CINDY JOHNSON, ETC. VS. FRANK MCCLELLAN, ESQ. VS. AARON J. FREIWALD, ESQ. (L-2366-19, MIDDLESEX COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2683-19
CINDY JOHNSON, Administratrix
Ad Prosequendum and
Administratrix of the estate of
TONY JOHNSON,
Plaintiff-Respondent, APPROVED FOR PUBLICATION
July 19, 2021
v. APPELLATE DIVISION
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.
______________________________
Argued October 19, 2020 – Decided July 19, 2021
Before Judges Messano, Hoffman, and Smith.
On appeal from the Superior Court of New Jersey,
Law Division, Middlesex County, Docket No. L-2366-
19.
John L. Slimm argued the cause for appellant
(McElroy Deutsch Mulvaney & Carpenter, LLP, and
Marshall Dennehey Warner Coleman & Goggin,
attorneys; John L. Slimm, of counsel and on the
briefs; Daniel A. Malet, on the briefs).
William L. Gold argued the cause for respondent
(Bendit Weinstock, PA, attorneys; William L. Gold,
on the brief).
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
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sustained an "ascertainable loss," a required element for a cause of action
under N.J.S.A. 2C:21-22a, we reverse.
I.
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
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defendant advised her that he would be "monitoring" her case, as a
"consultant."
In November 2009, Ashley filed a medical malpractice action for
plaintiff in the Law Division in Middlesex County. Defendant agreed to
monitor the case and assist Ashley as necessary. Defendant further advised
plaintiff,
I am not admitted to practice in this case so I am just
monitoring and advising when requested. I am
teaching this fall at the University of Southern Illinois
so I cannot monitor as closely as I would like until I
return. I will be back at Temple in January.
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
1
Freiwald obtained pro hac vice admission through the sponsorship of Joseph
Marano, Esq., an associate in his office licensed to practice law in New Jersey.
At the time, two other members of Freiwald's firm were also admitted in New
Jersey.
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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,
2
Asked to explained "the fee split," Freiwald explained "it was for referring
the case to me, but also recognizing . . . that [defendant] had some involvement
in the case and that he would continue to interact with the client as needed."
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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, "I know that he did work on my case. He did . . . work to
move it along. . . . I did not dispute the payment to him."
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
3
See Johnson v. Handler, No. A-3862-13 (App. Div. Apr. 15, 2016) (slip op.
at 15) (affirming the dismissal of plaintiff's claims against Robert Wood
Johnson University Hospital, after finding that an "AOM must be submitted
addressing an institution's agents who are not sued but whose alleged
negligence forms the basis of the action against the institution .").
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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,
4
Since Freiwald was not a certified civil trial attorney, he was not permitted
to pay a referral fee "without regard to services performed or responsibility
assumed by the referring attorney." R. 1:39-6(d).
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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
5
At oral argument, we were advised that the Essex County legal malpractice
action "resolved."
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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:
1. [Defendant] is an attorney at law in the State of
Pennsylvania.
2. Defendant was not licensed to practice law in New
Jersey during the pendency of the "Medical
Malpractice Matter."
3. Defendant was not admitted pro hac vice in New
Jersey in the "Medical Malpractice Matter."
4. Defendant rendered advice to the plaintiff in the
"Medical Malpractice Matter."
Additionally, defendant stated in his answer that he "admits that he assisted
attorneys admitted to the Bar of the State of New Jersey in their representation
of [p]laintiff in [the medical malpractice suit]."
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On July 3, 2019, plaintiff again moved for summary judgment, based
partly upon admissions contained in defendant's answer. Defendant filed a
cross-motion for sanctions against plaintiff, asserting that plaintiff's motion "is
patently frivolous" because the "the same argument . . . was already denied."
On August 5, 2019, Freiwald moved to dismiss defendant's third-party
complaint for failure to state a claim.
In an order dated January 3, 2020, a different motion judge 1) granted
plaintiff's motion for summary judgment, 2) denied defendant's cross-motion,
and 3) granted Freiwald's motion to dismiss defendant's third-party claims. In
his accompanying written opinion, the motion judge explained that plaintiff
was entitled to summary judgment because defendant admitted the necessary
material facts to establish a violation of N.J.S.A. 2C:21-22, engaging in the
unauthorized practice of law. Specifically, the judge found that defendant
admitted in his answer to plaintiff's complaint that he "was not licensed to
practice law in New Jersey during the pendency of the medical malpractice
matter[,] . . . rendered advice to the [p]laintiff in the medical malpractice
matter, and . . . received a fee in the underlying medical malpractice matter."
Additionally, the judge cited defendant's 2018 deposition testimony as
containing admissions to the unauthorized practice of law:
[Defendant] stated that he drafted documents for
plaintiffs signature for filing with the court in related
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litigation, communicated with retaining experts,
worked with and gave directions to other lawyers who
were admitted in New Jersey, and gave opinions as to
the law and trial practice of New Jersey to [p]laintiff
and other attorneys all of which activities constituted
the unauthorized practice of law since he was not
licensed in New Jersey.
