                                                                                                                           Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


2-8-1999

Seibert v. Nusbaum Stein
Precedential or Non-Precedential:

Docket 98-5074,98-5128




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Recommended Citation
"Seibert v. Nusbaum Stein" (1999). 1999 Decisions. Paper 32.
http://digitalcommons.law.villanova.edu/thirdcircuit_1999/32


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Filed February 8, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 98-5074 and 98-5128

JOEL M. SEIBERT;
STACEY J. SEIBERT

v.

NUSBAUM, STEIN, GOLDSTEIN, BRONSTEIN &
COMPEAU, P.A., f/k/a Nusbaum, Stein, Goldstein &
Bronstein, P.A.; LEWIS STEIN,

       Appellants in No. 98-5074

JOEL M. SEIBERT;
STACEY J. SEIBERT,

       Appellants in No. 98-5128

v.

NUSBAUM, STEIN, GOLDSTEIN, BRONSTEIN &
COMPEAU, P.A., f/k/a Nusbaum, Stein, Goldstein &
Bronstein, P.A.; LEWIS STEIN

On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. No. 92-04645)
District Judge: Honorable John W. Bissell

Argued January 15, 1999

BEFORE: GREENBERG and RENDELL, Circuit Judges,
and POLLAK,* District Judge
_________________________________________________________________

*Honorable Louis H. Pollak, Senior Judge of the United States District
court for the Eastern District of Pennsylvania, sitting by designation.
(Filed February 8, 1999)

       Clifford M. Solomon (argued)
       Corwin, Solomon & Tanenbaum
       501 Fifth Avenue
       New York, NY 10017

       Attorneys for Appellants in
       No. 98-5128

       Thomas A. Egan (argued)
       Flemming, Zulack & Williamson
       One Liberty Plaza
       35th Floor
       New York, NY 10006

       Attorneys for Appellants in
       No. 98-5074, Cross-Appellees

OPINION OF THE COURT

GREENBERG, Circuit Judge.

This matter comes on before this court on appeal and
cross-appeal from the final judgment entered in the district
court in this case on January 7, 1998. The case arose from
the most commonplace of events, an intersection
automobile accident on September 4, 1985. Nevertheless,
the litigation which has ensued in the aftermath of the
accident for more than 12 years has been truly
extraordinary. While it would be desirable somehow to
bring this litigation to an end, we are constrained to reverse
in part and to require further proceedings. On certain
issues, however, we will affirm and, as we explain, we do
not reach other issues.

The following historical and procedural events have taken
the case to its present posture. The plaintiffs, Joel M.
Seibert and Stacey J. Seibert, are husband and wife and at
all material times have been citizens of New York State. On
September 4, 1985, Joel M. Seibert, who, as a matter of
convenience we singularly shall call Seibert, was operating
a motor vehicle in Burlington County, New Jersey, owned
by his employer, Caldor Inc., when he was involved in an

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accident at a controlled intersection with a vehicle owned
and operated by Ruth Sexton, a New Jersey citizen. Seibert
was injured in the accident. Sexton's vehicle was insured
by CIGNA Insurance Company in a policy with $50,000
liability limit. National Union Fire Insurance Company
insured the Caldor vehicle in a policy which included
underinsured motorist coverage.

Seibert individually had an automobile liability policy
issued in New York on his own vehicle by Travelers
Insurance Company which also included underinsured
motorist coverage. The Travelers policy provided that the
underinsured motorist coverage would not apply if Seibert
"shall, without written consent of [Travelers], make any
settlement with or prosecute to judgment any action
against any person or organization who may be legally
liable therefor."

Seibert engaged the New Jersey law firm of Nusbaum,
Stein, Goldstein, and Bronstein and, in particular, Lewis
Stein of that firm, to seek damages for his injuries. We refer
to the firm and Stein individually simply as Stein. Stein
then, on September 3, 1986, brought a diversity action in
the District of New Jersey against Sexton but by December
1987 Stein settled the case on behalf of Seibert with CIGNA
for the $50,000 policy limits. With that settlement, Seibert's
district court action against Sexton was dismissed and
thus, as far as we can ascertain, Sexton has had no further
involvement in this matter.

Thereafter Stein, on behalf of Seibert, demanded that
Travelers pay the $250,000 underinsured motorist coverage
to Seibert. Travelers, however, rejected the demand by a
letter of September 1, 1988, addressed to Stein, on the sole
ground that Seibert had settled the Sexton claim without
its consent. On September 14, 1989, Stein brought an
action in the district court in New Jersey on behalf of
Seibert against Travelers seeking to establish that it was
responsible for the underinsured motorist coverage.
Travelers filed an answer admitting that it had issued a
policy insuring Seibert but disclaiming any knowledge of
the remaining allegations in Seibert's complaint. In
addition, Travelers set forth eight separate defenses of a
general nature which, except for a defense that it reserved

                                3
its right to seek to apply New York law, seem not
particularly addressed to the circumstances of Seibert's
complaint.

