                                                                                                                           Opinions of the United
2003 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


5-30-2003

Morganroth v. Norris McLaughlin
Precedential or Non-Precedential: Precedential

Docket 02-2087




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"Morganroth v. Norris McLaughlin" (2003). 2003 Decisions. Paper 496.
http://digitalcommons.law.villanova.edu/thirdcircuit_2003/496


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                                    PRECEDENTIAL

                                                 Filed May 30, 2003

            UNITED STATES COURT OF APPEALS
                 FOR THE THIRD CIRCUIT


                             No. 02-2087


              MORGANROTH & MORGANROTH, a
                   Michigan partnership;
                  MAYER MORGANROTH,
                                            Appellants
                                   v.
         NORRIS, MCLAUGHLIN & MARCUS, P.C.;
       VICTOR S. ELGORT; DANIEL R. GUADALUPE;
       CHARLES H. NEWMAN; DAVID C. ROBERTS;
                   JOHN DOE(S), I-X

       Appeal from the United States District Court
                For the District of New Jersey
                     D.C. No.: 00-cv-4139
      District Judge: Honorable Garrett E. Brown, Jr.

                      Argued: April 10, 2003
     Before: BARRY and ROSENN, Circuit Judges, and
                POLLAK,* District Judge.

                        (Filed May 30, 2003)




* Honorable Louis H. Pollak, Senior District Judge, United States District
Court for the Eastern District of Pennsylvania, Sitting by Designation.
                             2


                      Thomas S. Howard, Esq. (Argued)
                      Heather W. Goldstein, Esq.
                      Kirsch, Gartenberg & Howard
                      Two University Plaza
                      Suite 400
                      Hackensack, NJ 07601
                      Counsel For Appellants
                      Wendy L. Mager, Esq. (Argued)
                      William J. Brennan III, Esq.
                      Smith, Stratton, Wise, Heher
                       & Brennan, L.L.P.
                      Suite 4200
                      600 College Road East
                      Princeton, NJ 08540
                      Counsel For Appellees


                OPINION OF THE COURT

ROSENN, Circuit Judge.
  This appeal raises thorny questions relating to the
bounds of legitimate legal advocacy and transgressive
participation by attorneys at law in a client’s illegal
conduct. The plaintiffs, Morganroth & Morganroth, a
Michigan law firm, and Mayer Morganroth, Esq.
(“Morganroths”), sued John Z. DeLorean in a federal court
in Michigan for legal services rendered over approximately
ten years. The jury returned a verdict in their favor against
DeLorean and Ecclesiastes 9:10-11-12, Inc. (“Ecclesiastes”),
a corporation controlled by him, in a sum exceeding six
million dollars. The Michigan Court enjoined DeLorean from
transferring his assets. It set aside a purported transfer to
Genesis III, Inc. (“Genesis”) (another corporation DeLorean
controlled) of DeLorean’s Lamington Farm in New Jersey as
a fraudulent conveyance to hinder, delay, or defraud
DeLorean’s creditors.
  The plaintiffs brought the instant suit against Norris,
McLaughlin & Marcus, P.C. (Norris, McLaughlin), a New
Jersey law firm, as well as Victor S. Elgort, Esq., and
Daniel R. Guadalupe, Esq., its employees or affiliates. The
                               3


complaint alleges that they actively, knowingly, and
intentionally participated in their client’s unlawful efforts to
avoid execution on his property. The United States District
Court for the District of New Jersey dismissed the action on
the ground that the plaintiffs had not alleged all of
the    elements    of    common      law     fraud,  including
misrepresentations to the plaintiffs, detrimental reliance,
and cognizable damages. The plaintiffs timely appealed. We
vacate and remand.

                               I.
  For the purposes of defendants’ motion to dismiss, we
must accept as true the allegations in plaintiffs’ complaint
and make all reasonable inferences in their favor. Shaev v.
Saper, 320 F.3d 373, 375 (3d Cir. 2003). The statements of
fact in this opinion are drawn from the allegations in the
complaint.
  The plaintiffs filed suit against DeLorean and Ecclesiastes
in a federal district court in Michigan in February 1993,
seeking a judgment for their legal services and also
injunctive relief. Defendants Norris, McLaughlin and/or
Elgort represented DeLorean in that action. In May 1994,
DeLorean purported to convey his interests in his 430 acre
Lamington Farm for a nominal sum to Genesis. Norris,
McLaughlin assisted DeLorean in this transaction and in
forming Genesis.
  On July 11, 1994, the Honorable Anna Diggs Taylor
enjoined DeLorean from transferring any assets, including
Lamington Farm. Judge Taylor set aside the purported
transfer of the farm to Genesis on September 12, 1994, and
declared that it was a fraudulent conveyance with intent to
hinder, delay, or defraud DeLorean’s creditors, including
the Morganroths. The Michigan jury found for the
Morganroths and in February 1995 they obtained a
judgment against DeLorean and Ecclesiastes, jointly and
severally, in the sum of $6,228,235. A substantial amount
of the judgment remains unpaid.
  The complaint alleges that after the Michigan trial,
DeLorean continued to take steps to obstruct the
Morganroths from recovering on the judgment. In February
                             4


