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

SYLLABUS

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized).

Mortgage Grader, Inc. v. Ward & Olivo, L.L.P. (A-53-14) (075310)

Argued February 1, 2016 -- Decided June 23, 2016

FERNANDEZ-VINA, J., writing for a majority of the Court.

In this appeal, the Court considers 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, the Court also considers when a law-firm LLP incurs its obligation to a client under the Uniform
Partnership Act.

In July 2009, Mortgage Grader hired Olivo of Ward & Olivo (“W&O”) to pursue claims of patent
infringement. Mortgage Grader entered into settlement agreements, which eventually would give rise to allegations
of legal malpractice.

On June 30, 2011, W&O dissolved and entered into its windup period. W&O continued to exist as a
partnership for the sole purpose of collecting outstanding legal fees and paying taxes. W&O’s claims-made
malpractice insurance policy ran through August 8, 2011. W&O did not purchase a “tail policy.” In October 2012,
Mortgage Grader filed a complaint against W&O, Olivo, and Ward alleging legal malpractice by Olivo in
connection with the settlement agreements. Mortgage Grader 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&O, but failed to serve
Ward. Ward filed an answer and subsequently moved to dismiss. Ward maintained that 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 had not served him with an AOM as required by 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&O failed to maintain the
requisite insurance pursuant to Rule 1:21-1C, which provides that a law firm organized as an LLP must purchase
malpractice insurance. As a result, W&O’s liability shield lapsed, relegating W&O to a general partnership (GP).
Thus, the motion court concluded that Ward could be held vicariously liable for Olivo’s alleged legal malpractice.

The Appellate Division reversed. 438 N.J. Super. 202 (App. Div. 2014). The panel 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. Furthermore, the Appellate Division determined that
Mortgage Grader failed to substantially comply with the AOM Statute because Mortgage Grader took no deliberate
steps to comply, thus providing no reasonable notice of the claim to Ward, whose personal assets would be at risk.

The Court granted Mortgage Grader’s motion for leave to appeal. 221 N.J. 216 (2015).

HELD: The requirement in Rule 1:21-1C(a)(3) that law firms organized as LLPs maintain malpractice insurance does
not extend to the firm’s windup period when the law firm has ceased performing legal services, and does not require
purchase of tail insurance. In addition, the violation of Rule 1:21-1C(a)(3) does not result in automatic conversion of a
law firm organized as an LLP into a GP. As a result, Mortgage Grader had no vicarious liability claim against Ward.

1. Rule 1:21-1C permits attorneys to organize as LLPs, which establishes a shield from personal liability for LLP
partners. Rule 1:21-1C conditions practice by law-firm LLPs on compliance with partnership law, adherence to the
rules of professional responsibility, and maintenance of malpractice insurance. Specifically, section (a) provides
that “[a]ttorneys may engage in the practice of law as limited liability partnerships” provided that “[t]he limited
liability partnership shall obtain and maintain in good standing one or more policies of lawyers’ professional
liability insurance which shall insure the limited liability partnership against liability imposed upon it by law for
damages resulting from any claim made against the limited liability partnership by its clients arising out of the
performance of professional services by attorneys employed by the limited liability partnership in their capacity as
attorneys.” R. 1:21-1C(a)(3) (emphasis added). The plain language of the Rule ties the mandate to carry
malpractice insurance to damages from the performance of “professional services.” There is no indication that the
administrative activities characterizing a windup are included within that term. (pp. 10-12)

2. In addition to the plain language of the insurance mandate, subsection (a)(1) of Rule 1:21-1C instructs that “[a]ll
provisions of the Uniform Partnership Act (“UPA”), N.J.S.A. 42:1A-1 through 56, shall be complied with, except
where inconsistent with these rules.” Because Rule 1:21-1C incorporates the UPA by reference, the Court examines
the UPA and related legal authority. During the windup period, the LLP continues to exist, but only to wind up the
partnership’s affairs. The administrative activities conducted during the windup period are not the transacting of
business for which a law-firm LLP was established. Accordingly, under the circumstances here, where a law-firm
LLP has entered the windup period and has ceased to provide any legal services, the windup period does not
constitute practicing law and no acts of malpractice could be committed during this period. Such a law firm is not
required to maintain professional liability insurance under Rule 1:21-1C(a)(3). Here, W&O fully complied with the
Rule’s insurance mandate by maintaining malpractice insurance the entire time it was engaged in the practice of law.
In addition, a law-firm LLP incurs its obligation to a client on the date the alleged malpractice occurred. Here,
W&O was a valid LLP with professional liability insurance at the time of Olivo’s alleged malpractice. (pp. 12-16)

3. In addition to erroneously determining that W&O was practicing law during its windup period, the trial court
improperly relied on Rule 1:21-1C to convert W&O from an LLP to a GP. The Rule provides that “any violation of
this rule by the limited liability partnership shall be grounds for the Supreme Court to terminate or suspend the
limited liability partnership’s right to practice law or otherwise to discipline it.” R. 1:21-1C(a)(2) (emphasis added).
Therefore, only the Supreme Court has the authority to discipline a law firm organized as an LLP. Moreover, the
phrase “or otherwise discipline it” is circumscribed by a variety of sanctions imposed through the Court Rules.
Because only the Court may use Rule 1:21-1C to discipline a law firm organized as an LLP, and because the Court
Rules do not list conversion of business organizational form as a type of sanction, conversion of W&O from an LLP
to a GP was improper. Moreover, the UPA’s provisions that govern revocation of LLP status reflect a tendency to
preserve the liability shield. Those provisions, combined with the lack of any language in the statutory scheme
giving authority to the judiciary to convert a properly recognized LLP into a GP, lead to the conclusion that the UPA
provides no support for the trial court’s conversion of W&O from an LLP to a GP. (pp. 16-19)

