Opinion
Civil Action No. 08-5994 (GEB).
October 7, 2009
MEMORANDUM OPINION
I. Background
This matter comes before the Court upon two motions to dismiss, one filed by defendant Lindabury, McCormick, Estabrook Cooper, P.C. ("LMEC"), the other filed by defendant Withumsmith+Brown, P.C. ("WSB"). (Dkt. No. 67 and 68, respectively). The Court has considered the parties' submissions and decided the matter without oral argument pursuant to Federal Rule of Civil Procedure 78. Both motions will be addressed in this omnibus opinion. The Court has jurisdiction pursuant to 28 U.S.C. § 1332.
Though LMEC titled their motion as one for summary judgment, it admits that it is the "functional equivalent of a motion to dismiss for failure to state a claim." (LMEC Reply Br. at 1).
A. Facts
This action arises from a loan transaction between plaintiff Nuveen Municipal Trust ("Nuveen") on behalf of its series Nuveen High Yield Municipal Bond Fund, and non-party Bayonne Medical Center ("BMC"). On or about October 11, 2006, Nuveen purchased a $10 million Bond Anticipation Note ("BAN") issued by BMC. As part of the closing of the purchase of the BAN, BMC's counsel, defendant LMEC, issued an Opinion Letter dated October 11, 2006 "addressing the existence or nonexistence of certain matters that could reasonably be anticipated to have a negative impact on the ability of BMC to repay the [BAN]." (LMEC Br. at 1). Nuveen alleges that the LMEC Opinion does not disclose certain events that occurred in September 2006. ( Id.) Further, Nuveen alleges that WSB, an accounting firm, improperly audited BMC's 2005 financial statements. (WSB's Br. at 1).
The Opinion Letter drafted by LMEC and the Audit Report generated by WSB form the basis of Nuveen's claims. Plaintiff claims that "WSB was required to examine each of these aspects of the 2005 Financial Statements and, despite these deficiencies, WSB issued an unqualified audit report knowing it was improper to do so." (Compl. at ¶ 37). Nuveen further alleges that LMEC breached a duty of care owed to Nuveen to exercise reasonable care in providing the LMEC Opinion (Count IV) and asserts that LMEC committed malpractice in preparing the Opinion (Count V).
In 1995, New Jersey enacted a statute requiring that a plaintiff filing a complaint alleging malpractice or negligence by a licensed professional must serve an Affidavit of Merit on the professional defendant within 60 days of the filing of defendant's Answer. N.J.S.A. 2A:53A-26-29. The statute provides for one extension period of an additional 60 days contiguous to the initial 60-day period upon a showing of good cause. Id. at 53A-27. This affidavit of merit (AOM) was not served on the professional defendants until after the instant motions were filed, well after the 120-day deadline. (LMEC Br. at 4).
B. Procedural History
Plaintiff commenced this action on December 5, 2008 against LMEC and WSB for alleged negligent and intentional wrongdoing associated with the preparations for the BMC transaction. Both defendants have moved to dismiss because Nuveen failed to serve them with Affidavits of Merit as required by the statute. On June 4, 2009, Defendants filed the present motions to dismiss. All matters were fully briefed on June 29, 2009.
II. Discussion
A. Standard of Review
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) may be granted only if, accepting all well-pleaded allegations in the complaint as true and viewing them in the light most favorable to the Plaintiff, a court finds that Plaintiff has failed to set forth fair notice of what the claim is and the grounds upon which it rests. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, (2007) (citing Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint will survive a motion under Rule 12(b)(6) if it states plausible grounds for Plaintiff's entitlement to the relief sought. Id. at 1965-66 (abrogating Conley's standard that the "complaint should not be dismissed for failure to state a claim unless it appears beyond a doubt that the Plaintiff can prove no set of facts in support of his claim which would entitle him to relief"). In other words, it must contain sufficient factual allegations to raise a right to relief above the speculative level. Id. at 1965. The issue before the Court "is not whether Plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence in support of the claims." Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). In evaluating a Rule 12(b)(6) motion to dismiss for failure to state a claim, a court may consider only the complaint, exhibits attached to the complaint, matters of public record, and undisputedly authentic documents if the complainant's claims are based upon those documents. See Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993), cert. denied 510 U.S. 1042 (U.S. 1994) (No. 93-661).