1995, he delivered his shares of capital stock in a Nevada
corporation called CRISTINA to the United States Marshals
Service to facilitate execution of a judgment in favor of
DeLorean Cadillac, Inc., an Ohio corporation controlled by
his brother. The Morganroths allege that this action was a
fraudulent effort to obstruct them from enforcing their
judgment against DeLorean’s CRISTINA stock.
   In April 1995, Elgort and Norris, McLaughlin prepared a
deed purporting to confirm the May 24, 1994 deed
conveying DeLorean’s interests in Lamington Farm to
Genesis. They recorded the deed with the Somerset County,
New Jersey Clerk. The Morganroths allege that the
defendants took this action “with the intent of defrauding
[them] and aiding DeLorean in his efforts to hinder and
delay [the Morganroths’] enforcement of the Michigan
Judgment.”
  Two days after the defendants recorded the deed, the
Morganroths sought to enforce the Michigan judgment in a
supplementary     proceeding    against  DeLorean    and
Ecclesiastes in the United States District Court for the
District of New Jersey. Norris, McLaughlin and/or Elgort
and/or     Guadalupe    represented   DeLorean   in   the
supplementary action. The Morganroths registered the
Michigan judgment in the United States District Court for
the Southern District of New York and served DeLorean
with a restraining order to prevent him from conveying
property until their judgment against him had been
satisfied.
   The complaint alleges that on or before June 2, 1995,
Norris,     McLaughlin    and    Guadalupe      prepared    a
Memorandum of Life Lease in which Genesis, the purported
title holder of Lamington Farm, acknowledged a preexisting
life lease created in September 1987 between DeLorean, as
lessor, and DeLorean, as guardian for his children, as
lessee. The Memorandum was created after the entry of the
Michigan judgment. The purported lease concerned all or a
portion of Lamington Farm, including a mansion house,
several additional dwelling units, and other buildings. The
Morganroths allege that the life lease was a fiction and that
Norris, McLaughlin and Guadalupe knew it was; the
defendants created the Memorandum in a fraudulent
                             5


attempt to obstruct plaintiffs’ enforcement of the Michigan
judgment.
   Two weeks before DeLorean was to be deposed, Norris,
McLaughlin recorded the purported life lease Memorandum
with the Somerset County Clerk. Norris, McLaughlin
subsequently prepared and recorded a corrective deed,
again purporting to transfer DeLorean’s interest in
Lamington Farm to Genesis. On August 3, 1995, Norris,
McLaughlin wrote a letter to the Somerset County Clerk.
The letter enclosed a copy of Judge Taylor’s November 3,
1994 order dissolving the July 11, 1994 preliminary
injunction order. According to the complaint, Norris,
McLaughlin misrepresented to the Clerk that the November
3, 1994 order had the effect of dissolving Judge Taylor’s
September 12, 1994 order which had set aside DeLorean’s
fraudulent conveyance of Lamington Farm to Genesis. The
Clerk relied on this deceptive letter and entered into the
public record erroneous marginal notations of the
purported dissolution of Judge Taylor’s September 12, 1994
order.
  In January 1996, the United States District Court for the
District of New Jersey issued on the Morganroths’ behalf a
writ of execution in the supplementary proceeding. This
writ included in the execution, inter alia, Lamington Farm,
certain personal property, and the CRISTINA shares. Elgort
privately contacted the attorney representing DeLorean
Cadillac, which was controlled by DeLorean’s brother.
Elgort asked the attorney not to contact the Morganroths or
the Marshal in connection with some furniture described in
the writ of execution that was being removed by John
DeLorean to a warehouse owned by DeLorean Cadillac for
the purpose of escaping plaintiffs’ writ of execution. The
instant defendants did not disclose to the District Court at
the time they moved for and argued the motion to vacate
the plaintiffs’ writ of execution that DeLorean had delivered
the CRISTINA shares to the Marshal to facilitate the
execution by DeLorean Cadillac on its writ.
  Based on the transfers, Norris, McLaughlin and
Guadalupe argued that the CRISTINA shares and
Lamington Farm were not subject to the plaintiffs’ writ of
execution. Plaintiffs allege that Norris, McLaughlin and
                                  6