4. The Court next addresses whether the mandate in Rule 1:21-1C(a)(3) to obtain malpractice insurance should
carry into the future by requiring law-firm LLPs to maintain insurance after dissolution. Practical considerations
and public policy concerns lead the Court to hold that tail coverage is not required. (pp. 19-21)

5. The effect of the Court’s holding is that Mortgage Grader has no claim against Ward for vicarious liability; as a
result, the AOM issue does not control the outcome. By way of guidance, the Court notes that even if Ward were
not shielded from personal liability, Mortgage Grader was not obligated to serve an AOM on Ward. Mortgage
Grader’s claim against Ward was solely based on vicarious liability. Consequently, the allegations against Ward did
not require a finding of whether Ward breached the professional standard of care in the legal profession. Therefore,
Mortgage Grader’s service of the AOM on Olivo and W&O was all that was required. (pp. 21-22)

The judgment of the Appellate Division is AFFIRMED.

JUSTICE ALBIN, CONCURRING IN PART AND DISSENTING IN PART, concurs in the judgment
of the majority, but dissents from the majority’s conclusion that an LLP does not have to maintain liability insurance
during the LLP’s windup period. He would amend Rule 1:21-1C to make explicit that lawyers operating as an LLP
will be treated as a general partnership if they fail to maintain malpractice insurance and to require that an LLP carry
malpractice insurance for a six-year period after its dissolution, if such insurance is reasonably available.

CHIEF JUSTICE RABNER; JUSTICES LaVECCHIA, PATTERSON, and SOLOMON; and
JUDGE CUFF (temporarily assigned) join in JUSTICE FERNANDEZ-VINA’s opinion. JUSTICE ALBIN
filed a separate opinion, concurring in part and dissenting in part.

2
 SUPREME COURT OF NEW JERSEY
A-53 September Term 2014
075310

MORTGAGE GRADER, INC.,

Plaintiff-Appellant,

v.

WARD & OLIVO, L.L.P., and
JOHN OLIVO, ESQ.,

Defendants,

and

JOHN WARD, ESQ.,

Defendant-Respondent.

Argued February 1, 2016 – Decided June 23, 2016

On appeal from the Superior Court, Appellate
Division, whose opinion is reported at 438
N.J. Super. 202 (App. Div. 2014).

Dennis T. Smith argued the cause for
appellant (Pashman Stein, attorneys; Mr.
Smith and Michael J. Zoller, on the briefs).

Daniel R. Bevere argued the cause for
respondent (Piro, Zinna, Cifelli, Paris &
Genitempo, attorneys; Mr. Bevere and Shane
A. Sullivan, on the brief).

Peter J. Gallagher argued the cause for
amicus curiae New Jersey State Bar
Association (Miles S. Winder III, President,
attorney; Mr. Winder, of counsel; Mr.
Gallagher and Mr. Winder, on the brief).

JUSTICE FERNANDEZ-VINA delivered the opinion of the Court.

1
 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 1:21-1C(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 1:21-1C(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&O”) to pursue claims of patent infringement against other

entities. Mortgage Grader entered into settlement agreements in

2
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&O dissolved and entered into its windup

period. It is undisputed that W&O 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&O

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

1 In a “claims-made” policy, the coverage is effective “if the
negligent or omitted act is discovered and brought to the
attention of the insurance company during the period of the
policy.” Zuckerman v. Nat’l Union Fire Ins. Co., 100 N.J. 304,
310 (1985) (emphasis added) (quoting Samuel N. Zarpas, Inc. v.
Morrow, 215 F. Supp. 887, 888 (D.N.J. 1963). A “claims-made”
policy provides no prospective coverage. Ibid. (quoting Brander
v. Nabors, 443 F. Supp. 764, 767 (N.D. Miss.), aff’d, 579 F.2d
888 (5th Cir. 1978)). “Claims-made” policies may also offer
limited or no retroactive protection for acts occurring prior to
the policy’s effective date. Id. at 318-19.
2 “Tail” coverage is insurance beyond the effective dates of a
“claims-made” policy. Zuckerman, supra, 100 N.J. at 311.
3
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 rates 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&O, 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&O had satisfied the Rule’s requirement because W&O

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

4
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&O was still in operation

and practicing law during its windup period, and that it was

therefore required to maintain malpractice insurance pursuant to

Rule 1:21-1C(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&O failed to

maintain the requisite insurance, which caused its liability

shield to lapse and relegated W&O to a GP. Thus, the motion

court concluded that Ward could be held vicariously liable for

Olivo’s alleged legal malpractice.

The Appellate Division reversed. Mortgage Grader, Inc. v.

Ward & Olivo, L.L.P., 438 N.J. Super. 202, 215 (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

5
(citing N.J.S.A. 42:1A-18(c)). The panel also noted that Rule

1:21-1C(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.

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 (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.

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

6
reasonable notice of the claim to Ward, whose personal assets

would be at risk. Id. at 215.

We granted Mortgage Grader’s motion for leave to appeal.

221 N.J. 216 (2015).

II.

A.

