(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).
Lyn-Anna Properties, Ltd., et al. v. Harborview Development Corp., et al. (A-65-95)
(NOTE: This is a companion case to Brennan v. Orban also decided today.)
Argued January 3, 1996 -- Decided July 16, 1996
O'HERN, J., writing for a unanimous Court.
The issue on appeal is whether, in a pending equitable action between business partners, the
Chancery Division may retain jurisdiction over a compulsory counterclaim asserted by one group of partners
against another group of partners for legal malpractice related to the partnership affairs.
This action arose out of a failed real estate development project known as "Marina Cove," a 96-unit
condominium to be built in three phases in North Miami Beach, Florida. Initially, the project was formed as
a joint venture between Harborview Development Corp. (Harborview), a real estate development corporation
owned by Robert Notte, and Lyn-Anna Properties, Ltd. (Lyn-Anna), a limited partnership owned by Alan
Husak and Alan Kipnis. In December 1987, Philip Kurens, an acquaintance of Notte, agreed to invest in
Marina Cove in return for a share of profits. He incorporated Kurens South, Inc. and became a partner in
Harborview. Kurens alleges that Alan Kipnis acted as attorney for Harborview in that matter, and served as
escrow agent for the receipt of Kurens' money.
The project continued to lose money. By the end of 1989, Marina Cove required additional capital.
Kurens agreed to invest additional funds in return for receiving all of the stock in Harborview. On
December 12, 1989, Kurens and Harborview entered into an agreement that provided that in exchange for
his investment, Kurens would assume managerial control of Marina Cove and receive all of Notte's interest
in Harborview. This resulted in Lyn-Anna becoming a partner with Kurens. Unfortunately, after Kurens
assumed control of Harborview, the project continued to lose money and started to fail.
On December 12, 1990, Husak, Kipnis and their partnership, Lyn-Anna (all referred to as Lyn-Anna) brought suit in Chancery Court, seeking to restrain the disbursement of funds and to obtain an
accounting of monies disbursed. Lyn-Anna alleges that Kurens' conduct after obtaining control of
Harborview was in breach of the December 12, 1989 management agreement and that that breach led to the
failure of the project. Harborview, Kurens South, Philip Kurens and Claire Kurens (all referred to as
Kurens) filed a counterclaim against Lyn-Anna, alleging that Kipnis' conduct between the fall of 1987 and
December 12, 1989 constituted legal malpractice and fraud. Kurens moved for a jury trial on the
counterclaim. The Chancery Division denied that motion on February 17, 1993. Following a bench trial, the
Chancery Division dismissed both Lyn-Anna's complaint and Kurens' counterclaim with prejudice.
Kurens appealed, arguing that the trial court erred in denying the request for a jury trial on the
counterclaim. The Appellate Division affirmed for substantially the same reasons expressed by the Chancery
Court. The Appellate Division noted that the claims arose out of and stemmed from the same transaction.
Each of the claims relied in part on the December 1987 agreement, and the disputed events all took place
while that agreement was in effect. As a result, the court concluded that Kurens' counterclaim was ancillary
to the equitable claims raised in Lyn-Anna's complaint. Thus, according to the Appellate Division, the lower
court properly applied the doctrine of ancillary jurisdiction that enables a court in equity to try without a jury
those legal counterclaims that are ancillary or incidental to the equitable claims raised in the initial
complaint.
The Supreme Court granted certification limited to the issue of whether Kurens is entitled to a jury
trial on the counterclaim for malpractice and fraud.
HELD: In the circumstances of this case, the fiduciary relationship between the attorney-partner and the
counterclaiming partner was sufficiently related to the equitable oversight of the partnership affairs
to warrant the retention of jurisdiction of the counterclaim in the Chancery Division.
1. The court of equity was developed to grant special remedies that common-law courts could not give.
Article 1, paragraph 9 of the New Jersey Constitution of 1947 guarantees the right of trial by jury. At
common law it was understood that equitable actions were not within the constitutional provisions that
provide for a right of trial by jury. A court of equity may properly adjudicate an ancillary claim without
providing the complainant with a jury trial. Thus, prior to the 1947 Constitution, if the primary relief sought
by the complainant was equitable in nature, equity had jurisdiction to settle all issues, even though purely
legal in nature, where subsequent events made it impractical or unnecessary to award equitable relief. (pp.
5-15)
2. Kurens urges the Court to follow federal precedent that has required trial by jury in the context of
compulsory counterclaims. Under federal precedent, it would make no difference if the equitable cause
clearly outweighs the legal cause so that the basic issue of the case taken as a whole is equitable. As long as
any legal cause is involved, the jury right it creates controls. While other jurisdictions follow federal
precedent, New Jersey's legal history and traditions have placed a greater emphasis on the distinct roles of its
law and chancery courts. (pp. 15-17)
3. A dominant theme of the Constitution of 1947 was the development of a court system that would meet
the needs of New Jersey's rapidly changing society after World War II. Just as equity courts originally
evolved to meet the changing needs of society, so their current mode conforms to the changing needs of
society. The jurisdiction of a chancery court is to be exercised with a sensitive regard for the right to trial by
jury. It is not an "inflexible rule" that chancery, having once acquired jurisdiction, should retain the case to
settle all of the rights of all the parties. Each case requires an assessment of the nature and relationship of
the issues and claims and the extent to which decision of the legal issues is incidental or essential to the
determination of the equitable matters. (pp. 17-22)
4. In assessing whether jury trial rights are infringed, courts should consider the nature of the underlying
controversy, as well as the remedial relief sought. Although, in this case, the claims for relief were ultimately
limited to money damages, entitlement to relief arose from the fiduciary relationship between and among the
parties. Kipnis' duty as an attorney cannot be fully divorced from his duty as a prospective partner. And
Kurens' duties under the contract grew out of his partnership relationship with Kipnis and Husak. Thus,
there is no clear-cut line of demarcation between the attorney malpractice issues and the partnership
management issues. Those issues are part of the board of fiduciary relationship among the joint venturers in
the Harborview project. As such, the Chancery Division correctly held that the claims made by Kurens in
respect of the actions of Kipnis are so interrelated with the equitable issues in this matter that they are
properly deemed ancillary. The Chancery Division appropriately exercised its jurisdiction to settle are of the
rights of all of the parties. That Kurens' counterclaim was compulsory does not alter the original jurisdiction
of the chancery court. (pp. 23-27)
Judgment of the Appellate Division is AFFIRMED.
JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN and COLEMAN join in JUSTICE
O'HERN's opinion. CHIEF JUSTICE WILENTZ did not participate.
SUPREME COURT OF NEW JERSEY
A-
65 September Term 1995
LYN-ANNA PROPERTIES, LTD.,
ALAN HUSAK and ALAN KIPNIS,
Plaintiffs-Respondents,
v.
HARBORVIEW DEVELOPMENT CORP.,
Defendant and Third-Party
Plaintiff,
and
KURENS SOUTH INC., PHILIP KURENS
and CLAIRE KURENS,
Defendants and Third-Party
Plaintiffs-Appellants,
v.
ROBERT NOTTE,
Third-Party Defendant.
Argued January 3, 1996 -- Decided July 16, 1996
On certification to the Superior Court,
Appellate Division.
John Barry Cocoziello argued the cause for
appellants (Podvey, Sachs, Meanor, Catenacci,
Hildner & Cocoziello, attorneys; H. Curtis
Meanor and Mr. Cocoziello, of counsel; Amy B.
Wagner, on the briefs).
Elliott Abrutyn argued the cause for
respondents (Morgan, Melhuish, Monaghan,
Arvidson, Abrutyn & Lisowski and Lum, Danzis,
Drasco, Positan & Kleinberg, attorneys;
Mr. Abrutyn and Dennis J. Drasco, of counsel;
Warren Usdin and Kevin J. O'Connor, on the
brief).
The opinion of the Court was delivered by
O'HERN, J.
This appeal concerns the ancillary jurisdiction of the
Chancery Division of Superior Court. The question is whether in
a pending equitable action between business partners, the
Chancery Division may retain jurisdiction over a compulsory
counterclaim asserted by one group of partners against another
group of partners for legal malpractice related to the
partnership affairs. We hold, in the circumstances of this case,
that the fiduciary relationship between the attorney-partner and
the counterclaiming partner was sufficiently related to the
equitable oversight of the partnership affairs to warrant the
retention of jurisdiction of the counterclaim in the Chancery
Division.
This action arose out of a failed real estate development project. We draw the facts primarily from the briefs of the defendants. The project, known as "Marina Cove," called for 96 condominium units to be built in three phases in North Miami Beach, Florida. Initially, the project was formed as a joint venture between Harborview Development Corporation (Harborview), a real estate development corporation owned by third-party defendant Robert Notte, and Lyn-Anna Properties (Lyn-Anna), a limited partnership owned by plaintiffs Alan Husak and Alan
Kipnis. The original financing for Marina Cove was obtained
through Sunrise Savings & Loan, which became insolvent in 1986.
After Sunrise Savings failed, the venture was able to secure
replacement financing from First American Savings. However,
additional funds were needed to close the loan. For those funds,
Notte turned to an acquaintance, defendant Philip Kurens. In
December 1987, Kurens agreed to invest in Marina Cove in return
for a share of its profits. He incorporated defendant Kurens
South, Inc., and became a partner in Harborview. Kurens alleges
that plaintiff Alan Kipnis acted as attorney for Harborview in
that matter, and served as escrow agent for the receipt of
Kurens' money.
Although the replacement loan eventually closed, the project
continued to lose money. By the end of 1989, Marina Cove
required another infusion of capital. Notte again turned to
Kurens who agreed to invest additional funds in return for
receiving all of the stock in Harborview. On December 12, 1989,
Kurens and Harborview entered into an agreement that provided
that in exchange for his investment Kurens would assume
managerial control of Marina Cove and receive all of Notte's
interest in Harborview. This left Lyn-Anna (Kipnis' group) as a
partner with Kurens. After Kurens assumed control of Harborview,
the project continued to lose money until it became apparent that
it was doomed to failure.
On December 12, 1990, plaintiffs Husak, Kipnis and their
partnership, Lyn-Anna Properties, brought suit in the Chancery
Division, Essex County, seeking to restrain the disbursement of
funds and to obtain an accounting of monies disbursed.
Plaintiffs alleged that Kurens' conduct after obtaining control
of Harborview was in breach of the December 12, 1989, management
agreement and that such breach led to the failure of the project.
Defendants Harborview, Kurens South, Philip Kurens and
Claire Kurens filed a counterclaim against plaintiffs, also
seeking to recover losses. However, their counterclaim focused
on events that occurred between the fall of 1987 and December 12,
1989. Defendants alleged that Kipnis' conduct constituted legal
malpractice and fraud. (For convenience, we sometimes refer to
the defendants collectively as Kurens.) Kipnis and Husak
demanded a trial by jury in their complaint. Defendants also
demanded a jury trial. In 1992, plaintiffs waived their jury
trial right. Presumably to confirm their continued right to a
jury trial in the face of plaintiffs' waiver, defendants then
made a motion for a jury trial, which was denied by the trial
court in a letter opinion dated February 17, 1993. Following a
bench trial, the Chancery Division dismissed both plaintiffs'
complaint and defendants' counterclaim with prejudice.
