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By Mary Pat Gallagher
New Jersey Law Journal
02-14-2007

A New Jersey federal judge's dismissal of legal malpractice and breach-of-fiduciary-duty claims against counsel in an ERISA case shows that trustees sued for misfeasance can't easily pass the buck to their lawyers.

Though he dismissed the claims on procedural grounds, U.S. District Judge Joel Pisano held that even if attorney Gary Carlson knew of prohibited transactions and failed to disclose them, the fund's trustees "cannot show that Carlson's conduct -- rather than that of the actual wrongdoers -- was the proximate cause of any losses they allegedly suffered."

Carlson was counsel to the PACE Local I-300 Union and its health fund. The ERISA suit, Acosta v. PACE Local I-300 Health Fund, 04-CV-3885, alleged that the trustees and administrators of the fund drained it of money, paying themselves excessive salaries, leasing fancy cars, using funds for the benefit of the union and other improper purposes. The plaintiffs are hundreds of workers whose health claims went unpaid, the companies they worked for, and health care providers seeking to recover unpaid medical bills.

The trustees, Matthew DiMinno and Allan Funk, turned around and sued Carlson, alleging he was aware of the improper expenditures and had a duty to inform the trustees but failed to do so, resulting in a loss of more than $1 million.

The third-party complaint alleged the failure to act was a breach of fiduciary duty and of legal ethics rules and constituted malpractice by Carlson, his current firm, Kroll Heineman Giblin, and the firm he left in 2004, Lynch Martin.

The trustees also alleged that after the main ERISA complaint was filed, Carlson, then working at the Kroll firm, failed to advise them of the suit or of their right to assert cross claims but went ahead and filed an answer on their behalf without their knowledge or consent.

Pisano dismissed the malpractice claims against Carlson and the firms because the required affidavit of merit was filed late, but he made it clear he was not tossing out "a seemingly meritorious claim on the basis of a technical default."

Pisano noted that the plaintiffs had not accused the lawyers of concealing information and that a trustee brought in by the international union who intervened in the case did not go after the lawyers. "Though not dispositive of whether the Third-Party Plaintiffs stated a claim for relief, the fact that all of the other interested parties have neglected to pursue this claim is, at the least, indicative of its lack of merit," he wrote.

Pisano also found the claims for breach of fiduciary duty under ERISA were without merit because attorneys are usually not considered fiduciaries and DiMinno and Funk had not shown that Carlson exceeded his normal role as a lawyer by possessing or exercising discretionary authority over the assets of the fund or its administration.

Though DiMinno and Funk argued that discovery would disclose facts bolstering their claims, discovery had been under way for almost a year and they had not amended the third-party complaint to add supporting factual allegations nor could they articulate any during oral argument, said Pisano.

Steven Adler, who represents the plaintiff employers and employees, declines comment on Pisano's ruling, saying it does not affect his clients or their claims.

Any money recovered will go into the fund to reimburse the employees, who in some cases have been sued by health care providers and have even wound up paying out of their own pockets, he says.

Adler, of Hackensack's Cole Schotz Meisel Forman & Leonard, represents about 230 employees. He estimates there are many hundreds more whose employers participated in the pooled insurance fund and who were stiffed on their medical bills but are not part of the lawsuit because those companies did not choose to sue.

He could not put a dollar figure on the claims but referred to it as "potentially millions of dollars."

Pisano's opinion refers to "a related Department of Labor Investigation." According to Adler, the investigation is still under way.

Lynch Martin's lawyer, Richard Wischusen, of Reilly Supple & Wischusen in New Providence, says he is pleased with the ruling but declines further comment.

Margaret Lambe Jurow, of Newark's Podvey, Meanor, Catenacci, Hildner, Cocoziello & Chattman, who represents Carlson and the Kroll firm, was unable to comment because she could not reach her clients to obtain their permission.