The Appellate Division has given real estate developer Bruce Kaye a second chance to seek disgorgement of $1 million he paid to an attorney who committed fraud and malpractice while serving as his general counsel.

The appeals court reversed an August 2017 order dismissing Kaye's suit against Alan Rosefielde, who improperly transferred ownership interests in some of Kaye's businesses to himself after he was hired to manage Kaye's real estate holdings. The appeals court also reversed a March 2018 order granting Rosefielde roughly $30,000 on an application for fees spent litigating his motion to dismiss.

The latest events follow a landmark September 2015 ruling by the state Supreme Court that held an employer may seek disgorgement of the compensation of a disloyal employee, even when the employer has not suffered an economic loss as a result of the breach of duty.

Kaye, the chief executive officer of Flagship Resort Condominiums, sued Rosefielde, a New York tax attorney, for legal malpractice and fraud in 2005. Rosefielde, who served as general counsel and chief operating officer of Kaye's timeshare company, was accused in the suit of setting up entities that gave him partial ownership in two of Kaye's businesses, as well as fraudulently enriching himself at Kaye's expense.

After a 2007 bench trial in Atlantic County, Rosefielde was found to have committed malpractice, fraud and breach of fiduciary duty. The court ordered Rosefielde's interests in Kaye's businesses rescinded and issued a judgment in favor of Kaye for $966,675. But the court denied Kaye's demand for disgorgement, based on the absence of economic injury.

Kaye appealed the disgorgement ruling to the Appellate Division. In November 2012, after oral argument at the Appellate Division, but before a decision was issued, Kaye and Rosefielde settled. Kaye agreed to accept $250,000 from Rosefielde's malpractice carrier in satisfaction of the $966,675 judgment.

The appeals court affirmed the disgorgement ruling, prompting Kaye to appeal to the Supreme Court. There, the justices concluded "that an employer may seek disgorgement of a disloyal employee's compensation as a remedy for the breach of the duty of loyalty, with or without a finding of economic loss." However, because the trial court never made a finding of economic loss related to Rosefielde's compensation, the Supreme Court remanded the case for a hearing on that issue.

Back at the trial court, Rosefielde moved to dismiss, seeking an order enforcing the settlement agreement. Kaye argued that he was entitled to continue litigating the disgorgement issue in light of the Supreme Court's ruling, because when the justices rejected Rosefielde's motion to dismiss the certification petition, it did not state that it was applying an exception to the mootness doctrine. Kaye argued that, because the issue of mootness was not addressed, the Supreme Court must have viewed the case as a live controversy notwithstanding the settlement agreement. To view the Supreme Court's disposition otherwise, Kaye argued, would "pretend" the Supreme Court revised the case as a matter of public importance, despite its mootness.

In August 2017, Superior Court Judge Jeffrey Light granted Rosefielde's motion to dismiss, focusing on the settlement agreement and only briefly touching on the mootness issue. Light found that, while the Supreme Court's reason for denying Rosefielde's motion to dismiss the certification was unclear, "it is not critical to the immediate proceeding."

Kaye appealed that ruling. In March 2018, another Atlantic County Superior Court judge, Michael Blee, partially granted Rosefielde's petition for indemnification, granting fees for litigation on the motion to dismiss.

Before the Appellate Division, Judges Ellen Koblitz, Mary Gibbons Whipple and Greta Gooden Brown said Kaye was entitled to a disgorgement hearing if the Supreme Court heard the appeal under the live controversy doctrine. But he is precluded from obtaining relief if the court heard the case under the public interest exception to the mootness doctrine. But because the justices never specified how they viewed the circumstances, the appeals court said it was constrained to reverse both orders and remand for further proceedings. The appeals court said it was unable to address the order awarding fees to Rosefielde, since it was premised on his success on his motion to dismiss.

Andrew Rubin, the Montclair solo practitioner representing Rosefielde, said he was "disappointed" by the ruling and disagrees with the position taken by the Appellate Division. Rubin said he was "considering making a petition to the Supreme Court to enforce what clearly is a release in this matter."

Edwin Jacobs Jr. of Jacobs & Barbone in Atlantic City, who represents Kaye, said he was looking forward to demonstrating his client's entitlement to disgorgement of Rosefielde's pay. "I'm prepared to do it if given the hearing, but I've been held up for two years by an erroneous hearing given by a trial judge."