NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ." 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-3144-22
SCHIBELL, MENNIE & KENTOS, LLC, SCHIBELL & MENNIE, LLC, RICHARD D. SCHIBELL,
Plaintiffs-Appellants,
and
JOHN G. MENNIE, RICHARD N. SCHIBELL, WENDY M. CROWTHER, THOMAS M. RUSSO, GREGORY S. HEIZLER, RICHARD C. RIEDERS and KELSEY BARBER, Attorneys of SCHIBELL & MENNIE, LLC,
Plaintiffs,
v.
ALLIED WORLD INSURANCE COMPANY, ALLIED WORLD SPECIALTY INSURANCE COMPANY,
Defendants-Respondents,
and D&O PARTNERS, INC., (Program Administrator for Allied World), GARY L. PINCKNEY and COUCH BRAUNSDORF INSURANCE GROUP, MARY KENTOS, as Executrix of the ESTATE of MARK D. KENTOS,
Defendants. ____________________________
Argued November 13, 2024 – Decided December 20, 2024
Before Judges Chase and Vanek.
On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-1221-20.
Joseph B. Fiorenzo argued the cause for appellants (Sills Cummis & Gross, PC, attorneys; Joseph B. Fiorenzo and Andrew W. Schwartz, of counsel and on the briefs).
Richard A. Simpson (Wiley Rein, LLP) of the District of Columbia bar, admitted pro hac vice, argued the cause for respondents (Landman Corsi Ballaine & Ford, PC and Richard A. Simpson, attorneys; Gerald T. Ford, Leland H. Jones IV, Anna J. Schaffner and Richard A. Simpson, of counsel and on the brief).
PER CURIAM
A-3144-22 2 Plaintiffs Schibell, Mennie & Kentos, LLC, Schibell & Mennie, LLC, and
Richard D. Schibell,1 appeal a May 4, 2023 dismissal order entered after the trial
court granted summary judgment to defendants Allied World Insurance
Company and Allied World Specialty Insurance Company 2 and denied plaintiffs'
cross-motion for the same relief. Based on our careful review of the record and
application of prevailing law, we affirm.
I.
We discern the salient facts from the motion record. In 1983, Richard D.
Schibell (Schibell) formed Schibell & Mennie, LLC (the Firm). 3 On July 31,
2012, Wells Fargo Bank notified the Office of Attorney Ethics (OAE) that a
$7,500 check written from the Firm's trust account was returned for insufficient
funds. In response, the OAE sent a letter to the Firm asking for a written
explanation of the deficiency.
1 Appellants are collectively referred to as plaintiffs. 2 We refer to these defendants collectively as Allied. 3 Schibell & Mennie, LLC was reconstituted as Schibell, Mennie & Kentos, LLC in 2006 after Mark D. Kentos became a member. After Kentos died in November 2016, the Firm reverted back to Schibell & Mennie, LLC. Our reference to "the Firm" in this decision is to the composition as of the relevant date. A-3144-22 3 A few days later, Schibell responded that on July 31 he deposited a
$100,000 check into the Firm's trust account, adding to the $4,595.83 balance
"to accommodate all office bonuses that were being paid." He then issued a
$7,500 employee bonus check from the trust account. Although Schibell
directed the employee-payee to delay cashing the $7,500 check until after the
$100,000 check cleared, the employee failed to do so, and the trust account
became overdrawn.
On August 20, the OAE requested additional information from the Firm
and Schibell, including copies of bank statements, three-way reconciliations,
client ledger cards, and a list of all employees receiving bonuses from the trust
account. Schibell advised the OAE that the $4,595.83 trust account balance
consisted of client funds belonging to Browne ($200), Smith ($100), Duffy
($1,970.24), and Alzer ($1,406.62). Schibell:
represented that he would remit $200 to Browne for "an escrow on a real estate closing which can now be disbursed and will be done so forthwith"; the $100 held for Smith was "a mathematical calculation and, in fact, will be remitted to the appropriate party within a few days"; the $1,970.24 held for Duffy and the $1,406.62 for Alzer were "as a result of medical or lien escrows which, if disputed, are kept for six years" and if no suits on those liens were commenced, the monies would be remitted to the clients.
