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Olds v. Donnelly

July 16, 1997

ROBERT OLDS, PLAINTIFF-RESPONDENT,
v.
DENNIS DONNELLY, DEFENDANT AND THIRD PARTY PLAINTIFF-APPELLANT, V. JOE MARAN, THIRD PARTY DEFENDANT-RESPONDENT.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 291 N.J. Super. 222 (1996).

The opinion of the Court was delivered by Pollock, J. Chief Justice. Poritz and Justices Handler, O'hern, Garibaldi, and Coleman join in Justice POLLOCK's opinion. Justice Stein has filed a separate opinion, Concurring in part and Dissenting in part.

The opinion of the court was delivered by: Pollock

(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).

Olds v. Donnelly (A-109)

(NOTE: This is a companion case to Karpovich v. Barbarula and Donohue v. Kuhn, also decided today.)

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

The basic issue in this case, as in Karpovich v. Barbarula, N.J. (1997) and Donohue v. Kuhn, N.J. (1997), also decided today, is the application of the entire controversy doctrine to legal-malpractice actions.

On June 27, 1985, Dr. Donahue allegedly committed medical malpractice while operating on Robert Olds. Approximately one month later, Olds retained Dennis Donnelly to represent him in a possible medical-malpractice action against Dr. Donahue. The Retainer Agreement indicated that Donnelly accepted the retainer subject to investigation.

On June 25, 1987, two days before the expiration of the statute of limitations on the medical-malpractice claim, Donnelly advised Olds that he no longer wished to represent him. Donnelly agreed, however, to prepare a pro se complaint and serve it on Dr. Donahue. Donnelly filed the complaint and attempted to serve Dr. Donahue by mail. Because Donnelly had used the wrong address, however, the summons and complaint were returned to Donnelly's office. Donnelly mailed them to a different address on August 10, 1987, by certified mail, with the return receipt addressed to Olds. Olds never received the receipt.

In 1988, Olds received notice from the Clerk of the Union County Superior Court that the case would be dismissed for lack of prosecution. Olds contacted Donnelly, who eventually sent Olds a letter stating that he had closed his files on the matter and it was up to Olds to pursue the matter.

Olds was able to effectuate service on Dr. Donahue in July 1989. In February 1991, Dr. Donahue moved to dismiss the complaint for failure to make timely service. Shortly thereafter, Joe Maran, Esq., filed a substitution of attorney for Olds. Maran appeared in opposition to Dr. Donahue's motion to dismiss on March 22, 1991. The trial court granted the doctor's motion to dismiss the complaint with prejudice after finding that Dr. Donahue was prejudiced by the two-year delay in service.

Thirteen months later, in April 1992, Olds, represented by Maran, instituted this legal-malpractice action against Donnelly. On March 18, 1994, about a month before the scheduled trial date, Donnelly moved for summary judgment, arguing that under the entire controversy doctrine, Olds should have asserted his legal-malpractice claim against Donnelly in the medical-malpractice action against Dr. Donahue. The trial court denied Donnelly's motion.

A jury returned a verdict of $500,000 for Olds. The trial court, however, granted Donnelly's motion for judgment notwithstanding the verdict, holding that the evidence did not support a finding that the legal malpractice proximately caused the dismissal of the action against Dr. Donahue.

Olds appealed. Donnelly cross-appealed, challenging the order denying summary judgment on entire controversy grounds. The Appellate Division reversed and remanded for entry of judgment in Olds's favor. 291 N.J. Super. 222, 232, 677 A.2d 238. It denied Donnelly's cross-appeal, reasoning that Olds's legal-malpractice claim did not accrue until the dismissal of the medical-malpractice action.

HELD: The party-joinder requirements of the entire controversy doctrine do not extend to claims of attorney malpractice.

