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Professional Liability Newsletter

July 2015

IN THIS ISSUE:

Malpractice Issues
Easing of affidavit of merit
Can otherwise confidential ethics documents be relied upon in a malpractice suit?
Can uninsured firms lose LLP protection in NJ?
NY v. NJ statute of limitations for malpractice claims

Conflicts
Pre-fee suit letter

Other Ethics Issues
Metadata in state courts
Disqualification for privileged documents



MALPRACTICE ISSUES

Easing of affidavit of merit

The affidavit of merit requirement serves the purpose of requiring a plaintiff seeking to file a cause of action against a professional to obtain an affidavit from a similarly licensed professional attesting that the defendant-professional deviated from the appropriate standard of care.  Since the New Jersey Supreme Court decided Cornblatt v. Barow in 1998, plaintiffs who have failed to timely file such an affidavit have generally suffered the consequence of having their claims dismissed with prejudice. See 153 N.J. 218, 242 (1998).  However, a recent Appellate Division decision has opened the door for relaxation of this rule beyond the limited exceptions that case law following Cornblatt has carved out over the years.  In Oh v. Kang, Docket No. A-1984-13T1 (App. Div. March 12, 2015), a plaintiff brought a malpractice suit against a dentist, but failed to provide a supporting affidavit of merit within the 120 days permitted by statute.  Following the Cornblatt line of cases, the trial court dismissed the plaintiff’s action with prejudice.  On appeal, the Appellate Division affirmed the dismissal with prejudice, deferring to precedent, but confirmed its agreement with the rationale set forth in a dissent drafted by Justice Long in Cornblatt.  According to Justice Long’s dissent, favored by the Appellate panel in Oh, the language of the affidavit of merit statute does not mandate the dismissal of an action with prejudice for the failure to provide a timely affidavit of merit.  Rather, as the language of the statute parallels the language of Rule 4:6-2(e), which governs dismissal for failure to state a claim, it should be interpreted the same way that Rule 4:6-2(e) has been interpreted – namely, as requiring dismissals without prejudice in the absence of legal impediments such as a statute of limitations period that has expired.  In the context of the affidavit of merit statute, such interpretation would initially require a dismissal without prejudice; a dismissal with prejudice would be warranted only if a plaintiff could not or would not subsequently provide an affidavit. 

In Oh, the Appellate Division urged for this relaxation of affidavit of merit precedent by suggesting that it would help stem the “sideshow” of litigation that has developed following Cornblatt, as most of this litigation involves the potential application of the limited exceptions to Cornblatt’s rule that have gradually been established through case law.  Moreover, the Appellate Division opined that to forestall premature malpractice complaints, the imposition of conditions on the reinstatement of a dismissed complaint could be appropriate; the court noted that “reimbursement of a defendant’s expenses in responding to the earlier complaint” could be such a condition.  At this point, it is unclear whether the Supreme Court will heed the suggestions of the Appellate Division, or whether Cornblatt will remain the law.

Can otherwise confidential ethics documents be relied upon in a malpractice suit?  

Can a malpractice plaintiff suing his former attorney rely on documents generated during a disciplinary investigation of that attorney?  The defendant law firm recently opposed a motion in which a plaintiff in a malpractice action, John Fink, sought to rely upon the firm’s response to a grievance that had been filed with the District Ethics Committee concerning allegations that the firm's attorney altered a document during an arbitration proceeding involving Fink in which the defendant-attorney had represented him.  See Fink v. Kirchner and Flaster/Greenberg, P.C., 1:12-cv-04125-NLH-KMW.  Fink intended to use the firm’s response letter to question the attorney during his deposition in the malpractice action, arguing that the letter raised questions as to Fink’s credibility and set forth the attorney’s position as to Fink’s allegations – issues that would similarly arise in Fink’s malpractice case.  The defendants opposed Fink’s motion on the basis that the Office of Attorney Ethics investigation documents are confidential and not subject to discovery.  The defendants also argued that Fink should not be permitted to rely on the confidential investigation materials because he could obtain the same information through less intrusive means, such as by simply questioning the attorney at his deposition without introducing the letter from the ethics investigation. 

The United States District Court for the District of New Jersey ultimately rejected the defendants' arguments and granted Fink’s motion, thereby permitting Fink to rely on the firm’s response letter submitted in the ethics investigation during the attorney’s deposition.  In reaching its conclusion, the court noted that Fink was not seeking disclosure of the document from the Office of Attorney Ethics, but rather both parties were already in possession of the document.  Moreover, the court concluded that although under New Jersey law records relating to attorney discipline are excluded from public access, such concerns were not at issue in this case, as the court had entered an order shielding any investigation documents from public disclosure.  Considering that certain documents from the ethics investigation had already been relied upon by both parties earlier in the malpractice case, the court held: “Simply stated, the document is not confidential amongst the parties, will be shielded from the public during discovery, and the Court can fathom no reason why Fink should not be able to utilize prior representations of [the attorney] relating to the same allegations raised in this case during his deposition.” 

Can uninsured firms lose LLP protection in NJ? 

