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Baxt v. Liloia

July 17, 1998


The opinion of the court was delivered by: Poritz, C.j.

Argued September 9, 1996

On appeal from the Superior Court, Appellate Division, whose opinion is reported at 284 N.J. Super. 221 (1995).

In this appeal, plaintiffs have asked the Court to recognize a new cause of action premised upon a breach of the Rules of Professional Conduct ("RPCs" or "Rules") adopted by the Court for the governance of the legal profession. More specifically, plaintiffs urge us to permit this new claim to be brought against attorneys who represent an adversary of the claimant. A majority of the Appellate Division declined to sanction lawsuits "based solely on an allegation that the conduct of the[] defendants violated the Rules of Professional Conduct." 284 N.J. Super. 221, 223 (1995) (Baxt II). The Dissenting member would permit civil liability upon a violation of the Rules resulting in foreseeable injury to a third party. Id. at 224 (Dreier, P.J.A.D., dissenting). The issue is before the Court as of right pursuant to Rule 2:2-1(a)(2). See Manalapan Realty v. Township Committee, 140 N.J. 366, 377 (1995). We agree with the majority of the panel below and affirm with modifications not relevant to this issue.


This case arose as a dispute over the propriety of litigation tactics used by defendants Gerald Liloia and Anthony Sylvester in an underlying foreclosure suit. Plaintiff Sherwood Baxt was a partner with Paul Hartman and Paul Baxt ("the debtors") in The Grove Mercantile Center ("Grove"). Both Sherwood Baxt and plaintiff Saida Baxt were defendants in the foreclosure suit brought by the Summit Trust Company ("Summit") alleging Grove's default on a construction loan from Summit to Grove. Defendants Liloia and Sylvester are attorneys who represented Summit in the foreclosure litigation.

Grove obtained construction financing for a commercial real estate project in Jersey City from Summit in October 1988 by way of two mortgage loans, one for $3.8 million and the other for $300,000. The original documents provided for periodic advances to Grove and for repayment of the entire debt on November 1, 1989. The debtors were also accorded the right to a six-month extension upon payment of $20,500. Before November 1989, the debtors realized they needed an extension of the construction loan beyond six months and sought an additional year from the bank, which Summit granted.

The debtors did not repay the loan at the end of the one-year extension period and Summit instituted foreclosure proceedings in March 1991. At issue in the foreclosure litigation was whether the extension was granted subject to a mortgage modification agreement containing a release of any lender-liability counterclaim Grove may have had against Summit. Although the debtors later questioned whether the modification agreement had been executed, it was undisputed that Grove had paid two separate fees, each in the amount of $20,500 as required by the modification agreement, and that subsequently Summit advanced sums in excess of $1,400,000 to Grove.

In discovery Summit produced its credit file to Grove. The file contained a copy of the modification agreement signed only by a bank officer, Jennifer Calenda. However, when Summit's attorneys examined Grove's files, they found and copied an agreement signed by both Calenda and by Grove partner Paul Hartman. Summit later moved for summary judgment based in large part on the release provision of the modification agreement. The summary judgment motion and ensuing events constitute the gravamen of this action against Summit's attorneys, defendants Liloia and Sylvester. Defendants attached a copy of the modification agreement executed by Jennifer Calenda and Paul Hartman to the summary judgment motion. No reference was made to the source of the document. In response to the motion, the debtors contested the validity and enforceability of the release; however, they neither denied Hartman's execution of the agreement nor the fact of delivery of his executed copy to the bank, although Hartman had previously informed his attorney that he did not remember executing or returning the agreement to Summit.

Grove subsequently made a cross-motion for a determination of no deficiency liability and to compel the depositions of bank officers that the debtors had been seeking for some months. Prior to her first scheduled deposition, Grove's attorney requested access to the bank's credit file. The defendants instructed Summit officers to place the copy of the modification agreement signed by both Hartman and Calenda in the bank's files. Subsequently, in her December 4, 1991 deposition, bank officer Calenda said that Hartman had faxed a signed copy of the modification agreement to the bank and that additional monies would not have been disbursed to Grove had Summit not received the signed agreement. During Calenda's December 4 deposition and later at a December 7, 1991 deposition of a former Summit officer, the debtors' attorney asked for both the originals and faxed copies of the mortgage and note modification agreement in the bank's files. None were provided. The debtors' attorney reviewed her client's files before resuming Calenda's deposition on December 27, 1991 and realized that the modification agreement submitted with Summit's motion for summary judgment had come from the Grove files. At the deposition, the attorney asked Calenda "where [the agreement] came from" and defendant Liloia stated for the first time that the source of the document was the debtor's files.