Mortgage Grader argues that law firms organized as LLPs in

the windup period continue to exist as viable entities, and must

therefore maintain professional liability insurance as required

by Rule 1:21-1C(a)(3). Because malpractice insurance is a

prerequisite to the formation of a law-firm LLP, Mortgage Grader

contends that the natural consequence for non-compliance is the

conversion of the LLP into a GP. Mortgage Grader maintains that

is made possible by the open-ended provision in Rule 1:21-

1C(a)(2) stating that the Court may “otherwise discipline” LLPs

that fail to comply with the Rule that authorizes attorneys to

operate as an LLP. Further, Mortgage Grader points to Olivo’s

termination of the attorney-client relationship in May 2012,

nine months after W&O’s malpractice insurance lapsed. Based on

that, Mortgage Grader claims that no distinction exists between

the windup period and pre-dissolution practice that would

support an interpretation that the Rule does not require the

purchase of tail coverage. Consequently, Mortgage Grader

maintains that service of an AOM on Ward was not required

7
because the basis of the claim against him was vicarious

liability as a member of a GP.

B.

Ward counters that W&O complied with the Rule’s insurance

mandate because W&O maintained professional liability insurance

during the entire time it was actively engaged in the practice

of law, and after its policy lapsed, W&O existed solely to

collect outstanding fees and pay taxes in an effort to wind up

the partnership. According to Ward, neither Rule 1:21-1C(a)(3)

nor the UPA mandates the purchase of tail coverage, and any

determination to the contrary would constitute a dramatic change

that should result only from this Court’s rule-making function

or from the State Legislature rather than as a result of motion

practice in a trial court. Ward asserts that a mandate to

purchase tail coverage would essentially require coverage

perpetually into the future because the six-year statute of

limitations for a professional malpractice claim would not apply

to claims arising from representation on behalf of a minor or

the drafting of a will.

Ward also argues that even if this Court determines that

failure to obtain tail coverage violates Rule 1:21-1C(a)(3),

neither the rule nor the UPA authorize a remedy of converting a

law-firm LLP into a GP for failure to maintain malpractice

insurance. In Ward’s view, the failure of the Legislature and

8
the Supreme Court to provide for such a remedy demonstrates that

such a remedy was never contemplated. Finally, Ward contends

that Mortgage Grader failed to serve him with an AOM, and failed

to substantially comply with the Affidavit of Merit Statute.

C.

Amicus curiae the New Jersey State Bar Association

(“NJSBA”), also urges this Court to affirm the Appellate

Division’s determination that neither the UPA nor Rule 1:21-

1C(a)(3) permits a court to convert a law-firm LLP to a GP for

failure to maintain malpractice insurance. According to the

NJSBA, the Legislature has been aware of the Rule since its

enactment in 1996, yet has never sought to amend the UPA to

allow for the conversion of an LLP to a GP.

In addition, the NJSBA points out that Rule 1:21-1C(a)(2)

permits only this Court, not a trial court, to impose sanctions

on an LLP that fails to comply with the mandate to maintain

malpractice insurance. Even if this Court were to find policy

reasons in favor of removal of LLP status as a sanction for non-

compliance with the insurance mandate during the windup period,

the NJSBA maintains that this Court should consider the

imposition of such a sanction through its rule-making process

rather than the present appeal. Finally, the NJSBA points out

that mandating tail coverage would affect law-firm LLPs of all

9
sizes, and could disproportionately affect small LLPs and those

that practice in particular areas of the law.

III.

An appellate court interprets both statutes and court rules

de novo. State v. Tate, 220 N.J. 393, 405 (2015) (citing

Willingboro Mall, Ltd. v. 240/242 Franklin Ave., L.L.C., 215

N.J. 242, 253 (2013)). No deference is owed to

“interpretation[s] of the law and the legal consequences that

flow from established facts.” Manalapan Realty, L.P. v.

Manalapan Twp. Comm., 140 N.J. 366, 378 (1995); see also State

v. Drury, 190 N.J. 197, 209 (2007) (defining the de novo

standard of review). Rather, this Court looks directly to the

relevant statutes and rules. Merin v. Maglaki, 126 N.J. 430,

434 (1992) (“Construction of any statute necessarily begins with

consideration of its plain language.”); see also First

Resolution Inv. Corp. v. Seker, 171 N.J. 502, 511 (2002) (noting

that interpretation of court rules is guided by tenets of

statutory construction).

IV.

We first determine whether the malpractice insurance

mandate of Rule 1:21-1C(a)(3) applies to the windup period. The

New Jersey Constitution grants this Court “jurisdiction over the

admission to the practice of law and the discipline of persons

admitted.” N.J. Const. art. VI, § 2, ¶ 3. Effective January 1,

10
1997, we added Rule 1:21-1C to permit attorneys to organize as

LLPs. The LLP structure establishes a shield from personal

liability for LLP partners. See R. 1:21-1C(a)(1) (incorporating

UPA by reference); N.J.S.A. 42:1A-18(a) & (c).3

Rule 1:21-1C conditions practice by law-firm LLPs on

compliance with partnership law, adherence to the rules of

professional responsibility, and maintenance of malpractice

insurance. Specifically, section (a) provides that “[a]ttorneys

may engage in the practice of law as limited liability

partnerships” provided that

[t]he limited liability partnership shall
obtain and maintain in good standing one or
more policies of lawyers’ professional
liability insurance which shall insure the
limited liability partnership against
liability imposed upon it by law for damages
resulting from any claim made against the
limited liability partnership by its clients
arising out of the performance of professional
services by attorneys employed by the limited
liability partnership in their capacity as
attorneys.

