The New Jersey Appellate Division released a decision on March 3, 2020 that could be interpreted to interject a complexity in the current state of contribution and indemnification claims in legal malpractice cases.

In Lane Construction Co., Inc. v. Munday, No. A-0494-19T3 at *2 (App. Div. March 3, 2020), the plaintiff, a general contractor, agreed with a supermarket chain to perform construction and renovation work at a location in New York, which involved various change orders and cost overruns resulting in an additional $1 million being billed by the plaintiff to the supermarket. The supermarket refused to pay for the additional costs.

The client-plaintiff then retained one of the attorney-defendants, who was not admitted to practice in New York, to prepare and file a mechanic’s lien against the subject supermarket property. The attorney-defendants also initiated an arbitration proceeding pursuant to the parties’ contract and filed an action to foreclose the mechanic’s lien.

The New York court stayed the foreclosure action pending the arbitration. The arbitration resulted in a $308,737.98 award in the client-plaintiff’s favor. Thereafter, the supermarket chain filed a bankruptcy petition. The attorney-defendants failed to file a notice of claim in the bankruptcy and also failed to properly extend the notice of pendency of the mechanic’s lien foreclosure action, which resulted in the expiration of the mechanic’s lien. The supermarket chain then intervened in the mechanic’s lien foreclosure and counterclaimed against the client-plaintiff for willfully exaggerating its lien claim.

The attorney-defendants informed the client-plaintiff that they had made the error during their representation in the mechanic’s lien matter and advised the client-plaintiff to retain malpractice counsel. The client-plaintiff then terminated the attorney-defendants’ representation and retained successor attorneys in the mechanic’s lien foreclosure. Shortly thereafter, the client-plaintiff settled the litigation with the supermarket chain by agreeing to pay the supermarket $90,000 in exchange for its withdrawal of the willful exaggeration claim.

The client-plaintiff then sued the attorney-defendants, alleging malpractice in connection with errors made in the mechanic’s lien and arbitration matters. In discovery, the attorney-defendants questioned the client-plaintiff’s principals regarding their communications with successor counsel in the mechanic’s lien action, specifically about the settlement. The attorney-defendants also demanded that the client-plaintiff produce communications with the successor attorneys relating to the underlying litigation and, when the client-plaintiff refused to produce such documents, moved to compel their production. Over the client-plaintiff’s argument that its communications with successor counsel are privileged, the trial court granted the attorney-defendant’s motion and ordered the client-plaintiff to produce the documents and communications. The Appellate Division granted a stay and permitted an interlocutory appeal of the lower court’s order.

The Appellate Division, citing In re Kozlov, 79 N.J. 232, 242-43 (1979), detailed the three requirements for piercing the attorney-client privilege: (1) there must be a legitimate need to reach the evidence sought to be shielded; (2) the evidence must be relevant and material to an issue in the case; and (3) there must be a finding, by a fair preponderance of the evidence, that the information sought cannot be obtained from a less intrusive source. The court also noted, quoting State v. Mauti, 208 N.J. 519, 532 (2012), that “a privilege may be waived ‘implicitly’ where a party puts a confidential communication ‘in issue’ in a litigation.”

The Appellate Division affirmed the trial court’s decision to allow the attorney-defendants the privileged documents and communications. First, relying on Mauti, the court found the communications between the client-plaintiff and its successor attorneys to be “relevant to an issue of breach of duty by the lawyer to his client.” Second, the court found that by suing the attorney-defendants, the client-plaintiff waived the attorney-client privilege. The court reasoned that the legal advice of superseding counsel “is directly relevant to the cause of plaintiff’s alleged damages (i.e., whether certain of plaintiff’s claimed damages were proximately caused by the actions of defendants or the alleged negligent settlement of the underlying action by” superseding counsel, as the attorney-defendants asserted. Lane Constr., at *16. The court did not evaluate the merits of this alleged defense, but found that the communications may be relevant “directly to the cause and quantum of the alleged damages.” Id. at *17. Third, the court held that “refusing to pierce the attorney-client privilege would severely handicap defendants’ constitutional right to a fair trial.” Id. at *18. The court noted that the attorney-defendants had not filed a third-party action against the superseding attorneys, but that the attorney-defendants “represented that such a claim is being considered.” Id. at *20 n. 8.

This decision is interesting because while it comports with the law on attorney-client privilege issues, it does not attempt to harmonize (or even mention) those issues with the Supreme Court and Appellate Division precedent holding that there is “no duty” running from successor counsel to prior counsel, thus negating the validity of any third-party claim by the attorney-defendants against the client-plaintiff’s superseding counsel. See, e.g., Cherry Hill Manor Assocs. v. Faugno, 182 N.J. 64, 72 (2004); Olds v. Donnelly, 150 N.J. 424, 443-44 (1997); Connell, Foley & Geiser, LLP v. Israel Travel Advisory Services, Inc., 377 N.J. Super. 350, 359 (App. Div. 2005) (and, in an unpublished decision, as recently as March 2020 in South Brunswick Furniture, Inc. v. Acrisure, LLC, et al., No. A-2981-17T1 (App. Div. Mar. 4, 2020)). Specifically, the Appellate Division did not address in Lane Construction how the privilege was “waived” when the communications were with successor counsel, not the attorney-defendants. The Appellate Division also did not address how the client-plaintiff’s communications with its superseding attorney could be relevant to the claims between the client-plaintiff and the attorney-defendants if the attorney-defendants have no potential contribution claim against superseding counsel as a result of the superseding attorneys’ negotiation of the subject settlement.

The decision in Lane Construction, along with the precedent on duty to prior counsel cited above, suggests that courts may be willing to allow legal malpractice defendants to obtain disclosure of privileged evidence for use in their defense, but not necessarily to assert affirmatively against superseding attorneys for claims of contribution or indemnification. Additional development of this theory will be necessary to resolve the apparent potential conflict in the case law.

The Lane Construction decision can be accessed at: https://www.njcourts.gov/attorneys/assets/opinions/appellate/unpublished/a0494-19.pdf?c=nTn

To discuss legal malpractice or commercial litigation matters with this article’s author, please contact:

Jonathan P. Vuotto, Esq.

jpv@mcandrewvuotto.com