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Superior Court of New Jersey, Law Division,
Essex County. PROFIT SHARING TRUST FOR MARPROWEAR CORPORATION, Plaintiff,
Motions denied. [1] Attorney and Client 129(1) [1] States 18.67 ERISA did not preempt profit sharing plan's legal malpractice action arising out of firm's investment advice; although plan was governed by ERISA and recovery would belong to plan, this was insufficient for cause of action to relate to the plan. Employee Retirement Income Security Act of 1974, § 514(a), 29 U.S.C.A. § 1144(a). [2] Estoppel 68(2) Attorney's statements in securities suit that investors' reliance upon unrelated law firm's oral representations made no difference and that he would not say whether investors thought that investment involved no risk did not judicially estop one investor in legal malpractice action against firm arising out of investment advice; attorney was representing 20 investors and made qualified representations. [3] Estoppel 68(2) Comments of counsel can form basis for judicial estoppel. [4] Attorney and Client 113 Law firm's failure to disclose to client interest in suggested investment and to warn client to seek other counsel before investing could be found to be legal and proximate cause of client's injury from foreseeable failure of investment, even though failure to inform client did not cause failure of investment; client said that it would not have made investment had firm's conflict of interest and consequences been disclosed. RPC 1.8. [5] Attorney and Client 113 Lawyers must accept responsibility for outcome if they fail to inform clients of lawyers' interests, fail to advise clients to seek other counsel, unabashedly sell clients notion that investment with them or their colleagues is good and safe, and use their clients as sources of investment funds. RPC 1.8. [6] Attorney and Client 113 Lawyers may not burrow their way into clients' confidences and then exploit those confidences for their own ends. RPC 1.8. [7] Attorney and Client 129(2) Evidence supported conclusions that client was not negligent in failing to read private placement memorandum (PPM) before investing in company suggested by law firm, that client would not have made investment if it had known of law firm's involvement in the company and its conflict of interest, and that law firm committed malpractice. RPC 1.8. [8] Appeal and Error 479(1) Fact that corporate defendant is on edge of insolvency is reason to require bond or other security in order to stay judgment pending appeal; it is not reason to stay that requirement. R. 2:9-5; R. 2:9-5(a). [9] Appeal and Error 479(1) It would be unfair to allow defendant to continue business, perhaps until assets are completely dissipated, while appeal process goes on with no protection at all for holder of judgment. R. 2:9-5; R. 2:9-5(a). James F. Keegan, West Orange, for defendant (Bendit, Weinstock & Sharbaugh, attorneys) and Lampf, Lipkind, Prupis, Petigrow & Labue, P.A., pro se, (James F. Keegan, Neil L. Prupis, Stephen H. Skoller, and Frank Magaletta, on the brief). GOLDMAN, J.S.C. Pending before me are various motions by the defendant, Lampf, Lipkind, Prupis, Petigrow & Labue, P.A. (hereinafter called "Lampf-Lipkind") for dismissal, judgment notwithstanding the verdict (JNOV) and for a new trial pursuant to R. 4:6-2(a), R. 4:40-2(b), and R. 4:49-1 following a jury verdict in favor of the plaintiff for $449,600.00. Except for the motion to dismiss for lack of subject matter jurisdiction, which could require a factual determination by me, the other motions now pending require that I view the facts presented at trial in the light of the jury verdict. For the motion under R. 4:40-2(b) I must accept as true all evidence and all legitimate inferences that sustain the jury verdict. Dolson v. Anastasia, 55 N.J. 2, 258 A.2d 706 (1969). In this context my role "is quite a mechanical one. The trial court is not concerned with the worth, nature or extent (beyond a scintilla) of the evidence, but only with its existence, viewed most favorably to the party opposing the motion." Id. at 5-6, 258 A.2d 706. R. 4:49-1 sets forth a less arduous standard that requires me to decide after giving: The question is whether a reasonable jury could have found liability in favor of the plaintiff Trust based upon the evidence. The following facts are cast in that light. Plaintiff is the profit sharing trust for Marprowear Corporation. This trust shall be called the "Trust" while the corporate entity, the employer, shall be called "Marprowear." The Trust is a benefit plan and trust organized under 29 U.S.C.A. § § 1001, et seq. (hereinafter called "ERISA"). Two trustees were the principal witnesses at trial along with their experts. The defendant, Lampf-Lipkind, is a law firm practicing in West Orange, New Jersey, specializing in tax and pension benefit law. Marprowear first hired Lampf-Lipkind in the 1970s when the Trust had a disagreement with the Internal Revenue **1193 Service in connection with a complex real estate transaction. Because legal fees of an ERISA trust are tax deductible to the employer, Marprowear was the entity that actually hired Lampf-Lipkind. For the past decade, if not longer, Lampf-Lipkind's legal representation extended not only to tax work involving the Trust, but also to more generalized legal services to Marprowear and its individual shareholders. The evidence disclosed no other employees of Marprowear, showed that Marprowear was a