SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-3329-96T2
VISION MORTGAGE CORPORATION, INC.,
Plaintiff-Appellant,
v.
PATRICIA J. CHIAPPERINI, INC.,
and PATRICIA J. CHIAPPERINI,
Defendants-Respondents.
_________________________________________________________________
Argued November 13, 1997 - Decided January 8, 1998
Before Judges Shebell, D'Annunzio and Coburn.
On appeal from the Superior Court of New
Jersey, Law Division, Middlesex County.
Christine D. Petruzzell argued the cause for
appellant (Wilentz, Goldman and Spitzer,
attorneys; Ms. Petruzzell and Georgia C.
Haglund, on the brief).
Jeffrey S. Intravatola argued the cause for
respondents (Hoagland, Longo, Moran, Dunst and
Doukas, attorneys; Mr. Intravatola, on the
brief).
The opinion of the court was delivered by
COBURN, J.A.D.
This is an action by plaintiff mortgage company against a firm and its principal, collectively referred to as defendant, engaged in the business of providing appraisals of the value of real property. Plaintiff appeals from a summary judgment entered on the ground that the entire controversy doctrine precludes this claim,
and on the alternative ground that the claim is barred by the six-year statute of limitations. We reverse and remand for trial.
There is no dispute regarding any material fact. In 1988,
plaintiff retained defendant to appraise certain property in Jersey
City in connection with a mortgage loan application filed with the
plaintiff by Edwin Nazario. Defendant appraised the property at a
value of $280,000, and on the strength of that appraisal plaintiff
loaned Nazario $182,000. The loan closed in 1988. Nazario
defaulted in 1989. In 1990, plaintiff commenced an action to
foreclose Nazario's mortgage and judgment was entered in that
action in 1992.
Plaintiff was aware as early as 1991 that defendant's
appraisal may have been defective. Plaintiff received an appraisal
from Ebert Appraisal Company dated December 10, 1991, indicating
that the property's value was $209,000, i.e., $71,000 less than
defendant had reported it in 1988. An Ebert appraisal dated June
15, 1993 reported the value as $192,000, and another Ebert
appraisal on February 14, 1994, reported it as $132,500. An
appraisal by the Smith firm dated September 16, 1994 indicated the
appraised value to be $75,000. In September 1994, plaintiff,
through its assignee, acquired possession of the Nazario property.
The trial court believed the entire controversy doctrine was
implicated in this case because of another transaction between the
parties relating to Trevor Willis. In 1989, Willis applied to
plaintiff for a mortgage loan on property in Montclair. Plaintiff
retained defendant to appraise the Montclair property and defendant
valued it at $511,000. In reliance on this appraisal, plaintiff
approved and closed a loan to Willis in the amount of $367,700 in
July 1989. By June 1991, the Willis loan was in default.
On July 29, 1992, plaintiff sued defendant, alleging
negligence with regard to the Willis appraisal. In its complaint
in the Willis action, plaintiff alleged that the value of the
Willis property at the time of the appraisal was no higher than
$290,000. Thus, the action against defendant arising out of the
Willis appraisal was pending at the time plaintiff was aware of
facts suggesting that the Nazario appraisal was incorrect.
On June 13, 1995, ten months after plaintiff took possession
of the Nazario property, plaintiff and defendant settled the action
pertaining to the Willis appraisal. Approximately ten weeks later,
on August 22, 1995, plaintiff commenced the present action against
defendant arising out of the Nazario appraisal.
The entire controversy doctrine evolved through common law to encompass a mandatory rule "for the joinder of virtually all causes, claims, and defenses relating to a controversy between the parties engaged in litigation." Cogdell v. Hospital Ctr., 116 N.J. 7, 16 (1989). The failure to adhere to the requirements of mandatory joinder precludes a party in a subsequent lawsuit from asserting a new and independent action for damages. Thus, the general rule in New Jersey is "a defendant must assert all matters which will defeat a claim against him and a plaintiff must seek complete relief for vindication of the wrong he charges."
Applestein v. United Bd. & Carton Corp.,
35 N.J. 343, 356 (1961);
Mori v. Hartz Mountain Dev. Corp.,
193 N.J. Super. 47, 53 (App.
Div. 1983); see Falcone v. Middlesex County Med. Soc'y,
47 N.J. 92,
93 (1966); Massari v. Einsiedler,
6 N.J. 303 (1951).
"[T]he entire controversy doctrine applies not only to matters
actually litigated, but to all aspects of a controversy that might
have been thus litigated and determined." Mori, supra, 193 N.J.
