A Blast From the Past: The Entire Controversy Doctrine and Legal Malpractice Claims

Dimitrakopoulos v. Borrus, Goldin, Foley, Vignuolo, Hyman and Stahl, P.C., 237 N.J. 91 (2019).  In 1997, the Supreme Court decided Olds v. Donnelly, 150 N.J. 424 (1997).  That decision held, among other things, that the entire controversy doctrine does not require the assertion of a legal malpractice claim in the underlying action that gives rise to that claim.  Instead, the claim does not accrue until the claimant sustains actual damage.  In so ruling, the Court abrogated its decision just two years earlier in Circle Chevrolet, Inc. v. Giordano, Halleran & Ciesla, 142 N.J. 280 (1995), which had produced a firestorm of controversy.

Today, in an opinion by Justice Patterson, the Court came back to the interplay between legal malpractice and entire controversy.  In 2005, plaintiff retained the defendant law firm to represent him in a dispute with a business associate.  The firm moved to withdraw as counsel not long after being retained.

In March 2011, however, the firm sued plaintiff for unpaid fees.  Six months later, that dispute was settled.  The client was to make a settlement payment to the firm, but he failed to do so.  Accordingly, in July 2012, the firm obtained a default judgment in a substantial amount.  The client did not appeal that judgment.

In September 2015, plaintiff sued the firm for legal malpractice.  The law firm moved to dismiss the case.  The Law Division ruled that plaintiff could have raised the legal malpractice claim in the collection action and applied the entire controversy doctrine against him.  The Appellate Division affirmed, but ruled that the collection case was not the “underlying action.”  Rather, the business dispute that dated back to 2005 was the underlying action.  The Supreme Court granted review, reversed the decision of the Appellate Division, and remanded the case for development of a more complete record.

Justice Patterson reaffirmed the ruling 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.”  But a collection action by a law firm against its client “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.”

But there was an additional wrinkle.  The entire controversy doctrine does not apply to unknown or unaccrued claims.  “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.  [Citations].  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.”

The record here was insufficient to allow the Court to determine, under the standard of review of grants of motions to dismiss, which calls for reading the complaint with “a generous and hospitable approach,” when plaintiff knew or reasonably should have known of the legal malpractice claim.  The Court remanded the matter for development of a record on that issue.

Justice Patterson’s opinion offers an exhaustive and very useful overview of the entire controversy doctrine in general and its applicability to legal malpractice claims in particular.  The lower courts have good guidance in pursuing the remand that the Court ordered.