Circle Chevrolet Co. v. Giordano, Halleran & Ciesla

• Decision Date: 01 August 1995
• Parties: CIRCLE CHEVROLET COMPANY, a New Jersey Corporation, and Thomas J. DeFelice, Sr., Plaintiffs-Appellants, v. GIORDANO, HALLERAN & CIESLA, a Professional Corporation, Defendant-Third-Party Plaintiff-Respondent, v. PETRICS, MESKIN, NASSAUR & DAMBACH, Accounts and Auditors, Third-Party Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 280

142 N.J. 280

662 A.2d 509

CIRCLE CHEVROLET COMPANY, a New Jersey Corporation, and Thomas J. DeFelice, Sr., Plaintiffs-Appellants, v. GIORDANO, HALLERAN & CIESLA, a Professional Corporation, Defendant-Third-Party Plaintiff-Respondent, v. PETRICS, MESKIN, NASSAUR & DAMBACH, Accounts and Auditors,

Third-Party Defendant-Respondent.

Supreme Court of New Jersey.

Argued March 28, 1995.

Decided Aug. 1, 1995.

Ronald L. Lueddeke, for appellants.

Richard L. Friedman, for respondent Giordano, Halleran & Ciesla, etc. (Giordano, Halleran & Ciesla, attorneys; Mr. Friedman, of counsel; Mr. Friedman, Lawrence J. Sharon, and Jodi L. Rosenberg, on the briefs).

Christopher J. Carey, for respondent Petrics, Meskin, Nassaur & Dambach, etc. (Tompkins, McGuire & Wachenfeld, attorneys; Mr. Carey, of counsel; Michael S. Miller and Mary Anne McConeghy, on the briefs).

The opinion of the Court was delivered by

HANDLER, Justice.

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 310, 662 A.2d 523, is whether the entire controversy doctrine applies to a malpractice action against an attorney who represents a client in the underlying transaction.

The case is before us as a result of a dissent in the Appellate Division. R. 2:2-1(a)(2). On appeal, the Appellate Division ruled, in a reported opinion, 274 N.J.Super. 405, 644 A.2d 626 (1994), that the entire controversy doctrine applied and, accordingly, dismissed the action.

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, 644 A.2d 626. Thomas J. DeFelice, Sr. (DeFelice) is the president and sole shareholder of Circle. Ibid. The dealership is located on land owned by Masward II, a partnership consisting of DeFelice, his brother Edward DeFelice, and Albert North, each of whom own a one-third interest. Ibid.

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). ¹

In March 1985, Circle and Masward II began discussions regarding the first rent increase. At the time of these discussions, Masward II was represented by the law firm of Gaughran & Steib (Gaughran), while Circle was represented by defendant GH & C. Id. at 409-10, 644 A.2d 626. The dispute was finally settled by Circle agreeing to pay the increased rent based on a formula devised by Gaughran, which calculated the rent increase based upon the actual increase in the CPI from February 1973 to February 1983. Id. at 410, 644 A.2d 626. On March 22, 1985, Gaughran sent a letter containing the amount of the rent increases to Circle's attorney, Thomas Pliskin, a partner at GH & C. Pliskin then forwarded the letter to Thomas DeFelice of Circle, asking him to review the letter and advise GH & C as to his desired course of action. DeFelice asked his accountants, Petrics, Meskin, Nassaur & Dambach (Petrics) to review the formula. Petrics found that the calculations were accurate, assuming that the CPI numbers were correct. Circle's lawyers, GH & C, did not question the accountants' review, and the formula was incorporated into the settlement agreement. Ibid.

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, 644 A.2d 626. It was not until February 24, 1988, on receipt of notice from Gaughran that another increase was about to take effect, that Pliskin reviewed Gaughran's calculations and discovered that an error had been made. As a result, Circle overpaid its rent by $37,699.98. Pliskin informed Gaughran of the error by letters dated March 9, 1988 and March 11, 1988. Ibid. Circle was also informed of the mistake at that time. Ibid.

In April 1988, GH & C filed a declaratory action against Masward II on behalf of Circle to reform the 1985 settlement agreement to reflect the correct rental increase calculation (hereinafter, the "reformation litigation"). Ibid. The reformation remedy was premised on the theory that a mutual mistake of fact had been made. Ibid. While that litigation was pending, Masward II also filed a suit against Thomas DeFelice in his individual capacity. That suit was consolidated with the reformation litigation.

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, 644 A.2d 626. The law firm of Blaustein & Wasserman (Wasserman) took over representation of Circle on January 1989, after an initial meeting between Alan Wasserman and Circle. Id. at 411, 644 A.2d 626. Circle and Wasserman differ on the advice that Wasserman offered his client. Circle contends that Wasserman never informed it of any possible claims against GH & C and the accounting firm of Petrics while the reformation litigation was pending. Ibid. Circle states that it was advised of the existence of a claim against GH & C only after the reformation litigation had ended. Ibid. Wasserman, on the other hand, claims that not only did he inform Circle of "some culpability" on the part of GH & C and the existence of a "viable case against Petrics," but also that he notified Circle that the firm would not represent Circle if Circle decided to join GH & C as a defendant because GH & C had referred the case to Wasserman. Ibid. Wasserman also claims that in response to that information, Thomas DeFelice indicated that he had no intention of suing Petrics because of his close relationship with the accounting firm and that he did not want to sue GH & C. Ibid. GH & C and Petrics were not joined as defendants in the reformation litigation. Ibid. However, Circle did call them as witnesses in the action. Ibid.

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 December 14, 1990. In the settlement agreement, signed by the court, the court found that there had been an overpayment of rent in the amount of $37,699.98. The settlement provided Circle with a $37,699.98 credit in its lease payments to Masward II. Thus, the court calculated that Circle did not need to pay rent for 4.6 months, commencing on September 1, 1990. From January 1, 1991 onward, Circle's monthly rental payments would be $5,420.

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 Petrics, and Circle subsequently amended its complaint to include Petrics 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, 644 A.2d 626. The trial court also dismissed GH & C's third-party complaint against Petrics with prejudice. Circle appealed.

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, 644 A.2d 626. He held that Circle's cause of action against GH & C, as well as Petrics, accrued in March 1988 when Circle had knowledge of the mistake in the rent calculations. Id. at 415, 644 A.2d 626.

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, 644 A.2d 626. Thus, a malpractice claim could "easily have been presented in the settlement reformation suit as an alternative form of recovery in the event that the 'mutual' mistake theory was rejected." Ibid. Judge Stern dissented. He believed that legal malpractice actions should be treated differently under the entire controversy doctrine, and that the "totality of the circumstances here does not require rigid adherence to the entire controversy doctrine to bar the present claims against defendants...." Id. at 422, 644 A.2d 626.

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 attorney, 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...