorney for respondent North
            American Cable Equipment Company, Inc.

PER CURIAM

      Plaintiff W. James Mac Naughton,1 an attorney appearing pro se, appeals

from the October 5, 2018 Law Division order awarding $3185.15 in attorney's

fees and costs to counsel for defendants Cable America, Inc. (Cable), its

president, Shai Harmelech, and Cable's successor, USA Satellite & Cable, Inc.

(USA), collectively the Harmelech defendants, as a sanction for plaintiff's

failure to withdraw his frivolous complaint in accordance with Rule 1:4-8. We

affirm.

      This dispute originated over a decade ago and spawned litigation in both

state and federal courts. In a 2013 unpublished opinion, we recounted the facts

and procedural history as follows:

                   Plaintiff, an attorney, represented defendants in
            litigation in the United States District Court for the
            Northern District of Illinois in 2009. Defendants fell

1
   Mac Naughton alternately appears as MacNaughton and Naughton in the
record.
                                                                       A-1062-18T3
                                       2
            behind on the payment of his fees and, as a result, on
            August 12, 2009, the parties executed a promissory note
            and security agreement that granted plaintiff "a security
            interest in all of [defendants'] right, title and interest in
            any and all real or personal property wherever located."
            The parties' agreement authorized plaintiff to sign
            defendants' name "to any UCC-1 or other documents
            reasonably necessary to perfect" plaintiff's security
            interest. [2] Plaintiff allege[d] that defendants breached
            the terms of the promissory note and security
            agreement.

                  In October 2009, in an effort to collect his unpaid
                 [3]
            fees, plaintiff commenced a civil action in the United
            States District Court for the District of New Jersey. . . .

                   Defendants moved for dismissal, arguing the
            complaint failed to state a claim upon which relief
            might be granted. [Fed. R. Civ. P.] 12(b)(6). With
            respect to plaintiff's fourth count, which sought a
            declaratory judgment, District Judge Peter G. Sheridan
            held, in his written opinion of September 22, 2010, that
            the parties' August 12, 2009 agreement "did not create
            a security interest in [d]efendants' real property under
            either the Illinois Commercial Code or common law."
            Judge Sheridan explained that the description of the

2
  The security agreement also contained a severability clause, and selected New
Jersey as the forum for disputes arising out of the agreement. Plaintiff filed a
UCC-1 financing statement in the State of Illinois immediately after the
agreements were signed.
3
   At the time, the unpaid fees totaled approximately $66,000, down from the
original billed amount of $108,132.28 for costs and 333.2 hours of work over
ten weeks.

                                                                            A-1062-18T3
                                         3
             collateral was "supergeneric" [4] and, for that and other
             reasons, he dismissed the fourth count.

                   . . . [O]n June 20, 2011, [plaintiff] executed an
             amended security agreement that cure[d] the
             "supergeneric" defect found by Judge Sheridan. He
             then moved to amend his federal complaint to add a
             count for enforcement of the amended security
             agreement. In an opinion filed on March 30, 2012,
             District Judge Esther Salas denied plaintiff's motion,
             concluding that plaintiff unduly delayed in asserting the
             claim.[5] Judge Salas did not rule on the merits of this
             cause of action. In her opinion, Judge Salas recognized
             that plaintiff's claim was based on his assertion of the
             right to unilaterally amend the original security
             [agreement] and concluded that she "need not, and does
             not, take a position on the validity of this legal
             theory."[6]

4
   Judge Sheridan determined the description of collateral, consisting of phrases
such as "all debtor's assets" or "all debtor's property," failed to comply with the
Illinois Commercial Code's requirement that "a description of collateral
reasonably identif[y] the collateral." Naughton v. Harmelech, No. 09-CV-5450,
2010 U.S. Dist. LEXIS 99597, at *13-14 (D.N.J. Sept. 22, 2010) (quoting 810
Ill. Comp. Stat. § 5/9-108(b) and (c)).
5
  MacNaughton v. Harmelech, No. 09-CV-5450 (D.N.J. Mar. 30, 2012) (slip
op. at 6-7).
6
  However, Judge Salas commented that Judge Sheridan had "already found the
Security Agreement to be invalid and any efforts to change the terms of that
agreement to circumvent this court's ruling flies in [the] face of notice, fair play,
and finality." Id. at 6. Additionally, Judge Salas noted plaintiff failed to provide
"any case law in support of his contention that he is entitled to unilaterally
amend the central agreement to a litigation after that litigation has commenced
much less after that agreement has been deemed invalid." Ibid.
                                                                             A-1062-18T3
                                         4
                  Soon after his motion to amend the federal
            complaint was denied, plaintiff filed his complaint in
            this state action, seeking a declaratory judgment
            regarding the validity of the amended security
            agreement. Before filing an answer, defendants moved
            to dismiss the complaint pursuant to Rule 4:6-2(e).