A-3144-22 4 Schibell also explained that the $100,000 deposit "represented settlement
proceeds for his client . . . and that [the Firm] was entitled to a $30,000 fee, of
which $7,500 was paid to [an employee], and the balance of $22,500 was
disbursed to [the Firm]."
The OAE determined the distributions warranted further review and
scheduled a demand audit, requesting client ledger cards, the status of the trust
account balance, and an explanation for inactive client balances. Schibell's
counsel responded to the request. During the demand audit, Schibell again
stated the $30,000 fee was distributed to his employee and the Firm, by checks
for $7,500 and $22,500, respectively.
After obtaining the trust account bank statements from August,
September, and October 2012, the OAE found Schibell never issued a $22,500
check to the Firm and, instead, disbursed the $30,000 fee as follows: (1) Bank
of America ($20,000); (2) Mary A. Schibell ($3,000); (3) Mary A. Schibell
($5,000); (4) Dolores Davis ($1,952.58); and (5) Schibell ($47.42). The OAE
conducted a second demand audit, during which Schibell admitted the funds
were actually disbursed in the manner reflected in the subpoenaed bank records.
The OAE also found Schibell issued checks from two different trust
accounts to the same clients in duplicate amounts, without ever delivering the
A-3144-22 5 checks to the clients. Instead, Schibell endorsed and cashed the clients' checks
at a check cashing business in which he held a proprietary interest, without client
authorization. Schibell admitted that he failed to "(1) maintain accurate trust
account records; (2) deposit the $30,000 fee . . . into his attorney business
account; and (3) promptly disburse the $4,595.83 remaining on deposit in the
[trust account] into his business account."
On December 9, 2013, the OAE filed a complaint with the Supreme Court
of New Jersey to impose discipline against Schibell for violating the Rules of
Professional Conduct (RPCs). The OAE alleged in count one that Schibell made
false statements of material fact to disciplinary authorities in violation of RPC
8.1(a), and engaged in conduct involving dishonesty, fraud, deceit, or
misrepresentation in violation of RPC 8.4(c). The allegations in count two
asserted that Schibell commingled funds in violation of RPC 1.15(a), failed to
deposit earned fees into the business account in violation of Rule 1:21-6(a)(2)
and RPC 1.15(d), and left inactive balances in the trust account in violation of
Rule 1:21-6(d) and RPC 1.15(b) and (d).
A special ethics master (SEM) thereafter recommended the Court suspend
Schibell's license for six months, based on the findings that he violated RPC
1.15(a) (commingling), RPC 1.15(d) and Rule 1:21-6 (recordkeeping), RPC
A-3144-22 6 8.1(a) (knowingly making false statements of material fact in connection with a
disciplinary matter), and RPC 8.4(c) (conduct involving dishonesty, fraud,
deceit, or misrepresentation). The SEM suggested dismissing the remainder of
the charges.
The SEM found Schibell's testimony not credible, concluding
[Schibell] knowingly made false statements to disciplinary authorities, in violation of RPC 8.1(a) or (b), when he (1) stated in his first letter that the $100,000 deposit was for office bonuses; (2) claimed he gave bonuses to other employees; (3) represented that the $22,500 fee from the $100,000 settlement was disbursed to [the Firm]; (4) generated false checks to clients that he endorsed; (5) caused the false ledger to be sent to the OAE; and (6) knowingly provided falsified bank statements and checks to the OAE. [The SEM] also found that he failed to respond to lawful demands for information by failing to provide requested documents. Based on these findings, the [SEM] also determined that respondent violated RPC 8.4(c).
Regarding the commingling charge, the SEM found Schibell admitted holding
personal funds in the trust account for many years. The SEM also concluded
that Schibell violated RPC 1.15(d) and Rule 1:21-6 when he admittedly failed
to maintain accurate trust account records and failed to transfer funds from his
trust account to his business account.
A-3144-22 7 The Disciplinary Review Board (DRB) reviewed the record de novo and
issued a thirty-six-page opinion on March 20, 2017, affirming the SEM's
findings that Schibell's unethical conduct was established by clear and
convincing evidence. The Court ultimately adopted the DRB's decision and
censured Schibell instead of suspending him from the practice of law,
concluding he "lacked the intent to deceive the OAE with the falsified bank
records, rendering his conduct less egregious."
