Lead Opinion
The opinion of the Court was delivered by
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.
The case is before us as a result of a dissent in the Appellate Division. R. 2:2-l(a)(2). On appeal, the Appellate Division ruled, in a reported opinion, 274 N.J.Super. 405,
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,
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).
Unfortunately, the Gaughran formula was wrong. It calculated the rent increase based upon actual increases in the CPI. The lease, however, explicitly states that increases would be based upon percentage increases in the CPI. Id. at 409,
In April 1988, GH & C filed a declaratory action against Masward II on behalf of Circle to reform the 1985 settlement
In November 1988, during the course of the reformation litigation, GH & C withdrew as counsel for Circle because of a conflict of interest. Id. at 410-11,
The reformation litigation was eventually tried. Ibid. In August 1990, the trial court found that the Gaughran calculations were incorrect as a matter of law, and were not the result of a mutual mistake of fact. Ibid. The litigation ultimately ended in a settlement that was memorialized in an order of judgment, filed on
Subsequently, on September 6, 1991, Circle commenced a malpractice action against GH & C. Circle alleged that GH & C had negligently reviewed the rental-increase calculations, resulting in overpayment of rent by Circle and payment of unnecessary legal fees and costs. Ibid. GH & C then filed a third-party complaint against Petries, and Circle subsеquently amended its complaint to include Petries as a named party-defendant.
On April 2, 1993, the trial court granted defendant’s motion for summary judgment to dismiss Circle’s claim, finding that Circle’s action was barred by the entire controversy doctrine. Id. at 412,
A divided Appellate Division affirmed. Writing for the majority, Judge Keefe noted that New Jersey courts had applied the discovery rule to legal malpractice actions. Id. at 413,
With respect to the entire controversy doctrine, Judge Keefe found that the doctrine barred a malpractice claim because the original action, the reformation litigation, was “premised on the mutual mistake of all parties, and a necessary element of that theme was GH & C’s concession that it had been mistaken in its interpretation of the lease.” Id. at 417,
Circle appealed. Although Circle failed to file a timely appellant’s brief on its appeal as of right, this Court vacated its order dismissing the appeal for lack of prosecution and on January 11, 1995, reinstated its appeal.
We now affirm the majority determination and hold that the entire controversy doctrine applies to a client’s legal malpractice claims against his or her attornеy, even when the attorney is currently representing the client in an underlying action.
II
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 should occur in one litigation in only one court.” Cogdell v. Hospital Ctr., 116 N.J. 7, 15,
The entire controversy doctrine applies to constituent claims that arise during the pendency of the first action that were known to the litigant. DiTrolio, supra, 142 N.J. at 274-275,
Plaintiffs in this case and in Mystic Isle, supra, urge the Court to make an exception for legal malpractice claims that involve an attorney’s negligent conduct in the controversy that is the subject of the original action. While we recognize that a client’s claim against his or her attorney for malpractice engenders concerns inherent in the attorney-client relationship, those cоncerns may properly be addressed and accommodated under the principles of the entire controversy doctrine.
The major complication stemming from the attorney-client relationship that can affect a malpractice claim relates to the accrual of the cause of action and the capacity of the client to recognize and respond to such a cause of action when it arises. We recognize that, 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 implications and damages of that error have not yet been ascertained. See Grunwald v. Bronkesh, 131 N.J. 483, 494,
An attorney has an ethical obligation to advise a client that he or she might have a claim against that attorney, even if such advice flies in the face of that attorney’s own interests. The Rules of Professional Conduct (RPC) provide that “[a] lawyer shall not represent a client if the representation of that client may
Plaintiff claims that by requiring a client to assert its malpractice claim in the pending lawsuit, the client waives the attorney-client privilege, and leaves the lawyer open to interrogation concerning otherwise-privileged communications involving the very subject matter of the dispute. Indeed, both the ethics rules and the Rules of Evidence permit an attorney to reveal confidences in order to establish a defense to a legal malpractice claim by the client. See RPC 1.6(c)(2) (permitting attorney to reveal client confidences “to establish a defense to a ... civil claim ... against the lawyer based upon the conduct in which the client was involved”); N.J.R.E. 504(2)(c) (stating that the lawyer-client privilege shall not extend “to a communication relevant to an issue of breach of duty by the lawyer to his client, or by the client to his lawyer”); N.J.S.A. 2A:84A-20(2)(c) (same). Thus, clients will be faced with the Hobson’s choice of haring to choose between suing the former attorney simultaneously with the pending claim, thereby risking the exposure of previously-privileged information, or completely forfeiting his or her right to sue the former attorney in the hope that the underlying litigation is advantageous.
