Rtc Mortg. Trust 1994 N-1 v. Fidelity Nat. Title

• Citation: 981 F.Supp. 334
• Decision Date: 20 October 1997
• Docket Number: No. CIV. A. 96-5874.,CIV. A. 96-5874.
• Court: U.S. District Court — District of New Jersey
• Parties: RTC MORTGAGE TRUST 1994 N-1, a limited liability Delaware business trust, Plaintiff, v. FIDELITY NATIONAL TITLE INSURANCE COMPANY, Nations Title Insurance Company, Eastern Developers Abstract, Inc., Caine, Dipasqua, Sloane & Raffaele f/k/a Caine, Dipasqua, Sloane, Raffaele & Nigro, Lawyers Title Insurance Corporation, and Rocco M. Nigro, Defendants.

981 F.Supp. 334

RTC MORTGAGE TRUST 1994 N-1, a limited liability Delaware business trust, Plaintiff, v. FIDELITY NATIONAL TITLE INSURANCE COMPANY, Nations Title Insurance Company, Eastern Developers Abstract, Inc., Caine, Dipasqua, Sloane & Raffaele f/k/a Caine, Dipasqua, Sloane, Raffaele & Nigro, Lawyers Title Insurance Corporation, and Rocco M. Nigro, Defendants.

No. CIV. A. 96-5874.

United States District Court, D. New Jersey.

October 20, 1997.

Jonathan L. Goldstein, John A. Adler, Hellring, Lindeman, Goldstein & Siegal, Newark, NJ, for Plaintiff, RTC Mortgage Trust 1994 N-1, a limited liability Delaware business trust.

Michael S. Miller, Tompkins, McGuire & Wachenfeld, Newark, NJ, for Defendant, Caine, DiPasqua, Sloane & Raffaele f/k/a Caine, DiPasqua, Sloane, Raffaele & Nigro.

Charles J. Vinicombe, Drinker, Biddle & Reath, Princeton, NJ, for Defendant, Lawyers Title Insurance Corporation.

Josiah A. Knapp, Tomar, Simonoff, Adourian, O'Brien, Kaplan, Jacoby & Graziano, Cherry Hill, NJ, for Defendants, Fidelity National Title Insurance Company and Nations Title Insurance Company.

Rocco M. Nigro, Media, PA, pro se.

OPINION

ORLOFSKY, District Judge.

This case requires the Court to address several novel and thorny questions of federal and state law arising from the enactment of a relatively recent New Jersey statute, N.J.S.A. 2A:53A-26 to 29, the so-called "Affidavit of Merit" statute, which became effective on June 29, 1995. This statute provides that in order to survive a motion to dismiss for failure to state a claim, a plaintiff who alleges negligence by a professional must submit an affidavit (an "affidavit of merit") from an appropriately qualified individual stating his or her opinion on the merits of the claim.

First among the knotty issues which the Court must decide is whether the Affidavit of Merit statute should be applied by a federal court sitting in diversity. This question compels the Court to apply the criteria enunciated in Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), and Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965). If the Affidavit of Merit statute does apply in this Court, the Court must then predict how the New Jersey Supreme Court would decide when asked whether an affidavit of merit must be filed where the defendant is an out-of-state law firm which is practicing law in New Jersey in violation of the New Jersey Supreme Court Rules and the Rules of Professional Conduct promulgated by the New Jersey Supreme Court.

Caine, DiPasqua, Sloane & Raffaele, formerly known as Caine, DiPasqua, Sloane, Raffaele & Nigro, has moved to dismiss the Complaint and all cross-claims asserted against it under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. For the reasons set forth below, I conclude that the Affidavit of Merit statute should be applied by a federal court sitting in diversity. In this case, however, where the defendant is an out-of-state law firm not qualified to practice law in New Jersey, I predict that the New Jersey Supreme Court would conclude that the statute does not require the filing of an affidavit of merit in an action for professional malpractice.

I. Facts and Procedural History

This litigation involves a bad land deal, an allegedly bungled title search, and an allegedly negligently prepared opinion letter issued by an out-of-state law firm. The alleged legal malpractice resulted in a delay of five years before Plaintiff was able to assume priority among the creditors of a failed land partnership. Ultimately, the alleged negligence resulted in Plaintiff's recoupment of about a third of its original loan amount.

Assuming the truth of the allegations contained in the Amended Complaint for the purposes of this motion, see, e.g., Gomez v. Toledo, 446 U.S. 635, 636, 100 S.Ct. 1920, 1921-22, 64 L.Ed.2d 572 (1980); Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir.1991); Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir.1990), the facts underlying this litigation are as follows: Plaintiff, RTC Mortgage Trust 1994 N-1 ("RTC"), is a limited liability Delaware business trust and the assignee of a mortgage on a 7-acre piece of property located in Mount Laurel, New Jersey. See Amended Complaint of Plaintiff, RTC, p. 1, ¶ 1 (dated June 10, 1997) (hereinafter Amended Compl.). The original lender/mortgagee was Home Federal Savings & Loan Association ("HomeFed"), which loaned Atrium II Limited Partnership ("Atrium II"), a Delaware limited partnership, $13.5 million. Id. at ¶¶ 1, 6.

