(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
(NOTE: This is a companion case to Olds v. Donnelly and Donohue v. Kuhn, also decided today.)
Argued February 3, 1997 -- Decided July 16, 1997
Pollock, J., writing for a majority of the Court.
The basic issue in this case is whether the application of the entire controversy doctrine precludes
plaintiff, Mary E. Karpovich from pursuing this attorney-malpractice action.
On July 1992, Karpovich delivered $397,0000 to an investment counselor, James Burgio, to invest on
her behalf. Burgio loaned part of the money to Our Gang, Inc., and converted the rest for his personal use.
Karpovich alleges that John M. Barbarula and Joseph Affinito performed legal work for her in connection
with the Our Gang loan.
Our Gang subsequently defaulted on the loan. Karpovich and Burgio signed a settlement agreement
in which Burgio agreed to repay Karpovich. Burgio later defaulted on the agreement, and Karpovich sued
him. Seven days later, the Law Division entered a consent judgment against Burgio. Karpovich could not
collect on the judgment, as Burgio became insolvent.
Karpovich instituted the present malpractice suit in August 1994. She alleges that defendants
undertook to represent her in the loan to Our Gang at the request of Burgio and they negligently failed to
prepare a security agreement or to timely file financing statements.
Defendants moved for summary judgment on entire controversy grounds. The trial court granted
the motion and dismissed the claims with prejudice. It noted that Karpovich knew of the existence of a claim
against defendants at the time she sued Burgio, but determined to split the actions. The Appellate Division
affirmed. It concluded that Karpovich's intent to split the litigation was obvious. It further held that
Karpovich prejudiced defendants by depriving them of discovery and of the ability to assert a cross-claim for
contribution against Burgio, who later became insolvent.
HELD: The entire controversy doctrine does not compel either notice to the trial court of the possible legal-malpractice claim or the joinder of the attorney in the underlying action that gives rise to that claim.
1. The purposes of the entire controversy doctrine are to promote a complete determination of a matter, to
avoid prejudice to absent parties, and to promote judicial economy. The goals remain fairness to the parties
and fairness to the system of judicial administration. When considering fairness to the party against whom
the entire controversy doctrine is invoked, one question is whether or not the party had a fair and reasonable
opportunity to have fully litigated that claim in the original action. The settlement of Karpovich's claim with
Burgio and the subsequent consent judgment did not afford Karpovich an adequate opportunity to litigate
her malpractice claims against Barbarula and Affinito. Only seven days transpired between the filing of the
Burgio action and the entry of a consent judgment. The consent judgment involved virtually no judicial
resources. Judicial involvement was so minimal as not to warrant the invocation of the entire controversy
doctrine. Further, the Court declines to rule that a violation of Rule 4:5-1(b)(2) necessarily mandates
dismissal. A court must exercise its discretion and consider the purposes of the entire controversy doctrine
before barring a subsequent action. (pp. 7-11)
The judgment of the Appellate Division is REVERSED.
JUSTICE STEIN, concurring in part and dissenting in part, is of the view that the entire controversy
doctrine should no longer bar suits against parties omitted from prior litigation.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, O'HERN, GARIBALDI, and COLEMAN
join in JUSTICE POLLOCK's opinion. JUSTICE STEIN has filed a separate opinion, concurring in part
and dissenting in part.
SUPREME COURT OF NEW JERSEY
A-
110 September Term 1996
MARY E. KARPOVICH,
Plaintiff-Appellant,
v.
JOHN M. BARBARULA and JOSEPH
AFFINITO,
Defendants-Respondents.
Argued February 3, 1997 -- Decided July 16, 1997
On certification to the Superior Court,
Appellate Division.
H. Curtis Meanor argued the cause for
appellant (Podvey, Sachs, Meanor, Catenacci,
Hildner & Cocoziello, attorneys; Mr. Meanor
and Amy B. Wagner, on the briefs).
Peter A. Ouda argued the cause for respondent
John M. Barbarula (Voorhees & Acciavatti,
attorneys).
Christopher J. Carey argued the cause for
respondent Joseph Affinito (Tompkins, McGuire
& Wachenfeld, attorneys; Richard F. Connors,
Jr., and Mary Anne McConeghy, on the brief).
Andrew P. Napolitano argued the cause for
amicus curiae, New Jersey State Bar
Association (Cynthia M. Jacob, President,
attorney; Linda Lashbrook, on the brief).
The opinion of the Court was delivered by
POLLOCK, J.
The issue is whether the entire controversy doctrine
precludes plaintiff, Mary E. Karpovich, from pursuing this
attorney-malpractice action because of her failure to join
defendants, John M. Barbarula and Joseph Affinito, in a prior
action involving a transaction in which they allegedly were her
attorneys. That action ended with the entry of a consent
judgment.
