March 17, 2010
CAMERON & MITTLEMAN, AMY MOWER, AND RICHARD MITTLEMAN, PLAINTIFFS-APPELLANTS,
PHILIP CHAPMAN AND CHAPMAN HENKOFF PEDUTO & SAFFER, LLC, DEFENDANTS-RESPONDENTS, AND PAUL CAMPELLONE AND ADLER, POLLOCK & SHEEHAN, INC., DEFENDANTS.
On appeal from Superior Court, Law Division, Monmouth County, Docket No. L-1821-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued February 24, 2010
Before Judges Miniman and Waugh.
Plaintiffs Cameron & Mittleman, LLP, Amy Mower, and Richard Mittleman (collectively "Cameron Firm")*fn1 appeal the dismissal of their complaint for contribution and indemnification against Philip Chapman and Chapman, Henkoff, Peduto & Saffer (collectively "Chapman Firm").*fn2 We reverse.
The issue presented on this appeal is whether the Chapman Firm is a "joint tortfeasor"*fn3 with the Cameron Firm with respect to economic losses claimed by non-party Metallix Refining, Inc. (Metallix), in a lawsuit it filed against the Cameron Firm and others (underlying action).*fn4 In order to explain our conclusion that the two law firms, and the individual attorney parties, are potentially joint tortfeasors for the purposes of the Joint Tortfeasors Contribution Law (JTCL), N.J.S.A. 2A:53A-1 to -5, we must set forth the facts with respect to the two underlying business transactions, as well as the legal theories involved in the underlying action and this action.
RFE Industries, Inc. (RFE), Metallix's predecessor, was the owner of an unincorporated division, known as the "MFE Division" (MFE), which manufactured and sold "tin and tin lead alloys and silver anodes, silver salts and recycling of tin and tin-lead residues." In August 1997, RFE filed for bankruptcy protection.
After RFE's bankruptcy filing, non-party Anton Noll, Inc. (Noll), sought to acquire MFE by purchasing its assets. At the request of RFE's bankruptcy counsel, the bankruptcy court appointed the Chapman Firm as special counsel to represent RFE during the negotiation and execution of the proposed asset purchase agreement. Noll retained the Cameron Firm to represent it.
The final agreement between RFE and Noll provided for two types of payment by Noll to RFE: (1) a present payment for MFE's machinery, equipment and inventory; and (2) future payments of royalties based on revenues to be derived by Noll from designated MFE customers over a three-year period. The agreement as drafted did not prohibit Noll from making any further transfer of the purchased assets, nor did it call for any U.C.C. or other filing to protect RFE's interests with respect to the future royalty payments.
In September 1997, the bankruptcy court authorized the asset purchase, which closed on January 30, 1998. Shortly thereafter, in February 1998, Noll agreed to sell the MFE assets to Fry's Metals, Inc. (Fry). That transaction closed on February 19, 1998. The Cameron Firm also represented Noll in connection with the sale to Fry. It appears that the Noll-Fry transaction was the subject of negotiation prior to the finalization of the RFE-Noll transaction.
Following the sale of the MFE assets to Fry, both Noll and Fry apparently refused to make the royalty payments required by the agreement between Noll and RFE. Metallix, as RFE's successor, filed suit against Fry and others, and subsequently named the Cameron Firm as a defendant. Metallix did not, however, make any claim against the Chapman Firm, its counsel in the RFE-Noll transaction.
Pursuant to variously stated legal theories in the underlying action, Metallix alleges, among other things, that the Cameron Firm wrongfully conspired with Noll and Fry to defraud RFE and deprive it of the royalty payments due under its agreement with Noll. Metallix further alleges that, while the transaction was still being negotiated between Noll and RFE, the Cameron Firm "deliberately suppressed and fraudulently concealed" information pertaining to the agreement that Noll, its client, was negotiating with Fry, and that it had an affirmative legal duty to disclose that information to RFE. Metallix has apparently submitted an expert's report in the underlying action opining that the Cameron Firm had an ethical duty to disclose the proposed Noll-Fry transaction to Metallix prior to the consummation of the RFE-Noll transaction.