Defendants appealed, arguing that the trial court erred in
denying their request for a jury trial on their counterclaim
against Kipnis. The Appellate Division affirmed for
substantially the same reasons expressed in the trial court's
letter opinion. The Appellate Division noted that the parties'
claims arose out of and stemmed from the same transaction. Each
of the claims relied in part on the parties' December 1987
agreement, and the disputed events all took place while that
agreement was in effect. As a result, the court concluded that
defendants' counterclaim was ancillary to the equitable claims
raised by plaintiffs' complaint. Thus, the trial court properly
applied the doctrine of ancillary jurisdiction that enables a
court in equity to try without a jury those legal counterclaims
that are ancillary or incidental to the equitable claims raised
in plaintiffs' complaint.
We granted certification limited to the issue of whether the
defendants are entitled to a jury trial on their counterclaims
for malpractice and fraud.
142 N.J. 454 (1995). Defendants
contend that those claims are temporally and factually distinct
from plaintiffs' claims and, as such, are not ancillary or
incidental to plaintiffs' claims.
The problem is as old as the Republic. In his brief, defendant-counterclaimant argued that he was "entitled to a trial by jury under the 1776 constitution, the 1884 constitution, and the 1947 constitutions" of the State of New Jersey. When New Jersey declared its independence in 1776, it adopted as its law the common law of England. N.J. Const. of 1776 ¶ XXII. The traditions of civil law generally received into the American Colonies included the twin features of the English system of
laws--the right to trial by jury for an action at common law, and
the right to an equitable action when a remedy of law might be
inadequate.
Time does not permit an exhaustive study of the origins of
equity jurisprudence.
Both equity and the common law have
roots in the early English legal system: the
gradual assumption of judicial power over
controversies by courts deriving their power
from the King and his Council to the
disposition of the various local courts. As
King and Curia Regis [King's Council] assumed
power to resolve more controversies, they had
to delegate that power to more judicial
officers. The judges of the King's Bench and
Common Pleas became the common law courts.
Others, such as the Courts of Admiralty and
the Marches, applied separate bodies of law
to the cases in their peculiar areas of
jurisdiction. Initially all these royal
courts were closely connected with the King
personally and politically and were willing
to be innovative and "equitable." Over time,
however, the common law courts lost their
close connection with the King and their
willingness to be innovative or equitable.
[Honorable H. Brent McKnight, How Shall We
Then Reason? The Historical Setting of
Equity,
45 Mercer L. Rev. 919, 926 (1994)
(footnotes omitted).]
The early common law was closely tied to formal rules
of pleading, and the ability to bring suit in the King's Court
depended upon the availability of a "form of action," a writ,
that would encompass a would-be plaintiff's claim. "As
Professor Maitland put it in his famous commentary on the old
system, `the system of forms of action . . . is the most
important characteristic of English medieval law.'" Ian
Holloway, Judicial Activism in an Historical Context: Of the
Necessity for Discretion, 24 Mem. St. U. L. Rev. 297, 307-08
(1994) (quoting F.W. Maitland, The History of English Law Before
the Time of Edward I (1895)). "[A]s the common law became more
formal, people began to seek and the system began to provide a
less rigid means of redress. The common law system responded to
the need for change, most notably developing a system of equity."
Id. at 317. The Chancellor was encharged as early as 1468 A.D.
to determine all matters according to equity and conscience.
J.H. Baker, An Introduction to English Legal History 90 (2d ed.
1979) (quotation omitted). Because the Chancellor was unable to
discharge all of his new duties individually, the Court of
Chancery developed to grant special remedies that common law
courts could not give.
Thus it came about that . . . we had
alongside of the courts of common law, a
court of equity, the Court of Chancery. . . .
They are supplementing the meagre common law,
they are enforcing duties which the common
law does not enforce, e.g. they are enforcing
those understandings known as uses or trusts,
and they are giving remedies which the common
law does not give, thus if a man will not
fulfil his contract, all that a court of
common law can do is to force him to pay
damages for having broken it--but in some
cases the Chancery will give the more
appropriate remedy of compelling him . . . to
specifically perform his contract, to do
exactly what he has promised.
[F.W. Maitland, The Constitutional History of
England 225-26 (H.A.L. Fisher ed. 1908).]
Forms of pleading were simplified and witnesses were compelled to
give evidence under oath.
And so the equity courts developed as an alternative to the
rigidity of the intricate procedural requirements of the law
courts that often yielded unfair results. Cases were frequently
dismissed for minor defects, such as technical errors in
pleadings. The other feature of English common law that we
accepted was that of trial by jury in law courts.
Civil trial by jury is guaranteed [in
the federal system] by the Seventh Amendment.
. . . Not only has the right a long history,
it was a theme of our struggle for
independence. There are numerous works which
recount the role the right to jury trial in
civil cases has played in our history. It
was perhaps the only right universally
guaranteed by state constitutions prior to
the revolution . . . . In fact, the Seventh
Amendment played a crucial role in
ratification of the Constitution. This
right, one of "deep interest and solicitude,"
is to be jealously guarded against
encroachment.
[In re Harbour,
840 F.2d 1165, 1182 (4th Cir.
1988) (Widener, J., dissenting) (footnotes
and quotation omitted), vacated,
492 U.S. 913,
109 S. Ct. 3234,
106 L. Ed.2d 582
(1989).]
