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NJ: Something New About "Olds": Legal Mal Suit Barred by Entire Controversy Doctrine

Sklodowsky v. Lushis, et al ., HNT-L-649-09 (March 19, 2010, J. Buchsbaum)

Facts: In November 2003, the Plaintiff agreed to sell his marital home and real estate to “Developer”. He sought legal advice from an attorney and his firm (“Defendants”). Plaintiff maintained that he specifically advised Defendants that he was having marital problems and that he wanted to complete the transaction without his wife’s knowledge. Defendants, Pennsylvania attorneys, allegedly assured Plaintiff that the transaction could proceed without his wife’s knowledge.

The closing did not occur because Plaintiff could not deliver good title. Plaintiff was referred by Defendants to another attorney and both attorneys advised Plaintiff to sue the Developer to recover his security deposit. A third subsequent attorney filed suit on his behalf. Plaintiff sued the Developer for breach of contract on October 7, 2004. The Developer filed an Answer on November 3, 2004 and a third party complaint against Defendants, maintaining that they breached the duty of good faith by withholding material information related to the Plaintiff’s marital status. By order dated March 21, 2006, the trial court granted summary judgment in favor of Defendants, finding a lack of reliance and that they could not be found liable for fraud on the available facts. The Appellate Division subsequently affirmed the decision on July 16, 2008. Plaintiff and the Developer settled their claims on June 13, 2007.

The stipulation provided that Plaintiff would provide the Developer with all funds that he recovered from a legal malpractice action he intended to file against Defendants in the event of default or nonpayment. On October 22, 2007, Plaintiff filed suit against Defendants in connection with the advice they rendered and also alleging that his first attorney practiced law in New Jersey without a license. The second suit was dismissed on May 10, 2008 for failure to prosecute. Plaintiff’s second attorney then filed suit against Plaintiff in federal district court in Pennsylvania. On September 2, 2008, Plaintiff filed a third-party complaint against Defendants alleging legal malpractice. On May 22, 2009, the federal district court granted Defendants’ unopposed motion to dismiss the third party complaint without prejudice.

On November 4, 2009, the Plaintiff filed another suit for malpractice against Defendants based upon their legal advice and conduct connected to the real estate transaction. Defendants moved to dismiss based upon New Jersey’s Entire Controversy Doctrine and Pennsylvania’s statute of limitations.

Issue: Does Olds v. Donnelly, 150 N.J. 424 (1997) exempt all legal malpractice claimants from the application of the Entire Controversy Doctrine defense?

Ruling: Olds does not exempt all legal malpractice actions from the application of the Entire Controversy Doctrine. This is especially the case where: 1) there existed a previous suit concerning the same core set of related facts; 2) the attorney was a party to the original action; and 3) considerations of equity, namely to avoid piecemeal decisions, fairness to the parties, and judicial efficiency, required application of the doctrine.

Lesson: Olds continues to exempt legal malpractice actions from the Entire Controversy Doctrine, principally from the requirement that a plaintiff join the attorney in an underlying suit. But, Olds may not apply in a case where the allegedly negligent attorney is already joined in the action. The plaintiff  is still required to assert all known claims against the attorney or risk later being barred by the Entire Controversy Doctrine.

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Posted in: Entire Controversy Doctrine