In July 1992, Karpovich delivered $397,000 to an investment
counselor, James Burgio, to invest on her behalf. Burgio loaned
part of the money to Our Gang, Inc. ("Our Gang") and converted
the rest of the money for his personal use. Our Gang
subsequently defaulted on the loan. Karpovich and Burgio signed
a settlement agreement in which Burgio agreed to repay the
$397,000. They secured the settlement with the entry of a
consent judgment. Burgio became insolvent. Karpovich then filed
this legal-malpractice action against defendants.
The Law Division granted defendants' motion for summary
judgment on entire-controversy grounds. The Appellate Division
affirmed in an unreported opinion. We granted Karpovich's
petition for certification,
146 N.J. 565 (1996), and now reverse.
We hold that the settlement of the underlying action did not
sufficiently involve the use of judicial resources to invoke the
entire controversy doctrine as a bar to this legal-malpractice
action. As in Olds v. Donnelly, ___ N.J. ___ (1997), also
decided today, the entire controversy doctrine does not compel
either notice to the trial court of the possible legal-malpractice claim or the joinder of the attorney in the
underlying action that gives rise to that claim.
The facts are undisputed. In July 1992, Karpovich delivered $397,000 to Burgio to invest. Burgio represented to Karpovich that he was a "Certified Estate and Business Analyst." He loaned $66,000 to Our Gang. At the time of the loan, defendants maintained separate law offices, but shared office space. Karpovich claims that defendants performed legal work for her in connection with the Our Gang loan.
Our Gang defaulted on the loan and filed for Chapter 11 bankruptcy. Burgio converted the remainder of Karpovich's money for his personal use.
In October 1993, Karpovich's attorney wrote to Barbarula accusing him of legal malpractice in the Our Gang loan and demanding that Barbarula forward the letter to Barbarula's malpractice insurance carrier.
In January 1994, Karpovich and Burgio entered a written agreement settling Karpovich's claims against Burgio. In the agreement, Burgio admitted that he misappropriated Karpovich's funds for his personal use. Burgio, having already paid Karpovich $100,000, promised in the agreement to pay the remaining $297,000, together with interest, counsel fees, and costs. He also agreed to entry of a consent judgment. The settlement agreement further provided that Burgio would cooperate with Karpovich "with respect to her collection of amounts due
from Edward Scully and John Kemp, the principals of Our Gang,
Inc. and with respect to [Karpovich's] pursuit of a malpractice
action against John M. Barbarula, Esq. with respect to the Our
Gang transaction."
On February 25, 1994, Karpovich filed a complaint against
Burgio in the Law Division alleging breach of contract, breach of
fiduciary duty, wilful misconduct and breach of good faith and
fair dealing. As required by Rule 4:5-1(b)(2), Karpovich's
attorney asserted that no other proceeding was contemplated and
that he was unaware of any other party to be joined.
Seven days later, on March 3, 1994, the Law Division entered
a consent judgment against Burgio. Karpovich does not dispute
that the judgment against Burgio includes the damages she
suffered as a result of defendants' alleged malpractice, the
value of the loan to Our Gang. Karpovich could not collect on
the judgment against Burgio.
On August 26, 1994, she instituted the present malpractice
suit against defendants. Karpovich alleges that defendants, at
the request of Burgio, undertook to represent her in the loan to
Our Gang. According to Karpovich's complaint, defendants failed
to prepare a security agreement and to timely file financing
statements. In addition, Karpovich asserts that defendants
failed to obtain the signature of a tenant by the entirety on one
of the mortgages securing the loan and that they did not properly
record the mortgages. She maintains that the defendants breached
their contractual obligations as well as their duties of care,
good faith, and loyalty.
Defendants moved for summary judgment, arguing that
Karpovich either should have joined them in the Burgio suit or
should have notified the Law Division of her claims against them.
Karpovich claimed that Burgio's suit was filed "only to
effectuate a judgment." She also argued that defendants had no
material interest in the Burgio suit because the two cases were
separate. Finally, she stated that defendants have not suffered
any prejudice.
At oral argument, the trial court commented that the
provision in the settlement agreement with Burgio that
specifically required Burgio to assist Karpovich in a malpractice
action "clinch[ed defendants'] case." According to the court,
because Karpovich knew that she was splitting the actions,
dismissal was fair. The court noted that it was "abundantly
clear that judicial economy would have suggested to [Karpovich
to] bring all the claims in one litigation." Consequently, the
court granted defendants' motion for summary judgment dismissing
all claims with prejudice. The Appellate Division affirmed. It
held that although Karpovich's claim against Burgio and
defendants differed, the underlying facts were interrelated. The
court emphasized that Karpovich conceded that the terms of the
Burgio settlement included the amount in controversy in the
present action. According to the court, Karpovich should have
joined defendants in the Burgio suit because they had a
"significant interest" and were "materially affected" by the
settlement.