The constitutions adopted by the several states after the American Revolution included a specific recognition of the right of trial by jury. See generally J. Kendall Few, American Jury Trial Foundation, In Defense of Trial by Jury (1993). The right of trial by jury was among the limited guarantees of civil rights included in the New Jersey Constitution of 1776. N.J. Const. of 1776 ¶ XXII. At the same time, in New Jersey, as in other states, a parallel system of equity jurisprudence existed. See generally Carla Vivian Bello & Arthur T. Vanderbilt II, The
Institute for Continuing Legal Education, Jersey Justice: Three
Hundred Years of the New Jersey Judiciary (1978).
The Judicial Article of the Constitution of the United
States, adopted in 1787, made no reference to courts of law or
equity. Congress, however, contemplated that federal courts
would exercise equitable jurisdiction. The Judiciary Act of
1789, "by which the first Congress established the judicial
courts of the United States and defined their jurisdiction,
[provided] that `Suits in equity shall not be sustained in either
of the courts of the United States, in any case where plain,
adequate, and complete remedy may be had at law.'" Buzard v.
Houston,
119 U.S. 347, 351,
7 S. Ct. 249, 251,
30 L. Ed. 451, 453
(1886) (quoting Act of Sept. 24, 1789, ch. 20, § 16,
1 Stat. at
L. 82; Rev. Stat. § 723). The Bill of Rights, when ratified in
1791, included the provision in the Seventh Amendment that "[i]n
Suits at common law, where the value in controversy shall exceed
twenty dollars, the right of trial by jury shall be preserved,
and no fact tried by a jury, shall be otherwise re-examined in
any Court of the United States, than according to the rules of
the common law." U.S. Const. amend. VII.
Article I, paragraph 9 of the New Jersey Constitution of 1947 guarantees the right of trial by jury. "The right of trial by jury shall remain inviolate; but the Legislature may authorize the trial of civil causes by a jury of six persons when the
matter in dispute does not exceed fifty dollars." N.J. Const.
art. I, ¶ 9. Similar text was found in the Constitutions of 1844
and 1776. Generally speaking, the right to civil jury trial
preserved in each of our constitutions has been the right to jury
trial that existed theretofore. See Shaner v. Horizon Bancorp.,
116 N.J. 433, 447 (1989) (detailing the historic links). For
today's purposes we need go no further back than 1947 to ask
whether a counter-claimant in a chancery action would have been
entitled to trial by jury before 1947. In re LiVolsi,
85 N.J. 576, 587 (1981).
At common law, it was understood that "[e]quitable actions
as such are not within the constitutional provisions that the
right of trial by jury shall remain inviolate, or that the right
`as heretofore enjoyed' shall be preserved." B.C. Ricketts,
Annotation, Right In Equity Suit To Jury Trial Of Counterclaim
Involving Legal Issue,
17 A.L.R.3d 1321, 1324 (1968).
In the first volume of reports that followed the adoption of
the Constitution of 1947, this Court decided two cases that
addressed the jurisdiction of the Chancery Division and that made
clear that a court of equity may properly adjudicate an ancillary
legal claim without providing the complainant with a jury trial.
The first, Ebling Brewing Co. v. Heirloom, Inc.,
1 N.J. 71, 78-79
(1948), rejected defendant's argument that the Constitution
required a jury trial of its legal counterclaims for breach of
contract and federal price regulations and held that the Chancery
Division could properly dispose of the legal counterclaims under
the doctrine of ancillary equitable jurisdiction without
impanelling a jury.
The second, Fleischer v. James Drug Stores,
1 N.J. 138
(1948), decided three weeks after Ebling, held that a plaintiff
who sought specific performance of a contract, as well as damages
for conspiracy, breach of contract and tortious interference, was
not entitled to a jury trial in the Chancery Division because the
plaintiff's legal claims were ancillary to its equitable claims.
Justice Heher, writing for the Court in Fleischer, explained the
jurisdiction of the Chancery Division as follows:
It is the settled rule that where equity
has rightfully assumed jurisdiction over a
cause for any purpose, it may retain the
cause for all purposes, and proceed to a
final determination of the entire controversy
and, except where the jurisdiction of equity
depends on the prior establishment of a right
at law, settle purely legal rights and grant
legal remedies. When the basis of the
jurisdiction is once perceived, its scope and
extent become readily apparent. The
rationale of the rule that an equitable
feature draws the cause completely within the
cognizance of equity is the policy of
avoiding a multiplicity of suits; and so
jurisdiction of the whole controversy may be
assumed for the doing of complete justice in
the one suit. The constitutional right of
trial by jury is, of course, subject to this
inherent equitable jurisdiction. Equity has
a general jurisdiction to adjudicate
ancillary and incidental matters. This
jurisdiction is co-extensive with the rights
of the parties in the subject-matter of the
suit. It may, in the exercise of a sound
discretion, do whatever is necessary to a
final adjudication of the entire controversy
between the parties, whether it encompasses
an action ex delicto or one ex contractu.
And it may grant relief to a defendant or
between codefendants. It suffices if the
matters to be adjudicated be germane to or
grow out of the subject-matter of the
equitable jurisdiction.
[Id. at 150 (citations omitted).]
In Steiner v. Stein,
2 N.J. 367 (1949), the Court applied
the Fleischer and Ebling principles in circumstances that were a
near-mirror image of the issues in this case. Plaintiff-client
in Steiner sought the aid of equity to obtain the release of
files held by an attorney under a lien claim. The attorney
counterclaimed for his legal fees and demanded a jury trial. The
Court denied the attorney a right to trial by jury on the
counterclaim, observing that even though the attorney had
released the file (the clients having posted a bond), the
"matters . . . were properly, although not exclusively, within
the competence of the Court of Chancery . . . . It [thus]
follows that under our former practice [before the 1947
Constitution] all the issues in this case would have been
disposed of in the Court of Chancery without any right of trial
by jury." Id. at 376 (citations omitted).