Super. at 56. Consequently,
the application of the doctrine requires that
a party who has elected to hold back from the
first proceeding a related component of the
controversy be barred from thereafter raising
it in a subsequent proceeding. It is only
that bar which can effectively prevent the
evil of " * * * piecemeal litigation of
fragments of a single controversy."
[Wm. Blanchard Co. v. Beach Concrete Co.,
150 N.J. Super. 277, 292-93 (App. Div.) (citations
omitted), certif. denied,
75 N.J. 528 (1977).]
The doctrine is now codified in R. 4:30A, which provides:
Non-joinder of claims or parties required
to be joined by the entire controversy
doctrine shall result in the preclusion of the
omitted claims to the extent required by the
entire controversy doctrine, except as
otherwise provided by R. 4:64-5 (foreclosure
actions) and R. 4:67-4(a)(leave required for
counterclaims or cross-claims in summary
actions).
R. 4:27 provides in pertinent part, "Subject to R. 4:30A
(entire controversy doctrine), the plaintiff in the complaint . .
. may join . . . as independent . . . claims . . . as many claims,
either legal or equitable or both, as he or she may have against an
opposing party." The rule is clearly permissive unless the entire
controversy doctrine dictates otherwise. The entire controversy
doctrine is not implicated here because there is no evidence that
the matters in the two controversies were part of a related series
of transactions.
In Wm. Blanchard Co. v. Beach Concrete Co., Inc., supra, we
said, the "application of the doctrine requires that a party who
has elected to hold back from the first proceeding a related
component of the controversy be barred from thereafter raising it
in a subsequent proceeding." 150 N.J. Super. at 292-93 (emphasis
added). We also said:
[A]n evaluation must be made of each potential
component of a particular controversy to
determine the likely consequences of the
omission of that component from the action and
its reservation for litigation another day.
If those consequences are likely to mean that
the litigants in the action as framed will,
after final judgment therein is entered, be
likely to have to engage in additional
litigation in order to conclusively dispose of
their respective bundle of rights and
liabilities which derive from a single
transaction or related series of transactions,
then the omitted component must be regarded as
constituting an element of the minimum
mandatory unit of litigation. That result
must obtain whether or not that component
constitutes either an independent cause of
action by technical common-law definition or
an independent claim which, in the abstract,
is separately adjudicable.
We applied the doctrine in Wm. Blanchard Co. because the litigation concerned a "single transaction -- a transaction whose narrowest scope includes the respective performance by each of the present litigants of their respective contractual undertakings vis-a-vis this building project . . . ." Id. at 294. In short,
joinder was required because all of the claims related to the same
project. In the instant case, there was no relationship between
the two appraisals. Each involved a separate "project." The only
relationship was that the parties were involved in both projects.
In Wm. Blanchard Co., it was not the relationship of the parties to
each other which implicated the doctrine, it was their
relationship, or the relationship of their claims, to the "project"
which called for application of the doctrine.
In Malaker Corp. Stockholders Protective Comm. v. First Jersey
Nat'l Bank,
163 N.J. Super. 463 (App. Div. 1978), certif. denied,
79 N.J. 488 (1979), we applied the entire controversy doctrine to
bar claims in the second litigation because "the bank's claims in
the prior suit, upon which judgment was recovered, and plaintiffs'
claims in the present litigation, do derive from the same
transaction or series of transactions -- the underlying alleged
agreements to extend credit." Id. at 498 (emphasis added). By
contrast, in the instant litigation there was no evidence of an
underlying agreement which linked the two appraisals.
In Mori v. Hartz Mountain Dev. Corp., supra, we held that an
action for rent should have been joined with an earlier partition
action because both claims related to the same property and to the
parties' rights therein. 193 N.J. Super. at 55-57.
In Boardwalk Regency Corp. v. Square Brighton Corp.,
288 N.J.
Super. 494 (App. Div. 1996), we again applied the doctrine to bar
a subsequent claim because both actions related to the parties'
interests in the same property.
None of the these cases support application of the doctrine to
the instant litigation. Although defendant was performing the same
type of services with respect to each of the properties, that
similarity does not make the transactions related. In fact, they
had nothing in common. They did not relate to each other and they
did not relate to any overall agreement. Therefore, the entire
controversy doctrine did not require dismissal of the second
action.