The judge further noted that the record showed defendant was familiar with the
pro hac vice rules, knew he needed to be admitted pro hac vice, and "was
actually contemplating pro hac vice admission and becoming trial counsel
from the outset of his initial referral," yet failed to abide by these rules.
According to the motion judge, these undisputed facts gave rise to two
distinct, "independently actionable bases" in which defendant committed the
unauthorized practice of law as prohibited by N.J.S.A. 2C:21-22, and
defendant was liable for "either and/or both of those bases." The judge
described these bases as:
(1) Freiwald's improper payment of, and [defendant]'s
improper acceptance of, the $52,145.41 "referral fee";
and (2) payment and acceptance of that fee, in part, as
compensation to [defendant], an unlicensed New
Jersey attorney nor one admitted pro hac vice in the
underlying action, for services and the "advisory" role
he served for [p]laintiff in connection with Freiwald’s
litigation and ultimate settlement of that action.
Based on these acts, the judge found that defendant "derived a benefit . . . that
'in fact' caused [plaintiff] to suffer a resultant 'ascertainable loss' in the amount
of the improperly paid fee." The judge also concluded that while the referral
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fee was "actionable as the unauthorized practice of law under N.J.S.A. 2C:21 -
22a," it was also "separately actionable" as an "improperly paid and accepted
'referral fee' . . . ."
Based on these findings and conclusions, the motion judge ordered
defendant to disgorge the referral fee he received and separately ordered him
to pay treble damages, along with reasonable attorneys' fees and costs,
pursuant to N.J.S.A. 2C:21-22a(b)(2). In a February 28, 2020 order, the judge
specified that defendant owed $52,145.42 as the "Return of Improper Referral
Free Sum Ordered disgorged" and owed an additional $256,036.26 as treble
damages under N.J.S.A. 2C:21-22a(b)(2). The judge calculated the treble
damages by multiplying the disgorgement amount by three, multiplying
plaintiff's attorney's fees ($33,200) by three, and adding those products
together. In total, the judge ordered defendant to pay $308,181.68, plus
interest and costs.
This appeal followed, with defendant raising the following arguments:
POINT I
MR. McCLELLAN DID NOT PARTICIPATE IN
THE UNAUTHORIZED PRACTICE OF LAW[;]
POINT II
MR. McCLELLAN DID NOT VIOLATE ANY
RULES OF PROFESSIONAL CONDUCT[;]
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POINT III
THE TRIAL COURT IMPROPERLY GRANTED
PLAINTIFF'S THIRD-MOTION FOR SUMMARY
JUDGMENT AFTER THE NEARLY IDENTICAL
MOTION HAD BEEN DENIED TWICE
PREVIOUSLY[;]
POINT IV
THE TRIAL COURT IMPROPERLY CALCULATED
ITS AWARD OF TREBLE DAMAGES[.]
II.
Review of a ruling on summary judgment is de novo, and we apply the
same legal standard as the trial court. Nicholas v. Mynster, 213 N.J. 463, 477-
78 (2013). Likewise, we review "the legal conclusions undergirding the
summary judgment motion itself on a plenary de novo basis." Est. of Hanges
v. Metro. Prop. & Cas. Ins. Co., 202 N.J. 369, 385 (2010). We afford no
deference to the trial court's construction of "the meaning of a statute or the
common law . . . ." Nicholas, 213 N.J. at 478.
Summary judgment is appropriate where "the pleadings, depositions,
answers to interrogatories and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact challenged
and that the moving party is entitled to a judgment or order as a matter of law."
R. 4:46-2(c). To determine whether there is a genuine issue of material fact,
we must consider "whether the competent evidential materials presented, when
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viewed in the light most favorable to the non-moving party, are sufficient to
permit a rational factfinder to resolve the alleged disputed issue in favor of the
non-moving party." Brill v. Guardian Life Ins. Co of Am., 142 N.J. 520, 540
(1995). "In applying that standard, a court properly grants summary judgment
'when the evidence is so one-sided that one party must prevail as a matter of
law.'" Davis v. Brickman Landscaping, 219 N.J. 395, 406 (2014) (quoting
Brill, 142 N.J. at 540).
A. Disgorgement
As the motion court in Essex County correctly noted in the legal
malpractice case, disgorgement is an equitable remedy, not a cause of action.
See Kaye v. Rosefielde, 223 N.J. 218, 231 (2015) (noting "[t]he principle that
a court may order disgorgement of an employee's compensation for his or her
breach of the duty of loyalty."); Cuidado Casero Home Health of El Paso, Inc.
v. Ayuda Home Health Care Servs., LLC, 404 S.W.3d 737, 744 (Tex. App.
2013) (explaining that "disgorgement is not a cause of action, but an equitable
remedy applied to breaches of fiduciary duty.").
The Third Circuit has explained that "[d]isgorgement is an equitable
remedy designed to deprive a wrongdoer of his unjust enrichment and to deter
others from violating securities laws." SEC v. Hughes Cap. Corp., 124 F.3d
449, 455 (3d Cir. 1997) (quoting SEC v. First City Fin. Corp., 890 F.2d 1215,
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1230 (D.C. Cir. 1989)). Our Supreme Court has construed disgorgement as an
appropriate remedy in cases involving claims of unjust enrichment. See Cnty.
of Essex v. First Union Nat'l Bank, 186 N.J. 46, 58 (2006) ("Disgorgement in
favor of the public entity serves as a harsh remedy against those who bribe a
public official to secure a public contract and provides a deterrent to such
unlawful activity.").
