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Mystic Isle Development Corp. v. Perskie & Nehmad

August 1, 1995


On appeal from the Superior Court, Appellate Division.

Handler, J., Chief Justice Wilentz and Justices Pollock, Garibaldi, Stein and Coleman join in Justice HANDLER's opinion. Justice O'hern filed a separate Concurring opinion.

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).


(NOTE: This is a companion case to Circle Chevrolet v. Giordano, Halleran & Ciesla, DiTrollio v. Antiles, and Mortgagelinq Corp. v. Commonwealth Title Insurance Co., also decided today.)

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

HANDLER,J., writing for a unanimous Court.

Mystic Isle Development Corporation (Mystic), a real estate developer, purchased property from J.K. Development Company (J.K.). The property, known as Lenape Landing," was to be developed as a residential apartment complex. Mystic purchased the rights to construct 78 townhouses or Phases II and III of the complex. According to Mystic, its agreement of sale obligated J.K. to obtain 78 sewer permits from the local municipal utilities authority (MUA) so that Mystic could proceed with developing Phases II and III of the complex. The law firm of Perskie & Nehmad (P & N) represented J.K. in its efforts to obtain the appropriate zoning approval and sewer permits.

The MUA only provided enough sewerage capacity to accommodate Phase I of the development. J.K. sued to compel the MUA to allocate sewer permits for the remainder of the development. P & N later amended that complaint to name Mystic as an additional plaintiff only for the purpose of standing. In May 1985, J.K. sold Phase I of the development. P & N moved for partial summary judgment, which was granted. The trial court voided the MUA's reservation of sewerage capacity and ordered the MUA to reconsider J.K.'s application. The MUA reconsidered and added additional capacity, but it was not enough to cover the entire development. Eventually, the MUA was ordered to issue permits for Phases I and II and to establish that it had no additional sewerage capacity to allocate to the development. The MUA complied and the suit was dismissed without prejudice. As of this time, sewer permits were allocated to all of Phase I and a portion of Phase II, while Phase III did not receive any permits.

On April 30, 1986, Mystic, represented by Michael McKenna, filed suit in Atlantic County against the MUA, J.K., Carole Houser and James Kenneally, the principals of J.K., and others (hereinafter "the Atlantic County action"), seeking to determine who was at fault for the insufficient number of sewer permits.

Sometime later, Mystic's complaint against Houser was dismissed with prejudice for failure to comply with a discovery order. Mystic filed a motion to vacate the dismissal with prejudice, claiming that it had not received notice of Houser's motion because the notice was sent to McKenna who was no longer representing Mystic. Based on Mystic's representations, the trial court vacated the dismissal with prejudice order and reinstated the dismissal without prejudice as to Houser. P & N contends that Mystic obtained the dismissal without prejudice against Houser by providing the trial court with inaccurate factual and procedural history. It did so to obtain an adjudication that was not on the merits in order to avoid the consequences of the entire controversy doctrine. P & N also claims that Mystic elected not to join them in the original action for purely strategic reasons.

On February 1, 1991, Mystic filed in Camden County a legal malpractice action against P & N (and two attorneys associated with the firm). P & N moved for summary judgment, arguing that they did not represent Mystic and that Cogdell v. Hospital Center and the entire controversy doctrine mandated dismissal of Mystic's lawsuit. The trial court denied the motion, concluding that Mystic's malpractice cause of action did not ripen and become cognizable until the Atlantic County matter had been resolved. Because that case had never ultimately been disposed of, due to the dismissal without prejudice with respect to Houser, the trial court ruled that the entire controversy doctrine did not apply.

P & N moved for reconsideration, which was denied. The court, relying on Woodward-Clyde Consultants v. Chemical and Pollution Sciences, Inc., held that the entire controversy doctrine did not compel dismissal of Mystic's claim because a dismissal without prejudice is not an adjudication on the merits and, therefore, does not bar reinstitution of the same claim in a later action. The Appellate Division denied P & N's motion for leave to appeal the trial court order. The Supreme Court granted P & N's motion for interlocutory review of the Appellate Division's denial of the motion.

HELD: In the circumstances of this case, Mystic's causes of action against the attorney-defendants and the other defendants sued in a previous action arose simultaneously and are based on the same facts. Therefore, the entire controversy doctrine required joinder of the attorney-defendants in that original action.