In March 2005, the Cameron Firm sought leave to file a third-party complaint against the Chapman Firm in the underlying action, so that it could assert claims for contribution and indemnification. The motion was denied in May 2005, apparently because the Cameron Firm's answer had previously been stricken due to discovery violations. The motion judge held that the Cameron Firm could not file a third-party complaint until its answer and defenses were restored. On June 2, 2006, the judge denied the Cameron Firm's second motion for leave to file a third-party complaint against the Chapman Firm for different reasons, but "expressly preserved [the claims] from the effects of the entire controversy doctrine." The Cameron Firm made a third motion to join the Chapman Firm in September 2007, which was denied in May 2008.
On April 13, 2009, the Cameron Firm filed the current action against the Chapman Firm, alleging that the Chapman Firm "acted negligently and breached their duty of professional care owed to RFE and Metallix by failing to take appropriate steps to secure payment of the Royalty Obligation to be paid pursuant to the [asset purchase agreement]." The Cameron Firm asserted that the Chapman Firm's negligence included:
(a) failure to conduct proper due diligence on Noll's financial ability to satisfy the obligations undertaken in the [asset purchase]; (b) failure to include in the [asset purchase] a prohibition or restriction on the transfer of the MFE assets by Noll; (c) failure to insert a requirement in the [asset purchase agreement] that any transferee of any portion of the MFE assets be required to report sales data to RFE; (d) failure to include in the [asset purchase agreement], a covenant requiring Noll to generate a certain minimum level of sales of the MFE assets during the royalty period; and (e) failure to perfect a security interest on the MFE assets to secure the Royalty Obligation.
The Cameron Firm alleges that the injuries and damages claimed by Metallix "would not have occurred but for the legal malpractice committed by the [Chapman Firm]."*fn5
The Chapman Firm filed a motion to dismiss for failure to state a claim, relying on Rule 4:6-2(e). On August 28, 2009, after hearing oral argument, the motion judge granted summary judgment:
The Court finds that the circumstances presented in this case fall within the dictates of Cherry Hill [Manor Associates v. Faugno, 182 N.J. 64 (2004)], in that LaBracio Family Partnership v. 1239 Roosevelt Avenue, Inc., 340 N.J. Super. 155 (App. Div. 2001), is distinguishable as counsel for defendant has pointed out. In that matter all three attorneys were involved in a single real estate transaction and liability was sought to be imposed on them because each had failed to timely record the same deed and mortgage. LaBracio involved a single transaction, and not a series of transactions.
The Court does find that this is one of the rare circumstances where the motion under Rule 4:6-2(e) for failure to state a claim may be granted even at this early point in the litigation. [The Cameron Firm] and [the Chapman Firm] are not joint tortfeasors and do not share the requisite common liability to Metallix to sufficiently sustain the cause of action.
As previously indicated, the alleged malpractice of [the Chapman Firm] and of [the Cameron Firm] relate to two separate and distinct corporate transactions, that happened at separate points in time.
The Noll sale in September 1997 as opposed to the [Fry] sale which closed in February 1998 at which point in time [the Cameron Firm] represented Noll -- the two separate offenses claimed by the plaintiff do not give rise to a single cause of action and that therefore there is no "same injury" to Metallix, which is a necessary component of the joint tortfeasor law.
The order of dismissal was entered on August 28, 2009. This appeal followed.
In reviewing the dismissal of a complaint for failure to state a claim on which relief can be granted, Rule 4:6-2(e), we are bound by the same standard that governed the motion judge. Indep. Dairy Workers Union v. Milk Drivers Local 680, 23 N.J. 85, 89 (1956). We are obligated to accept the allegations of the complaint as true and afford plaintiff all reasonable factual inferences. Ibid. The complaint must be "searched in depth and with liberality to determine whether a cause of action can be gleaned even from an obscure statement." Seidenberg v. Summit Bank, 348 N.J. Super. 243, 250 (App. Div. 2002) (citing Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746 (1989)). "If a generous reading of the allegation merely suggests a cause of action, the complaint will withstand the motion." F.G. v. MacDonell, 150 N.J. 550, 556 (1997). A motion to dismiss should be granted "in only the rarest of instances." NCP Litig. Trust v. KPMG LLP, 187 N.J. 353, 365 (2006) (quoting Printing Mart, supra, 116 N.J. at 772). See also County of Warren v. State, 409 N.J. Super. 495, 503 (App. Div. 2009), certif. denied, ___ N.J. ___ (2010).