The justices who decided Steiner, Fleischer and Ebling had
closely observed the development of the Constitution of 1947.
Justice Clarence Case, the author of Ebling, was a witness at the
Convention. Justice Dayton Oliphant had been Chancellor prior to
1947 and was also a witness at the convention. The author of
Steiner, Chief Justice Arthur T. Vanderbilt, contributed to the
development of the Judicial Article of the new Constitution.
Successor courts have followed Steiner's analysis. In In re
LiVolsi, supra, the Court applied a similar reasoning process to
determine whether a cause of action existed at common law in a
form that involved the right to trial by jury. LiVolsi involved
the validity of the use of arbitration committees to settle,
without a jury trial, fee disputes between attorneys and clients.
The Court observed that the Steiner Court rejected a
characterization of the action against the attorney simply as
contractual and instead focused on the presence of the fiduciary
relationship between attorney and client to find that the lower
court would be employing primarily equitable remedies. LiVolsi,
supra, 85 N.J. at 587-88.
Thus, the LiVolsi Court found that arbitration of attorney-client fee disputes did not transgress the Constitution because
the issues inherent in remedying a breach of the attorney-client
relationship, such as the reasonableness of fees, existence of a
confidential relationship, and the superior position of the
attorney, all implicate equitable concerns and not the right to
trial by jury.See footnote 1 Id. at 588-90.
Such has been the consistent understanding of our
constitutional article. In Boardwalk Properties v. BPHC
Acquisition, Inc.,
253 N.J. Super. 515, 530 (App. Div. 1991), the
parties removed all equitable claims from their case in Chancery,
leaving predominantly legal claims in connection with a failed
real estate transaction, in order to secure a jury trial on those
legal claims. Notwithstanding those strategic procedural
maneuverings, the Appellate Division affirmed the trial court's
determination that the parties had no right to a jury trial on
the remaining legal issues. The court declared that "[i]t was
clear prior to the 1947 constitution that . . . if the primary
relief sought by the complainant was equitable in nature, equity
had jurisdiction to settle all issues, even though purely legal
in nature, where subsequent events made it impractical or
unnecessary to award equitable relief." Id. at 527.
In Eckerd Drugs of New Jersey v. S.R. 215, Rite-Aid Corp.,
170 N.J. Super. 37 (1979), the Chancery Division denied plaintiff
a jury trial on its claims for tortious interference with either
contract or prospective economic advantage and for damages
relating to that interference on the ground that the case was
fundamentally equitable in nature. The court noted that the
legal issues were "almost indistinguishable" from the equitable
ones, declaring that "[defendant's] tortious conduct is
ancillary, if not incidental, and the legal remedies demanded are
definitely incidental to the equitable demands. Plaintiff has no
right to a trial by jury in this case . . . ." Id. at 42-43.
In Apollo v. Kim Anh Pham,
192 N.J. Super. 427 (1983), the
chancery court found that defendant-counterclaimant's equitable
claims, which were based on theories of quantum meruit and quasi-contract, "involve[d] substantially similar factual issues to
those raised in her legal [palimony] claim." Id. at 432.
Accordingly, the court denied defendant's motion for a jury trial
on the grounds that defendant's palimony claim was "sufficiently
intertwined with and ancillary to the equitable issues" as to be
within chancery's equitable jurisdiction. Ibid.
Counterclaimant, however, urges that we follow federal
precedent, which has required trial by jury in the context of
compulsory counterclaims, rather than our own. In Beacon
Theatres, Inc. v. Westover,
359 U.S. 500, 508-09,
79 S. Ct. 948,
3 L. Ed.2d 988 (1959), when defendant asserted an anti-trust
counterclaim against a theater chain, the Court held that when
legal and equitable issues are presented in a single case the
right to jury trial on the legal issues remains intact. The
Court determined that the traditional "justification[s] for
equity's deciding legal issues once it obtains jurisdiction, and
refusing to dismiss a case, merely because subsequently a legal
remedy becomes available [had to be] re-evaluated in the light of
the liberal joinder provisions of the Federal Rules which allow
legal and equitable causes to be brought and resolved in one
civil action." Id. at 509, 79 S. Ct. at 956, 3 L. Ed.
2d at 996-97. The Beacon Court's holding "applies whether the trial judge
chooses to characterize the legal issues presented as
`incidental' to equitable issues or not." Dairy Queen, Inc. v.
Wood,
369 U.S. 469, 473,
82 S. Ct. 894, 897,
8 L. Ed.2d 44, 48
(1962).
Acknowledging that under the incidental legal claims
doctrine, "the right to trial by jury may be lost as to legal
issues where those issues are characterized as `incidental' to
equitable issues," the Dairy Queen Court explicitly declared that
"no such rule may be applied in the federal courts." Id. at 470,
82 S. Ct. at 896, 8 L. Ed.
2d at 47; see Thermo-Stitch, Inc. v.
Chemi-Cord Processing Corp.,
294 F.2d 486, 491 (5th Cir. 1961)
("It is therefore immaterial that the case at bar contains a
stronger basis for equitable relief than was present in Beacon
Theatres. It would make no difference if the equitable cause
clearly outweighed the legal cause so that the basic issue of the
case taken as a whole is equitable. As long as any legal cause
is involved the jury rights it creates control. This is the
teaching of Beacon Theatres, as we construe it.").
Other jurisdictions have followed Beacon Theatres and Dairy
Queen. See, e.g., Harada v. Burns,
445 P.2d 376, 382 (Haw. 1968)
(relying on Beacon Theatres to conclude that mortgagors were
entitled to jury determination of legal issues raised by
counterclaim interposed in equity suit even though counterclaim
was permissive); Norwest Bank Wisconsin Eau Claire, N.A. v.