The trial court also held that the action should be dismissed on the ground that the statute of limitations had run. We disagree.
The applicable statute of limitations is six years. N.J.S.A. 2A:14-1. Defendant contends that April 1, 1989, the date of default on the loan, is the date on which the statute of limitations began to run. Plaintiff's primary position is that the action did not accrue until the foreclosure sale. Plaintiff contends, in the alternative, that at the earliest the statute began to run in December 1991 when it received the first post-default appraisal indicating that the property was then worth substantially less than the amount indicated by defendants. If defendant is correct, the statute of limitations expired approximately four months before the action was instituted. Otherwise, the action would be timely.
A professional malpractice claim, such as the one involved here, accrues "when: (1) the claimant suffers an injury or damages;
and (2) the claimant knows or should know that its injury is
attributable to the professional negligent advice." Circle
Chevrolet Co. v. Giordano, Halleran & Ciesla,
142 N.J. 280, 296
(1995). The defendant's argument focuses exclusively on the
second prong of the accrual test. Thus, the claim is that at the
time of the default on the loan, April 1, 1989, the plaintiff would
have known facts indicating "a basis for an actionable claim" if it
had exercised "reasonable diligence and intelligence." Lopez v.
Swyer,
62 N.J. 267, 272 (1973). For the purposes of this opinion,
we will assume the validity of that argument. However, that is not
enough to vindicate defendant's position because it ignores the
first prong of the accrual test, the requirement that the claimant
has suffered damages.
We hold that an action by a mortgagee against its appraiser
for professional malpractice does not accrue until the loss, if
any, of the mortgagee is established by resort to the security
through foreclosure or otherwise. Slavin v. Trout,
23 Cal. Rptr.2d 219 (Cal. Ct. App. 1993).
In Slavin, supra, the action was brought by a secured lender
against a real estate appraiser who was alleged to have overvalued
property on which a loan was extended. This case supports
plaintiff's contention that the statute of limitations in an action
of this kind does not begin to run until the bank "acquired the
property at a foreclosure sale following the borrower's default."
23 Cal. Rptr.
2d at 220. The court took as its basic premise the
concept that a secured lender "does not suffer actual and
appreciable harm from reliance on an overvalued appraisal until
`resort to the [inadequate] security.'" Id. at 222. It
specifically rejected the suggestion that the date of default on
the loan is the point in time when the statute of limitations
commences to run. Id. at 222-23. It said, "The lender's resort to
the property does not occur until later and it is at that point the
lenders suffers appreciable harm." Id. at 223. In further
explanation of this approach, the court said:
During the substantial period before the
lender can acquire the property, circumstances
can change so as to render unnecessary the
lender's resort to the property or to moot any
issue about a prior overappraisal of the
property. The borrower may cure the default
and reinstate the loan and trust obligations.
The borrower may find refinancing which would
pay off the entire amount of the obligation.
The real estate market or the value of the
particular property might go up. Therefore
the borrower's default, alone, is not
sufficient to show that the lender has
suffered actual damage from a negligent
appraisal overvaluing the property. Whether
the lender will actually suffer from the
erroneous appraisal depends on the value of
the property when the lender acquires it, for
it is then that the lender resorts to the
security.
The lender should not be deemed to have a
cause of action as soon as the borrower
defaults. This could lead to a multiplicity
of unnecessary lawsuits against appraisers.
It is not unusual for borrowers in financial
difficulty to default, to cure the first
default, and then to default again. If the
cause of action arose upon default, the lender
might be required to inefficiently file
multiple actions corresponding to each
default.
Moreover, what would be the status of the first suit, once that default was cured and the loan reinstated as provided by Civil Code
section 2924c? At oral argument, Trout
suggested the first suit must be dismissed and
that such dismissal might constitute a bar to
any new action against the appraiser. The
suggestion of a bar is unjust to a lender
subsequently injured when the borrower
defaults again but fails to reinstate. The
lender should not be barred from recovery
against a negligent appraiser simply because
an earlier default was cured and the loan and
trust obligations reinstated.
These anomalies are avoided by holding
that the cause of action does not accrue until
the lender acquires the property by
foreclosure or power of sale and thereby
resorts to the security. This is an
unalterable and definitive event which will
fairly fix the starting point for commencing
the running of the statute of limitations. In
the context of secured real estate lending,
where borrowers are afforded extensive
opportunities to cure defaults before losing
title to the property, causes of action should
not be born, aborted, or resurrected according
to the oscillation, to and fro, of defaults
and reinstatements. To conclude otherwise
would produced [sic] repetitive filings and
dismissals at great expense and no benefit to
lenders or appraisers.
