A Sills Cummis & Gross partner has prevailed in his suit to collect on a loan he made to a corporate CEO who later became a client of the Newark firm.
A New Jersey appeals court on Feb. 14 affirmed summary judgment for Ira Rosenberg, finding he breached no duty toward borrower Gardiner Smith, with whom he had no attorney-client relationship either at the time of the loan or afterward.
In 2010, Smith was CEO of TenX Biopharma, a Pennsylvania company that was trying to develop a cancer drug. He approached Rosenberg, chair of Sills Cummis’ Life Sciences Practice Group, to buy stock. Rosenberg refused but did make an interest-free loan to Smith to purchase $50,000 in debentures. On Feb. 4, 2010, he wrote Smith a check from his personal checking account with the notation “Loan TenX” on the memo line.
In May 2010, when Smith was fighting an attempt by some TenX investors to take control and oust him, Rosenberg wrote a letter to the board chairman challenging the termination. The letter got no response but Smith kept his job, at least in the short term.
Two months later, TenX retained Sills Cummis to represent it in selling its assets. The retainer agreement, signed by Smith disclosed the prior representation of Smith against the board and expressly terminated the representation.
Creditors forced TenX into Chapter 11 in October 2010. Smith, who was subsequently terminated, joined the involuntary petition after the fact and filed a bankruptcy claim seeking severance, asserting he was fired in retaliation for having a board member investigated for fraud.
On Sept. 21, 2012, U.S. Bankruptcy Judge Jean FitzSimon of the Eastern District of Pennsylvania held that Smith was fired without cause and awarded him half a year’s severance pay, $125,000.
Meanwhile, Sills Cummis had been hired as special transactional counsel in the bankruptcy case to sell TenX’s assets.
In seeking bankruptcy court approval, Rosenberg submitted an affidavit concerning the outstanding $50,000 loan. Smith never objected or responded to the affidavit and consented to the appointment of Sills Cummis.
But when Rosenberg demanded to be repaid, Smith refused.
Rosenberg sued and Smith, acting pro se, counterclaimed that Rosenberg was his personal attorney and had breached his fiduciary duty by asking Smith not to put the loan in writing and using it to coerce him to hire Sills Cummis as TenX’s lawyer and generate more legal fees for the firm.
Smith also accused Rosenberg of malpractice, saying he took actions that were adverse to him in the bankruptcy and failed to advise him properly regarding the retaliation claim.
On Rosenberg’s motion for summary judgment, Smith countered that the loan was a nonrecourse one, payable only when Smith realized a $50,000 profit from his TenX investment, among other arguments.
Essex County Superior Court Judge Thomas Vena granted summary judgment and awarded Rosenberg prejudgment interest.
In affirming, Appellate Division Judges Marie Simonelli, Douglas Fasciale and Michael Haas said there was no factual dispute that Rosenberg loaned Smith $50,000, payable on demand because there was no specified time for repayment, and that Smith failed to pay the money back.
They saw no breach of duty toward Smith, finding he had no relationship with Rosenberg either at the time of the loan, when the bankruptcy was filed or after that.
Even if an attorney-client relationship existed, the malpractice claim failed due to lack of an affidavit of merit because the common knowledge exception did not apply, said the court.
Rosenberg, who was represented by fellow Sills Cummis partner Theodora McCormick, declines comment.
Smith, now executive vice-president of AgeneBio, of Carmel, Ind., which is working on treatments for dementia, could not be reached for comment.
TenX’s chief asset—the rights to the drug zanolimumab, meant to treat t-cell lymphoma—was sold during the bankruptcy to Emergent BioSolutions in Maryland. The drug has not yet won Food & Drug Administration approval.