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RTC MORTG. TRUST 1994 N-1 v. FIDELITY NAT'L TITLE

October 20, 1997

RTC MORTGAGE TRUST 1994 N-1, a limited liability Delaware business trust, Plaintiff,
v.
FIDELITY NATIONAL TITLE INSURANCE COMPANY, NATIONS TITLE INSURANCE COMPANY, EASTERN DEVELOPERS ABSTRACT, INC., CAINE, DIPASQUA, SLOANE & RAFFAELE f/k/a CAINE, DIPASQUA, SLOANE, RAFFAELE & NIGRO, LAWYERS TITLE INSURANCE CORPORATION, AND ROCCO M. NIGRO, Defendants.



The opinion of the court was delivered by: ORLOFSKY

 ORLOFSKY, District Judge:

 This case requires the Court to address several novel and thorny questions of federal and state law arising from the enactment of a relatively recent New Jersey statute, N.J.S.A. §§ 2A:53A-26 to 29, the so-called "Affidavit of Merit" statute, which became effective on June 29, 1995. This statute provides that in order to survive a motion to dismiss for failure to state a claim, a plaintiff who alleges negligence by a professional must submit an affidavit (an "affidavit of merit") from an appropriately qualified individual stating his or her opinion on the merits of the claim.

 First among the knotty issues which the Court must decide is whether the Affidavit of Merit statute should be applied by a federal court sitting in diversity. This question compels the Court to apply the criteria enunciated in Erie R.R. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938), and Hanna v. Plumer, 380 U.S. 460, 14 L. Ed. 2d 8, 85 S. Ct. 1136 (1965). If the Affidavit of Merit statute does apply in this Court, the Court must then predict how the New Jersey Supreme Court would decide when asked whether an affidavit of merit must be filed where the defendant is an out-of-state law firm which is practicing law in New Jersey in violation of the New Jersey Supreme Court Rules and the Rules of Professional Conduct promulgated by the New Jersey Supreme Court.

 Caine, DiPasqua, Sloane & Raffaele, formerly known as Caine, DiPasqua, Sloane, Raffaele & Nigro, has moved to dismiss the Complaint and all cross-claims asserted against it under Rule 12(b) (6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. For the reasons set forth below, I conclude that the Affidavit of Merit statute should be applied by a federal court sitting in diversity. In this case, however, where the defendant is an out-of-state law firm not qualified to practice law in New Jersey, I predict that the New Jersey Supreme Court would conclude that the statute does not require the filing of an affidavit of merit in an action for professional malpractice.

 I. Facts and Procedural History

 This litigation involves a bad land deal, an allegedly bungled title search, and an allegedly negligently prepared opinion letter issued by an out-of-state law firm. The alleged legal malpractice resulted in a delay of five years before Plaintiff was able to assume priority among the creditors of a failed land partnership. Ultimately, the alleged negligence resulted in Plaintiff's recoupment of about a third of its original loan amount.

 Assuming the truth of the allegations contained in the Amended Complaint for the purposes of this motion, see, e.g., Gomez v. Toledo, 446 U.S. 635, 636, 64 L. Ed. 2d 572, 100 S. Ct. 1920 (1980); Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir. 1991); Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990), the facts underlying this litigation are as follows: Plaintiff, RTC Mortgage Trust 1994 N-1 ("RTC"), is a limited liability Delaware business trust and the assignee of a mortgage on a 7-acre piece of property located in Mount Laurel, New Jersey. See Amended Complaint of Plaintiff, RTC, p.1, P 1 (dated June 10, 1997) (hereinafter Amended Compl.). The original lender/mortgagee was Home Federal Savings & Loan Association ("HomeFed"), which loaned Atrium II Limited Partnership ("Atrium II"), a Delaware limited partnership, $ 13.5 million. Id. at PP 1, 6.

 The law firm representing Atrium II in the transaction was Defendant, Caine, DiPasqua, Sloane, Raffaele & Nigro, now known as Caine, DiPasqua, Sloane & Raffaele ("Caine, DiPasqua"). Id. at P 10. Caine, DiPasqua is a Pennsylvania law firm apparently organized as a professional corporation with offices in Media and West Chester, Pennsylvania. Id. at P 4; see also Certification of John A. Adler (dated July 29, 1997) (hereinafter Adler Certif.), Exhibit C, Letter from Caine, DiPasqua to HomeFed (dated Aug. 29, 1988) (hereinafter 8/29/88 Opinion Letter).