The law firm representing Atrium II in the transaction was Defendant, Caine, DiPasqua, Sloane, Raffaele & Nigro, now known as Caine, DiPasqua, Sloane & Raffaele ("Caine, DiPasqua"). Id. at ¶ 10. Caine, DiPasqua is a Pennsylvania law firm apparently organized as a professional corporation with offices in Media and West Chester, Pennsylvania. Id. at ¶ 4; see also Certification of John A. Adler (dated July 29, 1997) (hereinafter Adler Certif.), Exhibit C, Letter from Caine, DiPasqua to HomeFed (dated Aug. 29, 1988) (hereinafter 8/29/88 Opinion Letter).

Leading up to the transaction, Title USA, a title company, prepared a title report on the property. Defendant, Eastern Developers Abstract, Inc. ("Eastern"), whose president or owner was Defendant, Rocco M. Nigro ("Nigro"), performed a title search on behalf of Title USA. Amended Compl. at ¶¶ 9, 11. The title report prepared by Title USA, with the information provided to it by Eastern, allegedly failed to reveal mortgages and/or security interests which would be (or asserted to be) superior to HomeFed's mortgage, or the report wrongly revealed mortgages and/or security interests as removed. Id. at ¶¶ 12, 13, 15, 21. The successor in interest of Title USA is either Defendant, Fidelity National Title Insurance Company ("Fidelity National"), or Defendant, Nations Title Insurance Company ("Nations Title"). See id. at ¶¶ 2, 7, 9, 12; but see id. at ¶ 8.

In preparation for the consummation of the loan transaction, on August 29, 1988, Caine, DiPasqua provided an opinion letter regarding numerous aspects of the property and the transaction. The letter was signed by Nigro, who, in addition to being either president or owner of Eastern, was also a partner at Caine, DiPasqua. The letter stated, among other things, that the "[m]ortgage, [s]ecurity [a]greement, and [f]inancing [s]tatements are effective to create a first lien security interest in the ... property." 8/29/88 Opinion Letter at p. 3; see also id. at p. 2 ("[m]ortgage and [s]ecurity [a]greement constitutes a first lien security interest"); Amended Compl. at ¶¶ 11, 13.

In addition to preparing the title report, Title USA also issued a title insurance policy which indicated that HomeFed's mortgage was a first mortgage lien. Id. at ¶ 14. Defendant, Lawyers Title Insurance Corporation, issued a title reinsurance policy. Id. at ¶ 26.

Late in 1990, HomeFed began foreclosure proceedings against Atrium II. These proceedings were stayed when Atrium II filed a petition in the United States Bankruptcy Court for the District of New Jersey. Fidelity Bank, N.A. ("Fidelity Bank"), an entity apparently unrelated to Fidelity National, filed an adversary complaint in the Bankruptcy Court claiming that it had liens on the property which were superior to HomeFed's. Eventually, after much litigation, the District Court reversed the Bankruptcy Court's determination that Fidelity Bank's liens had priority. The Third Circuit affirmed this decision. See id. at ¶¶ 17-19; see also In re Atrium II Ltd. Partnership, 60 F.3d 816 (3d Cir.1995) (mem.). This litigation then ensued.

On November 4, 1996, RTC filed a Complaint against Fidelity National, Nations Title, Eastern, Lawyers Title, and Caine, DiPasqua, in the Superior Court of New Jersey, Law Division, Burlington County, Docket No. BUR-L-03348-96. The Complaint alleges that: 1) Title USA, the predecessor in interest of, inter alia, Fidelity National, was negligent in preparing its title report, breached its contractual relationship with HomeFed, and was liable under the title insurance policy; 2) Lawyers Title was liable under the title reinsurance policy; 3) Eastern was negligent in performing its title search; 4) Caine, DiPasqua was negligent in preparing "its" opinion letter.¹ See Complaint of Plaintiff, RTC, ¶ 32 & passim (dated Nov. 4, 1996) (hereinafter Compl.); see also Amended Compl. at ¶¶ 38-39.

On December 17, 1996, Caine, DiPasqua filed in this Court a Notice of Removal pursuant to 28 U.S.C. § 1446(a) alleging, inter alia, that the Court had jurisdiction over this matter pursuant to 28 U.S.C. § 1332(a). On February 20, 1997, March 7, 1997, and March 14, 1997, respectively, Caine, DiPasqua, Lawyers Title, Fidelity National, and Nations Title answered the Complaint and asserted cross-claims of indemnification and contribution against one another, as well as against Eastern, which has not yet appeared in the action.² On March 13, 1997, Caine, DiPasqua answered all cross-claims which had been or would be asserted against it by co-Defendants. On March 14, 1997, Lawyers Title answered the cross-claim asserted by Caine, DiPasqua and on March 27, 1997, Lawyers Title answered the cross-claims asserted by Nations Title and Fidelity National.

On June 16, 1997, after learning that Nigro was no longer a partner of Caine, DiPasqua, RTC filed an Amended Complaint which added Nigro as a defendant. The claim against Nigro asserted that he was negligent in: 1) failing to seek discharges of the liens which were later claimed to be superior to HomeFed's mortgage; and 2) stating in "his" opinion letter that HomeFed's security interest would be a first lien. See Amended Compl. at ¶¶ 31-36.

On June 27, 1997, Lawyers Title answered the Amended Complaint, reasserting its cross-claims against Caine, DiPasqua, Eastern, Nations Title, and Fidelity National, and...