Baxt v. Liloia

Rule of Law:

A violation of the Rules of Professional Conduct (RPCs) does not, by itself, create an independent cause of action for civil liability against an adversary's attorney, as the RPCs are designed for disciplinary guidance and enforcement, not to establish standards for civil liability.

Facts:

• Sherwood Baxt and Paul Hartman were partners in The Grove Mercantile Center (Grove), which obtained construction financing from Summit Trust Company (Summit) via mortgage loans.
• Grove defaulted on the loans, leading Summit to institute foreclosure proceedings against Grove, including partners Sherwood and Saida Baxt.
• During discovery in the foreclosure suit, Summit's attorneys, Gerald Liloia and Anthony Sylvester, found a copy of a mortgage modification agreement, signed by Grove partner Paul Hartman, in Grove's files, which included a release of lender-liability claims against Summit.
• Liloia and Sylvester instructed Summit bank officer Jennifer Calenda to place this signed copy of the modification agreement (obtained from Grove's files) into Summit's official credit file, even though Summit had previously provided its credit file containing only an unsigned version.
• During subsequent depositions in November and December 1991, Grove's attorney repeatedly requested to know the source of the signed modification agreement but Summit's attorneys were evasive and did not disclose its origin.
• Grove's attorney eventually reviewed her own client's files and realized that the signed modification agreement attached to Summit's summary judgment motion had originated from Grove's documents.
• Only at a continuation of Calenda’s deposition on December 27, 1991, did defendant Liloia finally state that the signed copy of the agreement had come from the Grove files.

Procedural Posture:

• Summit Trust Company initiated foreclosure proceedings against The Grove Mercantile Center and its partners, Sherwood and Saida Baxt, in the Chancery Division (trial court).
• Plaintiffs Sherwood and Saida Baxt filed a separate action against Summit's attorneys, Gerald Liloia and Anthony Sylvester, in the Chancery Division, alleging tortious concealment of evidence (Count I) and breaches of the Rules of Professional Conduct (Count II).
• In December 1992, the Chancery Division dismissed Count II (the RPC claim), holding it was a collateral matter outside its primary jurisdiction.
• The underlying Grove foreclosure litigation settled on February 23, 1993, with plaintiffs expressly reserving their right to continue their lawsuit against Liloia and Sylvester.
• The trial court (Chancery Division) subsequently granted summary judgment to defendants Liloia and Sylvester on Count I (the tortious concealment claim), finding that plaintiffs had not demonstrated justifiable reliance on the allegedly concealed evidence.
• Plaintiffs appealed the dismissal of both counts to the Appellate Division.
• The Appellate Division affirmed both the dismissal of the RPC claim and the grant of summary judgment on the tortious concealment claim (referred to as Baxt I).
• The New Jersey Supreme Court remanded the case to the Appellate Division for reconsideration in light of plaintiffs' assertion that the settlement agreement specifically excluded their claims against the defendants.
• On reconsideration, the Appellate Division reaffirmed its original decision (referred to as Baxt II), with a majority declining to sanction lawsuits based solely on RPC violations, but with a dissenting judge arguing that civil liability should be permitted for RPC violations resulting in foreseeable injury to a third party.
• Plaintiffs appealed the Appellate Division's decision to the New Jersey Supreme Court as of right due to the dissent.