November 20, 2009
DENNIS AND JANET SKIBINSKI, PLAINTIFFS-APPELLANTS,
MARGARET SULLIVAN, DEFENDANT-RESPONDENT, AND PATRICIA FRANKLYN HERBERT, DEFENDANT.
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-8856-06.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 27, 2009
Before Judges Wefing and Messano.
Plaintiffs Dennis and Janet Skibinski appeal from the Law Division's order that dismissed with prejudice their complaint against defendant Margaret Sullivan. We have considered the arguments raised in light of the record and applicable legal standards. We reverse.
This is a legal malpractice action that has its genesis in a real estate transaction that closed in December 2000. At the time, plaintiff Janet Skibinski was employed in defendant's law firm.*fn1 Together with her husband, Dennis, and another couple, Eli and Paula Horowitz, she contracted to purchase certain property located at 2910 North Beach Avenue, in the Township of Long Beach. Defendant represented all four purchasers.
Plaintiffs and the Horowitzes owned the property as co-tenants.*fn2 When the parties contracted to sell the property, in 2004, disputes arose. Plaintiffs essentially contended that they were owed reimbursement for services they provided or paid for in refurbishing and maintaining the property; the Horowitzes contended otherwise.
When the closing took place, the proceeds were escrowed. Plaintiffs then filed suit in the Chancery Division in Ocean County against the Horowitzes, and two related corporations that managed the properties and in which the parties shared ownership interests (the Chancery action). Plaintiffs sought an accounting, reimbursement for the services they provided, distribution of the escrow, and reimbursement from, and dissolution of, the related corporations. Plaintiffs' attorney at the time certified, pursuant to Rule 4:5-1(b)(2), that he was "not aware of any other party that [wa]s required to be joined in th[e] action." After mediation, the Chancery action settled on February 15, 2005.
Plaintiffs filed this action on November 29, 2006. Defendant answered in January 2007, and the parties engaged in discovery thereafter. The gist of plaintiffs' complaint is that defendant failed to properly advise them prior to the purchase of the property regarding the benefits a joint venture agreement with the Horowitzes, and that defendant essentially abandoned them at the time of closing. In fact, it is apparently undisputed that defendant, who was expecting twins at the time, faced a medical emergency and was unable to attend the closing. Plaintiffs sought the assistance of another lawyer whose offices were in the same building as those of defendant, and he assisted at the closing of title.
Although defendant gave Janet Skibinski a form joint venture agreement prior to closing, Janet testified in deposition that she specifically asked defendant to deal with the Horowitzes on the matter. Defendant disputed that version of events to the extent that she believed plaintiffs were dealing with the Horowitzes, and she was never asked to attend to the matter directly. In any event, the closing took place without any agreement and it is plaintiffs' contention that they suffered damages as a result, including their need to file suit and prosecute their claims in the Chancery action.
This case was scheduled for trial on December 7, 2008. On October 24, 2008, defendant moved for summary judgment. She alleged that plaintiffs failed to prove any damages as a proximate cause of her alleged malpractice, and that plaintiffs failed to comply with Rule 4:5-1(b)(2) (the Rule) by not naming her as a party who had potential liability in the Chancery action. Defendant claimed she was prejudiced as a result because Eli Horowitz, who was primarily responsible for that couple's involvement in the properties, was a resident of New York and could not now be forced to appear in court.
Plaintiffs argued that the Entire Controversy Doctrine (the ECD) did not apply to their legal malpractice claim. Additionally, they contended that their expert's report demonstrated they had suffered damages proximately caused by defendant's negligence.
After considering oral argument, the motion judge filed a written opinion that accompanied her order dismissing the complaint with prejudice. She reasoned that plaintiffs violated the Rule by failing to "disclose [in the Chancery action] the names of non-parties[,]" i.e., defendant, "who may have [had] potential liability . . . to the named parties on the basis of the same transactional facts." She further concluded that plaintiffs' conduct was "inexcusable," and "substantially prejudiced" defendant. In this regard, the judge noted the "Horowitzes . . . are key witnesses" who defendant "could have deposed . . . and obtained valuable information [from] to defend" herself. The judge determined the Horowitzes are now "unavailable." She entered the order under review dismissing plaintiffs' complaint with prejudice. This appeal ensued.
The parties have reiterated their arguments before us. We conclude that even if plaintiffs were obligated to name defendant as a party with potential liability in the Chancery action, defendant did not demonstrate substantial prejudice as a result of this failure. Therefore, it was error to dismiss plaintiffs' complaint, and we are compelled to reverse.
