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Olds v. Donnelly/Opinion of the Court

[NJ427] [A635]  The opinion of the Court was delivered by

POLLOCK, J.

The basic issue in this case, as in Karpovich v. Barbarula, 150 N.J. 473, 696 A.2d 659 (1997) and Donohue v. Kuhn, 150 N.J. 484, 696 A.2d 664 (1997), also decided today, is the application of the entire controversy doctrine to legal-malpractice actions.

[NJ428] Plaintiff, Robert Olds, retained defendant, Dennis Donnelly, Esq., to pursue a medical-malpractice action against Dr. Floyd J. Donahue. Ultimately, Donnelly withdrew as counsel. Olds claims that before Donnelly withdrew, he failed to serve the summons and complaint on Dr. Donahue. The Law Division in the medical-malpractice action dismissed the complaint with prejudice for untimely service.

Olds then filed this attorney-malpractice action against Donnelly. Donnelly moved to dismiss, arguing that Olds should have joined him in the medical-malpractice action. The Law Division denied Donnelly's motion, holding that Olds's legal-malpractice claim did not accrue until dismissal of the medical-malpractice claim. The Appellate Division affirmed. 291 N.J. Super. 222, 677 A.2d 238 (1996).

We granted certification, 146 N.J. 565, 683 A.2d 1161 (1996), and now affirm and modify the judgment of the Appellate Division. We affirm the Appellate Division's holding that the entire controversy doctrine does not bar this action, which had not accrued during the pendency of the underlying medical-malpractice [A636] action. We further hold that the party-joinder requirements of the entire controversy doctrine do not extend to claims of attorney malpractice. We do not decide whether to relax the requirements of party joinder in cases involving others with a fiduciary relationship to the parties.

I.
The facts are undisputed. On June 27, 1985, Dr. Donahue allegedly committed medical malpractice while operating on Olds. Approximately one month later, Olds retained Donnelly to represent him in a possible medical-malpractice action against Dr. Donahue. The Retainer Agreement indicated that Donnelly accepted the retainer subject to investigation.

On June 25, 1987, two days before the expiration of the statute of limitations on the medical-malpractice claim, Olds and Donnelly met at Donnelly's office. Donnelly advised Olds that he no longer [NJ429]  wished to represent him, but that he would prepare a pro se complaint and serve it on Dr. Donahue. Olds agreed, and Donnelly filed the complaint the same day.

Donnelly attempted service on Dr. Donahue by mail. He used the wrong address, however, and the summons and complaint were returned to Donnelly's office. On August 10, 1987, Donnelly mailed the summons and complaint to Dr. Donahue at a different address. The papers were sent certified mail, with the return receipt addressed to Olds. Olds never received the receipt.

Sometime in 1988, Olds received a notice from the Clerk of the Union County Superior Court informing him that the case would be dismissed for lack of prosecution. Olds called Donnelly to tell him that Dr. Donahue had not been served. According to Olds, Donnelly said that "he would take care of it." In July of 1988, Donnelly sent Olds a letter indicating that the attempts to serve Dr. Donahue by mail were unsuccessful and that Donnelly had closed his files on the matter. In this letter, Donnelly also informed Olds that it was "up to [Olds] to pursue this."

In 1989, Olds received another notice indicating that the case would be dismissed for lack of prosecution. A court clerk assisted Olds in preparing a summons. The Union County Sheriff served the summons and complaint on Dr. Donahue in July 1989. Olds continued to prosecute the action pro se.

In February 1991, Dr. Donahue filed a motion under Rule 4:4-1 to dismiss the complaint for Olds's failure to make timely service. On February 19, 1991, shortly after the filing of the motion, third-party defendant, Joe Maran, Esq., filed a Substitution of Attorney for Olds.

The Law Division heard oral argument on Dr. Donahue's motion to dismiss on March 22, 1991. Maran opposed the motion for Olds. The court determined that the two-year delay in serving Dr. Donahue had prejudiced him because of the loss or destruction of medical records. Accordingly, the court granted the doctor's motion to dismiss the complaint with prejudice.