closely held corporation, and revealed that its shareholders, its employees and the beneficiaries of the Trust were essentially the same people or members of the same family. In addition, Lampf-Lipkind drafted complex buy-sell agreements for Marprowear and its principals as part of planning for the contingencies of death or disability. In 1982 Lampf-Lipkind borrowed money from the Trust or Marprowear. The loan was substantial and the interest rate was high, reflecting the then current interest rate environment. This transaction was not alleged to be wrongful because at the time, the relevant disciplinary rule, DR 5-104(A), did not require disclosures of conflicts nor consents in writing. *178 Over time Lampf-Lipkind became, in effect, general counsel for Marprowear. They handled real estate matters for Marprowear, wills and trusts for its principals and family members, and, of course, all the plan amendments and other legal work related to the Trust. Because of the constant stream of changes in laws and regulations, plan amendments were required periodically. Lampf-Lipkind would advise the Trust about these plan amendments. Typically, because of the complex and arcane nature of legislative and regulatory requirements, Lampf-Lipkind would prepare the necessary papers and the trustees would execute them routinely and without question. Sometime in 1985, a member of Lampf-Lipkind mentioned the law firm's involvement with Southeastern Insurance Group (hereinafter "SIG"). Lampf- Lipkind asked if Marprowear might be interested in lending money to SIG. No one followed-up on this suggestion. Later, however, in early 1986, Prupis, on behalf of Lampf-Lipkind [FN1], approached the Trust about making an investment in SIG. Prupis explained that this would be an appropriate, safe and conservative investment. Like Marprowear, Prupis claimed that SIG would be run as a family business with the direct involvement of Prupis and others from Lampf-Lipkind. They could thus protect and watch over the Trust's investment. Prupis revealed that Lampf-Lipkind partners were investing their own money in SIG, thus proving their confidence in its success. Based upon these representations and without benefit of any independent counsel or other advice, the Trust invested some $449,600.00 in a complex package of stock, debentures and other securities that comprised two "units" of an investment in SIG.
The PPM, while not read by the Trustees before their investment, was allowed in evidence. The PPM was critical in two respects. First, Lampf-Lipkind claimed that it contained the required disclosures **1194 under R.P.C. 1.8, was read by the trustees, and fulfilled both its ethical and legal duties. Second, the Trust claimed that the PPM showed that the eventual collapse was a foreseeable risk known to Lampf-Lipkind. The PPM revealed the following: 1. On Page 1, in bold print and all capitals, the PPM warned: 2. Also on Page 1 and in bold capitals was the following warning: 3. On Page 10, the PPM warned that only those who could bear the loss of their entire investment should purchase units. 4. On Pages 12 through 17, the PPM summarized sixteen risk factors and warned potential investors of the risk of losing their *180 entire investment. Among the risk factors identified were: a limited operating history; problems in obtaining reinsurance; high operating expenses; dependency on an outside sales force; risks of underwriting losses; risks of inadequate investment income; risks of government regulation; risks of concentration of business both geographically and by product line; risks that the units were overpriced and had no public market; and financial risks in general including the intention not to pay dividends. 5. At many places throughout the fifty-eight page (excluding exhibits) PPM, it was disclosed that Prupis and Lipkind were directors of SIG, that Prupis' brother was president of the company, that Prupis and others would be released from obligations if the offering were successful, that Lampf-Lipkind leased space to SIG, and that Lampf-Lipkind had been and would continue to be attorneys for SIG. Lampf-Lipkind revealed neither these conflicts nor these risks to the Trust verbally or in writing. Had the Trust been so warned it would not have made the investment of $449,600.00. A year or two later, SIG began having financial problems, and finally filed for bankruptcy. A series of meetings was held at which Prupis and others from Lampf-Lipkind assured the Trust and other investors that things were under control. By 1991 the "units" purchased by the Trust were conceded by Lampf- Lipkind to be worthless. There was no evidence submitted as to the specific cause or reason for the subsequent failure of SIG. At oral argument on this motion, counsel for the Trust admitted that he had submitted no such proof. The expert testimony was in sharp contrast. Bennet Wasserman, Esq., the Trust's expert, claimed that Lampf-Lipkind's conduct was a clear violation of R.P.C. 1.8(a) [FN2] because Lampf-*181 Lipkind failed to advise the Trust in writing of both **1195 the conflict of interest and the need to get independent counsel. Moreover, there was no evidence of the Trust's consent to the conflict in writing. Lastly, Wasserman claimed that R.P.C. 1.8(b) [FN3] was violated because Lampf-Lipkind used its knowledge of the Trust's financial wealth as a basis for targeting the Trust as a potential investor. Wasserman did not render any opinion on proximate causation.
