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NJ: Entire Controversy Doctrine No Bar to Legal Malpractice Claim

Higgins v. Thurber (N.J. App. Div. April 21, 2010)

NJ Underlying will contest

Facts: At the time Salvatore Calcaterra died, he had been married to his second wife, Donna. Prior to his death, Sal executed a Will disinheriting Donna. Prior to his death, Donna transferred four New York Mercantile Exchange seats to herself using Sal’s Power of Attorney.

The executor of Sal’s estate, his son Michael, commenced an action against Donna. Approximately two years later, the estate experienced difficulty with payment of its legal fees. Accordingly, the beneficiaries of the estate, including Michael and his two sisters, agreed that the attorneys would be entitled to a portion of the estate’s gross recovery from the litigation against Donna.

Subsequently, the trial court held that Donna was entitled to only two of the four NYMEX seats. Donna appealed and the estate cross-appealed. In the meantime, Donna commenced a suit against Michael and his sister, Robyn. Donna alleged that Michael had engaged in misconduct as executor and Robyn, guardian ad litem to Donna’s daughter, Jenna, had not acted in Jenna’s best interests. Donna’s complaint was dismissed with prejudice.

Donna then commenced yet another action seeking an accounting from Michael. Jenna, thereafter, commenced an action against Michael, Robyn, and their attorneys alleging breach of fiduciary duty and legal malpractice. Robyn sought contribution and indemnification from the attorneys and Michael.

Although Jenna’s legal malpractice action was dismissed, Robyn, and her sister Laura, also filed exceptions in the accounting action brought by Donna questioning the propriety of the fee agreement they had entered into with the attorneys. Robyn and Laura’s claims against the estate’s attorneys were limited to issues “related to legal fees and costs charged to the estates and the trust as reflected in the accountings submitted for approval”.

The entire accounting action was, however, eventually resolved and the pertinent order provided that Robyn and Laura’s claims against the estate’s attorneys were:

[V]oluntarily dismissed, without prejudice…for repayment of fees paid to her by the Estate and Trust;

[M]emorialized defendant attorneys’ waiver of the defense of the bar of the entire controversy doctrine and the defense of Laura and Robyn’s lack of standing to sue defendant attorneys in a separate action seeking disgorgement of a portion of the attorney fees charged to the estate…but did not constitute a waiver of any other claim;

[D]eclared that with respect to any claim in a separate action by Laura and Robyn against defendant-attorneys for disgorgement of their proportionate share of the interest component of the hourly portion of the contingent fee, defendant attorneys will not raise or have the benefit of any statute of limitations defense not now available to Michael…

Soon thereafter, Robyn and Laura filed an action for malpractice, breach of contract, breach of the covenant of good faith and fair dealing, and excessive and unreasonable fees against the defendant attorneys. The attorneys moved to dismiss under the entire controversy doctrine and on the basis that the action was barred by the statute of limitations.

Issue: Whether a legal malpractice action commenced by plaintiffs against the attorneys for the estate of their father was properly precluded by the disposition of earlier lawsuits or barred by the statute of limitations?

Ruling: The Appellate Division held that the entire controversy doctrine did not bar Robyn and Laura’s malpractice claim because it was “either unknown or unaccrued” during the earlier probate proceedings. Moreover, the assertion of a legal malpractice claim would have been “inconsistent with the nature of those particular proceedings”.

The Appellate Division did note, however, that:

[T]he exceptions filed…in the formal accounting action were chiefly directed at the services directed by defendant attorneys and the propriety of the 1998 contingency fee agreement…

Nevertheless, the Court held that the entire controversy doctrine could not bar the action, since “the action on an accounting in probate is a vehicle for addressing the conduct of the executor, not the conduct of others”. Furthermore, the Court noted that the “summary nature of the accounting action would prevent a person interested in an estate from filing an affirmative pleading other than exceptions to the accounting and, thus, eliminate any opportunity to join new parties”. The Court also noted that the plaintiffs’ previous action against the attorneys’ had been dismissed with specific reference to the potential for subsequent proceedings between them.

The Court held that application of the entire controversy doctrine in such circumstances would be inequitable, since:

[The previous proceedings] did not provide the concomitant right to a full and fair exploration or development of those issues prior to a trial date that loomed a mere two months after expansion of the accounting action’s scope.

The Appellate Division also declined to bar Laura and Robyn’s claim for fee disgorgement on the basis of the expiration of the six year statute of limitations:

Although Laura and Robyn were parties to the 1998 fee modification agreement – an event that demonstrably occurred more than six years before the commencement of this action – there is nothing about the agreement that would necessarily provide Laura and Robyn with an inkling of the ultimate counsel fee burden to the extent required by our summary judgment standards.

Consequently, the Court held that the defendant attorneys could again move for summary judgment on statute of limitation grounds after a more “fully developed exposition of the issues”.

Lesson: The entire controversy doctrine will not bar legal malpractice claims where plaintiff has not previously been afforded “a full and fair opportunity to prosecute that claim”. A claim for fee disgorgement will not always be barred six years from the date of the signing of the retainer agreement. The determinative date appears to be when the client “understood the overall quantum of fees” to be charged, and that “a failure to object would later preclude their assertion of the excessiveness” of the fee.

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Posted in: Entire Controversy Doctrine, New Jersey, Statute of Limitations, Wills Trusts & Estates