[NJ430] Thirteen months later, in April 1992, Olds, represented by Maran, instituted this legal-malpractice action against Donnelly. Olds alleged that Donnelly had failed to effect timely service of the complaint in the underlying medical-malpractice action, thus causing the dismissal of the suit with prejudice.

With his answer to the complaint, Donnelly filed a third-party complaint against Maran. Donnelly alleged that Maran had failed properly to oppose the motion to dismiss and also had failed to notify Donnelly, thereby depriving him of the opportunity to oppose the motion himself. According to the third-party complaint, Maran's negligence caused the dismissal of Donnelly's pro se complaint against Dr. Donahue.

On February 5, 1993, the Law Division granted Maran's motion to dismiss the third-party complaint. The court noted that because "Maran was not on the scene in July of 1989," Olds's legal-malpractice claim was against Donnelly alone. Thus, the court concluded that Maran had not violated any duty to Donnelly.

On April 2, 1993, the trial court denied Donnelly's motion to reconsider the dismissal of the third-party complaint. On March 18, 1994, about one month before the scheduled [A637] trial date, Donnelly moved for summary judgment. He argued that under the entire controversy doctrine Olds should have asserted his legal-malpractice claim against Donnelly in the medical-malpractice action against Dr. Donahue. The trial court denied Donnelly's motion.

Olds's legal-malpractice action against Donnelly proceeded to trial in December of 1994. The jury returned a verdict of $ 500,000 for Olds. The trial court, however, granted Donnelly's motion for judgment notwithstanding the verdict. The court held that the evidence did not support a finding of legal malpractice that proximately caused the dismissal of the action against Dr. Donahue.

Olds appealed. Donnelly cross-appealed challenging the orders denying summary judgment on entire controversy grounds and [NJ431]  dismissing the third-party complaint. The Appellate Division reversed and remanded for entry of a judgment in Olds's favor. 291 N.J.Super. at 234, 677 A.2d 238.

The Appellate Division also denied Donnelly's cross-appeals. It held that Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 142 N.J. 280, 662 A.2d 509 (1995), did not require Olds to have joined Donnelly in the medical-malpractice action against Dr. Donahue. 291 N.J.Super. at 232, 677 A.2d 238. The court reasoned that Olds's legal-malpractice claim against Donnelly did not accrue until the dismissal of Olds's medical-malpractice action against Dr. Donahue. Ibid. Because the entire controversy doctrine does not bar claims that are unknown, unarisen, or unaccrued at the time of the original action, the doctrine did not prevent Olds from pursuing his legal-malpractice claim against Donnelly. Ibid.

The Appellate Division further found that the trial court correctly dismissed Donnelly's third-party complaint against Maran. 291 N.J.Super at 233, 677 A.2d 238. It held that Maran "owed no duty to [Donnelly]" and that "[a]bsent that duty, no cause of action could exist." Ibid. (citing Malewich v. Zacharias, 196 N.J.Super. 372, 482 A.2d 951 (App.Div.1984)).

II.
Basically, the entire controversy doctrine seeks to assure that all aspects of a legal dispute occur in a single lawsuit. The goals of the doctrine are to promote judicial efficiency, assure fairness to all parties with a material interest in an action, and encourage the conclusive determination of a legal controversy. DiTrolio v. Antiles, 142 N.J. 253, 267, 662 A.2d 494 (1995); Prevratil v. Mohr, 145 N.J. 180, 187, 678 A.2d 243 (1996). One part of the doctrine, described generally as "claims joinder," requires that parties should present all affirmative claims and defenses arising out of a controversy. R. 4:30A; ''Wm. Blanchard Co. v. Beach Concrete Co., Inc.'', 150 N.J.Super. 277, 292-94, 375 A.2d 675,certif. denied, 75 N.J. 528, 384 A.2d 507 (1977). Another part, [NJ432]  known as "party joinder," requires the mandatory joinder of all parties with a material interest in a controversy. R. 4:30A.