On June 7, 2016, after the OAE filed its complaint but before the DRB
decision and Court order, the Firm submitted an application for malpractice
insurance from Allied. Application question 11(a) asked "[h]as any attorney
been the subject of any bar complaint, investigation or disciplinary proceeding
within the past [five] years?" The Firm responded "No." On three successive
years, the Firm submitted renewal applications signed by Schibell providing the
same response.
The initial application and the renewals each contained the following
clause:
By acceptance of this Policy, all Insureds affirm or reaffirm as of the Inception Date of this Policy that:
1. the statements in the Application are true and accurate and are specifically incorporated herein,
A-3144-22 8 and are all Insureds' agreements, personal representations and warranties;
2. all such communicated information shall be deemed material to the Insurer's issuance of this Policy;
3. this Policy is issued in reliance upon the truth and accuracy of such representations;
4. this Policy embodies all agreements existing between the Insureds and the Insurer, or any of its agents, relating to this insurance; and
5. if any representation is false or misleading, this Policy shall be void from the inception.
Each of the malpractice policies Allied issued to the Firm provided coverage for
claims, as well as disciplinary proceedings, based on the information in the
initial application and the renewals.
On August 6, 2019, plaintiffs requested coverage under the 2018 policy
for a claim asserting Schibell fraudulently converted life insurance policy
proceeds intended for the estate of his former partner, Mark Kentos. After its
independent discovery of Schibell's disciplinary history, Allied denied the
claim.
Schibell admitted he omitted the disciplinary action on his policy
application. On October 28, 2019, Allied rescinded the malpractice policy to
the Firm, stating that "[u]nbeknownst to Allied . . . at the time each of the
A-3144-22 9 [p]olicies [were] issued, [plaintiffs] made material misrepresentations and
omissions during the application process for the Policies – namely, that no
attorney had been the subject of any [1] bar complaint, [2] investigation or [3]
disciplinary proceeding within the past [five] years."
On April 14, 2020, plaintiffs filed suit against Allied alleging breach of
contract and violation of the New Jersey Consumer Fraud Act (CFA), N.J.S.A.
56:8-1. Allied's summary judgment motion and plaintiffs' cross motion were
filed in August and October 2021, respectively. After the discovery period
expired on March 2, 2022, the trial court entered an order granting summary
judgment to Allied and denying plaintiffs' cross-motion. This appeal followed.
II.
We find no error with the trial court's ruling that the undisputed facts
established plaintiffs' material misrepresentation in the malpractice policy
application and renewals voided the policy ab initio. On this basis, we affirm
the trial court's dismissal order, predicated on the grant of summary judgment
to Allied and the denial of plaintiffs' cross motion for summary judgment.
In our de novo review of a summary judgment ruling, we apply the same
standard as the trial court. L.A. v. N.J. Div. of Youth & Fam. Servs., 217 N.J.
311, 323 (2014) (citing Coyne v. N.J. Dep't of Transp., 182 N.J. 481, 491
A-3144-22 10 (2005)). Summary judgment must be granted "if the pleadings, depositions,
answers to interrogatories and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact challenged and
that the moving party is entitled to a judgment or order as a matter of law." R.
4:46-2(c). "To decide whether a genuine issue of material fact exists, the trial
court must 'draw[] all legitimate inferences from the facts in favor of the non -
moving party.'" Friedman v. Martinez, 242 N.J. 449, 472 (2020) (quoting Globe
Motor Co. v. Igdalev, 225 N.J. 469, 480 (2016)).
In order to defeat a summary judgment motion, Rule 4:46-2(c) mandates
that the opposing party do more than "point[] to any fact in dispute." Globe
Motor Co., 225 N.J. at 479 (quoting Brill v. Guardian Life Ins. Co. of Am., 142
N.J. 520, 541-42 (1995)). "Under that standard, once the moving party presents
sufficient evidence in support of the motion, the opposing party must
'demonstrate by competent evidential material that a genuine issue of fact
exists[.]'" Id. at 479-80 (quoting Robbins v. Jersey City, 23 N.J. 229, 241
(1957)).
