On certification to the Superior Court, Appellate Division, whose opinion is reported at 260 N.J. Super. 133 (1992).
The opinion of the Court was delivered by Clifford, J. Chief Justice Wilentz and Justices Handler, Pollock, O'Hern, Garibaldi, and Stein join in this opinion.
The opinion of the court was delivered by CLIFFORD, J.
We granted certification, 135 N.J. 303 (1994), to review the Appellate Division's determination that the statute of limitations did not bar defendant's personal-injury counterclaim. The counterclaim arose out of the same accident that formed the basis of plaintiff's complaint, but defendant did not seek leave to file it until after the two-year period of the statute of limitations had run. Having concluded that plaintiff's action was still pending when defendant sought leave to file his counterclaim, the court below held that under the circumstances defendant's counterclaim was "a litigation component embraced by the entire controversy doctrine" and was therefore "eligible for the relation-back principle of [Rule 4:9-3] and consequently for protection from the limitations bar." 260 N.J. Super. 133, 140 (1992).
On July 16, 1988, an automobile driven by plaintiff, Susan L. Molnar, collided with a motorcycle operated by defendant, Douglas M. Hedden. The collision, which injured both parties, left defendant paralyzed below the waist.
Plaintiff, through her personal attorney, sought recovery for her injuries by filing a complaint against defendant on May 31, 1990, about six weeks before the running of the two-year period of limitations, N.J.S.A. 2A:14-2. Defendant, through his attorneys provided by his liability insurer (referred to herein as his "former attorneys"), filed an answer to the complaint on June 27, 1990, about two-and-one-half weeks before the expiration of the statutory period. The answer included a separate defense of plaintiff's contributory negligence but contained no counterclaim for affirmative relief.
Because Molnar's automobile insurer, Selective Insurance Company (Selective), had paid personal-injury-protection (PIP) benefits to her, it filed a separate complaint in plaintiff's name against defendant on August 20, 1990, seeking reimbursement for its PIP payments, presumably as provided by N.J.S.A. 39:6A-9.1. Defendant, however, was never served with that complaint, so he filed no answer to it -- despite which the trial court granted Selective's motion to consolidate its suit with plaintiff's suit for personal injuries. The consolidation order, dated September 14, 1990, bears the captions of both cases but carries the docket number of plaintiff's personal-injury case only, with no indication of the docket number of Selective's complaint. See Rule 4:38-1(c)(1) (requiring that all papers filed in consolidated action "include the caption and docket number of each separate action, that of the earliest instituted action to be listed first").
After discovery, the parties settled plaintiff's personal-injury claim in June 1991 for $15,000, the limit of defendant's bodily-injury-insurance coverage. Although the record is unclear surrounding the filing of a Stipulation of Dismissal, as we read the various representations of counsel Selective's attorneys, apparently aware that plaintiff's personal-injury case had been settled, "confirmed" on August 15, 1991, that they "would not be pursuing" Selective's claim for reimbursement of its PIP payments. The next day defendant's former attorneys forwarded to plaintiff's attorney a check for $15,000, representing the amount of the settlement. One month thereafter, on September 16, 1991, a Stipulation of Dismissal bearing the caption and docket number of the personal-injury case and signed only by Selective's attorneys was filed with the court.
Thereafter the trial court, on its own motion, gave notice of its intention to dismiss plaintiff's complaint for lack of prosecution. The notice bore the docket number of Selective's complaint. On October 22, 1991, the court ordered that that action be dismissed without prejudice and that the court's order "not supersede any previously filed judgment, order, stipulation of dismissal or other closing documents of record."
The next phase of the case began on November 1, 1991, when defendant's current attorney filed a notice of substitution of attorney, dated October 29, 1991, and signed by defendant's current and former attorneys. That was followed, on November 12, 1991, by the current attorney's motion to amend defendant's answer to the complaint to assert a personal-injury counterclaim against plaintiff. By that time the statute of limitations' two-year period, which had begun on July 18, 1988, had long since expired. Plaintiff opposed the motion and the trial court denied it.
The Appellate Division reversed. The court below held that the running of the time period set forth in the statute of limitations before a party moves to amend its answer to include a related counterclaim does not, by itself, foreclose that claim. 260 N.J. Super. at 136. In so holding, the Appellate Division declared that the initial question in a "relation-back" problem is whether the underlying action is still pending, so that the counterclaim has a cause or a claim to which it can relate back. If the underlying claim is not still pending, the counterclaim is barred by the statute of limitations and the entire-controversy doctrine. Id. at 139. Here, the Appellate Division found that at the time defendant sought to assert his counterclaim, plaintiff's action technically was still pending because the trial court's dismissal applied only to Selective's claim for reimbursement. It based that finding on the facts that, first, the dismissal order, which bore the docket number of Selective's action, technically represented the dismissal of only that action; and, second, only the subrogation attorney had signed the stipulation of dismissal of the action bearing the docket number of the personal-injury case, contrary to Rule 4:37-1(a), which requires all parties who have appeared in an action to sign the stipulation of dismissal. Id. at 140.
After summarizing cases that hold that a plaintiff who has filed a claim within time against a defendant is not time-barred from filing against that defendant additional late claims that have arisen out of the same transaction, the Appellate Division found no difference in notice to the opposing party between a plaintiff who asserts a late claim and a defendant who asserts a late counterclaim. It ruled that therefore a late counterclaim, like a late claim, is eligible for the relation-back principle of Rule 4:9-3 and hence is protected from the bar of the statute of limitations if it falls ...