            [Naughton v. Harmelech, No. A-2242-12 (App. Div.
            Oct. 16, 2013) (slip op. at 1-4) (first and fourth
            alterations in original).]

      The motion judge granted defendants' Rule 4:6-2(e) motion, relying in

part on the entire controversy doctrine. Id. at 4-5. We reversed the order of

dismissal, explaining that "the cause of action pleaded in this suit has not been

adjudicated on its merits in another forum" because "Judge Salas, in the exercise

of her discretion, has precluded its further consideration." Id. at 6.    We

"remand[ed] for consideration of the best way to manage the case to avoid the

problems that the entire controversy doctrine was intended to address." Id. at 7.

      As a result, the federal action proceeded simultaneously with the state

action. Continuing the saga, we related in a 2018 unpublished opinion:

            In 2016, plaintiff filed a motion in the federal action
            seeking summary judgment on the count in his second
            amended complaint that sought reformation of the
            language in the original security agreement that Judge
            Sheridan had found invalid. Defendants cross[-]moved
            to dismiss such count.

                  ....

                                                                         A-1062-18T3
                                       5
                   . . . Judge Kevin McNulty rejected plaintiff's
            claim the language in the original agreement was the
            result of a unilateral mistake, and determined the
            language could not be reformed. [7] Among other things,
            the judge found, "[plaintiff] drafted this security
            agreement and pressed it upon defendants; the
            responsibility for its defects is his, and he cannot show
            that the equities tip in his favor." The judge granted
            defendants' motion for partial summary judgment and
            entered an order dismissing the count seeking
            reformation of the original security agreement.
            Plaintiff did not appeal from Judge McNulty's [July 13,
            2016] order.[8]

                  Months later, defendants prevailed on a motion
            for summary judgment in the Law Division. The court
            entered an order on December 22, 2016 dismissing the
            complaint against defendants with prejudice. . . .[9]

7
  Mac Naughton v. Harmelech, No. 09-CV-5450, 2016 U.S. Dist. LEXIS 91658,
at *36-38 (D.N.J. July 13, 2016).
8
   Notably, in September 2016, plaintiff won a $77,679 judgment against the
Harmelech defendants in the federal action on the surviving count for breach of
the promissory note, which judgment was paid in full on January 29, 2018.
9
  While the December 22, 2016 Law Division order granted summary judgment
to the Harmelech defendants, an earlier October 26, 2016 Law Division ord er,
which was never appealed, granted summary judgment to co-defendant North
American Cable Equipment Company, Inc. (North American). When plaintiff
created the amended security agreement in 2011, he included language giving
himself an interest in any judgments USA obtained against North American
because he became aware that USA was about to obtain such a judgment.
Therefore, in his third amended complaint in the Law Division, plaintiff alleged
that North American's "payment of the USA [j]udgment to USA" instead of
plaintiff constituted a breach of the amended security agreement and "an act of
conversion and tortious interference with contract since [p]laintiff had a

                                                                        A-1062-18T3
                                       6
                  In their motion for summary judgment in the Law
           Division, defendants pointed out that Judge Sheridan
           had found the original security agreement invalid,
           because the description of the property in such
           agreement was so defective it failed to convey to
           plaintiff an interest in any of defendants' property.
           Defendants also noted Judge McNulty subsequently
           determined the defective language in the original
           agreement could not be reformed. Defendants argued
           the amended security agreement is also invalid because,
           although the description of the property in such
           agreement is more detailed, Judge McNulty's ruling
           precluded plaintiff from reforming the language in the
           original security agreement.

                  Defendants also noted - and plaintiff did not deny
           - that he had stated in a letter to defense counsel that
           Judge McNulty's decision "is binding on the parties in
           [the Law Division] and adjudicates all of the issues
           arising out of the same facts."

