NJ: Underlying divorce settlement; entire controversy doctrine
In this appeal, the Court considers whether plaintiff’s legal malpractice claim is barred under Puder v. Buechel, 183 N.J. 428 (2005). The Syllabus issued by the NJ Supreme Court in conjunction with its decision in Gere is substantially set forth below:
FACTS: Defendant Frank A. Louis, Esq., represented plaintiff Julia Gere in connection with plaintiff’s divorce from Peter Ricker. Pursuant to the property settlement agreement, plaintiff had a six month window, which ended in October 2000, to decide how she wished to proceed with respect to the parties’ ancillary real estate investments. Plaintiff’s understanding was that she would retain a one-half interest in those assets unless she affirmatively advised Ricker within six months that she did not wish to do so. One of those assets was Navesink Partners, which owned both the real estate and business operations of a marina. Based on Louis’s interpretation of plaintiff’s wishes after a discussion with her friend, Louis sent a letter dated October 11, 2000, to Ricker’s attorney stating, “this will confirm that except for the Marina, Mrs. Ricker wishes to maintain one-half interest in all other properties.” Subsequently, a dispute arose in which Ricker maintained that plaintiff had waived any interest in Navesink Partners, and plaintiff contended that she did not waive her interest, that she wanted to continue her ownership interest in the marina’s real estate, and that she was entitled to fair value for her interest in the marina’s business operations. A post-judgment litigation was commenced.
Defendant John DeBartolo, Esq., succeeded Louis as plaintiff’s attorney. The parties agreed to a sixty-day discovery period, after which they filed cross-motions for summary judgment. The trial court denied the motions in August 2003 and ordered a plenary hearing, which was not scheduled until 2006. Shortly before the plenary hearing, Carl Soranno, Esq., succeeded DeBartolo as plaintiff’s attorney. Soranno learned that DeBartolo did not conduct discovery with respect to plaintiff’s interest in Navesink Partners.
The trial court only permitted Soranno limited discovery. The eight-day plenary hearing concluded on October 12, 2006. In addition, the trial court equitably tolled the statute of limitations for initiating a malpractice claim against Louis until May 11, 2007. Prior to the trial court’s decision, on July 27, 2007, the parties achieved a settlement in which plaintiff agreed to receive a reduced interest to avoid the risk of the trial court finding that she was not entitled to anything.
The agreement provided that as of January 1, 2007, plaintiff would have a one-half interest in Ricker’s ownership in the marina’s real estate and a forty percent interest in his ownership in the marina’s business operations. The agreement also preserved plaintiff’s right to pursue claims against her former attorneys. In response to Ricker’s attorney’s inquiry into whether plaintiff believed the agreement was fair and reasonable to her, she answered “Yes. I’m signing it. It’s the best I could do.”
In November 2007, plaintiff filed a malpractice action against Louis and DeBartolo alleging that each had been negligent and that as a consequence, she received less in the July 2007 settlement than she was entitled to under the original settlement. The trial court granted summary judgment to both defendants, finding that Puder barred plaintiff’s action and that plaintiff’s claim against Louis was time-barred. The Appellate Division affirmed, finding that plaintiff’s claim against Louis was time-barred and Puder precluded her claim against DeBartolo because she voluntarily entered into the July 2007 settlement agreement, which she testified was fair and reasonable. The NJ Supreme Court granted certification, limited to the issue of whether Puder barred plaintiff’s malpractice claim against DeBartolo. 205 N.J. 271 (2011).
ISSUE: Does the underlying settlement of the remaining post-divorce issue bar a legal malpractice claim against the plaintiff’s post property settlement divorce attorneys?
RULINGS: Because the situation here is materially distinguishable from that which was considered in Puder, plaintiff’s legal malpractice claim is not barred.
1. Because this appeal arises from the grant of summary judgment, the Court’s review of the legal conclusions reached by the trial court and the Appellate Division is de novo. New Jersey has a strong public policy in favor of the settlement of litigation.
