A group of lawyers who left a Pennsylvania firm to start their own practice are not liable for their former firm’s broken lease for New Jersey office space, an appeals court has ruled.
The Appellate Division said a motion judge correctly granted summary judgment to the departing lawyers because they took no files, computers or other property when they left their former firm and therefore could not be considered a successor to that firm. In addition, the departing lawyers’ former firm continued to operate and to pay rent for a time after the departures, and those who left never agreed to assume the former firm’s debt, the appeals court ruled. The judge below correctly found no evidence to support the landlord’s assertion that the departing lawyers fraudulently transferred the old firm’s assets to their new firm, the appeals court said.
The dispute concerns a 65-month lease for office space in Cherry Hill, New Jersey, that was signed in March 2011 by Nelson, Levine, de Luca & Horst of Blue Bell, Pennsylvania. The firm’s chief operating officer signed the lease, while the firm partners did not sign it or execute personal guarantees. In May 2012 the firm changed its name to Nelson, Levine, de Luca & Hamilton.
In August 2014, name partners Daniel de Luca and Kenneth Levine of the firm’s insurance subrogation practice resigned along with five other lawyers to form a new firm, de Luca Levine. After their departure, Nelson, Levine, de Luca & Hamilton changed its name to Nelson, Brown, Hamilton & Krekstein. Clients affected by the departure were given the choice of remaining with Nelson Brown, transferring to de Luca Levine, or taking their business elsewhere. Nelson Brown sued de Luca Levine to recover fees from contingency cases, and the parties reached a confidential settlement.
In September 2014, with two years left on its lease, Nelson Brown advised the landlord for the Cherry Hill office, Berk and Berk at Cherry Tree, that a number of attorneys and clients had left the firm and that they would be unable to pay the rent. The firm ceased operations in 2015.
In August 2016, Berk and Berk sued de Luca, Levine, their firm, and various incarnations of Nelson Brown. In September 2017, Superior Court Judge Steven Polansky of Camden County granted summary judgment to de Luca, Levine and their firm. Landlord Berk and Berk appealed.
At the Appellate Division, Judges Marie Simonelli, Mary Gibbons Whipple and Patrick DeAlmeida said the record supports the conclusion that de Luca Levine and its principals are not successors to Nelson, Levine, de Luca & Hamilton or Nelson Brown. When they left, there was no consolidation or merger, and de Luca Levine did not expressly or implicitly agree to assume the former firm’s debt. In addition, no evidence was presented to suggest de Luca and Levine intended to assume the lease, the court said.
The landlord argued that de Luca Levine fraudulently transferred assets, including files and clients, and characterized those items as “good will,” claiming that the principles of equitable distribution, relevant in divorce cases, should apply. But the appeals court failed to see any parallel between divorce and the present situation. “Although ‘good will’ may be subject to equitable distribution in limited divorce cases, we reject the suggestion good will is a transferred asset for the purposes of imposing liability to third parties upon lawyers who leave a firm,” the appeals court said.
The appeals court also rejected the plaintiff’s conclusion that the assets of Nelson, Levine, de Luca & Hamilton were transferred to de Luca Levine, fraudulently or otherwise.
“A group of attorneys left the firm with the intention to start another firm. A law firm does not own its clients or cases and cannot transfer a client to another firm against a client’s consent,” the panel said.
Nelson, Levine, de Luca & Horst started 2014 with approximately 75 lawyers. But early in the year, 14 attorneys focusing on data breach, cyber law and security practices left the firm to start Lewis Brisbois Bisgaard & Smith’s Berwyn office. The departures of de Luca and Levine came about six months later.
By June 2015, the firm’s last remaining name partner, Michael Nelson, joined Sutherland Asbill & Brennan along with four other former attorneys from the firm.
Raymond Mack of deLuca Levine, who represented his firm and its named partners at the Appellate Division, did not return a call about the case. Nor did Verona, New Jersey, solo practitioner Robert Rich, who represented landlord Berk and Berk.