ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY (Civil No. 92-CV-02268)
Before: BECKER and McKEE, Circuit Judges, and POLLAK, District Judge *fn*
Opinion filed: January 8, 1997)
Jack Villanueva, Administrator pendente lite of the Estate of Ella Ostroff, appeals from a directed verdict in favor of the law firm of Brown and Michael, its partners: G. Michael Brown and Guy Michael (hereinafter the firm and its partners are collectively referred to as "Brown & Michael"), and Helen Conn, a notary. *fn1 For the reasons discussed below, we will affirm the judgment in favor of Brown & Michael, but will reverse the judgment in favor of Helen Conn, and remand for a determination of (1) whether Ostroff's acts constituted a ratification of the disbursements of her funds from the attorneys' trust account; and (2) whether -- if Ostroff's acts did not constitute ratification -- Conn's negligence caused injury to Ostroff and, if so, what damages ensued.
This case is about a sophisticated investor in the twilight of her years named Ella Ostroff, her accountant (Joseph Rubinstein), a "deal maker" (Samuel Rubin), a law firm (Brown and Michael), its two named partners, and a notary public (Helen Conn). The issues before us arise from Ms. Ostroff's involvement with, and investment in, a real estate project in St. Lucia.
The saga began in 1988 when Samuel Rubin was working on a project that was to become the St. Lucia Hotel and Casino (the "Project"). After concluding negotiations with St. Lucian government officials, Rubin entered into numerous agreements to incorporate the St. Lucia Hotel Corporation ("Corporation"). In the spring of 1989, Rubin began to look for "seed money" investors to pay Corporation expenses until the financing was in place. Joseph Rubinstein was an accountant at the time, and one of his clients was Ella Ostroff. The Estate claims that Rubinstein induced Ostroff to place $250,000 in the trust account of the New Jersey law firm of Brown and Michael. It is alleged that Rubinstein told Ostroff that Brown and Michael was the Corporation's law firm, that her funds were to be used to pay ongoing Corporation expenses, and that the Project was a good investment opportunity for her. According to the Estate, although Ostroff had not met Rubin, she placed the money into the account pending receipt of additional information about the Project. The Estate also asserts that, sometime in April of 1989, Rubin and Rubinstein told Ostroff she would receive a 3% interest in the Project in return for her investment, and that her investment would be returned to her in stages.
Eventually, Rubin introduced Rubinstein to G. Michael Brown and Guy Michael, the named partners in the law firm of Brown and Michael. That firm represented Sam Rubin and the Corporation. Rubinstein informed Brown and Michael that he was Ostroff's accountant; however, he apparently did not represent himself to be Ostroff's financial or business advisor. Messrs. Brown and Michael were apparently aware that Rubinstein was the accountant for both Ostroff and the Corporation.
The instant legal dispute is rooted in a series of three checks that Rubinstein wrote between May 19, 1989, and June 26, 1989. Each of the checks was drawn on Ostroff's account, written by Rubinstein, signed by Ostroff, and made payable to, and deposited in, the Brown and Michael trust account. The checks were in the respective amounts of $25,000, $100,000 and $125,000. Brown and Michael did not inform Ostroff that they had received any of these checks nor did they obtain any agreement directly from Ostroff governing release of the proceeds. Brown and Michael assert that the money was deposited into their trust account because no bank account had yet been opened in the Corporation's name. Brown and Michael asked Rubinstein to provide them with written consent from both Ostroff and Rubinstein giving them and the law firm the authority to disburse the funds from the trust account when requested by either Rubin or the Corporation.
