Fox Rothschild is Exonerated on Conversion Claim Made by a Non-Client Unknown to the Law Firm

Meisels v. Fox Rothschild LLP, 240 N.J. 286 (2020). Plaintiff was involved in a real estate transaction with a client of defendant Fox Rothschild, Weinstein. An intermediary for plaintiff wired money to the law firm in connection with that transaction. The wire did not identify plaintiff as the owner of the funds, and no instructions accompanied the wire.

Fox Rothschild distributed the wired funds as Weinstein, its client, instructed. Plaintiff later claimed that Weinstein had defrauded plaintiff and that the funds had not gone toward the originally contemplated transaction, which never closed. Litigation ensued among multiple parties. The subject of this appeal, however, was plaintiff’s claims against Fox Rothschild and one of its partners for breach of fiduciary duty and conversion of his funds.

Defendants won summary judgment on both claims in the Law Division. Plaintiff appealed, and the Appellate Division affirmed on the fiduciary duty claim but reversed as to conversion. Plaintiff obtained certification from the Supreme Court on the fiduciary duty issue, and defendants got certification on the conversion claim. Today, in a unanimous opinion by Justice LaVecchia, the Court upheld the dismissal of the fiduciary duty claim and held that the conversion claim was to be dismissed as well.

Plaintiff’s argument in support of his fiduciary duty claim centered on RPC 1.15(b), which states that a lawyer must hold property of a client or third party separate from the lawyer’s own property, and that (with certain exceptions not applicable here) “a lawyer shall promptly deliver to the client or third party person any funds or other property that the client or third person is entitled to receive.” Plaintiff was not a client, so he argued that a lawyer “owes a fiduciary duty to persons, though not strictly clients, who he knows or should know rely on him in his professional capacity.”

On these facts, Justice LaVecchia did not agree. “Meisels admits that defendants had no knowledge of his existence, had no contact with him, possessed no knowledge about any purported agreement between him and Weinstein, and made no representations to Meisels. It is simply not reasonable to expect a lawyer to have fiduciary obligations to an individual under such circumstances.” The law sometimes extends an attorney’s duty beyond his or her own client, to third parties, as in Petrillo v. Bachenberg, 139 N.J. 472 (1995), but such law “has been approached with care so as to be fair to all; generally stated, it is cabined by considerations of reasonableness.” Thus, plaintiff’s reliance on that law was misplaced.

Equally unavailing was plaintiff’s reliance on caselaw involving lawyers or firms acting as escrow agents. Defendants had no undertaken to act in that capacity here. And since defendants had done nothing to induce plaintiff to rely on them, there was no relationship that could substitute for the additional requirement of privity in this context.

Turning to the conversion claim, Justice LaVecchia noted that such a theory is “long in the tooth,” dating back as it does to English common law. She provided a detailed overview of the law of conversion, and noted that the cause of action has two key components: “the intentional exercise of dominion and control over chattel that seriously interferes with the right of another to control that chattel” (including money), and a demand for the allegedly converted property and refusal of that demand. Neither element was present here.

Because the wire from the intermediary for plaintiff contained no instructions, and did not even identify plaintiff as the owner of the funds, Fox Rothschild did nothing wrong. “[W]ith no knowledge of a competing claim to the funds– and, indeed, no knowledge whatsoever about Meisels and his role in the transaction– the firm acted appropriately in adhering to the client’s directions concerning funds over which the firm did not have independent ownership or interest; in other words, the firm had no separate dominion or control over the funds. The firm acted in accordance with its reasonable understanding of who did control the direction of the funds’ use –the client.”

The fact that plaintiff had not made a demand for the funds also doomed his conversion claim. “[m]oney is fungible and, therefore, the obligation of a plaintiff to make a demand of the firm for the money was not useless or futile. It would have been the means to alert the firm that a competing claim existed and would have triggered the firm’s obligation to reasonably inquire further, and perhaps seek judicial assistance, before embarking on fulfillment of a client’s direction.” Instead, “the firm was denied the opportunity, until five years after this transaction was complete, to address a dispute about the monies.” Accordingly, the conversion claim failed as a matter of law.