[R. 1:21-1C(a)(3) (emphasis added).]

The plain language of Rule 1:21-1C ties the mandate to carry

malpractice insurance to damages from the performance of

3 However, for foreign LLPs, the rule provides that an attorney
“shall not be shielded from personal liability for his or her
own negligence, omissions, malpractice, wrongful acts, or
misconduct, and that of any person under his or her direct
supervision and control while rendering professional services on
behalf of the limited liability partnership.” R. 1:21-1C(a)(1).

11
“professional services.” We find no indication that the

administrative activities characterizing a windup are included

within that term. Cf. Cal. Corp. Code § 16956(a)(2)(A) (stating

that “[u]pon the dissolution and winding up of the partnership,

the partnership shall, with respect to any insurance policy or

policies then maintained pursuant to this subparagraph, maintain

or obtain an extended reporting period endorsement or equivalent

provision in the maximum total aggregate limit of liability

required to comply with this subparagraph for a minimum of three

years if reasonably available from the insurer”).

In addition to the plain language of the insurance mandate,

subsection (a)(1) of Rule 1:21-1C instructs that “[a]ll

provisions of the Uniform Partnership Act, N.J.S.A. 42:1A-1

through 56, shall be complied with, except where inconsistent

with these rules.” R. 1:21-1C(a)(1). Because Rule 1:21-1C

incorporates the UPA by reference, we next examine the language

of the UPA and related legal authority.

A partnership’s existence continues during the windup

period and “is terminated when the winding up of its business is

completed.” N.J.S.A. 42:1A-40(a). Under the UPA, “the express

will of all of the partners to wind up the partnership business”

causes dissolution and commences the winding up of a

partnership. N.J.S.A. 42:1A-39(b)(2). At any time prior to the

completion of the winding up of a partnership, all of the

12
partners “may waive the right to have the partnership’s business

wound up and the partnership terminated.” N.J.S.A. 42:1A-40(b).

In that event, “the partnership resumes carrying on its business

as if dissolution had never occurred, and any liability incurred

by the partnership or a partner after the dissolution and before

the waiver is determined as if dissolution had never occurred.”

N.J.S.A. 42:1A-40(b)(1) (emphasis added). The windup period is

temporally indeterminate under the UPA due to the partners’

ability to waive dissolution and because winding up is limited

in terms of activity.

During the windup period, the LLP continues to exist, but

only to wind up the partnership’s affairs. “On dissolution the

partnership is not terminated, but continues until the winding

up of partnership affairs is completed, and for that purpose

alone.” Scaglione v. St. Paul-Mercury Indemn. Co., 28 N.J. 88,

102 (1958). “A dissolved corporation exists solely to prosecute

and defend suits, and not for the purpose of continuing the

business for which it was established.” Lancellotti v. Maryland

Casualty Co., 260 N.J. Super. 579, 583 (App. Div. 1992) (citing

Leventhal v. Atl. Rainbow Painting Co., Ltd., 68 N.J. Super.

406, 412 (App. Div. 1961)). Our Appellate Division in

addressing this issue has previously held that “dissolution is

distinguished from termination of the partnership business;

despite dissolution, the partnership continues for the purpose

13
of winding up partnership affairs.” Wilzig v. Sisselman, 182

N.J. Super. 519, 525 (App. Div. 1982) (citing N.J.S.A. 42:1-30;

Scaglione v. St. Paul-Mercury Indem. Co., 28 N.J. 88, 102

(1958)) (emphasis added). “[D]issolution designates the point

in time when the partners cease to carry on the business

together; termination is the point in time when all the

partnership affairs are wound up; winding up, the process of

settling partnership affairs after dissolution.” Insulation

Corp. of Am. v. Berkowitz, 274 N.J. Super. 337, 344 (App. Div.

1994) (citing Official Comment, Uniform Partnership Act § 29, 6

U.L.A. at 365 (1969)) (emphasis added). Similarly, N.J.S.A.

14:12-9 would bar professional corporations from practicing law

during the windup period. See N.J.S.A. 14A:12-9 (stating that a

dissolved corporation “shall carry on no business except for the

purpose of winding up its affairs”). The UPA sets forth

activities that do not constitute “transacting business”:

“collecting debts or foreclosing mortgages or other security

interests in property securing the debts, and holding,

protecting, and maintaining property so acquired.” N.J.S.A.

42:1A-53(a)(8). In sum, the important distinction pertaining to

LLP liability is the point in time at which an LLP enters

dissolution, commences winding up its affairs, and thus ceases

to engage in the business for which it was created.

14
 We consider the UPA and the case law interpreting it to be

dispositive on this issue. The administrative activities

conducted during the windup period are not the transacting of

business for which a law-firm LLP was established. Accordingly,

we conclude that under the circumstances here, where a law-firm

LLP has entered the windup period and has ceased to provide any

legal services, the windup period does not constitute practicing

law and therefore no acts of malpractice could be committed

during this period. Such a law firm is not required to maintain

professional liability insurance under Rule 1:21-1C(a)(3).

Therefore, W&O fully complied with the Rule’s insurance mandate

by maintaining malpractice insurance the entire time it was

engaged in the practice of law.

