Winstock v. Galasso, ___ N.J. Super. ___ (App. Div. 2013) (Decided May 6, 2013)

NJ: Underlying Criminal Plea due to bad legal advice

FACTS: This is an appeal from a dismissal by way of summary judgment of plaintiffs’ legal malpractice claim against their former attorney. Plaintiffs sue defendant lawyer for incorrect legal advice which resulted in plaintiffs’ conviction by way of a plea agreement for promotion of gambling activities in violation of N.J.S.A. 2C:37-2a(2). Plaintiff’s wife, the legal owner and registered agent for the LLC  that operated and promoted the gambling enterprise sues defendant as well. She did not plead guilty but she was required as part of the plea, to enter into a Pretrial Intervention Program (PTI) as part of a global plea agreement involving others indicted for the gambling offenses,including her husband.  Plaintiffs argue that  plaintiffs  retained defendant lawyer to ensure that their business model was proper and lawful and but for the lawyer’s incorrect legal advice, they would not have engaged in the conduct that gave rise to the criminal charges.  Plaintiffs also argued that their claim for emotional distress damages should not have been dismissed.

Plaintiff, who was a police officer, organized a "poker tournament" at the local firehouse that involved friends and acquaintances. The popularity of the tournaments grew and involved as many as 100 players. The top 10% of the participants would share a portion of the money raised. The other 90% would get nothing.  The plaintiff would supply the cards and chips for thepoker games and also awarded the top ten winners shirts and hats in addition to their winnings.

Plaintiff met defendant at a VFW poker tournament. He called the defendant to "ask his legal advice on the legality of" opening his own club. Plaintiff, based on his training as a police officer,  had some understanding about the legality of gambling activities under New Jersey law. He testified that "as long as the house wasn’t taking profit from the gambling, we were not in violation. That’s exactly why I contacted  [defendant attorney] to verify that." Plaintiff also testified that defendant attorney was retained to "monitor the operation". 

Plaintiff and his wife then started a business to be known as "Fifth Street Club LLC" as a private social club offering adult recreational activities including pool tables, dart boards, backgammon, chess and a card table area. The club would operate in a fully renovated 8000 square foot warehouse area. Defendant attorney appeared before the local zoning board to obtain approval for operating the Club. Plaintiff alleged that defendant choreographed the presentation to the zoning board so as "to downplay the fact that poker tournaments would be held at the facility…" The Zoning Board members approved the plaintiff’s application. Plaintiff, as a police officer, was then asked to submit a legal memo to his police chief regarding "the legality of the club" that could be submitted to the prosecutors office.  The legal memo was prepared by the defendant attorney, at plaintiff’s request. A PBA attorney representing one of plaintiff’s partners in the venture wrote that he was concerned that the defendant attorney’s memo "does not sufficiently address the legal issues involved in this business venture."  The County Prosecutor’s Office began investigating the Fifth Street club for alleged illegal gambling activities. Plaintiff was arrested and suspended from duty as a police officer. He and his wife were then indicted on multiple counts of perjury and illegal gambling. Plaintiffs then entered a global plea agreement. He thereafter sought to withdraw the guilty plea as having been coerced, which was denied and affirmed on direct appeal. Plaintiffs then filed  this legal malpractice claim which was dismissed by way of summary judgment, based on Alampi v. Russo, 345 N.J. Super 360 (App. Div. 2001) where because of the  underlying guilty plea, the malpractice plaintiff would  be barred in  a later malpractice action against the  lawyer from taking an inconsistent position with the factual basis he gave to induce the criminal court to accept his guilty plea.  Here, however, the facts are distinguishable. 

Here, the plaintiff admitted to the illegal activities which occurred only  "after he had retained defendant [lawyer] as his legal advisor…"

defendant reviewed and approved plaintiffs’ business model…Although defendant’s legal opinion may not have absolved [his client] of criminal responsibility for his actions, [the client’s] admission of criminal culpability did not relieve defendant of his duty to provide plaintiffs with legally correct advice."

ISSUES: (1) Does an underlying guilty plea preclude plaintiff in a later legal malpractice action to take a position that is inconsistent with the guilty plea that seeks to hold the lawyer liable for malpractice in inducing the plea?  (2) Can plaintiffs’ recover emotional distress damages under these facts?

RULING:  (1) No.  In a civil action, the party who entered the guilty plea may rebut or explain the circumstances surrounding the  guilty plea.  

[Plaintiff’s admissions at the plea hearing may be evidential in his civil claims of professional malpractice against defendant. His plea alone, however, does not preclude him or [his wife] from arguing that defendant’s alleged professional negligence was a proximate cause of the damages they incurred by operating the [gambling club]. It is undisputed that defendant represented plaintiffs in filing the necessary documents to create the LLC and represented plaintiffs before the…Zoning Board…to obtain approval to operate the club. However, whether defendant was the mastermind and chief choreographer of a plan to mislead the Board and conceal the club’s true purpose as a gambling resort, as plaintiffs claim, or, as defendant alleges, he was simply following the directions given to him by plaintiffs, are material issues of fact that cannot be resolved by way of summary judgment.

(2) Regarding dismissal of emotional distress, the Court found no "egregious or extraordinary circumstances" warranting such relief. 

LESSONS: This is a landmark ruling because even though a client pleads guilty, where the activities leading to the plea are a result of and follow  the legal advice received from the attorney, the attorney’s advice can well become a substantial factor in causing the guilty plea.  In other words, "but for" the attorney’s negligent advice, the criminal conduct would never have come about.