New Jersey legal malpractice cases have long been the exception to the general American Rule pursuant to which litigants must bear their own attorneys' fees in the absence of a statutory basis for fee-shifting, based on a 1996 New Jersey Supreme Court decision in Saffer v. Willoughby, 143 N.J. 256 (1996). That decision held that counsel fees are consequential damages which are recoverable by a prevailing plaintiff. Now, the New Jersey Supreme Court – in a 3-2 decision - has refined that exception to the general rule against awarding fees to prevailing parties. It ruled in Innes v. Marzano-Lesnevich that attorneys who intentionally breach a fiduciary relationship, even when the relationship is with a non-client, can be held liable for fees. In this case, plaintiff Peter Innes sought attorneys' fees from his former wife's lawyer, Madeline Marzano-Lesnevich, in a dispute arising in the context of a divorce and child custody dispute. That attorney had released Mr. Innes' daughter's passport from trust to Mr. Innes' ex-wife, Maria Jose Carrascosa, who used the passport to take the child to Spain and refused to return her to New Jersey. The trust agreement provided that the passport could be released to one parent only with the written permission of the other parent. Innes prevailed at a jury trial against the attorney who was found to have breached her fiduciary duty. While the Court acknowledged that the Saffer v. Willoughby rule did not apply because there was no attorney-client relationship and no malpractice, the Court held that evolving law favored permitting fee recovery when an attorney breaches fiduciary obligations to a non-client for the attorney's intentional misconduct. The Court stated: "Consistent with our post-Saffer jurisprudence, Innes would be entitled to counsel fees if there had been a finding that defendants, as attorneys, intentionally breached their fiduciary responsibility to Innes, regardless of the existence of an attorney-client relationship." Because the jury had not determined whether Marzano-Lesnevich's misconduct was intentional, the matter was remanded so that a jury could address that issue. The justices noted that although an appellate panel observed there was substantial support in the record from which to rule as to intent, the jury never decided that issue.
This case may be viewed as an aberration resulting from troubling facts. Mr. Innes' situation evokes sympathy, as he has been unable to see or have contact with his daughter since 2005. But as the Court's decision made clear, it viewed the ruling as a logical expansion of existing appellate holdings in the fiduciary duty context.
To date, New Jersey's common law fee recovery rule remains the exception to the American Rule. It is reasonable to expect the plaintiff's bar to continue to seek expansion of the potentially recoverable damages in light of this unprecedented expansion of the limited exception to the American Rule. In any event, New Jersey attorneys - and their insurance carriers - must come to grips with the reality as to the expansion of the potential exposure for actions involving not only the attorney's own clients, but also parties to whom their only duties arise out of escrow arrangements and similar fiduciary situations.
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