Nuveen Municipal Trust v. WithumSmith+Brown, P.C., No. 10-4633; Third Circuit; opinion by Ambro, U.S.C.J.; dissent by Aldisert, U.S.C.J.; filed August 16, 2012. Before Judges Ambro, Vanaskie and Aldisert. On appeal from the District of New Jersey. [Sat below: Judge Brown.] DDS No. 42-8-xxxx [64 pp.]
This case arises from a loan transaction between appellant Nuveen Municipal Trust and Bayonne Medical Center. In connection with the transaction, Bayonne provided Nuveen with an audit report authored by Bayonne’s accounting firm, appellee WithumSmith+Brown, P.C., and an opinion letter authored by Bayonne’s counsel, appellee Lindabury, McCormick, Estabrook & Cooper.
Soon after the transaction, Bayonne filed a petition for bankruptcy relief under Chapter 11. Nuveen contends that the audit report and opinion letter concealed problem aspects of Bayonne’s financial condition, and had it known about these financial issues, it would not have entered into the transaction. Nuveen filed this action against Withum and Lindabury, asserting fraud (as to Withum only), negligent misrepresentation, and malpractice (as to Lindabury only), and representing that the district court had diversity jurisdiction.
The court dismissed the action with prejudice based on Nuveen’s noncompliance with New Jersey’s Affidavit of Merit statute (AOM statute), which requires the timely filing of an affidavit of merit attesting to the viability of claims in certain actions against professionals. The Third Circuit granted Nuveen’s unopposed motion to remand the case to allow the district court to reconsider its jurisdiction.
On remand, Withum and Lindabury raised a new basis for jurisdiction — that the action was “related to” Bayonne’s bankruptcy proceeding, and thus that the district court had jurisdiction under 28 U.S.C. § 1334(b). The court accepted this basis for jurisdiction and re-entered its order dismissing the action with prejudice. Both the jurisdictional decision and its dismissal of the action are on appeal here. Nuveen also raises two new choice-of-law arguments on appeal: that the AOM statute is a procedural pleading requirement that conflicts with Federal Rule of Civil Procedure 8 such that the statute cannot be applied in federal court, as federal procedural rules pre-empt conflicting state ones; and that certain provisions to protect plaintiffs with respect to the statute are substantive state law that must be applied by a federal court under Erie R.R. Co. v. Tompkins and its progeny.
Held: Because the New Jersey Supreme Court can more definitively assess the “nature of the injury” and “cause of action” elements of New Jersey’s Affidavit of Merit statute, the circuit panel reserves ruling on whether the action must be dismissed in whole or in part for failure to file an Affidavit of Merit, and certifies two questions addressing these elements to the New Jersey Supreme Court.
In the attempt to salvage its action from dismissal purely based on its failure to file timely affidavits of merits, Nuveen’s arguments fall into four categories: (i) jurisdiction; (ii) the AOM statute’s application in federal court under Erie and its progeny; (iii) the statute’s application to its action as a legal matter; and (iv) whether its noncompliance with the statute can be excused.
The circuit panel finds the district court had “related to” jurisdiction under 28 U.S.C. § 1334(b). Further, the AOM statute can be applied by a federal court without conflicting with Rule 8, and the protections Nuveen identifies are procedural under Erie, thus not requiring a federal court to follow them.
Having cleared the jurisdictional and choice-of-law hurdles, the circuit panel arrives at the core of Nuveen’s appeal — whether, based on New Jersey law, Nuveen can escape the consequences of its failure to file timely affidavits of merit as required by the AOM statute. Nuveen argues that the AOM statute does not apply to all or a portion of the complaint and that, if it does apply, its counsel’s mistake can be excused based on its substantial compliance or extraordinary circumstances.
Nuveen appears not to have attempted to determine if and when an affidavit was necessary. Apparently Nuveen’s counsel simply was unaware of the requirement. Assuming that the action is subject to the AOM statute, because Nuveen’s failure to fulfill the affidavit requirement resulted from inadvertence, the circuit panel agrees with the court’s holding that Nuveen’s noncompliance cannot be excused under New Jersey law.
However, the question remains as to whether the statute applies to all or a portion of the claims alleged in this action. The circuit panel is reluctant to speculate about whether the New Jersey Supreme Court would hold that the AOM statute applies to actions requesting damages for alleged acts of professional malpractice or negligence that do not cause personal injuries, wrongful death or property damage. Accordingly, the panel shall certify to the New Jersey Supreme Court a question regarding the scope of the “nature of the injuries” element of the statute, and postpone deciding if Nuveen’s action is subject to the statute.
Further, although Nuveen’s fraud claims implicate Withum’s purported failure to comply with accounting standards, Nuveen does not necessarily have to prove that Withum deviated from these standards to establish fraud. Rather, it has to prove that Withum intended to deceive it. The two fraud claims are distinct causes of action that may not be subject to the AOM statute. The circuit panel also certifies to the New Jersey Supreme Court a question regarding whether intentional torts are subject to the statute.
Aldisert, U.S.C.J., dissenting, believes that the New Jersey Supreme Court’s view has been expressed sufficiently to facilitate review and would not certify any questions to the New Jersey Supreme Court, but instead would decide the state law issues.
For appellant — Alexander Bilus, Robert C. Heim, Brielle M. Rey and Wayne Pollock (Dechert); G. Eric Brunstad Jr., Matthew J. Delude and Collin O. Udell (Dechert); David P. Stich (Solomon Blum Heymann & Stich); and Professor Stephen B. Burbank. For appellees: WithumSmith+Brown, P.C. — Michael J. Canning, Catherine J. Bick, Donald F. Campbell Jr. and Jaclyn B. Kass (Giordano, Halleran & Cielsa); Lindabury, McCormick, Estabrook & Cooper — William A. Cambria, Louis A. Modugno, James J. DiGiulio and William F. O’Connor Jr. (McElroy, Deutsch, Mulvaney & Carpenter). For amicus Professor Geoffrey C. Hazard Jr. — Christian D. Wright and Benjamin Z. Grossberg (Young Conaway Stargatt & Taylor).