After the bankruptcy filing, the Trust was contacted and attended a meeting arranged by other investors and the law firm of Sills, Cummis, Zuckerman, Radin, Tischman, Epstein and Gross, P.A., hereafter called "Sills Cummis." At this meeting, Sills Cummis advised the Trust and other investors about a potential legal action against SIG, Lampf-Lipkind, accountants and others. The Trust was asked to join in for a fee of $2,500.00. It did so, but this was the last contact it had with the law firm until the case was completed. The federal lawsuit apparently alleged violations of securities laws on behalf of the Trust and twenty other plaintiffs. The trustees were not interviewed, did not provide facts to Sills, Cummis and were not informed nor aware of the progress of the federal lawsuit. The suit was later dismissed by Judge Lechner. Insurance Consultants of America v. Southeastern Insurance Group, et al., 746 F.Supp. 390 (D.N.J.1990). In 1990, in an unrelated matter, Lampf-Lipkind sued Marprowear and the Trust for unpaid legal fees in the Special Civil Part. This lawsuit followed as a counterclaim in that suit. For procedural reasons unclear to me, a default judgment was entered in the legal fee action but this legal malpractice action went on, with the counter-claimant denominated as the plaintiff. **1196 *183 Subject Matter Jurisdiction Lampf-Lipkind moves to dismiss alleging that this court lacks subject matter jurisdiction. It is axiomatic that such a motion is always timely as this is a defense that can never be waived. Gilbert v. Gladden, 87 N.J. 275, 432 A.2d 1351 (1981). After the case was assigned to me for trial, this motion was made first orally and then with written support, in each instance without giving the Trust a fair opportunity to respond. I refused to decide this complex issue in that circumstance and advised the parties that I would deny these applications without prejudice but permit them to be raised after trial in the event of a verdict adverse to Lampf-Lipkind, pursuant to R. 4:6-3 which provides as follows: It is clear that justice would have better been served if these and the other applications had been made prior to trial. I cannot help but wonder whether or not the decision by Lampf-Lipkind to represent itself throughout this litigation, contributed to this decision and others which were clearly detrimental to its case. For example, Lampf-Lipkind did not even retain an expert on its defense until after the case was assigned out to me for trial. I had to delay trial to allow plaintiff's counsel the opportunity to depose this new expert. [1] In this motion, Lampf-Lipkind contends quite simply that because this lawsuit relates to an ERISA trust, only a federal court has jurisdiction. In its most extreme form, the literal language of 29 U.S.C.A. § 1132(a) narrowly defines who can bring a lawsuit under ERISA as follows: This statute goes on to provide, under 29 U.S.C.A. § 1132(e) that exclusive jurisdiction lies in federal courts. Finally, ERISA mandates that it supersede all state laws relating to plans under its purview. 29 U.S.C.A. § 1144(a) provides as follows: Lampf-Lipkind's logic is simple. If the Trust's claim or the state law cause of action is found to "relate to" an employee benefit plan, it is preempted under ERISA. Further, Lampf-Lipkind points out that the existence of an ERISA remedy for the same conduct, while not essential for its claim, is further evidence that the underlying state law claim relates to ERISA and is thus preempted. Lampf-Lipkind correctly points out that the existence of an alternative ERISA remedy is not essential. If preemption applies, there might yet be no federal remedy at all, in which case *185 the purported wrong would be without remedy. But see Southern Cal. Meat Cutters Unions & Food Employers Pension Trust Fund v. Investors Research Co., 687 F.Supp. 506 (C.D.Cal.1988) and Munoz v. Prudential Ins. Co. of Am., 633 F.Supp. 564 (D.Colo.1986) (lack of a remedy under ERISA is a factor militating against Congressional intent to preempt.) As proof that the Trust's claims "relate to" an employee benefit plan, Lampf- Lipkind points to several factors. First, the Trust is a plan governed by ERISA. This is undisputed. Second, Lampf-Lipkind was charged with conduct actionable under ERISA when performed by a "fiduciary," defined in 29 U.S.C.A. § 1002(21)(A), or a "party in interest," defined in 29 U.S.C.A. § 1002(14)(A), which it claims it must be deemed to be if the Trust's allegation were believed by the jury. Lampf-Lipkind's claim is that since ERISA intended to regulate all conduct between a fiduciary or a party-in-interest and an ERISA plan, any actions between such entities are preempted. This idea is buttressed by the provisions of 29 U.S.C.A. § 1132(e), which provide for exclusive federal jurisdiction for claims relating to a plan brought by a fiduciary or other listed