Guadalupe knew, or should have known, that these
transfers were made by DeLorean and others with the
intent to hinder, delay, and defraud the plaintiffs. On
October 3, 1996, the District Court denied the motion and
found that Judge Taylor’s September 12, 1994 order setting
aside DeLorean’s purported transfer of Lamington Farm to
Genesis was a facially valid order that had not been
vacated.
   On April 7, 1999, the District Court issued a further writ
of execution (“Second Alias Writ”). This writ included
DeLorean’s right to redeem Lamington Farm from Merrill
Lynch Credit Corporation under an amended consent order
in foreclosure proceedings brought by Merrill Lynch against
DeLorean and others in the New Jersey Chancery Court
(“the Redemption Rights”). Again, Norris, McLaughlin
moved to vacate this writ, maintaining that DeLorean’s
Redemption Rights were not subject to execution based
upon the previous transfers and other transactions. The
Morganroths allege that defendants knew or should have
known that these transactions were entered into by
DeLorean and others to hinder, delay, and/or defraud the
Morganroths and also knew that the New Jersey Chancery
Court had held that plaintiffs could execute their judgment
against DeLorean’s Redemption Rights.
   The District Court held in July 1999 that plaintiffs could
execute the New Jersey Chancery Court’s judgment against
the Redemption Rights and ordered a U.S. Marshal’s sale of
those rights. The Morganroths allege that the defendants
made every effort to hinder the sale by making arguments
based on transactions that the defendants knew to be
fraudulent. Additionally, plaintiffs allege that in Chapter 11
bankruptcy proceedings in the District of Maryland, Norris,
McLaughlin maintained that the Redemption Rights were
the property of DeLorean’s children and not subject to the
Second Alias Writ, although it knew that the District Court
had held they were John DeLorean’s property and subject
to execution and sale to satisfy the New Jersey judgment.
  In the instant suit, the Morganroths sued only
DeLorean’s lawyers in the United States District Court for
the District of New Jersey.1 Count I of the complaint alleges

1. The District Court had jurisdiction under a diversity theory. See 28
U.S.C. § 1332. The controversy is between citizens of different states.
                                   7


that defendants conspired to commit fraud. It alleges that
defendants agreed to make misrepresentations and
omissions to defraud the plaintiffs; they took tortious steps
in furtherance of those agreements, causing actual and
consequential damages including attorneys’ fees and
expenses involved in recovering on the Michigan judgment.
In Count II, the Morganroths claim that defendants
knowingly aided and abetted DeLorean’s acts of fraud and
concealment for the purpose of hindering plaintiffs’ efforts
to enforce the judgment, causing actual and consequential
damages. In Count III, plaintiffs assert that defendants
themselves committed fraud through their knowing
material misrepresentations, fraudulent concealment, and
wrongful withholding of information, and that these acts
and omissions proximately caused plaintiffs actual and
consequential damages.
  Defendants moved to dismiss for failure to state a claim
under Federal Rule of Civil Procedure 12(b)(6) and the
District Court granted the motion.

                                   II.
   The District Court should only have dismissed the
Morganroths’ claims if they failed to allege a set of facts
that would entitle them to relief. See Conley v. Gibson, 355
U.S. 41, 45-46 (1957). The Court should have accepted all
well-pleaded allegations in the complaint as true and
should have viewed them in the light most favorable to the
Morganroths. See Shaev, 320 F.3d at 375. This Court’s
review of the District Court’s dismissal is plenary. See
Board of Trustees of Bricklayers & Allied Craftsmen Local 6
v. Wettlin Assocs., 237 F.3d 270, 272 (3d Cir. 2001).

