Lawyers argued before the New Jersey Supreme Court on Wednesday over whether the entire-controversy doctrine requires a legal malpractice action to be lodged as a defense or counterclaim concurrently with a law firm’s suit to collect legal fees.
The case is Dimitrakopoulos v. Borrus, Goldin, Foley, Vignuolo, Hyman & Stahl, a legal malpractice case filed by former clients of a law firm three years after resolution of the firm’s collection suit related to its representation of the same clients.
A trial court dismissed the malpractice suit as barred by the entire-controversy doctrine, and the Appellate Division affirmed. But the plaintiffs appealed, and the Supreme Court agreed to hear the case.
The plaintiff-clients’ lawyer, Jae Cho, asked that the malpractice suit be reinstated.
“The timeline is undisputed,” said Cho, who heads a firm in Edison. “They have a right to sue for malpractice because … they did not allege malpractice as an affirmative defense.”
The law is clear, he noted: the statute of limitations gives a plaintiff six years to file a legal malpractice claim.
Under questioning from several justices, Cho added that it’s unlikely that the plaintiffs would have been able to obtain a required affidavit of merit had they asserted their malpractice claim as an affirmative defense.
“Are you saying the entire-controversy doctrine has no impact on them?” asked Justice Anne Patterson.
“No,” Cho replied. “But malpractice is an exception” to the doctrine, he said.
James Stahl, representing the firm, suggested that the plaintiffs, in effect, sat on their rights for three years.
Stahl, who is a partner at the defendant firm, said the plaintiffs knew or should have known that they had a potential malpractice claim when they filed their affirmative defenses to the allegations made in the firm’s complaint.
“What took them three years?” Stahl said to the court.
The case started in 2009, when Evangelos and Matilde Dimitrakopoulos retained Borrus, Goldin, Foley, Vignuolo, Hyman & Stahl of North Brunswick to represent them in litigation against a former business partner who had allegedly diverted funds from the company. Matilde owned 51 percent of the company, Integrated Construction and Utilities. Her husband, Evangelos, held no ownership interest but acted as her agent, performing ownership duties on her behalf.
In December 2010, the partnership dispute was submitted to binding arbitration, and Borrus Goldin was allowed to withdraw as counsel. In September 2011, that case ended with a settlement.
Meanwhile, in March 2011, Borrus Goldin sued the Dimitrakopouloses to collect unpaid legal fees from the business dispute. But Evangelos, who was pro se, did not completely answer interrogatories, and Borrus Goldin was granted a default judgment for $121,947 in July 2012.
Then, three years after the judgment, in September 2015, the Dimitrakopouloses filed a separate legal malpractice suit against Borrus Goldin and partners Steven Fox and Anthony Vignuolo, claiming they issued excessive bills and agreed to binding arbitration without the clients’ consent in the Integrated Construction and Utilities case.
But the trial judge dismissed that case under the entire-controversy doctrine. The trial judge pointed out that the Dimitrakopouloses knew on or around December 2010 that their alleged damages were attributable to the attorneys’ professional negligence. They then had a 10-month period before the settlement and final judgment to file amended pleadings asserting malpractice. In response to questioning from the trial judge, the plaintiffs’ counsel conceded that the plaintiffs’ damages were ascertained as of September 2011, according to court documents.
The Appellate Division agreed. The panel noted that in 1997, the Supreme Court ruled in Olds v. Donnelly that “the entire controversy doctrine no longer compels the assertion of a legal malpractice claim in an underlying action that gives rise to a claim.” Central to the court’s analysis, then, “is the interpretation of the phrase ‘underlying action that gives rise to the [malpractice] claim,’” the appeals court said.
Legal malpractice claims are not subject to the entire-controversy doctrine to the extent that they need not be asserted in the underlying action that gives rise to the claim, the court said. But in the present case, the plaintiffs erroneously conflated that the collection action was the underlying claim, and concluded that they did not need to assert malpractice during such a dispute. However, the business dispute was the underlying case that gave rise to the malpractice claims, the appeals court said.