The New Jersey Legislature and Supreme Court have stated that failure to timely provide an Affidavit of Merit is failure to state a claim. N.J.S.A. § 2A:53A-29 ("If the plaintiff fails to provide an affidavit or a statement in lieu thereof, pursuant to section 2 or section 3 of this act, it shall be deemed failure to state a cause of action."); Ferreira v. Rancocas Orthopedic Assocs., 178 N.J. 144, 146-47 (2001) ("The failure to deliver a proper affidavit within the statutory time period requires a dismissal of the complaint with prejudice,"); Alan J. Cornblatt, P.A. v. Barow, 153 N.J. 218, 244 (1998) ("A dismissal for failure to submit an affidavit of merit is a violation of a statute rather than a court-imposed rule or order. The violation giving rise to the dismissal goes to the heart of the cause of action as defined by the Legislature.").
B. Application
LMEC and WSB argue that Nuveen's claims should be dismissed for failure to serve them with an AOM within the statutorily required time period. Nuveen advances three theories to defeat these motions to dismiss: (1) that the AOM Statute does not apply because Nuveen does not claim "property damages," (Pl.'s Reply at 4); (2) that Nuveen is entitled to the equitable remedy of substantial compliance, (Pl.'s Reply at 12); and (3) that Nuveen fits within the statute's exception for "extraordinary circumstances." (Pl.'s Reply at 21). For the reasons stated below, these arguments lack merit.
1. The AOM Statute's Applicability
The AOM statute applies only to claims seeking recovery for "personal injuries, wrongful death or property damages." N.J.S.A. § 2A:53A-27. Since this is not a personal injury or wrongful death case, the statute can only apply if Nuveen's claims can be classified as claims seeking recovery for "property damage." Nuveen struggles with statutory interpretation and New Jersey case law for some three pages, but fails to address Cornblatt v. Barow, 303 N.J. Super. 81, 86 (App. Div. 1997), rev'd on other grounds, 153 N.J. 218 (1998). In Cornblatt, the Appellate Division clearly stated that "a claim against an attorney for alleged malpractice is a claim for property damage within the legislative intent and plain meaning of the statute." Therefore, the Court holds that Nuveen's claims are seeking recovery for "property damage" against LMEC, a law firm, under New Jersey case law.
With respect to WSB, Nagim v. New Jersey Transit, 369 N.J. Super 103 (2003) is instructive. The Nagim court observed that "[e]arly jurisprudence under the [AOM statute] has conclusively recognized that the `property damage' language of the statute includes a claim for money damages." Nagim, 848 A.2d at 70. The court continued: "[m]alpractice or negligence committed by architects, engineers, or attorneys may very well result in damage to real and personal property. . . . The right to claim `money damages . . . is a property right . . . beyond question.'" Id. (citations omitted). Nuveen attempts to distinguish Nagim by arguing that such a reading would conflict with a higher court decision, Couri. Couri v. Gardner, 173 N.J. 328 (2002) articulated a three factor test for determining whether the AOM statute applies to a particular claim. The first factor is "whether the action is for damages for personal injuries, wrongful death or property damage." Couri, 173 N.J. at 334. Nuveen apparently attempts to argue that Couri stands for the proposition that there are situations in which a malpractice action is maintained and no AOM is required, and therefore this is one of those situations. The Court holds that the monetary recovery sought here is exactly the type contemplated by the drafters of the Statute, and therefore the AOM statute applies.