The Restatement indicates disgorgement is a form of restitution, stating
"[r]estitution measured by the defendant's wrongful gain is frequently called
'disgorgement.'" Restatement (Third) of Restitution and Unjust Enrichment §
51 cmt. a (Am. L. Inst. 2011). As characterized by the Restatement, it is a
remedy imposed against "conscious wrongdo[ers] . . . ." Ibid. Importantly, the
Restatement provides "[r]estitution . . . will sometimes yield a recovery where
the claimant could not prove damages, but it does not create a cause of action
where the claimant would otherwise have none." Restatement (Third) of
Restitution and Unjust Enrichment § 44 cmt. a (Am. L. Inst. 2011) (emphasis
added).
Federal law, however, recognizes a distinction between restitution and
disgorgement. The Third Circuit has explained:
In contrast [to disgorgement], a claim for restitution
seeks to compensate a plaintiff for a loss, so a
financial loss is required to bring such a claim. As the
Court of Appeals for the Fifth Circuit has explained,
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"disgorgement is not precisely restitution.
Disgorgement wrests ill-gotten gains from the hands
of a wrongdoer. It is an equitable remedy meant to
prevent the wrongdoer from enriching himself by his
wrongs. Disgorgement does not aim to compensate
the victims of the wrongful acts, as restitution does."
[Edmonson v. Lincoln Nat'l Life Ins. Co., 725 F.3d
406, 415 n.3 (3d Cir. 2013) (quoting SEC v. Huffman,
996 F.2d 800, 802 (5th Cir. 1993)).]
"Disgorgement is an equitable claim 'grounded in the theory that a
wrongdoer should not profit from its wrongdoing regardless of whether the
innocent party suffered any damages.'" City Council of Orange Twp. v.
Edwards, 455 N.J. Super. 261, 279 (App. Div. 2018) quoting Cnty. of Essex,
186 N.J. at 61. "It is a harsh remedy and one to be used sparingly." Ibid.Plaintiff succeeded in convincing the motion court that the assignment
she received from Freiwald provided a basis for the court to grant the equitable
remedy of disgorgement. We disagree. If Freiwald had asserted a claim
against defendant to secure a refund of the referral he paid to defendant on the
basis that it was an illegal referral, such a claim would have failed since
Freiwald and defendant were in pari delicto.6 The doctrine of in pari delicto
6
The expression in pari delicto is a portion of the longer Latin sentence, in
pari delicto potior est conditio defendentis, which means that where the wrong
of both parties is equal, the position of the defendant is the stronger. See
Stella v. Dean Witter Reynolds, Inc., 241 N.J. Super. 55, 73-74 (App. Div.
1990).
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dictates that "neither party to an illegal contract will be aided by the court,
whether to enforce it or set it aside." U.S. v. Farrell, 606 F.2d 1341, 1348-49
(D.C. Cir. 1979) (quoting St. Louis R.R. v. Terre Haute R.R., 145 U.S. 393,
407 (1892)). "Simply stated, 'a court should not grant relief to one who is a
wrongdoer with respect to the subject matter in suit.'" Clark v. Clark, 429 N.J.
Super. 61, 77 (App. Div. 2012) (quoting Faustin v. Lewis, 85 N.J. 507, 511
(1981)). See also Ryan v. Motor Credit Co., 132 N.J. Eq. 398, 403 (E. & A.
1942) (holding a borrower who knowingly conspired with a lender to violate
the small loan law in pari delicto with the lender and therefore not entitled to
be relieved from the consequences of his default on his loan).
The assignment that plaintiff received from Freiwald does not alter the
outcome in this case. "It is fundamental that the rights of an assignee can rise
no higher than the rights of the assignor." Selective Ins. Co. of Am. v. Hudson
E. Pain Mgmt. Osteopathic Med., 210 N.J. 597, 607 (2012) (first citing Mayo
v. City Nat'l Bank & Trust Co., 56 N.J. 111, 117 (1970); and then Gen.
Accident Ins. Co. v. N.Y. Marine & Gen. Ins. Co., 320 N.J. Super. 546, 554
(App. Div.1999)). Simply put, the assignment did not permit plaintiff to
pursue indirectly a claim that Freiwald could not pursue directly. 7 Plaintiff's
7
Our Supreme Court has "observed that the RPCs 'establish the state's public
policies with respect to attorney conduct'" such that "[c]ontracts that violate
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various arguments relating to the viability of the assignment lack sufficient
merit to warrant further discussion. R. 2:11-3(e)(1)(E).
B. Unauthorized Practice of Law
N.J.S.A. 2C:21-22 establishes criminal penalties for the unauthorized
practice of law. The statute in full provides:
a. A person is guilty of a crime of the fourth
degree if the person knowingly engages in the
unauthorized practice of law.
b. A person is guilty of a crime of the third degree
if the person knowingly engages in the
unauthorized practice of law and:
1) Creates or reinforces, by any means, a
false impression that the person is
licensed to engage in the practice of law.
