Mortgage Grader, Inc. v. Ward & Olivo, LLP (075310)

139 A.3d 30, 225 N.J. 423, 2016 N.J. LEXIS 575
CourtSupreme Court of New Jersey
DecidedJune 23, 2016
DocketA-53-14
StatusPublished
Cited by10 cases

This text of 139 A.3d 30 (Mortgage Grader, Inc. v. Ward & Olivo, LLP (075310)) is published on Counsel Stack Legal Research, covering Supreme Court of New Jersey primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Mortgage Grader, Inc. v. Ward & Olivo, LLP (075310), 139 A.3d 30, 225 N.J. 423, 2016 N.J. LEXIS 575 (N.J. 2016).

Opinions

Justice FERNANDEZ-VINA

delivered the opinion of the Court.

In this case, the Court must determine whether a law firm practicing as a limited liability partnership (“LLP”) failed to maintain professional malpractice insurance to cover claims against it, and, if so, whether that failure may cause the revocation of the firm’s LLP status, rendering innocent partners personally liable. To inform that determination, we also consider when a law-firm LLP incurs its obligation to a client under the Uniform Partnership Act (“UPA”). N.J.S.A. 42-.1A-18.

For the reasons that follow, we conclude that the requirement in Rule l:21-lC(a)(3) that law firms organized as LLPs maintain malpractice insurance does not extend to the firm’s windup period and does not require purchase of tail insurance coverage. Moreover, Rule 1:21-10(a)(3) is a disciplinary rule and this Court is solely responsible for attorney discipline. Consequently, violation of that Rule does not result in automatic conversion of a law firm organized as an LLP into a general partnership (“GP”) and Mortgage Grader had no vicarious liability claim against Ward.

Therefore, we affirm the judgment of the Appellate Division.

I.

In July 2009, Mortgage Grader hired Olivo of Ward & Olivo (“W & 0”) to pursue claims of patent infringement against other [430]*430entities. Mortgage Grader entered into settlement agreements in those matters. In exchange for one-time settlement payments, Mortgage Grader granted those defendant-entities licenses under the patents, including perpetual rights to any patents Mortgage Grader received or obtained through assignment, regardless of their relationship to the patents at issue in the litigation. It is those provisions of the settlement agreement that allegedly gave rise to legal malpractice.

On June 30, 2011, W & 0 dissolved and entered into its windup period. It is undisputed that W & 0 continued to exist as a partnership for the sole purpose of collecting outstanding legal fees and paying taxes. The next day, Ward formed a new LLP and began to practice with a new partner. W & O’s claims-made malpractice insurance policy ran through August 8, 2011.1 W & 0 did not purchase a “tail policy.”2 Olivo sent Mortgage Grader a letter on May 10, 2012 on behalf of both Olivo Law Group, LLC and W & O, informing Mortgage Grader of the termination of legal services.

Mortgage Grader filed a complaint against W & O, Olivo, and Ward in October 2012. The complaint alleged legal malpractice by Olivo, claiming that the settlement agreements resulting from Olivo’s representation harmed Mortgage Grader’s patent rights. Specifically, the complaint alleged that the settlement agreements limited damages to past damages, failed to provide for royalty [431]*431rates or licensing fees for future use of the patents, and failed to limit the licensing fee provision in the settlements to only the patents in the suit. Mortgage Grader thereafter filed an affidavit of merit (“AOM”) pursuant to N.J.S.A. 2A:53A-27 to support its malpractice claims and served the AOM on Olivo and W & 0, but failed to serve it on Ward.

Ward filed an answer and subsequently moved to dismiss for failure to state a claim. Ward argued that the requirement in Rule 1:21-1C, which provides that a law firm organized as an LLP must purchase malpractice insurance, is silent as to tail coverage following its dissolution. Ward also argued that, in any event, W & 0 had satisfied the Rule’s requirement because W & 0 had insurance while it practiced law. Ward maintained that, as a result, W & O’s liability shield remained intact and therefore he could not be held vicariously liable for Olivo’s alleged negligence. Ward also claimed that Mortgage Grader never served him with an AOM as required by N.J.S.A. 2A:53A-27.

Mortgage Grader countered that W & 0 was still in operation and practicing law during its windup period, and that it was therefore required to maintain malpractice insurance pursuant to Rule l:21-lC(a)(3) during that time. Mortgage Grader contended that W & O’s failure to maintain insurance stripped the LLP of its liability shield and converted it to a GP. Mortgage Grader also claimed that it had substantially complied with the Affidavit of Merit Statute.

The motion court denied Ward’s motion to dismiss. The court first determined that Mortgage Grader had failed to comply with the statutory requirement to serve an AOM on each defendant named in the complaint, and rejected its substantial compliance argument. However, the court also determined that W & 0 failed to maintain the requisite insurance, which caused its liability shield to lapse and relegated W & 0 to a GP. Thus, the motion court concluded that Ward could be held vicariously liable for Olivo’s alleged legal malpractice.

[432]*432The Appellate Division reversed. Mortgage Grader, Inc. v. Ward & Olivo, L.L.P., 438 N.J.Super. 202, 215, 102 A.3d 1226 (App.Div.2014). The Appellate Division concluded that the UPA did not provide that a law firm organized as an LLP converts to a GP if it fails to maintain malpractice liability insurance. Id. at 209-10, 102 A.3d 1226 (citing N.J.S.A. 42:1A-I8(c)). The panel also noted that Rule l:21-lC(a)(3) states that the only remedies for an LLP’s failure to maintain malpractice insurance are for this Court to terminate or suspend the LLP’s right to practice law or otherwise discipline it. Because of this, and the fact that the Legislature has never amended the UPA to require conversion of an LLP to a GP as a sanction for failing to purchase a tail insurance policy, the panel found that a trial court has no authority to convert an otherwise properly organized LLP into a GP in order to sanction a partner for practicing without malpractice insurance. Id. at 211, 102 A.3d 1226.

However, the panel declined to decide the issue of whether winding up a law practice constitutes “practicing law,” and left that for the consideration of the Office of Attorney Ethics, the Disciplinary Review Board, or a district ethics committee. Id. at 212 n. 6, 102 A.3d 1226 (citing R. 1:20-1). Accordingly, the Appellate Division held that the trial court erred in converting W & O from an LLP to a GP when it failed to purchase a tail insurance policy, and concluded that Ward was shielded from personal liability as a result. Id. at 213,102 A.3d 1226.

Furthermore, the Appellate Division determined that Mortgage Grader failed to substantially comply with the Affidavit of Merit Statute because Mortgage Grader took no deliberate steps to comply with the statute, thus providing no reasonable notice of the claim to Ward, whose personal assets would be at risk. Id.

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Bluebook (online)
139 A.3d 30, 225 N.J. 423, 2016 N.J. LEXIS 575, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mortgage-grader-inc-v-ward-olivo-llp-075310-nj-2016.