Nuveen next argues that the AOM does not apply to the fraud claims that it maintains against WSB because these are intentional torts that do not seek damages resulting from an act of malpractice or negligence. Couri holds that "[i]t is not the label placed on the action that is pivotal but the nature of the legal inquiry. Couri, 173 N.J. at 340 (emphasis added). Nuveen's complaint contains numerous, repeated references to the professional standards with which it contends WSB was required to comply. See, e.g., Pl.'s Compl. at ¶¶ 34, 37, 65, 66-68, 70-74, 77-80, 83, 85, 87-89, 92, 94, 96, 98, 99, 103 (containing allegations that WSB did not comply with Generally Accepted Auditing Standards, Generally Accepted Accounting Principles, the AICPA professional standards for accountants, and the Financial Accounting Standards Board). Nuveen is unable to articulate why these alleged breaches of professional conduct in relation to the Fraud counts do not require an AOM. Therefore, the Court holds that the AOM applies to the instant factual situation.
2. Substantial Compliance
Nuveen's next argument in opposition to the motions to dismiss is that it substantially complied with the AOM statute. (Pl.'s Br. at 12). The doctrine of substantial compliance is an equitable remedy that was adopted by the New Jersey Supreme Court as a means of ameliorating the sometimes harsh consequences that flow from technically inadequate actions that nonetheless meet the statute's underlying purpose. Galik v. Clara Maass Med. Ctr., 167 N.J. 341, 351-55 (2000). Under the substantial compliance doctrine, a complaint will not be dismissed if the plaintiff can show "substantial compliance" with the statute. Id. at 351. Galik articulates a five-factor test for substantial compliance: (1) a lack of prejudice to defendants; (2) a series of steps taken to comply with the statute; (3) a general compliance with the purpose of the statute; (4) a reasonable notice of plaintiff's claims; and (5) there exists a reasonable explanation why there was not a strict compliance with the statute. Id. at 353-54.
Here, Nuveen argues that the defendants have not been prejudiced by the delay in service of the AOM. (Pl.'s Br. at 14). The defendants did not directly plead the AOM statute as an affirmative defense, and did not raise it at the case management conference. ( Id. at 15). WSB persuasively argues that they have already incurred legal expenses in defending this action against a claimant that has not made the statutorily required minimum showing. (WSB's Reply Br. at 6). LMEC does not argue this point in their briefs. Moreover, the Defendants were financially prejudiced by having to file and pay for the instant motions.
Next, Nuveen argues that it took a series of steps to comply with the statute. Nuveen argues that they retained an experienced CPA that evaluated the claims against WSB by reviewing many financial documents, and that the expert assisted with the drafting of the complaint. (Pl.'s Br. at 16). Nuveen also states that it contacted a prominent attorney with regard to the claims against LMEC and he concluded that the claims had merit. ( Id.) However, Nuveen makes no claim that it attempted to prepare an Affidavit of Merit prior to the date on which the defendants filed their motions to dismiss. Further, Nuveen does not even state that it mistakenly believed that these actions by themselves met the statute's underlying purpose. Nuveen cites several cases in which New Jersey courts have applied the substantial compliance doctrine, but not a single one contains a plaintiff which completely omitted the Affidavit of Merit. See Fink v. Thompson, 167 N.J. 551, 564 (N.J. 2001) (finding substantial compliance where plaintiff provided timely affidavit, but one defendant not referenced by name); Galik, 167 N.J. at 357-58 (holding plaintiff substantially complied by providing defendants' insurance carriers with expert report prior to instituting suit); Mayfield v. Cmty. Med. Assocs., P.A., 335 N.J. Super. 198, 207-08 (App. Div. 2000) (finding substantial compliance where expert report timely served). The crux of Nuveen's argument is that its complaint, because it was prepared with assistance from an expert, should stand in for an affidavit of merit. The Court rejects this assertion, holding that the complete failure to timely prepare an affidavit of merit cannot be a "series of steps" to comply with the statute. There is nothing to suggest that the AOM statute can be satisfied by more detailed pleadings. Instead, the extensive reference in the complaint to professional standards clearly reveals the need for an AOM under the statute.
