The litigation privilege does not protect an attorney who tells another party in a case that his client acted illegally or unethically, a New Jersey appeals court ruled on Tuesday.

Not permitting attorneys to use the privilege in such circumstances will protect the state’s “commitment to ensure attorneys adhere to accepted standards of practice,” the court said.

The ruling in Buchanan v. Leonard, A-2243-11, means that a legal malpractice suit can proceed against Jeffrey Leonard, of Morgan, Melhuish, Monaghan, Arvidson, Abrutyn & Lisowski in Livingston, which was filed by a client he was retained to defend in another legal malpractice case.

A Lambertville couple, Earl and Sherri Kerr, hired William Buchanan, a solo in the town, to file a Chapter 13 bankruptcy petition on their behalf. Buchanan had originally told the Kerrs by letter that they should file under Chapter 11, since their debts — mortgages of $129,000 on their house and $85,000 on a garage — exceeded Chapter 13 limits. He also told them he had little Chapter 11 experience and suggested they find a lawyer more well-versed.

The Kerrs allegedly told Buchanan to adjust their financial figures and to file the Chapter 13 petition. Those details were memorialized in an agreement.

In 2000, after a bankruptcy judge dismissed the petition and the Kerrs lost both their home and garage, they sued Buchanan, who had a malpractice policy with Legion Insurance Co. In July 2003, Legion was declared insolvent and its obligations were taken over by the New Jersey Property-Liability Insurance Guaranty Association.

Leonard, originally retained by Legion, stayed on the case. In April 2005, he wrote to PLIGA seeking settlement authorization. In that letter he said the agreement between Buchanan and the Kerrs was “an admission of bankruptcy fraud by [Buchanan] and [the Kerrs]. If the statute of limitations on the crime had not run, [Buchanan] would be subject to [five] years in prison and/or a fine of up to $5,000. If that letter is disclosed at trial, the insured is still subject to discipline, which could include a period of suspension of his license.”

On May 16, 2005, a week before trial, PLIGA told Buchanan it was no longer providing coverage. After a bench trial, Mercer County Superior Court Judge Mary Jacobson said PLIGA was required to provide Buchanan with coverage and a defense.

In January 2011, Buchanan sued Leonard and Morgan, Melhuish in Hunterdon County for malpractice and defamation, alleging they failed to protect his interests, deliberately expressed an opinion contrary to his interests and breached contractual and fiduciary duties.

Superior Court Judge Peter Buchsbaum dismissed Buchanan’s complaint in December 2011. He said the defamation count was time-barred and the defendants were protected by the litigation privilege in the malpractice claim.

The Appellate Division reversed Buchsbaum on the second point.

Judge Joseph Yannotti said the state’s courts have not previously ruled on whether the litigation privilege protects an attorney for claims made by her or her client. But he noted that the state Supreme Court, in Hawkins v. Harris, 141 N.J. 207 (1995), has ruled that the privilege does not protect an attorney from facing discipline.

“It therefore follows that the litigation privilege does not protect an attorney from a claim by his or her client based upon statements the attorney made in the course of a judicial proceeding where, in this case, it is alleged that the attorney breached his duty to the client by failing to adhere to accepted standards of legal practice,” wrote Yannotti, joined by Judges Susan Reisner and Richard Hoffman.

The panel pointed to two California Court of Appeals cases. In Mattco Forge v. Arthur Young, 6 Ca. Rptr. 2d 781 (Ct. App. 1992), the court said the litigation privilege did not always protect an expert witness. In Kolar v. Donahue, McIntosh & Hammerton, 52 Cal. Rptr. 712 (Ct. App. 2006), the court said the privilege was not absolute as it applied to attorneys.

“We recognize that attorneys must be free to vigorously represent their clients without ‘fear of being ensnared in costly civil litigation,’” Yannotti said, quoting Loigman v. Middletown, 185 N.J. 566 (2006). “However, the litigation privilege should not be extended to protect an attorney from civil liability when his or her client claims that the attorney’s representation did not meet the applicable standards for legal practice.”

Buchsbaum also had ruled that Buchanan could not retain a malpractice expert, saying it would be “futile” because the claim was barred by the litigation privilege. The panel said that since Buchanan’s claim can proceed, he should be allowed to retain an expert.

Buchanan’s attorney, Hackensack solo Gary Stern, says he was “troubled” by Buchsbaum’s determination that Leonard was allowed to make statements alleging criminal activity and breach of ethics rules while preventing Buchanan from presenting a case.

“The [Appellate Division] ruling should be obvious to anyone who looks at it,” says Stern. “You have an attorney saying a client is a criminal or a violator of the Rules of Professional Conduct. Isn’t this the kind of behavior a lawyer should refrain from?”

Neither Leonard nor his attorney, Marshall Bilder, of Trenton’s Sterns & Weinroth, returned telephone calls seeking comment.