 In preparation for the consummation of the loan transaction, on August 29, 1988, Caine, DiPasqua provided an opinion letter regarding numerous aspects of the property and the transaction. The letter was signed by Nigro, who, in addition to being either president or owner of Eastern, was also a partner at Caine, DiPasqua. The letter stated, among other things, that the "mortgage, security agreement, and financing statements are effective to create a first lien security interest in the . . . property." 8/29/88 Opinion Letter at p. 3; see also id. at p. 2 ("mortgage and security agreement constitutes a first lien security interest"); Amended Compl. at PP 11, 13.

 In addition to preparing the title report, Title USA also issued a title insurance policy which indicated that HomeFed's mortgage was a first mortgage lien. Id. at P 14. Defendant, Lawyers Title Insurance Corporation, issued a title reinsurance policy. Id. at P 26.

 Late in 1990, HomeFed began foreclosure proceedings against Atrium II. These proceedings were stayed when Atrium II filed a petition in the United States Bankruptcy Court for the District of New Jersey. Fidelity Bank, N.A. ("Fidelity Bank"), an entity apparently unrelated to Fidelity National, filed an adversary complaint in the Bankruptcy Court claiming that it had liens on the property which were superior to HomeFed's. Eventually, after much litigation, the District Court reversed the Bankruptcy Court's determination that Fidelity Bank's liens had priority. The Third Circuit affirmed this decision. See id. at PP 17-19; see also In re Atrium II Ltd. Partnership, 60 F.3d 816 (3d Cir. 1995) (mem.). This litigation then ensued.

 On November 4, 1996, RTC filed a Complaint against Fidelity National, Nations Title, Eastern, Lawyers Title, and Caine, DiPasqua, in the Superior Court of New Jersey, Law Division, Burlington County, Docket No. BUR-L-03348-96. The Complaint alleges that: 1) Title USA, the predecessor in interest of, inter alia, Fidelity National, was negligent in preparing its title report, breached its contractual relationship with HomeFed, and was liable under the title insurance policy; 2) Lawyers Title was liable under the title reinsurance policy; 3) Eastern was negligent in performing its title search; 4) Caine, DiPasqua was negligent in preparing "its" opinion letter. *fn1" See Complaint of Plaintiff, RTC, P 32 & passim (dated Nov. 4, 1996) (hereinafter Compl.); see also Amended Compl. at PP 38-39.

 On December 17, 1996, Caine, DiPasqua filed in this Court a Notice of Removal pursuant to 28 U.S.C. § 1446(a) alleging, inter alia, that the Court had jurisdiction over this matter pursuant to 28 U.S.C. § 1332(a). On February 20, 1997, March 7, 1997, and March 14, 1997, respectively, Caine, DiPasqua, Lawyers Title, Fidelity National, and Nations Title answered the Complaint and asserted cross-claims of indemnification and contribution against one another, as well as against Eastern, which has not yet appeared in the action. *fn2" On March 13, 1997, Caine, DiPasqua answered all cross-claims which had been or would be asserted against it by co-Defendants. On March 14, 1997, Lawyers Title answered the cross-claim asserted by Caine, DiPasqua and on March 27, 1997, Lawyers Title answered the cross-claims asserted by Nations Title and Fidelity National.

 On June 16, 1997, after learning that Nigro was no longer a partner of Caine, DiPasqua, RTC filed an Amended Complaint which added Nigro as a defendant. The claim against Nigro asserted that he was negligent in: 1) failing to seek discharges of the liens which were later claimed to be superior to HomeFed's mortgage; and 2) stating in "his" opinion letter that HomeFed's security interest would be a first lien. See Amended Compl. at PP 31-36.

 On June 27, 1997, Lawyers Title answered the Amended Complaint, reasserting its cross-claims against Caine, DiPasqua, Eastern, Nations Title, and Fidelity National, and adding cross-claims against Nigro. On July 7, 1997, Caine, DiPasqua answered the Amended Complaint, reasserting cross-claims against Lawyers Title, Eastern, Nations Title, and Fidelity National, and adding cross-claims against Nigro. On October 6, 1997, Nigro answered the Amended Complaint.