2. In Puder, Virginia Puder, Esq., represented Mrs. Buechel in a divorce action against Dr. Buechel. Before trial, although Puder had not conducted significant discovery, Puder negotiated a property settlement agreement. After Mrs. Buechel authorized Puder to accept the settlement and the court was advised that the matter had been settled, but prior to the completion and execution of a written settlement, another attorney advised Mrs. Buechel that the terms were inadequate. Mrs. Buechel told Puder that she would not comply with the settlement, discharged Puder, and hired another attorney. Dr. Buechel then moved to enforce the settlement, and a plenary hearing was ordered. A separate action was initiated in which Mrs. Buechel alleged that Puder had been negligent in negotiating the settlement. The enforcement matter proceeded before the malpractice action and, after six days of testimony, a settlement was reached. Mrs. Buechel testified that she entered the settlement voluntarily and considered the agreement a fair compromise. Subsequently, Puder filed a motion for summary judgment in the malpractice action. The trial court granted the motion, finding that plaintiff, by agreeing to the second settlement before the validity of the first settlement had been determined, had waived her right to pursue a malpractice action against Puder for her work in connection with the first settlement. The Appellate Division reversed, concluding that under Ziegelheim v. Apollo, 128 N.J. 250 (1992), “a former client [may] bring a legal malpractice action against an attorney for professional negligence in divorce litigation where a settlement ensued.” This Court reversed, concluding that any alleged deficiency resulting from the first settlement was ameliorated by the second settlement that Mrs. Buechel deemed to be fair and equitable. This Court noted that unlike the plaintiff in Ziegelheim, Mrs. Buechel made a calculated decision to accept the second settlement before the trial court could decide whether the first settlement was enforceable, and Mrs. Buechel entered the second settlement aware of the discovery deficiencies leading up to the first settlement. In that posture, this Court declined to permit Mrs. Buechel to pursue her legal malpractice claim.
3. Puder did not erect an absolute bar to a claim of malpractice if a former client enters into a settlement with regard to the underlying action before obtaining a decision with respect to the complained-of conduct of the attorney. Puder represented a limited equity-based exception to Ziegelheim’s general rule, and that exception is not warranted by the facts of this matter. Puder barred the client’s malpractice claim because her testimony demonstrated that the second settlement cured the deficiencies she perceived in the first settlement and placed her in the situation she contended she should have occupied at the outset. That is not the situation here. Plaintiff, unlike Mrs. Buechel, made no claim of malpractice with respect to the negotiation of the original property settlement agreement; rather, her claim arose out of Louis’s post-settlement actions.
4. Plaintiff’s claim with respect to DeBartolo is also distinguishable from that asserted in Puder. While the second Puder settlement essentially placed Mrs. Buechel in the same position as she had been at the outset, the second settlement here did not have that effect. Plaintiff contended that under the first settlement agreement, she had, at the end of the six-month window in October 2000, an interest in all of Navesink Partners’ assets. Under the settlement to which she acceded, her interest in Navesink Partners was computed as of January 2007. As a result, she lost nearly six and one-half years of participation in the partnership. In addition, plaintiff’s statement that the July 2007 settlement was “fair” and “reasonable” does not preclude her from now seeking damages from DeBartolo. The assessment of the settlement’s fairness and reasonableness must account for plaintiff’s allegation that DeBartolo’s failure to engage in meaningful discovery severely hampered her successor attorney’s ability to establish her claim, and because this matter was decided by way of summary judgment, the Court is compelled to credit plaintiff’s assertion in that respect.
The judgment of the Appellate Division is REVERSED and the matter is REMANDED to the trial court for further proceedings consistent with the Court’s opinion.
LESSON: With Gere, the Court re-affirms that Puder, which barred a post-settlement legal malpractice action for an alleged botched settlement, is the rare exception to the rule in Ziegelheim v. Apollo, 128 N.J. 250 (1992), which permits legal malpractice actions even after settlement of the underlying case.