The court reasoned that the application of the entire
controversy doctrine was fair because Karpovich knew of her
malpractice claim against defendants before she sued Burgio. In
addition, the court stated that "plaintiff's intent to split the
litigation is obvious."
The Appellate Division further held that Karpovich
prejudiced defendants by failing in the Burgio action to inform
the Law Division of her claim against them. That failure,
according to the Appellate Division, deprived defendants of the
opportunity for discovery and of asserting a cross-claim for
contribution against Burgio. The court reasoned that because
Burgio is now judgment proof, defendants' attempt to assert such
a claim would be unavailing.
The court recognized that the Burgio action had not imposed
a burden on the judiciary and that the action's sole purpose was
to secure a consent judgment. Consequently, it acknowledged that
application of the entire controversy doctrine would not advance
judicial efficiency. The court, however, held that this factor
alone "does not vitiate the force of the doctrine and the need
for its enforcement in view of the other factors justifying its
application." It reasoned that Burgio's consent to the judgment
was irrelevant in light of Karpovich's failure to notify the
trial court of her intention to pursue a malpractice action
against defendants. That failure, according to the Appellate
Division, prejudiced defendants. In sum, the Appellate Division
found that Karpovich had deprived the Law Division in the Burgio
action of the opportunity to consider joinder of defendants.
At set forth in Olds v. Donnelly, the purposes of the entire controversy doctrine are to promote a complete determination of a matter, to avoid prejudice to absent parties, and to promote judicial economy. Olds, supra, ____ N.J. at ____ (slip op. at 7). Thus, the goals of the doctrine remain fairness to the parties and fairness to the system of judicial administration. Joel v. Morrocco, 147 N.J. 546, 555 (1997); Prevratil v. Mohr, 145 N.J. 180, 197 (1996).
Rule 4:5-1(b)(2) facilitates those goals by requiring each party to certify with its first pleading whether the matter in controversy is the subject of any pending litigation. "Further, each party shall disclose in the certification the names of any other party who should be joined in the action." R. 4:5-1(b)(2). Throughout the proceeding, moreover, the parties have a continuing obligation to amend their certification.
The Appellate Division barred Karpovich's legal-malpractice action because she failed to notify the trial court of her claims against defendants or to join them in her action against Burgio.
We conclude, however, that the entire controversy doctrine should not bar Karpovich's legal-malpractice action. In reaching this conclusion, we acknowledge that the Burgio suit and this
legal-malpractice action stem from the same set of facts. See
DiTrolio v. Antiles,
142 N.J. 253, 271 (1995) (finding that to
determine whether entire controversy applies primary
consideration "is whether distinct claims are aspects of a single
larger controversy because they arise from interrelated facts").
The loan to Our Gang is the subject of this attorney-malpractice
action. Karpovich sued Burgio for conversion of funds amounting
to $397,000, $66,000 of which involved the loan to Our Gang. As
the Appellate Division found, the loan to Our Gang was a
"constituent part" of the action against Burgio. Karpovich
admits that part of the relief that she seeks against defendants
is the same relief that she sought against Burgio, recovery of
the $66,000 loan to Our Gang.
Moreover, Karpovich knew of her legal-malpractice claims
against defendants when she filed her complaint against Burgio in
the Law Division. See id. at 273-74 (finding that entire
controversy doctrine does not apply to claims that are "unknown,
unarisen, or unaccrued" at time of original action). Before she
settled with Burgio and filed her action for a consent judgment
in February 1994, Karpovich knew of Barbarula's role in the Our
Gang loan. In October 1993, Karpovich's attorney had written to
Barbarula accusing him of legal-malpractice in connection with
the Our Gang loan. Additionally, the January 1994 settlement
agreement provided that Burgio would assist Karpovich "with
respect to her pursuit of a malpractice action against John M.
Barbarula, Esq. with respect to the Our Gang transaction."
When considering fairness to the party against whom the
entire controversy doctrine is invoked, however, we must consider
whether or not the party had a "fair and reasonable opportunity
to have fully litigated that claim in the original action."
Cafferata v. Peyser,
251 N.J. Super. 256, 261 (App. Div. 1991).
Thus, we have found that an initial action in lieu of a
prerogative writ challenging the issuance of a zoning approval
did not preclude a subsequent action for enforcement of a money
settlement. Joel, supra, 147 N.J. at 547. In addition, the
Appellate Division has refused to bar a subsequent action when
the first action was a small collection suit brought pro se in
the Special Civil Part with no judge involved. Cafferata, supra,
251 N.J. Super. at 261-63.
The settlement of Karpovich's claim with Burgio and the
subsequent consent judgment did not afford Karpovich an adequate
opportunity to litigate her malpractice claims against Barbarula
and Affinito. Only seven days transpired between the filing of
the Burgio action and the entry of a consent judgment. The
consent judgment thus involved virtually no judicial resources.