Plaintiffs brought this action on June 18, 1992. Their complaint seeks damages for tortious concealment of evidence (Count I) and for alleged breaches of the RPCs (Count II). Plaintiffs ask for costs associated with the depositions and the review of their own files through which they learned that the document signed by Hartman came from those files. On defendants' motion to dismiss the complaint, the Chancery Division dismissed the second count in December 1992, concluding that plaintiffs' claim the RPCs had been violated was a collateral matter over which the court did not have "primary jurisdiction."

The parties settled the Grove foreclosure litigation by agreement on February 23, 1993, expressly reserving the plaintiffs' right to continue with the present lawsuit. Subsequently, the trial court found that plaintiffs could not maintain a cause of action based on spoliation of evidence because they had not demonstrated justifiable reliance on the copy of the modification agreement attached to Summit's motion. The court granted summary judgment to defendants.

The Appellate Division affirmed both the dismissal of the RPC claim and the grant of summary judgment on the spoliation claim. 281 N.J. Super. 50, 56-58 (1995) (Baxt I). A majority of the panel examined prior New Jersey precedent and found that no case had "involved a cause of action for damages by an adversary premised solely on an attorney's alleged disregard of his ethical responsibilities." Id. at 56. The majority's understanding of the RPCs lies at the heart of its holding:

The underlying purpose of the Rules of Professional Conduct . . . is not to serve as a source of litigation, but rather to express the fundamental standards required to uphold the integrity of our legal system. The interests the Rules of Professional Conduct seek to vindicate are the interests of society in assuring a legal system based on integrity and honesty, not private interests.


The court declined to permit a new cause of action based on the Rules. Judge Dreier concurred in the judgment, although he would not have found plaintiffs precluded from recovery except for the global settlement of the foreclosure lawsuit. Id. at 58-59 (Dreier, P.J.A.D., Concurring).

On remand from this Court for reconsideration in light of plaintiffs' assertion that the settlement of the Grove litigation expressly excluded their claims against the defendants, the Appellate Division reaffirmed its decision. Baxt II, supra, 284 N.J. Super. at 222-23. Judge Dreier Dissented, finding that the plaintiffs had asserted an actionable claim under the RPCs. Id. at 223 (Dreier, P.J.A.D., Dissenting).


This case raises the issue whether a violation of the Rules of Professional Conduct can be used to provide a basis for civil liability against an adversary's attorney. The Baxts' complaint asserts that defendants breached RPC 3.3 ("Candor Toward the Tribunal"), RPC 3.4 ("Fairness to Opposing Party and Counsel"), and RPC 4.1 ("Truthfulness in Statements to Others"). Plaintiffs have argued on appeal that defendants' conduct also violated RPC 1.2(d) ("Scope of Representation"). Plaintiffs press the Court to recognize a new cause of action for breach of the RPCs.

The New Jersey Rules of Professional Conduct are based on the American Bar Association (ABA) Model Rules *fn1 as revised by the Supreme Court Committee on the Model Rules of Professional Conduct and modified and adopted by this Court on July 12, 1984. See R. 1:14. Although our Rules do not contain the explanatory material which introduces the ABA Model Rules, see Pressler, Current N.J. Court Rules, Introduction to Rules of Professional Conduct (1998), reference to the Scope section of the ABA Rules is instructive. On the issue before us, the section explicitly states:

Violation of a Rule should not give rise to a cause of action nor should it create any presumption that a legal duty has been breached. The Rules are designed to provide guidance to lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for civil liability. Furthermore, the purpose of the Rules can be subverted when they are invoked by opposing parties as procedural weapons. The fact that a Rule is a just basis for a lawyer's self-assessment, or for sanctioning a lawyer under the administration of a disciplinary authority, does not imply that an antagonist in a collateral proceeding or transaction has standing to seek enforcement ...

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