As used in this paragraph, "by any means"
includes but is not limited to using or
advertising the title of lawyer or attorney-
at-law, or equivalent terms, in the English
language or any other language, which
mean or imply that the person is licensed
as an attorney-at-law in the State of New
the [RPCs] violate public policy, and courts must deem them unenforceable."
Borteck v. Riker, Danzig, Scherer, Hyland & Perretti, LLP, 179 N.J. 246, 251
(2004) (quoting Jacob v. Norris, McLaughlin & Marcus, 128 N.J. 10, 17
(1992)). Throughout the current litigation, plaintiff has maintained that
defendant's referral of plaintiff's case to Freiwald with the expectation of
receiving a referral fee and Freiwald's payment of that referral fee constituted
RPC violations. Since neither Freiwald nor defendant were certified civil trial
attorneys, the referral payment did constitute an RPC violation, thereby
rendering unenforceable, and thus unassignable, whatever claim Freiwald may
have had against defendant.
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Jersey or in any other jurisdiction of the
United States; or
2) Derives a benefit; or
3) In fact causes injury to another.
c. For the purposes of this section, the phrase "in
fact" indicates strict liability.
[N.J.S.A. 2C:21-22.]
N.J.S.A. 2C:21-22a, "Civil actions resulting from the unauthorized
practice of law," establishes a private cause of action for persons injured by a
wrongdoer's unauthorized practice of law. This statute in full provides:
a. Any person who suffers any ascertainable loss
of moneys or property, real or personal, as a
result of any action or inaction by a person who
knowingly engaged in the unauthorized practice
of law in violation of [N.J.S.A. 2C-21-22] may
bring a civil action in any court of competent
jurisdiction.
b. In any civil action under this section the court
shall, in addition to any other appropriate legal
or equitable relief, award damages in an amount
that constitutes the greater of:
1) $1,000, or
2) Three times the value of all costs incurred
by the victim as a result of the defendant's
criminal activity, including any fees paid
to the defendant for services, costs
incurred for attorneys' fees, court costs
and any out-of-pocket losses.
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c. The standard of proof in civil actions brought
under this section is a preponderance of the
evidence, and the fact that a prosecution for a
violation of [N.J.S.A. 2C:21-22] is not instituted
or, where instituted, terminates without a
conviction shall not preclude a civil action
pursuant to this section. A final judgment
rendered in favor of the State in any criminal
proceeding shall estop the defendant from
denying the same conduct in any civil action
brought pursuant to this section.
d. A civil action under this section shall not
preclude the application of any other civil,
administrative, or criminal remedy under any
other provision of law.
[N.J.S.A. 2C:21-22a.]
Neither N.J.S.A. 2C:21-22 nor N.J.S.A. 2C:21-22a defines the
"unauthorized practice of law." In State v. Rogers, against a void for
vagueness challenge, we upheld N.J.S.A. 2C:21-22, but noted that "[w]hat
constitutes the practice of law is often required to be decided on a case by case
basis because of the broad scope of the fields of law." 308 N.J. Super. 59, 66
(App. Div. 1998). See also In re Op. No. 24 of Comm. on Unauthorized Prac.
of Law, 128 N.J. 114, 122 (1992) ("Essentially, the Court decides what
constitutes the practice of law on a case-by-case basis."). We explained, "the
practice of law is not 'limited to the conduct of cases in court but is engaged in
whenever and wherever legal knowledge, training, skill and ability are
required.'" Rogers, 308 N.J. Super. at 66 (quoting Stack v. P.G. Garage, Inc.,
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7 N.J. 118, 121 (1951)). Canvasing prior caselaw, we noted the following
services constituted the practice of law when performed for another: preparing
and filing certain tax returns, offering legal advice and active participation in
the drafting of a will, drawing legal instruments, completing legal forms, and
preparing and filing quasi-judicial appeals. Id. at 67-69.
The practice of law is unauthorized when conducted by persons not
licensed to practice in New Jersey or not specially admitted under our court
rules. In re Jackman, 165 N.J. 580, 585-86 (2000). Examples of special
admissions include:
[P]ro hac vice admissions granted pursuant to R[ule]
1:21-2 to a member of the bar of another state, foreign
legal consultants certified pursuant to R[ule] 1:21-9,
third year law students and law school graduates
participating in approved programs in within the limits
of R[ule] 1:21-3, and certain non-attorneys appearing
before the Office of Administrative Law or an
administrative agency, R[ule] 1:21-1(f). In situations
involving sister state or foreign licensure,
authorization to practice is subjected to prior court
review and approval. In the other circumstances
noted, the legal activity is conducted under the
supervision of a member of the bar in good standing
pursuant to a program approved by the Court, or the
case of the administrative law appearance it is
conducted pursuant to rules established by the Office
of Administrative Law.
[Ibid.]
