Johnson v. McClellan
| Citation | 260 A.3d 861,468 N.J.Super. 562 |
| Decision Date | 19 July 2021 |
| Docket Number | DOCKET NO. A-2683-19 |
| Parties | Cindy JOHNSON, Administratrix Ad Prosequendum and Administratrix of the estate of Tony Johnson, Plaintiff-Respondent, v. Frank MCCLELLAN, Esq., Defendant/Third-Party Plaintiff-Appellant, v. Aaron J. Freiwald, Esq., and Freiwald Law, P.C., f/k/a Layser & Freiwald, P.C., Third Party Defendants. |
| Court | New Jersey Superior Court – Appellate Division |
John L. Slimm argued the cause for appellant (McElroy Deutsch Mulvaney & Carpenter, LLP, and Marshall Dennehey Warner Coleman & Goggin, attorneys; John L. Slimm, Mount Laurel, of counsel and on the briefs; Daniel A. Malet, Newark, on the briefs).
William L. Gold argued the cause for respondent (Bendit Weinstock, PA, attorneys; William L. Gold, West Orange, on the brief).
Before Judges Messano, Hoffman, and Smith.
The opinion of the court was delivered by
HOFFMAN, J.A.D.
Plaintiff Cindy Johnson, in her capacity as administrator of her late husband's estate, brought a civil action against defendant Frank McClellan, under N.J.S.A. 2C:21-22a, for damages resulting from defendant's alleged unauthorized practice of law regarding his involvement in plaintiff's prior medical malpractice suit. Plaintiff also sought disgorgement of a referral fee she claimed defendant received improperly.
Plaintiff moved for summary judgment, which the motion court granted. On February 28, 2020, the motion court entered an Amended Order for Final Judgment, awarding plaintiff a total of $308,181.68, with $52,145.42 representing the "[r]eturn of [i]mproper [r]eferral [f]ee [s]um [o]rdered disgorged," and $256,036.26 representing treble damages and attorney's fees, under N.J.S.A. 2C:21-22a. This appeal followed. Because disgorgement is a remedy, not a cause of action, and because we find no evidence that plaintiff sustained an "ascertainable loss," a required element for a cause of action under N.J.S.A. 2C:21-22a, we reverse.
On December 28, 2008, plaintiff's husband went into cardiac arrest and died, while hospitalized in Hamilton. The autopsy report identified a "bilateral pulmonary thromboembolism" as one of the causes of his death. Seeking to bring a medical malpractice suit for her husband's death, plaintiff contacted defendant, on the recommendation of a friend, about possible legal representation. Because defendant, a law school professor and Pennsylvania attorney, was not licensed to practice law in New Jersey, he referred plaintiff to Thomas Ashley, a New Jersey-licensed attorney. Defendant recounted that he "had a discussion with [plaintiff] ... when [he] referred her to Tom Ashley ... that Tom would have a fee agreement with her, and it would be a contingent fee ...."
According to plaintiff, at "the end of May or beginning of June ... 2009[,]" she met with Ashley and defendant in Ashley's office; "a couple months later," she received a Legal Services Agreement "from the Law Offices of Tom Ashley," signed by Ashley. After reading the agreement, she "made notes," and then signed the agreement. Plaintiff stated she never had a separate written agreement with defendant; in addition, she confirmed that defendant advised her that he would be "monitoring" her case, as a "consultant."
While the suit remained pending, plaintiff fired Ashley. She then hired Theresa M. Blanco, a Pennsylvania attorney, to take over the case, also at the recommendation of defendant; however, Blanco's firm dissolved shortly thereafter. At that point, plaintiff retained Aaron J. Freiwald, a Pennsylvania attorney with the law firm Layser & Freiwald, P.C., again at the recommendation of defendant. While not licensed to practice law in New Jersey, Freiwald successfully applied for pro hac vice admission for the purpose of representing plaintiff in her pending medical malpractice suit.1
In an email sent on March 12, 2010, defendant informed plaintiff that he could not "do much on this case lest [he] be charged with practicing law in New Jersey without a license" because he had "not been admitted pro hac vice in this case." In June 2010, defendant informed plaintiff by email that he was "monitoring and advising" but would "move for ... admission to formally serve as co-counsel," if he thought it was necessary.
In a January 11, 2011 email to Blanco and Freiwald, defendant explained that since plaintiff "ha[d] been bounce[d] around quite a bit," defendant had "been the one source of continuity, acting as her advisor since [he had] not attempted to be admitted in the case." Defendant further stated that "[i]f it seems helpful or appropriate later[,] I am willing to file a motion for pro hac vice admission." Ultimately, defendant did not seek pro hac vice admission.
