Claims against a law firm and an accounting firm over a $10 million investment loss are subject to New Jersey’s statute requiring affidavits of merit in professional liability cases, a federal appeals court has held.
The lack of affidavit meant affirmance of dismissal of a suit against Lindabury McCormick Estabrook & Cooper in Westfield, and WithumSmith+Brown, an accounting firm with offices in New Jersey and five other states.
In Nuveen Municipal Trust v. WithumSmith+Brown, the U.S. Court of Appeals for the Third Circuit disagreed with the plaintiff’s position that the Affidavit of Merit Statute—which covers actions for “damages for personal injuries, wrongful death or property damage”— did not apply to the compensatory damages and related costs sought.
The court cited a series of New Jersey cases holding that negligence or malpractice claims for unspecified damages do trigger the statute. It also rejected Nuveen Municipal Trust’s argument that the law did not encompass intentional torts such as its fraud and aiding and abetting claims against Withum.
“The problem for Nuveen is that in New Jersey an action need not be styled as one for malpractice or negligence for the [Affidavit of Merit Statute] to apply,” Circuit Judges Thomas Ambro, Thomas Vanaskie and Ruggero Aldisert held in Wednesday’s precedential opinion.
Looking beyond the label to the fact that those claims “require proof that Withum deviated from professional standards of care,” those claims too fell within the statute, the panel found.
Nuveen, a business trust and municipal bond fund based in Chicago, bought a $10 million bond anticipation note from Bayonne Medical Center in October 2006—effectively loaning it $10 million —about six months before the hospital filed for bankruptcy.
In making the investment, Nuveen claimed it relied on an opinion letter from the hospital’s counsel, Lindabury McCormick, and an audit report from the hospital’s accountant, Withum.
Lindabury’s letter said there was no pending “action, suit, proceeding, inquiry or investigation at law or in equity or by any judicial or administrative court agency body or other entity” against Bayonne that could affect its ability to repay the debt.
Nuveen claimed that the opinion was false and misleading because just a few weeks earlier, Bayonne had learned it had to repay almost $3.5 million to Medicare and that it would not have purchased the note if Lindabury had mentioned the Medicare issue.
Withum’s audit report showed the hospital solvent and capable of repaying the $10 million.
The complaint asserted malpractice and negligent misrepresentation by Lindabury and fraud, aiding and abetting fraud and negligent misrepresentation by Withum. It asked for $9.5 million in damages, less any amounts recovered in the bankruptcy, plus attorney fees incurred in the bankruptcy.
U.S. District Judge Garrett Brown Jr. in Trenton granted summary judgment for the defendants in October 2009 because Nuveen failed to file an affidavit of merit as to either of them.
There were two prior appeals. The first related to subject matter jurisdiction, which was found to exist based on the relationship to the bankruptcy case.
On the second, decided in August 2012, Nuveen unsuccessfully argued that two reminders of the affidavit requirement provided by New Jersey courts are substantive and thus, their absence precluded dismissal. One is a reference in the Civil Case Information Sheet. The other is the conference required by Ferreira v. Rancocas Orthopedic Assocs., 178 N.J. 144 (2003), to address sufficiencies and/or deficiencies in a plaintiff’s affidavit of merit.
In Wednesday’s ruling, the panel spurned that view, saying “plaintiffs (and their attorneys) are required to know the law.” It also noted that the firms representing Nuveen—New York’s Solomon Blum Heymann & Stich and Denver’s Davis & Ceriani—were not from New Jersey. “This underscores the need to engage local counsel to avoid state-specific pitfalls,” wrote Ambro.
The judges further found no substantial compliance or extraordinary circumstances that excused compliance with the affidavit requirement.
However, Ambro and Vanaskie were unable to decide whether the statute applied at all to monetary damages and intentional tort claims, so they turned to the New Jersey Supreme Court for help under Rule 2:12A.
The rule allows the Supreme Court to certify questions of law from the Third Circuit “if the answer may be determinative of an issue in litigation…and there is no controlling appellate decision, constitutional provision, or statute in this state.”
Aldisert, dissenting, said certification was not needed because the law is clear. He pointed out that if the property damages language did not cover this case, it would render the affidavit of merit statute “meaningless” with respect to lawyers and accountants, who rarely cause death or physical injury, and essentially confine the law to medical malpractice matters.
The state Supreme Court denied certification without explanation in an order dated Jan. 11, 2013.
Alexander Bilus, of Dechert in Philadelphia, who represented Nuveen on appeal, said, “My client is still considering its options,” which may include asking for a rehearing by the same panel or by the entire circuit en banc and filing a petition for certiorari.
Lindabury McCormick’s lawyer, Louis Modugno of McElroy, Deutsch, Mulvaney & Carpenter in Morristown, said the court decided correctly and the law clearly applies.
Withum’s attorney, Michael Canning of Giordano Halleran & Ciesla in Middletown, said the ruling furthers the statutory purpose of weeding out frivolous lawsuits. “I thought from day one the statute applied to any kind of professional liability case” because “you’re never going to have property damages, it’s always going to be monetary,” he said.
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