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The unauthorized practice of law may be committed by both laypersons
and out-of-state attorneys. See In re Est. of Margow, 77 N.J. 316, 325 (1978)
(finding a former legal secretary engaged in the unauthorized practice of law
by providing legal counseling related to a will and drafting the will); Rogers,
308 N.J. Super at 68 (finding a non-attorney mortgage consultant engaged in
the unauthorized practice of law by advising a client of the deadline for filing
an answer to a foreclosure complaint and drafting and filing the answer for the
client); Jackman, 165 N.J. 580 (finding a Massachusetts attorney's
transactional legal practice in New Jersey was unauthorized); Est. of Vafiades
v. Sheppard Bus Serv., Inc., 192 N.J. Super. 301 (Law. Div. 1983) (finding
Florida attorneys who were denied pro hac vice admission in New Jersey
engaged in unauthorized practice by negotiating to reach a settlement
agreement on behalf of a purported client).
The motion judge determined the pleadings and evidence indisputably
showed defendant engaged in the unauthorized practice of law, in violation of
N.J.S.A. 2C:21-22, by providing legal services and legal advice in New Jersey
while not licensed in the state or admitted pro hac vice. We disagree. In
reaching his conclusion, the judge did not address RPC 5.5 of the New Jersey
Rules of Professional Conduct. RPC 5.5 explicitly states,
(b) A lawyer not admitted to the Bar of this State who
is admitted to practice law before the highest court of
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22
any other state, territory of the United States, Puerto
Rico, or the District of Columbia (hereinafter a United
States jurisdiction) may engage in the lawful practice
of law in New Jersey only if:
....
(3) Under any of the following circumstances:
....
(iv) the out-of-state lawyer's
practice in this jurisdiction is
occasional and the lawyer associates
in the matter with, and designates
and discloses to all parties in
interest, a lawyer admitted to the
Bar of this State who shall be held
responsible for the conduct of the
out-of-State lawyer in the matter
....
Plaintiff urges this court to ignore the above-quoted version of RPC 5.5
because it did not take effect until September 1, 2010, approximately fifteen
months after plaintiff first contacted defendant. Since the underlying medical
malpractice action dates back to 2009-2014, the amended version of RPC 5.5
was in effect during the clear majority of the case. In deciding whether or not
to apply the amended version of RPC 5.5 retroactively, we begin by noting that
we found no clear expression of intent by the Court that RPC 5.5 should only
receive prospective application.
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23
Under the facts and circumstances presented, we discern no basis for not
applying the amended version of RPC 5.5 in assessing plaintiff's claims that
defendant engaged in the unauthorized practice of law. Importantly, the record
clearly shows that plaintiff was aware, at all relevant times, that defendant was
not admitted to practice law in New Jersey. Defendant never acted as counsel
of record for plaintiff in the medical malpractice suit. He did not file any
papers with the court, nor did he appear on behalf of the plaintiff in court, at
any deposition, or any other proceeding. Since the inception of the underlying
litigation, plaintiff was represented by members of the New Jersey bar (Ashley
and Blanco) or counsel admitted pro hac vice (Freiwald). Defendant's
involvement in the underlying lawsuit was limited to providing
recommendations to plaintiff to assist her in retaining a properly licensed or
admitted attorney to represent her in her case and then assisting her attorneys
of record, conduct which is permitted by RPC 5.5(b)(3)(iv).
We also disagree with the motion judge's determination that defendant's
receipt of the referral fee amounted to an independent instance of unauthorized
practice because such a fee violated RPCs 5.4(a), 7.2(c), and 7.3(d).
Significantly, RPC 5.4(a) states that "a lawyer or law firm shall not share legal
fees with a nonlawyer," and RPCs 7.2(c) and 7.3(d) generally prohibit lawyers
from paying referral fees.
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24
The motion judge held, in essence, that by receiving money from
Freiwald, defendant violated RPC 5.4; however, RPC 5.4(a) states, "[a] lawyer
or law firm shall not share legal fees with a nonlawyer." Id. The plain
language of the rule imposes a prohibition on an attorney attempting to "share
legal fees" with non-lawyers, but does not mention recipient of those fees.
Thus, the bar contained in RPC 5.4 was a bar on the conduct of Freiwald in the
underlying matter, not defendant. Since defendant did not share the fee
received from the settlement, but merely received same, he did not violate
RPC 5.4.
Regarding the motion judge's finding that defendant violated RPC 7.2(c)
and RPC 7.3(d), those rules plainly apply to the attorney who actually transfers
the funds, not the recipient. RPC 7.2(c) states, "A lawyer shall not giv e
anything of value to a person for recommending the lawyer's services . . . ."
RPC 7.3(d) states, "A lawyer shall not compensate or give anything of value to
a person or organization to recommend or secure the lawyer's employment by a
client . . . ." The plain language of both RPC 7.2(c) and 7.3(d) imposes the
prohibition upon the attorney providing funds to another. The rules do not
impose a corresponding prohibition against recipients of such funds. Based
upon our review of the record, defendant did not violate any RPC with respect
to the settlement funds in the underlying litigation.