N.J.S.A. 2A:53A-1 to -5, defines joint tortfeasors as "two or more persons jointly or severally liable in tort for the same injury to person or property, whether or not judgment has been recovered against all or some of them." We have held that the "purpose of the JTCL is 'to promote the fair sharing of the burden of judgment by joint tortfeasors and to prevent a plaintiff from arbitrarily selecting his or her victim.'" Connell, Foley & Geiser, LLP v. Israel Travel Advisory Serv., Inc., 377 N.J. Super. 350, 361 (App. Div.) (quoting Holloway v. State, 125 N.J. 386, 400-01 (1991)), certif. denied, 185 N.J. 298 (2005).
We must first determine whether the parties were arguably responsible for the same injury. In Cherry Hill Manor Associates v. Faugno, 182 N.J. 64, 75 (2004), the Supreme Court held that the "contextual uses of the term 'injury' leads us to the conclusion that the Legislature intended that the term 'same injury' in its definition of joint tortfeasor relate to the harm the tort victim suffered and not to the cumulative damages the tort victim sustained as a result of multiple disparate injuries caused by multiple tortfeasors."
In the underlying action, Metallix seeks to recover the royalty income for which RFE bargained in its sale of the MFE Division to Noll. It claims that the loss was caused, in part, by the Cameron Firm's failure to disclose to RFE the negotiation of the transaction between Noll and Fry, which failure deprived it of the opportunity to take preventative action. The Cameron Firm, in turn, contends that the loss of the royalties would have been avoided had the Chapman Firm structured the agreement between RFE and Noll to prohibit any further transfer of the assets or otherwise to protect RFE's interests with respect to the royalty payments in the event of such a transfer. It is quite clear to us, therefore, that the "same injury" requirement has been satisfied.
We must next determine whether there is "joint liability" as opposed to "joint, common or concurrent negligence." Cherry Hill, supra, 182 N.J. at 72. "The test's core proposition may be stated succinctly: 'It is common liability at the time of the accrual of plaintiff's cause of action which is the sine qua non of defendant's contribution right.'" Ibid. (quoting Markey v. Skog, 129 N.J. Super. 192, 200 (Law Div. 1974)).
Although the two underlying transactions were closed at different, albeit not significantly different, times, we have concluded that, for the purposes of the JTCL, Metallix's putative cause of action against both the Cameron and Chapman Firms arose at essentially the same time, i.e., the finalization of the transaction between RFE and Noll. When that transaction was finalized without the Chapman Firm having structured the agreement to protect against further transfer of the assets and without the Cameron firm having disclosed to RFE the negotiations concerning the planned, subsequent sale by Noll, the alleged wrongs by the parties to this action that are said to have caused the loss of the royalty income were essentially complete.
In granting the motion to dismiss, the motion judge concluded that the facts of this case are similar to those in Cherry Hill, in which the Supreme Court found that several attorneys were not joint tortfeasors. The Chapman firm urges us to reach the same conclusion. The Cameron Firm, however, argues that the facts here are quite different from Cherry Hill, and are more like those in LaBracio Family Partnership v. 1239 Roosevelt Avenue, Inc., 340 N.J. Super. 155 (App. Div. 2001), which the Supreme Court cited with approval in Cherry Hill, supra, 182 N.J. at 76. In that case, we found that several attorneys were joint tortfeasors.