While we acknowledge potential for such a dilemma exists in certain circumstances, the risks of prejudice to the plaintiff are
Further, the entire controversy doctrine does not require that the malpractice claim be actually litigated with the underlying action; it merely requires that a party notify the сourt of the existence of material parties. See Brown, supra, 208 N.J.Super. at 382,
The entire controversy doctrine balances the objectives of efficiency and fairness. Exempting legal malpractice claims would not further either of these objectives. First, efficiency is not achieved because the legal malpractice claim likely will involve the same “bundle of rights” that the underlying litigation sought to resolve. Therefore, it will necessarily result in a re-run of the original litigation. Second, fairness is not achieved because possibly relevant evidence and parties will be excluded from participating in the underlying and subsequent malpractice actions. Without the legal malpractice claim and its necessary parties, the original action will not be a comprehensive and complete determination of liability. The defendants included in the first suit may unjustly be made to bear the burden of accepting full responsibility and the brunt of total liability, just as the subsequent group of defendants are likely to appear wholly at fault before their jury.
Ill
The bounds of the entire controversy doctrine, however, are not unlimited. See Cogdell, supra, 116 N.J. at 27-28,
In Grunwald, supra, this Court held that the accrual of a legal malpractice claim is governed by the discovery rule. The Court concluded that legal malpractice claims fall within the special “class of cases” for which the discovery rule was adopted because “[i]n the context of legal counseling, a plaintiff may reasonably be unaware of the underlying factual basis for a cause of action.” 131 N.J. at 493,
Thus, the discovery rule encompasses two types of plaintiffs: those who do not become aware of their injury until the statute of limitations has expired, and those who are aware of their injury but do not know that it may be attributable to the fault of another.
[Ibid, (quoting Burd v. New Jersey Tel. Co., 76 N.J. 284, 291-92,386 A.2d 1310 (1978).]
Accordingly, the Court reasoned that beсause an “inability readily to detect the necessary facts underlying a malpractice claim is a result of the special nature of the relationship between the attorney and client,” applying the discovery rule to malpractice actions would “remove [an attorney’s] [ ] incentive to deceive and thus ... preserve the fiduciary duty of full disclosure.” Id. at 493-94,
In Cafferata, supra, the Appellate Division stated:
*296 The knowledge of the existence of the cause of action which will invoke the entire controversy doctrine is the same as the knowledge which will trigger the running of the statute of limitations in those cases to which the discovery rule of deferred accrual is applicable.
[251 N.J.Super. at 260,597 A.2d 1101 .]
Accordingly, as Judge Keefe acknowledged, because the discovery rule applies to a determination of when a legal malpractice claim accrues for statute of limitations purposes, the rule is equally applicable to imposition of the entire controversy bar. 274 N.J.Super. at 413-16,
Plaintiff argues that it should not be barred from bringing its malpractice claim against GH & C and Petries because at the time of the reformation litigation, its malpractice claim against defendants had not yet accrued. Plaintiff contends that because the extent of its damages were not set until after the reformation litigation was complete, its cause of action against defendants did not accrue until after the termination of that litigation. Additionally, plaintiff asserts that even if it was aware of the injury caused to it in 1988, it was not aware that either GH & C or Petries was responsible for that injury, and that GH & C’s continuing representation of plaintiff prevented plaintiff from discovering its professional malpractice claims. We reject both of these arguments.
