Mystic Isle Development Corp. v. Perskie & Nehmad

• Citation: 142 N.J. 310,662 A.2d 523
• Court: United States State Supreme Court (New Jersey)
• Decision Date: 01 August 1995
• Parties: MYSTIC ISLE DEVELOPMENT CORPORATION, a New Jersey Corporation, Stanley N. Drinkwater, Jr., Stanley N. Drinkwater, III, Esquire, and Patrick Drinkwater, individuals, Plaintiffs-Respondents, and Cross-Appellants, v. PERSKIE & NEHMAD, a professional corporation, Steven R. Nehmad, Esquire, and Benjamin Zeltner, Esquire, Defendants-Appellants and Cross-Respondents, and John Does 1-50, inclusive, fictitious named defendants, jointly, severally, and in the alternative, Defendants.

Page 310

142 N.J. 310

662 A.2d 523

MYSTIC ISLE DEVELOPMENT CORPORATION, a New Jersey

Corporation, Stanley N. Drinkwater, Jr., Stanley N.

Drinkwater, III, Esquire, and Patrick Drinkwater, individuals, Plaintiffs-Respondents, and Cross-Appellants, v. PERSKIE & NEHMAD, a professional corporation, Steven R.

Nehmad, Esquire, and Benjamin Zeltner, Esquire,

Defendants-Appellants and Cross-Respondents,

and

John Does 1-50, inclusive, fictitious named defendants,

jointly, severally, and in the alternative, Defendants.

Supreme Court of New Jersey.

Argued March 28, 1995.

Decided Aug. 1, 1995.

John L. Slimm, Westmont, for appellants and cross-respondents Perskie & Nehmad, etc., and Benjamin Zeltner, Esquire (Slimm & Goldberg, attorneys; Mr. Slimm, Lila Wynne Williams, and Peter S. Cuddihy, on the briefs).

Carl D. Poplar, Turnersville, for appellant and cross-respondent Stephen R. Nehmad, Esquire (Poplar & Eastlack, attorneys).

Clifford L. Van Syoc, Cherry Hill, for respondents and cross-appellants (Mr. Van Syoc, attorney; Mr. Van Syoc, Evan A. Blaker, and Margaret M. Allen, on the briefs).

The opinion of the Court was delivered by

HANDLER, J.

This case, as does the case of Circle Chevrolet v. Giordano, Halleran & Ciesla, 142 N.J. 280, 662 A.2d 509, also decided today, raises the issue of whether the entire controversy doctrine, as it applies to the joinder of parties, is applicable to attorney-malpractice actions.

In this case, defendants, who are practicing attorneys, claim that the entire controversy doctrine bars the tort claims brought against them subsequent to the termination of a prior litigation derived from the same factual circumstances giving rise to those claims. Plaintiff argues that attorney-malpractice actions involve special considerations and thus should be exempted from the scope of the doctrine. Plaintiff also maintains that because the first litigation was dismissed without prejudice as to one defendant, the entire controversy bar should not be applied to prevent its claim against its attorneys.

I

Plaintiff Mystic Isle Development Corporation (Mystic), a real estate developer, purchased property from J.K. Development Company (J.K.). The property, located in Weymouth Township, Atlantic County and known as "Lenape Landing," was to be developed as a residential apartment complex. Mystic purchased the rights to construct 78 townhouses or Phases II and III of the complex.

Mystic and its principals, Stanley Drinkwater, Jr., Stanley Drinkwater, III, and Patrick Drinkwater, acquired title to the property on May 10, 1985. According to Mystic, its agreement of sale obligated J.K. to obtain 78 sewer permits from the Weymouth Township Municipal Utilities Authority (MUA) so that Mystic could proceed with developing Phases II and III of the complex. Mystic states that an April 15, 1985 letter signed by James Kenneally, a principal of the J.K. Corporation, assigned 78 sewer permits to Mystic. J.K. claims that it did not write this letter.

Defendant law firm, Perskie & Nehmad (P & N), represented J.K. in its efforts to obtain the appropriate zoning approval and sewer permits. Because the MUA would allocate only 38 Domestic Consumer Units (DCUs) of sewerage capacity to J.K. for Lenape Landing, which was only enough to accommodate Phase I of the development, J.K. filed suit against the MUA to compel the MUA to allocate sewer permits for the remainder of the development. P & N later timely amended the complaint to name Mystic as an additional plaintiff because Mystic had recently acquired title to a portion of the property. At his deposition, Stephen Nehmad testified that Mystic was added to the complaint "simply for technical reasons ... because they were the parties that had standing to whatever phase of the real estate was allocable to that amount of allocation which we were seeking to obtain." In or about May 1985, J.K. sold Phase I of the development to Lenape Landing Association, a limited partnership. On July 16, 1985, P & N's motion for partial summary judgment was granted. The trial court voided the MUA's reservation of sewerage capacity and ordered the MUA to reconsider J.K.'s application. As a result, the MUA adopted a resolution that allocated 18 additional DCUs to the development, bringing the total of approved DCUs to 56.

