DDS No. 36-8-3945

May 14, 2014 (Date Decided)

Judge Ambro

For appellant: Alexander Bilus, Robert C. Heim (Argued), Brielle M. Rey, Wayne Pollock (Dechert LLP); G. Eric Brunstad, Jr. (Argued) (Dechert LLP); Matthew J. Delude (Primmer, Piper, Eggleston & Cramer); Collin O. Udell (Jackson Lewis); David P. Stich (Solomon Blum Heymann & Stich).

For appellee withumsmith+brown PC: Michael J. Canning (Argued), Catherine J. Bick, Donald F. Campbell, Jr. (Argued), Jaclyn B. Kass (Giordano, Halleran & Cielsa).

For appellee lindabury mccormick estabrook & cooper: William A. Cambria, Louis A. Modugno (Argued), James J. DiGiulio, William F. O’Connor, Jr. (McElroy, Deutsch, Mulvaney & Carpenter, LLP).

Amicus counsel for professor geoffrey c. hazard: Christian D. Wright, Benjamin Z. Grossberg (Young Conaway Stargatt & Taylor, LLP).

The issue is whether the New Jersey’s Affidavit of Merit Statute (“AOM Statute”) covers Nuveen Municipal Trust’s action seeking money damages for fraud, negligent misrepresentation, and malpractice, allegedly committed by two professional firms.

This case stems from a loan transaction between Nuveen, on behalf of its Nuveen High Yield Municipal Bond Fund, and Bayonne Medical Center. Nuveen purchased a $10 million Bond Anticipation Note (“BAN”) from Bayonne. In connection with the transaction, Bayonne provided Nuveen with an audit report authored by Bayonne’s accounting firm, WithumSmith+Brown, P.C. (“Withum”), and an opinion letter authored by Bayonne’s counsel, Lindabury, McCormick, Estabrook & Cooper P.C. (“Lindabury”). Soon after the transaction, Bayonne filed a Chapter 11 bankruptcy petition. Nuveen contends that the audit report and opinion letter concealed aspects of Bayonne’s financial condition and, had it known about these financial issues, it would not have purchased the BAN.

Nuveen filed this action alleging negligent misrepresentation and fraud as to Withum, and negligent misrepresentation and malpractice as to Lindabury. The remedy it seeks is money damages. The district court dismissed the action based on Nuveen’s failure to file an affidavit of merit under the AOM Statute.

On appeal, the Third Circuit certified two questions of law regarding the AOM Statute to the New Jersey Supreme Court, which denied the petition.

Here, the circuit panel addresses whether the AOM Statute applies to Nuveen’s action. Nuveen concedes that the AOM Statute applies to its negligence and malpractice claims against Withum and Lindabury. It argues, however, that its claims for common law fraud, and aiding and abetting common law fraud, against Withum are intentional tort claims to which the AOM Statute does not apply. The fraud allegations in Nuveen’s complaint are premised on the theory that Withum made material misrepresentations and omissions of past and present facts in its audit report. These misrepresentations and omissions are alleged to be a direct consequence of Withum completing its audit examination and report of Bayonne in a manner that violated Generally Accepted Auditing Standards (“GAAS”) and Generally Accepted Auditing Principles (“GAAP”). Though Nuveen’s allegations of fraud against Withum are styled as intentional torts, rather than negligence or malpractice claims, they nonetheless require proof that Withum deviated from professional standards of care. Hence the fraud claims against Withum require an affidavit of merit.

Accordingly, the district court correctly held that the AOM Statute applies and Nuveen’s noncompliance warranted dismissal of its case.