Morganroth & Morganroth is a Michigan partnership with its principal
place of business in Michigan. Plaintiff Mayer Morganroth is a citizen of
the state of Michigan and has a principal place of business in Michigan.
All the defendants are from New Jersey. The amount in controversy
substantially exceeds $75,000. The District Court’s March 19, 2002
order granting defendants’ motion to dismiss is a final order for the
purposes of 28 U.S.C. § 1291.
                               8


   In their motion to dismiss, defendants argued that the
Morganroths’ complaint did not allege misrepresentations
made by defendants or that plaintiffs relied upon any of
defendants’ statements to their detriment. See Dist. Ct. op.
at 8. Thus, defendants argued, the complaint does not
allege all of the elements of actionable fraud. Id. The
District Court agreed, concluding that in the absence of
allegations of material misrepresentations to the plaintiffs,
reasonable reliance, and damages proximately caused by
the misrepresentations, there could be no finding of
common law fraud. See id. at 9.
   Plaintiffs acknowledge that they have not stated a claim
for common law fraud, but argue they did state a claim for
creditor fraud under New Jersey law. They assert that they
are not required to allege reliance upon statements made
by the defendants to make out a cause of action for creditor
fraud because New Jersey case law provides a cause of
action against a judgment debtor who fraudulently
obstructs enforcement of a judgment.
   The tort of creditor fraud, which does not require that the
plaintiff plead all of the elements of common law fraud, has
not yet been recognized by the New Jersey Supreme Court.
Nevertheless, the New Jersey Superior Court has explained
that “[i]t is not necessary for plaintiff to show a classic case
of legal fraud in order to have a viable cause of action when
it is otherwise demonstrated that actions have been taken
for the purposes of defrauding a creditor.” Karo Marketing
Corp. v. Playdrome Am., 752 A.2d 341, 346 (N.J. Super. Ct.
App. Div. 2000). The District Court attempted to
distinguish Karo on the ground that it did not recognize
that “a judgment creditor will be able to maintain a cause
of action against a debtor’s legal counsel.” Dist. Ct. op. at
12 n.2. In Karo, a creditor won a judgment against a
management company. The creditor then sued the
management company’s parent corporation, subsidiaries,
shareholders, and lawyers to recover for various actions
they took to make the management company judgment
proof. Karo held that the creditor had stated a separate and
independent claim “sounding in creditor fraud,” id. at 345,
even though the management company and its attorneys
and affiliates had not made any misrepresentations to the
judgment creditor.
                              9


   Karo was based in part on Jugan v. Friedman, 646 A.2d
1112 (N.J. Super. Ct. App. Div. 1994). In Jugan, a creditor
won a tort judgment against a debtor. Seeking to enforce
the judgment, the creditor sued the debtor and his wife and
sons as the recipients of allegedly fraudulent conveyances.
The court held that the creditor was entitled to void the
fraudulent conveyances made for no consideration from the
debtor to his family. Moreover, the debtor’s fraudulent
interference with the creditor’s efforts to collect constituted
an independent tort entitling the creditor to damages. Id. at
1119; Banco Popular North America v. Gandi, 2003 N.J.
Super. LEXIS 151, at *13 (N.J. Super. Ct. App. Div. April
29, 2003) (“. . . we recognized [in Jugan] that [the debtor]’s
efforts to interfere with Jugan’s attempt to collect on his
judgment debt constituted a separate, cognizable tort.”). As
in Karo, Jugan did not require that the plaintiff rely to his
detriment on a false representation by the defendant.
Jugan, 646 A.2d at 1119. The New Jersey Superior Court
explained:
    Mr. Jugan did not undertake the present action
    because he was fooled by [the debtor]’s false
    representations. He sued to set the purported transfers
    aside because he knew they were false. Nonetheless,
    [the debtor]’s conduct was clearly unlawful and it is
    closely enough analogous to common law fraud that we
    have no hesitancy in ruling, as we do, that it was
    tortious and that Mr. Jugan is therefore entitled to
    recover for damage of which that tort was the
    proximate cause.
Id. at 1119-20 (emphasis in original). Additionally, Jugan
was entitled to recover the attorney’s fees incurred in
litigation with the debtor’s wife and sons that were made
necessary by the debtor’s interference.
  The District Court in this case rejected the Morganroths’
argument that they had stated a claim for creditor fraud.
The Court reasoned that Karo and Jugan do not support a
general cause of action against a debtor’s attorney when
the plaintiffs do not allege reliance on the attorney’s
misrepresentations. See Dist. Ct. op. at 11. The District
Court acknowledged that one of the defendants in Karo was
the debtor’s attorney, but reasoned that the Karo plaintiffs
                              10