Thereafter, Travelers moved for summary judgment on
the ground that Seibert had settled the Sexton action
without its consent. The district court in that action,
Seibert v. Travelers, Civ. No. 89-3966 (D.N.J. Jan. 8, 1991),
by opinion dated January 8, 1991, granted Travelers'
motion. While the court recognized that consent to settle
clauses are against New Jersey public policy, see Longworth
v. Van Houten, 538 A.2d 414 (N.J. Super. Ct. App. Div.
1988), the court held that New York law was controlling on
the basis of New Jersey choice of law principles which it
applied in that diversity of citizenship case. See Shuder v.
McDonald's Corp., 859 F.2d 266, 269 (3d Cir. 1988). The
court found that the consent to settle clause did not violate
New York law as that state recognizes the use of such
clauses to facilitate the subrogation rights of the insurance
company. On appeal, we affirmed by judgment order on
October 23, 1991. Seibert v. Travelers Indem. Co., 947 F.2d
936 (3d Cir. 1991). Upon our affirming the district court's
summary judgment, any possibility that Seibert could
recover from Travelers was gone.

Between the time of the district court's order granting
summary judgment in the Travelers action and our
judgment order affirming the summary judgment, Stein, on
behalf of Seibert, instituted the third case arising out of the
accident, i.e., Seibert v. National Union Fire Ins. Co., MRS-L-
4298-91, in the Superior Court of New Jersey, Law
Division, Morris County. In that action, Seibert sought,
inter alia, to recover under the underinsured motorist
coverage provisions of the National Union policy.
Subsequently, other counsel was substituted for Stein and
ultimately the National Union action was dismissed when
National Union agreed to arbitrate Seibert's claim. The case
eventually was settled for $140,000 which National Union
paid on its underinsured motorist coverage.

While the National Union action was pending, Seibert
started this New Jersey district court action, the fourth
case arising from the accident, against Stein. It is this case
which now is on appeal before us. While there were

                               4
numerous allegations in the complaint, its principal theory
is that Stein wrongfully settled the Sexton action without
Travelers' consent, thus forfeiting Travelers' underinsured
motorist coverage.

Following protracted proceedings in the district court, the
parties filed cross motions for summary judgment which
resulted in the district court issuing opinions on August 20,
1997, and December 31, 1997, which we describe in some
detail. In its initial opinion, the district court set forth the
background of the case and then pointed out that this
action was for legal malpractice. The court recognized that
a legal malpractice case could require a "trial within a
trial," but that the matter was before the court on motions
for summary judgment. The court indicated that Stein
sought summary judgment on the alternative theories that
(1) he did not deviate from accepted standards of legal
practice; and (2) even if he did, Seibert suffered no damages
so Stein could not be liable. On the other hand, Seibert
sought a summary judgment that Stein was liable for legal
malpractice.

The district court indicated that in New Jersey a plaintiff
in a legal malpractice action must demonstrate: (1) the
existence of an attorney-client relationship creating a duty
of care upon the attorney; (2) breach of that duty; and (3)
proximate causation of damages. See Lovett v. Estate of
Lovett, 593 A.2d 382, 386 (N.J. Super. Ct. Ch. Div. 1991).
The court said that Seibert based his claim on the district
court's opinion in the Travelers action because Stein's
"failure to notify Travelers under the consent to settle
provision of its policy [fell] far below the minimal standard
and duty of care which [Stein] owed to [Seibert]." The court
then indicated that Stein's "default was the proximate
cause of Travelers' successful refusal to pay any part of the
potentially available underinsured coverage." Thus, to that
extent, it granted Seibert's motion for summary judgment.

The court indicated, however, that it had not been
established in Seibert's action against Travelers that he in
fact would have recovered on the Travelers policy. All that
was established was that Travelers had a defense to
Seibert's claim.

