Law Firm May Remain Liable for Rent After Partner's Departure

A law firm that broke its lease when a partner left ' avowedly because the firm no longer existed ' cannot get out of the rent that easily. A New Jersey state appeals court ruled that a landlord who was left empty-handed when the firm vacated, and who later obtained a worthless default judgment in a breach-of-contract suit, is not barred from going after the remaining partners and their successor firm.

In allowing the new suit, Berk & Berk at Cherry Tree v. Braverman Kaskey, A-4666-08, the Appellate Division said the entire controversy doctrine and collateral estoppel do not apply under the circumstances.

Background

In 2003, Braverman Daniels Kaskey, based in Philadelphia, leased Cherry Hill, NJ, office space from Berk & Berk at Cherry Tree. In mid-2005, one of the firm's partners, Robert Daniels, left to become a Pennsylvania judge. On Aug. 31, 2005, while the lease was still in force, Braverman Daniels Kaskey notified the landlord that it would surrender possession of the property because of “termination of BDK's operations as of July 1, 2005.” However, the remaining partners, David Braverman and John Kaskey, reconstituted as Braverman Kaskey on Sept. 8, 2005, in Philadelphia.

The Suit

Berk & Berk sued Braverman Daniels Kaskey for breach of contract in Camden County Superior Court on Sept. 30, 2005, and obtained a $137,297 default judgment. On March 28, 2007, the landlord moved to reopen its case to assert claims against the successor firm, Braverman Kaskey, and the individual members of the defunct firm. But Judge Charles Little said no, finding the old law firm was still active, and that the landlord knew who the principals were when he first sued.

Berk & Berk did not appeal. After mitigating its losses by reletting the space, it filed the present suit on Sept. 28, 2008, seeking $76,961, plus post-judgment interest, from Braverman Kaskey and the three former partners of the defunct firm. The suit was based on successor liability, alleging Braverman Kaskey was created to escape responsibility for the former firm's debts and claiming the firm's existing partners violated the Uniform Fraudulent Transfer Act by transferring most or all of the old firm's assets to the new one.

On April 17, 2009, Judge Ronald Freeman dismissed, finding that the landlord failed to state a claim and that the action was barred by the entire controversy doctrine. On June 12, 2009, Freeman denied a motion for reconsideration, citing the landlord's failure to appeal Little's decision denying its motion to amend the first complaint. Freeman also noted the passage of more than a year between Little's ruling and the filing of the second suit.

The Appeal

On appeal, Judges Edith Payne and Alexander Waugh Jr. found the entire controversy doctrine did not bar the second suit, since the doctrine does not apply to component claims that are unknown, have not arisen or have not accrued at the time of the original action. Berk & Berk's initial suit was against only Braverman Daniels Kaskey because it had no claim against the individual members, who had not guaranteed the lease, or against the successor firm, with which it had no contract. “The claims against the current defendants only ripened when Braverman Daniels Kaskey failed to pay the original judgment and became insolvent,” the panel said.

Neither does collateral estoppel apply because there has been no prior adjudication on the merits of claims against the successor firm and the three partners, the panel found. “The claims had not even been pled yet and their merits were not addressed in the denial of leave to reopen, nor could they have been,” Payne and Waugh wrote.

Charles Toutant is a reporter for The New Jersey Law Journal, an ALM sister publication of this newsletter in which this article first appeared.

A law firm that broke its lease when a partner left ' avowedly because the firm no longer existed ' cannot get out of the rent that easily. A New Jersey state appeals court ruled that a landlord who was left empty-handed when the firm vacated, and who later obtained a worthless default judgment in a breach-of-contract suit, is not barred from going after the remaining partners and their successor firm.

In allowing the new suit, Berk & Berk at Cherry Tree v. Braverman Kaskey, A-4666-08, the Appellate Division said the entire controversy doctrine and collateral estoppel do not apply under the circumstances.

Background

In 2003, Braverman Daniels Kaskey, based in Philadelphia, leased Cherry Hill, NJ, office space from Berk & Berk at Cherry Tree. In mid-2005, one of the firm's partners, Robert Daniels, left to become a Pennsylvania judge. On Aug. 31, 2005, while the lease was still in force, Braverman Daniels Kaskey notified the landlord that it would surrender possession of the property because of “termination of BDK's operations as of July 1, 2005.” However, the remaining partners, David Braverman and John Kaskey, reconstituted as Braverman Kaskey on Sept. 8, 2005, in Philadelphia.

The Suit

Berk & Berk sued Braverman Daniels Kaskey for breach of contract in Camden County Superior Court on Sept. 30, 2005, and obtained a $137,297 default judgment. On March 28, 2007, the landlord moved to reopen its case to assert claims against the successor firm, Braverman Kaskey, and the individual members of the defunct firm. But Judge Charles Little said no, finding the old law firm was still active, and that the landlord knew who the principals were when he first sued.

Berk & Berk did not appeal. After mitigating its losses by reletting the space, it filed the present suit on Sept. 28, 2008, seeking $76,961, plus post-judgment interest, from Braverman Kaskey and the three former partners of the defunct firm. The suit was based on successor liability, alleging Braverman Kaskey was created to escape responsibility for the former firm's debts and claiming the firm's existing partners violated the Uniform Fraudulent Transfer Act by transferring most or all of the old firm's assets to the new one.

On April 17, 2009, Judge Ronald Freeman dismissed, finding that the landlord failed to state a claim and that the action was barred by the entire controversy doctrine. On June 12, 2009, Freeman denied a motion for reconsideration, citing the landlord's failure to appeal Little's decision denying its motion to amend the first complaint. Freeman also noted the passage of more than a year between Little's ruling and the filing of the second suit.

The Appeal

On appeal, Judges Edith Payne and Alexander Waugh Jr. found the entire controversy doctrine did not bar the second suit, since the doctrine does not apply to component claims that are unknown, have not arisen or have not accrued at the time of the original action. Berk & Berk's initial suit was against only Braverman Daniels Kaskey because it had no claim against the individual members, who had not guaranteed the lease, or against the successor firm, with which it had no contract. “The claims against the current defendants only ripened when Braverman Daniels Kaskey failed to pay the original judgment and became insolvent,” the panel said.

Neither does collateral estoppel apply because there has been no prior adjudication on the merits of claims against the successor firm and the three partners, the panel found. “The claims had not even been pled yet and their merits were not addressed in the denial of leave to reopen, nor could they have been,” Payne and Waugh wrote.

Charles Toutant is a reporter for The New Jersey Law Journal, an ALM sister publication of this newsletter in which this article first appeared.