As in all other instances where the discovery rule has been applied, injury and attributable fault are the key elements to satisfying the rule. Grunwald, supra, 131 N.J. at 495, 621 A.2d
In Grunwald, we recognized that “although an adverse judgment may increase a plaintiffs damages, it does not constitute an indispensable element to the accrual of a cause of action. Id. at 495-96,
Thomas Pliskin of GH & C informed plaintiff that the Gaughran formula was incorrect in March 1988. Thus, at this time it is clear that plaintiff knew it had been injured because it had been overpaying rent according to a mistaken formula. In fact, plaintiffs complaint against Masward II in the reformation litigation mentions several times that the rent is based on an erroneous calculation. Thomas DeFelice’s affidavit in support of plaintiffs motion for summary judgment states that the rent calculations were based on an erroneous calculation. His affidavit also admits that the overpayment of rent “was made simply because of the
Plaintiff asserts that GH & C’s continuing representation of Circle, up until January 1989, prevented Circle from discovering its professional malpractice claims. Moreover, Circle contends that Wasserman, who became Circle’s legal counsel after GH & C’s departure during the reformation litigation, failed to inform it оf its possible claim against either GH & C or Petries for the undetected mistake in the rent-increase formula. Wasserman, on the other hand, testified that he did notify plaintiff of the potential liability of both GH & C and Petries, and that plaintiff responded that it did not intend to bring suit against either entity. Although the testimony regarding notification is indeterminate, the record demonstrates that plaintiff nevertheless had knowledge of the potential claim against both GH & C and Petries even prior to plaintiffs initial January 26 meeting with Wasserman.
The record indicates that plaintiff knew in March 1988 that its rent overpayments were in part attributable to GH & C because the law firm admitted it was mistaken in the rent calculations. In his March 9, 1988 letter to Gaughran informing the firm of its mistaken calculation, Thomas Pliskin wrote, “All those persons involved with the determination of the rent, including me, have to the point of this letter been mistaken.” (emphasis added). Plaintiffs brief submitted in support of summary judgment, in the settlement-reformation action, also states, “All parties and attorneys in the 1985 litigation mistakenly believed the calculations for the ‘percentage’ increase in the C.P.I. as stated by the attorney, Mr. Gaughran.” (emphasis added). Therefore, plaintiff did have actual knowledge of GH & C’s negligence as early as March 1988.
A malpractice action accrues when a party suffers damages and discovers or through reasonable diligence should discover, that the damage is attributable to a professional’s negligent advice. Given GH & C’s clear admission of error for the purposes of the reformation litigation (Petries also testified during the litigation that it was mistaken), it is reasonable to hold Circle to construe
The joinder requirements of the entire controversy doctrine would not have been negated, however, even if GH & C had maintained representation of Circle throughout the course of the litigation. A litigant must present all claims, even those against different parties, that stem from the same transactionally related facts in one controversy before one court. DiTrolio, supra, 142 N.J. at 272-278,
IV
Joinder of GH & C and Petries also advances the goals of the entire controversy doctrine. First, joining them as parties would have encouraged a more comprehensive determination of the legаl controversy — whether the mistaken calculations were a mutual mistake of fact, a mistake of law, or the result of negligent review by Circle’s retained professionals. As the Appellate Division specifically found:
GH & C’s failure to advise Circle that GH & C and Petries could be sued was an issue inextricably tied to the settlement reformation litigation and was, thus a part of that controversy; the controversy being who, if anyone, was responsible for Circle having to pay more rent than the lease required.
[274 N.J.Super. at 418,644 A.2d 626 .]
