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Dimitrakopoulos v. Borrus

Supreme Court of New Jersey

March 7, 2019

Evangelos Dimitrakopoulos and Matilde Dimitrakopoulos, Plaintiffs-Appellants,
v.
Borrus, Goldin, Foley, Vignuolo, Hyman and Stahl, P.C., Steven L. Fox, Esq. and Anthony B. Vignuolo, Esq., Defendants-Respondents, and Frazer Evangelista & Company, LLC, and Ralph J. Evangelista, Defendants.

          Argued October 10, 2018

          On certification to the Superior Court, Appellate Division.

          Jae H. Cho argued the cause for appellants (Cho Legal Group, attorneys; Kristen M. Logar, on the brief).

          James E. Stahl argued the cause for respondents (Borrus, Goldin, Foley, Vignuolo, Hyman and Stahl, attorneys; James E. Stahl, on the brief).

          Diana C. Manning argued the cause for amicus curiae New Jersey State Bar Association (New Jersey State Bar Association, attorneys; Robert B. Hille, President, of counsel and on the brief, and Diana C. Manning and Peter J. Gallagher, on the brief).

         PATTERSON, J., writing for the Court.

         The entire controversy doctrine seeks to impel litigants to consolidate their claims arising from a single controversy whenever possible. If a party fails to assert a claim that the entire controversy doctrine requires to be joined in a given action, a court may bar that claim. In this appeal, the Court reviews a judgment dismissing a legal malpractice claim asserted by two clients against their former counsel. The malpractice claim was not asserted until three years after the conclusion of a collection action filed by the law firm against the clients to recover unpaid legal fees.

         In 2005, Evangelos Dimitrakopoulos retained the law firm of Borrus, Goldin, Foley, Vignuolo, Hyman and Stahl, P.C. (Borrus firm), for assistance in a business dispute with Steven Eleftheriou. Represented by the Borrus firm, Dimitrakopoulos and his wife filed a verified complaint against Eleftheriou and his wife. For reasons that the record does not disclose, the Borrus firm filed a motion to withdraw as counsel shortly after it was retained.

         On March 7, 2011, the Borrus firm filed a complaint against Dimitrakopoulos, alleging that its former client owed it $93, 811.95 in fees for legal services and that payment had been demanded and not made. Dimitrakopoulos, acting pro se, filed an answer to the collection complaint but filed no counterclaim or third-party claim.

         In a proceeding before the arbitrator on September 6, 2011 -- six months after the collection action was filed -- the Dimitrakopouloses and the Eleftherious settled their dispute. In light of the settlement, the arbitrator did not issue an award.

         On July 12, 2012, the court in the collection matter granted the Borrus firm's unopposed motion for a final judgment by default in the amount of $121, 947.99 for legal services, interest, attorneys' fees, and court costs. Dimitrakopoulos did not appeal.

         Accordingly, a total of sixteen months elapsed between the filing of the Borrus firm's collection action and the entry of the default judgment in that action. After the resolution of the business dispute between the Dimitrakopouloses and the Eleftherious on September 6, 2011, the collection action remained pending for an additional ten months.

         On September 10, 2015, approximately three years after the entry of judgment in the collection action, the Dimitrakopouloses sued the Borrus firm and the principal attorneys who worked on their matter for legal malpractice. Defendants moved to dismiss the complaint based on the entire controversy doctrine and the doctrine of waiver. The Dimitrakopouloses argued that the damages claimed in the malpractice action were known to them as of September 6, 2011, the day that they settled their dispute with the Eleftherious.

         The trial court concluded that the Dimitrakopouloses could have asserted their malpractice claim in the collection matter. An Appellate Division panel affirmed that judgment and stated that under this Court's decision in Olds v. Donnelly, 150 N.J. 424, 443 (1997), legal malpractice claims are exempt from the entire controversy doctrine to the extent that they need not be asserted in the underlying action. The panel confirmed, however, that the underlying action was the litigation between the Dimitrakopouloses and the Eleftherious, not the Borrus firm's collection action. Like the trial court, the panel concluded that during the remaining ten months of the collection action, the Dimitrakopouloses had a fair and reasonable opportunity to litigate their malpractice claim. The panel did not reach the Borrus firm's waiver argument. The Court granted the Dimitrakopouloses' petition for certification. 232 N.J. 280 (2018).

         HELD: The Court reiterates its holding in Olds that the entire controversy doctrine does not compel a client to assert a legal malpractice claim against an attorney in the underlying litigation in which the attorney represents the client. 150 N.J. at 443. However, the collection action at issue in this matter was not an "underlying action" as that term is used in Olds, and the entire controversy doctrine may bar the claim. The record of this appeal, however, is inadequate for an application of the equitable rules that govern here.