                  In his opposition to defendants' summary
           judgment motion, plaintiff did not dispute that, as a
           result of Judge Sheridan's ruling, the language in the
           original security agreement failed to provide him with
           an interest in defendants' property. However, he
           contended the other terms in the original security
           agreement were still valid and, because the original
           agreement allegedly gave him the authority to change
           such document, the amended agreement he created is
           valid.

                Plaintiff also argued Judge McNulty did not rule
           upon his ability to create the amended security
           agreement and thus such agreement exists and is

perfected security interest on all of [USA's] assets, including judgments
rendered in its favor."
                                                                       A-1062-18T3
                                      7
     binding. That is, plaintiff contends the federal court
     neither adjudicated nor ruled he did not have the
     authority to unilaterally change the original agreement.

           The Law Division judge determined Judge
     McNulty essentially found the amended agreement
     unenforceable, and that such decision is binding
     pursuant to the doctrine of collateral estoppel thereby
     precluding re-litigation of such issue. The Law
     Division judge reasoned that, because the amended
     security agreement does not give plaintiff a security
     interest in defendants' property and the claims plaintiff
     asserts in the third amended complaint depend upon the
     agreement's validity, plaintiff's claims fail as a matter
     of law.

     [Naughton v. Harmelech, No. A-2014-16 (App. Div.
     Aug. 9, 2018) (slip op. at 8-11) (third and fifth
     alterations in original) (citation omitted).]

We affirmed the Law Division judge, Judge David J. Weaver, explaining:

            As found by Judge McNulty, the language in the
     original security agreement that purportedly gave
     plaintiff an interest in defendants' property was not
     amenable to being altered or reformed. Therefore, even
     if the original security agreement gave plaintiff the
     authority to unilaterally change the terms of such
     agreement, as a matter of law Judge McNulty's decision
     precludes him from doing so.

           Further, we reject as unsupported the premise the
     original security agreement provided plaintiff license to
     change its terms. That agreement authorized plaintiff
     to sign defendants' name to any UCC-1 or other
     document reasonably necessary to perfect the security
     interest in the property as defined by such agreement.
     However, Judge Sheridan found the definition of

                                                                 A-1062-18T3
                                8
            property in the original agreement too indefinite to be
            binding; therefore, the property in which plaintiff can
            perfect a security interest cannot be ascertained under
            the terms of the original security agreement.

                  Last, plaintiff's authority to sign documents is
            limited to signing those which are reasonably necessary
            to perfect his security interest in the property defined
            by the original security agreement, not alter the terms
            of the original agreement and to unilaterally define the
            property in which plaintiff has a security interest.

            [Id. at 12-13.]

      On January 14, 2017, twenty-three days after Judge Weaver issued his

December 22, 2016 summary judgment dismissal order, defendants filed a

motion for attorney's fees under the frivolous litigation statute, N.J.S.A. 2A:15-

59.1, and Rule 1:4-8(b).      In support, defendants relied on a letter dated

September 12, 2016, two months after Judge McNulty's decision, in which

defendants had notified plaintiff that he was "engaging in frivolous litigation"

and "advised that sanctions would be sought unless the complaint" was

"dismissed with prejudice within [twenty-eight] days of th[e] letter" as required

under Rule 1:4-8(b)(1).       The letter specified that because "[t]he factual

allegations in the [c]omplaint lacked evidentiary support" and "ha[d] already

been litigated [through] the federal courts in both New Jersey and Illinois

involving the same set of facts, the same parties and the same allegations against

                                                                          A-1062-18T3
                                        9
[defendants]," the "principles of res judicata and collateral estoppel" applied.

Further, defendants asserted "that this matter [was] brought for the sole purpose

of harassment and/or retaliation for events occurring in prior actions." 10

      In a responding letter dated September 17, 2016, plaintiff wrote:

                    I am writing in response to your letter dated
            September 12, 2016 asking for the withdrawal of
            [p]laintiff's claims against [defendants] in this action. I
            agree the disposition of Mac Naughton v. Harmelech et
            al[.], Index No. 09-5450, DNJ is binding on the parties
            in this case and adjudicates all of the issues arising out
            of the same facts. I am prepared to enter into a consent
            order to that effect. Are you?