party. The logical conclusion of such a claim would require that a fiduciary suing an ERISA plan for reimbursement for a $25.00 expense would be unable to sue in small claims court but would be required to make a federal case of it, quite literally. Similarly if an ERISA plan wanted to recoup an alleged $25.00 overcharge by a fiduciary or party-in-interest. The very statement of such a conclusion evidences its absurdity. The literal language of the statute does not require such an absurd result either. What Lampf- Lipkind misses in their argument is that 29 U.S.C.A. § 1132(e) only applies to "civil actions under this subchapter." It does not apply to every civil action merely because one of the parties happens to be related to an ERISA plan. There are two leading recent United States Supreme Court cases particularly relevant to the issues here. *186Mackey v. Lanier Collections Agency, 486 U.S. 825, 108 S.Ct. 2182, 100 L.Ed.2d 836 1988), held that one Georgia statute that specifically and explicitly barred garnishment of ERISA employee benefit program was preempted. On the other hand, Georgia's general garnishment statute was not preempted and allowed garnishment of certain plan benefits. At first blush it may seem strange that the Georgia law designed to coordinate with and support ERISA objectives was deemed preempted while the Georgia law that arguably helped in taking ERISA benefits from beneficiaries was upheld. In truth, the Supreme Court's analysis is well reasoned and helpful here particularly. The distinction between the two Georgia statutes is simple. The preempted statute specifically relates to ERISA plans while the statute not preempted is merely a general garnishment statute unrelated to any benefit plan. In Mackey, the Supreme Court simply held that merely because a garnishment sought funds otherwise payable to a beneficiary under an ERISA plan did not preempt it. There was no dispute but that ERISA explicitly bars garnishment of ERISA pension benefit plans but not ERISA welfare benefit plans. One.htmlect of the decision in Mackey is of particular interest. The Supreme Court specifically noted the provisions of 19 U.S.C.A. § 1132(d)(1), the so-called "sue **1198 and be sued" clause. That provision states: "An employee benefit plan may sue or be sued under this subchapter as an entity ..." This is in contrast to the other subsections of 19 U.S.C.A. § 1132, which do not include ERISA plans as proper parties to any claim relating to or arising under ERISA. Thus, if every claim affecting or involving ERISA plans were preempted, there would be no claim in which an ERISA plan itself could be a party. Mackey gave meaning to the "sue and be sued" provision of ERISA by concluding that: Mackey at fn. 8, identified some examples. Morris v. Local 804 Welfare Fund, 116 Misc.2d 234, 455 N.Y.S.2d 517 (Civ.Ct.1982) (landlord sued ERISA plan for unpaid rent); Luxemberg v. Hotel & Restaurant Emp., 91 Misc.2d 930, 398 N.Y.S.2d 589 (Sup.Ct.1977) (attorney sued ERISA plan for unpaid legal fees); Abotreka v. Alston Tobacco, 288 S.C. 122, 341 S.E.2d 622 (S.C.1985) (doctor obtained judgment for libel against ERISA plan when the plan issued a memorandum urging its beneficiaries to avoid using the plaintiff doctor). Other cases are more similar to the case sub judice. Duffy v. Cavalier, 215 Cal.App.3d 1517, 264 Cal.Rptr. 740 (1989) (claim against stockbroker for breach of his fiduciary duty in trading ERISA plan's assets was held not preempted because lawsuit was nothing more nor less than the ordinary one against a broker by its customer); Sappington v. Covington, 108 N.M. 155, 768 P.2d 354 (Ct.App.1968), cert. denied, 108 N.M. 115, 767 P.2d 354, cert. denied, 490 U.S. 1107, 109 S.Ct. 3159, 104 L.Ed.2d 1021 (1989) (claim against insurance agents for negligently picking insolvent carrier was not preempted because the alleged wrongful conduct had nothing to do with the status of plaintiff as ERISA plan and there was no risk of depletion of ERISA funds). A final example is the defendant's claim here, which began as a state court claim for legal fees against the Trust. The Trust's malpractice claim began as a counterclaim. The meaning of the "sue or be sued" provision was further explained by Pressman Unions Fund v. Continental Assur. Co., 700 F.2d 889 (2d Cir.1983). There a complaint brought by an ERISA plan was properly dismissed because the plan, qua plan, is not named as a possible plaintiff in 29 U.S.C.A. § 1132(a) to (c). Explaining the meaning of 29 U.S.C.A. § 1132(d)(1), the court said: There is no reason that a state based claim sounding in tort, like a legal malpractice action, should be treated any differently. The other Supreme Court case and the one primarily relied upon by Lampf- Lipkind is Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990), where an employee brought a wrongful discharge action against his employer alleging that the principal reason for his firing was his employer's desire to avoid making contributions to a pension fund. Because "[t]he Texas cause of action makes specific reference to, and indeed is premised on, the existence of a pension plan," the cause of action was preempted. 