NOT FOR PUBLICATION WITHOUT THE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