Nuveen Municipal Trust Ex Rel. Nuveen High Yield Municipal Bond Fund v. Withumsmith Brown P.C. , 752 F.3d 600 ( 2014 )


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  •                                          PRECEDENTIAL
    UNITED STATES COURT OF APPEALS
    FOR THE THIRD CIRCUIT
    _______________
    No. 10-4633
    _______________
    NUVEEN MUNICIPAL TRUST, on behalf of its series
    Nuveen High Yield Municipal Bond Fund, a Massachusetts
    Business Trust,
    Appellant
    v.
    WITHUMSMITH BROWN P.C., A New Jersey Professional
    Corporation; LINDABURY MCCORMICK ESTABROOK
    & COOPER P.C., a New Jersey Professional Corporation
    _______________
    On Appeal from the United States District Court
    For the District of New Jersey
    (D.C. Civil Action No. 3-08-cv-05994)
    District Judge: Honorable Garrett E. Brown, Jr.
    _______________
    Argued June 21, 2012
    _______________
    Certified Question of State Law
    Issued to the Supreme Court of New Jersey August 17, 2012
    Submitted January 18, 2013
    After Supreme Court of New Jersey Declines Certification
    _______________
    Before: AMBRO, VANASKIE
    and ALDISERT, Circuit Judges
    (Opinion filed: May 14, 2014)
    Alexander Bilus, Esquire
    Robert C. Heim, Esquire (Argued)
    Brielle M. Rey, Esquire
    Wayne Pollock, Esquire
    Dechert LLP
    2929 Arch Street
    18th Floor, Circa Centre
    Philadelphia, PA 19104
    G. Eric Brunstad, Jr., Esquire (Argued)
    Dechert LLP
    90 State House Square
    Hartford, CT 06103
    Matthew J. Delude, Esquire
    Primmer, Piper, Eggleston & Cramer
    900 Elm Street, 16th Floor
    Manchester, NH 03101
    Collin O. Udell, Esquire
    Jackson Lewis
    90 State House Square, 8th Floor
    Hartford, CT 06103
    2
    David P. Stich, Esquire
    Solomon Blum Heymann & Stich
    40 Wall Street, 35th Floor
    New York, NY 10005
    Counsel for Appellant
    Michael J. Canning, Esquire (Argued)
    Catherine J. Bick, Esquire
    Donald F. Campbell, Jr., Esquire (Argued)
    Jaclyn B. Kass, Esquire
    Giordano, Halleran & Cielsa
    125 Half Mile Road, Suite 300
    Red Bank, NJ 07701
    Counsel for Appellee
    Withumsmith Brown PC
    William A. Cambria, Esquire
    Louis A. Modugno, Esquire (Argued)
    James J. DiGiulio, Esquire
    William F. O’Connor, Jr., Esquire
    McElroy, Deutsch, Mulvaney & Carpenter, LLP
    1300 Mt. Kemble Avenue
    P.O. Box 2075
    Morristown, NJ 07962-2075
    Counsel for Appellee
    Lindabury McCormick Estabrook & Cooper
    3
    Christian D. Wright, Esquire
    Benjamin Z. Grossberg, Esquire
    Young Conaway Stargatt & Taylor, LLP
    1000 North King Street, 17th Floor
    Rodney Square
    Wilmington, DE 19801
    Amicus Counsel for
    Professor Geoffrey C. Hazard, Jr., Esquire
    _______________
    OPINION OF THE COURT
    _______________
    AMBRO, Circuit Judge
    New Jersey’s Affidavit of Merit Statute (the “AOM
    Statute” or simply “Statute”), N.J. Stat. Ann. § 2A:53A 26-
    29, requires certain claims against professionals to include an
    affidavit from an independent professional attesting to the
    claims’ merit. We decide whether the AOM Statute covers
    Nuveen Municipal Trust’s action seeking money damages for
    fraud, negligent misrepresentation, and malpractice, allegedly
    committed by two professional firms. Though typically we
    conceive such statutes as applying only to malpractice claims
    rooted in negligence resulting from harm to a known
    property, New Jersey courts go further, making our answer
    yes.
    I.    Background
    This case stems from a loan transaction between
    Appellant Nuveen Municipal Trust (“Nuveen”), on behalf of
    4
    its Nuveen High Yield Municipal Bond Fund, and Bayonne
    Medical Center (“Bayonne”). On October 11, 2006, Nuveen
    purchased a $10 million Bond Anticipation Note (“BAN”)
    from Bayonne. In connection with the transaction, Bayonne
    provided Nuveen with an audit report authored by Bayonne’s
    accounting firm, WithumSmith+Brown, P.C. (“Withum”),
    and an opinion letter authored by Bayonne’s counsel,
    Lindabury, McCormick, Estabrook & Cooper P.C.
    (“Lindabury”). Soon after the transaction, Bayonne filed a
    Chapter 11 bankruptcy petition. Nuveen contends that the
    audit report and opinion letter concealed aspects of
    Bayonne’s financial condition and, had it known about these
    financial issues, it would not have purchased the BAN.
    Nuveen filed this action against Withum and
    Lindabury (collectively, “Appellees”). It asserts negligent
    misrepresentation and fraud as to Withum and negligent
    misrepresentation and malpractice as to Lindabury; the
    remedy it seeks throughout is money damages. The District
    Court dismissed the action with prejudice based on Nuveen’s