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25
Moreover, we are not convinced a violation of the RPCs amounts to the
unauthorized practice of law under N.J.S.A. 2C:21-22. Such a finding would
render every attorney who violates an RPC relating to the unauthorized
practice of law open to criminal prosecution. Illuminated by the caselaw
decided under N.J.S.A. 2C:21-22 and its predecessor, N.J.S.A. 2A:170-78, it
appears N.J.S.A. 2C:21-22 applies to unauthorized persons practicing law, not
legitimate attorneys practicing law in an unauthorized manner. Because the
latter involves conduct falling short of the standards of the legal practice, it
cannot be considered the unauthorized practice of law. 8 See Infante v.
Gottesman, 233 N.J. Super. 310, 315 (App. Div. 1989) (classifying an attorney
entering into an improper fee sharing agreement as a violation of the RPCs
while describing a non-attorney's practice of law as a criminal offense).
Regardless, a finding that defendant engaged in the unauthorized
practice of law in violation of N.J.S.A. 2C:21-22 does not automatically entitle
8
We note that attorneys who violate the RPCs are subject to discipline by our
Supreme Court. N.J. Const. art. IV, § 2, ¶ 3; State v. Bander, 56 N.J. 196, 200
(1970). Additionally, a violation of the RPCs may be relevant to establishing
unauthorized legal practice under N.J.S.A. 2C:21-22 or a civil claim under
N.J.S.A. 2C:21-22a. See Baxt v. Liloia, 155 N.J. 190, 198-200 (1998)
(recognizing that while violations of the RPCs do "not per se give rise to a
cause of action in tort[,]" they may be relevant in civil actions against
attorneys, particularly to defining the standard of care owed in a legal
malpractice suit) (quoting Sommers v. McKinney, 287 N.J. Super. 1, 13 (App.
Div. 1996)).
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26
plaintiff to damages under N.J.S.A. 2C:21-22a. Rather, to prevail in a civil
action under N.J.S.A. 2C:21-22a, plaintiff must show she suffered an
"ascertainable loss of moneys or property, real or personal, as a result of any
action or inaction by a person who knowingly engaged in the unauthorized
practice of law." N.J.S.A. 2C:21-22a(a) (emphasis added). N.J.S.A. 2C:21-
22a further provides damages under this section shall be "[t]hree times the
value of all costs incurred by the victim as a result of the defendant’s criminal
activity, including any fees paid to the defendant for services, costs incurred
for attorneys' fees, court costs and any out-of-pocket losses[,]" if greater than
$1,000. N.J.S.A. 2C:21-22(b) (emphasis added).
Guided by principles of statutory interpretation, we find the plain
language of the N.J.S.A. 2C:21-22a(a) requires that plaintiff prove defendant's
unauthorized practice of law proximately caused plaintiff to suffer an
ascertainable loss. See Parsons ex rel. Parsons v. Mullica Twp. Bd. of Ed.,
226 N.J. 297, 307-08 (2016) (discussing statutory interpretation). While
N.J.S.A. 2C:21-22 delineates strict criminal liability for persons who
knowingly engage in the unauthorized practice of law under certain
circumstances, N.J.S.A. 2C:21-22a clearly requires the additional proofs of
causation and ascertainable loss for the imposition of civil liability.
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27
The language of N.J.S.A. 2C:21-22a is somewhat analogous to that of
N.J.S.A. 56:8-19, which provides for a private cause of action under the
Consumer Fraud Act (CFA). See Bosland v. Warnock Dodge, Inc., 197 N.J.
543, 554 (2009). N.J.S.A. 56:8-19 provides:
Any person who suffers any ascertainable loss of
moneys or property, real or personal, as a result of the
use or employment by another person of any method,
act, or practice declared unlawful under [the CFA]
may bring an action or assert a counterclaim therefor
in any court of competent jurisdiction. In any action
under this section the court shall, in addition to any
other appropriate legal or equitable relief, award
threefold the damages sustained by any person in
interest.
Our courts have extensively interpreted N.J.S.A. 56:8-19 and found its
language creates a "causation provision," Cox v. Sears Roebuck & Co., 138
N.J. 2, 23 (1994), which requires "a causal relationship be established between
any ascertainable loss and the unlawful practice condemned." Ramanadham v.
N.J. Mfrs. Ins. Co., 188 N.J. Super. 30, 33 (App. Div. 1982). Based on this
language, in order to bring a prima facie case for damages under the CFA, a
plaintiff must establish three elements: "1) unlawful conduct by defendant; 2)
an ascertainable loss by plaintiff; and 3) a causal relationship between the
unlawful conduct and the ascertainable loss." Bosland, 197 N.J. at 557. Our
courts "have generally found causation to be established for CFA purposes
when a plaintiff has demonstrated a direct correlation between the unlawful
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28
practice and the loss; they have rejected proofs of causation that were
speculative or attenuated." Heyert v. Taddese, 431 N.J. Super. 388, 421 (App.
Div. 2013).