Similarly, the date on which W&O incurred its alleged

obligation to Mortgage Grader is also dispositive. The National

Conference of Commissioners on Uniform State Laws (the “National

Conference”), in its comment to the Revised Uniform Partnership

Act (“RUPA”), the proposed legislation New Jersey adopted and

codified as the UPA, provides in part that “partnership

obligations under or relating to a note, contract, or other

agreement generally are incurred when the note, contract, or

other agreement is made.” RUPA (1997), Comment 3 to Section

306, at 51. “Partnership obligations under or relating to a

tort generally are incurred when the tort conduct occurs rather

15
than at the time of the actual injury or harm.” Ibid.

Therefore, we hold that a law-firm LLP incurs its obligation to

a client on the date the alleged malpractice occurred. Here,

W&O was a valid LLP with professional liability insurance

coverage at the time of Olivo’s alleged malpractice.

Our holding precludes Mortgage Grader from maintaining a

vicarious liability claim against Ward. Our analysis does not

end there, however, because we next address the trial court’s

conversion of W&O from an LLP into a GP.

V.

A.

In addition to erroneously determining that W&O was still

practicing law during its windup period, the trial court

improperly relied on Rule 1:21-1C to convert W&O from an LLP to

a GP. The Rule provides that “any violation of this rule by the

limited liability partnership shall be grounds for the Supreme

Court to terminate or suspend the limited liability

partnership’s right to practice law or otherwise to discipline

it.” R. 1:21-1C(a)(2) (emphasis added). Therefore, only this

Court has the authority to discipline a law firm organized as an

LLP. Here, the trial court erred by relying on a disciplinary

rule that only this Court may use.

Moreover, the phrase “or otherwise discipline it” is

circumscribed by a variety of sanctions imposed through the

16
court rules. See, e.g., R. 1:20-15A (listing disbarment,

indeterminate suspension, term of suspension, censure,

reprimand, and admonition as categories of discipline); see also

In re Aponte, 215 N.J. 298, 298-99 (2013) (censuring attorney

who failed to maintain liability insurance while practicing as

professional corporation in violation of Rule 1:21-1A(a)(3),

among other violations, and requiring reimbursement of expenses

associated with his prosecution). Because only this Court may

use Rule 1:21-1C to discipline a law firm organized as an LLP,

and the Court Rules do not list conversion of business

organizational form as a type of sanction, we conclude that

conversion of W&O from an LLP to a GP was improper under the

Rule.

B.

Our analysis does not end with Rule 1:21-1C because we must

also determine if the UPA provides authority to convert an LLP

to a GP. The UPA defines a partnership as “an association of

two or more persons to carry on as co-owners of a business for

profit formed under [N.J.S.A. 42:1A-10], predecessor law, or

comparable law of another jurisdiction.” N.J.S.A. 42:1A-2.

With certain exceptions, “all partners are liable jointly and

severally for all obligations of the partnership.” N.J.S.A.

42:1A-18(a). By contrast,

17
 [a]n obligation of a partnership incurred
while the partnership is a limited liability
partnership, 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-18(c) (emphasis added).]

The UPA further provides that the status of an LLP “remains

effective, regardless of changes in the partnership” until the

LLP cancels its status under N.J.S.A. 42:1A-6(d) or the State

Treasurer revokes its status under N.J.S.A. 42:1A-49(c) for

failure to file an annual report when due or pay the required

filing fee under N.J.S.A. 42:1A-49. N.J.S.A. 42:1A-47(e).

The UPA’s provisions that govern revocation of LLP status

reflect a tendency to preserve the liability shield. In the

event that the State Treasurer seeks to revoke an LLP’s status

for failure to file an annual report or pay the filing fee, the

UPA requires that the LLP receive sixty days’ notice of the

impending revocation. N.J.S.A. 42:1A-49(c). During this time

period, the LLP has an opportunity to cure the deficiency before

the effective date of the revocation. Ibid. If the LLP cures,

the revocation does not take effect. Ibid. The UPA also

permits an LLP to apply for reinstatement within two years after

the effective date of revocation. N.J.S.A. 42:1A-49(e). If the

LLP applies and reinstatement is granted, the reinstatement

18
relates back to and takes effect as of the effective date of the

revocation, and the LLP’s status continues as if the revocation

never occurred. N.J.S.A. 42:1A-49(f). The National Conference

explains that “[t]he relation back doctrine protects gaps in the

reinstated partnership’s liability shield.” RUPA (1997),

comment to Section 1003, at 147.

In sum, the UPA offers many mechanisms to preserve LLP

status once obtained, and those mechanisms apply retroactively

to sustain the partnership’s liability shield even during gaps

in LLP status. Those provisions, combined with the lack of any

language in this statutory scheme giving authority to the

judiciary to convert a properly recognized LLP into a GP, lead

us to conclude that the UPA provides no support for the trial

court’s conversion of W&O from an LLP to a GP.

VI.

We now address whether the mandate in Rule 1:21-1C(a)(3) to

obtain malpractice insurance should carry into the future by

requiring law-firm LLPs to maintain insurance after dissolution.

Practical considerations and public policy concerns lead us to

hold that tail coverage is not required.

Because a claims-made policy provides coverage only for

claims made while the policy is in effect, we cannot impose a

requirement for an LLP to purchase tail coverage without

deciding how long the tail coverage must last. Even if such a

19
requirement were tailored to meet the six-year statute of

limitations for malpractice actions, it would fail to ensure

coverage for all possible claims. For example, a malpractice

claim involving an attorney who handled a claim on behalf of a

minor could result in the tolling of the statute of limitations

until the minor reached adulthood, meaning the minor could file

a timely claim more than six years after the malpractice.