1. The entire controversy doctrine seeks to assure that all aspects of a legal dispute occur in a single lawsuit. The goals of the doctrine are to promote judicial efficiency, assure fairness to all parties with a material interest in the action, and encourage the conclusive determination of a legal controversy. The mandatory joinder of claims was incorporated into the rules in 1979. The mandatory joinder of parties followed. Rule 4:30A now codifies the mandatory joinder of both claims and parties. (pp. 7-12)

2. The Court begins its analysis with Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 142 N.J. 280, 662 A.2d 509 (1995), which held that the entire controversy doctrine barred Circle's legal-malpractice action. In dicta, the Court stated that the doctrine applies to a client's legal malpractice claim against his or her attorney, even when the attorney is currently representing the client in an underlying action. The Court further held in Circle Chevrolet that the accrual of a legal-malpractice claim for purposes of imposing the entire-controversy bar is determined under the discovery rule, which involves two elements: actual injury and knowledge of fault. Here, the trial court's dismissal of Olds's medical-malpractice complaint for untimely service was not mandatory. Because dismissal of the complaint was not a foregone Conclusion, Donnelly's negligence did not proximately cause actual damage to Olds until the trial court dismissed Olds's complaint against Donahue. Consequently, the entire controversy doctrine imposed no obligation on Olds to join Donnelly in the underlying medical-malpractice action. (pp. 12-18)

3. The Court is aware of the criticism of Circle Chevrolet's expansion of the entire controversy doctrine to attorney-malpractice actions. Critics have pointed out the adverse effect on the attorney-client relationship from requiring the joinder of an attorney who continues to represent a client in an underlying action. The Court acknowledges that the application of the doctrine to legal-malpractice claims has not fulfilled its expectations. The Court concludes that the entire controversy doctrine no longer compels the assertion of a legal-malpractice claim in an underlying action that gives rise to the claim. (pp. 18-22)

4. The New Jersey State Bar Association suggests in its amicus brief that the Court abolish the mandatory party joinder requirements found in Rule 4:30A. Similarly, the concurrence recommends overruling the rule of preclusion. Critics assert that mandatory party joinder is counterproductive and serves to complicate, prolong, and increase the cost of litigation. Others suggest expansion of party joinder under Rule 4:28. The Civil Practice Committee, to which the Court regularly looks for recommendations on proposed rule changes, already has appointed a subcommittee on the entire controversy doctrine. That subcommittee is the logical entity to consider initially the various proposals for such rule changes. Preclusion is a remedy of last resort. If a remedy other than preclusion will vindicate the cost or prejudice to other parties and the judicial system, the court should employ such a remedy. (pp. 23-31)

5. In fairness to other litigants and the judicial system, the Court determines to apply this decision not only to the present case but to all pending cases, whether on appeal or in the trial courts. (pp. 31-32)

Judgment of the Appellate Division is AFFIRMED.

JUSTICE STEIN, Concurring in part and Dissenting in part, is of the view that the preclusive aspect of the entire controversy doctrine is not the appropriate mechanism to enforce mandatory party joinder, and that less intrusive measures should be used to encourage party joinder in civil litigation.

CHIEF JUSTICE PORITZ and JUSTICES HANDLER, O'HERN, GARIBALDI, and COLEMAN join in JUSTICE POLLOCK's opinion. JUSTICE STEIN has filed a separate opinion, Concurring in part and Dissenting in part.

The opinion of the Court was delivered by

POLLOCK, J.

The basic issue in this case, as in Karpovich v. Barbarula, 146 N.J. 565, 683 A.2d 1161 (1997) and Donohue v. Kuhn, 150 N.J. 484, 696 A.2d 664 (1997), also decided today, is the application of the entire controversy doctrine to legal-malpractice actions.

Plaintiff, Robert Olds, retained defendant, Dennis Donnelly, Esq., to pursue a medical-malpractice action against Dr. Floyd J. Donahue. Ultimately, Donnelly withdrew as counsel. Olds claims that before Donnelly withdrew, he failed to serve the summons and complaint on Dr. Donahue. The Law Division in the medical-malpractice action dismissed the complaint with prejudice for untimely service.

