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Prospect Rehabilitation Services, Inc. v. Squitieri

April 16, 2007


On appeal from the Superior Court of New Jersey, Law Division, Bergen County, L-8354-03.

The opinion of the court was delivered by: Axelrad, J.T.C. (temporarily assigned).



Argued: December 5, 2006

Before Judges Coburn, Axelrad and R.B. Coleman.

Plaintiff Prospect Rehabilitative Services, Inc. appeals from summary judgment dismissal of its legal malpractice complaint against its former attorney, defendant Generoso Squitieri. The complaint was dismissed on the ground that plaintiff had voluntarily settled the underlying case without exhausting its appeal and separate active lawsuits, and thus was precluded as a matter of law from attempting to recoup the difference in the malpractice action against defendant. We reverse and remand.

In April 200l, Squitieri filed suit on plaintiff's behalf against two nursing homes, designated as "Woodcliffe Lake Manor Care, Inc." and "Dellridge Nursing Home, Inc.," and their principal Nathan Friedman. In the eleven-count complaint, plaintiff sought to recover alleged overpayments of rent and construction advances totaling about $70,000, and also asserted Consumer Fraud Act and RICO claims. The nursing homes filed a counterclaim alleging $45,000 in unpaid rent.

Following adverse non-binding arbitration on March l8, 2002, during which the arbitrator awarded the nursing homes $45,000 on their counterclaim, Squitieri filed a demand for a trial de novo on plaintiff's behalf. Squitieri certified that as a result of a comment made by plaintiff's principal Joseph Thomas during the arbitration, he first learned of potential Medicare denial claims against the nursing homes totaling about $400,000, based on their physicians' alleged failure to submit timely documentation to Medicare that the patients required physical and occupational therapy, in violation of the parties' Provider Service Agreement.*fn1 Thomas alleged that he discussed the potential Medicare claims against the nursing homes during his early consultations with Squitieri.

On April 5, 2002, Thomas terminated Squitieri's services and retained his present counsel, James Kravitz. Kravitz filed a substitution of attorney on April 24, and a Motion for Leave to File an Amendment to the Complaint and Answer to the Counterclaim on April 25. Unbenownst to Kravitz, a July l, 2002, trial date had been scheduled prior to the filing of his substitution of attorney. The moving papers are not a part of the appellate record, but at oral argument on the motion on June 7, 2002, Kravitz stated he sought to amend the complaint to add the $400,000 Medicare denial claim and for additional discovery but "if need be, [plaintiff] would rest simply on just obtaining the amendment to the pleadings and go into the trial without any discovery." Kravitz argued the issue required "virtually no discovery" as the claims were based on breach of the parties' contracts obligating the nursing homes to provide physician authorizations for patient treatment, which were not done, resulting in denial of Medicare reimbursement. Kravitz further represented that administrative regulations required a physician's signed, dated authorization for physical therapy every thirty days to sustain reimbursement for healthcare facility patients. Plaintiff also sought to amend its answer to the nursing homes' counterclaim to assert an affirmative defense under the Medicaid Anti-Kickback statute and statute of frauds.*fn2

Plaintiff's counsel stated he would be prepared to produce witnesses and answer interrogatories in five days, and would provide any requested discovery on as short notice as possible. Alternatively, plaintiff sought leave, under the entire controversy rule, to bring its claims in a separate action. Plaintiff relied on the liberal standard of amendment to the pleadings, R. 4:9-l, and the fact that the rule had not been amended after the best practice rule amendments, and argued that the complaint was only a year old and there was no indication that documents or witnesses were unavailable.

The trial court denied the motion for leave to amend the complaint. It found discovery would need to be extended and that plaintiff had failed to establish "exceptional circumstances" under R. 4:24-1(c) for extension of the discovery period after the trial date had been set, noting that lack of attorney diligence was insufficient under the case law. The court was satisfied, however, that a different analysis was required as to plaintiff's affirmative defense to the counterclaim, particularly as it involved an assertion of a criminal violation. Plaintiff was granted leave to amend its answer to the counterclaim, discovery was extended for about ninety days to address the affirmative defense, and the July l trial date was adjourned.

On November 8, 2002, an order granting partial summary judgment to the nursing homes was entered, which dismissed the complaint against Friedman and plaintiff's RICO claims, as well as plaintiff's newly-asserted defenses to the counterclaim alleging statute of frauds and violation of the Medicaid Anti-Kickback Act. Following a five-day jury trial, plaintiff obtained a jury verdict in its favor for about $74,500 on its claims for overpayment of rent and construction advances, and judgment was entered on December l7, 2002, also conforming defendants' names to Woodcliff Lake Manor, L.L.C., and Dellridge Care Center, L.P. In January 2003, plaintiff appealed the denial of its motion to amend its complaint to seek the additional $400,000 in Medicare denial claims, and the nursing homes cross-appealed the jury verdict.

In October 2002 and May 2003, plaintiff filed separate lawsuits against Dellridge General Corp., the general partner of Dellridge Nursing Home, L.P., and Woodcliff Lake Manor, L.L.C., seeking damages for breach of contract and fraud claims relating to the Medicare denials. In May 2003, Dellridge filed a motion for summary judgment to dismiss plaintiff's complaint as barred by the entire controversy doctrine, collateral estoppel, res judicata, judicial estoppel, and the Uniform Partnership Act, with Woodcliff's counsel indicating it intended to file a similar motion.

In June 2003, plaintiff settled all of its outstanding claims against the nursing home defendants for a total of $115,000, or $40,000 in excess of the judgment awarded to plaintiff at trial. Plaintiff dismissed the lawsuits against both nursing homes, as well as its pending appeal, and the nursing homes dismissed their cross-appeal. According to Kravitz's certification, plaintiff's decision to settle the matter was based on a number of factors. Plaintiff reasoned that its appeal represented an "uphill battle" seeking reversal of a discretionary decision of a well-respected presiding judge where plaintiff had no legitimate explanation for its failure to include the denied Medicare reimbursement claims in the initial complaint other than attorney neglect. Moreover, though plaintiff believed it was unlikely the cross-appeal would be successful, there was a risk the jury verdict could be overturned as the nursing homes had prevailed at arbitration. Additionally, Kravitz certified he filed the subsequent lawsuits against the nursing homes solely to preserve the statute of limitations if plaintiff's appeal was successful, based on a concern that Squitieri had failed to properly designate the defendants in the initial action, and when the ...

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