 Currently before the Court is Caine, DiPasqua's motion to dismiss the Amended Complaint. This Court may exercise jurisdiction over the action pursuant to 28 U.S.C. § 1332(a) as the amount in controversy exceeds $ 50,000, *fn3" exclusive of interest and costs, and is between citizens of different states. *fn4"

 II. Standards on Motion to Dismiss

 In considering a motion to dismiss under Rule 12(b) (6), the court may dismiss a complaint if it appears certain that the plaintiff cannot prove any set of facts in support of its claims which would entitle it to relief. See, e.g., Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988). While all well-pled allegations are accepted as true and reasonable inferences are drawn in the plaintiff's favor, see, e.g., Gomez v. Toledo, 446 U.S. 635, 636, 64 L. Ed. 2d 572, 100 S. Ct. 1920 (1980); Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir. 1991); Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir. 1990), the court may dismiss a complaint where, under any set of facts which could be shown to be consistent with a complaint, the plaintiff is not entitled to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). Finally, "Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law." Neitzke v. Williams, 490 U.S. 319, 326-27, 104 L. Ed. 2d 338, 109 S. Ct. 1827 (1989) (noting that this procedure "streamlines litigation by dispensing with needless discovery and factfinding").

 III. Discussion

 A. The Affidavit of Merit Statute

 Caine, DiPasqua's motion to dismiss the Complaint and all cross-claims asserted against it is based on the Affidavit of Merit statute, N.J.S.A. §§ 2A:53A-26 et seq. The centerpiece of the statute is N.J.S.A. § 2A:53A-27, which provides:

 
In any action for damages for personal injuries, wrongful death or property damage resulting from an alleged act of malpractice or negligence by a licensed person in his profession or occupation, the plaintiff shall, within 60 days following the date of filing of the answer to the complaint by the defendant, provide each defendant with an affidavit of an appropriate licensed person that there exists a reasonable probability 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. The court may grant no more than one additional period, not to exceed 60 days, to file the affidavit pursuant to this section, upon a finding of good cause. The person executing the affidavit shall be licensed in this or any other state; have particular expertise in the general area or specialty involved in the action, as evidenced by board certification or by devotion of the person's practice substantially to the general area or specialty involved in the action for a period of at least five years. The person shall have no financial interest in the outcome of the case under review, but this prohibition shall not exclude the person from being an expert witness in the case.

 In lieu of an affidavit of merit, a plaintiff may provide a sworn statement:

 
setting forth that: the defendant has failed to provide plaintiff with medical records or other records or information having a substantial bearing on preparation of the affidavit; a written request therefor along with, if necessary, a signed authorization by the plaintiff for release of the medical records or other records or information requested, has been made by certified mail or personal service; and at least 45 days have elapsed since the defendant received the request.

 N.J.S.A. § 2A:53A-28. The statute defines "licensed person" to mean any person who is "licensed as," among other things, "an attorney admitted to practice law in New Jersey." N.J.S.A. § 2A:53A-26(c). *fn5" Finally, N.J.S.A. § 2A:53A-29 provides that "failure to provide an affidavit or a statement in lieu thereof . . . shall be deemed a failure to state a cause of action." N.J.S.A. § 2A:53A-29.

 Caine, DiPasqua claims that no affidavit of merit was filed within 60 days of its filing an Answer to the Complaint. The Answer was filed on February 20, 1997 and the 60-day period would have expired on April 21, 1997. Additionally, RTC did not request the 60-day extension allowable under the statute, nor did RTC file an affidavit of merit during the period for which an extension could have been granted, i.e., the period ending on or about June 23, 1997. *fn6" Indeed, the affidavit opining on RTC's claim was not prepared until July 29, 1997. See Adler Certif., Exh. E, Affidavit of Merit of S. David Brandt, Esq. (dated July 29, 1997).

 RTC responds that, for various reasons, the affidavit was not required on or before April 21, 1997. Also, RTC argues that the statute should not be applied by a federal court sitting in diversity. In response to their initial arguments, the Court requested supplemental briefing on a number of issues, including the question of whether the statute is applicable in federal court under the analysis required by Erie R.R. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938), and Hanna v. Plumer, 380 U.S. 460, 14 L. Ed. 2d 8, 85 S. Ct. 1136 (1965). In its request for supplemental briefing, the Court invited the parties to compare the New Jersey statute to a number of other similar state statutes. The Court also asked whether Caine, DiPasqua is a "licensed person" within the meaning of the statute.

 B. Analysis of the Affidavit of Merit Statute under Hanna and Erie

 The Court must first decide whether the Affidavit of Merit statute should be applied by a federal court sitting in diversity. If the statute is not to be applied in federal court, then Caine, DiPasqua's motion must be denied. This inquiry has occasionally (and both misleadingly and unhelpfully), been characterized as a question of whether the state statute is "substantive" or "procedural." However, the test is much more structured, yet no less difficult to apply, than the frequently daunting choice between the two. See Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 135 L. Ed. 2d 659, 116 S. Ct. 2211, 2219 (1996) ("classification of a law as 'substantive' or 'procedural' for Erie purposes is sometimes a challenging ...


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