Dismissal With Prejudice Too Harsh A Remedy For Expert’s Unavailability

by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)

There is often tension between a court's need to effectively manage its docket and the overriding objective that a lawsuit be resolved on its merits and not because a party (or its counsel) misses a deadline. Courts establish deadlines. If they are ignored, can the court — as a sanction, and in the interest of managing its docket — dismiss the lawsuit with prejudice? According to the Appellate Division in a recent unpublished decision, Trezza v. Lambert-Wooley, the answer to this question is "no," unless the noncompliance was purposeful and no lesser remedy was available to the court.

In Trezza,plaintiffs sued defendants for medical malpractice. Three years after the lawsuit was filed, the court set a peremptory trial date. This was rescheduled when the court did not reach the case on the trial date. The trial did not take place on the rescheduled date or a subsequent rescheduled date, both times because defendant's designated trial counsel was unavailable. Thereafter, the Presiding Judge issued a sua sponte order scheduling trial for approximately four months later and setting forth "specific and stringent terms as to the course and conduct of the case relative to trial." The order mandated that: (1) the trial date would not be adjourned to accommodate the parties' or counsels' personal or professional schedules; (2) counsel was required to monitor the schedules of their parties, witnesses, and experts, and if one or more were not going to be available on the trial date, arrange for a de bene esse deposition ahead of trial; and (3) if designated trial counsel was not available on the trial date, alternate counsel would have to be found, whether or not from the same firm.

Five days before the scheduled trial date, plaintiff's counsel requested that the trial be carried for four days due to the unavailability of plaintiff's liability expert, which he only learned about a few days prior to the request. Defendants' counsel consented to the request. The judge assigned to the case considered the request but, in light of the Presiding Judge's order, determined that he did not have the authority to grant the adjournment. He sent the parties to the Presiding Judge, who denied the request and directed the parties to proceed to trial. "Predicated upon the terms of the order, the age of the case, and plaintiff's expert's unavailability, the judge [then] dismissed the complaint with prejudice." Plaintiffs appealed.

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Do Lawyers Have A Duty To Disclose, To The Client, Significant Errors Committed By Co-Counsel?

by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)

This was the question posed to the Committee on Professional Ethics of the New York State Bar Association. Its answer was a qualified yes — counsel has a duty to disclose the alleged error to the client but only if it was a significant error that could give rise to a malpractice claim.

The issue presented to the Committee was the following:

The inquirer was engaged to represent a client on the eve of trial. The client’s prior counsel is serving as co-counsel. In preparing the case, the inquirer has learned that co-counsel conducted virtually no discovery and made no document requests, although the inquirer believes correspondence and emails between the parties could be critical to the case. The inquirer believes this was a significant error or omission that may give rise to a malpractice claim against co-counsel. The outcome of the case, however, has yet to be decided. The inquirer is concerned about disclosing this situation to the client because it would undermine inquirer’s relationship with co-counsel, but the inquirer also believes it is in the client’s best interests to disclose the facts as soon as possible.

It is already established in New York (and several other jurisdictions, including New Jersey) that lawyers must report their own significant errors or omissions to clients. This requirement is based partly on Rule 1.4 and partly on Rule 1.7, each of which the Committee discussed in its opinion.

Rule 1.4 requires lawyers to keep clients informed about any material developments in their representation, and to explain issues "to the extent reasonably necessary to permit the client to make informed decisions regarding the representation." A client may decide not to continue to retain a lawyer who makes significant errors or omissions, and the client cannot make an informed decision on this issue unless the lawyer self-reports his own errors. Accordingly, clients must self-report their own significant errors or omissions to their clients. The Committee held that this rationale applied equally to lawyers reporting significant errors or omissions committed by co-counsel because the decision facing the client in both situations was the same — whether to continue to retain the lawyer who committed the errors or omissions — and the client cannot make an informed decision on that issue without full disclosure.

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NJ Supreme Court: LLP Cannot Be Converted To General Partnership For Failing To Maintain Liability Insurance

by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)

On June 23, 2016, the New Jersey Supreme Court released its decision in Mortgage Grader, Inc. v. Ward & Olivo, LLP, a case in which I had the privilege of representing the New Jersey State Bar Association as amicus curiae. (I previously wrote about the case here.) As discussed below, the Supreme Court agreed with our arguments.