Next, Nuveen argues that it "generally complied" with the purpose of the statute. It consulted with two experts before filing the suit, and both defendants agree that the Complaint pled Nuveen's claims in extensive detail. (WSB's Br. at 26, LMEC's Br. at 3). The Complaint is detailed and alleges specific ways in which the defendants participated in a fraud, and it further alleges precisely how and why this is the case. Nuveen argues that, because the "Complaint provided Defendants with far more notice of the validity and basis for [Nuveen's] claims than the conclusory affidavits provided under the statute," they generally complied with the purpose of the statute. The Court does not agree with Nuveen that the detailed pleading "generally complied" with the purpose of the affidavit of merit statute, which is "to weed out frivolous lawsuits early in the litigation while, at the same time, ensuring that plaintiffs with meritorious claims will have their day in court." Ferreira v. Rancocas Orthopedic Assocs., 178 N.J. 144, 150 (N.J. 2003). A pleading, however detailed, is self-serving and not under oath. It cannot substitute for the sworn affidavit of a qualified professional that the claim has merit.
As to the fourth factor, it appears that WSB and LMEC received "reasonable notice" of Nuveen's claims by way of the complaint.
The final factor is whether there is a "reasonable explanation" for the lack of compliance. Here, Nuveen makes no explanation as to why no AOM was prepared. Nuveen cites extensively to Galik and Mayfield, cases in which substantial compliance with an AOM statute was found. Both of these cases are distinguishable from the instant facts. Mayfield involved an AOM that was timely filed with the Court, but was inadvertently never forwarded to the defendant. Mayfield, 335 N.J. Super. at 207. In Galik, the Court found that there had been substantial compliance with the statute where plaintiff served unsworn expert reports on the defendants eight months prior to litigation. 167 N.J. 341. While Nuveen does not expressly state it is relying on a defense of inadvertence of counsel, it does refer to cases law involving inadvertence of counsel. Inadvertence of counsel, by itself, cannot be a "reasonable explanation" for failure to comply with the New Jersey AOM statute. Moreover, Nuveen's position appears to be that: (1) no AOM was required; and (2) it substantially complied with the statute.
Because Nuveen did not take any steps to prepare an affidavit of merit and has provided no reasonable explanation for this omission, the substantial compliance exception cannot be met. Though the complaint is detailed, the New Jersey Courts have not created a rule allowing a well pled complaint to stand in for a statutorily required affidavit of merit simply because it puts the defendants on notice of the potential malpractice claims, and this Court cannot predict that they would do so. Such a rule would be antithetical to the Affidavit of Merit statute, which specifically and unequivocally requires a sworn filing by a qualified professional that is separate from the complaint.
3. Extraordinary Circumstances
The final argument that Nuveen makes in attempting to defeat the instant motions to dismiss is that "extraordinary circumstances" exist to support a dismissal without prejudice, rather than with prejudice. (Pl.'s Br. at 21). The New Jersey courts, recognizing that the dismissal with prejudice is harsh, have created an exception whereby, in "extraordinary circumstances," a plaintiff's claims may be dismissed without prejudice under the AOM statute. Burns v. Belafsky, 326 N.J. Super. 462, 469 (App. Div. 1999). However, New Jersey courts have uniformly held that inadvertence of counsel, by itself, can never be an extraordinary circumstance. Ferreira, 178 N.J. at 152 ("attorney inadvertence is not such a circumstance entitling plaintiff to a remedy of dismissal of a complaint without prejudice"); Palanque v. Lambert-Wooley, 168 N.J. 398, 404 (2001); Burns, 326 N.J. Super. at 470 (holding that there were no extraordinary circumstances where the failure to comply with the statute was due to the lack of diligence of counsel). Nuveen is not entitled to dismissal of its claims without prejudice. It has not provided a plausible reason for not filing an affidavit of merit, and even if it did rely on inadvertence of counsel, this reason would be clearly insufficient.
III. Conclusion
For the reasons stated above, the motions to dismiss are GRANTED and the complaint is dismissed, with prejudice. Accordingly, WSB's motion for leave to file an amended answer and third party complaint is dismissed as moot. An appropriate form order is filed herewith.