Olds then filed this attorney-malpractice action against Donnelly. Donnelly moved to dismiss, arguing that Olds should have joined him in the medical-malpractice action. The Law Division denied Dr. Donnelly's motion, holding that Olds's legal-malpractice claim did not accrue until dismissal of the medical-malpractice claim. The Appellate Division affirmed. 291 N.J. Super. 222, 677 A.2d 238(1996).

We granted certification, 146 N.J. 565 (1996), and now affirm and modify the judgment of the Appellate Division. We affirm the Appellate Division's holding that the entire controversy doctrine does not bar this action, which had not accrued during the pendency of the underlying medical-malpractice action. We further hold that the party-joinder requirements of the entire controversy doctrine do not extend to claims of attorney malpractice. We do not decide whether to relax the requirements of party joinder in cases involving others with a fiduciary relationship to the parties.

I.

The facts are undisputed. On June 27, 1985, Dr. Donahue allegedly committed medical malpractice while operating on Olds. Approximately one month later, Olds retained Donnelly to represent him in a possible medical-malpractice action against Dr. Donahue. The Retainer Agreement indicated that Donnelly accepted the retainer subject to investigation.

On June 25, 1987, two days before the expiration of the statute of limitations on the medical-malpractice claim, Olds and Donnelly met at Donnelly's office. Donnelly advised Olds that he no longer wished to represent him, but that he would prepare a pro se complaint and serve it on Dr. Donahue. Olds agreed, and Donnelly filed the complaint the same day.

Donnelly attempted service on Dr. Donahue by mail. He used the wrong address, however, and the summons and complaint were returned to Donnelly's office. On August 10, 1987, Donnelly mailed the summons and complaint to Dr. Donahue at a different address. The papers were sent certified mail, with the return receipt addressed to Olds. Olds never received the receipt.

Sometime in 1988, Olds received a notice from the Clerk of the Union County Superior Court informing him that the case would be dismissed for lack of prosecution. Olds called Donnelly to tell him that Dr. Donahue had not been served. According to Olds, Donnelly said that "he would take care of it." In July of 1988, Donnelly sent Olds a letter indicating that the attempts to serve Dr. Donahue by mail were unsuccessful and that Donnelly had closed his files on the matter. In this letter, Donnelly also informed Olds that it was "up to [Olds] to pursue this."

In 1989, Olds received another notice indicating that the case would be dismissed for lack of prosecution. A court clerk assisted Olds in preparing a summons. The Union County Sheriff served the summons and complaint on Dr. Donahue in July 1989. Olds continued to prosecute the action pro se.

In February 1991, Dr. Donahue filed a motion under Rule 4:4-1 to dismiss the complaint for Olds's failure to make timely service. On February 19, 1991, shortly after the filing of the motion, third-party defendant, Joe Maran, Esq. filed a Substitution of Attorney for Olds.

The Law Division heard oral argument on Dr. Donahue's motion to dismiss on March 22, 1991. Maran opposed the motion for Olds. The court determined that the two-year delay in serving Dr. Donahue had prejudiced him because of the loss or destruction of medical records. Accordingly, the court granted the doctor's motion to dismiss the complaint with prejudice.

Thirteen months later, in April 1992, Olds, represented by Maran, instituted this legal-malpractice action against Donnelly. Olds alleged that Donnelly had failed to effect timely service of the complaint in the underlying medical-malpractice action, thus causing the dismissal of the suit with prejudice.

With his answer to the complaint, Donnelly filed a third-party complaint against Maran. Donnelly alleged that Maran had failed properly to oppose the motion to dismiss and also had failed to notify Donnelly, thereby depriving him of the opportunity to oppose the motion himself. According to the third-party complaint, Maran's negligence caused the dismissal of Donnelly's pro se complaint against Dr. Donahue.

On February 5, 1993, the Law Division granted Maran's motion to dismiss the third-party complaint. The court noted that because "Maran was not on the scene in July of 1989," Olds's legal-malpractice claim was against Donnelly alone. Thus, the court concluded that Maran had not violated any duty to Donnelly.