In Mortgage Grader, a former client sued the defendant law firm and each of its partners after the firm dissolved. While the firm had maintained professional liability insurance while it was actively practicing, it did not purchase a "tail" policy to cover claims that arose after it dissolved. The trial court held that this violated Rule 1:21-1C(a)(3), which requires attorneys practicing as an LLP to "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." Accordingly, the trial court held that the individual partners were not shielded from liability as they would normally be as members of an LLP and were instead vicariously liable for their partners' negligence. In other words, the trial court effectively converted the LLP to a general partnership because it failed to maintain liability insurance. The Appellate Division reversed, holding that the trial court did not have the authority to strip the individual partners of their liability protections under either Rule 1:21-1C(a)(3) or the Uniform Partnership Act.

The NJSBA asked the New Jersey Supreme Court to affirm the Appellate Division's decision. The Supreme Court agreed, holding that: (1) the insurance requirements for LLPs did not extend to the period when a firm is "winding up" its business — i.e., when it is collecting receivables but no longer providing legal services; and (2) even if they did, an LLP could not be converted to a general partnership as a "sanction" for failing to maintain liability insurance. Justice Albin wrote a separate opinion, concurring with the judgment of the majority, but suggesting that the Court Rules be amended to provide that an LLP would lose its liability protection if it failed to meet the insurance requirements, and to require LLPs to purchase tail insurance for six years following their dissolution.

The Supreme Court's opinion can be found here.

Are Exceptions Starting To Swallow The “American Rule” In New Jersey?

The answer to that question would appear to be: it depends who you ask. In a pair of decisions released on April 26, 2016, Innes v. Marzano-Lesnevich and In Re Estate of Folcher, the New Jersey Supreme Court addressed the “American Rule” — the idea that each party to a lawsuit is responsible for its own attorney’s fees — and specifically whether to narrow or expand certain common-law exceptions to that rule. At the center of the two decisions was Justice LaVecchia, who authored the majority opinion in Folcher and the dissent in Innes. These decisions leave little doubt that this is not the last we have heard from the Supreme Court on the parameters of the American Rule.

First, a brief history of the American Rule in New Jersey. In 1948, New Jersey adopted a new Constitution and re-organized its court system. As part of this re-organization, and as it relates to the awarding of prevailing party attorney’s fees, New Jersey could have adopted either the English Rule, which allows for the liberal awarding of such fees, or the American Rule, which does not. New Jersey chose the latter. This decision is currently embodied in Rule 4:42-9, which only allows for eight exceptions to the general rule.

Over the years, however, New Jersey courts have created common law exceptions to the American Rule. These cases have followed two, independent tracks, one arising in the context of the attorney-client relationship and one arising in the context of estate administration.

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When is an LLP not an LLP? NJ Supreme Court to Consider Whether an LLP Converts to a GP if it Fails to Maintain Malpractice Insurance

On Monday, the New Jersey Supreme Court will hear oral argument in a case – Mortgage Grader, Inc. v. Ward & Olivo, LLP — that involves insurance, court rules, and statutory interpretation, but still manages to be interesting. I have the privilege of representing the New Jersey State Bar Association as amicus curiae in the case and will be part of the oral argument. (Unlike the U.S. Supreme Court, the New Jersey Supreme Court live streams all of its oral arguments. Click here on Monday at 1 pm to watch.)

In Mortgage Grader, a former client sued the defendant law firm and each of its partners after the firm dissolved. While the firm had maintained professional liability insurance while it was actively practicing, it did not purchase a "tail" policy to cover claims that arose after it dissolved. The trial court held that this violated Rule 1:21-1C(a)(3), which requires attorneys practicing as an LLP to "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." Accordingly, the trial court held that the individual partners were not shielded from liability as they would normally be as members of an LLP and were instead vicariously liable for their partners' negligence. The Appellate Division reversed, holding that the trial court did not have the authority to strip the individual partners of their liability protections under either Rule 1:21-1C(a)(3) or the Uniform Partnership Act.

The NJSBA has asked the New Jersey Supreme Court to affirm the Appellate Division's decision. It has further suggested that if the Supreme Court is inclined to change Rule 1:21-1C(a)(3) to require that attorneys practicing as an LLP obtain a "tail" insurance policy to cover claims that arise after they dissolve, that this change be made through the normal rule making process and not as part of a decision in Mortgage Grader.

[BONUS COVERAGE: I plan to stick around after the oral argument in Mortgage Grader to hear oral argument in Robertelli v. The New Jersey Office of Attorney Ethics, a case I blogged about here and here. Robertelli involved an ethics grievance filed against a defense lawyer who "friended" a plaintiff on Facebook.]