498 U.S. at 140, 111 S.Ct. at 483, 112 L.Ed.2d at 484. In order for the plaintiff to prove his case he had to plead and prove that an ERISA plan existed and that his employer had a "pension-defeating" motive in firing him. 498 U.S. at 141, 111 S.Ct. at 484, 112 L.Ed.2d at 485. **1199 While the United States Supreme Court cases may seem inconsistent, they are reconcilable. The difference is that in Lanier, the state law was one of general application and the use of the state law had nothing to do with the fact that an ERISA plan was involved. The ERISA plan could have been a trust unrelated to employment or any other fund. On the other hand in Ingersoll-Rand Co. v. McClendon, supra, the existence of an employment plan was essential to the cause of action. To be fair, the law is not all that clear. ERISA preemption has been described as a "morass." Capital Mercury Shirt Corp. v. Employees Reinsurance Corp., 749 F.Supp. 926, 929 (W.D.Ark.1990). Its preemption provision has been described as the "most expansive preemption clause found in any federal statute." Conison, The Federal Common Law of ERISA Plan Attorneys, 41 Syracuse L.Rev. 1049, 1083 (1990). Another court more colorfully described ERISA as a "black hole" that often "swallows up garden variety claims." Jordan v. Reliable Life Ins. Co., 716 F.Supp. 582, 583 (N.D.Ala.1989) mod. 922 F.2d 732 (11th Cir.1991). *189 I must rely upon sensible policy, what I perceive as Congressional intent, and Third Circuit precedent. An important case that helps me out of this "morass" and "black hole" is Painters of Philadelphia Dist. Council No. 21 Welfare Fund v. Price Waterhouse, 879 F.2d 1146 (3d Cir.1989). In that case ERISA plan trustees alleged that their accountants failed to uncover a $1 million fraud and pled four causes of action: 1. violation of duties imposed on ERISA fiduciaries; 2. implied breach of ERISA duties; 3. state law breach of contract; and 4. state law negligence. Dismissal was affirmed on a finding that the accountants were not fiduciaries and that no jurisdiction thus existed. In sweeping language, albeit dicta, the Third Circuit explained: The state law liability of defendant Price Waterhouse in Painters, supra, would not have turned upon whether the plaintiff there was an ERISA plan. It could just as easily have been a testamentary trust. Similarly here. If plaintiff had been individuals who had funded trusts for their estate plans, or had been any other entity who had been a client of Lampf-Lipkind, the cause of action and the result would have been the same. The only relationship to ERISA is that the investing entity happens to be governed by ERISA. That simple fact is not enough to preempt a whole body of state law. While here the plaintiff was the plan itself, and any recovery will belong to the plan, this is insufficient for the cause of action to "relate to" the plan. At oral argument Lampf-Lipkind's counsel admitted that even where a fiduciary is involved, the claim is not preempted by ERISA if it is the so-called garden variety state law claim. Were I required to make a finding of fact on the issue as defendant's status as a fiduciary, I would have no doubt but to conclude that Lampf-Lipkind was not a fiduciary as defined by ERISA. It neither controlled the plan nor was paid a fee for investment *190 advice. Except for the conduct here found wrongful by the jury; Lampf-Lipkind were the Trust's lawyers and nothing more. The Trust's claim here is really nothing more nor less than a garden variety, or run-of-the-mill, legal malpractice claim. There is neither preemption by ERISA nor exclusive jurisdiction in the federal judiciary. Lampf-Lipkind's motion to dismiss under R. 4:6-2(a) is denied. Judicial Estoppel [2] Lampf-Lipkind renews its motion for JNOV based upon its claim that the doctrine of judicial estoppel should have barred the Trust's lawsuit. Lampf- Lipkind urges that because the Trust claimed in the **1200 federal lawsuit that it had relied upon the PPM and had not relied upon Lampf-Lipkind's oral representations, Lampf-Lipkind's failure to warn of the conflict, or the failure to advise the securing of independent legal advice, it should be barred from so claiming here. Lampf-Lipkind relies largely upon Levin v. Robinson, Wayne & LaSala, 246 N.J.Super. 