MORTGAGE GRADER, INC., Plaintiff-Respondent, v. WARD & OLIVO, L.L.P., and JOHN OLIVO, ESQ., and JOHN WARD, ESQ., Defendant-Appellant.
DOCKET NO. A-3777-13T3
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION
November 14, 2014
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION. APPROVED FOR PUBLICATION November 14, 2014 APPELLATE DIVISION. Submitted November 5, 2014 - Decided November 14, 2014. Before Judges Yannotti, Fasciale and Hoffman.
On appeal from Superior Court of New Jersey, Law Division, Union County, Docket No. L-3739-12.
Pashman Stein, P.C., attorneys for respondent (Dennis T. Smith and Michael J. Zoller, on the brief).
1 Incorrectly designated as Ward & Olivio, L.L.P. and John Olivio, Esq.
The opinion of the court was delivered by
FASCIALE, J.A.D.
In this legal malpractice case, we granted leave to appeal from a February 28, 2014 order denying defendant John Ward‘s motion to dismiss the complaint for failure to comply with the Affidavit of Merit Statute (“AMS“),
Under the facts of this case, Ward argues that he is shielded from liability as a partner in a limited liability partnership (“LLP“) and is therefore not vicariously liable for the alleged legal malpractice of his former partner, defendant John Olivo. Ward also contends that he is otherwise entitled to a dismissal of the complaint because plaintiff Mortgage Grader, Inc. (“MG“) failed to serve an affidavit of merit (“AOM“) on Ward or substantially comply with the AMS.
The primary issue is whether Ward loses his liability protection as a partner in an LLP if the LLP failed to purchase a tail insurance policy.2 We disagree with the motion judge that such a sanction is authorized and hold that when attorneys practice law as an LLP, and the LLP fails to obtain and maintain
professional liability
As a result, we reverse, remand, and direct the trial court to enter an order dismissing the complaint against Ward with prejudice.
I.
Ward and Olivo established defendant Ward & Olivo, L.L.P., (“W&O“), a law firm engaged in the practice of intellectual property law. Ward and Olivo formed W&O as an LLP pursuant to the UPA,3 and W&O obtained and maintained a claims-made professional liability insurance policy.
On July 29, 2009, MG retained W&O to sue various persons or entities for patent infringement. Olivo entered into a contingency fee agreement with MG and filed a lawsuit (the “underlying lawsuit“) against several defendants. MG settled the underlying lawsuit (“the settlements“) by giving those defendants licenses in exchange for payment of a “one-time settlement amount.”
On June 30, 2011, Ward and Olivo stopped actively practicing law as W&O.4 Thereafter, W&O began winding up its law practice by collecting outstanding legal fees. W&O‘s professional liability insurance policy expired on August 8, 2011, and W&O did not purchase a tail insurance policy.
MG filed a legal malpractice complaint against W&O, Olivo, and Ward in October 2012. MG alleged in its complaint that Olivo‘s legal advice harmed MG‘s patent rights because Olivo, among other things, failed to require that royalty rates or licensing fees be part of the settlement. MG also alleged that W&O and Ward were vicariously liable for Olivo‘s acts or omissions. By the time MG filed its complaint, W&O‘s claims-made policy had expired and W&O was uninsured. Ward had no
involvement in the underlying lawsuit, the settlements, or Olivo‘s legal representation of MG.
On March 5, 2013, Ward filed his answer to the complaint. MG did not provide Ward with an AOM within 120 days pursuant to
MG maintained that it had substantially complied with the AMS by serving Olivo and W&O, but not Ward, with a December
The motion judge conducted oral argument and issued a written opinion. The judge determined that MG was required to serve Ward with an AOM and failed to do so. He rejected MG‘s contention that it had substantially complied with the AMS. The judge stated that “[i]f the AOM were the only issue, [then] the complaint would be dismissed.”
The judge determined, however, that W&O had not ceased practicing law because W&O collected outstanding legal fees after June 30, 2011. Reading
On appeal, Ward argues that the motion judge acted without legal authority to convert a properly organized LLP into a GP. Ward contends that as a partner in an LLP, he is shielded from
Olivo‘s liability and that MG‘s complaint against him should be dismissed with prejudice as a matter of law. Ward also contends that he is entitled to a dismissal of the complaint with prejudice because MG failed to serve him with an AOM or otherwise substantially comply with the AMS.
Because the judge resolved legal questions, we review his conclusions on issues of law de novo. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). The judge‘s interpretations of our court rules are similarly reviewed de novo. See Washington Commons, L.L.C. v. City of Jersey City, 416 N.J. Super. 555, 560 (App. Div. 2010), certif. denied, 205 N.J. 318 (2011).
II.
We begin by addressing Ward‘s contention that MG‘s complaint must be dismissed as a matter of law because
A.
Our paramount goal in interpreting
The plain language of
An obligation of a partnership incurred while the partnership is [an LLP], whether arising in contract, tort, or otherwise, is solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such an obligation solely by reason of being or so acting as a partner.
[
N.J.S.A. 42:1A-18c .]
Without LLP status, “all partners are liable jointly and severally for all obligations of the partnership . . . .”
Under the UPA, the status of an LLP remains effective until the LLP itself cancels its status,
the required filing fee.”
B.