Similarly, a dispute regarding a will an attorney drafted in all

likelihood would not arise until after the client’s death, which

may occur much longer than six years after the drafting of the

will.

In addition, competing public policy concerns play a role

in our analysis. “On the one hand, Rule 1:21-1C provides

attorneys the opportunity to practice in a chosen entity that

includes limited liability for its members. On the other, it

seeks to protect consumers of legal services from attorney

malpractice by requiring such entities to maintain adequate

insurance.” First Am. Title Ins. Co. v. Lawson, 177 N.J. 125,

139 (2003). Ultimately, we determined, “the rule helps to limit

the public’s exposure to uninsured risks arising from the

receipt of legal services in this State.” Ibid.

This insurance requirement for law-firm LLPs marks a

departure from the general rule that malpractice insurance is

not required for attorneys in New Jersey. Our rules do not

20
require tail coverage for professional corporations or GPs, nor

do they require single practitioners to carry any insurance,

including tail coverage.

We decline to impose a tail requirement on attorneys who

choose to practice as LLPs, particularly because a mandate to

purchase tail coverage still would not fully protect the public

from uninsured risks due to the types of scenarios outlined

above.4 We hold that the mandate in Rule 1:21-1C for LLPs to

purchase professional liability insurance does not include any

requirement to purchase tail coverage.

The effect of our holding in the present case is that

Mortgage Grader has no claim against Ward for vicarious

liability. Nevertheless, Mortgage Grader may still pursue its

malpractice claims against Olivo and W&O.

VII.

Finally, because our holding results in Mortgage Grader

having no claim against Ward, the affidavit of merit issue does

not control the outcome of this matter. However, for guidance

we provide the following comments.

4
The dissent posits that law-firm LLPs could avoid the problem
of tail coverage altogether by purchasing occurrence policies.
However, there is no evidence in this record or otherwise made
available to us that occurrence policies are available to insure
against professional malpractice claims. Indeed, neither the
parties nor amicus raised such a suggestion in their positions
to this Court.
21
 “[W]hen asserting a claim against a professional covered

by the affidavit of merit statute . . . a claimant should

determine if the underlying factual allegations of the claim

require proof of a deviation from the professional standard of

care for that specific profession.” Couri v. Gardner, 173 N.J.

328, 341 (2002). “If such proof is required, an affidavit of

merit shall be mandatory for that claim, unless [an exception

applies].” Ibid.; see also Hubbard v. Reed, 168 N.J. 387, 390

(2001) (holding that affidavit of merit is not required in

common knowledge cases). A claim of vicarious liability

requires proof of a particular legal relationship to the person

that allegedly acted negligently or deviated from a professional

standard of care, not proof of negligence or deviation from a

professional standard of care.

Here, even if Ward were not shielded from personal

liability as a partner of W&O, Mortgage Grader was not obligated

to serve an AOM on Ward. Mortgage Grader’s claim against Ward

was solely based on vicarious liability. Consequently, the

allegations against Ward did not require a finding of whether

Ward breached the professional standard of care in the legal

profession. Therefore, Mortgage Grader’s service of the

affidavit of merit on Olivo and W&O was all that was required.

VIII.

22
 For the reasons set forth above, we hold that the mandate

in Rule 1:21-1C that a law-firm LLP purchase professional

liability insurance does not extend to the windup period when

the law firm has ceased performing legal services. In addition,

we hold that Rule 1:21-1C does not require law-firm LLPs to

purchase tail coverage to maintain malpractice insurance beyond

dissolution. Further, we affirm the Appellate Division’s

conclusion that a trial court does not have the authority to

convert a law-firm LLP into a GP.

IX.

The judgment of the Appellate Division is affirmed.

CHIEF JUSTICE RABNER; JUSTICES LaVECCHIA, PATTERSON, and
SOLOMON; and JUDGE CUFF (temporarily assigned) join in JUSTICE
FERNANDEZ-VINA’s opinion. JUSTICE ALBIN filed a separate
opinion, concurring in part and dissenting in part.

23
 SUPREME COURT OF NEW JERSEY
A-53 September Term 2014
075310

MORTGAGE GRADER, INC.,

Plaintiff-Appellant,

v.

WARD & OLIVO, L.L.P., and
JOHN OLIVO, ESQ.,

Defendants,

and

JOHN WARD, ESQ.,

Defendant-Respondent.

JUSTICE ALBIN, concurring in part and dissenting in part.

Lawyers operating as a limited liability partnership (LLP),

pursuant to Rule 1:21-1C, are shielded from vicarious liability

for the malpractice of their partners. The rule’s quid pro quo

is that the LLP must carry adequate malpractice insurance “to

protect consumers of legal services.” First Am. Title Ins. Co.

v. Lawson, 177 N.J. 125, 139 (2003) (explaining relationship

between liability shield and insurance requirement under Rule

1:21-1C).

I cannot agree with the majority’s holding that the law

firm of Ward & Olivo, before its dissolution as an LLP, did not

1
have an obligation to carry malpractice insurance pursuant to

Rule 1:21-1C during the wind-up period, while it was still

collecting client fees.1 The majority’s conclusion means that an

LLP, while winding up business, can collect fees from a client,

but has no responsibility to maintain insurance to compensate

that client for an earlier act of malpractice. In my view, even

the most rigid interpretation of Rule 1:21-1C does not compel

such an inequitable result.

