2003 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-19-2003

Morganroth v. Norris McLaughlin

Precedential or Non-Precedential: Precedential

Docket No. 02-2087

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PRECEDENTIAL

Filed May 30, 2003

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 02-2087

MORGANROTH & MORGANROTH, a

Michigan partnership;

MAYER MORGANROTH,

Appellants

v.

NORRIS, MCLAUGHLIN & MARCUS, P.C.;

VICTOR S. ELGORT; DANIEL R. GUADALUPE;

CHARLES H. NEWMAN; DAVID C. ROBERTS;

JOHN DOE(S), I-X

Appeal from the United States District Court

For the District of New Jersey

D.C. No.: 00-cv-4139

District Judge: Honorable Garrett E. Brown, Jr.

Argued: April 10, 2003

Before: BARRY and ROSENN, Circuit Judges, and

POLLAK,* District Judge.

(Filed May 30, 2003)

* Honorable Louis H. Pollak, Senior District Judge, United States District

Court for the Eastern District of Pennsylvania, Sitting by Designation. 
Thomas S. Howard, Esq. (Argued)

Heather W. Goldstein, Esq.

Kirsch, Gartenberg & Howard

Two University Plaza

Suite 400

Hackensack, NJ 07601

Counsel For Appellants

Wendy L. Mager, Esq. (Argued)

William J. Brennan III, Esq.

Smith, Stratton, Wise, Heher

& Brennan, L.L.P.

Suite 4200

600 College Road East

Princeton, NJ 08540

Counsel For Appellees

OPINION OF THE COURT

ROSENN, Circuit Judge.

This appeal raises thorny questions relating to the

bounds of legitimate legal advocacy and transgressive

participation by attorneys at law in a client’s illegal

conduct. The plaintiffs, Morganroth & Morganroth, a

Michigan law firm, and Mayer Morganroth, Esq.

(“Morganroths”), sued John Z. DeLorean in a federal court

in Michigan for legal services rendered over approximately

ten years. The jury returned a verdict in their favor against

DeLorean and Ecclesiastes 9:10-11-12, Inc. (“Ecclesiastes”),

a corporation controlled by him, in a sum exceeding six

million dollars. The Michigan Court enjoined DeLorean from

transferring his assets. It set aside a purported transfer to

Genesis III, Inc. (“Genesis”) (another corporation DeLorean

controlled) of DeLorean’s Lamington Farm in New Jersey as

a fraudulent conveyance to hinder, delay, or defraud

DeLorean’s creditors. 

The plaintiffs brought the instant suit against Norris,

McLaughlin & Marcus, P.C. (Norris, McLaughlin), a New

Jersey law firm, as well as Victor S. Elgort, Esq., and

Daniel R. Guadalupe, Esq., its employees or affiliates. The

2
complaint alleges that they actively, knowingly, and

intentionally participated in their client’s unlawful efforts to

avoid execution on his property. The United States District

Court for the District of New Jersey dismissed the action on

the ground that the plaintiffs had not alleged all of

the elements of common law fraud, including

misrepresentations to the plaintiffs, detrimental reliance,

and cognizable damages. The plaintiffs timely appealed. We

vacate and remand.

I.

For the purposes of defendants’ motion to dismiss, we

must accept as true the allegations in plaintiffs’ complaint

and make all reasonable inferences in their favor. Shaev v.

Saper, 320 F.3d 373, 375 (3d Cir. 2003). The statements of

fact in this opinion are drawn from the allegations in the

complaint. 

The plaintiffs filed suit against DeLorean and Ecclesiastes

in a federal district court in Michigan in February 1993,

seeking a judgment for their legal services and also

injunctive relief. Defendants Norris, McLaughlin and/or

Elgort represented DeLorean in that action. In May 1994,

DeLorean purported to convey his interests in his 430 acre

Lamington Farm for a nominal sum to Genesis. Norris,

McLaughlin assisted DeLorean in this transaction and in

forming Genesis. 

On July 11, 1994, the Honorable Anna Diggs Taylor

enjoined DeLorean from transferring any assets, including

Lamington Farm. Judge Taylor set aside the purported

transfer of the farm to Genesis on September 12, 1994, and

declared that it was a fraudulent conveyance with intent to

hinder, delay, or defraud DeLorean’s creditors, including

the Morganroths. The Michigan jury found for the

Morganroths and in February 1995 they obtained a

judgment against DeLorean and Ecclesiastes, jointly and

severally, in the sum of $6,228,235. A substantial amount

of the judgment remains unpaid. 

The complaint alleges that after the Michigan trial,

DeLorean continued to take steps to obstruct the

Morganroths from recovering on the judgment. In February

3
1995, he delivered his shares of capital stock in a Nevada

corporation called CRISTINA to the United States Marshals

Service to facilitate execution of a judgment in favor of

DeLorean Cadillac, Inc., an Ohio corporation controlled by

his brother. The Morganroths allege that this action was a

fraudulent effort to obstruct them from enforcing their

judgment against DeLorean’s CRISTINA stock. 

In April 1995, Elgort and Norris, McLaughlin prepared a

deed purporting to confirm the May 24, 1994 deed

conveying DeLorean’s interests in Lamington Farm to

Genesis. They recorded the deed with the Somerset County,

New Jersey Clerk. The Morganroths allege that the

defendants took this action “with the intent of defrauding

[them] and aiding DeLorean in his efforts to hinder and

delay [the Morganroths’] enforcement of the Michigan

Judgment.” 

Two days after the defendants recorded the deed, the

Morganroths sought to enforce the Michigan judgment in a

supplementary proceeding against DeLorean and

Ecclesiastes in the United States District Court for the

District of New Jersey. Norris, McLaughlin and/or Elgort

and/or Guadalupe represented DeLorean in the

supplementary action. The Morganroths registered the

Michigan judgment in the United States District Court for

the Southern District of New York and served DeLorean

with a restraining order to prevent him from conveying

property until their judgment against him had been

satisfied.

The complaint alleges that on or before June 2, 1995,

Norris, McLaughlin and Guadalupe prepared a

Memorandum of Life Lease in which Genesis, the purported

title holder of Lamington Farm, acknowledged a preexisting

life lease created in September 1987 between DeLorean, as

lessor, and DeLorean, as guardian for his children, as

lessee. The Memorandum was created after the entry of the

Michigan judgment. The purported lease concerned all or a

portion of Lamington Farm, including a mansion house,

several additional dwelling units, and other buildings. The

Morganroths allege that the life lease was a fiction and that

Norris, McLaughlin and Guadalupe knew it was; the

defendants created the Memorandum in a fraudulent

4
attempt to obstruct plaintiffs’ enforcement of the Michigan

judgment. 

Two weeks before DeLorean was to be deposed, Norris,

McLaughlin recorded the purported life lease Memorandum

with the Somerset County Clerk. Norris, McLaughlin

subsequently prepared and recorded a corrective deed,

again purporting to transfer DeLorean’s interest in

Lamington Farm to Genesis. On August 3, 1995, Norris,

McLaughlin wrote a letter to the Somerset County Clerk.

The letter enclosed a copy of Judge Taylor’s November 3,

1994 order dissolving the July 11, 1994 preliminary

injunction order. According to the complaint, Norris,

McLaughlin misrepresented to the Clerk that the November

3, 1994 order had the effect of dissolving Judge Taylor’s

September 12, 1994 order which had set aside DeLorean’s

fraudulent conveyance of Lamington Farm to Genesis. The

Clerk relied on this deceptive letter and entered into the

public record erroneous marginal notations of the

purported dissolution of Judge Taylor’s September 12, 1994

order. 

In January 1996, the United States District Court for the

District of New Jersey issued on the Morganroths’ behalf a

writ of execution in the supplementary proceeding. This

writ included in the execution, inter alia, Lamington Farm,

certain personal property, and the CRISTINA shares. Elgort

privately contacted the attorney representing DeLorean

Cadillac, which was controlled by DeLorean’s brother.

Elgort asked the attorney not to contact the Morganroths or

the Marshal in connection with some furniture described in

the writ of execution that was being removed by John

DeLorean to a warehouse owned by DeLorean Cadillac for

the purpose of escaping plaintiffs’ writ of execution. The

instant defendants did not disclose to the District Court at

the time they moved for and argued the motion to vacate

the plaintiffs’ writ of execution that DeLorean had delivered

the CRISTINA shares to the Marshal to facilitate the

execution by DeLorean Cadillac on its writ. 

Based on the transfers, Norris, McLaughlin and

Guadalupe argued that the CRISTINA shares and

Lamington Farm were not subject to the plaintiffs’ writ of

execution. Plaintiffs allege that Norris, McLaughlin and

5
Guadalupe knew, or should have known, that these

transfers were made by DeLorean and others with the

intent to hinder, delay, and defraud the plaintiffs. On

October 3, 1996, the District Court denied the motion and

found that Judge Taylor’s September 12, 1994 order setting

aside DeLorean’s purported transfer of Lamington Farm to

Genesis was a facially valid order that had not been

vacated. 

On April 7, 1999, the District Court issued a further writ

of execution (“Second Alias Writ”). This writ included

DeLorean’s right to redeem Lamington Farm from Merrill

Lynch Credit Corporation under an amended consent order

in foreclosure proceedings brought by Merrill Lynch against

DeLorean and others in the New Jersey Chancery Court

(“the Redemption Rights”). Again, Norris, McLaughlin

moved to vacate this writ, maintaining that DeLorean’s

Redemption Rights were not subject to execution based

upon the previous transfers and other transactions. The

Morganroths allege that defendants knew or should have

known that these transactions were entered into by

DeLorean and others to hinder, delay, and/or defraud the

Morganroths and also knew that the New Jersey Chancery

Court had held that plaintiffs could execute their judgment

against DeLorean’s Redemption Rights. 

The District Court held in July 1999 that plaintiffs could

execute the New Jersey Chancery Court’s judgment against

the Redemption Rights and ordered a U.S. Marshal’s sale of

those rights. The Morganroths allege that the defendants

made every effort to hinder the sale by making arguments

based on transactions that the defendants knew to be

fraudulent. Additionally, plaintiffs allege that in Chapter 11

bankruptcy proceedings in the District of Maryland, Norris,

McLaughlin maintained that the Redemption Rights were

the property of DeLorean’s children and not subject to the

Second Alias Writ, although it knew that the District Court

had held they were John DeLorean’s property and subject

to execution and sale to satisfy the New Jersey judgment.

In the instant suit, the Morganroths sued only

DeLorean’s lawyers in the United States District Court for

the District of New Jersey.1 Count I of the complaint alleges

1. The District Court had jurisdiction under a diversity theory. See 28

U.S.C. § 1332. The controversy is between citizens of different states.

6
that defendants conspired to commit fraud. It alleges that

defendants agreed to make misrepresentations and

omissions to defraud the plaintiffs; they took tortious steps

in furtherance of those agreements, causing actual and

consequential damages including attorneys’ fees and

expenses involved in recovering on the Michigan judgment.

In Count II, the Morganroths claim that defendants

knowingly aided and abetted DeLorean’s acts of fraud and

concealment for the purpose of hindering plaintiffs’ efforts

to enforce the judgment, causing actual and consequential

damages. In Count III, plaintiffs assert that defendants

themselves committed fraud through their knowing

material misrepresentations, fraudulent concealment, and

wrongful withholding of information, and that these acts

and omissions proximately caused plaintiffs actual and

consequential damages. 

Defendants moved to dismiss for failure to state a claim

under Federal Rule of Civil Procedure 12(b)(6) and the

District Court granted the motion. 

II.

The District Court should only have dismissed the

Morganroths’ claims if they failed to allege a set of facts

that would entitle them to relief. See Conley v. Gibson, 355

U.S. 41, 45-46 (1957). The Court should have accepted all

well-pleaded allegations in the complaint as true and

should have viewed them in the light most favorable to the

Morganroths. See Shaev, 320 F.3d at 375. This Court’s

review of the District Court’s dismissal is plenary. See

Board of Trustees of Bricklayers & Allied Craftsmen Local 6

v. Wettlin Assocs., 237 F.3d 270, 272 (3d Cir. 2001). 

Morganroth & Morganroth is a Michigan partnership with its principal

place of business in Michigan. Plaintiff Mayer Morganroth is a citizen of

the state of Michigan and has a principal place of business in Michigan.

All the defendants are from New Jersey. The amount in controversy

substantially exceeds $75,000. The District Court’s March 19, 2002

order granting defendants’ motion to dismiss is a final order for the

purposes of 28 U.S.C. § 1291. 

7
In their motion to dismiss, defendants argued that the

Morganroths’ complaint did not allege misrepresentations

made by defendants or that plaintiffs relied upon any of

defendants’ statements to their detriment. See Dist. Ct. op.

at 8. Thus, defendants argued, the complaint does not

allege all of the elements of actionable fraud. Id. The

District Court agreed, concluding that in the absence of

allegations of material misrepresentations to the plaintiffs,

reasonable reliance, and damages proximately caused by

the misrepresentations, there could be no finding of

common law fraud. See id. at 9. 

Plaintiffs acknowledge that they have not stated a claim

for common law fraud, but argue they did state a claim for

creditor fraud under New Jersey law. They assert that they

are not required to allege reliance upon statements made

by the defendants to make out a cause of action for creditor

fraud because New Jersey case law provides a cause of

action against a judgment debtor who fraudulently

obstructs enforcement of a judgment.

The tort of creditor fraud, which does not require that the

plaintiff plead all of the elements of common law fraud, has

not yet been recognized by the New Jersey Supreme Court.

Nevertheless, the New Jersey Superior Court has explained

that “[i]t is not necessary for plaintiff to show a classic case

of legal fraud in order to have a viable cause of action when

it is otherwise demonstrated that actions have been taken

for the purposes of defrauding a creditor.” Karo Marketing

Corp. v. Playdrome Am., 752 A.2d 341, 346 (N.J. Super. Ct.

App. Div. 2000). The District Court attempted to

distinguish Karo on the ground that it did not recognize

that “a judgment creditor will be able to maintain a cause

of action against a debtor’s legal counsel.” Dist. Ct. op. at

12 n.2. In Karo, a creditor won a judgment against a

management company. The creditor then sued the

management company’s parent corporation, subsidiaries,

shareholders, and lawyers to recover for various actions

they took to make the management company judgment

proof. Karo held that the creditor had stated a separate and

independent claim “sounding in creditor fraud,” id. at 345,

even though the management company and its attorneys

and affiliates had not made any misrepresentations to the

judgment creditor. 

8
Karo was based in part on Jugan v. Friedman, 646 A.2d

1112 (N.J. Super. Ct. App. Div. 1994). In Jugan, a creditor

won a tort judgment against a debtor. Seeking to enforce

the judgment, the creditor sued the debtor and his wife and

sons as the recipients of allegedly fraudulent conveyances.

The court held that the creditor was entitled to void the

fraudulent conveyances made for no consideration from the

debtor to his family. Moreover, the debtor’s fraudulent

interference with the creditor’s efforts to collect constituted

an independent tort entitling the creditor to damages. Id. at

1119; Banco Popular North America v. Gandi, 2003 N.J.

Super. LEXIS 151, at *13 (N.J. Super. Ct. App. Div. April

29, 2003) (“. . . we recognized [in Jugan] that [the debtor]’s

efforts to interfere with Jugan’s attempt to collect on his

judgment debt constituted a separate, cognizable tort.”). As

in Karo, Jugan did not require that the plaintiff rely to his

detriment on a false representation by the defendant.

Jugan, 646 A.2d at 1119. The New Jersey Superior Court

explained: 

Mr. Jugan did not undertake the present action

because he was fooled by [the debtor]’s false

representations. He sued to set the purported transfers

aside because he knew they were false. Nonetheless,

[the debtor]’s conduct was clearly unlawful and it is

closely enough analogous to common law fraud that we

have no hesitancy in ruling, as we do, that it was

tortious and that Mr. Jugan is therefore entitled to

recover for damage of which that tort was the

proximate cause. 

Id. at 1119-20 (emphasis in original). Additionally, Jugan

was entitled to recover the attorney’s fees incurred in

litigation with the debtor’s wife and sons that were made

necessary by the debtor’s interference. 

The District Court in this case rejected the Morganroths’

argument that they had stated a claim for creditor fraud.

The Court reasoned that Karo and Jugan do not support a

general cause of action against a debtor’s attorney when

the plaintiffs do not allege reliance on the attorney’s

misrepresentations. See Dist. Ct. op. at 11. The District

Court acknowledged that one of the defendants in Karo was

the debtor’s attorney, but reasoned that the Karo plaintiffs

9
alleged with greater specificity than the plaintiffs do here

that the attorney was actively involved in creating and

executing the scheme. The District Court characterized the

Morganroths’ complaint as only making “general allegations

that the defendants conspired with the debtors to deprive

them of their enforcement of the judgment. There are no

allegations that the defendants orchestrated or devised the

debtor’s alleged scheme to defraud them, such as the

claims against the attorney in Karo.” Id. at 10. We disagree.

The Morganroths’ allegations amply satisfy Karo’s

requirements. 

The Morganroths have alleged facts that, if proven, would

establish that the defendants went beyond the bounds of

permissible advocacy; they allege that defendants were

active participants and planners in the scheme to obstruct

the plaintiffs’ efforts to execute on their judgment. Plaintiffs

allege that Norris, McLaughlin prepared a confirmatory

deed that purported to transfer Lamington Farm from

DeLorean to Genesis. The Morganroths assert that the

defendants knew this deed to be false when they prepared

it and that they did so with the intent of unlawfully aiding

DeLorean in his efforts to defraud the Morganroths and to

hinder and delay enforcement of the Michigan judgment. 

Moreover, plaintiffs allege that on or before June 2, 1995,

Norris, McLaughlin knowingly and falsely prepared a sham

Memorandum of Life Lease. The sham lease purported to

acknowledge the existence of a fictional 1987 lessor-lessee

relationship between DeLorean as owner and DeLorean as

guardian of his children as lessee. Whether a bona fide

lease actually existed as of 1987 is a factual question. If it

did not, and if the defendants knew it did not, they

transgressed the bounds of legal advocacy and committed

creditor fraud. 

Plaintiffs specifically allege a number of other intentional

acts in furtherance of the scam to hinder collection of

plaintiffs’ judgment: the defendants recorded the sham

lease with the Somerset County Clerk’s office; they

prepared and recorded a corrective lease with the clerk’s

office; they wrote a letter to the clerk’s office deliberately

misrepresenting the effect of the September 12, 1994

Michigan court order. The defendants took no action to

10
correct these misrepresentations, even after the District

Court denied DeLorean’s motion to vacate the writ on

October 3, 1996, and upheld the September 12, 1994

Michigan order. 

Defendants’ responses to these arguments miss the

mark. For example, they argue that whether or not the

existence of a life lease harmed the plaintiffs, the recording

of it had no adverse effect. The Morganroths’ claim is that

no genuine life lease existed. Rather, it was merely a

fictional invention of the defendants with the intent to

hinder and defraud the plaintiffs of their judgment against

DeLorean and Genesis, thereby encumbering the title to

Lamington Farm. Defendants argue that the act of

recording the lease did not have any effect on the plaintiffs

because it merely asserted DeLorean’s legal position. The

truth of this statement depends on two triable facts: (1)

whether the 1987 lease actually existed; and (2) whether

DeLorean’s lawyers knew that it did not and was merely a

fiction. 

The plaintiffs also allege that Norris, McLaughlin assisted

in the formation of Genesis for the sole purpose of

obstructing plaintiffs’ efforts to enforce their judgment

against DeLorean, and pursuant to such purpose

engineered the conveyance of Lamington Farm to it. The

defendants respond that this was done to facilitate the

development of the property as a golf course. However, the

transfer to Genesis was judicially determined to be a fraud

by the Michigan court. Whether defendants knew or

participated knowingly in the fraud is a triable issue. The

defendants further argue that the transfer could not have

prevented the Morganroths from collecting on their

judgment because DeLorean had a 98% interest in Genesis.

However, plaintiffs’ allegation is that the transaction was a

sham meant to hinder or delay, not that it was an

insuperable obstacle to eventual recovery. The Morganroths

allege that the defendants knowingly participated in this

scheme to hinder or delay. 

The defendants further argue that the Genesis transfer

did not cause the plaintiffs to litigate with a third party

because Merrill Lynch already had a superior lien on the

Lamington Farm. The conveyance from DeLorean to

11
Genesis may or may not have affected the Morganroths’

rights vis-a-vis Merrill Lynch, but it did hinder and delay

plaintiffs’ efforts to enforce the Michigan judgment, and it

did increase their litigation costs. The defendants argue

that the plaintiffs cannot show that the sham Genesis

transaction harmed them unless they can prove that but

for the Genesis transfer, they would have obtained the farm

outright. This argument is sophistry; the plaintiffs must

only allege that the defendants actively and knowingly

participated in a fraudulent scheme that hindered or

delayed their efforts to enforce the Michigan judgment.

These efforts might not have given plaintiffs unencumbered

title to the farm by foreclosure but, at least, gave them a

valuable interest or title subject to the Merrill Lynch lien. 

The complaint alleges that the defendants pursued an

unlawful and fraudulent means of evading the writ of

execution when they wrote DeLorean Cadillac’s attorney

requesting him not to communicate with the Marshal or

with Morganroth’s attorney about DeLorean’s furniture.

Defendants argue that the letter merely asserts DeLorean’s

legal position that DeLorean Cadillac has no obligation to

inform the Morganroths that furniture obtained by

DeLorean Cadillac pursuant to a writ of execution in

another case had been moved to a warehouse. If the

contents and purpose of the letter are proven at trial, this

evidence would support plaintiffs’ claim of creditor fraud. 

The Morganroths also allege that the defendants

knowingly made false representations in court proceedings

regarding DeLorean’s furniture and his CRISTINA shares.

The allegation is that the defendants knew, or should have

known, that the transfers upon which their arguments were

based were shams entered into with an intent to hinder or

delay and defraud plaintiffs in the execution of the

Michigan judgment.2

2. Defendants implausibly argue that the Morganroths’ complaint fails to

satisfy Federal Rule of Civil Procedure 9(b) because it is not pled with

adequate particularity. See Dist. Ct. op. at 8. Rule 9(b) provides that “[i]n

all averments of fraud or mistake, the circumstances constituting fraud

or mistake shall be stated with particularity. Malice, intent, knowledge

and other condition of mind of a person may be averred generally.” Fed.

12
We hold that when a complaint alleges that an attorney

has knowingly and intentionally participated in a client’s

unlawful conduct to hinder, delay, and/or fraudulently

obstruct the enforcement of a judgment of a court, the

plaintiff has stated a claim under New Jersey law for

creditor fraud against the attorney. This is so even if the

complaint does not allege any misrepresentation by the

attorney to the judgment creditor and does not allege that

the creditor detrimentally relied on such misrepresentation.

In this case, the Morganroths have alleged many facts

which, if proven, would amply satisfy this test. Thus, the

District Court’s dismissal of the Morganroths’ fraud claim

in Count III must be vacated.

III.

The District Court also erred when it held that the

dismissal of Count III required the dismissal of the

conspiracy and aiding and abetting claims. There are four

elements to the tort of civil conspiracy: (1) a combination of

two or more persons; (2) a real agreement or confederation

with a common design; (3) the existence of an unlawful

purpose, or of a lawful purpose to be achieved by unlawful

means; and (4) proof of special damages. Naylor v. Harkins,

99 A.2d 849, 855 (N.J. Super. Ct. Ch. Div. 1953), modified

on other grounds, 109 A.2d 19 (N.J. Super. Ct. App. Div.

1954). 

The District Court mistakenly cited Karo for the

proposition that allegations of civil conspiracy were

“adjunct” to the fraud claim. See Dist. Ct. op. at 13 (citing

Karo, 752 A.2d at 348). The citation in Karo is to Board of

Educ., Asbury Park v. Hoek, 183 A.2d 633 (N.J. 1962), in

which the New Jersey Supreme Court explained that “[t]he

gravamen of an action in civil conspiracy is not the

R. Civ. P. 9(b). The purpose of Rule 9(b) is to provide notice, not to test

the factual allegations of the claim. See Gutman v. Howard Savings

Bank, 748 F. Supp. 254, 257 (D. N.J. 1990). The fraud allegations are

sufficiently particular because they allege specific actions by which

defendants exceeded the bounds of advocacy and became active

participants in their client’s illegal scheme. 

13
conspiracy itself but the underlying wrong which, absent

the conspiracy, would give a right of action. Proof of a

conspiracy makes the conspirators jointly liable for the

wrong and resulting damages.” Id. at 646 (internal citations

omitted). Mere agreement to do a wrongful act can never

alone amount to a tort, whether or not it may be a crime.

See Rose v. Bartle, 871 F.2d 331, 366 n.59 (3d Cir. 1989);

McAlpine v. AAMCO Automatic Transmission, Inc., 461

F.Supp. 1232, 1273 (E.D. Mich. 1976). Some act that is

itself a tort must be committed by one of the parties in

pursuance of the agreement. See James v. Evans, 149 F.

136, 140 (3d Cir. 1906) (“The gist of the action is not the

conspiracy charged, but the tort working damage to the

plaintiff.”). 

Not every conspirator must commit an overt act in

furtherance of the conspiracy, so long as at least one does.

See Beck v. Prupis, 529 U.S. 494, 503 (2000). Here, the

Morganroths have alleged a number of overt acts committed

by one or more of the conspirators in furtherance of the

conspiracy, many of which would hypothetically survive the

dismissal of Count III. For example, if the defendants and

DeLorean agreed to the conspiracy but all the overt acts in

furtherance of the conspiracy were committed by DeLorean

himself, defendants would still be liable for civil conspiracy.

Thus, the conspiracy count survives both because the

District Court erred in dismissing Count III and because

the District Court erroneously concluded that DeLorean’s

overt acts could not serve as the predicates for a conspiracy

claim against defendants. 

Likewise, the District Court erred in dismissing the aiding

and abetting claim set forth in Count II. The elements of

aiding and abetting are: (1) the commission of a wrongful

act; (2) knowledge of the act by the alleged aider-abettor;

and (3) the aider-abettor knowingly and substantially

participated in the wrongdoing. Monsen v. Consol. Dressed

Beef Co., Inc., 579 F.2d 793, 799 (3d Cir. 1978); Elysian

Fed. Savings Bank v. First Interregional Equity Corp., 713 F.

Supp. 737, 760 (D.N.J. 1989) (interpreting inter alia New

Jersey common law of fraud).3 The Morganroths’ complaint

3. There are important differences between criminal and civil approaches

to aiding and abetting liability. In particular, shared intent is not

14
provides numerous allegations of defendants’ knowing

assistance to DeLorean’s fraudulent schemes. The

truthfulness of plaintiffs’ allegations regarding the

defendants’ knowledge of the fraudulent nature of

DeLorean’s actions is a question of fact to be determined at

trial.

IV.

As a general rule in New Jersey, each party must bear its

own attorneys’ fees. See, e.g., Right to Choose v. Byrne, 450

A.2d 925, 940 (N.J. 1982). An exception to this rule is that

if the wrongful conduct of a tortfeasor causes a plaintiff to

sue a third party, the plaintiff can recover the fees incurred

in the litigation against the third party from the tortfeasor.

In re Estate of Lash, 776 A.2d 765, 769 (N.J. 2001). In

Jugan, the creditor was simultaneously involved in

litigation with both the debtor and the recipients of the

debtor’s fraudulent conveyances. The court held that the

creditor was entitled to recover, as damages for the debtor’s

interference, the attorneys’ fees incurred in litigation with

the transferees of the fraudulent conveyances, but not the

fees incurred against the judgment debtor. Here, the

situation is slightly different: plaintiffs charge that the

debtor’s attorneys committed fraud. The debtor’s attorneys’

fraud did not cause the plaintiffs to sue the debtor; it did

cause them additional attorneys’ fees and expenses in the

suit to enforce the judgment against the debtor and in the

actions to set aside the purported unlawful transfers of

property and other sham transactions. 

We conclude that the situation here is sufficiently

analogous to Jugan to merit the same treatment. The

defendants allegedly were both the “but for” cause and the

proximate cause of the Morganroths’ additional attorneys’

fees. Licensed lawyers are not shielded from liability if their

required in the civil context in New Jersey. See Failla v. City of Passaic,

146 F.3d 149, 157 (3d Cir. 1998). A person is liable for harm resulting

to a third person from the conduct of another when he “knows that the

other’s conduct constitutes a breach of duty and gives substantial

assistance or encouragement to the other so to conduct himself . . . .”

Id. at 157-58 (quoting Restatement (Second) of Torts § 876(b)). 

15
conduct extends beyond the legitimate bounds of lawful

representation. See Wahlgren v. Bausch & Lomb Optical Co.,

68 F.2d 660, 664 (7th Cir. 1934) (“One may not use his

license to practice law as a shield to protect himself from

the consequences of an unlawful or illegal conspiracy.”);

accord Banco Popular, 2003 N.J. Super. LEXIS 151, at *15-

*16. Although the Morganroths are not entitled to attorneys’

fees arising out of their original suit against DeLorean, the

additional expenses in fees and costs they incurred to

enforce the judgment as a result of defendants’ alleged

fraud are recoverable. See Jugan, 646 A.2d at 1120. 

The District Court concluded that plaintiffs made an

insufficient “blanket allegation” that they have suffered

extra costs. See Dist. Ct. op at 10. The Morganroths’ theory

of damages is that the defendants proximately caused them

to suffer actual and consequential damages for injury to

their business or property, including but not limited to

attorneys’ fees and expenses incurred as a result of

defendants’ fraud, conspiracy to commit fraud, and aiding

and abetting DeLorean’s fraud. Thus, the Morganroths seek

to recover attorneys’ fees that they incurred as a result of

defendants’ unlawful conduct in furthering DeLorean’s

efforts. Defendants’ response is that they were merely

engaged in adversarial lawyering and that any expenses the

Morganroths incurred in enforcing the Michigan judgment

against DeLorean resulted from preexisting legitimate

claims to DeLorean’s assets by other parties. If these claims

were legitimate or had arisen prior to defendants’

representation of DeLorean, then the plaintiffs obviously

would have no case. However, these are factual questions

that cannot be resolved on a 12(b)(6) motion to dismiss.

Thus, we hold that plaintiffs have stated a claim for

damages under New Jersey law and the District Court’s

Order of Dismissal must be reversed.4

4. The defendants may also have violated New Jersey’s Uniform

Fraudulent Transfer Act, N.J.S.A. §§ 25:2-20 to 25:2-34 (UFTA), which

creates a cause of action for transfers made by a debtor that are

fraudulent as to a creditor 

if the debtor made the transfer or incurred the obligation: a. With

actual intent to hinder, delay, or defraud any creditor of the debtor;

16
V.

Defendants erroneously contend that plaintiffs’ claims to

set aside the transfer of Lamington Farm and personal

property to Genesis are barred by the statute of limitations.

They argue that those claims accrued more than six years

prior to the filing of this law suit. It is true that the transfer

of the farm to Genesis took place May 24, 1994, and this

action was not filed until August 23, 2000, more than six

years later. However, plaintiffs’ action against the

defendants for participating in DeLorean’s fraudulent

scheme to avoid collection of the Michigan judgment did

not accrue until the Morganroths obtained a judgment

against DeLorean in the Michigan litigation. Thus, the

statute of limitations runs from entry of that judgment on

February 2, 1995. The statute of limitations has, therefore,

not run on any of the plaintiffs’ claims in this lawsuit.5

Moreover, many of defendants’ allegedly fraudulent acts

and omissions took place within the time limitations period

and others have been previously judicially determined. For

example, Judge Taylor already held that the transfer of

Lamington Farm from DeLorean to Genesis was a

fraudulent conveyance. To the extent that the fraudulent

nature of that transaction is necessary as a predicate to the

or b. Without receiving a reasonably equivalent value in exchange

for the transfer or obligation, and the debtor: (1) Was engaged or

was about to engage in a business or a transaction for which the

remaining assets of the debtor were unreasonably small in relation

to the business or transaction; or (2) Intended to incur, or believed

or reasonably should have believed that the debtor would incur,

debts beyond the debtor’s ability to pay as they become due. 

N.J.S.A. § 25:2-25. However, the remedies directly under the UFTA are

limited. See N.J.S.A. § 25:2-29. Thus, plaintiffs must rely upon the tort

of creditor fraud articulated in Karo and Jugan to pursue damages for

additional attorneys’ fees incurred. 

5. The Morganroths first address the statute of limitations question in

their reply brief. The defendants raised the question in their brief. The

reply brief was the appropriate time for the Morganroths to address the

question because plaintiffs could not be expected to have anticipated

that the defendants would raise the statute of limitations defense on

appeal since it was not ruled on in the District Court. 

17
Morganroths’ other allegations, defendants cannot now

argue that it was not fraudulent.6

VI.

The District Court’s order granting defendants’ motion to

dismiss entered March 20, 2002 will be vacated as to all

three counts alleged in plaintiffs’ complaint and the case

will be remanded for further proceedings consistent with

this opinion. Costs taxed against the defendants. 

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

6. Plaintiffs also assert that the continuing violation theory tolls the

statute of limitations. See Fowkes v. Penn. R.R. Co., 264 F.2d 397 (3d

Cir. 1959). However, this theory does not apply when plaintiffs are aware

of the injury at the time it occurred. See Kichline v. Consol. Rail Corp.,

800 F.2d 356, 360 (3d Cir. 1986). The Morganroths successfully

contested the transfer of Lamington Farm to Genesis during the

Michigan action, demonstrating that they were aware of the injury at the

time and precluding resort to the continuing violation theory of tolling.

18