In late 2013 or early 2014, Freiwald secured a $500,000 settlement offer, which plaintiff accepted. Thereafter, although he did not have a written retainer agreement with plaintiff, Freiwald distributed to plaintiff net proceeds of $312,872.49, after deducting expenses and a one-third contingent fee of $156,436.25. Freiwald then paid defendant a "referral fee"2 of $52,145.42, representing one third of the amount Freiwald received, leaving Freiwald with a net fee of $104,290.83.
Plaintiff testified that she received a document identifying the distributions paid from the fee received by Freiwald, and that defendant "got a portion of the fee, ... I know that he was on that list." Referring to defendant, plaintiff stated,
Sometime after settling the medical malpractice case, plaintiff determined that certain culpable parties were not properly joined as defendants in the suit.3 She therefore filed a separate action, in Essex County, asserting legal malpractice against several of the attorneys involved in representing her in the medical malpractice case. In October 2017, plaintiff joined defendant and Freiwald in the suit.
At his deposition, defendant testified that in the underlying medical malpractice case, he agreed to help plaintiff find counsel and to "assist them to the extent that they requested [his] assistance." Accordingly, he "gave advice to [plaintiff] and to her attorneys." Defendant also described consulting with and directing plaintiff's attorneys as well as communicating with the experts and doctors involved in the medical malpractice suit; in addition, defendant reviewed plaintiff's complaint in the medical malpractice case and "may have done a draft" of an affidavit for the case. Finally, defendant acknowledged he received the referral fee from Freiwald.
On November 15, 2018, plaintiff moved for partial summary judgment against defendant, requesting the court to order the disgorgement of the allegedly improper referral fee defendant received from Freiwald.4 In a March 20, 2019 oral decision, the court denied the motion, explaining that disgorgement is a remedy reserved for contract claims, not actions based in negligence.
Two days later, plaintiff filed this action, a two-count complaint against defendant, in Middlesex County. Count one alleged the referral fee paid to defendant was "improper, unlawful, and void under New Jersey law because it resulted from a breach of loyalty by defendant ... to plaintiff and ... the funds rightly belong to plaintiff," and sought "judgment against [defendant] for the disgorgement of the referral fee ...." Count two alleged that defendant engaged in unauthorized practice of law, as prohibited by N.J.S.A. 2C:21-22a, and "demand[ed] judgment against ... [d]efendant for treble damages, which damages include the disengorgment [sic] of the improper referral fee, all costs incurred, attorney[s'] fees, and costs of suit, and such other relief as the [c]ourt deems equitable and just."
On April 26, 2019, in lieu of an answer, defendant filed a motion to dismiss for failure to state a claim, pursuant to Rule 4:6-2(e). In response to defendant's motion, plaintiff moved for summary judgement. Before the court ruled on these motions, plaintiff filed another motion, requesting leave to file an amended complaint, as she and Freiwald had since entered into an agreement whereby Freiwald assigned to plaintiff his interest, and "the right to recover," the referral fee he paid to defendant.5
In an order dated June 25, 2019, the court ruled on these motions: 1) granting plaintiff's motion to amend her complaint, 2) denying plaintiff's motion for summary judgement, and 3) denying defendant's motion to dismiss. In an accompanying opinion, the court held that the assignment agreement between Freiwald and plaintiff was not "a prohibited assignment of a pre-judgment tort claim" but rather valid as an "assignment of a right provided by contract ... and by Court Rule [ ]which provides limitations to contingency fee arrangements." However, the court found plaintiff's request for summary judgement deficient because holding defendant liable in tort for a violation of the Rules of Professional Conduct (RPCs) required plaintiff to show that the rule violation proximately caused plaintiff's injury, and "proximate causation is ordinarily left for the determination of a finder of fact."
After plaintiff filed her amended complaint, defendant filed an answer, along with a third-party complaint against Freiwald seeking contribution. In his answer, defendant admitted to the following allegations in plaintiff's complaint:
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... ... requires allegation of all the facts that the cause of action ... requires." Cornett v. Johnson &Johnson , 414 ... N.J.Super. 365, 385 (App. Div. 2010). In the absence of such ... allegations, the claim must be dismissed. Ibid ... "[D]isgorgement ... is an equitable remedy, not a cause of action." ... Johnson v. McClellan , 468 N.J.Super. 562, 577 (App ... Div. 2021). "Our Supreme Court has construed ... disgorgement as an appropriate remedy in cases ... ...