alleged with greater specificity than the plaintiffs do here
that the attorney was actively involved in creating and
executing the scheme. The District Court characterized the
Morganroths’ complaint as only making “general allegations
that the defendants conspired with the debtors to deprive
them of their enforcement of the judgment. There are no
allegations that the defendants orchestrated or devised the
debtor’s alleged scheme to defraud them, such as the
claims against the attorney in Karo.” Id. at 10. We disagree.
The Morganroths’ allegations amply satisfy Karo’s
requirements.
   The Morganroths have alleged facts that, if proven, would
establish that the defendants went beyond the bounds of
permissible advocacy; they allege that defendants were
active participants and planners in the scheme to obstruct
the plaintiffs’ efforts to execute on their judgment. Plaintiffs
allege that Norris, McLaughlin prepared a confirmatory
deed that purported to transfer Lamington Farm from
DeLorean to Genesis. The Morganroths assert that the
defendants knew this deed to be false when they prepared
it and that they did so with the intent of unlawfully aiding
DeLorean in his efforts to defraud the Morganroths and to
hinder and delay enforcement of the Michigan judgment.
  Moreover, plaintiffs allege that on or before June 2, 1995,
Norris, McLaughlin knowingly and falsely prepared a sham
Memorandum of Life Lease. The sham lease purported to
acknowledge the existence of a fictional 1987 lessor-lessee
relationship between DeLorean as owner and DeLorean as
guardian of his children as lessee. Whether a bona fide
lease actually existed as of 1987 is a factual question. If it
did not, and if the defendants knew it did not, they
transgressed the bounds of legal advocacy and committed
creditor fraud.
   Plaintiffs specifically allege a number of other intentional
acts in furtherance of the scam to hinder collection of
plaintiffs’ judgment: the defendants recorded the sham
lease with the Somerset County Clerk’s office; they
prepared and recorded a corrective lease with the clerk’s
office; they wrote a letter to the clerk’s office deliberately
misrepresenting the effect of the September 12, 1994
Michigan court order. The defendants took no action to
                             11


correct these misrepresentations, even after the District
Court denied DeLorean’s motion to vacate the writ on
October 3, 1996, and upheld the September 12, 1994
Michigan order.
   Defendants’ responses to these arguments miss the
mark. For example, they argue that whether or not the
existence of a life lease harmed the plaintiffs, the recording
of it had no adverse effect. The Morganroths’ claim is that
no genuine life lease existed. Rather, it was merely a
fictional invention of the defendants with the intent to
hinder and defraud the plaintiffs of their judgment against
DeLorean and Genesis, thereby encumbering the title to
Lamington Farm. Defendants argue that the act of
recording the lease did not have any effect on the plaintiffs
because it merely asserted DeLorean’s legal position. The
truth of this statement depends on two triable facts: (1)
whether the 1987 lease actually existed; and (2) whether
DeLorean’s lawyers knew that it did not and was merely a
fiction.
   The plaintiffs also allege that Norris, McLaughlin assisted
in the formation of Genesis for the sole purpose of
obstructing plaintiffs’ efforts to enforce their judgment
against DeLorean, and pursuant to such purpose
engineered the conveyance of Lamington Farm to it. The
defendants respond that this was done to facilitate the
development of the property as a golf course. However, the
transfer to Genesis was judicially determined to be a fraud
by the Michigan court. Whether defendants knew or
participated knowingly in the fraud is a triable issue. The
defendants further argue that the transfer could not have
prevented the Morganroths from collecting on their
judgment because DeLorean had a 98% interest in Genesis.
However, plaintiffs’ allegation is that the transaction was a
sham meant to hinder or delay, not that it was an
insuperable obstacle to eventual recovery. The Morganroths
allege that the defendants knowingly participated in this
scheme to hinder or delay.
  The defendants further argue that the Genesis transfer
did not cause the plaintiffs to litigate with a third party
because Merrill Lynch already had a superior lien on the
Lamington Farm. The conveyance from DeLorean to
                                     12