After the first two checks had been deposited in the trust account, either Rubin or Rubinstein requested that the law firm release $25,000 of the proceeds. That request was not immediately honored, however, Rubinstein as Brown and Michael refused to release the funds without Ostroff's written approval. Consequently, Brown, Michael and Rubinstein agreed that a limited power of attorney would be furnished that would provide the requested authorization, and a limited power of attorney was prepared in mid June of 1989. The Estate contends that this limited power of attorney was prepared by Brown and Michael, not by Ostroff, and claims that Rubinstein arranged for Brown and Michael to receive the power of attorney directly, rather than giving it to Ostroff. Whether in fact Brown and Michael prepared the power of attorney is not clear; but it is clear that the power of attorney stated that Ostroff's name was "Della," rather than "Ella," in two different places.
Whatever may have been the provenance of the power of attorney, Rubinstein admitted that he signed Ostroff's name to it. However, claims that he signed Ostroff's name at her direction. Helen Conn, a notary public under the laws of New Jersey, admitted notarizing what purported to be Ostroff's signature on that document as a favor to Rubinstein. She concedes that she did so even though she did not witness the signature and did not know Ostroff. The notarized limited power of attorney was then returned to Brown and Michael.
It is undisputed that Ostroff never signed the power of attorney and the Estate claims that she never authorized Rubinstein to sign for her. The Estate also claims that when Brown and Michael received the limited power, they noticed the misspelling of Ostroff's first name and either they or Rubinstein corrected the misspelling with "white-out".
Under the terms of the limited power, Ostroff appeared to appoint Rubinstein her attorney-in-fact for the limited purpose of:
[a]uthorizing the law firm of Brown & Michael to release funds held by it, deposited by me, in its Attorney Trust Account. (A1027).
In addition to the power of attorney, Brown and Michael also received a fax transmission of a letter from Rubinstein, dated June 15, 1989, authorizing Brown and Michael to release the funds from the firm's trust account upon Rubin's request. The letter was addressed to Michael and stated in part: You are hereby authorized to release funds from your firm's trust account, upon the request of Sam Rubin, for the use and benefit of St. Lucia Hotel Corporation. (A1029).
Beginning on June 15, 1989, Brown and Michael issued a series of checks from their trust account pursuant to Rubin's requests. The first check was in the amount of $25,000, the second was for $25,000, and the third was for $200,000 which was the balance of Ostroff's funds. Brown and Michael did not notify Ostroff of any of these disbursements, nor did they provide any accounting to Ostroff. Rather, they relied solely upon the limited power of attorney, the fax from Rubinstein, and Rubin's requests that funds be released.
However, on July 27, 1989, an Investment Agreement "materialized." That Agreement, which recites that it is between the St. Lucia Hotel Corporation and Ella Ostroff and which is apparently signed by Sam Rubin, as President of the Corporation, and Ella Ostroff, provides that Ostroff will pay the Corporation $250,000 in return for a 3% interest in the Corporation, and specifies how and when she is to be repaid. *fn2 (Sa001-002). The Estate attacks the authenticity of this document and asserts that neither Brown, Michael, nor Rubin ever saw a signed original, and that Ostroff did not recall signing it. In addition, the Estate hints that Rubinstein "doctored" Ostroff's signature on the Agreement. Rubinstein claims that Ostroff did sign the Investment Agreement and that it is genuine. Although Ostroff apparently intended the funds in the trust account to be held to pay the Corporation's legitimate and ongoing expenses, she never had any contact with Brown & Michael nor did she ever see any bills. Nevertheless, at her deposition Ostroff contended that: "That $250,000 was -- I think the checks, it was three, and they went to Brown & Michael, a law firm in Atlantic City that I understood represented the hotel corporation. They were to pay bills that I approved, not just pay, but that I knew about and approved of."
Ostroff deposition at A1192-1193. Ostroff claimed that the money was not an investment. "Not the way I understood it. . . It was an escrow. I understood they were holding it in escrow, Brown and Michael." Id. at 1193-1194.
It is undisputed that Ostroff was actively involved in the Project from June 1989 through April 1990. She traveled to St. Lucia, Hong Kong and New York in connection with the Project, and she paid the firm of Laventhal & Horwath to study the Project. However, at a meeting in her home, Ostroff told Rubin that ...