The position taken by the defendant is supported by an earlier California intermediate appellate court decision. Johnson v. Simonelli, 282 Cal. Rptr. 205 (Cal. Ct. App. 1991). That case held the statute of limitations would begin to run from the time of default on the loan. However, the Slavin court rejected Johnson on this point, and thereafter the California Supreme Court specifically disapproved of Johnson's holding. ITT Small Business Finance Corp. v. Niles, 885 P.2d 965, 969 (Cal. 1994). Since the reasoning of Slavin appears sound, and since reliable contrary authority has neither been provided by the parties nor revealed by
our own research, we will follow it. Therefore, the statute of
limitations does not bar plaintiff's action.
Reversed and remanded for trial.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-3329-96T2
VISION MORTGAGE CORPORATION, INC.,
Plaintiff-Appellant,
v.
PATRICIA J. CHIAPPERINI, INC.,
and PATRICIA J. CHIAPPERINI,
Defendants-Respondents.
__________________________________________________________
D'ANNUNZIO, J.A.D., (Dissenting)
I would affirm the judgment for defendant on the ground that
under the entire controversy doctrine plaintiff should have
combined the claim based on the Nazario appraisal in its action
on the Willis appraisal. I have nothing to add to the majority's
lucid and concise statement of uncontroverted material facts.
The entire controversy doctrine is codified in R. 4:30A.
This rule "advances the purpose of R. 4:5-1." Olds v. Donnelly,
150 N.J. 424, 434 (1997). R. 4:5-1(b)(2) requires a party's
first pleading to contain "a certification as to whether the
matter in controversy is the subject of any other action pending
in any court or of a pending arbitration proceeding, or whether
any other action or arbitration proceeding is contemplated
(emphasis added)." It also requires each party "during the
course of litigation to file and serve on all other parties and
with the court an amended certification if there is a change in
the facts stated in the original certification." Further, "the
court may compel the joinder of parties in appropriate
circumstances, either upon its own motion or that of a party."
Ibid.
The purposes of the doctrine are several -- judicial
economy, efficiency, avoidance of waste, the reduction of delay,
fundamental fairness to parties, avoidance of piecemeal
litigation and harassment of parties -- but they are often
reduced to two when referring to the overriding policy behind the
doctrine: fairness to parties and judicial economy. Cogdell v.
Hospital Ctr.,
116 N.J. 7, 15, 17 (1989); see Joel v. Morrocco,
147 N.J. 546, 548 (1997). In Cogdell, supra, the Court extended
the doctrine to require the mandatory joinder of all parties "who
have a material interest in the controversy." 116 N.J. at 26.
In the present case, plaintiff contends that the entire
controversy doctrine does not bar this action because it is
"unrelated" to the prior action involving the Willis appraisal.
I disagree. The Supreme Court observed in DiTrolio v. Antiles,
142 N.J. 253 (1995), that "[i]n determining whether successive
claims constitute one controversy for purposes of the doctrine,
the central consideration is whether the claims . . . arose from
related facts or the same transaction or series of transactions."
Id. at 267.
We applied the concept of a "related series of
transactions," ibid., in Malaker Corp. Stockholders Protection
Comm. v. First Jersey Nat'l Bank,
163 N.J. Super. 463 (App. Div.
1978), certif. denied,
79 N.J. 488 (1979), a case cited with
approval in DiTrolio, supra, 142 N.J. at 267. In Malaker, we
held that plaintiff's claim against the bank for its alleged
breach of a loan commitment should have been raised by plaintiff
in an earlier action by the bank on an overdue note. 163 N.J.
Super. at 491-500. There we articulated the following test:
Consequently, although we agree with the
trial judge's characterization of certain of
plaintiffs' claims as being separate and
independent ones, capable of separate
adjudication, we disagree that such
characterization is dispositive of or even
bears on whether the claims were barred by
the prior state court judgment. The
essential inquiry is whether the claims here
asserted derive from a single transaction or
a series of related transactions, a portion
of which was disposed of by final judgment in
the earlier lawsuit. If they have such
derivation, they are barred.
[Id. at 497.]