Second, the interests of party fairness favor joinder of defendants in the underlying action. The defendants’ ability to defend themselves has been prejudiced. Thomas DeFelice, the president
Third, joinder fosters judicial economy and efficiency. Chief Justice Vanderbilt observed that “the fundamental object of the entire controversy doctrine is to prevent аny single action from being nothing more than ‘the trigger which * * * would start the chain reaction of other litigation to resolve the balance of the issues raised by the entire controversy.’ ” Wm. Blanchard Co., supra, 150 N.J.Super, at 294,
Lastly, we agree with the Appellate Division that “no reason exists why the [discovery] rule should not apply to [accounting-malpractice actions] as well,” especially considering that numerous other jurisdictions already apply the discovery rule to such actions. 274 N.J.Super. at 414-15,
V
Plaintiff argues that it should be spared the preclusive effect of the entire controversy bar because the party-joinder component of the rule mandated by this Court’s decision in
This Court issued the Cogdell decision with the direction that it be applied “prospectively and to all cases not already on appeal.” 116 N.J. at 28,
Judge Keefe correctly recognized that the reformation litigation was the first lawsuit addressing the mistaken rent-increase calculation resulting in excess rents paid by Circle. 274 N.J.Super. at 412,
Moreover, the record itself indicates Circle’s knowledge of the party-joinder rule. Circle’s brief in support of summary judgment
Generally, an attorney’s conduct in relation to the processing of claims is imputed to the client. In re Matter of Roy, 142 N.J.Super. 594, 599-601,
Under Rule 4:50-1, however, a court may relieve a party from a final judgment for “mistake, inadvertence, surprise, or excusable neglect ... or [for] any other reason justifying relief from the operation of the judgment or order.” R. 4:50-l(a), (f). The rule “ ‘is designed to reconcile the strong interests in finality of judgments and judicial efficiency with the equitable notion that courts should have authority to avoid an unjust result in any given case.’ ” Baumann v. Marinaro, 95 N.J. 380, 392,
Excusable neglect is that carelessness “attributable to an honest mistake that is compatible with due diligence or reasonable jurisprudence.” Mancini v. EDS, 132 N.J. 330, 335,
Clearly, plaintiff has no justification for neglecting to ascertain that the entire controversy doctrine would bar a subsequent action against its attorneys and accountants for malpractice. Wasserman’s testimony indicates Circle was notified of the potential professional malpractice claims during the pendency of the litigation. Wasserman also testified that he informed DeFelice that any malpractice action should be brought with the Masward II litigation. Whether plaintiffs decision not to bring the malpractice claims then was based on a desire to maintain the representation of Wasserman, who had indicated he would resign from the case should Circle choose to sue GH & C because of a conflict, or other personal or tactical cоnsiderations is of no significance. The fact remains that Circle failed to bring the malpractice action at the moment when the trial court was already involved in determining responsibility for the mistaken calculation, and now asks this Court to allow for a relitigation of that very issue with respect to a new defendant. Such clear disregard of our rules of joinder cannot be countenanced in the name of equity and fairness. There is “nothing in the circumstances of the case or considerations of fairness to justify depriving these defendants of the benefit of a rule that ... advances the goals of judicial economy and efficiency.” Cogdell, supra, 116 N.J. at 28-29,
VI
Plaintiff is barred by the entire controversy doctrine from bringing its malpractice claim against defendants. The judgment of the Appellate Division is affirmed.
For reversal — Justice STEIN — 1.
Notes
The formula for computing the increase is provided in the lease as follows:
The percentage increases, if any, in the level of thе official CONSUMER UNITED STATES DEPARTMENT OF LABOR INDEX [(C.P.I.)] as published for the quarterly period of the year immediately prior to the commencement of the rent adjustment period (i.e. commencement of the eleventh, sixteenth, twenty-first year of the original lease term and commencement of each five (5) year renewal term) over the level of such index as published for*286 the quarterly period covering the commencement date of the original term of the lease.
His testimony is particularly relevant on the issue of knowledge because Wasserman testified in his deposition that he did advise DeFelice of malpractice claims against GH & C and Petries.
Dissenting Opinion
dissenting.
I agree with the Court’s determination that attorney-malpractice claims are not exempted from the entire-controversy doctrine. However, because Circle Chevrolet Company (Circle) acted reasonably in choosing not to join as parties in the reformation action its former attorneys who had rеpresented Circle in the underlying transaction, Giordano, Halleran & Ciesla (GH & C), principles of fairness dictate that the doctrine should not apply in this case.
