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Circle Chevrolet Co. v. Giordano

August 1, 1995

CIRCLE CHEVROLET COMPANY, A NEW JERSEY CORPORATION, AND THOMAS J. DEFELICE, SR., PLAINTIFFS-APPELLANTS,
v.
GIORDANO, HALLERAN & CIESLA, A PROFESSIONAL CORPORATION, DEFENDANT-THIRD-PARTY PLAINTIFF-RESPONDENT, V. PETRICS, MESKIN, NASSUAR & DAMBACH, ACCOUNTS AND AUDITORS, THIRD-PARTY DEFENDANT-RESPONDENT.



On appeal from the Superior Court, Appellate Division, whose opinion is reported at 274 N.J. Super. 405 (1994).

Handler, J. Chief Justice Wilentz and Justices Pollock, Garibaldi, and Coleman join in Justice HANDLER's opinion. Justice Stein filed a separate Dissenting opinion. Justice O'hern did not participate.

The opinion of the court was delivered by: Handler

This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

CIRCLE CHEVROLET COMPANY, ET AL. V. GIORDANO, HALLERAN & CIESLA, ET AL. (A-144-94)

(Note: This is a companion case to Mystic Isle Development Corp. v. Perskie & Nehmad, DiTrolio v. Antiles, and Mortgagelinq v. Commonwealth Title also decided today.)

Argued March 28, 1995 -- Decided August 1, 1995

HANDLER,J., writing for a majority of the Court.

The issue on appeal is whether the entire controversy doctrine applies to a legal-malpractice action against an attorney who represents a client in the underlying action.

Circle Chevrolet Company (Circle) is a car dealership located in New Jersey. Thomas J. DeFelice, Sr. (DeFelice) is Circle's president and sole shareholder. Circle is located on land owned by Masward II, a partnership, in which DeFelice has a one-third interest. In 1972, Circle entered into a thirty-year lease with Masward II for rental of the property. The lease, drafted by John Giordano of Giordano, Halleran & Ciesla, P.C. (GH & C), includes four additional option periods at the Conclusion of the thirty-year term. The lease contains a clause that provides for rent increases based on a percentage of increases in the Consumer Price Index (CPI) at certain times during the lease period.

In March 1985, Circle and Masward II began discussing the first rent increase. At the time, Masward II was represented by the law firm of Gaughran & Steib (Gaughran), while Circle was represented by GH & C. Circle agreed to pay the increased rent based on a formula devised by Gaughran, which calculated the rent increase based on the actual increase in the CPI for certain years. On March 22, 1985, Gaughran sent a letter containing the amount of the rent increase to Circle's attorney at GH & C who, in turn, forwarded the letter to DeFelice for review and approval. DeFelice asked his accountants, Petrics, Meskin, Nassaur & Dambach (Petrics) to review the formula. Petrics found that the calculations were accurate and GH & C did not question Petrics' review. Unfortunately, the Gaughran formula was incorrect because it calculated the rent increases based on actual rather than percentage increases in the CPI, as required under the lease. On February 24, 1988, GH & C discovered the error and notified both Gaughran and Circle in early March 1988. Circle had overpaid its rent by $37,699.98.

In April 1988, GH & C filed a declaratory action against Masward II on behalf of Circle to reform the 1985 settlement agreement to reflect the correct rental increase calculation, (hereinafter "the reformation litigation"). The reformation remedy was based on a theory of mutual mistake of fact. In November 1988, during the course of the reformation litigation, GH & C withdrew as Circle's counsel because of a conflict of interest. The law firm of Blaustein & Wasserman (Wasserman) took over representation of Circle in January 1989. Circle claims that Wasserman never informed it of any possible claims against GH & C and Petrics while the reformation litigation was pending. Wasserman, on the other hand, claims that Circle was told of GH & C's potential culpability and the existence of a viable claim against Petrics.

In August 1990, the trial court found that the Gaughran calculations were incorrect as a matter of law and were not a result of a mutual mistake of fact. A settlement was eventually entered, in which the court credited the rent overpayment toward future lease payments to Masward II.

On September 6, 1991, Circle instituted a malpractice action against GH & C, alleging that GH & C had negligently reviewed the rental-increase calculations, resulting in an overpayment of rent by Circle and payment of unnecessary legal fees and costs. The complaint was later amended to name Petrics as a defendant. On April 2, 1993, the trial court granted GH & C's motion for summary judgment to dismiss Circle's complaint, finding that Circle's action was barred by the entire controversy doctrine.

On appeal, a divided panel of the Appellate Division affirmed the decision of the trial court. The majority noted that New Jersey courts had applied the discovery rule to legal malpractice actions and that Circle's cause of action against GH & C and Petrics accrued in March 1988 when Circle had knowledge of the mistake in the rent calculations and that the entire controversy doctrine barred the malpractice complaint. One Judge Dissented, believing that legal malpractice actions should be treated differently under the entire controversy doctrine, and that the totality of the circumstances here did not require rigid adherence to the doctrine to bar Circle's claims against GH & C.

Circle appealed to the Supreme Court as of right based on the Dissent in the Appellate Division.

HELD: The entire controversy doctrine applies to a client's legal malpractice claims against his or her attorney, even when the attorney is currently representing the client in an underlying action.

