Successor’s Claim Does Not Relate Back Says New Jersey Appellate Court

The Appellate Division of the New Jersey Superior Court recently decided that a successor-in-interest’s legal malpractice claim did not relate back to an action filed 13 years earlier by the predecessor’s chief partner. The original action arose from a 1996 property refinance. An attorney with the law firm, which had represented the borrower in the refinancing negotiations with the lender, neglected to file a consent order with the bankruptcy court, which had jurisdiction over the borrower at the time.

The Order was particularly significant to the lender, who intended to sell the mortgage to a third party, because it would have resulted in dismissal of the bankruptcy proceedings. The borrower eventually defaulted on the loan and commenced dissolution proceedings. A third party succeeded to its assets and thereby became acquired the legal malpractice cause of action.

Prior to the dissolution, one of the borrower partners had filed a malpractice suit against the attorneys who neglected to submit the consent order. That case was initially dismissed due to lack of standing, but the court then permitted the partner to sue on behalf of the borrower. In 2008, eleven years later, after a string of dismissals and appeals, an appellate court determined that the partner indeed lacked standing, which allowed the borrower’s successor to proceed with the claim.

A year later, the successor filed the legal malpractice claim. The attorneys again moved to dismiss, claiming the filing was beyond the New Jersey six year statute of limitations. The successor opposed, claiming that the action related back to the complaint filed eleven years earlier. The appeals court disagreed, reasoning that once the successor had acquired the borrower’s assets, it also assumed ownership of the malpractice action and could not rely on the intermittent former partner’s proceedings to “reset” the statute of limitations and would not be excused for its “thirteen-year slumber.”

Source: Siete Urban Associates v Hardin.doc
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