167, 586 A.2d 1348 (Law Div.1990). There the plaintiff, a lawyer, had claimed in a prior divorce action that he had received all to which he was entitled from his former law firm partners. After settling his divorce on that basis, he sued his former partners claiming more. The court refused to countenance such duplicity and held that judicial estoppel precluded the plaintiff from claiming that he was entitled to more from his partners when he had denied such a claim in his divorce. Id. at 180, 586 A.2d 1348. The Trust contends that when the context is considered and contrasted with the facts in Levin, my equitable powers, which form the basis for the doctrine of judicial estoppel, reaffirm the correctness of my ruling. I held that the evidence of the prior position of the Trust would not judicially estop them from asserting a contrary position, but that their prior position asserted in the *191 federal lawsuit could be presented to the jury under Evid.R. 63(8), which provides: Rule 63(8). Authorized and Adoptive Admissions I found that Sills Cummis was authorized to make "statements concerning the subject matter of the statement." This means that even if Sills Cummis did not have the explicit authority to make this statement, its general authority to bind the client in litigation allowed Lampf-Lipkind to use the Sills Cummis statement. [3] The Trust correctly points out that it was only one of twenty clients. The Trust was never interviewed. The comments that Lampf-Lipkind relies upon to form the basis of judicial estoppel were comments of counsel, not a party. Lampf-Lipkind correctly points out that comments of counsel can form the basis for judicial estoppel. Levin, supra, at 180, 586 A.2d 1348. Nonetheless, from an equitable perspective, that a comment was made by counsel without consultation with the client is a factor to consider. The Sills Cummis comments deserve further scrutiny. The representations were qualified. When counsel was asked whether his clients, referring to all twenty of them, relied upon Lampf-Lipkind oral representations, he said "in my view" it would not have made a difference. When asked if his clients, again all twenty, thought it was a "no risk" situation based upon what they had been told, he said, "I would not have said that so I didn't." Thus, when viewed as a whole, the correctness of my ruling at trial is evident. It would have been inequitable to have barred this line of proof altogether, yet it would also have been inequitable not to allow Lampf-Lipkind to use statements of the Trust's counsel in the federal action. I also allowed Lampf-Lipkind to introduce portions of the Amended Complaint in the federal action *192 even though it contained self-contradictory facts and alternative pleadings. Lampf-Lipkind vigorously used these "admissions," but the jury did not find as Lampf-Lipkind had hoped. There is no basis here for a new trial and this application is denied. Proximate cause and damages [4] Lampf-Lipkind asserts that the Trust failed to establish that the claimed malpractice was a proximate cause of damages. Relying primarily on Lamb v. Barbour, 188 N.J.Super. 6, 455 A.2d 1122 (App.Div.1982), certif. den. 93 N.J. 297, 460 A.2d 693 (1983), this is Lampf-Lipkind's most **1201 serious claim of error and is one that has substantial merit. In Lamb v. Barbour, supra, the Appellate Division reversed a bench trial finding of legal malpractice. Barry Lamb, a twenty-three year old high school graduate with limited experience, bought all the capital stock of a 100- employee baking company grossing over a million dollars a year. Two months later the business failed and Lamb sued Barbour, his lawyer, claiming a wide range of wrongdoing including the failure to provide advice and guidance. Lamb alleged that Barbour should have told him that his limited experience did not equip him to manage an enterprise the size of the one he had bought. Lamb claimed that Barbour knew this and should have told Lamb that he was simply in over his head. Lamb and Barbour both knew that the business had serious cash flow problems. Lamb claimed that Barbour should have warned him to be skeptical of the sellers' claims of "unreported" income to offset this cash flow shortage and should have warned Lamb of the tax dangers even if these claims were accurate. Finally, Lamb claimed that Barbour failed to conduct the proper searches, failed to negotiate the contract properly, and failed to "enlighten his clients as to the meaning of the documents." The key issue on appeal was not whether Barbour committed malpractice but whether the assumed malpractice was proximately connected to the claim of damages. The Appellate Division found *193 that, using the standard appropriate for the review of bench trial findings, [FN5] Lamb failed to show that he would have not gone through with the deal even if all of the attorney derelictions he claimed had not occurred. The opinion, pointing to Lamb's total investment in this million-dollar business of only $4,000.00, doubted whether any warnings could have dissuaded him. Anyhow, Lamb never claimed that he would have done otherwise; he merely asserted that Barbour's failures deprived him of the opportunity to make an informed decision.