In Cherry Hill, supra, 182 N.J. at 68, the plaintiff was negotiating to purchase a condominium property. He made a deposit and advanced additional funds to the seller, all of which were to be secured by a mortgage. Ibid. Plaintiff's first attorney neglected to record the mortgage. Ibid. After the deal fell through, the plaintiff retained a second attorney to recover its investment from the seller. Ibid. The second attorney filed suit against the seller, but neglected to sue the first attorney for negligence in failing to record the mortgage. Ibid. The seller filed for bankruptcy and the debt was discharged. Ibid. The plaintiff then retained a third lawyer, who filed suit against the first attorney for failing to record the mortgage. Ibid. The first attorney filed a third-party claim against the second attorney, claiming that he was a joint tortfeasor. Id. at 69. The plaintiff's complaint was not, however, amended to name the second attorney as a direct defendant. Ibid.
The first attorney then sought dismissal of the suit, arguing that it was barred by the entire controversy doctrine. Id. at 68-69. His motion was initially denied. Id. at 69. However, following our decision in Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 274 N.J. Super. 405 (App. Div. 1994), aff'd, 142 N.J. 280 (1995), the motion was renewed and granted. Ibid. That dismissal terminated the first attorney's third-party claim against the second attorney. Ibid.
However, the Supreme Court subsequently abrogated its affirmance in Circle Chevrolet. See Olds v. Donnelly, 150 N.J. 424, 443 (1997). The plaintiff, represented by a fourth attorney, then filed suit against the second attorney for failing to name the first attorney as a defendant in the suit against the seller. Cherry Hill, supra, 182 N.J. at 69. That action was dismissed based upon the limited retroactivity of Olds. Id. at 70.
Undaunted, the plaintiff, still represented by the fourth attorney, filed suit against the third attorney, alleging that he should have made the second attorney a direct defendant after the first attorney had filed the third-party complaint against him. Ibid. The third attorney filed a third-party complaint against the first and second attorneys, alleging that they were joint tortfeasors. Ibid. They successfully moved for dismissal of the third-party complaint, arguing that they were not joint tortfeasors. Ibid. We reversed, Cherry Hill Manor Associates v. Faugno, 365 N.J. Super. 313 (App. Div. 2004), and the Supreme Court granted certification, 180 N.J. 151 (2004).
Based upon the applicable legal considerations outlined above, i.e., "the same injury" and "common liability at the time of accrual of the plaintiff's cause of action," the Supreme Court reversed our decision and determined that the first three attorneys were not joint tortfeasors:
In order, therefore, to answer whether tortfeasors are "joint" under the JTCL, we ask whether [the first attorney, the second attorney and the third attorney] are subject to common liability to the plaintiff at the time the plaintiff's cause of action accrued. Here, [the first attorney]'s alleged negligence, and plaintiff's cause of action against [him], arose in 1986, when [the first attorney] failed to record the purchase money mortgage that would have secured plaintiff's . . . deposit monies and advances against the property it was seeking to purchase, which was well before either [of the other attorneys] became involved with plaintiff. In contrast, [the second attorney]'s alleged negligence, and plaintiff's cause of action against him, arose in 1989 when [he] failed to name [the first attorney] as a party defendant in the lawsuit seeking recovery of plaintiff's deposit monies and advances, thereby entitling [the first attorney] to an entire-controversy-doctrine defense to the later case filed by [the third attorney] on plaintiff's behalf, all some three years before [the third attorney] committed the malpractice for which judgment was entered against him. Finally, [the third attorney]'s alleged negligence, and plaintiff's cause of action against [him], arose in 1992 when, on behalf of plaintiff, [he] filed suit against [the first attorney], but not [the second attorney], even in the face of [the first attorney]'s third-party contribution complaint against [the second attorney]. Against that factual backdrop, it simply cannot be said that [the three attorneys] had common liability at the time plaintiff's separate cause of actions accrued. Thus, [the third attorney] fails to satisfy the statutory definition of a joint tortfeasor for contribution purposes. Each of [three attorneys'] alleged malpractice constituted separate torts at disparate times with different damages covering a six-year period. As a result, their separate acts of malpractice cannot constitute the "joint liability" required for the imposition of contribution liability under the JTCL.
The harm visited on plaintiff by [the three attorneys], although sharing a common core, was different in each instance. [The first attorney] caused harm to plaintiff by reason of [his] failure to deliver and file a purchase money mortgage securing plaintiff's deposit monies and advances; [the second attorney] caused harm to plaintiff by failing to name [the first attorney] in the suit against the Seller; and [the third attorney] caused harm to plaintiff by failing to include [the second attorney] in the suit against [the first attorney].
