Professional Liability Law Alert

In Meisels v. Fox Rothschild LLP, the Supreme Court of New Jersey upheld the Appellate Division’s ruling that a claim of breach of fiduciary duty alleged against Fox Rothschild LLP (“the firm”) based upon its handling of funds in an attorney trust account was properly dismissed on summary judgment.  But importantly, the Supreme Court reversed the Appellate Division’s ruling that a claim for conversion as to funds in the firm’s attorney trust account could proceed to trial and dismissed the conversion claim in addition to the breach of fiduciary duty claim.

Plaintiff, Moshe Meisels, a London-based real estate investor, entered into a real estate agreement with the firm’s client.  In that capacity, plaintiff wired funds to the firm.  The firm then distributed the funds pursuant to the directions of its client.  Meisels asserted claims against the firm for conversion and breach of fiduciary duty, arguing that the funds belonged to Meisels at all times, and that as the the real estate transaction with the firm’s client was never consummated, the firm should have known it was required to return the funds to him.

The trial court granted summary judgment for the firm and dismissed the amended complaint. Plaintiff appealed and the Appellate Division affirmed the dismissal of the count of breach of fiduciary duty, but reversed the dismissal of the count for conversion.  The Supreme Court granted the firm’s petition for certification regarding the conversion claim as well as plaintiff’s cross-petition regarding the breach of fiduciary duty claim.

The Supreme Court found that Meisels’ acknowledgement that the firm had no knowledge of Meisels, had made no representations to him, indeed had never spoken to him, was fatal to the breach of fiduciary duty claim.  While the Court has found an attorney can owe a duty to non-clients, the necessary element of reliance by the non-client, and reasonableness that an attorney would be aware of that reliance, were not present in this instance.  The Court emphasized that the firm did not become an escrow agent, and applying the standards of an escrow agent to a law firm in these circumstances would frustrate closings and promote malpractice actions.  The Court reiterated its holding in Banco Popular North America v. Gandi, 184 N.J. 161, 181 (2005), that “an invitation to rely and reliance are the linchpins of attorney liability to third parties.”  As the firm did nothing to induce reasonable reliance by Meisels, the firm’s distribution of funds held in its trust account in compliance with its client’s instructions was not a breach of fiduciary duty.

The Supreme Court further acknowledged its prior holding that while the Rules of Professional Conduct (“RPCs”) can be relevant to the standard of care in civil cases against attorneys, a violation of the RPCs does not create a cause of action for damages in favor of a person allegedly aggrieved by that violation.  Plaintiff in this case relied on RPC 1.15 which addresses an attorney’s obligation to safeguard property in his or her possession.  Defendant and Amicus Curiae New Jersey State Bar Association relied on RPC 1.2 which requires an attorney to abide by a client’s decisions concerning the scope and objectives of representation.  The Supreme Court found the firm acted in compliance with RPC 1.2 when it distributed the funds in its attorney trust account.  The Supreme Court further found that RPC 1.15 did not apply under these circumstances where the attorney had no fiduciary duty to the non-client for the reasons stated above.

The Supreme Court reversed the Appellate Division’s ruling with respect to the claim for conversion on two grounds: the firm did not have independent control or dominion over the funds, and Meisels never made a demand for the funds. The funds transferred by Meisels, through a third-party, to the firm’s trust account were funds belonging to its client, not the firm.  As such, the firm did not have independent control or dominion over the funds, a necessary element of the cause of action of conversion.  The firm then acted in accordance with its reasonable understanding of who controlled the funds’ use -- its client -- in distributing the funds.  Second, Meisels never made a demand for the funds.  Demand is also a necessary element for the cause of action of conversion, and the exception for futility is limited.  Meisels acknowledged that it made no such demand of the firm, a demand that would have triggered the firm’s obligation to reasonably inquire further.  Demand, as the Supreme Court stated, is what “transforms an initial lawful possession into a setting of tortious conduct.”  As the funds neither belonged to the firm nor was a demand made for the funds, the claim for conversion was dismissed.

This case cabined an attorney’s duty to non-clients in New Jersey.  While such a duty can exist, the Supreme Court herein refused to extend that duty to a non-client who transferred funds to the firm’s trust account without any direct communication between the firm and the non-client.  This case does, however, serve as a reminder that non-clients are increasingly seeking redress from attorneys when they suffer a financial loss.

*Diana C. Manning, Esq. argued the cause for Amicus Curiae New Jersey State Bar Association.


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