On April 2, 1993, the trial court denied Donnelly's motion to reconsider the dismissal of the third-party complaint. On March 18, 1994, about one month before the scheduled trial date, Donnelly moved for summary judgment. He argued that under the entire controversy doctrine Olds should have asserted his legal-malpractice claim against Donnelly in the medical-malpractice action against Dr. Donahue. The trial court denied Donnelly's motion.

Olds's legal-malpractice action against Donnelly proceeded to trial in December of 1994. The jury returned a verdict of $500,000 for Olds. The trial court, however, granted Donnelly's motion for judgment notwithstanding the verdict. The court held that the evidence did not support a finding of legal malpractice that proximately caused the dismissal of the action against Dr. Donahue.

Olds appealed. Donnelly cross-appealed challenging the orders denying summary judgment on entire controversy grounds and dismissing the third-party complaint. The Appellate Division reversed and remanded for entry of a judgment in Olds's favor. 291 N.J. Super. at 234.

The Appellate Division also denied Donnelly's cross-appeals. It held that Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 142 N.J. 280, 662 A.2d 509 (1995), did not require Olds to have joined Donnelly in the medical-malpractice action against Dr. Donahue. 291 N.J. Super. at 232. The court reasoned that Olds's legal-malpractice claim against Donnelly did not accrue until the dismissal of Olds's medical-malpractice action against Dr. Donahue. Ibid. Because the entire controversy doctrine does not bar claims that are unknown, unarisen, or unaccrued at the time of the original action, the doctrine did not prevent Olds from pursuing his legal-malpractice claim against Donnelly. Ibid.

The Appellate Division further found that the trial court correctly dismissed Donnelly's third-party complaint against Maran. 291 N.J. Super at 233. It held that Maran "owed no duty to [Donnelly]" and that "absent that duty, no cause of action could exist." Ibid. (citing Malewich v. Zacharias, 196 N.J. Super. 372, 482 A.2d 951 (App. Div. 1984)).

II.

Basically, the entire controversy doctrine seeks to assure that all aspects of a legal dispute occur in a single lawsuit. The goals of the doctrine are to promote judicial efficiency, assure fairness to all parties with a material interest in an action, and encourage the conclusive determination of a legal controversy. DiTrolio v. Antiles, 142 N.J. 253, 267, 662 A.2d 494 (1995); Prevratil v. Mohr, 145 N.J. 180, 187, 678 A.2d 243 (1996). One part of the doctrine, described generally as "claims joinder," requires that parties should present all affirmative claims and defenses arising out of a controversy. R. 4:30A; Wm. Blanchard Co. v. Beach Concrete Co., Inc., 150 N.J. Super. 277, 292-94, 375 A.2d 675, certif. denied, 75 N.J. 528 (1977). Another part, known as "party joinder," requires the mandatory joinder of all parties with a material interest in a controversy. R. 4:30A.

The origins of the doctrine precede the merger of equitable and legal powers in the Superior Court. For example, in Carlisle v. Cooper, 21 N.J. Eq. 576 (E. & A. 1879), the Court of Errors and Appeals held that equity courts could interfere with nuisance actions brought in law courts "on the ground of restraining irreparable mischief, or of suppressing interminable litigation, or of preventing [a] multiplicity of suits." Id. at 579; see also Smith v. Red Top Taxicab Corp., 111 N.J.L. 439, 440-41, 168 A. 796 (E. & A. 1933) ("no principle of law is more firmly established than that a single or entire cause of action cannot be subdivided into several claims, and separate actions maintained thereon.").

The 1947 Constitution recognized the doctrine by providing:

Subject to the rules of the Supreme Court, the Law Division and the Chancery Division shall each exercise the powers and functions of the other division when the ends of Justice so require, and legal and equitable relief should be granted in any cause so that all matters in controversy between the parties may be completely determined.

[N.J. Const. art. VI, § 2, P 4.]