An insurer may consider a policy void as of its inception when it discovers
the insured has made material misrepresentation, upon which it reasonably
relied in issuing the policy. "A misrepresentation made in connection with an
A-3144-22 11 insurance policy, is material if, when made, 'a reasonable insurer would have
considered the misrepresented fact relevant to its concerns and important in
determining its course of action. In effect, materiality [is] judged according to
a test of prospective reasonable relevancy.'" Palisades Safety & Ins. Ass'n v.
Bastien, 175 N.J. 144, 148 (2003) (quoting Longobardi v. Chubb Ins. Co. of
N.J., 121 N.J. 530, 542 (1990)).
A fact is material if it "naturally and reasonably influence[d] the judgment
of the underwriter in making the contract at all, or in estimating the degree or
character of the risk, or in fixing the rate of premium." Mass. Mut. Life Ins. Co.
v. Manzo, 122 N.J. 104, 115 (1991) (internal citations omitted). "The right rule
of law . . . is one that provides insureds with an incentive to tell the truth."
Longobardi, 121 N.J. at 541.
Our jurisprudence on this issue is underpinned by the theory of equitable
fraud, which allows for rescission of a contract based on proof of "'(1) a material
misrepresentation of a presently existing or past fact; (2) the maker's intent that
the other party rely on it; and (3) detrimental reliance by the other party.'" First
Am. Title Ins. Co. v. Lawson, 177 N.J. 125, 136-37 (2003) (quoting Liebling v.
Garden State Indem., 337 N.J. Super. 447, 453 (App. Div. 2001)). "Equitable
fraud is similar to legal fraud; however, the plaintiff need not establish the
A-3144-22 12 defendant's scienter, that is, defendant's knowledge of the falsity and intent to
obtain an undue advantage." DepoLink Ct. Reporting & Litig. Support Servs.
v. Rochman, 430 N.J. Super. 325, 336 (App. Div. 2013).
We discern no error in the trial court's conclusion that the clear and
convincing evidence, based on the undisputed facts in the record, established the
Firm failed to identify Schibell's disciplinary history in the policy application
and renewals, which constituted material representations upon which Allied
reasonably relied in issuing its malpractice policy. The plain language of the
malpractice policy application and renewals required the Firm to reveal the OAE
audits, investigation, complaint, and Supreme Court order imposing a censure
to Allied on the initial policy application and subsequent renewal applications
as they constituted a "bar complaint, investigation and a disciplinary
proceeding."
The OAE complaint, coupled with the SEM ruling, DRB review, and
Supreme Court order were "disciplinary proceedings." Each of these events,
read in isolation and collectively, required the Firm to respond "yes" to the
relevant questions posed on the initial application and renewals.
With respect to the renewals, the Firm was on notice that Allied's
malpractice policy defined "[d]isciplinary [p]roceeding" as "any proceeding
A-3144-22 13 initiated by a regulatory, disciplinary or licensing official, board or agency to
investigate charges made against an Insured alleging professional misconduct in
the performance of or failure to perform Legal Services." Further, the Firm's
policy defined "Legal Services" as
those services performed on behalf of the Named Insured for others by an Insured, whether or not performed for a fee or other consideration, as a licensed lawyer in good standing . . . but only where such services were performed in the ordinary course of the Insured's activities as a lawyer.
We are unpersuaded that "legal services" provided "in the ordinary course
of the Insured's activities as a lawyer" were not the subject of the disciplinary
proceedings commenced against Schibell by the OAE for violation of the RPCs
after investigation, the SEM ruling, review by the DRB, and a final order of the
Supreme Court. The RPCs govern the practice of law, as related to representing
clients. Beyond that self-evident conclusion, the allegations against Schibell
included the improper cashing of duplicate checks drafted by him to the Firm's
clients, which constitutes the improper provision of "legal services."
Our de novo review establishes that the insurance application and
renewals asked about "bar complaints" and "investigations," which were
undefined in the application and must be interpreted in accordance with their
plain and ordinary meaning. "When interpreting an insurance policy, courts
A-3144-22 14 should give the policy's words 'their plain, ordinary meaning.'" President v.
Jenkins, 180 N.J. 550, 562 (2004).
