Legal Malpractice Law Review : Professional Responsibility Case Summaries & Commentary : Bennett J. Wasserman : LegalMalpractice.com : Lawyer Malpractice & Legal Ethics

First American Title Ins. Co v. Jordan W. Kapchan,  Superior Court of NJ App Div. Docket No. A-5953-08T2 (decided April 12, 2010)

NJ Underlying mortgage loan

Facts: Plaintiff title insurer from California,  had to pay out $150,000 to 5 intended payees of mortgage proceeds—all from outside NJ, who did not receive payment from mortgage closing related to NJ property. Title Insurer now sues its closing attorney for not following closing instructions. The closing attorney was located in New York. He was not admitted to practice in NJ, had no office in NJ and did not solicit business in NJ. There was no physical loan closing in NJ. The loan proceeds were deposited by the California mortgage lender into the closing attorney’s trust account in NY and was disbursed by the closing attorney from NY. The NY closing attorney sent the mortgage for recordation in Mercer County, NJ to the title agency, which was in NJ.
The trial court dismissed for lack of personal jurisdiction over the NY attorney.
The Appellate Division reversed and found that NJ had personal jurisdiction over the NY attorney.

ISSUE: How little must a NY closing attorney do to be subject to suit for legal malpractice in NJ?

RULING:

The NJ property “itself, provides a very tangible and central nexus between [the NY closing attorney] and the State of New Jersey.” 

The only other NJ contact was that the NY lawyer mailed the marked up title binder, the HUD-1 and the mortgage for recordation to the title agency in NJ. And that was all done from NY.

LESSON: The case shows how  truly “minimal” the out-of-state closing attorney’s contacts with the State of NJ needs to be and how very long NJ’s jurisdictional arm can be. Other issues to be decided: Choice of law. Will the NY lawyer’s conduct be measured by NY or NJ standards? Will the California title insurer be entitled to recover consequential damages such as its attorney’s fees and litigation expense under Saffer v. Willoughby or will the law of some other state apply?

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Commonwealth Land Title. & Citicorp Mortgage. v. Kurnos 340 N.J.Super. 25 (App. Div. 2001)

NJ Underlying mortgage refinance

Student Contributor: Maninder (Meena) Saini 

Facts: New Jersey property owners (the borrowers) wanted to refinance their home mortgage and retained attorney/defendant (Kurnos). The plaintiffs to this action are Citicorp Mortgage (the bank) and Title Insurance Company (the title company). The defendant was to refinance the property by discharging the existing liens on the property. The title company was to provide title insurance certifying that the bank’s mortgage was the first lien on the property. One of the existing liens on the home was held by Midlantic National Bank (Midlantic). Midlantic issued a letter to the defendant indicating that a written statement instructing Midlantic to close the account was required. However, no letter was sent and Midlantic’s mortgage became the first lien on the property. So, the bank’s mortgage was actually the second lien instead of the first. In June 1991, within nine months of the error, the title company knew of the defendant’s error. The borrowers then withdrew money on their available line of credit from Midlantic. In 1996, the borrowers defaulted on the loan, forcing a foreclosure. The bank paid Midlantic the outstanding balance in order to protect their interest and then filed a malpractice lawsuit against the defendant in 1998, alleging that he failed to secure the bank’s first lien position.

Issue: When did the six-year statute of limitation for the attorney’s malpractice start to run?

Ruling: The six-year statute of limitation commenced at the time the negligent conduct was discovered by plaintiffs even though monetary damages were not readily ascertainable at the moment of discovery. The appellate court held that the statute began running in June 1991 when the title company first became aware of the attorney’s error.

The cause of action accrues when the mortgagee knows or has reason to know that its lien has been impaired or endangered by the defendant’s negligence. At that time of negligent discovery, the mortgagee has suffered a legal injury.

Lesson: The lawyer committed malpractice by failing to secure the plaintiff’s first lien on the property. At the moment an individual discovers an error, a legal injury had occurred even though monetary damages are not present. According to N.J.S.A. 2A:14-1, after six years of discovery, the client is barred from collecting damages.

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LaBracio Family Partnership v. 1239 Roosevelt Avenue, Inc.,
340 N.J. Super. 155, 773 A.2d 1209 (App. Div. 2001)

Student Contributor:  Cheryl Neuman

N.J. Underlying real estate transaction

Facts:  Sevdalis was represented by his attorney, Kroop in selling his diner. Zervas, the buyer, was represented by his lawyer, Abazia. There were two mortgages involved in this transaction:
1.    Zervas was supposed to assume the first mortgage to a party named LaBracio, and
2.    Sevdalis was going to take the purchase money mortgage which would be secondary to the LaBracio mortgage.
At the closing, Abazia (buyer’s lawyer) took the deed and Sevdalis’s mortgage and said he was going to record them. He didn’t record them. Subsequently, Zervas physically assaulted Abazia, and took his files, the deed, and mortgage. Abazia told Kroop that the mortgage and deed were never recorded, but Abazia was then fired and Zervas hired a new lawyer, Burger.
Burger also did not record the deed or mortgage, and he gave the documents to his client, Zervas. During this time, Zervas granted mortgages on the property to unrelated mortgagees, thereby giving these new liens priority over the Sevdalis mortgage.  Sevdalis then brought a legal malpractice suit against  Kroop (seller's attorney)  Abazia (buyer's attorneys) and Burger (seller's second attorney).

Issue : Whether Burger was negligent and if so, how should responsibility be allocated between the three lawyers?

Ruling: Burger was negligent and is therefore responsible for 25%, Abazia is responsible for 25%, and Kroop is responsible for 50% of the award. The court used the substantial factor test in determining whether Burger would be held responsible. Since his actions were a substantial factor in causing the injuries, he was indeed responsible.

Lesson: N.J. recognizes the existence of duties owed not only to an attorney’s client but also to third parties, such as  opposing counsel:

 attorneys may owe a duty of care to non-clients, when the attorneys know or should know, that non-clients will rely on the attorneys’ representations and the non-clients are not too remote from the attorneys to be entitled to protection.

LaBracio, 340 N.J. Super. 155, 163. 

The court further said that:

a duty to a non-client third party depends on balancing the attorney’s duty to represent clients vigorously, Rule of Professional Conduct, Rule 1.3 (1993) with the duty not to provide misleading information on which third parties foreseeably will rely, Rule of Professional Conduct, Rule 4.1 (1993).
 

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