The Court has also defined "ascertainable loss" in the context of the
CFA. See Thiedemann v. Mercedes-Benz USA, LLC, 183 N.J. 234, 248
(2005). "An ascertainable loss under the CFA is one that is 'quantifiable or
measurable,' not 'hypothetical or illusory.'" D'Agostino v. Maldonado, 216
N.J. 168, 185 (2013) (quoting Thiedemann, 183 N.J. at 248). "The CFA does
not demand that a plaintiff necessarily point to an actually suffered loss or to
an incurred loss," Bosland, 197 N.J. at 559, as "[a]n 'estimate of damages,
calculated within a reasonable degree of certainty' will suffice to demonstrate
an ascertainable loss." Thiedmann, 183 N.J. at 249 (quoting Cox, 138 N.J. at
22). A plaintiff can meet this requirement by showing an "out-of-pocket loss
or the loss of the value of his or her interest in property[,]" or by
demonstrating "that he or she has been deprived of the 'benefit of the bargain'
because of a CFA violation." D'Agostino, 216 N.J. at 190-92. Ultimately,
"[t]he determination of whether a plaintiff has suffered an ascertainable loss
'focus[es] on the plaintiff's economic position resulting from the defendant's
consumer fraud.'" Id. at 194.
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29
Because its language and structure are comparable to the CFA's private
cause of action provision, we find N.J.S.A. 2C:21-22a similarly contains
causation and ascertainable loss elements. While we acknowledge N.J.S.A.
2C:21-22a(a) provides plaintiff need only prove an ascertainable loss caused
by "any action or inaction by a person who knowingly engaged in the
unauthorized practice of law in violation of [N.J.S.A. 2C:21-22]," we find
N.J.S.A. 2C:21-22a(b)(2), which states damages shall be based on "the value
of all costs incurred by the victim as a result of the defendant's criminal
activity," mandates plaintiff show defendant's actual unauthorized practice
caused the claimed loss. Thus, to prevail on her claim for damages under
N.J.S.A. 2C:21-22a, plaintiff must prove the following elements by a
preponderance of the evidence: 1) defendant engaged in the unauthorized
practice of law, as prohibited by N.J.S.A. 2C:21-22; 2) plaintiff suffered an
ascertainable loss; and 3) a causal relationship between defendant's
unauthorized practice of law and the ascertainable loss.
Based on our review of the record, we conclude that plaintiff did not and
cannot establish any of the elements necessary to prevail under N.J.S.A.
2C:21-22a. Therefore, the motion judge erred by finding plaintiff entitled to
judgment as a matter of law. The evidence does not show that defendant
engaged in the unauthorized practice of law, nor does it show that plaintiff
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30
sustained an ascertainable loss, nor does it establish a causal nexus between
defendant's alleged unauthorized practice of law and plaintiff's claimed loss.
The motion judge concluded plaintiff suffered an ascertainable loss
stemming from plaintiff's and Freiwald's contingent fee agreement in the
medical malpractice settlement. Freiwald apparently failed to reduce this
agreement to writing, in violation of Rule 1:21-7(g) and RPC 1.5, rendering it
unenforceable. See Starkey v. Est. of Nicolaysen, 172 N.J. 60, 67 (2002).
In May 2019, plaintiff and Freiwald executed an "assignment
agreement" whereby they agreed Freiwald was "entitled to fees based on
quantum meruit, because there was no written contingency fee agreement."
Noting quantum meruit is measured by the reasonable value of Freiwald's
services, the judge posited that the reasonable value of Freiwald's services was
equal to "Freiwald's expectation interest," i.e. $104,290.83, the net
compensation Freiwald received after paying defendant the referral fee of
$52,145.41. Since Freiwald was only entitled to $104,290.83, approximately
twenty-one percent of the total settlement amount, the judge concluded that
plaintiff was entitled to approximately seventy-nine percent of the settlement.
Yet, plaintiff only received approximately sixty-seven percent of the
settlement because she paid Freiwald thirty-three percent, Freiwald having
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31
paid eleven percent as a referral fee to defendant. Thus, the judge identified
the $52,145.41 Freiwald paid to defendant as plaintiff's ascertainable loss.
In our view, the $52,145.41 loss identified by the motion judge is
entirely hypothetical. While plaintiff and Freiwald may have agreed after the
fact as to the amount of quantum meruit compensation Freiwald should
receive, Freiwald's expectation interest is not the proper means of calculating
the reasonable value of his services. Rather, the reasonable value of services
rendered is determined through the consideration of numerous factors,
including, but not limited to: the length of time spent on the case, the quality
of representation, the viability of the client's claim, the amount of damages
ordered, and the relationship between client and attorney. See Bruno v. Gale,
Wentworth & Dillon Realty, 371 N.J. Super. 69, 74-76 (App. Div. 2004)
(quoting La Mantia v. Durst, 234 N.J. Super. 534, 540-41 (App. Div. 1989)).
The motion judge improperly calculated this amount on summary judgment
without considering the appropriate factors.
In fact, defendant did not actually cause plaintiff any ascertainable loss,
as required by the statute. Defendant did not participate in the settlement or
negotiate the fee Freiwald obtained from the settlement. Therefore, no "action
or inaction" taken by defendant actually caused plaintiff any ascertainable loss,
as required by the statute. The sole actor was Freiwald and any claim plaintiff
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32
has with respect to the settlement funds must be directed at him. Freiwald
took a one-third contingency of the net settlement recovery. Plaintiff did not
contest that division of funds until after the Essex County litigation was filed. 9
What Freiwald did with those funds thereafter had no effect on the funds
plaintiff received. Since Freiwald assumed, incorrectly, that he had a signed
contingent fee agreement, plaintiff would have received two-thirds of the net
recovery, whether or not Freiwald planned on paying a referral fee to
defendant. Accordingly, defendant did not violate N.J.S.A. 2c:21-22(a)
because he did not cause plaintiff any "ascertainable loss."