    failure to file an affidavit of merit complying with the AOM
    Statute.
    After initially remanding the case to the District Court
    on a jurisdictional issue, we issued an opinion in August 2012
    – Nuveen Mun. Trust ex rel. Nuveen High Yield Mun. Bond
    Fund v. Withumsmith Brown, P.C., 
    692 F.3d 283
    (3d Cir.
    2012). In it we held, inter alia, that the District Court was
    correct in not affording Nuveen certain procedural protections
    with respect to the AOM Statute. Additionally, we stated that
    “[i]f the AOM Statute applies to the action, we believe that
    Nuveen’s noncompliance with it calls for the action’s
    dismissal.” 
    Id. at 288.
    We questioned, however, whether the
    action was subject to the Statute and thus reserved deciding
    whether the District Court was correct to dismiss the action
    with prejudice. Instead, we certified the following two
    5
    questions of law regarding the Statute to the New Jersey
    Supreme Court.
    o Whether the nature of the injury alleged in this
    case, i.e., the loss of money expended to
    purchase the BAN from Bayonne, falls within
    the AOM [Statute’s] coverage of “any action
    for damages for personal injuries, wrongful
    death or property damage.” Specifically, is
    Nuveen seeking recovery in this action for
    “property damage” as that term is used in N.J.
    Stat. Ann. § 2A:53A-27?
    o Whether an action alleging an intentional tort,
    such as common law fraud or aiding and
    abetting common law fraud, which relates to
    alleged professional malpractice or negligence
    but does not require proof of malpractice or
    negligence, is subject to N.J. Stat. Ann.
    § 2A:53A-27?
    Judge Aldisert dissented in part from our decision, contending
    that no certification was necessary, as the New Jersey
    Supreme Court has been adequately clear on the points in
    question. In his view, Nuveen’s action was subject to the
    AOM Statute and, consequently, had been correctly
    dismissed.
    In 2013, the New Jersey Supreme Court denied our
    petition for certification. Shortly thereafter, Appellees filed a
    supplemental brief addressing additional New Jersey state law
    and renewing their argument that an AOM was required in
    this case and that we should affirm the District Court’s
    dismissal of the complaint.
    6
    In this follow-up opinion we address what we did not
    in our August 2012 opinion – essentially, whether the AOM
    Statute applies to Nuveen’s action. In light of the New Jersey
    Supreme Court’s denial of our petition for certification, we
    decide the question based on our best understanding of how
    the New Jersey Supreme Court would rule. See Sheridan v.
    NGK Metals Corp., 
    609 F.3d 239
    , 253-54 (3d Cir. 2010) (A
    federal court sitting in diversity is “bound to follow state law
    as announced by the highest state court”; if the state’s highest
    court has not decided the question, we “must predict the
    position the court would take on [the] issue” and should look
    to decisions by intermediate appellate state courts) (internal
    quotation marks and citations omitted). We conclude that
    because Nuveen’s action (1) can be characterized as one
    seeking recovery for property damage and (2) requires proof
    of Appellees’ deviation from professional standards of care,
    the AOM Statute applies and the action was properly
    dismissed under New Jersey law.
    II.    Discussion
    The AOM Statute provides that an affidavit of merit is
    required in actions seeking “damages for personal injuries,
    wrongful death or property damage resulting from an alleged
    act of malpractice or negligence by a licensed person in his
    profession or occupation.” N.J. Stat. Ann. § 2A:53A-27. The
    “overall purpose of the statute is to require plaintiffs in
    malpractice cases to make a threshold showing that their
    claim is meritorious, in order that meritless lawsuits readily
    could be identified at an early stage of litigation.” Couri v.
    Gardner, 
    801 A.2d 1134
    , 1137 (N.J. 2002) (internal quotation
    marks and citation omitted). Couri, the seminal New Jersey
    case on the AOM Statute, sets out the following framework
    for analyzing whether the Statute applies to a particular claim:
    7
    (1) whether the action is for “damages for
    personal injuries, wrongful death or property
    damage” (nature of injury); (2) whether the
    action is for “malpractice or negligence” (cause
    of action); and (3) whether the “care, skill or
    knowledge      exercised or exhibited in the
    treatment, practice or work that is the subject of
    the complaint [] fell outside acceptable
    professional or occupational standards or
    treatment practices” (standard of care).
    