Genesis may or may not have affected the Morganroths’
rights vis-a-vis Merrill Lynch, but it did hinder and delay
plaintiffs’ efforts to enforce the Michigan judgment, and it
did increase their litigation costs. The defendants argue
that the plaintiffs cannot show that the sham Genesis
transaction harmed them unless they can prove that but
for the Genesis transfer, they would have obtained the farm
outright. This argument is sophistry; the plaintiffs must
only allege that the defendants actively and knowingly
participated in a fraudulent scheme that hindered or
delayed their efforts to enforce the Michigan judgment.
These efforts might not have given plaintiffs unencumbered
title to the farm by foreclosure but, at least, gave them a
valuable interest or title subject to the Merrill Lynch lien.
   The complaint alleges that the defendants pursued an
unlawful and fraudulent means of evading the writ of
execution when they wrote DeLorean Cadillac’s attorney
requesting him not to communicate with the Marshal or
with Morganroth’s attorney about DeLorean’s furniture.
Defendants argue that the letter merely asserts DeLorean’s
legal position that DeLorean Cadillac has no obligation to
inform the Morganroths that furniture obtained by
DeLorean Cadillac pursuant to a writ of execution in
another case had been moved to a warehouse. If the
contents and purpose of the letter are proven at trial, this
evidence would support plaintiffs’ claim of creditor fraud.
  The Morganroths also allege that the defendants
knowingly made false representations in court proceedings
regarding DeLorean’s furniture and his CRISTINA shares.
The allegation is that the defendants knew, or should have
known, that the transfers upon which their arguments were
based were shams entered into with an intent to hinder or
delay and defraud plaintiffs in the execution of the
Michigan judgment.2

2. Defendants implausibly argue that the Morganroths’ complaint fails to
satisfy Federal Rule of Civil Procedure 9(b) because it is not pled with
adequate particularity. See Dist. Ct. op. at 8. Rule 9(b) provides that “[i]n
all averments of fraud or mistake, the circumstances constituting fraud
or mistake shall be stated with particularity. Malice, intent, knowledge
and other condition of mind of a person may be averred generally.” Fed.
                                    13


  We hold that when a complaint alleges that an attorney
has knowingly and intentionally participated in a client’s
unlawful conduct to hinder, delay, and/or fraudulently
obstruct the enforcement of a judgment of a court, the
plaintiff has stated a claim under New Jersey law for
creditor fraud against the attorney. This is so even if the
complaint does not allege any misrepresentation by the
attorney to the judgment creditor and does not allege that
the creditor detrimentally relied on such misrepresentation.
In this case, the Morganroths have alleged many facts
which, if proven, would amply satisfy this test. Thus, the
District Court’s dismissal of the Morganroths’ fraud claim
in Count III must be vacated.

                                   III.
   The District Court also erred when it held that the
dismissal of Count III required the dismissal of the
conspiracy and aiding and abetting claims. There are four
elements to the tort of civil conspiracy: (1) a combination of
two or more persons; (2) a real agreement or confederation
with a common design; (3) the existence of an unlawful
purpose, or of a lawful purpose to be achieved by unlawful
means; and (4) proof of special damages. Naylor v. Harkins,
99 A.2d 849, 855 (N.J. Super. Ct. Ch. Div. 1953), modified
on other grounds, 109 A.2d 19 (N.J. Super. Ct. App. Div.
1954).
  The District Court mistakenly cited Karo for the
proposition that allegations of civil conspiracy were
“adjunct” to the fraud claim. See Dist. Ct. op. at 13 (citing
Karo, 752 A.2d at 348). The citation in Karo is to Board of
Educ., Asbury Park v. Hoek, 183 A.2d 633 (N.J. 1962), in
which the New Jersey Supreme Court explained that “[t]he
gravamen of an action in civil conspiracy is not the

R. Civ. P. 9(b). The purpose of Rule 9(b) is to provide notice, not to test
the factual allegations of the claim. See Gutman v. Howard Savings
Bank, 748 F. Supp. 254, 257 (D. N.J. 1990). The fraud allegations are
sufficiently particular because they allege specific actions by which
defendants exceeded the bounds of advocacy and became active
participants in their client’s illegal scheme.
                                  14


