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“When The Deal Is Too Good”

By: Charles F. Vuotto, Jr., Editor-in-Chief

 

I am sure that at one point in time we have all encountered the situation where we are representing a client in a dissolution matter whose spouse is a self-represented litigant. This column poses the following question when faced with such a situation: should we be concerned with overreaching when negotiating and ultimately procuring the best deal for our client? On the one hand, pursuant to the Rules of Professional Conduct (“RPC”), “lawyers shall act with reasonable diligence and promptness in representing a client.”[i] This obligation was emphasized by our Supreme Court in the 2008 decision of Brundage v. State of Carambio[ii] in the concurring opinion by Justice Barry Albin who stated, “Plaintiff’s attorney has a duty of zealous advocacy on behalf of his clients within the acceptable bounds of professional behavior.”[iii] However, how far does that obligation go? Does that obligation permit an attorney representing a divorce litigant to obtain an agreement so one-sided in favor or his or her client that it renders the settlement unconscionable to the self-represented litigant? More importantly, are you ultimately doing a disservice to your client by negotiating “too good” a deal?

Clearly, litigants have a pre-existing duty to be fair with each other. In the seminal Appellate Division case of Deegan v. Deegan,[iv] the court stated “The reason for this is that the duty of self-fulfillment must give way to the pre-existing duty, which runs between spouses who have been in a marriage which has failed.”[v] This duty was reiterated by our Appellate Court in Moore v. Moore,[vi] and most recently, in Kay v. Kay.[vii]   The Appellate Division in Geffner v. Geffner[viii] clarified the Supreme Court’s pronouncement in Tannen v. Tannen[ix] when it held that divorcing spouses are required to deal fairly with each other, although that requirement may not rise to the level of a fiduciary duty.[x] How does this duty between spouses, however, impact the duty of counsel?

There is no question that the courts of this state will not enforce unconscionable agreements (whether based upon procedural or substantive unconscionability). “A court of equity will enforce a contract between husband and wife if it is not unconscionable to do so and if the performance to be compelled is not contrary to public policy.”[xi] A contract will be held unenforceable if it was “procured by fraud or falsehood,” or if such enforcement would produce “great hardship or manifest injustice.”[xii] In fact, courts will only enforce agreements to the extent that they are fair and equitable.[xiii] The equitable authority of courts to modify property settlement agreements executed in connection with divorce proceedings is well established.[xiv] The agreement must reflect the strong public and statutory purpose of ensuring fairness and equity in the dissolution of marriages.[xv] Fairness requires that “each party be adequately represented by independent counsel and that both parties completely understand the nature of the agreement.”[xvi] Any agreement may be set aside when it is the product of fraud or overreaching by a party with power to take advantage of a confidential relationship, or if the agreement is found to be unconscionable.[xvii] Generally, a settlement agreement may be reformed if found to be unconscionable or overreaching by one of the parties.[xviii] Any marital agreement that is unconscionable or is the product of fraud or overreaching may be set aside.[xix] Courts possess the equitable authority to modify privately negotiated property settlement agreements, as such agreements must reflect the strong public and statutory purpose of ensuring fairness and equity in the dissolution of marriages.

 

When the issue of unconscionability is addressed, the court looks at two factors; the unfairness in the formation of the contract (procedural unconscionability) and excessively disproportionate terms (substantive unconscionability).[xx] Procedural unconscionability “can include a variety of inadequacies, such as age, literacy, lack of sophistication, hidden or unduly complex contract terms, bargaining tactics, and the particular setting existing during the contract formation process.” Id. Substantive unconscionability “suggests the exchange of obligations so one-sided as to shock the court’s conscience.”[xxi] Applying a “sliding scale” of unconscionability, a claim of unconscionability can succeed when one form of it, e.g., procedural unconscionability, is greatly exceeded, while the other form of it, e.g., substantive unconscionability, is only marginally exceeded.[xxii]  The issue of unconscionability is one of law for resolution by the court, and the burden of proving unconscionability is on the party asserting it.[xxiii]

The natural corollary of the foregoing is that attorneys have a duty to draft agreements that will withstand attack. Therefore, if a divorce agreement is so one-sided in favor of the attorney’s client, has that attorney more than met his responsibility to zealously advocate or has he created foreseeable problems for that client in attempting to enforce an unconscionable agreement, which case law clearly says cannot be done?