      Judge Weaver denied defendants' motion for attorney's fee sanctions

without prejudice because plaintiff had filed a notice of appeal from the

December 22 dismissal order on January 19, 2017, and the judge therefore

lacked jurisdiction. See R. 2:9-1(a). On August 27, 2018, eighteen days after

we affirmed Judge Weaver's decision, defendants re-filed their motion for

10
   Notably, after the original fee dispute arose in 2009, that resulted in plaintiff
withdrawing from representing defendants in a lawsuit filed against them by
Russian Media Group (RMG), the case subsequently settled with RMG
obtaining a consent judgment against defendants. Thereafter, plaintiff's
relentless efforts to collect unpaid fees from defendants included acquiring
rights to the RMG consent judgment, the very matter in which plaintiff
previously represented defendants, ultimately resulting in the entry of orders in
federal court disqualifying plaintiff from attempting to collect on that judgment.
                                                                              A-1062-18T3
                                        10
attorney's fee sanctions. On October 5, 2018, following oral argument, Judge

Weaver granted defendants' motion.

      In an oral decision from the bench, initially, the judge rejected plaintiff's

procedural argument that defendants' motion should be dismissed as untimely.11

Acknowledging that the motion was filed three days late, Judge Weaver relied

on Gooch v. Choice Entertaining Corp., 355 N.J. Super. 14 (App. Div. 2002)

and Rule 1:1-2 to relax Rule 1:4-8(b)(2)'s filing deadline and concluded the time

limitation should not preclude an "otherwise meritorious" application. The

judge pointed out that "the Appellate Division . . . ha[d] indicated a willingness

. . . to relax th[e] rule, and the factual similarities" between Gooch and this case

were "striking."

      Turning to the merits, after reciting the relevant procedural and factual

history, Judge Weaver emphasized that Judge McNulty specifically held that the

amended security agreement "was invalid and unenforceable." Further, Judge

Weaver's decision that collateral estoppel foreclosed the re-litigation of the

issue, which was affirmed on appeal, relied on Judge McNulty's decision, not

Judge Salas'.      Thus, Judge Weaver rejected as "inappropriate" plaintiff's

11
  Under Rule 1:4-8(b)(2), "[a] motion for sanctions shall be filed with the court
no later than [twenty] days following the entry of final judgment."
                                                                            A-1062-18T3
                                        11
continued reliance "on th[e] language from [Judge] Salas' decision" in his

opposition to defendants' motion. Further, according to the judge, "plaintiff's

own letter" of September 17, 2016 "contradicts his reliance on the language of

the Salas opinion . . . because he . . . admits that the Federal District Court

decision is binding on all the parties."

      Finding that plaintiff's September 17, 2016 letter was "the best evidence,"

and supported defendants' assertions that the complaint "was frivolous, . . . and

[plaintiff] knew it was frivolous," Judge Weaver concluded plaintiff's "position

was untenable and . . . frivolous" under Rule 1:4-8. After considering the

applicable factors, including the timing of defendants' motion, and "limit[ing]

th[e] sanction to a sum sufficient to deter repetition of such conduct," Judge

Weaver awarded $3185.15 in fees and costs to defendants' counsel, and this

appeal followed.

      On appeal, plaintiff argues he "had an honest and good faith belief" in the

merits of his action based on "th[e] language" in our 2013 decision that the

amended security agreement claim could not be adjudicated in the federal action

"'because Judge Salas . . . precluded its further consideration.'" He asserts he

"justifiably relied on this language to argue [that] Judge McNulty's decision on

the [r]eformation [c]laim" had no "preclusive effect on the [a]mended [s]ecurity

                                                                         A-1062-18T3
                                       12
agreement [c]laim," and he "had no way of knowing in 2016 when he opposed

[d]efendants' summary judgment motion" that "the Appellate Division would

later reverse itself and rule Judge McNulty's disposition of the [r]eformation

[c]laim necessarily decided the [a]mended [s]ecurity [a]greement [c]laim."

      Further, according to plaintiff, his September 17, 2016 letter was "not a

concession [that] Judge McNulty had the jurisdiction to decide the [a]mended

[s]ecurity [a]greement [c]laim." Plaintiff also contends that Judge Weaver erred

by exempting defendants "from the deadline set by [Rule] 1:4-8(b)(2)," and by

"direct[ing] the payment of fees directly to counsel" instead of the client, against

whom plaintiff could purportedly offset the fees with "outstanding and

unresolved claims against the Harmelech [d]efendants."