The Rule provides in pertinent part that each party, in their first pleading, shall disclose . . . the names of any non-party who should be joined in the action pursuant to R. 4:28 or who is subject to joinder pursuant to R. 4:29-1(b) because of potential liability to any party on the basis of the same transactional facts. Each party shall have a continuing obligation during the course of the litigation to file and serve on all other parties and with the court an amended certification if there is a change in the facts stated in the original certification . . . . If a party fails to comply with its obligations under this rule, the court may impose an appropriate sanction including dismissal of a successive action against a party whose existence was not disclosed or the imposition on the non-complying party of litigation expenses that could have been avoided by compliance with this rule. A successive action shall not, however, be dismissed for failure of compliance with this rule unless the failure of compliance was inexcusable and the right of the undisclosed party to defend the successive action has been substantially prejudiced by not having been identified in the prior action.
[R. 4:5-1(b)(2) (emphasis added).]
"The purpose of . . . the rule is to implement the philosophy of the [ECD]." Pressler, Current N.J. Court Rules, comment 2.1 on R. 4:5-1 (2010). The ECD, in turn, has now been codified in Rule 4:30A.
We need not explore the policy behind, or the exact contours of, the ECD. It suffices to say that in Olds v. Donnelly, 150 N.J. 424, 443 (1997), the Supreme Court unequivocally held that "the [ECD] no longer compels the assertion of a legal-malpractice claim in an underlying action that gives rise to the claim." Plaintiffs argue the Court's "bright line rule" in Olds relieved them of any obligation to name defendant in the certification in the Chancery action, and their failure to do so, therefore, cannot result in dismissal of this action.
We specifically do not stretch to reach such a conclusion. After Olds was decided, the Rule, along with Rule 4:30A, was significantly amended. At the time, Judge Pressler commented on the intent of the amendments, and the interplay between the two rules:
[M]andatory party joinder under the [ECD] has been eliminated, and preclusion of a successive action against a person not a party to the first action has been abrogated except in special situations involving both inexcusable conduct . . . and substantial prejudice to the non-party resulting from omission from the first suit. The elimination of the mandatory party joinder requirement has, however, been replaced by clarification of parties' disclosure obligations and of the range of appropriate court responses to failure of compliance therewith. [Pressler, Current N.J. Court Rules, comment 1 on R. 4:30A (1999).]
Regarding a legal malpractice claim, we have construed the effect of the amendments as "eliminating mandatory party joinder but requiring a party to disclose the identity of a non-party who has 'potential liability' stemming from the same transactional facts[.]" Dinizo v. Butler, 315 N.J. Super. 317, 321-22 (App. Div. 1998).
While the Rule envisions a full panoply of possible sanctions for its violation, dismissal of the subsequent litigation is "available as a sanction in the limited circumstances where a lesser sanction is not sufficient to remedy the problem caused by an inexcusable delay in providing the required notice, thereby resulting in substantial prejudice to the non-disclosed party's ability to mount an adequate defense." Mitchell v. Procini, 331 N.J. Super. 445, 453-54 (App. Div. 2000).
Substantial prejudice in this context means substantial prejudice in maintaining one's defense. Generally, that implies the loss of witnesses, the loss of evidence, fading memories, and the like . . . . [D]elay alone does not serve to create substantial prejudice. Instead, it is the lack of availability of information which results from the delay that is, for the most part, determinative of the issue of substantial prejudice. Thus, a party's access to relevant information is largely dispositive of the substantial prejudice issue . . . .
[Id. at 454 (quotations and citations omitted).]
In this case, defendant argued that if notified of the pendency of the Chancery action, she could have intervened in that litigation, subjected the Horowitzes to discovery demands, and possibly assert a claim against them for contribution. Defendant contended that because Eli Horowitz in particular was a resident of New York, he was "unavailable," a conclusion also reached by the motion judge.
However, defendant never certified that Horowitz refused to sit for a deposition, or, that defendant, pursuant to Rule 4:11-5, ever sought a commission or letter rogatory to compel the deposition take place in New York. Defendant confirmed at oral argument before us that she never made such efforts.
We also fail to see why defendant would necessarily be precluded from asserting a claim against the Horowitzes in this litigation because of lack of jurisdiction, as she asserted before us at oral argument. The property was in New Jersey. The corporation that managed the property was named in the Chancery action as a defendant, plaintiffs and the Horowitzes owned equal shares of its stock, and its main business address was in New Jersey.
In short, defendant failed to demonstrate substantial prejudice as a result of plaintiffs' failure to include her in the certification in the Chancery action. Dismissal was therefore unwarranted.
We reverse, and remand the matter for further proceedings. Since the issue is not before us, we do not reach any conclusion as to whether defendant is entitled to a lesser sanction as a result of not being noticed of the Chancery action.
Reversed and remanded; we do not retain jurisdiction.