Schulman v. Wolff & Samson, PC., __ A.2d __, 2008 WL 2787986 (N.J.Super.A.D. 2008)
Brief Summary
The New Jersey Superior Court, Appellate Division, held that while Puder v. Buechel, 183 N.J. 425 (2005), bars clients from bringing legal malpractice claims which are based on the inadequacy of a settlement, it does not necessarily bar malpractice claims unrelated to the settlement or other causes of action such as breach of contract or derivative legal malpractice claims.
Complete Summary
Plaintiff minority shareholders brought a derivative suit on behalf of Van Mar, Inc., alleging that the majority shareholders had surreptitiously transferred Van Mar’s assets to another entity. Plaintiffs further alleged that Van Mar’s counsel, law firms Wolff & Samson, PC, and Nixon Peabody, LLP, had committed malpractice, fraud, breach of fiduciary duty and breach of contract by assisting the majority shareholders in their wrongful conduct. These claims were brought both derivatively and individually.
Following settlement between the minority and majority shareholders, the defendant law firms jointly moved to dismiss the remaining claims against them. The trial court granted the motion because “the wrongful conduct alleged in the shareholder litigation [was] substantially the same conduct that form[ed] the basis of the legal malpractice claim.” Id. at *2. The trial court relied on Puder v. Buechel, 183 N.J. 425 (2005), which had held that a client’s voluntary settlement of an underlying matter bars her from pursuing a malpractice claim against the attorney who represented her in the underlying matter.
The appellate court reversed. The court first noted that Puder, which involved a client suing her former attorney, did not apply to plaintiffs’ individual claims against the law firms because the firms had never directly represented the plaintiffs. But plaintiffs abandoned their individual claims on appeal, and the court therefore declined to address the question whether a law firm for a closely held corporation owes any duty in this context to the shareholders—something that would have been an issue of first impression in New Jersey.
The court then held that Puder did not reach plaintiffs’ breach of contract or fraud claims; consequently, those claims had been improperly dismissed.
The court also held that Puder did not provide a basis for the trial court to dismiss plaintiffs’ derivative claims. The court noted that the malpractice claim in Puder was predicated on the inadequacy of the underlying settlement, whereas the malpractice alleged here was based on conduct independent of the underlying settlement. The court did not express, however, an opinion on whether a derivative legal malpractice claim may be maintained under New Jersey law.
Significance of Opinion
This opinion limits the applicability of Puder but leaves at least two important issues unresolved: (1) whether or when shareholders can individually sue a closely held corporation’s counsel, and (2) whether or when shareholders can derivatively sue a corporation’s counsel.
This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.
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