      Rule 1:4-8 and the frivolous litigation statute, N.J.S.A. 2A:15-59.1,

authorize sanctions, including reasonable attorney's fees, against any party. The

frivolous litigation statute provides that a prevailing party:

            in a civil action, either as [a] plaintiff or defendant,
            against any other party may be awarded all reasonable
            litigation costs and reasonable attorney fees, if the
            judge finds at any time during the proceedings or upon
            judgment that a complaint, counterclaim, cross-claim
            or defense of the nonprevailing person was frivolous.

            [N.J.S.A. 2A:15-59.1(a)(1).]

      To find a complaint frivolous:

                                                                            A-1062-18T3
                                        13
            [T]he judge shall find on the basis of the pleadings,
            discovery, or the evidence presented that either: (1) The
            complaint . . . 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, . . . 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]n assertion is deemed 'frivolous' when 'no rational argument can be

advanced in its support, or it is not supported by any credible evidence, or it is

completely untenable.'" United Hearts, L.L.C. v. Zahabian, 407 N.J. Super. 379,

389 (App. Div. 2009) (quoting First Atl. Fed. Credit Union v. Perez, 391 N.J.

Super. 419, 432 (App. Div. 2007)). "Where a party has [a] reasonable and good

faith belief in the merit of the cause, attorney's fees will not be awarded." Perez,
391 N.J. Super. at 432. However, "continued prosecution of a claim or defense

may, based on facts coming to be known to the party after the filing of the initial

pleading, be sanctionable as baseless or frivolous even if the initial assertion of

the claim or defense was not." Iannone v. McHale, 245 N.J. Super. 17, 31 (App.

Div. 1990) (applying N.J.S.A. 2A:15-59.1).

      Nonetheless,

            [r]elief under this statute has been approached
            cautiously, so that while baseless litigation will be

                                                                            A-1062-18T3
                                        14
            deterred, "the right of access to the court should not be
            unduly infringed upon, honest and creative advocacy
            should not be discouraged, and the salutary policy of
            the litigants bearing, in the main, their own litigation
            costs, should not be abandoned."

            [Gooch, 355 N.J. Super. at 18 (quoting Iannone, 245
N.J. Super. at 28).]

      While Rule 1:4-8 requires the motion for sanctions "to be made within

twenty days after judgment," we have determined that in certain circumstances,

"it is appropriate to relax the rule." Gooch, 355 N.J. Super. at 19 (citing R. 1:1-

2 (permitting the relaxation of "any rule" if "adherence to it would result in an

injustice")); Horowitz v. Weishoff, 318 N.J. Super. 196, 207 (App. Div. 1999),

aff'd as modified, remanded, 346 N.J. Super. 165 (App. Div. 2001) (assessing a

monetary sanction when the movant had "complied with the procedural

requirements of [Rule] 1:4-8(b) to the extent that compliance was possible.").

"In reviewing the award of sanctions pursuant to Rule 1:4-8, we apply an abuse

of discretion standard," Zahabian, 407 N.J. Super. at 390 (citing Masone v.

Levine, 382 N.J. Super. 181, 193 (App. Div. 2005)), and will only reverse an

award if it "was not premised upon consideration of all relevant factors, was

based upon consideration of irrelevant or inappropriate factors, or amounts to a

clear error of judgment." Masone, 382 N.J. Super. at 193 (citing Flagg v. Essex

Cty. Prosecutor, 171 N.J. 561, 571 (2002)).

                                                                           A-1062-18T3
                                       15
      Here, we discern no abuse of discretion in Judge Weaver's imposition of

attorney's fee sanctions. Plaintiff's third amended Law Division complaint

depended entirely on the enforceability of the amended security agreement.

Notwithstanding Judge McNulty's July 2016 decision that the amended security

agreement was unenforceable and plaintiff's unilateral reformation attempt

invalid, plaintiff continued his litigation and refused to withdraw the complaint

despite receiving defendants' September 2016 demand letter to do so and

conceding that the federal court decision was binding on all parties and

adjudicated all issues. See Gooch, 355 N.J. Super. at 19-20 (affirming "the

imposition of sanctions under the frivolous litigation statute" and "relaxation of

the [Rule] 1:4-8(b)(2) time limits" where the non-prevailing party, "an attorney

appearing pro se," pursued a "defamation claim in the face of . . . absolute

immunity" and, "as an officer of the court, knew, or should have known, the law

regarding immunity").

      To the extent any argument raised by plaintiff has not been explicitly

addressed in this opinion, it is because the argument lacks sufficient merit to

warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).

      Affirmed.

                                                                          A-1062-18T3
                                       16