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Circle Chevrolet Co. v. Giordano

Decided. As Amended August 16 1994.: February 16, 1994.


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County.

Before Judges Brody, Stern and Keefe.



The sole issue presented on appeal is whether the trial Judge erred in dismissing plaintiffs' professional negligence suit against the law firm of Giordano, Halleran & Ciesla, P.C., (GH&C) and the accounting firm of Petrics, Meskin, Nassaur & Dambach (Petrics) because it was barred by the entire controversy doctrine.

For the reasons stated herein, we conclude that the trial Judge did not err in dismissing the complaint.

Plaintiff Circle Chevrolet Company (Circle) is a privately owned New Jersey corporation that operates a car dealership in Shrewsbury, New Jersey. Thomas J. DeFelice, Sr. (DeFelice) is the president and sole shareholder of Circle.*fn1 The dealership is located on land owned by Masward II, a partnership consisting of DeFelice, his brother Edward DeFelice, and Albert North, each of whom hold equal one-third interests.

A 30 year lease, drafted by John Giordano of GH&C, currently exists between Masward II and Circle. The lease, which commenced on October 1, 1972, includes four additional five year option periods at the Conclusion of the original 30 year term.*fn2 Base rent for the land pursuant to the lease was $24,000 per year for the first ten years. The lease contains a clause that provides for rent increases in the eleventh, sixteenth and twenty-first years after commencement of the lease, as well as upon the initiation of any five year renewal period. The formula for computing the increase is provided in the lease as follows:

The percentage increases, if any, in the level of the official CONSUMER UNITED STATES DEPARTMENT OF LABOR INDEX [(C.P.I.)] as published for the quarterly period of the year immediately prior to the commencement of the rent adjustment period (i.e. commencement of the eleventh, sixteenth, twenty-first year of the original Lease term and commencement of each five (5) year renewal term) over the level of such index as published for the quarterly period covering the commencement date of the original term of this Lease. (emphasis added).

In March 1985, Discussions commenced between Circle and Masward II regarding the rent increase that was to take effect in the eleventh year.*fn3 At the time of these Discussions, Masward II

was represented by the law firm of Gaughran & Steib, while Circle was represented by defendant GH&C.

Gaughran, utilizing a formula that has been termed the "Gaughran Method" throughout this litigation, calculated the rent increase based upon the actual increase in the C.P.I. from February 1973 to February 1983. That calculation, however, was incorrect in that it was not based upon the percentage increase in the C.P.I. as was required by the above quoted lease provision. No one from GH&C reviewed or questioned Gaughran's formula. In April 1985, defendant Petrics was engaged by DeFelice to review Gaughran's formula. Petrics responded that the calculation made by Gaughran was correct, assuming the C.P.I. numbers quoted by him were correct.

However, Circle failed to pay the increased rent, resulting in Masward II commencing litigation in 1985. At no time during the course of the 1985 litigation did GH&C question the accuracy of the Gaughran calculation. The litigation was eventually settled. The settlement agreement incorporated the Gaughran method for computing rent increases.

It was not until February 24, 1988, upon receipt of notice from Gaughran that another increase was about to take effect, that Thomas Pliskin of GH&C reviewed Gaughran's calculations and discovered that an error had been made. Pliskin advised Gaughran of the error by letters dated March 9, 1988 and March 11, 1988. Circle admits being informed of the mistake at that time.

GH&C filed a declaratory action on behalf of Circle to reform the 1985 settlement between Masward II and Circle in order to reflect the correct rental increase calculation, (hereinafter, the "settlement reformation litigation.") The reformation remedy was premised on the theory that a mutual mistake of fact had been made.

In November 1988, during the course of the settlement reformation litigation, GH&C withdrew as Circle's counsel after an alleged conflict of interest issue was raised by the attorney for the

individual members of the Masward II partnership stemming from Giordano's involvement in drafting the lease. The firm of Blaustein & Wasserman ("Wasserman") was substituted as counsel for Circle.

The initial meeting between Alan Wasserman, Esq., and Circle took place on January 26, 1989. There is some dispute as to the advice Wasserman gave Circle. Wasserman maintains that he informed Circle that "there is some culpability" on the part of GH&C and a "viable case against Petrics." Wasserman said he would not represent Circle if Circle decided to join GH&C because GH&C had referred the case to him, but offered to "give them new counsel if that was their intention." Circle, however, contends that Wasserman never informed it of possible claims against GH&C or Petrics. Circle maintains that Wasserman only advised it "off the record" about a possible claim against GH&C, after the settlement reformation litigation was concluded in 1990. Moreover, Circle asserts that it did not anticipate the need to file additional claims following the settlement reformation litigation because Wasserman advised it that all legal fees to the Wasserman firm would be paid by Masward II, as Masward II's position in that action was frivolous. In any event, neither GH&C nor Petrics were joined as defendants in the settlement reformation action against Masward II. However, they were called as witnesses by Circle.

The settlement reformation litigation was eventually tried. The trial Judge held that the Gaughran calculation was incorrect as a matter of law, and was not the result of a mutual mistake of fact. Thus, the reformation sought by Circle was denied.

Circle obtained current counsel and commenced this professional malpractice action against GH&C and Petrics. Circle's amended complaint alleges that both defendants were negligent in reviewing the rental increase calculation, resulting in overpayment of rent by ...

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