DeNike v. Cupo

958 A.2d 446, 196 N.J. 502, 2008 N.J. LEXIS 1329
Supreme Court of New Jersey·Decided September 24, 2008·No. A-61 September Term 2007·Published·Cited by 94 cases

Opinion

Chief Justice RABNER

delivered the opinion of the Court.

The Judiciary derives its authority from the State Constitution but earns the public’s confidence through acts of unquestioned integrity. When that trust is shaken — even slightly — our system of justice falters. To guard against that outcome, we now address an area fraught with peril: a sitting judge’s exploration of future employment opportunities.

In this case, a lawyer approached a trial judge and asked if he would consider affiliating with the attorney’s firm upon retirement. In response, the judge began preliminary negotiations with the lawyer. Throughout the brief period of their discussions, the lawyer was handling a contested, pending matter before the judge.

That behavior plainly violated RPC 1.12(c), which directs that a judge “shall not negotiate for employment with any person who is involved as a party or as an attorney for a party in a matter in *507 which the [judge] is participating personally and substantially.” The attorney should have waited a reasonable period of time after the ease ended before broaching the subject of employment. Absent such a break in time, the trial judge should have halted discussions immediately, disclosed them on the record, and allowed the parties to evaluate the need for any further relief.

Judges must avoid actual conflicts as well as the appearance of impropriety to promote confidence in the integrity and impartiality of the Judiciary. Unfortunately, the negotiations between trial judge and lawyer in this ease created an appearance of impropriety. Stated simply, the conduct here fell short of the high standards demanded of judges and fellow members of the legal profession and had the capacity to erode the public’s trust.

Because any lesser remedy would allow reasonable doubts to linger about the fairness of the outcome of the case, we reverse the judgment of the Appellate Division and remand for a new trial.

I.

Plaintiff Lawrence DeNike and defendant Michael Cupo were the sole members of Classic Mortgage, LLC (Classic), a company that brokered residential mortgages. They operated the business for a number of years and eventually had a falling out. After they tried unsuccessfully to mediate their dispute, DeNike filed a lawsuit in July 2003 seeking to terminate and acquire Cupo’s interest in the company. Cupo counterclaimed. Both parties sought primarily the same relief: calculation of the fair value of Cupo’s interest in Classic so that DeNike could buy out Cupo’s interest.

The Honorable Gerald C. Escala, then Judge of the Superior Court and Presiding Judge of the Chancery Division, oversaw two- and-a-half years of hard-fought litigation in this matter. DeNike retained Thomas J. Herten, of the law firm Herten, Burstein, Sheridan, Cevasco, Bottinelli, Litt & Harz, to represent him.

*508 About two weeks after the lawsuit started, the trial judge issued an order directing that: (1) Cupo be deemed dissociated from Classic as of July 18, 2003; and (2) DeNike make a partial payment of $250,000 to Cupo without prejudice to a final ruling on the value of his interest in the company. The trial judge later set December 31, 2002 as the valuation date for calculating Cupo’s interest.

After a five-day bench trial in February and March 2005, the trial judge made various factual findings and ruled that DeNike would acquire Cupo’s interest at fair market value. The court rejected each side’s valuation expert and appointed William Morrison to calculate the value of Cupo’s interest. To do so, Morrison would have to determine the value of the business and make intricate adjustments for commissions received, overhead costs, monthly management fees due DeNike, and the $250,000 payment, among other items. Morrison would also have to recalculate and adjust the parties’ capital accounts.

Months later, in December 2005, Morrison testified about his findings, subject to cross-examination. The trial court then issued a supplemental decision directing DeNike to purchase Cupo’s interest in Classic for the net amount of $436,682.

As directed, DeNike submitted a proposed form of order on January 3, 2006; Cupo objected and submitted his own proposed order. Specifically, Cupo requested that judgment be entered against DeNike both individually and in his capacity as a member of Classic, jointly and severally; that DeNike not be permitted to pay in installments over five years; and that the court address whether it had considered a $98,530 adjustment for taxes Cupo reportedly paid, on monies he would no longer receive because of an adjustment to his capital account. Cupo also argued that the net amount due him was $493,271, not $436,682, relying on a different figure Morrison had used to adjust the capital accounts.

On January 11, 2006, the court entered an order affirming that $436,682 was owed to Cupo. The following day, the court invited both parties to submit motions to address the error Cupo had *509 raised about the net amount due as well as the proper payment schedule. Both parties filed motions, and the court issued its second supplemental decision on January 20, 2006. In that ruling, the trial judge agreed with Cupo and noted that it erred regarding the expert’s calculations. As a result, Cupo was due $493,271. As for the manner of payment, the court ruled that a five-year payment period was appropriate, and that the obligation belonged to the company, not DeNike individually.

On January 24, 2006, one day after receiving a copy of the court’s latest decision, DeNike’s attorney, Thomas Herten, visited Judge Escala in chambers and asked about his retirement plans. (We rely on a certification Herten later submitted to the court for that fact and the related statements that follow.) Herten was aware of Judge Escala’s mandatory retirement date of February 24, 2006, and asked whether he would consider joining Herten’s law firm. The judge replied that he was open to considering the firm but wanted an independent “of counsel” type relationship. Because of the expenses involved in such a relationship, Herten responded that he would discuss the matter with his partners.

Herten met with his partners the next day, January 25, and they agreed to investigate the potential overhead costs of Judge Escala joining the firm. Either that same day or the next, Herten spoke with the judge by telephone and told him it would probably take several days to analyze the projected overhead expenses and get back to him.

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DeNike v. Cupo, 958 A.2d 446, 196 N.J. 502, 2008 N.J. LEXIS 1329 (N.J. 2008).

958 A.2d 446 (DeNike v. Cupo) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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