[Cherry Hill, supra, 182 N.J. at 72-76.]
In LaBracio, supra, 340 N.J. Super. at 159, which also involved a commercial real estate transaction with an unrecorded mortgage, the sellers of the property sued their attorney and the buyer's attorney for failure to record a mortgage from the buyer to the sellers, which failure resulted in the sellers' loss of priority when the buyer executed later mortgages. After settling with the sellers, the two defendant attorneys, relying on the Comparative Negligence Act, N.J.S.A. 2A:15-5.1 to -5.3, filed an action against an attorney who had subsequently represented the buyer, and who also failed to record the mortgage, arguing that they were entitled to recover from him the percentage of the sellers' loss attributable to his negligence. Id. at 160. N.J.S.A. 2A:15-5.3(e) states that "[a]ny party who is compelled to pay more than his percentage share may seek contribution from the other joint tortfeasors." We affirmed the judgment against the defendant attorney, finding that he had breached a duty to the sellers and that he was liable to the plaintiffs for his share of the sellers' loss. LaBracio, supra, 340 N.J. Super. at 162-66.
In Cherry Hill, supra, 182 N.J. at 76 (citations omitted), the Supreme Court made the following observations with respect to LaBracio:
Unlike [the third attorney], who seeks contribution here from those whose allegedly tortious acts occurred before [his] now admitted negligence, the two [attorneys] in LaBracio sought contribution from a successor attorney arising from the failure of all three lawyers in the same transaction to insure that a deed and mortgage were filed timely. Under those circumstances, joint tortfeasor contribution liability was rightly apportioned among all three attorneys who shared joint liability (each for failing to file the deed and mortgage in a timely manner as part of the same real estate transaction) and who all caused the same injury (the untimely filing of the deed and mortgage that resulted in liens with priority filing listed against the realty).
LaBracio is factually distinguishable and therefore not relevant to the inquiry here.
We have concluded that LaBracio, as approved in Cherry Hill, governs the determination of this appeal. Although the precise allegations of negligence against each law firm and attorney in this case are not identical, the harm to Metallix, the loss of royalties owed to RFE from the sale to Noll, is the same. Furthermore, the loss arose from essentially the same transaction at essentially the same time, i.e., the sale of the MFE assets by RFE to Noll at a time when the Chapman Firm had not structured the transaction to prohibit Noll from a further sale of the assets or to protect RFE's right to receive the royalties, and the Cameron Firm had not disclosed to RFE that Noll was negotiating a sale of the assets to a third party which would jeopardize future payment of the royalties. These facts are quite close to those in LaBracio and quite distinct from those in Cherry Hill.
In summary, we have concluded that the motion judge should not have dismissed the complaint for failure to state a claim. There are, at least potentially, circumstances under which the Cameron Firm could demonstrate that the Chapman Firm is its joint tortfeasor and required to bear its fair share of the loss claimed by Metallix. Obviously, we do not determine that such a result is necessary, but only that it is possible and that the Cameron Firm is entitled to pursue its cause of action. Consequently, the order dismissing the complaint is reversed and the matter is remanded to the Law Division for further proceedings consistent with this opinion.
As noted above, the Cameron Firm made several attempts to bring its claim against the Chapman Firm in the underlying action, but was unsuccessful at different times for differently articulated reasons. We leave it to the discretion of the Law Division whether true judicial economy would be better served by a consolidation of the two actions or by having them proceed on separate tracks. See R. 4:38-1(a) ("When actions involving a common question of law or fact arising out of the same transaction or series of transactions are pending in the Superior Court, the court on a party's or its own motion may order the actions consolidated."); Bender v. Rosen, 247 N.J. Super. 219, 237 (App. Div. 1991) (stating that "[w]hile technically a right of contribution does not arise until a tortfeasor has paid more than his pro rata share, . . . the entire-controversy doctrine and judicial economy militate for the claim being asserted in the underlying  action").
Reversed and remanded.