1. P & N did not represent Mystic in the Atlantic County litigation. Thus, the risks inherent in a client's decision to sue his or her current attorney are not present. Mystic had no fear that revealing attorney-client confidences would prejudice its case against the other Atlantic County defendants. (pp. 10-15)

2. Application of the discovery rule to the facts of this case mandates the preclusion of Mystic's malpractice claim against P & N. The record indicates that by at least 1989 Mystic knew of the existence of a malpractice claim while its original Atlantic County action was pending. Applying the entire controversy doctrine to bar Mystic's legal malpractice action furthers the goals of the doctrine. Requiring Mystic to join P & N would have resulted in a more comprehensive determination of the underlying legal controversy that sought to determine who was responsible for the insufficient number of sewer permits. The malpractice claim involves the same exact set of facts as the original action and joinder of P & N would have clarified the respective roles and responsibilities of J.K., Houser, Kenneally and P & N with respect to the agreement and who specifically made what misrepresentations. (pp. 15-18)

3. Party fairness concerns justify the joinder of P & N. The fact that Mystic instituted the Atlantic County action prior to the decision in the Cogdell does not affect the applicability of the entire controversy bar for failure to join related parties. Although the Atlantic County action was initially filed before Cogdell was decided, the suit was not terminated until one year after Cogdell was decided. Pleadings were filed and depositions were taken after the Cogdell decision. Mystic had ample opportunity to amend its complaint and add P & N in the underlying transaction in order to avoid risking the entire controversy bar. Moreover, the record indicates that Mystic knew of the joinder implications when it sought to have the dismissal in favor of Houser changed. Notwithstanding the lack of resolution, undertaking an unnecessary second litigation that requires a repetition of discovery would constitute a waste of resources and an inefficient administration of Justice. Mystic made the tactical decision to dismiss the Atlantic County action because of its economic cost, even though it was aware of the malpractice claim against P & N at the time of the Atlantic County action was pending. (pp. 18-22)

4. Mystic's reliance on Woodward-Clyde is misplaced. The entire controversy doctrine does not require that all claims be adjudicated in one proceeding, it merely requires that a party assert those claims at the outset. The court can structure the litigation at its discretion to assure efficient administration, clarity, and fairness. It is the party's original compliance with the doctrine, rather than the absence of a conclusive determination of a claim, that insures preservation of the claim. Mystic deliberately contrived to have one claim dismissed in the Atlantic County action in order to circumvent the preclusive effect of the entire controversy doctrine on its subsequent malpractice claim. (pp. 22-27)

For the reasons expressed, the order of the trial court of June 14, 1991 denying P & N's motion for summary judgment and of January 24, 1994 denying P & N's motion for reconsideration and denying Mystic's motion for partial summary judgment are REVERSED, and in accordance with Rule 4:30-A, it is ordered that summary judgment be entered in favor of P & N dismissing the action against them.

Justice O'HERN, Concurring, writes separately to urge the Court to reconsider its holding in Grunwald v. Bronkesh in which it was held that a cause of action for attorney malpractice arises when a client reasonably believes that an attorney's erroneous opinion has resulted in the client suffering injury, such as an adverse ruling. Under the theory that the Court adopts today, a client's attorney-malpractice claim may arise before a trial Judge's ruling has been appealed, and that claim must be joined with the pending action, one that may be en route to an appeal. It makes more sense for an attorney and client to maintain a relationship until it is determined whether the attorney's opinion will stand up on appeal.


The opinion of the Court was delivered by


This case, as does the case of Circle Chevrolet v. Giordano, Halleran & Ciesta, 142 N.J. 280, also decided today, raises the issue of whether the entire controversy doctrine, as it applies to the joinder of parties, is applicable to attorney-malpractice actions.

In this case, defendants, who are practicing attorneys, claim that the entire controversy doctrine bars the tort claims brought against them subsequent to the termination of a prior litigation derived from the same factual circumstances giving rise to those claims. Plaintiff argues that attorney-malpractice actions involve special considerations and thus should be exempted from the scope of the doctrine. Plaintiff also maintains that because the first litigation was dismissed without prejudice as to one defendant, the entire controversy bar should not be applied to prevent its claim against its attorneys.


Plaintiff Mystic Isle Development Corporation (Mystic), a real estate developer, purchased property from J.K. Development Company (J.K.). The property, located in Weymouth Township, Atlantic County and known as "Lenape Landing," was to be developed as a residential apartment complex. Mystic ...

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