    Id. at 1137
    (alteration in original) (quoting N.J. Stat. Ann.
    § 2A:53A-27). The parties do not dispute that the complaint
    satisfies element (3). We only consider, therefore, whether
    Nuveen’s allegations satisfy elements (1) and (2).
    Nature of Injury
    Element (1) requires us to address whether the money
    damages sought by Nuveen in connection with its loan
    transaction with Bayonne qualify as a claim for “property
    damage” required by the Statute. Nuveen, relying on Couri,
    contends that it seeks only compensatory damages and related
    costs and, as such, is not asserting a claim for “property
    damage.” See 
    id. at 1138.
    The plaintiff there filed a
    complaint against his psychiatrist for breach of contract and
    breach of fiduciary duty resulting from the psychiatrist’s
    distribution of a preliminary report to the estranged wife of
    the plaintiff without his knowledge or consent. 
    Id. at 1136.
    The plaintiff initially requested “compensatory and punitive
    damages” but later narrowed his request to the $12,000 he
    had already paid the psychiatrist for the report and associated
    costs. 
    Id. at 1138.
    The latter moved to dismiss, arguing that
    the claim was for malpractice and that the plaintiff had not
    8
    filed the requisite affidavit of merit. The Court rejected this
    argument, holding that because the damages sought were not
    “damages for personal injuries, wrongful death or property
    damage,” plaintiff’s claim did not satisfy the first element of
    the Statute and no affidavit of merit was required. 
    Id. Unlike the
    plaintiff in Couri, Nuveen is not seeking to
    recoup money it has already paid to Appellees. In fact, it has
    never directly dealt with Appellees. Instead, it seeks
    unspecified money damages stemming from its loan
    transaction with non-party Bayonne.
    Contrary to Nuveen’s contentions, case law from
    lower New Jersey courts comports with Couri and supports
    the conclusion that the monetary recovery sought by Nuveen
    is of the type that triggers the AOM Statute. Cornblatt v.
    Barow, 
    696 A.2d 65
    (N.J. Super. Ct. App. Div. 1997), rev’d
    on other grounds by 
    708 A.2d 218
    (N.J. 1998), for example,
    squarely addressed the issue of whether a “claim that [a
    party’s] alleged malpractice resulted in money damages was
    contemplated by the Legislature as a claim for ‘property
    damage’ under the [AOM] statute.” 
    Id. at 68.
    There the
    Court held that
    [m]alpractice or negligence committed by
    architects, engineers, or attorneys may very well
    result in damage to real and personal property.
    Personal property embraces everything that
    may be tangible or intangible such as a chose in
    action. The right or claim to money
    damages . . . is a property right . . . beyond
    question. Accordingly, we conclude 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.
    9
    