I
This Court has recognized that “justice is the polestar [of our judicial system] and our procedures must be moulded and applied with that in mind.” New Jersey Highway Auth. v. Renner, 18 N.J. 485, 495,
II
Despite the commendable purposes of the entire-controversy doctrine, the unique factual circumstances present in this case suggest that strict adherence to the doctrine would be unfair. Given the state of the law in August 1990, when the reformation litigation was eventually tried, whether Circle’s cause of action against its former attorneys had accrued was unclear. For Circle to have assumed at that time that any legal-malpractice claim it might have had against GH & C would not have accrued until either the case underlying the malpractice claim was disposed of on appellate review, or the time to appeal expired, would have
Application of the entire-controversy doctrine, “as in the case of all other preclusionary doctrines, * * * requires, as a matter of first principle, that the party whose claim is being sought to be barred must have had a fair and reasonable opportunity to have fully litigated that claim in the original action.” Cafferata, supra, 251 N.J.Super. at 261,
Surely, Circle' could not reasonably have forecast that this Court, thirteen months after the Appellate Division’s decision in Grunwald, would reverse and determine instead that “the statute of limitations begins to run * * * when the client suffers actual damage and discovers * * * the facts essential to the malpractice claim,” — an injury that could accrue prior to the completion of the appellate process. Grunwald v. Bronkesh, 131 N.J. 483, 494, 621
“A legal-malpractice action derives from the tort of negligence. Therefore, a legal-malpractice action accrues when an attorney’s breach of professional duty proximately causes a plaintiffs damages.” Grunwald, supra, 131 N.J. at 492,
The reformation action was premised on a theory of mutual mistake, and Circle reasonably could have assumed that the reformation action would afford complete relief because the excessive rent payments could be entirely recovered in that suit. Indeed, the underlying matter was one that “ ‘presented a controversy [that] could * * * be resolved completely as to all concerned simply by’” resolution of the reformation action. Ellison v. Schenck, Price, Smith & King, 280 N.J.Super. 169, 176-77,
Moreover, in respect of attorney’s fees expended as a result of the reformation action, Circle’s counsel stated during oral argument:
[Apparently, Circle was told by Mr. Wasserman that [its] legal fees will come back to [it] because what actions the * * * defendant is asserting are all frivolous and there is a frivolous statute out there, sp [it]’ll be made whole by way of recapturing their attorneys fees. In addition, this was a landlord-tenant dispute with a lease in place [that] had provision for attorneys fees. I can’t say whether that particular aspect of it was disclosed, but the potential existed since we’re in a landlord-tenant dispute, I can make application within the reformation suit to be made whole by not only the overpayment of rent but also my attorney’s fees.
Accordingly, given the indeterminate state of the law prior to this Court’s ruling in Grunwald, and Circle’s justifiable belief that its damages as a result of its attorneys’ failure to detect a rent-calculation error 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 legal-malpractice claim cannot easily be justified.
As noted by the Court, the novel issue in this case “is whether the entire controversy doctrine applies to a malpractice action against an attorney who represents a client in the underlying trаnsaction.” Ante at 285,
Furthermore, although not entitled to great weight, I cannot disregard the intangible factors that understandably make clients reluctant to sue their lawyers:
A lawyer is a friend in regard to the legal system. He is someone who enters into a personal relation with you — not an abstract relation as under the concept of justice. That means that like a friend he acts in your interest, not his own; or rather he adopts your interests as his own. I would call that the classic definition of friendship.
[Charles Fried, The Lawyer as Friend: The Moral Foundations of the Lawyer-Client Relation, 85 Yale L.J. 1060, 1071 (1976).]
That reluctance was particularly justifiable on this record becаuse of the prospect that a successful resolution of the reformation action would have made it unnecessary for Circle to sue GH & C.
Ill
Until today’s decision I assumed “that the limits of a policy favoring mandatory joinder of claims and nonparties * * * are reached when the joinder would result in significant unfairness,” Crispin, supra, 96 N.J. at 354,