conspiracy itself but the underlying wrong which, absent
the conspiracy, would give a right of action. Proof of a
conspiracy makes the conspirators jointly liable for the
wrong and resulting damages.” Id. at 646 (internal citations
omitted). Mere agreement to do a wrongful act can never
alone amount to a tort, whether or not it may be a crime.
See Rose v. Bartle, 871 F.2d 331, 366 n.59 (3d Cir. 1989);
McAlpine v. AAMCO Automatic Transmission, Inc., 461
F.Supp. 1232, 1273 (E.D. Mich. 1976). Some act that is
itself a tort must be committed by one of the parties in
pursuance of the agreement. See James v. Evans, 149 F.
136, 140 (3d Cir. 1906) (“The gist of the action is not the
conspiracy charged, but the tort working damage to the
plaintiff.”).
  Not every conspirator must commit an overt act in
furtherance of the conspiracy, so long as at least one does.
See Beck v. Prupis, 529 U.S. 494, 503 (2000). Here, the
Morganroths have alleged a number of overt acts committed
by one or more of the conspirators in furtherance of the
conspiracy, many of which would hypothetically survive the
dismissal of Count III. For example, if the defendants and
DeLorean agreed to the conspiracy but all the overt acts in
furtherance of the conspiracy were committed by DeLorean
himself, defendants would still be liable for civil conspiracy.
Thus, the conspiracy count survives both because the
District Court erred in dismissing Count III and because
the District Court erroneously concluded that DeLorean’s
overt acts could not serve as the predicates for a conspiracy
claim against defendants.
  Likewise, the District Court erred in dismissing the aiding
and abetting claim set forth in Count II. The elements of
aiding and abetting are: (1) the commission of a wrongful
act; (2) knowledge of the act by the alleged aider-abettor;
and (3) the aider-abettor knowingly and substantially
participated in the wrongdoing. Monsen v. Consol. Dressed
Beef Co., Inc., 579 F.2d 793, 799 (3d Cir. 1978); Elysian
Fed. Savings Bank v. First Interregional Equity Corp., 713 F.
Supp. 737, 760 (D.N.J. 1989) (interpreting inter alia New
Jersey common law of fraud).3 The Morganroths’ complaint

3. There are important differences between criminal and civil approaches
to aiding and abetting liability. In particular, shared intent is not
                                    15


provides numerous allegations of defendants’ knowing
assistance to DeLorean’s fraudulent schemes. The
truthfulness of plaintiffs’ allegations regarding the
defendants’ knowledge of the fraudulent nature of
DeLorean’s actions is a question of fact to be determined at
trial.

                                   IV.
   As a general rule in New Jersey, each party must bear its
own attorneys’ fees. See, e.g., Right to Choose v. Byrne, 450
A.2d 925, 940 (N.J. 1982). An exception to this rule is that
if the wrongful conduct of a tortfeasor causes a plaintiff to
sue a third party, the plaintiff can recover the fees incurred
in the litigation against the third party from the tortfeasor.
In re Estate of Lash, 776 A.2d 765, 769 (N.J. 2001). In
Jugan, the creditor was simultaneously involved in
litigation with both the debtor and the recipients of the
debtor’s fraudulent conveyances. The court held that the
creditor was entitled to recover, as damages for the debtor’s
interference, the attorneys’ fees incurred in litigation with
the transferees of the fraudulent conveyances, but not the
fees incurred against the judgment debtor. Here, the
situation is slightly different: plaintiffs charge that the
debtor’s attorneys committed fraud. The debtor’s attorneys’
fraud did not cause the plaintiffs to sue the debtor; it did
cause them additional attorneys’ fees and expenses in the
suit to enforce the judgment against the debtor and in the
actions to set aside the purported unlawful transfers of
property and other sham transactions.
  We conclude that the situation here is sufficiently
analogous to Jugan to merit the same treatment. The
defendants allegedly were both the “but for” cause and the
proximate cause of the Morganroths’ additional attorneys’
fees. Licensed lawyers are not shielded from liability if their

required in the civil context in New Jersey. See Failla v. City of Passaic,
146 F.3d 149, 157 (3d Cir. 1998). A person is liable for harm resulting
to a third person from the conduct of another when he “knows that the
other’s conduct constitutes a breach of duty and gives substantial
assistance or encouragement to the other so to conduct himself . . . .”
Id. at 157-58 (quoting Restatement (Second) of Torts § 876(b)).
                                   16


