Certain Frivolous Litigation Sanctions are Reversed, But One Such Sanction is Affirmed

Tagayun v. AmeriChoice of New Jersey, Inc., 446 N.J. Super. 570 (App. Div. 2016).  As Judge Higbee noted in her opinion for the Appellate Division today, Rule 1:4-8 or N.J.S.A. 2A:15-59.1, which afford sanctions for frivolous litigation, “must both be interpreted strictly against the applicant for an award of fees.”  Sanctions are not warranted whenever “a party is wrong about the law and loses their case.”  Today’s opinion reversed two frivolous litigation sanctions against plaintiffs, under the abuse of discretion standard.  But a third sanction was affirmed.

Acting pro se, plaintiff Tagayun, a neurologist, and her husband, plaintiff Mandell, her office manager, sued defendant AmeriChoice and related parties.  Taguyun and AmeriChoice had entered into an agreement under which Taguyun had become a participating provider for members of AmeriChoice’s HMO.  AmeriChoice later advised Taguyun that she would terminated from that status, which precipitated this lawsuit.

The contract contained an arbitration clause.  After some other case events, defendants moved to dismiss and to transfer the case to arbitration.  Defendants advised plaintiffs that the lawsuit was frivolous.  They contended, as to Taguyun, that the case was frivolous due to the existence of the arbitration clause.  As to Mandell, defendants asserted that the case was frivolous because Mandell was not a party to the contract and thus had no standing to enforce it.

The Law Division granted defendants’ motion to dismiss, granting dismissal without prejudice as to Taguyun and sending her case to arbitration, but dismissing Mandell with prejudice for lack of standing.  Plaintiffs then filed an amended complaint that was “substantively the same as the original complaint, except the law firm and individual attorneys for defendants were added as additional named defendants.”  Plaintiffs also appealed the dismissal of their original complaint, and that appeal proceeded despite the pendency of the amended complaint.  Defendants won that appeal.

Meanwhile, defendants sought frivolous litigation sanctions as to both complaints.  The Law Division agreed with defendants and imposed $10,073.20 against both plaintiffs regarding the original complaint and, later, $6,599.40 as to the amended complaint.  Plaintiffs appealed.

Judge Higbee parsed the various sanctions separately.  The sanction against Taguyun that had been based on the existence of the arbitration clause was reversed.  Though, prior to the Law Division’s decision here, there had been Appellate Division decisions that had enforced arbitration clauses that lacked “explicit language waiving rights to courts or juries,” thereafter the Supreme Court had decided Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014).  That case was discussed here.  Though Taguyun was bound by the adverse result on the merits of her own appeal, which preceded Atalese, Atalese made her claims not frivolous for purposes of sanctions.

Judge Higbee then turned to the sanction against Mandell based on his lack of standing.  That sanction too was reversed.  Mandell had offered a third-party beneficiary theory of standing.  “The judge properly declined to accept that argument, but an award of sanctions was not warranted simply because Mandell misconstrued the law.”

The sanction as to the amended complaint, however, was affirmed.  After the dismissal of the original complaint, plaintiffs had the right to appeal that ruling.  But they “had no right to force the defendants to defend an amended complaint asserting the same claims that had just been dismissed.”  Though Judge Higbee did not mention it, it cannot have helped that plaintiffs compounded their improper filing by adding defendants’ attorneys as defendants themselves.  The panel upheld the amount of that sanction while reversing the others.