More importantly, even if the amount defendant received from Freiwald
can be considered a measure of plaintiff's ascertainable loss, the evidence does
not show defendant's alleged unauthorized practice of law caused this loss.
Plaintiff did not pay defendant any of the settlement award; she paid Freiwald
the entire one-third contingent fee. Assuming the quantum meruit value of
Freiwald's services is less than the amount plaintiff paid him, Freiwald is the
one who would owe plaintiff the difference. This would be true regardless of
whether or not Freiwald paid defendant a referral fee.
9
Based upon the contingent fee agreement plaintiff signed with Ashley,
plaintiff's expectation was that she would pay a one-third fee on the net
recovery, which is what Freiwald charged her initially. Defendant's
involvement in the case did not cause plaintiff to incur an ascertainable loss,
i.e. a fee greater than one-third of the net recovery.
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33
Apparently recognizing this fact, plaintiff negotiated for an assignment
of Freiwald's "right to recover" the referral fee Freiwald improperly paid to
defendant. However, even if we assume the validity of the assignment, it does
not establish a causal connection between defendant's alleged unauthorized
practice in the medical malpractice matter and Freiwald obtaining from
defendant a fee greater than he should have received. In addition, as we
previously noted, Freiwald lacked the ability to assign a viable claim to
plaintiff because of the RPC violation he committed when he paid defendant
the referral fee. See Infante, 233 N.J. Super. at 315-18 (declining to allow
quantum meruit recovery for services rendered under a fee sharing agreement
between an attorney and a non-attorney – unenforceable for violating public
policy and the RPCs – even though the decision would result in the attorney's
unjust enrichment).
The motion judge found that defendant caused plaintiff's claimed loss
because plaintiff could have negotiated a more favorable contingent fee
arrangement with Freiwald, if Freiwald did not have to consider paying some
of his contingent fee award to defendant. However, the motion judge found
Freiwald's contingency agreement was invalid, and plaintiff used this fact to
persuade Freiwald to agree that the quantum merit value of his services was
one-third less than what he deducted from plaintiff's net settlement proceeds.
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34
Thus, we fail to see how Freiwald's decision to pay a referral fee to defendant
can be viewed as causing a claimed loss. Moreover, this "loss" disappea red
once Freiwald agreed that the quantum value of his services was two-thirds of
what plaintiff paid him, thereby obligating him to return to plaintiff the excess
fee he charged her. Plaintiff's decision to accept an assignment from Freiwald
of a claim we find to be unenforceable does not serve to reestablish this
purported "ascertainable loss."
The record contains no evidence that defendant's alleged unauthorized
practice of law in the medical malpractice suit caused the settlement amount
secured by Freiwald to be lower than warranted or to have caused plaintiff any
out-of-pocket loss. Plaintiff has therefore failed to demonstrate a direct
correlation between defendant's alleged unauthorized practice of law in New
Jersey and any loss plaintiff sustained. Since Freiwald, not defendant, was the
direct cause of plaintiff's claimed loss, plaintiff failed to establish the
causation element necessary to recover under N.J.S.A. 2C:21-22a.
Plaintiff further argues that we should refuse to consider most of
defendant's arguments, based upon defendant's appellate brief identifying a
"completely different . . . set of issues" than the issues set forth in defendant's
"brief in opposition to summary judgment." In support of this argument
plaintiff cites US Bank Nat. Ass'n v. Guillaume, 209 N.J. 449, 483 (2012),
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35
which quotes the seminal case of Nieder v. Royal Indem. Ins. Co., 62 N.J. 229,
234 (1973), for the proposition that the appellate courts will not consider
issues not raised before the trial court.
We reject plaintiff's argument as the record shows that all issues raised
on appeal were before the motion judge. In Nieder, the plaintiff sought to
introduce affidavits and factual evidence to the Supreme Court that was not
presented to, nor discussed by, the trial court or this court. Id. at 234-235.
That did not occur here. Defendant has not attempted to introduce new
evidence on appeal. Moreover, the judgment under review resulted from
plaintiff's motion; hence, plaintiff bore the burden of proof under summary
judgment standards. Plaintiff's claim that defendant waived certain arguments
because he did not make precisely the same arguments in the trial court clearly
lacks merit. "[E]ven in an uncontested motion, the judge must consider
whether undisputed facts are sufficient to entitle a party to relief. It is not
enough to suggest that there is no opposition, especially if the facts do not
warrant the granting of relief in the first instance." Allstate Ins. Co. v. Fisher,
408 N.J. Super. 289, 302 (App. Div. 2009).
Because plaintiff failed to establish a claim for disgorgement or a claim
for damages under N.J.S.A. 2C:21-22a, we vacate the motion judge's
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36
disgorgement damage award and the award of treble damages, as contained in
the Amended Order for Final Judgment.
Reversed.
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37