I concur with the majority that Rule 1:21-1C, as currently

written, does not provide the remedy of stripping the partners

of the liability shield for their failure to maintain

malpractice liability insurance. Although that remedy does not

accord with the letter of the rule, it is in keeping with the

spirit of the rule. Lawyers operating as an LLP should not

expect that they can hide behind the liability shield while

failing to maintain the required amount of malpractice

insurance. Therefore, I would amend Rule 1:21-1C to make

explicit that lawyers operating as an LLP will be treated as a

general partnership if they fail to maintain malpractice

insurance. Additionally, I would amend the rule to require that

an LLP carry malpractice insurance for a six-year period after

1 “Winding up” is “[t]he process of settling accounts and
liquidating assets in anticipation of a partnership’s or a
corporation’s dissolution.” Black’s Law Dictionary 1835 (10th
ed. 2014).
2
its dissolution, if such insurance is reasonably available.

Tail coverage will ensure that the law firm’s last client has as

much financial protection as the firm’s first client.2

I.

In a general partnership, each partner in a law firm is

vicariously liable for the malpractice of every other partner.

See N.J.S.A. 42:1A-18(a). Thus, a client wronged by the

malpractice of one partner can seek full satisfaction of a

judgment from other partners. See ibid.

This Court adopted Rule 1:21-1C in 1996 to allow attorneys

to practice law in a limited liability partnership, provided the

partnership secured malpractice liability insurance in an amount

of not less than $100,000 for each attorney employed by the LLP.

R. 1:21-1C. The legal structure of an LLP shields one partner

from vicarious liability for the malpractice of another partner.

See N.J.S.A. 42:1A-18(c).

Rule 1:21-1C(a)(3) provides that “[a]ttorneys may engage in

the practice of law as limited liability partnerships . . .

provided that” the LLP “shall obtain and maintain in good

standing one or more policies of lawyers’ professional liability

2 “Tail coverage, also referred to as an extended reporting
period, extends the time within which a claim may be made after
the cancellation or expiration of a particular claims-made
policy.” Home Ins. Co. v. Law Offices of Jonathan DeYoung,
P.C., 32 F. Supp. 2d 219, 224 (E.D. Pa. 1998).
3
insurance.” The trade-off for the liability shield of Rule

1:21-1C is that the attorneys operating as an LLP must maintain

malpractice liability insurance. See First Am. Title, supra,

117 N.J. at 139. Thus, in exchange for protection from lawsuits

premised on vicarious liability, partners must provide adequate

financial security in the form of insurance for their clients.

Common sense and public policy suggest that partners not be

permitted to seek shelter behind the liability shield of an LLP

when they have not maintained malpractice insurance. Rule 1:21-

1C should provide a remedy equal to the violation of the

mandatory malpractice insurance requirement.

The current rule has a limited set of sanctions for an

LLP’s failure to maintain malpractice insurance: “Any violation

of this rule by the limited liability partnership shall be

grounds for the Supreme Court to terminate or suspend the

limited liability partnership’s right to practice law or

otherwise to discipline it.” R. 1:21-1C(a)(2). It does not

provide the remedy of rendering the partners jointly and

severally liable for the LLP’s failure to maintain insurance.

In this case, under the current rule, Ward is not jointly and

severally liable for the malpractice of his partner, despite the

fact that he and his partner continued to operate as an LLP,

collecting fees from clients during the wind-up period, while

4
not carrying claims-made legal malpractice insurance.3

In the scenario sanctioned by the majority, partners in an

LLP can collect fees from a client during the wind-up period and

not maintain malpractice insurance without ever violating Rule

1:21-1C. Yet, if the same attorneys were operating as a general

partnership -- and not in the form of an LLP -- they would be

vicariously liable. See N.J.S.A. 42:1A-18(a). The attorneys in

this case should be in no better position than attorneys

operating as a general partnership when they are sued for

malpractice.

Other jurisdictions that permit attorneys to operate as an

LLP conditioned on maintaining malpractice insurance provide a

remedy commensurate with a breach of the insurance requirement.

Colorado, Delaware, Illinois, Indiana, Massachusetts, Nebraska,

Ohio, Oklahoma, and Washington explicitly state in their

statutes or court rules that LLPs lose their liability shield

when they fail to maintain adequate malpractice insurance. See

Colo. R. Civ. P. 265(a)(2) (imposing joint and several liability

on partners of LLP unless LLP has minimum amount of malpractice

insurance); Del. Sup. Ct. R. 67(h)(ii)(1) (imposing joint and

3 Under a claims-made policy, the policyholder is protected “if
the negligent or omitted act is discovered and brought to the
attention of the insurance company during the period of the
policy.” Zuckerman v. Nat’l Union Fire Ins. Co., 100 N.J. 304,
310 (1985) (quoting Samuel N. Zarpas, Inc. v. Morrow, 215 F.
Supp. 887, 888 (D.N.J. 1963)).
5
several liability for partners of LLPs if LLP does not maintain

malpractice insurance); Ill. Sup. Ct. R. 722(b)(1) (stating that

failure of LLP to maintain minimum insurance subjects partners

to joint and several liability for rule’s minimum per claim

amount, and to higher per claim amount if failure to maintain

insurance is fraudulent or willful); Ind. Admission & Discipline

R. 27(h) (imposing joint and several liability on partners if

LLP “fails to have the professional liability insurance or other

form of adequate financial responsibility required by” rule);

Mass. Sup. Jud. Ct. R. 3:06(3)(c) (imposing joint and several

liability on partners if LLP “fails to maintain insurance or a

fund in the Designated Amount in compliance with this rule”);