Lampf-Lipkind also claims that just as Lamb never proved why his business failed, the Trust never proved why SIG failed. Even if that were true, it is equally true that Lampf-Lipkind never explained why SIG failed, or that the failure was not caused by a reason admittedly foreseeable by its inclusion in the PPM as a known risk. I put this issue squarely to the jury as follows: [FN6]
Now if you find that Marprowear has sustained its burden of proof and satisfied you that Lampf-Lipkind was negligent, that still does not end the inquiry. Next you must determine whether that negligence was a proximate cause of the damages Marprowear alleges to have sustained, that is the loss of their investment in Southeastern Insurance Group, which we have all called SIG. Moreover, I even offered the jury the opportunity to find malpractice with only nominal damages, over the Trust's objection. The jury found that the risk of loss of the entire investment was foreseeable. The PPM so stated. The units in SIG were not marketable. The PPM so stated. The financial management of SIG was inexperienced and the financial statements were unreliable. The PPM so stated. The business losses of SIG were foreseeable. The PPM so stated. I might well have found differently if I were a juror but I am not. On one hand, the time between the investment and the first bankruptcy filing was substantial so that several intervening causes could have occurred. On the other hand, the investment had no public market, was thus illiquid, and the Trust had no control over or knowledge of what was going on within SIG. The same cannot be said of Lampf- Lipkind. Finally, Lampf-Lipkind never presented evidence of any such intervening causes. It surely cannot be said that imposing *196 liability on Lampf-Lipkind under these facts is beyond the pale. [5][6] If proximate cause is ultimately a question of fairness and policy, imposing liability on these facts is both fair and good policy. Lawyers who fail to inform clients of their own interests, fail to advise clients to seek other counsel, unabashedly sell their clients the notion that an investment with them or their colleagues is a good and safe one, and use their clients as sources of investment funds, must accept responsibility for the outcome. Lawyers may not burrow their way into their clients' confidences and then exploit those confidences for their own ends. This is the law in New Jersey. The Rules of Professional Conduct bar such conduct. Such conduct is reprehensible and foreseeable damages are proper, if so found by the jury. Here the PPM provides a convenient yardstick as to the foreseeable consequences. While, given their own large investment in SIG, there is little doubt but that Lampf-Lipkind honestly believed, as did the attorney in In re Smyzer, supra, at 57, 527 A.2d 857, that the investment was a good one, there is also little doubt that they understood the risks. Risky investments are not barred; they are essential to our economic system. Lawyers, however, cannot use their clients to bankroll such risks. As Chief Justice Beasley, in Crater v. Binninger, 33 N.J.L. 513, at 518 (E. & A.1869) stated: Counsel have suggested analogies from the legal arena of securities fraud, but these cases are not consistent. Contrast the majority opinion with the dissent in **1204 Marbury Management, Inc. v. Kohn, 629 F.2d 705, 718 (2d Cir.1980), cert. denied, *197449 U.S. 1011, 101 S.Ct. 566, 66 L.Ed.2d 469 (1980). As the majority stated, 629 F.2d at 710, fn. 3: If the concept of loss causation were a necessary ingredient in a conflict of interest case, this requirement would almost never be met. It is hard to imagine a case in which the failure to inform the client is the actual cause of the failure of the investment. There is no question of "investment" or "transaction" causation because the Trust said that they would not have made the investment had the conflict and its consequences been disclosed. If we allow a less stringent accommodation of the concept of "loss" causation, there is no issue as the PPM discloses all the foreseeable losses, including the loss that occurred here, the loss of the Trust's entire investment. This is not a case of "bad investment advice" in which the reason for the investment sprung out of false representations as to its quality. Another possible analogy is deceit and misrepresentation. In this respect, the old case of Crater v. Binninger, supra, is instructive. There the defendant purchased land and then solicited the plaintiff to invest in an oil company that would explore for oil on the land. The plaintiff represented that the original cost of the land was $28,000.00, that $4,000.00 in working capital would be required, and that the plaintiff's one-eighth share of that $32,000.00 total would be $4,000.00. The speculative investment, plus an additional $500.00, was totally lost. It turned out that rather than $28,000.00 as claimed, the defendant had paid only $18,000.00 for the land, thus his representation was false. The trial court awarded the plaintiff damages for the difference between the $28,000.00 that was falsely represented as the purchase price and the $18,000.00 that was the actual purchase *198 price, adjusted for plaintiff's one-eighth share. Chief Justice Beasley reversed and held: Applying this holding here, because the real value of the investment at the time of the lawsuit was zero, the damages were the entire investment, as the jury found. Another analogy is the failure to provide informed consent in a medical malpractice action. For example, imagine the case where a patient reasonably would have avoided surgery if the risk of death, analogous **1205 to the loss of the investment here, had been properly disclosed, but has the surgery because of the failure of informed consent and then dies while in the surgeon's hands. Who would question proximate causation? If a surgeon fails to inform a patient of a material risk, and a reasonable patient, if informed, might have decided not to have the operation, then the causal connection is established between the failure to inform and the unfavorable result. If full disclosure could reasonably be expected to have caused that person to decline the treatment because of the revelation of the kind of risk resulting in harm, causation is shown. 