The origins of the doctrine precede the merger of equitable and legal powers in the Superior Court. For example, in Carlisle v. Cooper, 21 N.J. Eq. 576 (E. & A.1870), the Court of Errors and Appeals held that equity courts could interfere with nuisance actions brought in law courts "on the ground of restraining irreparable mischief, or of suppressing interminable litigation, or of preventing [a] multiplicity of suits." Id. at 579; see also Smith v. Red Top Taxicab Corp., 111 N.J.L. 439, 440-41, 168 A. 796 (E. & A.1933) ("[N]o principle of law is more firmly established than that a single or entire cause of action cannot be subdivided into several claims, and separate actions maintained thereon.").

The 1947 Constitution recognized the doctrine by providing:

"Subject to the rules of the Supreme Court, the Law Division and the Chancery Division shall each exercise the powers and functions of the other division when the ends of justice so require, and legal and equitable relief should be granted in any cause so that all matters in controversy between the parties may be completely determined."

"[N.J. Const. art. VI, § 3, P4.]"

The requirement of the mandatory joinder of claims has evolved continually since the adoption of the 1947 Constitution. In [A638] Steiner v. Stein, 2 N.J. 367, 66 A.2d 719 (1949), the Court recognized that to administer justice efficiently, the Chancery Division should adjudicate legal issues, even if related equitable issues have already been determined. Id. at 378, 66 A.2d 719; see also Tumarkin v. Friedman, 17 N.J. Super. 20, 24, 85 A.2d 304 (App.Div.1951) (finding that county court had full authority to hear legal and equitable issues). In Ajamian v. Schlanger, 14 N.J. 483, 103 A.2d 9,cert. denied, 348 U.S. 835, 75 S.Ct. 58, 99 L.Ed. 659 (1954), the Court held that a plaintiff's failure to bring a claim for damages in a prior proceeding where the plaintiff sought rescission of an allegedly fraudulent contract required preclusion of the damages action "if the policy to avoid undue litigation is not to be emptied of substance." 14 N.J. at 488, 103 A.2d 9.

[NJ433] The Court eventually broadened the doctrine to include the mandatory joinder of defenses and counterclaims. See Massari v. Einsiedler, 6 N.J. 303, 313, 78 A.2d 572 (1951) (holding that party was barred from bringing reformation action in second suit when party had adequate opportunity to present equitable defenses in original action); Vacca v. Stika, 21 N.J. 471, 476, 122 A.2d 619 (requiring representative parties to assert counterclaims in one suit). In 1977, the Appellate Division in Wm. Blanchard held that the entire controversy doctrine requires that defendants assert all cross-claims as well as counterclaims arising out of the underlying transaction. ''Wm. Blanchard, supra,'' 150 N.J.Super. at 294, 375 A.2d 675.

Thus, the entire controversy doctrine encompasses "virtually all causes, claims, and defenses relating to a controversy" between parties engaged in litigation. Cogdell v. Hospital Ctr., 116 N.J. 7, 16, 560 A.2d 1169 (1989). Mandatory joinder of claims was incorporated into the rules of court in 1979. See R. 4:27-1(b) (providing for mandatory joinder of claims as required by the entire controversy doctrine), superseded by R. 4:30A (September 1990); see also R. 4:7 (making mandatory counterclaims not asserted subject to preclusion under R. 4:30A).

The mandatory joinder of parties has evolved more slowly. See, e.g., Thornton v. Potamkin Chevrolet, 94 N.J. 1, 5, 462 A.2d 133 (1983) (finding that "[t]he essence of [the judicial] policy [behind the entire controversy doctrine] is the joinder of claims and not parties"); ''Aetna Ins. Co. v. Gilchrist Bros., Inc.'', 85 N.J. 550, 558, 428 A.2d 1254 (1981) (reasoning that "the preclusive effect of nonjoinder of claims arising out of a single dispute or wrong between the parties may not automatically be applied to a failure to join a person as a party to the action"). In Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 343, 476 A.2d 250 (1984), however, we held that "the joinder of known responsible parties in a single action be the norm." Because the doctrine is one of judicial fairness, we decided to proceed step-by-step in extending it to parties. Ibid.