The same principles of statutory construction apply to the interpretation of court rules:
When interpreting court rules, we ordinarily apply canons of statutory construction . . . . The Court must ascribe to the [words of the rule] their ordinary meaning and significance . . . and read them in context with related provisions so as to give sense to the [court rules] as a whole . . . . If the language of the rule is ambiguous such that it leads to more than one plausible interpretation, the Court may turn to extrinsic evidence.
[Wiese v. Dedhia, 188 N.J. 587, 592 (2006) (alterations in original) (citations and internal quotation marks omitted).]
The plain language of
Attorneys may engage in the practice of law as [an LLP] . . . provided that: . . . The [LLP] shall obtain and maintain in good standing one or more policies of lawyers’
professional liability insurance which shall insure the [LLP] against liability imposed upon it by law for damages resulting from any claim made against the [LLP] by its clients arising out of the performance of professional services by attorneys employed by the [LLP] in their capacities as attorneys.5
[
R. 1:21-1C(a)(3) .]
The rules also require that LLPs must comply with all provisions of the UPA and
In the exercise of its rulemaking authority, the Supreme Court enumerated specific sanctions against LLPs for failing to comply with
under the UPA, when attorneys practice as an LLP without maintaining professional liability insurance.
It is well-settled that the Legislature is presumed to be aware of the court rules. Cf. Quaremba v. Allan, 67 N.J. 1, 14 (1975). Thus, the Legislature has been aware of
Thus, if attorneys practice as an LLP, and the LLP fails to maintain malpractice insurance as required by the court rules, then the Supreme Court may terminate or suspend the LLP‘s right to practice law or otherwise discipline it. As currently written, however, the court rules do not authorize a trial court to sanction a partner of an LLP for practicing law as an LLP without the required professional liability insurance by converting an otherwise properly organized LLP into a GP.
C.
Although we have concluded that the plain language of the UPA and the court rules are unambiguous, our review of the committee report leading to the Court‘s adoption of
Nothing in the report of the committee which proposed
Our Supreme Court has chosen to discipline attorneys without malpractice insurance that are organized as professional corporations, rather than dissolve their corporate structure. See e.g., In re Aponte, 215 N.J. 298, 298-99 (2013) (censuring an attorney for failing to maintain liability insurance while practicing as a professional corporation in violation of
professional corporations to file a certificate of insurance with the Clerk of the Supreme Court).6
Therefore, we disagree with the trial court‘s conclusion that, as a matter of law, W&O was converted from an LLP to a GP when it failed to purchase a tail insurance policy. Ward is
thus shielded from personal liability in this case because of W&O‘s LLP status.
III.
Ward argues that, even if he is not shielded from personal liability as a partner of W&O, the complaint against him should have been dismissed with prejudice because MG did not comply with the AMS. We agree.
A plaintiff filing a lawsuit alleging “malpractice or negligence by a licensed person in his profession or occupation . . . shall . . . provide each defendant” with an AOM.
If the AOM is not filed within the time required by the AMS and the defendant moves to dismiss, then the action will usually be dismissed with prejudice. Paragon Contractors, Inc. v. Peachtree Condo. Ass‘n, 202 N.J. 415, 422 (2010). The requirement to serve an AOM also applies, as in this case, where a plaintiff “wishes to invoke principles of vicarious liability” against partners of a law firm for a fellow partner‘s malpractice or negligence. See Shamrock Lacrosse, Inc. v.
Klehr, Harrison, Harvey, Branzburg & Ellers, L.L.P., 416 N.J. Super. 1, 23 (App. Div. 2010) (noting that “[i]ndeed, the wording of the [AMS] contemplates such potential vicarious liability“).7
Two equitable remedies temper an inflexible application of the AMS. “A complaint will not be dismissed if the plaintiff can show that he has substantially complied with the statute.” Ferreira v. Rancocas Orthopedic Assocs., 178 N.J. 144, 151 (2003). Even in the absence of substantial compliance, “a complaint will be dismissed without prejudice if there are extraordinary circumstances to explain noncompliance.” Ibid.
Here, MG argued that it substantially complied with the AMS. “The doctrine of substantial compliance is an equitable one which is utilized ‘to avoid the harsh consequences that flow from technically inadequate actions that nonetheless meet a statute‘s underlying purpose.‘” Cnty. of Hudson v. State, Dep‘t
of Corr., 208 N.J. 1, 21 (2011) (quoting Galik v. Clara Maass Med. Ctr., 167 N.J. 341, 352 (2001)). The doctrine requires MG to show
(1) the lack of prejudice to the defending party; (2) a series of steps taken to comply with the statute involved; (3) a general compliance with the purpose of the statute; (4) a reasonable notice of [a plaintiff‘s] claim; and (5) a reasonable explanation why there was not strict compliance with the statute.
[Ferreira, supra, 178 N.J. at 151 (citation and internal quotation marks omitted).]
We agree with the judge‘s well-reasoned determination that MG failed to substantially comply with the AMS. In reaching that conclusion, the judge stated that
the [c]ourt finds that there is real prejudice to Ward, since he is uninsured and his personal assets would be at risk. Moreover, there were no deliberate, thoughtful steps taken to comply with the statute, the purpose of the statute was essentially ignored, there was no reasonable notice of the claim as to Ward personally and no remotely reasonable explanation of why there was not strict compliance.
As a result of failing to serve an AOM on Ward or substantially comply with the AMS, MG‘s complaint against Ward must be dismissed with prejudice. See
We reverse, remand, and direct the judge to enter an order dismissing the complaint against Ward with prejudice.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION