Court Opinion

ID: 2751415
Source: CourtListenerOpinion
Date Created: 2014-11-14 15:05:59.590063+00
Date Added: 2024-06-11T11:25:57.774285
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                APPROVAL OF THE APPELLATE DIVISION

                                          SUPERIOR COURT OF NEW JERSEY
                                          APPELLATE DIVISION
                                          DOCKET NO. A-3777-13T3

MORTGAGE GRADER, INC.,

      Plaintiff-Respondent,
                                                  APPROVED FOR PUBLICATION
v.                                                   November 14, 2014

WARD & OLIVO, L.L.P., and                           APPELLATE DIVISION
JOHN OLIVO, ESQ.,1

      Defendants,

and

JOHN WARD, ESQ.,

     Defendant-Appellant.
_________________________________

          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.

          Piro, Zinna, Cifelli, Paris & Genitempo,
          L.L.C., attorneys for appellant (Daniel R.
          Bevere and Shane A. Sullivan, on the brief).

          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"), N.J.S.A. 2A:53A-26 to -29.

       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

2
   A tail insurance policy provides insurance coverage for
malpractice that occurs during the claims-made policy coverage
period but is reported after the claims-made policy has lapsed.
See Zuckerman v. Nat’l Union Fire Ins. Co., 100 N.J. 304, 310-11
(1985) (describing various types of insurance coverage including
the definition of a "tail").

                                              2                                   A-3777-13T3
professional        liability     insurance     as    required      by    Rule   1:21-

1C(a)(3),     the    LLP   does    not   revert      to   a     general   partnership

("GP")   under      the    Uniform   Partnership          Act    ("UPA"),    N.J.S.A.

42:1A-1 to -56.        Rather, pursuant to Rule 1:21-1C(a)(2), "[a]ny

violation of [Rule 1:21-1C] by the [LLP] shall be grounds for

the Supreme Court to terminate or suspend the [LLP]'s right to

practice law or otherwise to discipline it."                      (Emphasis added).

We also conclude that Ward is entitled to a dismissal of the

complaint against him because MG failed to serve an AOM on Ward

or substantially comply with the AMS.

      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.

3
  N.J.S.A. 42:1A-47 delineates the requirements for becoming an
LLP:   approval by partnership vote, filing of a statement of
qualification with the office of the Division of Commercial
Recording in the Department of the Treasury, and appointment of
an agent for service of process.

                                          3                                  A-3777-13T3
      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

4
  Since July 1, 2011, Ward has engaged in the practice of law
with another partner in a different LLP.

                                             4                                      A-3777-13T3
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

N.J.S.A.      2A:53A-27         (establishing         deadlines    for    service     of   an

AOM).    On July 29, 2013, Ward filed his motion to dismiss the

complaint for failure to serve the AOM.                         Ward also argued that,

under the facts of this case, he was shielded from liability as

a   partner    of        W&O   pursuant     to       N.J.S.A.    42:1A-18c   (indicating

generally that a partner in an LLP is not personally liable for

the acts of another partner).

       MG maintained that it had substantially complied with the

AMS by serving Olivo and W&O, but not Ward, with a December 19,

2012    AOM   prepared          by   John   P.       Maldjian,    Esq.    (the   "Maldjian

AOM").        The    Maldjian        AOM    states       that    only    Olivo   provided

substandard legal services, and that "[b]ecause [Olivo] was part

of an apparent partnership, known as [W&O], [Maldjian's] opinion

likewise extends to [W&O]."                 The Maldjian AOM does not name or

refer to Ward.            MG also asserted that the protection afforded by

N.J.S.A. 42:1A-18c was unavailable to Ward because W&O lost its

status as an LLP when it wound up the law practice without tail

insurance.

                                                 5                                  A-3777-13T3
    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 N.J.S.A. 42:1A-18c and Rule 1:21-

1C(a)(3)    together,    the    judge    concluded       that    "[t]he      condition

precedent    to    attorneys    operating    as     an   LLP     is    [maintaining]

malpractice       insurance."      The    judge   stated        that    because       W&O

allowed its claims-made policy to expire without obtaining tail

coverage, W&O's status as an LLP was "relegated . . . to the

status of a [GP]."        The judge therefore considered W&O to be a

GP and found that Ward was no longer "entitled to protection

under the UPA."       He concluded that MG's service of the Maldjian

AOM on W&O satisfied MG's obligations as to Ward under the AMS.

He reasoned that service on the entity is considered service on

its general partners.         The judge then denied Ward's motion.

    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

                                         6                                      A-3777-13T3
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 N.J.S.A.

42:1A-18c shields him from Olivo's alleged malpractice.                          Ward

acknowledges that Rule 1:21-1C(a)(3) required W&O to purchase

malpractice insurance.         Ward contends, however, that there is no

legal authority mandating that partners of an LLP must lose

their liability protection if the LLP fails to maintain a tail

insurance policy after its ceases the active practice of law.

These contentions require us to read N.J.S.A. 42:1A-18c and Rule

1:21-1C(a)(3) together.

                                         7                                  A-3777-13T3
                                           A.

      Our paramount goal in interpreting N.J.S.A. 42:1A-18c is to

ascertain the Legislature's intent, and "generally[] the best

indicator of that intent is the statutory language."                        DiProspero

v. Penn, 183 N.J. 477, 492 (2005).                     When interpreting a statute,

we   give    words       "'their       ordinary        meaning   and   significance.'"

Tumpson     v.    Farina,        218 N.J. 450,      467   (2014)   (alteration       in

original) (quoting DiProspero, supra, 183 N.J. at 492).

      The plain language of N.J.S.A. 42:1A-18c clearly expresses

the Legislative intent that the partners of an LLP are shielded

from liability for a fellow partner's acts:

             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   .   .   .    ."

N.J.S.A. 42:1A-18a.

      Under the UPA, the status of an LLP remains effective until

the LLP itself cancels its status, N.J.S.A. 42:1A-6d, or the

LLP's status is revoked by the Department of the Treasury in the

event the LLP "fails to file an annual report when due or pay

                                              8                                 A-3777-13T3
the required filing fee."          N.J.S.A. 42:1A-49c.            Nowhere in the

UPA did the Legislature state that, when attorneys practice as

an   LLP,    the   LLP   reverts   to   a   GP    if    it   fails     to   maintain

professional       liability   insurance,        as    required   by    the    court

rules.      See also N.J.S.A. 42:1A-47f (stating that the status of

an LLP and the liability of its partners are not affected by

errors or later changes in the statement of qualification).

                                    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 Rule 1:21-1C(a)(3) is not ambiguous.

For attorneys to practice law as an LLP, the LLP must maintain

malpractice insurance.

             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'

                                        9                                   A-3777-13T3
         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 "all rules governing the practice of law by

attorneys."   R. 1:21-1C(a)(1), (2).

    In the exercise of its rulemaking authority, the Supreme

Court enumerated specific sanctions against LLPs for failing to

comply with Rule 1:21-1C.    In 1996, the Court promulgated Rule

1:21-1C(a)(2) stating in pertinent part that "[a]ny violation of

[Rule 1:21-1C] by the [LLP] shall be grounds for the Supreme

Court to terminate or suspend the [LLP]'s right to practice law

or otherwise to discipline it." (Emphasis added).   The Court did

not include as a sanction the conversion of an LLP into a GP,

thereby removing the protection afforded to a partner in an LLP

5
  Parallel rules to Rule 1:21-1C for professional corporations
and limited liability corporations can be found in Rules 1:21-1A
and -1B.     These rules similarly provide that professional
corporations and limited liability corporations engaged in the
practice of law shall obtain and maintain professional liability
insurance.

                                10                       A-3777-13T3
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 Rule 1:21-1C

since 1996.       The Legislature has decided not to amend the UPA to

require an LLP to revert to GP status as a sanction for failing

to purchase a tail insurance policy when attorneys practice as

an   LLP.         Therefore,      our    interpretation     of     the       available

sanctions     is     supported      by    a    long    period     of     legislative

acquiescence by failing to amend the UPA.                  Cf. Macedo v. Dello

Russo, 178 N.J. 340, 346 (2004) (indicating that the legislature

is presumed to approve consistent judicial interpretations and

that courts are "bound by that Legislative acquiescence").

      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.

                                          11                                  A-3777-13T3
                                               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 Rule 1:21-1C

supports our interpretation.

       Nothing in the report of the committee which proposed Rule

1:21-1C suggests any intent to convert an LLP into a GP if the

entity       failed       to     carry        the    required         legal       malpractice

insurance.      See Report of the Comm. on the Practice of Law by

Ltd.    Liab.      Cos.    and    Ltd.    Liab.      P'ships.,           reprinted    in     145

N.J.L.J.      308     (1996).        Rather,        the   committee         concluded      that

attorneys      should      be    able    to     practice       as    an     LLP   subject     to

conditions similar to professional corporations, which include

the requirement to carry malpractice insurance.                             Id. at 310.

       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    R.

1:21-1A(a)(3)); In re Muldoon, 213 N.J. 79 (2013) (same); see

also In re Tiffany, 217 N.J. 519, 520 (2014) (disbarring an

attorney for, among other things, violating the rule requiring

                                               12                                     A-3777-13T3
professional    corporations      to   file    a    certificate      of    insurance

with the Clerk of the Supreme Court).6

     We also note that because the plain language of the UPA and

our Rules of Court does not permit a trial court to convert an

LLP to a GP when a law firm fails to maintain a tail insurance

policy, we cannot assume the Legislature or our Supreme Court

intended such a result.          See DiProspero, supra, 183 N.J. at 492

(indicating that "[i]t is not the function of [an appellate

court]   to     'rewrite     a    plainly-written             enactment     of    the

Legislature     []    or   presume      that       the    Legislature       intended

something     other   than   that      expressed         by   way   of    the    plain

language.'" (second alteration in original) (quoting O'Connell

v. State, 171 N.J. 484, 488 (2002))).                Only the Legislature can

amend the UPA, or our highest court can revise Rule 1:21-1C, to

make such an outcome explicitly clear.

     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

6
  Whether winding up their law practice by collecting legal fees
constitutes "practicing law" as an LLP and whether Ward and
Olivo should be censured or otherwise disciplined for failing to
purchase a tail insurance policy for the LLP may be issues
appropriate for consideration by the Office of Attorney Ethics,
the Disciplinary Review Board, or a district ethics committee.
R. 1:20-1.

                                        13                                  A-3777-13T3
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.                                    N.J.S.A.

2A:53A-27.          The    AOM      must    explain          "that    the       care,    skill    or

knowledge exercised or exhibited in the treatment, practice or

work       that   is     the     subject         of    the    complaint,          fell     outside

acceptable professional or occupational standards or treatment

practices."        Ibid.

       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.

                                                 14                                        A-3777-13T3
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

7
  However, an AOM may be unnecessary in some vicarious liability
contexts. See, e.g., Borough of Berlin v. Remington & Vernick
Eng'rs, 337 N.J. Super. 590, 599 (App. Div.) (instructing that
an AOM from a qualified engineer is not needed to support a
complaint against an engineering firm, if the claims are limited
to "the doctrines of respondent superior or agency" arising out
of alleged negligence of a hydrogeologist "employed by or
working for" that firm, although an AOM from an engineer would
be required for claims of negligent supervision, negligent
hiring, or any other alleged breach of the engineering firm's
own professional standards of care), certif. denied, 168 N.J.
294 (2001).

                                          15                                  A-3777-13T3
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   N.J.S.A.   2A:53A-29    (providing

that failure to comply with the AMS is tantamount to failure to

state a cause of action).

                                      16                              A-3777-13T3
    We reverse, remand, and direct the judge to enter an order

dismissing the complaint against Ward with prejudice.

                               17                       A-3777-13T3