[NJ434] Our decision in Cogdell to require the mandatory joinder of all parties with a material interest in a legal controversy proceeded logically from Crispin. See Cogdell, supra, 116 N.J. at 26, 560 A.2d 1169 ("We thus conclude that the entire controversy doctrine appropriately encompasses the mandatory joinder of parties."). In Cogdell, we noted that the purposes underlying the claims-joinder rule "are similar, if not identical to those of the party-joinder rule." Id. at 19, 560 A.2d 1169. In particular, mandatory party joinder assures that all potentially responsible persons will participate in the original action. Id. at 25, 560 A.2d 1169. Requiring the joinder of all parties with a material interest in a litigation thus guarantees a complete determination of liability, avoids prejudice to absent parties, and prevents a duplication of lawsuits. Id. at 25-26, 560 A.2d 1169. The touchstone of mandatory party-joinder is fairness both to the plaintiff and to the defendant. DiTrolio, supra, 142 N.J. at 272, 662 A.2d 494.

Shortly after our decision in Cogdell, we adopted Rule 4:30A, codifying the mandatory joinder of both claims and parties. Rule 4:30A 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 [A639] for counterclaims or cross-claims in summary actions)."

In a sense, Rule 4:30A advances the purpose of Rule 4:5-1, which requires each party to submit with its first pleading a certification whether the matter in controversy is the subject of any other action pending or whether any other action is contemplated. R. 4:5-1(b)(2). Rule 4:5-1 further requires that each party shall disclose in the certification the names of any other party who should be joined in the action. Ibid. Under that Rule, the court, either on its own motion or that of a party, may compel the joinder of parties in appropriate circumstances. Ibid. Since deciding Cogdell, this Court has continued to require the mandatory joinder of all parties with a material interest in a litigation. See  [NJ435] ''Mortgagelinq Corp. v. Commonwealth Land Title Ins. Co., 142 N.J. 336, 662 A.2d 536 (1995) (barring claims against parties omitted from earlier action in another jurisdiction if jurisdiction was available in first forum); Mystic Isle Dev. Corp. v. Perskie & Nehmad, 142 N.J. 310, 662 A.2d 523 (1995) (barring legal-malpractice claims arising from real estate development suit because developer failed to join attorneys as defendants in first litigation); Circle Chevrolet, supra, 142 N.J. at 280 (1995) (barring attorney-malpractice claims for failure to join attorneys and assert claims in the underlying action against landlord for reformation of commercial lease agreement); DiTrolio, supra,'' 142 N.J. at 279, 662 A.2d 494 (barring physician's suit against members of hospital staff because of failure to join them as defendants in prior suit against hospital). But see Joel v. Morrocco, 147 N.J. 546, 688 A.2d 1036 (1997) (finding that failure to join individual partners in zoning dispute did not preclude enforcement against individual partners of partnership's money obligations under settlement reached in zoning dispute).

III.
The Appellate Division held that Olds's legal-malpractice claim did not accrue until the medical-malpractice complaint was dismissed with prejudice. Reasoning that the entire controversy doctrine does not apply to claims that are unaccrued at the time of the underlying litigation, the court concluded that the doctrine did not bar Olds's legal-malpractice claim against Donnelly. 291 N.J.Super. at 232, 677 A.2d 238. We agree that the entire controversy doctrine does not preclude this action.

