JOHN MROZ VS. ETHEL HANDLERÂ (C-0097-15, MORRIS COUNTY AND STATEWIDE), A-3957-15T2

Background

Bernard Handler (owner via Elryan, Inc.) leased hunting/fishing rights and a farmhouse to WHFC for five years in October 2011; Robert Benbrook (attorney) drafted and signed the lease on WHFC's behalf.
The WHFC lease materially differed from the prior rod-and-gun club lease: lower rent, insurer/repair allocation changes, omission of a sanctuary, and substitution of a right of first refusal (ROFR) for a renewal option.
Robert admitted he had an attorney–client relationship with Bernard during the transaction, did not disclose the conflict in writing, and admitted he “tactically” obtained a ROFR (and misled Bernard about why WHFC wanted protection).
WHFC assigned the ROFR to Walpack (a company Robert formed two days earlier, where he was sole member); Bernard later died, title passed to Ethel Handler, who contracted to sell to plaintiff.
Plaintiff sued to enjoin Walpack’s exercise of the ROFR and to void the assignment; trial court found Robert violated R.P.C. 1.8(a), the presumption of invalidity was unrebutted, voided the lease/ROFR/assignment, granted plaintiff summary judgment, and denied plaintiff attorney’s fees.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the lease/ROFR is invalid under R.P.C. 1.8(a) because the attorney acquired a pecuniary interest adverse to the client	The attorney (Benbrook) had a conflict and failed required written disclosures, so the lease/ROFR is presumptively invalid and unrebutted	The transaction was not a prohibited "business transaction" giving Benbrook an adverse pecuniary interest; alternatively, defendants say they rebutted the presumption	Court held R.P.C. 1.8(a) applied, Benbrook conceded the attorney–client relationship and nondisclosure, defendants failed to rebut the presumption, so lease/ROFR invalidated
Whether assignment of the ROFR to Walpack (Benbrook’s company) is enforceable	Plaintiff: assignment is void because it stems from an invalid ROFR and involves the attorney acquiring further interest	Defendants: assignment was valid and not independently barred	Court held assignment invalid as derivative of an R.P.C. 1.8(a) violation and because it placed additional pecuniary interest with the attorney
Whether plaintiff (buyer) has standing to enforce the contract of sale despite the ROFR dispute	Plaintiff: contract should be enforced because the ROFR/lease are void	Defendants: plaintiff’s contract is conditional and void if ROFR valid; plaintiff lacks standing	Court held plaintiff had standing; because lease/ROFR were invalid, plaintiff’s purchase could proceed
Whether plaintiff is entitled to attorney’s fees under exceptions to the American Rule for attorneys’ ethical breaches	Plaintiff: seeks fees relying on Innes (attorney breached fiduciary duty to a third party)	Defendants: no independent duty owed to plaintiff; Innes does not apply	Court held plaintiff’s fee request was not presented adequately and Innes does not apply because plaintiff was not a beneficiary of the lawyer’s fiduciary relationship; fees denied

Key Cases Cited

Angland v. Mountain Creek Resort, 213 N.J. 573 (standard for viewing evidence on summary judgment)
Brill v. Guardian Life Ins. Co., 142 N.J. 520 (summary judgment standard)
Petit-Clair v. Nelson, 344 N.J. Super. 538 (effect of attorney conflict on transactions)
Cohen v. Radio-Electronics Officers Union, 146 N.J. 140 (court’s authority re: invalidating transactions based on misconduct)
Milo Fields Trust v. Britz, 378 N.J. Super. 137 (presumption of invalidity for attorney–client business transactions and elements to rebut)
P & M Enterprises v. Murray, 293 N.J. Super. 310 (rebuttal factors for transactions between attorney and client)
Van Horn v. Van Horn, 415 N.J. Super. 398 (consequence of failing to rebut presumption)
Innes v. Marzano-Lesnevich, 435 N.J. Super. 198 (awarding fees for intentional fiduciary violation)
Innes v. Marzano-Lesnevich, 224 N.J. 584 (Supreme Court affirming and clarifying Innes exception)
In re Ort, 134 N.J. 146 (discipline and public protection rationale for attorney rules)
In re Lunn, 118 N.J. 163 (same)
Litton Indus., Inc. v. IMO Indus., Inc., 200 N.J. 372 (American Rule re attorney’s fees)
In re Estate of Folcher, 224 N.J. 496 (narrow exceptions to the American Rule for fiduciary breaches)