         1. The entire controversy doctrine embodies the principle that the adjudication of a legal controversy should occur in one litigation in only one court. The doctrine seeks to impel litigants to consolidate their claims arising from a single controversy whenever possible. When a court decides whether multiple claims must be asserted in the same action, its initial inquiry is whether they arise from related facts or the same transaction or series of transactions. The determinative consideration is whether distinct claims are aspects of a single larger controversy because they arise from interrelated facts. (pp. 16-18)

         2. The entire controversy doctrine raises special concerns when invoked in the setting of legal malpractice. Olds, 150 N.J. at 446. In Olds, an attorney representing the plaintiff in a medical malpractice action allegedly failed to timely serve documents on a defendant physician. Id. at 428-29. The Court found that the client's legal malpractice claim remained unaccrued until the client's medical malpractice claim was dismissed, id. at 439, and that "the risk of the disclosure of privileged information and the generally adverse effects on attorney-client relationships outweigh any benefit from requiring a client to assert a malpractice claim in the pending lawsuit," id. at 441-42. The Court therefore held 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." Id. at 443. (pp. 18-21)

         3. The mandatory joinder of malpractice claims in collection actions, however, does not raise the concerns identified in Olds. An attorney's collection action is not an "underlying action" for purposes of Olds, and may provide an appropriate forum for the assertion of a malpractice counterclaim. (pp. 21-24)

         4. That principle, however, does not end the analysis. The entire controversy doctrine is an equitable doctrine whose application is left to judicial discretion based on the factual circumstances of individual cases. In this appeal, the Dimitrakopouloses invoke two equitable principles: the rule that the entire controversy doctrine does not apply to claims that are unknown or unaccrued, and the requirement that once the claim accrued, the forum of the earlier action must have afforded a fair and reasonable opportunity to litigate the claim in order for the doctrine to apply. (pp. 24-26)

         5. In the legal malpractice setting, the accrual date is not necessarily the date on which the client actually knew the facts on which the malpractice claim is based. For the claim to accrue, the client must sustain actual damage. For application of the discovery rule, the date that a cause of action accrued is determined by the court alone and ordinarily by way of a pretrial inquiry on either affidavits, depositions or a Lopez hearing conducted pursuant to Lopez v. Swyer, 62 N.J. 267 (1973). A court charged to decide when a legal malpractice claim accrued for purposes of the entire controversy doctrine should conduct a similar inquiry, which may include an evidentiary hearing analogous to a Lopez hearing if necessary to resolve factual disputes. The court's careful evaluation of the facts is essential to ensure that the entire controversy doctrine is applied equitably. (pp. 26-29)

         6. Application of the entire controversy doctrine requires equality of forum. In that inquiry, the court's focus is whether the prior forum afforded the claimant a fair and reasonable opportunity to investigate, assert, and litigate the contested claim, after that claim accrued. If the client's malpractice claim accrued before the collection action ended, then the court must determine whether the client would have had a fair and reasonable opportunity at that point in the collection action to assert and litigate that claim. The question whether the forum provides a fair and reasonable opportunity to litigate the malpractice claim warrants a case-specific inquiry. (pp. 29-31)

         7. The record of this appeal is inadequate to resolve the issues. At the trial court's discretion, it may develop the record with additional submissions from the parties, conduct an evidentiary hearing similar to a Lopez hearing on the discovery rule, and consider summary judgment motions filed by the parties pursuant to Rule 4:46. Finally, the trial court should consider on remand the Borrus firm's contention that the Dimitrakopouloses waived their right to pursue a malpractice claim. (pp. 32-34)

         The judgment of the Appellate Division is REVERSED and the matter is REMANDED to the trial court for further proceedings.

          CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, FERNANDEZ-VINA, SOLOMON, and TIMPONE join in JUSTICE PATTERSON'S opinion.

          OPINION

          PATTERSON, JUSTICE.

         The entire controversy doctrine "seeks to impel litigants to consolidate their claims arising from a single controversy whenever possible." Thornton v. Potamkin Chevrolet, 94 N.J. 1, 5 (1983) (quoting Alfone v. Sarno, 87 N.J. 99, 113 (1981) (internal quotation marks omitted)). The doctrine serves "to encourage complete and final dispositions through the avoidance of piecemeal decisions and to promote judicial efficiency and the reduction of delay." Wadeer v. N.J. Mfrs. Ins. Co., 220 N.J. 591, 610 (2015). If a party fails to assert a claim that the entire controversy doctrine requires to be joined in a given action, a court may bar that claim. R. 4:30A; R. 4:7-1.