Our analysis begins with Circle Chevrolet, in which we held that the entire controversy doctrine barred Circle's legal-malpractice action. Circle Chevrolet, supra, 142 N.J. at 303, 662 A.2d 509. In 1985, Circle and its landlord became involved in a dispute concerning the appropriate size of the annual rent increase. They settled the dispute when the landlord's attorney devised a formula to determine the rent increase. 142 N.J. at 286, 662 A.2d 509. Circle's attorneys approved the new formula. Ibid. In March of 1988, the [NJ436]  attorneys informed Circle that the formula was based on an incorrect reading of the original, thirty-year lease. Circle brought a reformation action against its landlord. Id. at 286-87, 662 A.2d 509. During it, Circle's attorneys withdrew as counsel. The litigation settled, and Circle brought a malpractice action against its former attorneys.

Circle argued for an exception to the entire controversy doctrine for attorney-malpractice actions. We held, however, that a client is under a "double onus" to bring his or her claim not only within the requisite statute of limitations period, but also within the boundaries set by the entire controversy doctrine. Id. at 291, 662 A.2d 509. In dicta we stated that the entire controversy doctrine applies "to a client's legal malpractice claim against his or her attorney, even when the attorney is currently representing the client in an underlying action." Id. at 289, 662 A.2d 509; see also Mystic Isle, supra, 142 N.J. at 324-25, 662 A.2d 523 (rejecting Mystic's argument that requiring plaintiffs to bring attorney-malpractice claim at same time as underlying action is against public policy).

We further held in Circle Chevrolet that the determination of the accrual of a legal-malpractice claim for the purposes of imposing the entire-controversy bar is like the determination of the accrual of the bar of the statute of limitations. Circle Chevrolet, supra, 142 N.J. at 296, 662 A.2d 509. That [A640] holding drew on our opinion in Grunwald v. Bronkesh, 131 N.J. 483, 621 A.2d 459 (1993), which held that the discovery rule triggers the accrual of the statute of limitations for attorney-malpractice actions. Id. at 499, 621 A.2d 459. The discovery rule involves two elements: actual injury and knowledge of fault. Id. at 495, 621 A.2d 459 (using "damage" interchangeably with "injury"). The limitations period begins "when a plaintiff knows or should know the facts underlying [injury and fault], not necessarily when a plaintiff learns the legal effect of those facts." Id. at 493, 621 A.2d 459. Thus, an appeal from an adverse judgment does not toll the accrual of a cause of action. Id. at 496-97, 621 A.2d 459.

[NJ437] In applying the discovery rule, a court must determine when the plaintiff became aware of the underlying factual basis for the legal-malpractice action. For example, in Grunwald we found that the plaintiff discovered his attorney's negligence when the Chancery Division determined that the agreement the attorney drafted was unenforceable. Id. at 499, 621 A.2d 459; see also Circle Chevrolet, supra, 142 N.J. at 297, 662 A.2d 509 (finding that Circle Chevrolet discovered before it sued its attorneys for legal-malpractice that its overpayment of rent may have been caused by its attorneys' negligence); Mystic Isle, supra, 142 N.J. at 326, 662 A.2d 523 (finding that Mystic Isle knew of existence of malpractice action during course of underlying action).

Here, Olds was aware of Donnelly's alleged negligence, which arose out of the untimely service of the summons and complaint, before the dismissal of the medical-malpractice action in March 1991. In 1988, after Olds received the first notice of dismissal for lack of prosecution, Donnelly advised Olds that Dr. Donahue had not been served. Additionally, in July of 1988, Donnelly wrote to Olds, informing him that he was closing Olds's file and that Donnelly's attempts at mail service on Dr. Donahue had been unsuccessful. Ultimately Olds, acting pro se, effectuated proper service in July 1989.

Mere knowledge of an attorney's negligence does not cause a legal malpractice claim to accrue. The client must sustain actual damage. Grunwald, supra, 131 N.J. at 492, 621 A.2d 459. As an action grounded in tort, "a legal-malpractice action accrues when an attorney's breach of professional duty proximately causes a plaintiff's damages." Id. at 495, 621 A.2d 459. Actual damage is "real" not "speculative." Ibid; see also Mant v. Gillespie, 189 N.J. Super. 368, 373, 460 A.2d 172 (App.Div.1983) (applying the discovery rule and finding that "the mere threat or possibility of an unfavorable judgment [does] not represent an actual loss which [can] generate a cause of action"). An adverse judgment may constitute damage. Grunwald, supra, 131 N.J. at 495, 621 A.2d 459.