    Id. (internal quotation
    marks and citation omitted).
    Similarly, in Nagim v. N.J. Transit, 
    848 A.2d 61
    (N.J.
    Super. Ct. Law. Div. 2003), the plaintiff sued for property
    damage against New Jersey Transit (“Transit”), which in turn
    filed a third-party complaint for contractual indemnification
    against an engineering services company (“Urbitran”) whose
    project design allegedly caused the underlying damage to the
    plaintiff’s property. The Court dismissed New Jersey
    Transit’s complaint against Urbitran for failure to file an
    affidavit of merit, noting that “jurisprudence under the [AOM
    Statute] has conclusively recognized that the ‘property
    damage’ language of the statute includes a claim for money
    damages,” and holding that Transit’s claim against Urbitran
    implicated “both intangible and tangible property rights.” 
    Id. at 70.
    It specifically distinguished the case from Couri on the
    ground that “[t]here, the plaintiff’s initial claim for
    compensatory and punitive damages was narrowed and
    limited solely to . . . compensatory damage . . . . That injury
    thus became a finite sum of money already paid by the
    plaintiff to the defendant and for which recompense was
    sought.” 
    Id. at 70-71.
    In Nagim, by contrast, Transit sought
    to assert a cause of action against a third-party, Urbitran, “not
    for any monies already paid by Transit to Urbitran for
    services provided . . . [but] for the actual defense and/or the
    yet unspecified defense costs associated with plaintiff’s
    claims against Transit.” 
    Id. at 71.
    This, the Court held, was a
    claim for property damage within the meaning of the AOM
    Statute. 
    Id. Like the
    relevant party in Nagim and unlike the
    plaintiff in Couri, Nuveen is not seeking to recover a sum
    certain already paid to Appellees, but rather asks for damages
    relating to its transaction with Bayonne. See SRC Constr.
    Corp. of Monroe v. Atlantic City Hous. Auth., No. 10-3461,
    
    2011 WL 1375680
    , at *3-4 (D.N.J. Apr. 12, 2011)
    (considering both Couri and Nagim and concluding that
    plaintiff’s claims were for “property damage” under the AOM
    10
    Statute, as they “[did] not seek to recoup a finite sum already
    paid to [defendants]” but rather sought unspecified monetary
    damages).
    If any doubt remains that negligence or malpractice
    actions for unspecified money damages meet the property
    damage requirement of the AOM Statute, the New Jersey
    Supreme Court has, post-Couri, stated generally that “[t]he
    [S]tatute applies to all actions for damages based on
    professional malpractice.” Paragon Contractors, Inc. v.
    Peachtree Condo. Ass’n, 
    997 A.2d 982
    , 985 (2010).
    Although Paragon’s ultimate holding turned on the time
    limits for filing an affidavit of merit and so did not directly or
    extensively address the applicability of the AOM Statute, the
    Court’s broad statement that the AOM Statute applies to all
    actions for damages based on professional malpractice has
    not been questioned by any other New Jersey court decision.
    Thus we conclude that Nuveen has brought an action for
    property damage under the AOM Statute.
    Cause of Action
    Nuveen asserts claims of fraud, aiding and abetting
    fraud, and negligent misrepresentation against Withum, along
    with claims of malpractice and negligent misrepresentation
    against Lindabury. Nuveen concedes that the AOM Statute
    applies to its negligence and malpractice claims against both
    Appellees. It argues, however, that its claims for common
    law fraud, and aiding and abetting common law fraud, against
    Withum are intentional tort claims to which the AOM Statute
    does not apply.
    The problem for Nuveen is that in New Jersey an
    action need not be styled as one for malpractice or negligence
    11
    for the AOM Statute to apply. Rather, in Couri1 the New
    Jersey Supreme Court explained that
    [i]t is not the label placed on the action that is
    pivotal but the nature of the legal inquiry.
    Accordingly, when presented with a tort or
    contract claim asserted against a professional
    specified in the statute, rather than focusing on
    whether the claim is denominated as tort or
    contract, attorneys and courts should determine
    if the claim’s underlying factual allegations
    require proof of a deviation from the
    professional standard of care applicable to that
    specific profession. If such proof is required,
    an affidavit of merit is required for that claim,
    unless some exception 
    applies. 801 A.2d at 1141
    . Applying this standard to the case before
    it, the Couri Court held that no AOM was required.
    Plaintiff is not claiming that defendant erred in
    respect of the conclusions that he drew
    concerning psychiatric/medical matters or that
    defendant      acted    improperly       from     a
    psychiatric/medical standpoint . . . . Instead, the
    crux of plaintiff’s complaint is that defendant
    acted improperly as an expert witness by
    1
    Though the New Jersey Supreme Court in Couri
    acknowledged it could conclude its opinion on the first
    element of the statute – the “nature of the injury” – alone, it
    continued to analyze the second element of the statute – the
    “cause of action” – in order to resolve conflicts and provide
    future guidance to lower 
    courts. 801 A.2d at 1138
    .
    12
    disseminating the report to others without the
    knowledge or consent of plaintiff. Although
    defendant’s unauthorized dissemination of the
    report also might implicate a deviation from
    prevailing professional standards of practice,
    proof of that deviation is not essential to the
    establishment of plaintiff’s right to recover
    based on breach of contract.
    