Plourde,
518 N.W.2d 265, 268 (Wis. Ct. App. 1994) (holding that
mortgagors asserting legal counterclaim in equitable foreclosure
action did not waive their right to jury trial).
New Jersey's legal history and traditions, however, have
placed a greater emphasis on the distinct roles of its law and
chancery courts. Bruce D. Greenberg & Gary K. Wolinetz, The
Right To A Civil Jury Trial In New Jersey,
47 Rutgers L. Rev.
1461, 1472 (1995) ("[T]he traditional distinction between law and
equity remains vital in determining the right to a jury trial in
New Jersey.").
Among the principal points of debate in the development of
the Judicial Article for the Constitution of 1947 was the role of
chancery. A recent law review interview contains the
recollections of one of the principal actors in that debate. See
generally Conversations With Morris Schnitzer,
47 Rutgers L. Rev.
1391 (1995) [hereinafter Conversations]. Roscoe Pound, the
former Dean of the Harvard Law School and Commissioner of the
Supreme Court of Nebraska, explained the choice that the
Constitutional Convention of 1947 faced.
The thing that I suppose will give you
most trouble in New Jersey, the thing that is
perhaps most necessary to speak about, is
this matter of a separate Court of Chancery.
I taught equity for a great many years, and
the New Jersey Equity Reports were a joy
forever to a teacher of equity. Johnson's
Chancery, of New York, and the New Jersey
Equity Reports were the reports to which a
teacher of equity has always turned. I
should feel very badly if I thought that any
judicial organization which you might work
out here would result in any diminution of
that splendid development of equity that is
going on here, because after all, equity is
the most important part of the Anglo-American
system of administering justice. It is
increasingly important today; but after all,
I don't believe it is necessary to have a
separate, independent court of equity to
achieve that. It is not only possible, but I
think it is necessary in any unified judicial
organization, to permit of divisions in the
courts.
[IV Proceedings of the New Jersey
Constitutional Convention of 1947
107 [hereinafter Proceedings].]
Leading members of the bar and of the public had urged the
Committee on the Judiciary not to abolish the Court of Chancery
as a separate tribunal with judges devoting themselves to equity
jurisprudence. Milton Conford was principal spokesman for the
viewpoint of those who would maintain a separate tribunal. Judge
John Biggs of the United States Court of Appeals for the Third
Circuit encouraged the Committee to retain its separate Court of
Chancery. In a letter he wrote: "The Court of Chancery of New
Jersey enjoys universal esteem. There has been a succession of
great Chancellors in New Jersey. They have made much sound law.
. . . As one who is bound by the decisions of the New Jersey
courts I am very loath to see New Jersey's separate Chancery
Court abolished." Id. at 407. A. Dayton Oliphant, Chancellor of
New Jersey, had testified in favor of retention of the Court of
Chancery and acknowledged the difficult decisions that arise when
equitable causes are joined with legal causes. Id. at 404.
At the same time, prominent practitioners decried the
problems that plagued the existing system. The problems arose
from the fact that those were separate courts with separate
jurisdiction. Although the jurisdictional pitfalls may have been
exaggerated, the practical men and women who framed the Judicial
Article of the 1947 Constitution were determined to eliminate
them.See footnote 2 In doing so, they considered many of the issues that we
face today. Russell E. Watson, Counsel to then-Governor
Driscoll, explained that "after all is said and done, these
important questions [concerning the role of chancery] will be
decided in the light of New Jersey experience, New Jersey
tradition, New Jersey geography, and New Jersey needs." Id. at
162.
A member of the Committee asked Mr. Watson, "However, you
are setting this thing up so that on cases that have some law and
a lot of equity, or a lot of law and a little equity, still goes
through one court?" To which Mr. Watson replied: "Exactly--where
one judge has to decide the whole thing." Ibid.
Judge William Smith, United States District Judge for the
District of New Jersey, explained to the Committee what could be
expected if the courts were part of the same system:
[The equity court] having taken jurisdiction
of the matter because of [its] equity powers
. . . retains jurisdiction to assess the
damage and the trial by jury becomes
unnecessary. There the judge entertains his
traditional equity power; having acquired
jurisdiction of such a matter for equitable
purposes, he retains it to do complete
justice.
The Committee resolved to preserve the best of both the
features.See footnote 3
And so it was that the final report of the Committee on the
Judiciary proposed a single "Superior Court which . . . will have
a Law Division and Chancery Division, exercising original general
jurisdiction in all causes throughout the State." II Proceedings
supra, at 1187. It was expected that "[u]ndoubtedly, Judges
[would] be assigned to each branch by the Chief Justice of the
Supreme Court according to experience and qualifications. . . .
However, each controversy [would] be decided fully in all its
aspects by the Judge before whom it c[ame], and no case [would]
be shuttled between courts for piecemeal decision." Ibid. The
Committee recognized that there would be circumstances in which
juries could be impanelled in the Court of Chancery, observing
that during a recent wave of strikes Vice Chancellors had
summoned juries to try persons charged with disobeying court
orders. Id. at 1188.
The Judicial Article of the 1947 Constitution "was not
intended as a grant, enlargement or restriction of the right of
trial by jury." Kugler v. Banner Pontiac-Buick, Opel, Inc.,
120 N.J. Super. 572, 581 (Ch. Div. 1972). A dominant theme of the
Constitution of 1947 was the development of a court system that
would meet the needs of New Jersey's rapidly changing society
after World War II. Just as equity courts originally evolved to
meet the changing needs of society, so their current mode
conforms to the changing needs of society. Governor Alfred E.