The requirement of the mandatory joinder of claims has evolved continually since the adoption of the 1947 Constitution. In Steiner v. Stein, 2 N.J. 367, 66 A.2d 719 (1949), the Court recognized that to administer Justice efficiently, the Chancery Division should adjudicate legal issues, even if related equitable issues have already been determined. Id. at 378; see also Tumarkin v. Friedman, 17 N.J. Super. 20, 24, 85 A.2d 304 (App. Div. 1951) (finding that county court had full authority to hear legal and equitable issues). In Ajamian v. Schlanger, 14 N.J. 483, 103 A.2d 9, cert. denied, 348 U.S. 835, 99 L. Ed. 659, 75 S. Ct. 58 (1954), the Court held that a plaintiff's failure to bring a claim for damages in a prior proceeding where the plaintiff sought rescission of an allegedly fraudulent contract required preclusion of the damages action "if the policy to avoid undue litigation is not to be emptied of substance." 14 N.J. at 488.

The Court eventually broadened the doctrine to include the mandatory joinder of defenses and counterclaims. See Massari v. Einsiedler, 6 N.J. 303, 313, 78 A.2d 572 (1951) (holding that party was barred from bringing reformation action in second suit when party had adequate opportunity to present equitable defenses in original action); Vacca v. Stika, 21 N.J. 471, 476, 122 A.2d 619 (requiring representative parties to assert counterclaims in one suit). In 1977, the Appellate Division in Wm. Blanchard held that the entire controversy doctrine requires that defendants assert all cross-claims as well as counterclaims arising out of the underlying transaction. Wm. Blanchard, (supra) , 150 N.J. Super. at 294.

Thus, the entire controversy doctrine encompasses "virtually all causes, claims, and defenses relating to a controversy" between parties engaged in litigation. Cogdell v. Hospital Ctr., 116 N.J. 7, 16, 560 A.2d 1169 (1989). Mandatory joinder of claims was incorporated into the rules of court in 1979. See R. 4:27-1(b) (providing for mandatory joinder of claims as required by the entire controversy doctrine), superseded by R. 4:30A (September 1990); see also R. 4:7 (making mandatory counterclaims not asserted subject to preclusion under R. 4:30A).

The mandatory joinder of parties has evolved more slowly. See, e.g., Thornton v. Potamkin Chevrolet, 94 N.J. 1, 5, 462 A.2d 133 (1983) (finding that "the essence of [the judicial] policy [behind the entire controversy doctrine] is the joinder of claims and not parties"); Aetna Ins. Co. v. Gilchrist Bros., Inc., 85 N.J. 550, 558, 428 A.2d 1254 (1981) (reasoning that "the preclusive effect of nonjoinder of claims arising out of a single dispute or wrong between the parties may not automatically be applied to a failure to join a person as a party to the action"). In Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 343, 476 A.2d 250 (1984), however, we held that "the joinder of known responsible parties in a single action be the norm." Because the doctrine is one of judicial fairness, we decided to proceed step-by-step in extending it to parties. Ibid.

Our decision in Cogdell to require the mandatory joinder of all parties with a material interest in a legal controversy proceeded logically from Crispin. See Cogdell, (supra) , 116 N.J. at 26 ("We thus conclude that the entire controversy doctrine appropriately encompasses the mandatory joinder of parties."). In Cogdell, we noted that the purposes underlying the claims-joinder rule "are similar, if not identical to those of the party-joinder rule." Id. at 19. In particular, mandatory party joinder assures that all potentially responsible persons will participate in the original action. Id. at 25. Requiring the joinder of all parties with a material interest in a litigation thus guarantees a complete determination of liability, avoids prejudice to absent parties, and prevents a duplication of lawsuits. Id. at 25-26. The touchstone of mandatory party-joinder is fairness both to the plaintiff and to the defendant. DiTrolio, (supra) , 142 N.J. at 272.

Shortly after our decision in Cogdell, we adopted Rule 4:30A, codifying the mandatory joinder of both claims and ...


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