2 Dooley, Mod Tort Law § 34.55 (1983 Ed.) at p. 505. It is not necessary for the patient to prove that the surgeon's hand slipped, or for that matter, whose action caused the injury. It is sufficient that the injury was foreseeable. Accord 70 C.J.S. Physicians and Surgeons § 96(b): Here, the failure to inform directly "caused" the investment. The failure of the investment was foreseeable. I therefore find that the jury's decision was easily supportable by the evidence presented. I find that a reasonable jury could have found, as the jury here did, that Lampf-Lipkind's failure to disclose and to warn was the legal and proximate cause of the Trust's injury, and that a compensable injury could have and in fact resulted therefrom. Lampf-Lipkind's motion for a new trial on this basis is denied. Was the verdict against the weight of the evidence? [7] Lampf-Lipkind claims that the verdict was against the weight of the evidence in several other respects. It also points to instances in which it claims, Mr. Bergenfield acting improperly, particularly in summation, thus requiring a new trial. First, there is no doubt that there was more than sufficient evidence to support the jury finding of malpractice. Wasserman outlined Lampf-Lipkind's blatant violation of R.P.C. 1.8: *200 As to Bergenfield's summation, a summation is intended to be argumentative and sometimes colorful. It is not intended to be a neutral statement of facts as if it were a brief to the Appellate Division on appeal. I instructed the jury to disregard those portions of the summations and other comments of counsel which did not square with their memory of the facts or their interpretation of the evidence. As to the other issues raised by Lampf-Lipkind, I offered the jury the opportunity to find facts as Lampf-Lipkind would have wished. The jury did not do so. This was a case with sharp factual disputes and while I might have found differently on many issues if I were a juror, I cannot say that: The jury found that it was not negligence for the trustees to have failed to read the PPM when they relied upon their attorney to read and explain its pertinent parts to them. That was an understandable jury decision. The jury believed expert Wasserman and not expert Wacks. That was an understandable jury decision. The jury believed the Trust's witnesses that they would not have made the investment at all if they had known that the source was tainted with a conflict of interest. That was an understandable jury decision. The other issues raised by Lampf-Lipkind as to the charge to the jury and other items are without merit. The charge was abundantly fair. Lampf-Lipkind's motion for a new trial is denied. Stay pending appeal [8] Lampf-Lipkind has argued that I should stay the effect and enforcement of the judgment pending appeal. It argues that its grounds for appeal have merit and if the judgment is not stayed, the law firm will go out of business. R. 2:9-5(a) provides as follows: The purpose of R. 2:9-5 is to permit a party to continue execution on a judgment pending appeal unless a bond is posted. Collection of money judgments is often difficult. That a corporate defendant may be on the edge of insolvency is actually more of a reason to require a bond or other security than it is to stay that requirement. Prior to trial a motion was made before a different judge to amend the complaint to add the lawyers, individually, to the complaint. That motion was denied. Because this case began as a claim for fees in Special Civil Part and a counterclaim for malpractice, that the individual lawyers were not parties apparently went unnoticed by the Trust until just before this case was set for trial. Thus the Trust's judgment is solely against the professional corporation, Lampf-Lipkind. [9] It would be unfair to allow a defendant to continue its business, perhaps until its assets were completely dissipated, while the appeal process went on with no protection at all for the holder of the judgment. I have no doubt that given the high reputation for competency of the lawyers and their staffs in tax and pension work, even if Lampf-Lipkind were to disappear as an entity, the lawyers and staff probably could find new employment rapidly. Execution on this judgment would not put 45 people on the street. I am sure that the new law firms to which the Lampf-Lipkind lawyers would migrate would be happy to service the former clients of Lampf-Lipkind. Lampf-Lipkind's former clients would not suffer any hardship. The motion for a stay other than in accordance with the bond or cash deposit provisions of R. 2:9-5(a) is denied. 630 A.2d 1191, 267 N.J.Super. 174 END OF DOCUMENT |
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