[NJ438] The majority of courts hold that when attorney malpractice occurs during the course of litigation, the cause of action accrues on entry of an adverse judgment in the trial court. See, e.g., Michael v. Beasley, 583 So.2d 245, 252 (Ala.1991) (finding that malpractice suit accusing attorney of mishandling prior personal injury suit accrued on date of jury verdict against plaintiffs because "it was at this time that [plaintiffs] sustained legal injury sufficient for them to maintain an action against [defendant]"); Wettanen v. Cowper, 749 P.2d 362, 365 (Alaska 1988) (holding that malpractice action alleging that attorney failed to prepare for civil assault trial accrued upon the entry of trial court's judgment because that was when plaintiff incurred actionable harm); Treasure Valley Bank v. Killen & Pittenger, 112 Idaho 357, 732 P.2d 326, 328 (1987) (finding that malpractice action regarding attorney's negligent misrepresentation in bankruptcy proceeding accrued on date bankruptcy court confirmed bankruptcy plan submitted by debtor); Zupan v. Berman, 142 Ill.App.3d 396, 96 Ill.Dec. 889, 491 N.E.2d 1349, 1352 (1986) (holding that malpractice action against attorney who defended plaintiff in dram shop action accrued on date trial court entered judgment adverse to the client); Price v. Becker, 812 S.W.2d 597, 598 (Tenn.Ct.App.1991) (reasoning that malpractice action alleging that attorney failed to exercise reasonable care in preparing plaintiff's case accrued on date plaintiff's prior action was dismissed).

[A641] In the present case, the trial court's dismissal of Olds's medical-malpractice complaint for untimely service was not mandatory. Rule 4:4-1 states that "[i]f a summons is not issued within 10 days after the filing of the complaint the action may be dismissed." (emphasis added). Generally, a violation of the ten-day rule will not result in dismissal of an action when the defendant is not prejudiced, the complaint appears meritorious, and the failure to make proper service is attributable solely to the neglect of the plaintiff's attorney. McLaughlin v. Bassing, 51 N.J. 410, 241 A.2d 450 (1968). Indeed, dismissal is reserved for those situations where "no lesser sanction will erase the prejudice [NJ439]  suffered by the non-delinquent party." Crispin, supra, 96 N.J. at 345, 476 A.2d 250. Dr. Donahue was not served until two years and one month after the filing of the complaint. In another case, however, we permitted service two and one-half years after filing. McLaughlin, supra, 51 N.J. at 411, 241 A.2d 450. Thus, the passage of time alone did not compel the dismissal of Olds's medical-malpractice action.

Because the dismissal of Olds's medical-malpractice complaint was not a foregone conclusion, Donnelly's negligence did not proximately cause actual damage to Olds until the trial court actually dismissed with prejudice Olds's complaint against Dr. Donahue in 1991. Only then did Olds suffer real and substantial, as opposed to speculative, damage. See Grunwald, supra, 131 N.J. at 495, 621 A.2d 459 (reasoning that actual damage is "real" not "speculative"). To trigger the statute of limitations, only the fact, not the amount of damages need be certain. See Adams v. Paul, 11 Cal.4th 583, 46 Cal.Rptr.2d 594, 904 P.2d 1205, 1209 (1995) (reasoning that fact of damage rather than amount is relevant consideration for determining when statute of limitations is triggered for an attorney-malpractice claim). Not until the dismissal of the medical-malpractice action was damage to Olds certain. In Circle Chevrolet and Mystic Isle, in comparison, the fact of the plaintiffs' economic damages (Circle's overpayment of rent and Mystic's failed development project) existed prior to the plaintiffs' discovery of the defendants' alleged negligence. See Budd v. Nixen, 6 Cal.3d 195, 98 Cal. Rptr. 849, 491 P.2d 433, 437 (1971) (reasoning that "[o]rdinarily the client has already suffered damage when he discovers his attorney's negligence").

