On certification to the Superior Court, Appellate Division, whose opinion is reported at 254 N.J. Super. 530 (1992).
Clifford, Wilentz, Handler, Pollock, Garibaldi, O'Hern, Stein
The opinion of the court was delivered by
This appeal requires the Court to decide when the statute of limitations begins to run on a legal-malpractice action. The trial court held that the six-year statute of limitations on plaintiff's malpractice claim had begun to run when the trial court decided against plaintiff in the underlying lawsuit. The Appellate Division reversed, concluding that the statute had started to run only after the appellate process had been completed in the underlying lawsuit. Grunwald v. Bronkesh, 254 N.J. Super. 530, 540, 604 A.2d 126 (1992). We granted certification, 130 N.J. 9 (1992), and now reverse.
Plaintiff, Abraham Grunwald, engaged the services of defendant Noah Bronkesh and his law firm, defendant Sills Cummis Zuckerman Radin Tischman Epstein and Gross (Sills Cummis), to negotiate an option agreement for the sale of certain real property in Atlantic City to Resorts International Hotel and Casino, Inc. (Resorts). Bronkesh prepared an option agreement and attached a contract of sale for Resorts' approval. Resorts signed the option agreement, but instead of initialing the attached contract to indicate acceptance of its form, Resorts signed the contract as well.
Grunwald alleges that Bronkesh did not ask Resorts why it had signed the sales agreement. Rather, Bronkesh advised Grunwald that by signing the agreement Resorts had entered into an enforceable contract to buy the property. Grunwald claims that in reliance on Bronkesh's advice, he bypassed another opportunity to develop the property. Resorts never exercised its option to buy the property.
Acting on Bronkesh's advice, Grunwald retained another law firm and in April 1984 sued Resorts for specific performance of the sale contract or, in the alternative, compensatory damages for breach of contract. On July 31, 1984, the Chancery Division held the sale agreement unenforceable because Resorts had not intended to purchase the property. The court also concluded that Grunwald had not acted reasonably in relying on Resorts' signature as evidencing its intent to be bound by the contract of sale.
Plaintiff then hired a third attorney, referred to him by Sills Cummis, who advised him to appeal. Grunwald did so, and the Appellate Division, on November 20, 1985, affirmed the Chancery Division judgment in favor of Resorts.
With the assistance of now his fourth attorney, plaintiff brought this legal-malpractice action on September 28, 1990, more than six years after the Chancery Division's decision. Plaintiff claims that defendants erroneously informed him that Resorts had exercised its option to purchase the property when it signed the sales agreement. He alleges that in reliance on defendants' legal Conclusion, he did not pursue an alternative development proposal for the land, and that he has incurred substantial legal fees in litigation against Resorts. Furthermore, Grunwald contends that neither his trial attorney nor appellate counsel suggested that he had a possible cause of action against Bronkesh and the law firm.
The trial court granted summary judgment for defendants, holding that the statute of limitations, N.J.S.A. 2A:14-1, barred Grunwald's action. Applying the discovery rule, see, e.g., Tevis v. Tevis, 79 N.J. 422, 400 A.2d 1189 (1979); Mant v. Gillespie, 189 N.J. Super. 368, 372, 460 A.2d 172 (App. Div. 1983), the court concluded that Grunwald knew or should have known that he had suffered damages attributable to defendants' negligence when he heard the oral decision of the Chancery Division on July 31, 1984. Thus, the court concluded that the statute of limitations had expired six years after July 31, 1984. The trial court also considered irrelevant the possibility that a successful appeal in the underlying action would have rendered the malpractice action moot.
The Appellate Division reversed, finding that Grunwald could not have established a prima facie legal-malpractice case until he had exhausted the appellate process in the underlying action. The court held that until the appellate process had run its course, plaintiff's damages were merely speculative, because a favorable resolution of the underlying appeal would have extinguished the damages claimed in the legal-malpractice action. The court thus concluded that the statute of limitations in a legal-malpractice action begins to run only when the appellate process is complete. Because the six-year statute of limitations had not begun to run until November 20, 1985, the date of the Appellate Division's decision in the underlying action, the court held that Grunwald's legal-malpractice claim was not time-barred.
Only three New Jersey cases have considered when a cause of action accrues in a legal-malpractice suit. In Sullivan v. Stout, 120 N.J.L. 304, 306, 199 A. 1 (E. & A. 1938), the Court held that a cause of action in a legal-malpractice case accrues when the attorney breaches his professional duty and that ascertainment of damages was not prerequisite to the running of the statutory period. In addition, the plaintiff's lack of knowledge concerning the attorney's misconduct or the existence of damages would not forestall the running of the limitations period. Id. at 309-10.
The holding in Sullivan was discounted in Mant, supra, 189 N.J. Super. at 373. The Appellate Division concluded that Sullivan was in conflict with two well-established principles: (1) damages are an essential element of a tort action, and (2) the discovery rule mandates the existence of both fault and injury.
In Mant, plaintiffs entered into a contract to purchase real estate from Carl Healey. Attorney Gillespie represented both the Mants and Healey in that transaction and in the execution of a subsequent extension of a purchase-money mortgage. Healey later filed an action against the Mants, contending that the contract and the conveyance of real estate were the product of undue influence. The trial court determined that the terms of the initial purchase-money mortgage had been "improvident" and that Healey had not received competent independent legal advice; it therefore awarded Healey $30,000 in damages.
Instead of appealing that judgment the Mants sued Gillespie for legal malpractice. The trial court dismissed the complaint as time-barred under the six-year limitations period. According to the trial court, the statute of limitations had begun to run during a pre-trial conference, when Healey and the Mants had reserved the right to pursue a separate malpractice claim against Gillespie. At that time the Mants should have known that there was a basis for an actionable claim.
The Appellate Division reversed, finding that the trial court had not adequately explored or analyzed the facts bearing on the Mants' knowledge of both injury and fault, the two crucial discovery-rule elements. 189 N.J. Super. at 373, 378. The court noted that the Mants had first been injured when they began to incur legal expenses on behalf of the underlying claim, and then had suffered a second injury when the trial court announced the judgment against them. Id. at 373-74. The court refused to find that the statute of limitations had started to run when the plaintiffs had begun to incur litigation expenses. Id. at 374. Requiring the ...