One of the benefits of practicing as an LLP is that partners will be shielded from liability stemming from their partners’ acts or omissions.  However, in New Jersey the question has recently been raised as to whether partners stand to lose that protection if the firm’s insurance policy lapses.  In Mortgage Grader v. Ward & Olivo, a legal malpractice action, the trial court held that a dissolving LLP that failed to purchase an insurance policy caused the LLP to revert to a general partnership, leaving one partner exposed to liability for his partner’s alleged malpractice.  The firm had ceased actively practicing law on June 30, 2011, and then began to wind up its practice.  The firm’s professional liability insurance policy expired on August 8, 2011, and the firm opted not to purchase a tail insurance policy. Accordingly, when the firm and its partners were sued for legal malpractice by a former client in October 2012, the firm's insurance policy had expired and it was uninsured.  The malpractice allegations stemmed from purported acts or omissions by Olivo.  Ward filed a motion to dismiss the Complaint as to him, arguing that he was shielded from liability under N.J.S.A. 42:1A-18c, as a partner of an LLP.  In denying Ward’s motion, the motion judge concluded that “[t]he condition precedent to attorneys operating as an LLP is [maintaining] malpractice insurance.”  Because the firm had let its policy expire, the motion judge determined that the firm had thus been “relegated . . . to the status of” a general partnership.  On appeal, the Appellate Division reversed, expressly concluding that such a sanction is not authorized and stating that “when attorneys practice law as an LLP, and the LLP fails to obtain and maintain professional liability insurance as required . . . the LLP does not revert to a general partnership.”  Mortgage Grader, 438 N.J. Super. 202 (2014).  Relying on decisions in which attorneys were disciplined for failing to maintain professional liability insurance, the Appellate Division instead concluded that the LLP should be suspended from the practice of law or otherwise disciplined, rather than have its corporate structure dissolved.  On March 27, 2015, the Supreme Court granted a motion for leave to appeal this issue.  The case has not yet been argued or decided.

NY v. NJ statute of limitations for malpractice claims  

Attorneys who practice in both New York and New Jersey should be mindful that the states’ respective statutes of limitation for malpractice claims are not identical.  In New Jersey, the statute of limitations for legal malpractice is six years.  See N.J.S.A. 2A:14-1; McGrogan v. Till, 167 N.J. 414, 417 (2001).  By contrast, New York's statute of limitations is three years. See NY CPLR § 214.  Moreover, legal malpractice claims in New Jersey are subject to the discovery rule, and thus the statute of limitations will begin to run “only when the client suffers actual damage and discovers, or through the use of reasonable diligence should discover, the facts essential to the malpractice claim.”  Grunwald v. Bronkesh, 131 N.J. 483, 494 (1993).  By contrast, New York will not apply a “discovery rule” to legal malpractice claims, and the statute of limitations will begin to run at the time the malpractice was committed.  See St. Stephen’s Baptist Church, Inc. v. Salzman, 37 A.D.3d 589, 590, 830 N.Y.S.2d 248, 249 (N.Y. App. Div. 2d Dep’t 2007) (“A cause of action to recover damages for legal malpractice accrues on the date the alleged malpractice was committed, not when it was discovered.”).  As a result, clients in New Jersey may possess a virtually unlimited time in which to seek relief through a legal malpractice claim, while clients in New York are strictly limited to three years, even if they were unaware that malpractice occurred. 

Accordingly, attorneys who regularly practice in New York but are licensed in New Jersey should keep in mind that in New Jersey, former clients have much more time in which they may assert claims.  It is worth noting, however, that Bill A1254, pending in New Jersey, would reduce the limitations period for legal malpractice claims to two years, bringing the New Jersey statute more in line with that of New York and other states. However, the bill would likely not impact the common law “discovery rule,” and thus as a practical matter may not extensively reduce the number of legal malpractice claims raised. 

CONFLICTS

Pre-fee suit letter 

A recent New Jersey Disciplinary Review Board (“DRB”) decision, approved by the New Jersey Supreme Court, extended the logic of In re Simon, 206 N.J. 306 (2011), and made clear that a conflict of interest will arise once an attorney sends a client a pre-action notice letter under Rule 1:20A-6, not only when litigation is actually commenced.  In In the Matter of Estelle Flynn Lord, the DRB considered allegations that an attorney had violated RPC 1.6, RPC 1.7, and RPC 1.16.  The allegations raised under RPC 1.7 dealt with the attorney’s sending her clients a pre-action letter required by Rule 1:20A-6 prior to filing a lawsuit against the client for unpaid legal fees.  The District Ethics Committee had concluded that the attorney was guilty of entering into a conflict of interest with her clients because she was still actively representing them at the time she sent the letter.  Notwithstanding the fact that she had not actually commenced litigation, the District Ethics Committee found that she had “invited” her clients “to an adversarial proceeding” by sending the letter, and that this action was sufficient to “[run] afoul” of the conflict of interest rule.  The DRB concurred, and found that the attorney violated RPC 1.7(a)(2) when she sent her clients the pre-action letter because she “still had legal tasks to perform for her clients, including the preparation and distribution of the final draft of the stipulation of settlement and the monitoring of the installment payments for the year to follow.”  Simon had previously held that an attorney’s commencement of litigation against his client to recover unpaid fees created an impermissible conflict of interest that required termination of the representation.  The DRB, applying the logic of Simon, concluded that a pre-action letter “is no less an indicator that the attorney is pursuing the collection of the fee than is an actual suit.”  In light of the three RPC violations the DRB found, it recommended a reprimand, which the Court ordered in January 2015.  See In re Lord, DRB 14-105 (2014), 220 N.J. 339 (2015).