Driscoll, a great contributor to the Judicial Article of the 1947
Constitution, explained that "more mature students of government
and citizens generally recognize that more basic issues are
involved [than a jurisdictional dispute], including respect for
the law, the republic, as well as, although frequently
overlooked, the rights of litigants to a speedy, inexpensive,
authoritative decision on disputed issues." IV Proceedings,
supra, at 433.
We are urged now to curtail our precedents because of the
evolving importance of the entire controversy doctrine and the
present formulation of Rule 4:7-1 dealing with compulsory
counterclaims. It is not so much that the entire controversy
doctrine is new as that the doctrine of ancillary jurisdiction is
old. In some ways, they are two sides of the same coin. See
Central Penn National Bank v. Stonebridge Limited,
185 N.J.
Super. 289 (Ch. Div. 1982), in which the court observed:
[t]he single controversy doctrine may also be
justified on the equitable doctrine that once
a case is properly brought in the Chancery
Division, it should remain there for final
resolution even after the disposition of the
equitable issues. The rationale for
retaining jurisdiction is the equitable
principle requiring full adjudication of even
legal issues, and the mandate of Article VI
of the 1947 Constitution prohibit[ing] the
fragmentation of litigation.
[Id. at 312 (citing Steiner,
supra,
2 N.J. at 373).]
In Middlesex Concrete Products & Evacuating Corporation v. Northern States Improvement Co., 129 N.J. Eq. 314 (E. & A. 1941), decided a short time before the 1947 Constitution was debated, the Court of Errors and Appeals upheld the validity of a statute vesting jurisdiction in the Chancery Court to determine sums due
on various lien claims on the basis that the jurisdictional grant
was "merely an adaptation of the stated principle, grounded in
the policy of avoiding a multiplicity of suits, that, if equity
has rightfully assumed jurisdiction of a cause on any ground, it
may ordinarily proceed to a determination of the entire
controversy." Id. at 317.
Of course the jurisdiction of a chancery court is to be
exercised with a sensitive regard for the right to trial by jury.
It is not an "inflexible rule" that chancery, having once
acquired jurisdiction, should retain the case "to settle all the
rights of all the parties . . . ." Shaw v. G.B. Beaumont Co.,
88 N.J. Eq. 333, 336 (E. & A. 1917). The Shaw court quoted Chief
Justice Mercer Beasley: "It is not true, by any means, that when
a court of conscience has acquired cognizance for one purpose, it
thereby acquires cognizance over the entire controversy for all
purposes." Ibid. (quoting Loder v. McGovern,
48 N.J. Eq. 275 (E.
& A. 1891)). Each case requires a measure of the nature and
relationship of the issues and claims and the extent to which
decision of the legal issues "is incidental or essential to the
determination of some equitable question." Ibid. (quoting Vice
Chancellor Reed in Stout v. Phoenix Assurance Co. of London,
65 N.J. Eq. 566, 573-74 (Ch. Div. 1904)). Thus, in Chiacchio v.
Chiacchio,
198 N.J. Super. 1, 9 (App. Div. 1984), the court
transferred to the Law Division for jury trial a dispute over
coverage between a marital tortfeasor and his insurance company.
That dispute was neither incidental nor essential to the
underlying marital dispute.
Contrary to defendants' assertion that New Jersey Highway
Authority v. Renner,
18 N.J. 485 (1955), establishes the right to
trial by jury on a compulsory counterclaim, that case actually
holds that "under the particular circumstances [there] presented"
when "[f]rom the start the parties proceeded on the basis that
the issue raised in the counterclaim was not merely incidental to
the equitable cause of action, but was an independent cause of
action [that would be] tr[ied] by jury [after the equitable
claims were resolved]" the Chancery Court should not have denied
the defendant her right to a jury trial on her legal counterclaim
at the end of the equitable action. Id. at 494-95. Justice
Jacobs, the author of Renner and former Vice-Chair and principal
architect of the Judicial Article of the 1947 Constitution, noted
in that decision that had the parties not presented the issues in
an untimely and improper manner, Renner would have been an
entirely different case. Id. at 495. Likewise, in this case, as
counsel acknowledge, had Kipnis first brought his action at law
demanding a jury trial, the focus of the case might have been
different. But as it developed the initial core of the
controversy centered on the fiduciary relationship among the
parties.
In assessing whether jury trial rights are infringed, courts
should "consider the nature of the underlying controversy as well
as the remedial relief sought . . . ." Shaner, supra, 116 N.J.
at 450-51. In this case, although the claims for relief were ultimately limited to money damages, entitlement to relief arose from the fiduciary relationship between and among the parties. Kipnis' duty as an attorney could not be fully divorced from his duty as a prospective partner. So too, Kurens' duties under the contract grew out of his partnership relationship with Kipnis and Husak. The subsequent conduct of Kurens as partner cannot realistically be divorced from the inception of his role in 1987 as a prospective partner of Kipnis and Husak or the expansion of that role in 1989. Notte, the intermediary between Lyn-Anna and Kurens, was the lead-off witness at the trial. Notte invited Kurens to invest in the project after meeting Kurens while Kurens was temporarily employed as a member of Notte's office staff in New Jersey. The records of the venture were maintained in Notte's office in New Jersey and at the construction site in Florida. The court found that Kipnis did not have access to Harborview's books and records to see how Notte's 1989 contribution (of loan or capital) was treated. Notte testified that Kipnis always represented himself as an investor in Harborview, although he acknowledged that his firm did legal work for the venture. Kipnis described himself as one who primarily dealt with lien creditors, the trades that had provided labor or materials to the job. He did close the 1987 mortgage and agreed to act as escrow agent for Kurens' interests. In its ultimate findings of fact, the Chancery Division observed that when Kurens increased his stake in the venture in 1989, he was aware of one
of his claims of Kipnis' alleged ethical misconduct in 1987.
