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Appellate Division of New Jersey Superior Court Reexamines Entire Controversy Doctrine in Legal Malpractice Case

In Sklodowsky v. Lushis, the Appellate Division of the Superior Court of New Jersey recently had the opportunity to reexamine the application of the entire controversy doctrine to legal malpractice actions.

John F. Lushis, Jr., Esquire represented Paul G. Sklodowsky in the potential sale of real property. An agreement of sale was entered with American Developers of New Jersey, Inc. (“ADNJ”). When ADNJ learned that Sklodowsky was attempting to sell the property without the consent of his wife, it refused to complete the sale.

On October 7, 2004, Sklodowsky filed suit against ADNJ, seeking to retain its $85,000 deposit as liquidated damages. ADNJ filed a counterclaim against Sklodowsky, and filed a third-party complaint against Lushis. Lushis moved for summary judgment which was granted.

On October 22, 2007, Sklodowsky filed a complaint against Lushis for professional negligence, breach of contract, and breach of fiduciary duty. However, the complaint was not served and was eventually dismissed without prejudice pursuant to New Jersey Rule of Court 1:13-7 for lack of prosecution.

In a third action, a partner of Lushis filed suit against Sklodowsky in federal court to collect payment for their prior legal services. Sklodowsky filed a counterclaim against the plaintiff and a third-party complaint against Lushis for professional negligence. A motion to dismiss Sklodowsky’s claims was granted on the basis of improper joinder and the professional negligence claim was dismissed without prejudice.

Finally, on November 4, 2009, Sklodowsky filed the lawsuit at issue in the appeal against Lushis, again alleging professional negligence with regard to the failed transaction. Lushis filed a motion to dismiss based on the entire controversy doctrine which was granted by the trial court.

In New Jersey, the entire controversy doctrine, adopted as Rule 4:30A, requires the joinder of “all causes, claims, and defenses related to a controversy.” Omitted claims are precluded. Prior to 1997, New Jersey courts interpreted the entire controversy doctrine as requiring a litigant who believed that his or her attorney was negligent to join his or her attorney in the underlying lawsuit that gave rise to the claim. Joinder was required even if the attorney continued to represent the litigant.

In Olds v. Donnelly, 150 N.J. 424, 441 (1997), the New Jersey Supreme Court relaxed the application of the entire controversy doctrine to legal malpractice actions, finding that the “risk of the disclosure of privileged information and the generally adverse effects on the attorney-client relationships outweigh any benefit from requiring a client to assert a malpractice claim in the pending lawsuit.”

The trial court reasoned that the entire controversy doctrine applied despite Olds because Olds concerned the joinder of parties rather than the joinder of claims. The trial court felt that dismissing the claim was consistent with the purposes of the entire controversy doctrine.

The Appellate Division reversed, finding that the reasoning inherent to Olds applied. It stated that “[a]pplying the entire controversy doctrine in such a case can chill a client’s relations with his or her attorney and cause the client’s and the attorney’s interests to diverge, potentially prejudicing them both.”

The purpose of the entire controversy doctrine, according to the Appellate Division, is to 1) prevent piecemeal decisions, 2) promote fairness to the parties, and 3) advance the goal of judicial efficiency. While acknowledging that its decision did not prevent piecemeal decisions or promote judicial efficiency, the Appellate Division held that fairness to the parties was paramount and prevented dismissal. The court relied heavily on the fact that requiring Sklodowsky to sue Lushis in the underlying case “would have resulted in a divergence of their respective interests” which “would have further compromised an already strained attorney-client relationship.”

Lushis did not show that the passage of time had prejudiced his interests in defending against Sklodowsky’s claims. The court further held that the previously dismissed actions were not relevant because they were dismissed without prejudice. Finally, it is important to note that the statute of limitations for legal malpractice claims in New Jersey is six years. Therefore, Sklodowsky’s claim was not barred on statute of limitations grounds.

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