Neb. Sup. Ct. R. 3-201(C)(7)(b)(iv), (C)(7)(c) (stating that if

LLP does not maintain professional liability insurance, partners

“shall be jointly and severally liable to the extent that the

assets of the organization are insufficient to satisfy any

liability incurred by the corporation for” malpractice of its

partners); Ohio Gov.Bar.R. III(4) (imposing joint and several

liability for partners of LLPs “to the extent that the firm

fails to have the professional liability insurance or other form

of adequate financial responsibility required by this rule”);

Okla. Stat. tit. 54, § 1-309 (stating that failure to comply

with liability insurance requirement for LLP renders partners

jointly liable); Wash. Rev. Code § 25.05.125 (stating that

6
partners are personally liable if LLP fails to maintain “a

policy of professional liability insurance . . . or other

evidence of financial responsibility . . . to the extent that,

had such insurance . . . or other evidence of responsibility

been maintained, it would have covered the liability in

question”).

We should adopt the approach taken by those jurisdictions.

We should amend Rule 1:21-1C to provide that lawyers who operate

as an LLP and fail to maintain malpractice insurance lose their

liability shield if their partners are sued for malpractice.

II.

As indicated earlier, attorneys operating as an LLP should

maintain malpractice insurance during the windup of business.

In addition, the rule should require that an LLP secure tail

coverage for a reasonable period after the LLP’s dissolution, to

give adequate financial protection to all the law firm’s

clients, not just the first ones through the door.

Inevitably, there will be a time lag between an act of

legal malpractice, its discovery by a client, and the filing of

a lawsuit. Under a claims-made policy, as in the case before

us, insurance coverage is available only if the law firm has

insurance in the year that the claim is filed. So, for example,

if lawyers operating as an LLP represent clients from January 1

through June 30 and dissolve the LLP on July 1 without securing

7
tail coverage, the liability shield will be in place and those

clients with valid claims after July 1 will not have the

financial security of insurance coverage.

In California, attorneys operating as an LLP must maintain

insurance coverage during the wind-up period and for a minimum

of three years after the LLP’s dissolution. Cal. Corp. Code §

16956(a)(1)(A) (“Upon the dissolution and winding up of the

partnership, the partnership shall” maintain a policy of

liability insurance “for a minimum of three years if reasonably

available from the insurer.”). The California approach is

sensible because it protects clients whose claims come to light

after the LLP is no longer a going concern. A new rule can

mirror the California statute to include an exception for cases

in which liability insurance is not reasonably available.

The statute of limitations for the filing of legal

malpractice claims in New Jersey is six years. N.J.S.A. 2A:14-

1; McGrogan v. Till, 167 N.J. 414, 420 (2001). The purpose of

Rule 1:21-1C is to ensure that attorneys practicing as an LLP

have insurance coverage to provide clients wronged by

malpractice a remedy. Thus, this Court should require lawyers

engaging in the practice of law as an LLP to secure tail

coverage for six years after the LLP’s dissolution, if such

coverage is reasonably available. This tail-coverage period

will provide equality of coverage for the firm’s first and last

8
clients. To that end, mandating six years of tail coverage will

protect clients whose malpractice claims have not come to light

before attorneys dissolve their LLPs.

Because we cannot protect those clients whose malpractice

claims may arise six years after an LLP’s dissolution is no

reason not to protect those clients who file claims within a

reasonable period after the dissolution. I do not accept the

majority’s position that because we cannot protect everyone, we

should protect no one.

If a law firm can secure an occurrence policy, then tail

coverage is unnecessary because clients will have insurance

coverage for any act of malpractice committed during the life of

the LLP.4 Those lawyers unwilling to make the financial

commitment to provide adequate insurance coverage for clients

during the existence of the LLP, or during a wind-up period, or

for a reasonable period after the LLP’s dissolution can always

practice in a general partnership. They should not, however,

have the benefit of the LLP’s liability shield if the quid pro

quo of insurance coverage is not honored.

III.

4 Under an occurrence policy, attorney malpractice would be the
occurrence that is insured. See Templo Fuente De Vida Corp. v.
Nat’l Union Fire Ins. Co., 224 N.J. 189, 201 (2016). Under such
a policy, so long as the act of malpractice occurred during the
life of the policy, coverage attaches. Ibid.
9
 The New Jersey Constitution vests this Court with

rulemaking authority over practice and procedure in our courts

and the manner in which lawyers may practice law in this State.

See N.J. Const. art. VI, § 2, ¶ 3. Pursuant to that authority,

this Court adopted the current version of Rule 1:21-1C. This

case has illuminated deficiencies in the rule that place clients

and the public at risk. This Court therefore should exercise

its constitutional authority and amend the current rule.

Lawyers practicing in LLPs should no longer be able to invoke

the liability shield of an LLP if they have not maintained

adequate malpractice liability insurance during the life of the

LLP and for a six-year period after its dissolution. In the

event of non-compliance, the lawyers should be treated as though

they were practicing in a general partnership and be subject to

vicarious liability in cases of legal malpractice.

I concur in the judgment of the majority. However, I

dissent from the majority’s conclusion that an LLP does not have

to maintain liability insurance during the LLP’s wind-up period.

I also would amend Rule 1:21-1C to require lawyers engaging in

the practice of law as an LLP to secure tail coverage for a six-

year period after the LLP’s dissolution, if such coverage is

reasonably available.

10