    Id. at 1142.
    To determine whether an affidavit of merit was
    required in our case, we examine the evidence needed to
    prove the fraud allegations in Nuveen’s complaint. Those
    claims against Withum are premised on the theory that it
    made material misrepresentations and omissions of past and
    present facts in its audit report. For example, Nuveen alleges
    that Withum in its audit report, inter alia, allowed Bayonne to
    count a conditional or unenforceable pledge as revenue, failed
    to ensure that Bayonne had adequately reserved for
    uncollectible accounts receivable, and failed to evaluate
    adequately Bayonne’s ability to continue as a going concern.
    These misrepresentations and omissions are alleged to be a
    direct consequence of Withum completing its audit
    examination and report of Bayonne in a manner that violated
    Generally Accepted Auditing Standards (“GAAS”) and
    Generally Accepted Auditing Principles (“GAAP”). The
    complaint does not allege that Withum made any material
    misrepresentations other than those resulting from the failure
    to comply with GAAS and GAAP.
    Though Nuveen’s allegations of fraud against Withum
    are styled as intentional torts, rather than negligence or
    malpractice claims, they nonetheless require proof that
    13
    Withum deviated from professional standards of care. And
    New Jersey Courts, following what they perceive to be the
    path set out by the State Supreme Court in Couri, stretch
    “malpractice or negligence” to include even those instances.
    See, e.g., Alpert, Goldberg, Butler, Norton & Weiss, P.C., v.
    Quinn, 
    983 A.2d 604
    , 621-22 (N.J. Super. Ct. App. Div.
    2009) (requiring affidavit of merit in breach-of-contract claim
    against attorney because pleadings alleged that “the quality of
    work product was not sufficient,” and that the attorney “failed
    to do a complete and competent job”; those allegations
    required “proof of a deviation from the professional standard
    of care applicable to attorneys”); Charles A. Manganaro
    Consulting Eng’rs., Inc. v. Carneys Point Twp. Sewerage
    Auth., 
    781 A.2d 1116
    , 1119 (N.J. Super. Ct. App. Div. 2001)
    (affidavit of merit required in breach-of-contract claim
    against engineer when “the essential factual allegations . . .
    [were] that [the engineer] failed to properly prepare the plans
    and specifications”; this is an “allegation[] of professional
    malpractice – that [he] failed to act with that degree of care,
    knowledge, and skill ordinarily possessed and exercised in
    similar situations by the average member of the profession
    practicing in the field” (internal quotation marks and citation
    omitted)).
    Though this is counterintuitive (one may argue
    illogical), it is the suit we must follow; while intentional torts
    are by definition not negligent, the focus is deviation from a
    professional standard devoid of any claim label. Hence the
    fraud claims against Withum require an affidavit of merit.
    14
    III.   Conclusion
    Based on our understanding of the New Jersey courts’
    view of the AOM Statute’s applicability, we conclude that the
    money damages sought by Nuveen are considered a claim for
    “property damage” and that the underlying factual allegations
    of Nuveen’s fraud claims against Withum require proof of a
    deviation from the professional standard of care.
    Accordingly, the District Court correctly held that the AOM
    Statute applies and that Nuveen’s noncompliance with the
    Statute warranted dismissal of its case.
    For these reasons, we affirm.
    15
    

Document Info

Docket Number: 10-4633

Citation Numbers: 752 F.3d 600, 2014 WL 1910579, 2014 U.S. App. LEXIS 8971

Judges: Ambro, Vanaskie, Aldisert

Filed Date: 5/14/2014

Precedential Status: Precedential

Modified Date: 10/19/2024