                               5
The court then indicated that while the declarations page
of Seibert's policy with Travelers listed certain
endorsements, i.e., 33122 and 33150, as being part of the
policy, "it is unclear whether these endorsements, either in
whole or in part, were ever physically attached to the policy
or otherwise specifically brought to Mr. Seibert's attention."
The significance of endorsement 33122 is that it limited
underinsured motorist coverage to accidents which occur in
the State of New York. In any event, the court held that
New York Insurance Law S 3420(f)(2) requires that
underinsured motorist coverage in New York apply "in any
state or Canadian province." Consequently, the court
believed that the limitation in endorsement 33122 to New
York accidents was ineffective. Thus, the court held that
the $250,000 underinsured motorist coverage was available
to Seibert who, because of "Stein's malpractice in failing to
seek Travelers' consent to settle the Sexton suit" was denied
access to the funds. The court then indicated that the
parties recognized that the reasonable settlement value of
Seibert's claim far exceeded $50,000. Thus, Stein's
malpractice injured Seibert.

The court recognized that Stein argued "that the only
right which [Seibert] lost because Travelers effectively
denied coverage . . . was the right to arbitrate any claim or
dispute against that company." The court, however,
indicated that "it is by no means certain that Travelers
would have pushed Mr. Seibert to arbitration had [Stein]
sought Travelers' consent-to-settle in a timely fashion."
Indeed, the court thought that it was "unlikely" that
Travelers would have contended that the underinsured
motorist coverage was not applicable to the New Jersey
accident and that, in any event it was applicable, and
arbitration would not have produced a different result.

In its December 31, 1997 opinion, the court considered
damages. The court pointed out that in the National Union
case Seibert recovered $140,000 in a settlement. 1 The court
_________________________________________________________________

1. The National Union action also was against Caldor. Although the
district court referred to the case as the Caldor action, we understand
that National Union actually paid the settlement. For our purposes, it
does not matter whether Caldor or National Union paid the $140,000.

                               6
recognized that while Seibert might have recovered more or
less from Travelers, "the $140,000 settlement sum is a
reasonable and just figure to use as a base for calculations
of interest due from [Stein] to [Seibert]." This base figure
was important inasmuch as the court intended to fix
damages on an interest theory to compensate Seibert for
the loss of the use of the money because of the delay in
making the settlement as the coverage sought from
Travelers had been lost. Ultimately, the court found that
damages would be calculated on the basis of prejudgment
interest for nine years. The court also awarded damages on
the basis of Seibert's attorney's fees and costs in this
action. The court, however, refused to award punitive
damages against Stein, to allow Seibert to amend his
complaint to seek such damages, or to require Stein to
disgorge the fees he collected from negotiating the Sexton
settlement. The parties then filed this appeal and cross-
appeal.

On this appeal, Stein raises three points. First, he
contends that the Travelers policy would not have given
Seibert coverage in this action even if Stein complied with
the consent to settle clause. Second, he contends that even
if the Travelers policy provided for underinsured motorist
coverage, the court erred in granting summary judgment to
Seibert because he made a full recovery from National
Union and there is no proof that he would have recovered
on the Travelers policy. Third, he contends that there was
no basis for damages for the loss of use of money by reason
of delay in recovering from National Union instead of
Travelers, and for counsel and expert fees. As far as we can
ascertain, however, Stein does not contend that he was not
negligent in settling the claim against Sexton without
complying with the consent to settle clause, although he
does contend that without damage (and he contends there
was none) he cannot be liable for malpractice.

Seibert cross-appeals with respect to damages. He
contends that the district court should have fixed a higher
rate of interest, allowed him to amend his pleadings to
claim punitive damages, and compelled Stein to disgorge
his fees from the Sexton action.

                               7
In view of the circumstance that the district court
decided this case on cross motions for summary judgment,
we are exercising plenary review on this appeal. Petruzzi's
IGA Supermarkets, Inc. v. Darling-Delaware Co., 998 F.2d
1224, 1230 (3d Cir. 1993). We can affirm only if we
conclude that the pleadings, depositions, answer to
interrogatories and admissions on file, together with the
affidavits, show that the party who obtained summary
judgment on a point was entitled to that judgment as a
matter of law and that there was no genuine dispute of
material fact standing in his way. Fed. R. Civ. P. 56(c).

At the outset of our discussion, we must acknowledge
that the district court had a most difficult task. Moreover,
it is evident that the court was striving to reach a just and
equitable result and, indeed, may have done so. That said,
we are convinced that the court engaged in fact finding
inappropriate in the procedural posture of the case and
thus in large part we must reverse.

To start with, the court surely erred when it predicated
its disposition on the theory that Seibert would have
recovered $140,000 from Travelers if Stein had not erred
with respect to the consent to settle clause. While we do not
doubt that the $140,000 figure could have been a
reasonable settlement of a claim against Travelers, neither
we nor the district court can usurp the fact finding function
of the jury and find that Seibert could have recovered that
sum from Travelers. In fact, for all we know, Travelers
would not have settled and ultimately would have prevailed
at arbitration on the theory that Sexton was not liable.
Moreover, contrary to the district court, we are not
confident that if Travelers had taken the position that as a
matter of law its coverage was inapplicable had it not
prevailed on the consent to settle clause (a possibility on
which we only can speculate), it would not have been
successful. In this regard, we point out that the court
indicated that it was unclear whether the disputed
endorsements were attached to Seibert's policy. Such a
situation hardly is a springboard to a summary judgment
order.