conduct extends beyond the legitimate bounds of lawful
representation. See Wahlgren v. Bausch & Lomb Optical Co.,
68 F.2d 660, 664 (7th Cir. 1934) (“One may not use his
license to practice law as a shield to protect himself from
the consequences of an unlawful or illegal conspiracy.”);
accord Banco Popular, 2003 N.J. Super. LEXIS 151, at *15-
*16. Although the Morganroths are not entitled to attorneys’
fees arising out of their original suit against DeLorean, the
additional expenses in fees and costs they incurred to
enforce the judgment as a result of defendants’ alleged
fraud are recoverable. See Jugan, 646 A.2d at 1120.
   The District Court concluded that plaintiffs made an
insufficient “blanket allegation” that they have suffered
extra costs. See Dist. Ct. op at 10. The Morganroths’ theory
of damages is that the defendants proximately caused them
to suffer actual and consequential damages for injury to
their business or property, including but not limited to
attorneys’ fees and expenses incurred as a result of
defendants’ fraud, conspiracy to commit fraud, and aiding
and abetting DeLorean’s fraud. Thus, the Morganroths seek
to recover attorneys’ fees that they incurred as a result of
defendants’ unlawful conduct in furthering DeLorean’s
efforts. Defendants’ response is that they were merely
engaged in adversarial lawyering and that any expenses the
Morganroths incurred in enforcing the Michigan judgment
against DeLorean resulted from preexisting legitimate
claims to DeLorean’s assets by other parties. If these claims
were legitimate or had arisen prior to defendants’
representation of DeLorean, then the plaintiffs obviously
would have no case. However, these are factual questions
that cannot be resolved on a 12(b)(6) motion to dismiss.
Thus, we hold that plaintiffs have stated a claim for
damages under New Jersey law and the District Court’s
Order of Dismissal must be reversed.4

4. The defendants may also have violated New Jersey’s Uniform
Fraudulent Transfer Act, N.J.S.A. §§ 25:2-20 to 25:2-34 (UFTA), which
creates a cause of action for transfers made by a debtor that are
fraudulent as to a creditor
    if the debtor made the transfer or incurred the obligation: a. With
    actual intent to hinder, delay, or defraud any creditor of the debtor;
                                   17


                                   V.
   Defendants erroneously contend that plaintiffs’ claims to
set aside the transfer of Lamington Farm and personal
property to Genesis are barred by the statute of limitations.
They argue that those claims accrued more than six years
prior to the filing of this law suit. It is true that the transfer
of the farm to Genesis took place May 24, 1994, and this
action was not filed until August 23, 2000, more than six
years later. However, plaintiffs’ action against the
defendants for participating in DeLorean’s fraudulent
scheme to avoid collection of the Michigan judgment did
not accrue until the Morganroths obtained a judgment
against DeLorean in the Michigan litigation. Thus, the
statute of limitations runs from entry of that judgment on
February 2, 1995. The statute of limitations has, therefore,
not run on any of the plaintiffs’ claims in this lawsuit.5
Moreover, many of defendants’ allegedly fraudulent acts
and omissions took place within the time limitations period
and others have been previously judicially determined. For
example, Judge Taylor already held that the transfer of
Lamington Farm from DeLorean to Genesis was a
fraudulent conveyance. To the extent that the fraudulent
nature of that transaction is necessary as a predicate to the

    or b. Without receiving a reasonably equivalent value in exchange
    for the transfer or obligation, and the debtor: (1) Was engaged or
    was about to engage in a business or a transaction for which the
    remaining assets of the debtor were unreasonably small in relation
    to the business or transaction; or (2) Intended to incur, or believed
    or reasonably should have believed that the debtor would incur,
    debts beyond the debtor’s ability to pay as they become due.
N.J.S.A. § 25:2-25. However, the remedies directly under the UFTA are
limited. See N.J.S.A. § 25:2-29. Thus, plaintiffs must rely upon the tort
of creditor fraud articulated in Karo and Jugan to pursue damages for
additional attorneys’ fees incurred.
5. The Morganroths first address the statute of limitations question in
their reply brief. The defendants raised the question in their brief. The
reply brief was the appropriate time for the Morganroths to address the
question because plaintiffs could not be expected to have anticipated
that the defendants would raise the statute of limitations defense on
appeal since it was not ruled on in the District Court.
                                   18


Morganroths’ other allegations, defendants cannot now
argue that it was not fraudulent.6

                                   VI.
  The District Court’s order granting defendants’ motion to
dismiss entered March 20, 2002 will be vacated as to all
three counts alleged in plaintiffs’ complaint and the case
will be remanded for further proceedings consistent with
this opinion. Costs taxed against the defendants.

A True Copy:
        Teste:

                       Clerk of the United States Court of Appeals
                                   for the Third Circuit




6. Plaintiffs also assert that the continuing violation theory tolls the
statute of limitations. See Fowkes v. Penn. R.R. Co., 264 F.2d 397 (3d
Cir. 1959). However, this theory does not apply when plaintiffs are aware
of the injury at the time it occurred. See Kichline v. Consol. Rail Corp.,
800 F.2d 356, 360 (3d Cir. 1986). The Morganroths successfully
contested the transfer of Lamington Farm to Genesis during the
Michigan action, demonstrating that they were aware of the injury at the
time and precluding resort to the continuing violation theory of tolling.