         In this appeal, we review the trial court's judgment dismissing a legal malpractice claim asserted by two clients against their former counsel. The malpractice claim was not asserted until three years after the conclusion of a collection action filed by the law firm against the clients to recover unpaid legal fees. The trial court held that the entire controversy doctrine barred the legal malpractice claim, and an Appellate Division panel affirmed that decision.

         We reiterate our holding in Olds v. Donnelly that the entire controversy doctrine does not compel a client to assert a legal malpractice claim against an attorney in the underlying litigation in which the attorney represents the client. 150 N.J. 424, 443 (1997). A collection action brought by a law firm against its client, however, does not constitute such underlying litigation for purposes of the principle stated in Olds. The assertion of a malpractice claim in such an action -- in which the attorney and client are already adverse -- does not raise the privilege and loyalty concerns that warranted the exception to the entire controversy doctrine recognized in Olds. In appropriate settings, a court may apply the entire controversy doctrine to preclude a legal malpractice claim that a client has declined to assert in the attorney's action to collect unpaid legal fees.

         The entire controversy doctrine, however, is constrained by principles of equity. It "does not apply to unknown or unaccrued claims." Wadeer, 220 N.J. at 606 (quoting DiTrolio v. Antiles, 142 N.J. 253, 273-74 (1995)). Consequently, a client whose malpractice claim was not asserted in an attorney's collection action may avoid preclusion of that claim by proving that he or she did not know, and should not reasonably have known, of the existence of the claim during the pendency of the collection action. See Mauro v. Raymark Indus., Inc., 116 N.J. 126, 135-36 (1989) (citing Ayers v. Township of Jackson, 106 N.J. 557, 583 (1987)); Cafferata v. Peyser, 251 N.J.Super. 256, 260-61 (App. Div. 1991). Moreover, even if the malpractice claim accrued before or during the earlier action, the client may avoid the entire controversy doctrine by demonstrating that the prior forum did not afford "a fair and reasonable opportunity to have fully litigated" the malpractice claim. Gelber v. Zito P'ship, 147 N.J. 561, 565 (1997) (quoting Cafferata, 251 N.J.Super. at 261). Those principles demand a thorough examination of the individual case.

         We conclude that the collection action at issue in this matter was not an "underlying action" as that term is used in Olds, and that the entire controversy doctrine may bar the claim. The record of this appeal, however, is inadequate for an application of the equitable rules that govern here. That record does not reveal when the cause of action for legal malpractice accrued or indicate whether the malpractice claimants would have had "a fair and reasonable opportunity to have fully litigated" their claim had they asserted it in the collection action. DiTrolio, 142 N.J. at 273; see also Wadeer, 220 N.J. at 606; Oliver v. Ambrose, 152 N.J. 383, 396 (1998). Those questions warrant further consideration by the trial court based on an expanded record.

         Accordingly, we reverse the Appellate Division's judgment, and remand this matter to the trial court for further proceedings.

         I.

         A.

         In 2005, Evangelos Dimitrakopoulos settled a dispute with a business associate, Steven Eleftheriou.[1] As a term of that settlement, Dimitrakopoulos and Eleftheriou formed a limited liability company, Integrated Construction and Utilities, LLC (Integrated). The LLC's members were Dimitrakopoulos's wife, Matilde Dimitrakopoulos, who owned a fifty-one percent interest, and Eleftheriou, who owned the remaining forty-nine percent interest. Although he was not a member of the LLC, Evangelos Dimitrakopoulos was the exclusive agent for his wife in the management of the LLC and was responsible for several aspects of its operations.

         Apparently suspicious that Eleftheriou was diverting Integrated funds, Evangelos Dimitrakopoulos retained the law firm of Borrus, Goldin, Foley, Vignuolo, Hyman and Stahl, P.C. (Borrus firm). In October 2009, he and the Borrus firm signed a retainer agreement, which set forth the hourly rates to be charged for legal services by the two principal attorneys designated to work on the matter, Steven L. Fox and Anthony B. Vignuolo, and by the firm's associates.[2]

         In the retainer agreement, Evangelos Dimitrakopoulos agreed to fully cooperate with the firm and pay all bills. The Borrus firm agreed to provide "conscientious, competent and diligent services" and to "seek to achieve solutions which are just and reasonable" for its client, but noted that "attorneys cannot and do not ...


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