The situation before us involves reviewing a judgment
predicated on facts which we cannot know at this time. For

                                8
example, how can anyone know on the basis of the record
before us what position Travelers would have taken on the
legal issues if it had not prevailed originally on its summary
judgment motion? We only know for sure that Travelers did
not raise some of the issues in the litigation against it that
Stein raises on this appeal. But, as Stein pointed out at
oral argument, how do we know what Travelers would have
done had it lost its motion for summary judgment?

Perhaps, as Stein suggested, it would have raised other
defenses. On the other hand, it might have agreed to
arbitrate, as did National Union, and at arbitration only
argued that Sexton was not liable on negligence principles.
In that event, Stein's argument that Travelers did not
provide applicable underinsured motorist coverage would
be irrelevant. Yet Travelers might have prevailed on the
theory that Sexton was not liable. In the circumstances, we
have concluded that, except to the extent that the orders of
August 20, 1997, and December 31, 1997, are predicated
on a finding that Stein committed malpractice by settling
the Sexton action without notice to Travelers, those orders,
insofar as they impose liability on Stein, must be reversed
as must the judgment of January 7, 1998.

We make three further points with respect to Stein's
appeal. First, we reject Seibert's contentions that Stein is
barred by estoppel and waiver principles by reason of
having brought the action against Travelers from
contending that Travelers' policy did not afford Seibert
underinsured motorist coverage. Naturally, a plaintiff's
attorney in filing an action takes the position that the
action is justified. If the attorney through some error
precludes the case from being litigated on the merits, then
the concept of a trial within a trial is not consistent with
estopping the attorney from contending that if he had not
made an error in any event he could not have been
successful.

Second, we reject Seibert's contention that the district
court in the Travelers action established that Seibert would
have recovered from Travelers but for Stein's error. It is
true that in the Travelers action the court said that because
of Seibert's failure through Stein to comply with the
consent to settle clause he is "not now entitled to the

                               9
underinsurance coverage [he] could have otherwise
received." Yet clearly what it meant by this statement was
that Seibert lost the possibility of recovering. After all, the
court obviously did not consider the other insurance issues
Stein advances nor did it consider Sexton's liability to
Seibert.

Third, we recognize that we might as a matter of law
adjudicate at this time whether, as Stein contends, the
Travelers policy did not provide underinsured motorist
coverage to Seibert for the Sexton accident or, if it did, the
Travelers coverage was, as Stein contends, excess to the
National Union policy. We, however, resist the temptation to
do so as that determination may rest on disputed facts and
in any event it may appear conclusively on the remand that
Travelers would not have made those contentions had it not
prevailed on its summary judgment motion. Moreover, we
simply cannot grant Stein summary judgment at this time
on a theory that the Travelers policy did not afford
coverage, because viewing the matter on the record most
favorably to Seibert with respect to Stein's motion,"we
cannot say that the evidence thus far submitted so clearly
established [noncoverage] such that no reasonable juror
could conclude otherwise." Albee Assocs. v. Orloff,
Lowenbach, Stifelman, and Siegal, 1999 WL 6537, at *7
(N.J. Super. Ct. App. Div. Jan. 11, 1999).

While we largely reverse on the appeal, we reach a
different result on the cross-appeal. After a careful review of
this case, we have concluded that Stein is entitled to a
judgment as a matter of law with respect to Seibert's claim
for punitive damages and for disgorgement of his fee for
settling the Sexton case. A plaintiff cannot pursue a claim
for punitive damages where, as here, no hint of such a
claim was contained in the pleadings or the pretrial order.
Furthermore, the undisputed facts of this case simply
cannot support a punitive damages award.

In view of the aforesaid, we will reverse the orders of
August 22, 1997, and December 31, 1997, and the
judgment of January 7, 1998, except to the extent that they
establish that Stein was guilty of malpractice by settling the
Sexton claim without Travelers' consent (which is not to say
that he is liable for malpractice), and except to the extent

                               10
that Seibert's punitive damages and disgorgement claims
have been foreclosed. The punitive damages and
disgorgement claims are out of this case. In view of our
disposition, we do not reach the damages issues raised on
this appeal. The parties will bear their own costs on this
appeal.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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