H. ROSENBLUM, INC. v. ADLER
221 N.J. Super. 507 (1987)
535 A.2d 22
H. ROSENBLUM, INC., A NEW JERSEY CORPORATION, SUMMIT GIFT GALLERIES, INC., A NEW JERSEY CORPORATION (FORMERLY KNOWN AS SUMMIT PROMOTIONS, INC.), BARRY ROSENBLUM AND HARRY ROSENBLUM, PLAINTIFFS-APPELLANTS-CROSS-RESPONDENTS, v. JACK F. ADLER, ET AL., INDIVIDUALLY AND AS PARTNERS TRADING AS TOUCHE ROSS & CO., SEVERALLY AND IN THE ALTERNATIVE, DEFENDANTS-RESPONDENTS-CROSS-APPELLANTS.
Superior Court of New Jersey, Appellate Division.
Decided December 2, 1987.
Bradley R. Brewer argued the cause for appellants-cross-respondents ( Cummins, Dunn & Pashman, attorneys; Bradley R. Brewer, James K.M. Leeper and Donald Horowitz, of counsel; Louis Pashman, on the brief).
Leon P. Gold argued the cause for respondents-cross-appellants ( Schneider, Balt & Ciancia, attorneys; Leon P. Gold, Mark E. Davidson, Merrye Piltz Schindler, and Harold Langsam, of counsel; Jacob Schneider, on the brief).
Before Judges ANTELL, R.S. COHEN and LANDAU.
The opinion of the court was delivered by LANDAU, J.A.D.
This case comes to us on leave granted, following cross-appeals by the litigants from an order entered by the trial judge at the conclusion of a lengthy collateral proceeding. The underlying law suit was initiated in 1974 by H. Rosenblum, Inc. and Summit Gift Galleries, Inc., New Jersey corporations, and their principals, against Touche Ross & Co., and individual partners therein, with counts of negligence and fraud arising out of 1971 and 1972 audits allegedly relied on by plaintiffs in selling their business in exchange for stock of Giant Stores Corporation, a publicly traded company. The stock turned out to be worthless. Touche Ross has since been censured by the Securities and Exchange Commission for the 1972 audit.
A detailed discussion of the underlying suit and the theory of its negligence count is contained in Rosenblum v. Adler, 93 N.J. 324 (1983).
The procedural history of this case, amassed with judicial toleration and even encouragement, merits a place on the shelf next to Bleak House and Alice in Wonderland. For three years, the substantive action, arising out of conduct alleged to have occurred in 1971 and 1972, has remained on a judicial sidetrack. The energies of counsel and the courts have been
The December 5, 1986 order under cross-appeal denied the motion by defendants for an evidentiary hearing and for disclosure regarding plaintiffs' counsel fee arrangements, for disqualification of counsel and revocation of pro hac vice admissions of New York counsel, and for a contempt proceeding. Although defendants' motion for adjournment of trial pending our resolution of this appeal was denied, the case has not been tried.
Plaintiffs' cross-motion for disciplinary and remedial sanctions against counsel for Touche Ross, Inc. and for revocation of pro hac vice admission of their New York counsel was denied.
Finally, the December 5 order concluded, inconsistently with the trial judge's earlier oral findings, that there was a contingent fee arrangement between plaintiffs and their [several] counsel. That order also provided that the:
With the exception of the question of contingent fee and the trial judge's interpretation of R. 1:21-7, the order of the trial judge reflects the exercise of discretion in which we perceive no abuse and therefore affirm substantially for the reasons expressed by the trial judge, concluding as we do that the issues of law raised by each party in connection with the order are clearly without merit. R. 2:11-3(e)(1)(E). Moreover, we disagree that the trial judge breached any judicial duty to disqualify counsel.
The lengthy briefs, appendices and imaginative constitutional and substantive arguments presented to us in these interlocutory
We hold that R. 1:21-7 is not applicable to the present matter.
R. 1:21-7 now provides in pertinent part:
Subparagraph f of R. 1:21-7 provides:
Although there have been modifications to this Rule since the retention of certain counsel, they are not material in light of the conclusion we reach herein.
Essentially, defendants contend, and the trial judge has held, that the plaintiffs claim is one for "alleged tortious conduct of another" which must be governed by R. 1:21-7. Plaintiffs say that the rule has been interpreted by the Administrative Director of the Courts in a Notice to the Bar issued in 1972 (95 N.J.L.J. p. 341 (1972)) which, in pertinent part, provides that it is applicable to contingent fee arrangements entered into prior to the effective date of the rule if not completely performed as of that date, and that the rule does not "apply to `business torts' such as fraud or conspiracy to interfere with contractual relationships" but includes "all typical negligence cases, such as auto accidents product liability and `slip and fall.'"
The interpretative Notice issued by the Administrative Director of the Courts has been adopted by the Supreme Court. In American Trial Lawyers Association v. N.J. Supreme Court, 126 N.J.Super. 577 (App.Div. 1974), aff'd 66 N.J. 258
Thus, we must consider whether plaintiffs' action is one of the "typical negligence cases, such as auto accidents, product liability and `slip and fall'" to which R. 1:21-7 applies, or whether it falls within the "business torts" exception of the 1972 Notice in which fraud and conspiracy to interfere with contractual relationships were given as examples of the excepted torts.
Defendants have ably argued that the present dispute basically sounds in accountants' malpractice, as recently here expanded by the Supreme Court. See Rosenblum v. Adler, 93 N.J. at 333.
Our interpretative efforts, however, must focus primarily on the reason for the distinction made in the 1972 Notice between typical negligence cases and business tort cases. This distinction, we believe, was not based on the precise nature of the tortious act, but on the probable status, sophistication, and vulnerability of the victim of the tort when entering into fee arrangements with an attorney. So, for example, R. 1:21-7 does not protect a subrogee, although the nature of the tort is identical with that directly asserted by the victim.
Although the rule does not expressly exclude purely economic loss not arising out of bodily injury from coverage of the rule, this is one significant factor to be considered in weighing whether a "business tort" is asserted, for R. 1:21-7 purposes. Here, we note that the Supreme Court referred to the newly identified tort which it recognized in the following words,
Although this precise business tort may not have been specifically contemplated at the time of the 1972 Notice, it is to us obvious that the kind of litigant which R. 1:21-7 was designed to protect is not one who was sufficiently sophisticated to review and rely upon a certified audit of financial statements in the course of reaching a decision about sale of a business corporation. For purposes of R. 1:21-7, the pleadings herein assert a "business tort."
Accordingly, we reverse so much of the December 6, 1986 order as would apply R. 1:21-7 to fee arrangements between plaintiffs and their attorneys. The balance of the order is affirmed. The case should proceed promptly to trial.
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