Kurens had full access to the records that disclosed how the 1987
escrow funds had been handled. In short, there is no clear cut
line of demarcation between the attorney malpractice issues and
the partnership management issues. The issues are part of the
broader fiduciary relationship among the joint venturers in the
Harborview project. The Chancery Division correctly held that
the claims made by the defendants on the
actions of Kipnis are so interrelated with
the equitable issues in this matter that they
are properly deemed ancillary. Plaintiffs
have asserted that defendants breached their
fiduciary duties and mismanaged this project.
Defendants have raised as an equitable
defense the conduct of the plaintiffs in
first inducing them into this project and
then encouraging defendants to take an even
greater stake in it. Those issues are
subject to the general jurisdiction of this
court to consider and dispose of ancillary
legal issues without a jury.
We are thus satisfied that the Chancery Division appropriately exercised its jurisdiction to "settle all the rights of all the parties," Shaw v. Beaumont, supra, 88 N.J. Eq. at 336. That the modern form of Rule 4:7-1 (incorporating the duty to assert as a counterclaim all matters arising out of the transactions) made Kurens' counterclaim a compulsory counterclaim does not alter the original jurisdiction of Chancery. Even in the absence of Rule 4:7-1, principles of collateral estoppel would almost certainly have compelled Kurens to raise or lose the issue of Kipnis' misconduct. Maryland has adopted the federal rule of Beacon Theatres despite the fact that it does not have a comparable compulsory counterclaim rule precisely because of the
analogy between the principles of res judicata and a compulsory
counterclaim rule. Higgins v. Barnes,
530 A.2d 724, 732 (Md.
1987). In contrast, we have long recognized the jurisdiction of
chancery to resolve counterclaims even when assertion of the
counterclaim was virtually compelled. Middlesex Concrete
Products, supra, 129 N.J. Eq. at 316.
The right of trial by jury is an ever-present reminder of
our belief in the importance of the individual. Then Justice
Rehnquist expressed it well: "The founders of our Nation
considered the right of trial by jury in civil cases an important
bulwark against tyranny and corruption, a safeguard too precious
to be left to the whim of the sovereign, or, it might be added,
to that of the judiciary." Parklane Hosiery Co. v. Shore,
439 U.S. 322, 343,
99 S. Ct. 645, 657,
58 L. Ed.2d 552, 570 (1979)
(Rehnquist, J., dissenting). Those important values have always
been balanced in both state and federal systems with a concern
for the traditional role of equity jurisprudence to provide a
remedy when the ordinary civil suit for damages is inadequate and
to provide a complete remedy when ancillary legal issues are
presented. The nearly fifty years of experience since the
adoption of the Constitution of 1947 convince us that the
historic doctrine has been working well and that this
discretionary jurisdiction can continue to be reposed in our
chancellors. Those "courts of conscience," Shaw, supra, 88 N.J.
Eq. at 336, guard at once the right to trial by jury and the
right to an equitable action when a remedy at law might be
inadequate.
In Brennan v. Orban, ___ N.J. ___ (1996), also decided
today, we hold that, because of the divisibility of claims, the
public interest in vindicating the policy against domestic
violence outweighs in significance the competing State policies
that favor resolution in a single proceeding of all family
matters in dispute. In such a case, the court should, in the
interests of justice, exercise its discretion to afford a jury
trial to the victim of a marital tort.
To repeat Justice Jacobs' words, "justice is the polestar
and our procedures must ever be moulded and applied with that in
mind." Renner, supra, 18 N.J. at 495. In this case the
paramount values of the Judicial Article that there be "full,
adequate and expeditious justice for all litigants," IV
Proceedings, supra, at 203 (statement of William J. Brennan,
Jr.), are better served by recognizing the authority of the
Chancery Division to resolve "all controversies brought before
it." Boardwalk Properties, supra, 253 N.J. Super. at 526.
The judgment of the Appellate Division is affirmed.
JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN and COLEMAN join in JUSTICE O'HERN's opinion. CHIEF JUSTICE WILENTZ did not participate.
NO. A-65 SEPTEMBER TERM 1995
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
LYN-ANNA PROPERTIES, LTD.,
ALAN HUSAK and ALAN KIPNIS,
Plaintiffs-Respondents,
v.
HARBORVIEW DEVELOPMENT CORP.,
Defendant and Third-Party
Plaintiff,
and
KURENS SOUTH INC., PHILIP KURENS
and CLAIRE KURENS,
Defendants and Third-Party
Plaintiffs-Appellants,
v.
ROBERT NOTTE,
Third-Party Defendant.
DECIDED July 16, 1996
Justice Handler PRESIDING
OPINION BY Justice O'Hern
CONCURRING OPINION BY
DISSENTING OPINION BY
Footnote: 1The Court also found authority to provide for arbitration in its exclusive power to regulate the practice of law. LiVolsi, 85 N.J. at 590-91. Footnote: 2More mundane considerations, such as patronage, may also have marked the cloakroom debates about the role of chancery. See Conversations, supra, 47 Rutgers L. Rev. at 1395-96. Footnote: 3William J. Brennan, Jr., then a New Jersey lawyer, expressed the sentiment of the editors of the New Jersey Law Journal that "emotions and prejudices aside, there is no real reason for the perpetuation of [chancery's] individuality [as a separate, independent tribunal]. In a modern judicial system, where the objective is to provide for full, adequate and expeditious justice for all litigants, its jurisdictional idiosyncrasies and limitations should be ended." Id. at 203.