RPC 3.7 Prevents Attorney from Acting as Counsel at a Trial or Pretrial Evidentiary Hearing When the Attorney is Likely a Necessary Witness at the Trial or Hearing
Fountain Plaza, LLC, v. Petrock’s Liquors, Inc., No. A-1522-23, 2024 WL 4822646 (N.J. Super. App. Div. Nov. 19, 2024)
The Chancery Division, relying on R. 1:21-1(c) and RPC 3.7, granted defendant’s motion to disqualify plaintiff’s attorney. Plaintiff was granted leave to file an interlocutory appeal, and the Appellate Division reversed.
Plaintiff Fountain Plaza is an LLC, with a sole member who is also an attorney with a solo practice (“Attorney”). Attorney certified that he does not practice law through plaintiff. Attorney described the LLC as “a passive business owning title to real estate.” Id. at *2.
In 1998, Attorney, individually, owned a property which was adjacent to a property owned by defendant Petrock’s Liquors, Inc. (“PLI”). Attorney entered into an Easement Agreement with PLI. According to the Easement Agreement, Attorney had an application before the planning board which called for a shared driveway and parking with PLI. Under the Easement Agreement, Attorney was responsible for constructing a shared driveway and parking spaces at his sole cost and expense, but the cost of maintenance and repair of the driveway and parking spaces would be shared by the parties equally. In 2001, Attorney and PLI executed the easement.
Several years later, Attorney transferred his interest in his property to plaintiff, Fountain Plaza, LLC.
In March 2022, plaintiff demanded PLI divert water from its downspouts at its expense. Attorney, as counsel for the LLC, filed a complaint for a declaratory judgment. PLI counterclaimed, asserting causes of action based on an alleged breach of contract.
PLI moved to disqualify Attorney from representing plaintiff. In a brief he prepared on plaintiff’s behalf in opposition to the disqualification motion, Attorney conceded the court would have to conduct a hearing pursuant to Lopez v. Swyer, 62 N.J. 267 (1973), and that “the possibility of an evidentiary hearing and/or a trial of this matter could not be excluded.” Id. at *5. The trial court granted the disqualification motion.
The trial court based its approval of the disqualification motion first on R. 1:21-1(c), which the trial court described as making clear that an entity other than a sole proprietorship could not appear in court without counsel and as “…‘not allowing attorneys to represent their own LLCs except for limited liability companies for the practice of law,’ citing R. 1:21-1(B).” Id. at *6.
The trial court also held RPC 3.7 prevented Attorney from representing plaintiff, finding:
Attorney [] will undoubtedly be required to testify at trial, wherein plaintiff must prove that PLI’s discharge of water from its downspouts onto the easement is not a reasonable use of the easement. Because [A]ttorney will be a primary witness at trial, he is barred from representing his LLC under RPC 3.7.
Id.
The Appellate Division first noted that a determination of whether counsel should be disqualified is an issue of law and, therefore, subject to de novo appellate review. Id. at *7. While noting that “a person’s right to retain counsel of his or her choice is limited, in that ‘there is no right to demand to be represented by an attorney disqualified because of an ethical requirement,’” the tribunal is “…equally mindful that disqualification motions should be ‘viewed skeptically in light of their potential abuse to secure tactical advantage.’” Id. at *8.
The court noted that “… R. 1:21-1(c), with certain exceptions not applicable here, provides that a business entity other than a sole proprietorship is required to appear in court through an attorney.” Id. at *9 (quoting Globe Media Grp., LLC v. Cisneros, 403 N.J. Super. 574, 576 (App. Div. 2008)). The Appellate Division continued:
The trial court held “R. 1:21-1(c) does not allow attorneys to represent their own LLCs, except for limited liability companies for the practice of law.” But the rule doesn’t say that. The rule requires an entity, however formed and for whatever purpose, to appear in court through an attorney authorized to practice law in this state. It is undisputed [Attorney] is an attorney authorized to practice law in this state. The Rule bars a lay person from appearing on behalf of a business entity in court. But this case is not about lay representation of a business entity. And nothing in R. 1:21-1(c) prevents an attorney from representing a business entity in which the attorney has an ownership or membership interest.
Id. at *9.
The Appellate Division noted that the trial court also misread R. 1:21-1(B), which concerns limited liability companies for the practice of law. The Appellate Division noted that this rule does not apply because plaintiff is not a limited liability company for the practice of law.
The court next moved to RPC 3.7. The Appellate Division noted:
RPC 3.7 states:
(a) a lawyer shall not act as an advocate at a trial in which the lawyer is likely to be a necessary witness unless: (1) the testimony relates to an uncontested issue; (2) the testimony relates to the nature and value of legal services rendered in the case; or (3) disqualification of the lawyer would work substantial hardship on the client.
(b) a lawyer may act as an advocate in a trial in which another lawyer in the lawyer’s firm is likely to be called as a witness unless precluded from doing so by RPC 1.7 or RPC 1.9.
Id. at *10.
The trial court held that because Attorney “will be a primary witness at trial, he is barred from representing his LLC under RPC 3.7.” Id at *11. The Appellate Division disagreed, noting: “Based on the undisputed facts of the case, we agree [Attorney] is likely to be a necessary witness. That finding, however, does not require [Attorney]’s immediate disqualification. RPC 3.7 prevents a lawyer who is likely to be a necessary witness from acting as an advocate at a trial.” Id. (emphasis added).
The Appellate Division noted that in Escobar v. Mazie, 460 N.J. Super. 520, 527 (App. Div. 2019), the court held that “RPC 3.7 is a rule addressed only to a lawyer acting as an advocate at trial.” Id. Based on this determination, the Appellate Division found that the trial court in Escobar had erred in relying on RPC 3.7 to bar the attorney-witness from representing the defendant at depositions or in any other pre-trial matters.” Id. The Appellate Division explained that the American Bar Association’s comments to the model Rule of Professional Conduct 3.7 expressed a concern that:
Because a witness is required to testify on the basis of personal knowledge, while an advocate is expected to explain and comment on evidence given by others, the jury may not understand whether a statement by an advocate-witness should be taken as proof or as an analysis of the proof.
Id. (quoting Escobar, supra, 460 N.J. Super. at 527).
The Appellate Division also noted “by disregarding the phrase ‘at a trial’ in the language of RPC 3.7, the trial court failed to follow the bedrock assumption in statuary interpretation that the scrivener did not use any unnecessary or meaningless language.” Id. at 14 (internal citations omitted).
The appellate court concluded:
Because the trial court erred in applying R. 1:21-1(c) to disqualify [Attorney] and erred in applying RPC 3.7 to disqualify him immediately, we reverse. Defendant is free to renew, at an appropriate time, a motion to disqualify [Attorney] from acting as counsel at trial or a pretrial evidentiary hearing in which [Attorney] is likely to be a necessary witness, in accordance with RPC 3.7.
Id.