RPC 3.1, entitled “Meritorious Claims and Contentions” provides that:

A lawyer shall not bring or defend a proceeding, nor assert or controvert an issue therein unless the lawyer knows or reasonably believes that there is a basis in law and fact for doing so that is not frivolous, which includes a good faith argument for an extension, modification, or reversal of existing law, or the establishment of new law…[xxiv]

An attorney must question whether an overreaching and unconscionable agreement is in the best interest of the client. Although there are exceptions, the likely result of an excessively one-sided agreement can include, but not be limited to, post-judgment litigation at the trial and appellate court levels, significant attorney, expert and other professional fees, continuation of the emotional and financial stress associated with divorce and the associated negative impact upon children involved in that process. I cannot help but be reminded of the duties imposed upon criminal prosecutors: “The prosecuting attorney’s primary function is not to convict but ‘to see that justice is done’ (Cannon 5) and that his duty is as much ‘to refrain from improper methods calculated to produce a wrongful conviction as it is to use every legitimate means to bring about a just one.’” (Citations omitted)[xxv].

In the end, this conflict between zealous advocacy and the dangers to one’s client of procuring overreaching agreements may come down to one’s view of the place of “advocacy” in family law. Do we have a duty to be fair to the unrepresented party? This duty would raise many thorny ethical issues and probably does not exist. It may be easier to simply conclude that it is not in a client’s best interest to procure an agreement that is so one-sided that it will ultimately result in continued ligation, cost and emotional stress for divorcing litigants and their children. At a minimum, however, the attorney’s client must be advised of the potential for problems inherent in a lopsided deal. Further the self-represented party must be given proper notice that the attorney does not represent him or her, that the attorney is not providing any legal advice to the self-represented party and that he or she is strongly advised to seek independent legal counsel to thoroughly review the agreement before it is signed. A suggested letter[xxvi] is found at the end of this column, which may be a useful tool in these situations. It may be wise, when faced with this situation, to remember the old adage, “Bulls make money. Bears make money. Pigs get slaughtered.”

 


FORM LETTER

           As you are aware, this firm represents your spouse, __________, in a pending matrimonial action. According to ___________, you have reached an agreement as to all issues concerning the dissolution of your marriage, including, but not limited to, alimony, child support, equitable distribution of assets and liabilities, and counsel fees. Based upon my discussions with your __________ concerning the terms of that agreement, I have prepared a draft property settlement agreement consistent with your agreement, as recited to me by your spouse. Enclosed is a copy of that agreement.

Please be advised that I strongly urge you to seek counsel of your own choosing to review this agreement with you before you execute same. There are significant rights and responsibilities set forth in and established by this agreement which will be explained to you by an attorney. Please also note that this firm represents your spouse only. As such, no one at this firm can or will give you any advice with regard to this agreement or the pending litigation. Please also note that, if you seek to communicate with this firm about this matter, any communication between you and this firm must be in writing.

If you elect not to obtain the advice of an attorney, thereby waiving your right to have an attorney review the agreement, and if you agree with the terms of the property settlement agreement and wish to execute the agreement without the advice of an attorney, you must have your signature notarized. Once the agreement is executed, I will forward it to your spouse for execution.

 

Again, I strongly urge you to obtain the advice of independent counsel of your own choosing before executing this agreement.


 

Special thanks to Brian Schwartz, Amanda Trigg, Frank Louis, John Paone, Jeralyn Lawrence and Lizanne Ceconi for their thoughtful and helpful comments regarding this column.

