Mortgage Grader, Inc. v. Ward & Olivo, LLP (075310)
139 A.3d 30
| N.J. | 2016Background
- Mortgage Grader hired Olivo of Ward & Olivo (W & O) in 2009 for patent litigation and later alleged malpractice based on settlement license terms that harmed its patent rights.
- W & O dissolved on June 30, 2011 and entered the windup period to collect fees and pay taxes; its claims-made malpractice policy expired August 8, 2011 and no tail policy was purchased.
- Ward formed a new LLP the day after dissolution; Olivo later terminated representation and Mortgage Grader sued W & O, Olivo, and Ward in October 2012.
- Mortgage Grader served an affidavit of merit (AOM) on Olivo and W & O but not on Ward; it alleged vicarious liability against Ward based on conversion of W & O from an LLP to a general partnership (GP) for failure to maintain insurance.
- Trial court converted W & O to a GP (making Ward potentially liable) and found AOM service defective; Appellate Division reversed, holding conversion improper and that only this Court may discipline LLPs under the rule.
- The Supreme Court affirmed the Appellate Division: held windup is not practicing law for Rule 1:21-1C purposes, tail coverage not required, and trial courts lack authority to convert LLPs to GPs for insurance noncompliance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Rule 1:21-1C require LLPs to maintain malpractice insurance during the windup period? | Mortgage Grader: Yes — windup still a partnership practice period so insurance must be maintained. | Ward: No — windup activities are administrative (collecting fees, taxes) and not "practicing law," so no insurance requirement. | The Court held windup (when firm has ceased providing legal services) is not practicing law for Rule 1:21-1C; no insurance required during windup. |
| Does Rule 1:21-1C require purchase of tail (extended reporting) coverage after dissolution? | Mortgage Grader: Rule should encompass tail coverage because insurance is the quid pro quo for LLP shield. | Ward: Rule and UPA do not mandate tail coverage; imposing one is a rulemaking/legislative decision and raises practical problems. | The Court held Rule 1:21-1C does not require tail coverage. |
| Can a trial court convert an LLP into a GP (stripping liability shield) as a sanction for failing to maintain insurance? | Mortgage Grader: Conversion is an available consequence of noncompliance; court may "otherwise discipline" LLPs under the rule. | Ward: Only this Court may impose discipline under the rule; UPA provides no authority for judicial conversion; conversion is improper. | The Court held only this Court (via disciplinary rules) may discipline LLPs; trial court conversion to GP was improper and UPA does not authorize such conversion. |
| Was service of the affidavit of merit on Ward required? | Mortgage Grader: Not required if Ward was vicariously liable as a GP partner (because conversion had occurred). | Ward: AOM not served on him; Mortgage Grader failed to substantially comply with the AOM statute. | Because Ward remained shielded, vicarious-liability theory failed; in any event, an AOM is not required against a defendant when the claim alleges only vicarious liability. |
Key Cases Cited
- Zuckerman v. Nat’l Union Fire Ins. Co., 100 N.J. 304 (claims-made policy and tail coverage explained)
- First Am. Title Ins. Co. v. Lawson, 177 N.J. 125 (describing LLP liability shield and insurance quid pro quo)
- Scaglione v. St. Paul-Mercury Indem. Co., 28 N.J. 88 (partnership continues solely to wind up affairs after dissolution)
- Couri v. Gardner, 173 N.J. 328 (affidavit of merit analysis—when AOM is required)
- Hubbard v. Reed, 168 N.J. 387 (AOM not required in common-knowledge cases)
- McGrogan v. Till, 167 N.J. 414 (statute of limitations for malpractice)
- Manalapan Realty, L.P. v. Manalapan Twp. Comm., 140 N.J. 366 (de novo review of statutes and rules)