We had formulated a similar standard in William Blanchard
Co. v. Beach Concrete Co.,
150 N.J. Super. 277 (App. Div.),
certif. denied,
75 N.J. 528 (1977):
[The entire controversy doctrine] must be
applied empirically. That is to say, an
evaluation must be made of each potential
component of a particular controversy to
determine the likely consequences of the
omission of that component from the action
and its reservation for litigation another
day. If those consequences are likely to
mean that the litigants in the action as
framed will, after final judgment therein is
entered, be likely to have to engage in
additional litigation in order to
conclusively dispose of their respective
bundles of rights and liabilities which
derive from a single transaction or related
series of transactions, then the omitted
component must be regarded as constituting an
element of the minimum mandatory unit of
litigation. That result must obtain whether
or not that component constitutes either an
independent cause of action by technical
common-law definition or an independent claim
which, in the abstract, is separately
adjudicable.
[150 N.J. Super. at 293-94 (emphasis added).]
See also Tevis v. Tevis,
79 N.J. 422, 434 (1979) (holding that
marital tort, an assault, should have been asserted in the prior
divorce action); Boardwalk Regency Corp. v. Square Brighton
Corp.,
288 N.J. Super. 494, 500-01 (App. Div. 1996) (determining
that action by lessee against sublessee for late charges should
have been joined in prior litigation by third party against city
to compel condemnation of part of leased premises, an action in
which lessee and sublessee had intervened); Mori v. Hartz
Mountain Dev. Corp.,
193 N.J. Super. 47, 55-57 (App. Div. 1983)
(concluding that action for rent against former cotenant as
assignee of lease should have been asserted in earlier partition
action).
I agree with Judge Pressler's observation in William
Blanchard Co., supra, that "the task of definitionally
circumscribing the outer limits of a given controversy for
purposes of application of the doctrine is inordinately
difficult." 150 N.J. Super. at 293. See e.g., Joel v. Morrocco,
supra; Illiano v. Seaview Orthopedics,
299 N.J. Super. 99 (App.
Div. 1997). We must, therefore, evaluate the impact of
plaintiff's reservation of the claim regarding the Nazario
appraisal in terms of the purposes of the entire controversy
doctrine.
The doctrine seeks to promote judicial economy and
efficiency. Plaintiff's failure to assert the Nazario claim in
the Willis action undercuts those goals. To prevail on either
claim plaintiff would have had to establish the standard of
performance in the appraisal business, defendant's deviation from
that standard, and damage to plaintiff as a proximate result of
any deviation.
The first element, the standard of performance will be the
same in both cases. By splitting the claims, plaintiff made it
necessary to establish the standard twice, thereby duplicating
effort and court time. It is likely that a separate trial in
each case would include duplicative evidence about the nature and
characteristics of the mortgage loan business and the appraisal
business. Such evidence would be necessary to inform fully the
trier of fact regarding the standard of performance, breach of
the standard, proximate cause and damages. Each case would, of
course, involve evidence peculiar to it regarding specific
deviation from the standard of performance and the amount of
damages.
Fairness to the parties is also an objective of the
doctrine. I am persuaded that there is great potential for
mischief in presenting and settling one claim while holding a
second identical claim in reserve. Moreover, regarding judicial
efficiency, it would have been reasonable to expect that if
plaintiff had asserted both claims in the same action, a
settlement would have resolved both claims.
Although each appraisal involved a discrete mortgage
transaction, each was a component part of a series of
transactions involving plaintiff and defendant. Mortgagelinq
Corp. v. Commonwealth Land Title, Ins. Co.,
142 N.J. 336 (1995)
involved a failure to join certain defendants in an earlier
action in Pennsylvania, in violation of the doctrine. Although
joinder of claims was not an issue, the complaint alleged
mortgage fraud involving twenty-four separate real estate
transactions which were properly combined in one action. It
serves, therefore, as an exemplar of how plaintiff should have
proceeded in the present case.
In light of the trial court's correct application of the
entire controversy doctrine in granting judgment for defendant,
it is unnecessary to consider the court's ruling regarding the
thorny issue of when the cause of action had accrued under the
six-yearSee footnote 1 statute of limitations.
Footnote: 1The California limitations period is only two years. Slavin v. Trout, 23 Cal. Rptr.2d 219, 220 (Cal. Ct. App. 1993). California's short limitations period may explain the Slavin court's core concern: that two years from default may not be sufficiently long for a mortgagee to determine whether it has suffered actual damages from an inadequate appraisal.