The OAE complaint, alleging the violation of various RPCs, was both a
"bar complaint" and a "disciplinary proceeding" because it related to Schibell's
improper action as an attorney. It was this complaint seeking discipline that led
to the SEM, ruling review by the DRB, and the Supreme Court's order censuring
Schibell for violation of the RPCs. The OAE investigation followed by the
complaint initiated the formal process of disciplining Schibell, as an attorney at
law, for violating the mandatory rules governing attorney conduct and, thus, led
to a disciplinary proceeding.
We are unconvinced that an objective reading reveals any ambiguity in
the question asking for the Firm to reveal "any new bar complaints,
investigations or disciplinary proceedings against any attorney" within the past
five years. Ambiguity is determined based upon an objective reading of the
policy terms, rather than the subjective belief of the reader. Voorhees v.
Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992) ("When the meaning of a
phrase is ambiguous, the ambiguity is resolved in favor of the insured . . . and
in line with an insured's objectively-reasonable expectations."). We reject
Schibell's suggestion that he properly imported a definition from a prior policy
A-3144-22 15 with a different insurer to interpret Allied's question, leading him to conclude
he need not advise Allied of the five-year investigation and disciplinary
proceeding addressing his professional misconduct.
We also reject plaintiffs' proffered interpretation of the policy as overly
narrow since both the Court and Schibell, himself, confirmed that he was subject
to both a disciplinary hearing and an investigation. The Supreme Court adopted
its DRB's decision and censured Schibell for knowingly making false statements
of material fact in connection with a "disciplinary matter." Schibell also relayed
to the OAE that "[he] didn't have anything [] that [he] thought in any way was
germane to [the] investigation" and "that he believed that the alterations were
not relevant to the OAE's investigation." (emphasis added).
Under our decisional law, plaintiffs' material misrepresentations support
recission of the policy. First Am. Title Ins. Co., 177 N.J. at 136. Plaintiffs
misrepresented there were no "bar complaints, investigations or disciplinary
actions" and the undisputed evidence in the motion record established that
defendants relied on the Firm's response to issue and renew malpractice
insurance policies. Plaintiffs were on notice, through the policy language, that
Allied would rely on the Firm's representations in the application and renewals
A-3144-22 16 as material accepting that "if any representation is false or misleading, this
Policy shall be void from the inception."
Even beyond the express acceptance of these terms, the undisputed proofs
in the record establish that Allied reasonably relied on the absence of negative
information responding to questions 11 and 10(a) in issuing the policy, which
included coverage for disciplinary proceedings. We can reach no other
conclusion that the failure to reveal the bar complaint, investigation, and
disciplinary proceeding against Schibell was material and relied upon in
evaluating the risk of issuing a malpractice policy to the Firm.
III.
We are unconvinced by plaintiffs' argument that we should reverse and
remand for further discovery. The discovery end date of March 2 pre-dated the
trial court's March 31, 2022 order granting summary judgment. Plaintiffs could
have continued discovery by filing motions to enforce discovery obligations, or
moving to extend the discovery end date. There is no evidence in the record that
plaintiffs availed themselves of any opportunity to pursue relief from the time
the motions were filed through the trial court's decision approximately five
months later, despite time remaining on the discovery period. Thus, we reject
A-3144-22 17 plaintiffs' suggestion that outstanding discovery precluded summary judgment
from being granted.
IV.
Given our conclusion that summary judgment was properly granted to
Allied, plaintiffs' appeal is moot. Redd v. Bowman, 223 N.J. 87, 104 (2015).
We conclude the insurance contract at issue is void at its inception based on the
material misrepresentation by the Firm in the initial policy application and
continued throughout the renewals. "A void contract is '[a] contract that is of
no legal effect, so that there is really no contract in existence at all.'" Largoza
v. FKM Real Est. Holdings, Inc., 474 N.J. Super. 61, 73 (App. Div. 2022)
(quoting D'Agostino v. Maldonado, 216 N.J. 168, 194 (2013)). Since the policy
was void at the inception due to the material misrepresentation, defendants
cannot be held liable for breach of contract, an implied duty of good faith and
fair dealing, or the CFA. Ibid.
To the extent we have not addressed a particular argument, it is because
either our disposition makes it unnecessary, or the argument was without
sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
Affirmed.
A-3144-22 18