OTHER ETHICS ISSUES

Metadata in state courts

In New Jersey, the judiciary recently established a committee to consider whether New Jersey’s ethics rules need to be revised in light of the new challenges concerning electronic documents and metadata.  Chaired by Justice Anne Patterson, the committee, known as the Working Group on Ethical Issues Involving Metadata in Electronic Documents, will determine whether attorneys who receive electronic documents in discovery and otherwise are permitted under the existing ethics rules to mine for the metadata associated with those documents in order to obtain additional information.  As the judiciary has recognized in establishing this committee, ethical issues might arise as the competing goals of liberal discovery and safeguarding confidential client information intersect in the context of electronic discovery and the transmission of other electronic documents.  Other jurisdictions that have decided this issue are split as to whether data-mining complies with the jurisdiction’s ethics rules and whether a party that discovers metadata in the electronic discovery or other electronic materials it receives has an obligation to notify the sender that the metadata was present.  Moreover, in certain jurisdictions, the sender of electronic data may also have an obligation to ensure that the metadata associated with the electronic data being sent is not discoverable.  For example, the New York State Bar Association Committee on Professional Ethics’ Opinion 782 (Dec. 2004) concluded that attorneys have a duty to “use reasonable care when transmitting documents by e-mail to prevent the disclosure of metadata containing client confidences or secrets.”  Accordingly, in New York, attorneys are not permitted to “mine” for metadata in electronic documents.   By contrast, Pennsylvania urges attorneys to consider each situation on a case-by-case basis and does not take a definitive stance on whether attorneys may mine for metadata.  However, like New York, Pennsylvania also requires attorneys to notify the sender of electronic documents containing metadata that such metadata is present.  Thus, attorneys in New Jersey must wait and see the stance that the New Jersey committee will take on the issue, but while doing so must also be mindful of the potential consequences stemming from mining of metadata. 

Disqualification for privileged documents

Should an attorney be disqualified for reading confidential documents prepared by an adversary, even if those documents were obtained from an unknown third-party?  The New Jersey Appellate Division answered this question in the affirmative in the recent decision Jablow v. Wagner, Docket No. A-4202-13T4 (April 8, 2015).  In Jablow, the attorney representing a plaintiff in a medical malpractice case claimed to have received from an unknown source a nine-page document prepared by the hospital concerning the care rendered by the hospital.  The document was marked that it had been prepared pursuant to the Patient Safety Act (“PSA”), N.J.S.A. 26:2H-12.23 to -12.25, which “imposed new requirements for evaluating and reporting of adverse events, and created a statutory privilege shielding specific communications from discovery in litigation.”  C.A. ex rel. Applegrad v. Bentolila, 219 N.J. 449, 451-52 (2014).  Plaintiff’s counsel unquestionably read the entire document upon receipt and even produced the document back to the hospital in response to a notice to produce.  When the defendants’ counsel informed plaintiff’s counsel about the confidentiality of the document, he demanded that plaintiff’s counsel return all hard copies in his possession and destroy any electronic copies he also had.  When Plaintiff’s counsel refused, defendants’ counsel filed a motion seeking the return of the documents.  After some additional motion practice, the trial court ultimately concluded that the documents had been prepared pursuant to the PSA and therefore were absolutely privileged from disclosure.  Moreover, the trial court granted defense counsel’s motion to disqualify plaintiff’s counsel.   

On appeal, plaintiff argued that the privilege only precluded admission of the records as evidence.  However, reviewing the statutory language of the PSA, the Appellate Division concluded that “the PSA provides an absolute privilege which precludes disclosure of the documents for use in civil, criminal and administrative actions.”  As a result, the Appellate Division concluded that plaintiff’s counsel violated RPC 4.4(b) by reviewing the documents.  RPC 4.4(b) requires that “[a] lawyer who receives a document and has reasonable cause to believe that the document was inadvertently sent shall not read the document or, if he or she has begun to do so, shall stop reading the document, properly notify the sender, and return the document to the sender.”  According to the court, each document was clearly labeled with a footer noting the confidentiality of the document, which implicated counsel’s obligations under RPC 4.4(b).  Notwithstanding that plaintiff’s counsel “knew or should have known that the [documents] w[ere] privileged,” he waited several months before informing opposing counsel of his receipt of those documents.  As such, the Appellate Division agreed with the trial court’s assessment that the prejudice to the defendant from the disclosure of this document was “immeasurable,” and that the trial court’s conclusion that disqualification was required was based on sufficient credible evidence in the record.  Thus, it is important for each attorney to be vigilant as to the nature of the documents obtained in a particular matter and to tread carefully if a document could be subject to a claim of privilege; a failure to do so could lead to disqualification.