Judicial involvement was so minimal as not to warrant the
invocation of the entire controversy doctrine. The entry of the
consent judgment was like a settlement with a release.
Preclusion of Karpovich's legal-malpractice action against
defendants simply does not advance the entire controversy's
central role of promoting judicial economy and efficiency.
Application of the entire controversy doctrine to bar
Karpovich's claims, moreover, would undermine the public policy
favoring settlements. See, e.g. Noland v. Le Ho,
120 N.J. 465,
472 (1990) (reasoning that settlement of litigation ranks high in
New Jersey's public policy). In DiTrolio, we considered the
interplay between the entire controversy doctrine and
settlements. We reasoned that when a party accepts a settlement
offer, the process of joining additional parties ends. DiTrolio,
supra, 142 N.J. at 278. Consequently, "the invocation of the
single controversy doctrine to bar a plaintiff's subsequent
action against a party who was not joined prior to the settlement
of the original action may unfairly preclude a plaintiff from
pursuing all claims against all responsible parties" and may
"discourage a plaintiff who conceives that there may be other
responsible parties from settling." Id. at 278-79 (quoting
DiTrolio v. Antiles,
276 N.J. Super. 234, 254 (App. Div. 1994)
(Skillman, J. concurring) (citation omitted)).
On the facts of DiTrolio, we nevertheless held that the
entire controversy doctrine barred the plaintiff's second action.
Ibid.; see also Circle Chevrolet, supra, 142 N.J. at 287-88
(applying doctrine when first suit tried but ultimately settled).
Crucial to our holding were the facts that the first action,
which involved numerous parties, attorneys, and witnesses was
vigorously litigated and involved a year of extensive discovery.
DiTrolio, supra, 142 N.J. at 278.
No such waste of judicial resources occurred in Karpovich's
action against Burgio. Indeed, Karpovich and Burgio never
engaged in any discovery. The sole purpose of the action was to
obtain a consent judgment as a means of securing a settlement.
Unlike the plaintiffs in DiTrolio, Karpovich did not engage
in discovery with Burgio. Moreover, she sued defendant only six
months after the entry of the consent judgment. Although Burgio
may be judgment proof, nothing prevents defendants from joining
him in this action.
Defendants assert that Karpovich's alleged violation of Rule
4:5-1(b)(2) compels dismissal of this action. We decline,
however, to rule that a violation of Rule 4:5-1(b)(2) necessarily
mandates dismissal. See Gelber v. The Zito Partnership,
147 N.J. 561, 567-68 (1997) (refusing to apply a rule of automatic
dismissal whenever a violation of Rule 4:5-1(b)(2) occurs).
Rather, a court must exercise its discretion and consider the
purposes of the entire controversy doctrine before barring a
subsequent action. Id. at 568. Here, there is no unfairness to
the courts or to defendants in refusing to bar Karpovich's
claims. In contrast, the unfairness to Karpovich would be
significant. She would be denied the opportunity to recover
fully from all potential responsible parties. To bar Karpovich's
legal-malpractice action because she initially tried to resolve
the underlying claim without involving any judicial resources
would be too harsh.
The judgment of the Appellate Division is reversed.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, O'HERN,
GARIBALDI, and COLEMAN join in JUSTICE POLLOCK's opinion.
JUSTICE STEIN has filed a separate opinion, concurring in part
and dissenting in part.
SUPREME COURT OF NEW JERSEY
A-
110 September Term 1996
MARY E. KARPOVICH,
Plaintiff-Appellant,
v.
JOHN M. BARBARULA and JOSEPH
AFFINITO,
Defendants-Respondents.
STEIN, J., concurring in part and dissenting in part.
I join in the Court's disposition of this appeal, but not
because I agree with its determination that the entire
controversy doctrine should not apply to attorney-malpractice
claims. Rather, for the reasons stated in my concurring and
dissenting opinion in Olds v. Donnelly, ___ N.J. ___ (1997), also
decided today, I would overrule Cogdell v. Hospital Center at
Orange,
116 N.J. 7 (1989), and consequently no longer would apply
the entire controversy doctrine to bar suits against parties
omitted from prior litigation.
NO. A-110 SEPTEMBER TERM 1996
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
MARY E. KARPOVICH,
Plaintiff-Appellant,
v.
JOHN M. BARBARULA and
JOSEPH AFFINITO,
Defendants-Respondents.
DECIDED July 16, 1997
Chief Justice Poritz PRESIDING
OPINION BY Justice Pollock
CONCURRING/DISSENTING OPINION BY Justice Stein
DISSENTING OPINION BY