 

 

[i] RPC 1.3

[ii] 195 NJ 575 (2008)

[iii] See State Ex Rel. S.G., 175 N.J. 132, 138, 814A.2d 612 (2003) (discussing attorney’s “ ‘duty of loyalty to his or her clients’” quoting In re: Opinion No. 653 of the Advisory Comm. on Prof’l Ethics 132 N.J. 124, 129 623A2d. 241 (1993))

[iv] 254 N.J. Super 350 (App. Div. 1992)

[v] Id. at 359

[vi] Moore v. Moore 376 N.J. Super 246, 306 (App. Div. 2005).

[vii] 405 N.J. Super 278 (App. Div. 2009). The court stated that “on the same principles and the presumption that parties [intend] to deal fairly with one another, quasi contractual obligations are imposed to prevent unjust enrichment.” (Citations omitted) Id. at 285.

[viii] (A-2896-08T2)

[ix] 416 N.J. Super 248 (App. Div. 2010)

[x] Id. at 20.

[xi] Minkin v. Minkin, 180 N.J. Super. 260, 262 (Ch. Div. 1981) (Citations omitted).

[xii] Schiff v. Schiff, 116 N.J. Super 546 (App. Div. 1971); see also Guglielmo v. Guglielmo 253 N.J. Super 531, 542, 549 (Holding a property settlement agreement unconscionable where the wife was represented by an attorney who was a relative of her husband, and the resulting agreement did not include “substantial assets” and mandated “support payments which [were] dreadfully inadequate.”). See also the unpublished decision in C.L.H. v. C.B. 2012 N.J. Super. Unpub. LEXIS 293 at 12-13.

[xiii] Peterson v. Peterson, 85 N.J. 638, 642 (1981); Massar v. Massar, 279 N.J. Super. 89, 93 (App. Div. 1995) (“Marital agreements…are enforceable only if they are fair and equitable.”); Carlsen v. Carlsen, 72 N.J. 363, 370-71 (1977) (“Separation agreements between spouses have long been considered to fall within the category of contracts enforceable in equity, but only to the extent they are fair and equitable”.) (citation omitted); Smith v. Smith, 72 N.J. 350 (1977); Schlemm v. Schlemm, 31 N.J. 557 (1960); Capanear v. Salzano, 222 N.J. Super. 403, 407 (App. Div. 1988).

[xiv] Conforti v. Guliadis, 128 N.J. 318, 323, 608 A.2d 225 (1992); Carr v. Carr, 120 N.J. 336, 346-49, 576 A.2d 872 (1990); Rothman v. Rothman, 65 N.J. 219, 229, 320 A.2d 496 (1974).

[xv] Petersen v. Petersen, 85 N.J. 638, 644, 428 A.2d 1301 (1981).

[xvi] Guglielmo v. Guglielmo, 253 N.J. Super. 531, 602 A.2d 741 (App.Div.1992)

[xvii] Schiff v. Schiff, 116 N.J. Super. 546, 561 (App.Div.1971) certif. den. 60 N.J. 139 (1972); Petruccio v. Petruccio, 205 N.J. Super. 577, 581 (App.Div.1985).

[xviii]Addesa v. Addesa, 392 N.J. Super. 58, 919 A.2d 885 [(App. Div. 2007)

[xix] Guglielmo v. Guglielmo, 253 N.J. Super. 531, 541, 602 A.2d 741 (App. Div. 1992); Capanear v. Salzano, 222 N.J. Super. 403, 407, 537 A.2d 306 (App. Div. 1988)

[xx] Sitogum Holdings, Inc. v. Ropes, 352 N.J. Super. 555, 564 (Ch. Div. 2002)

[xxi] Id. at 565.

[xxii] Id. at 565-67.

[xxiii] Gladden v. Cadillac Motor Car Div., Gen. Motors Corp,, 83 N.J. 320, 337 (1980), Howard, supra, 241 N.J. Super. at 230.

[xxiv] RPS 3.1

[xxv] State v. Orecchio, 16 N.J. 125, 140 (1954)

[xxvi] Courtesy of Brian Schwartz, Esq.

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