P & N again commenced litigation against the MUA, seeking to compel the issuance of sufficient permits for the entire development. Ultimately, they obtained an order, dated January 14, 1986, which required the MUA to issue permits for Phases I and II. The order did not allocate any permits for Phase III. The order also directed the MUA to establish that it had no additional sewerage capacity to allocate to the development. The MUA subsequently established that there was insufficient capacity for the full development, and the suit was dismissed without prejudice. At this point sewer permits were allocated to all of Phase I and a portion of Phase II, while Phase III did not receive any permits. Mystic contends that the MUA, through J.K., had promised it that sewer permits would be issued first to Phase III, then Phase II and then Phase I.

Consequently, on April 30, 1986, Mystic, represented by Michael McKenna, filed suit in Atlantic County against the MUA, individual members of the MUA, the State of New Jersey Department of Community Affairs, Lenape Landing Association, the D'Anastasio Corporation, John D'Anastasio, J.K., and Carole Houser and James Kenneally, the principals of J.K (hereinafter the "Atlantic County action"). Mystic did not bring suit against P & N. Mystic alleged that: (1) the MUA had wrongfully refused to issue sewer permits and had ignored an assignment of permits to Phases II and III of the development and instead issued permits to the Lenape Landing Association, owner of Phase I of the Development; (2) J.K. and Carole Houser had fraudulently misrepresented the status of the sewer permits and J.K.'s ability to obtain those permits; (3) Houser, Kenneally, and J.K. breached the terms of the assignment, which required allocation of the first 78 permits to Mystic, by tendering 36 permits to the Lenape Landing Association; (4) Houser, Kenneally, and J.K. had sought to sell the same sewerage permits twice, with full knowledge of the MUA; and (5) D'Anastasio and his companies misrepresented that they owned the capacity while knowing of plaintiff's assignment. In bringing suit, Mystic relied on an April 1, 1985 MUA resolution that awarded J.K. 89 DCUs. That resolution was later determined to be a forgery. It was investigated by the Atlantic County Prosecutor's Office, but no indictments were issued. In short, the Atlantic County action sought to determine who was at fault for the insufficient number of sewer permits.

During the course of discovery, Mystic deposed Stephen Nehmad, the attorney who had represented J.K. and Mystic in the sewerage litigation against the MUA. Nehmad testified that he was retained by J.K. to handle the municipal, land use and environmental permits and approvals for the project that J.K. was developing in Weymouth Township. He testified that at the time he amended the complaint to include Mystic he was unaware of the potential conflict concerning J.K.'s allocation of the sewer permits. He also testified that he told Mystic several times that there was insufficient sewerage capacity to support the full three phases of the development.

A letter dated June 30, 1986, written by Leland Stanford, Nehmad's attorney, and sent to McKenna indicated that, pursuant to an earlier conversation with McKenna, Stanford understood that Mystic did not intend to sue Nehmad. "It is my further understanding that Mr. Nehmad is not a 'target' in the pending litigation, nor is he anticipated to be a defendant."

The court dismissed with prejudice the complaint against D'Anastasio Corporation, John D'Anastasio and Lenape Landing Association by an order entered August 18, 1989. On September 1, 1989, the court signed an order dismissing Mystic's complaint against Carole Houser, without prejudice, because Mystic had failed to provide specific answers to interrogatories. Mystic was given 30 days to comply with certain discovery requests. Mystic failed to act. On December 4, 1989, Houser filed a motion for an order entering final judgment of dismissal with prejudice. The order was granted on December 22, 1989.

Mystic then filed a motion to vacate the dismissal with prejudice. In support of that motion, Mystic provided an affidavit by Stanley Drinkwater, Jr. who stated that Mystic had not received notice of Houser's motion to dismiss with prejudice because the notice was sent to McKenna, who was no longer representing Mystic and failed to forward the notification. Defendants, however, contend Drinkwater did have notice of the motion because McKenna forwarded the motion to Mystic's present counsel, Clifford Van Syoc, on December 11, 1989. Defendants assert that Mystic then made the tactical decision to allow the case to be dismissed.

On July 20, 1990, based on Mystic's representations, the trial court vacated its December 22 order and reinstated the dismissal without prejudice as to Carole Houser. Although there is no evidence in the record of dismissal with prejudice against the MUA, Mystic admits that only the claim against Carole Houser was dismissed without prejudice.

Defendants contend that Mystic obtained the dismissal without prejudice against Houser by providing the trial court with an inaccurate factual and procedural history. By so doing, Mystic maneuvered the procedural posture of its original action to obtain an adjudication that was not on the merits and thereby avoided the consequences of the entire controversy doctrine. Defendants note that Mystic's July 31, 1989 deposition of Stephen Nehmad establishes that Mystic was aware of and considering the possibility of a malpractice claim against P & N. McKenna sent Drinkwater a copy of Nehmad's...