1. The entire controversy doctrine seeks to further the judicial goals of fairness and efficiency by requiring, whenever possible, that the adjudication of a legal controversy occur in one litigation in one court. That rule includes the joinder of all affirmative claims that a party might have against another party, including counterclaims and crossclaims, all parties with a material interest in the controversy, and all constituent claims that arise during the pendency of the first action that were known to the litigant. Application of the rule is discretionary and should not be applied when joinder would result in significant unfairness to the litigants or jeopardy to a clear presentation of the issues and a just result. (pp. 8-10)

2. A party must bring a claim within the statute of limitations period and within the boundaries set by the entire controversy doctrine. For purposes of the statute of limitations, a cause of action against an attorney accrues when a client discovers he or she has been injured by that attorney's mistake, even if the full implication of that error have not yet been ascertained. The limitations period can begin to run even if the attorney is currently representing the client in the underlying matter and the attorney has an ethical obligation to advise the client that he or she might have a claim against the attorney. Thus, clients must either choose between suing the former attorney simultaneously with the pending claim, thereby risking exposure of previously-privileged information, or completely forfeiting the right to sue the former attorney in the hope that the underlying litigation is successful. However, the doctrine does not require that the malpractice claim actually be litigated with an underlying action. What is required is notice to the court of the existence of all material parties. The trial court has the discretion to devise a litigation plan that is efficient and fair to all parties and can consider the effects of joinder in respect of the preservation of attorney-client confidentialities. (pp. 10-15)

3. Exempting legal malpractice claims from the entire controversy doctrine would not further the objectives of efficiency or fairness. Efficiency is not achieved because the same bundle of rights that the underlying litigation sought to resolve will be litigated again. Fairness is not achieved because possibly relevant evidence and parties will be excluded from participating in the underlying and subsequent malpractice actions. (p. 15)

4. The entire controversy doctrine does not apply to bar component claims that are unknown, unarisen, or unaccrued at the time of the original action. Pursuant to the discovery rule, a professional malpractice claim accrues when: 1) the claimant suffers an injury or damages; and 2) the claimant knows or should know that its injury is attributable to the professional negligence. As of March 1988 when Circle was informed by GH & C that the Gaughran formula was incorrect, Circle knew that it had been injured and that the mistake may have been attributable to the negligence of GH & C and Petrics. (pp. 15-22)

5. Joinder of GH & C and Petrics advances the goals of the entire controversy doctrine by encouraging a more comprehensive determination of the legal controversy and furthering the interests of party fairness in aiding GH & C's and Petrics' ability to defend themselves. Joinder also fosters judicial economy and efficiency. (pp. 22-24)

6. Cogdell, which required mandatory joinder of parties with a material interest, was to apply prospectively to all cases not already on appeal. Although that reformation litigation was initially filed before Cogdell was decided, the suit did not conclude until August 1990. Pleadings were filed after the Cogdell decision; therefore, Circle had ample opportunity to comply with and was aware of the Cogdell mandate. A court may relieve a party from a final judgment for excusable neglect. Circle has no justification for neglecting to ascertain that the entire controversy doctrine would bar a subsequent action against its attorneys and accountants for malpractice. (pp. 24-28)

Judgment of the Appellate Division is AFFIRMED.

JUSTICE STEIN, Dissenting, is of the view that given the indeterminate state of the law, the fact that the legal malpractice claim had not clearly accrued, and Circle's justifiable belief that its damages were fully compensable in the reformation action, to apply the entire controversy doctrine and deny Circle its day in court to adjudicate the merits of its malpractice claim cannot easily be justified. As in Cogdell, simple fairness dictates that the effect of the Court's ruling not be applied to bar Circle's claim.

CHIEF JUSTICE WILENTZ and JUSTICES POLLOCK, GARIBALDI, and COLEMAN join in JUSTICE HANDLER's opinion. JUSTICE STEIN filed a separate Dissenting opinion. JUSTICE O'HERN did not participate.

The opinion of the Court was delivered by

HANDLER, J.

This case involves the scope of the entire controversy doctrine as it applies to joinder of parties. At issue in this case, as well as, Mystic Isle Development Corp. v. Perskie & Nehmad, 142 N.J. 310, also decided today, is whether the entire controversy doctrine applies to a malpractice action against an attorney who represents a client in the underlying transaction.

The case is before us as a result of a Dissent in the Appellate Division. R. 2:2-1(a)(2). On appeal, the Appellate Division ruled, in a reported opinion, 274 N.J. Super. 405 (1994), that the entire controversy doctrine applied and, accordingly, dismissed the action.

I

Plaintiff Circle Chevrolet Co. (Circle) is a privately-owned corporation that operates a car dealership in Shrewsbury, New Jersey. 274 N.J. Super. at 409. Thomas J. DeFelice, Sr. (DeFelice) is the president and sole shareholder of Circle. Ibid. 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 own a one-third interest. Ibid.

In 1972, Circle entered into a thirty-year lease with Masward II for rental of the property. The lease, drafted by John Giordano of Giordano, Halleran & Ciesla, P.C. (GH & C), includes four additional option periods at the Conclusion of the thirty-year term. Ibid. Pursuant to the lease, base rent for the land was $24,000 per year for the first ten years. Ibid. 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. Ibid. The lease provides for rent increases based on a percentage of increases in the Consumer Price Index (CPI). *fn1

In March 1985, Circle and Masward II began Discussions regarding the first rent increase. At the time of these Discussions, Masward II was represented by the law firm of Gaughran & Steib (Gaughran), while Circle was represented by defendant GH & C. Id. at 409-10. The dispute was finally settled by Circle agreeing to pay the increased rent based on a formula devised by Gaughran, which calculated the rent increase based upon the actual increase in the CPI from February 1973 to February 1983. Id. at 410. On March 22, 1985, Gaughran sent a letter containing the amount of the rent increases to Circle's attorney, Thomas Pliskin, a partner at GH & C. Pliskin then forwarded the letter to Thomas DeFelice of Circle, asking him to review the letter and advise GH & C as to his desired course of action. DeFelice asked his accountants, Petrics, Meskin, Nassaur & Dambach (Petrics) to review the formula. ...


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