Olds's legal-malpractice claim against Donnelly did not accrue for either statute-of-limitations or entire-controversy purposes until the dismissal with prejudice of the medical-malpractice action in March 1991. Consequently, the entire controversy doctrine imposed no obligation on Olds to join Donnelly in the underlying medical-malpractice action. See DiTrolio, supra, 142 N.J. at 273-74, 662 A.2d 494 (reasoning that entire controversy doctrine does [NJ440]  not apply to unknown or unaccrued claims). Olds filed this legal-malpractice lawsuit in April of 1992, thirteen months after the action accrued and well within the six-year limitations period prescribed by N.J.S.A. 2A:14-1. Thus, the statute of limitations also presents no barrier to this legal-malpractice action.

IV.
We are aware of the criticism of Circle Chevrolet's expansion of the entire controversy doctrine to attorney-malpractice actions. In particular, critics have pointed out the adverse effect on the attorney-client relationship from requiring the joinder of an attorney who continues to represent a client in an underlying action. See, e.g., Geoffrey C. Hazard, Jr., An Examination Before and Behind the "Entire Controversy" Doctrine, 28 Rutgers L.J. 7, 24 (1996) (questioning expansion of complicated litigation to include an attack on a party's own lawyer); Albert L. Cohn & Terri A. Smith, Practice and Malpractice after Circle Chevrolet: Some Practical Considerations of the Entire Controversy Doctrine, 28 Rutgers L.J. 79, 84 (1996) (stating inclusion of legal-malpractice claims in entire controversy doctrine creates potentiality that lawyers and clients will become adversaries).

Candor compels that we acknowledge that the application of the entire controversy doctrine to legal-malpractice claims has not fulfilled our expectations. First, application of the doctrine can chill attorney-client [A642] relations. The attorney, formerly the client's advocate, is made the adversary. The client is forced to expend time and money to engage a second attorney to pursue the attorney-malpractice claim. Because the first attorney is now a potential witness, that attorney's own interests are no longer aligned with those of the client. Although we do not suggest that potentially negligent attorneys would misrepresent facts, an attorney charged with malpractice, like any other litigant, would have an incentive to testify guardedly when sued by a former client.

Thus, clients are put in the untenable position of either pursuing a claim against their attorney, whose negligence may never result [NJ441]  in an unfavorable outcome, or forever forgoing a legal-malpractice action. Clients who are satisfied with their attorneys and want to maintain an otherwise satisfactory relationship may forgo the right to sue. That result does not provide the fairness that the entire controversy doctrine is designed to encourage. See Joel, supra, 147 N.J. at 555, 688 A.2d 1036 (stating that twin pillars of entire controversy doctrine are fairness to parties and to system of judicial administration).

Furthermore, the requirement that clients join their attorneys in the original lawsuit jeopardizes attorney-client confidences. When clients sue their attorneys, attorney-client communications may become discoverable. See RPC 1.6(c)(2) (allowing attorney to reveal client confidences "to establish a defense to a … civil claim … against the lawyer based upon the conduct in which the client was involved"); N.J.R.E. 504(2)(c) (stating that attorney-client privilege shall not extend "to a communication relevant to an issue of breach of duty by the lawyer to his client, or by the client to his lawyer"); N.J.S.A. 2A:84A-20(2)(c) (same). Thus, the lawyer can be questioned about otherwise privileged information involving the very subject matter of the underlying litigation.

In Circle Chevrolet, we anticipated that the Rules of Professional Conduct would minimize the risks of the disclosure of attorney-client communications. Those Rules state that a lawyer sued for malpractice is obligated to reveal privileged communications only to the extent necessary to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client. Circle Chevrolet, supra, 142 N.J. at 293, 662 A.2d 509; RPC 1.6(c)(2). We also anticipated that the attorney-malpractice claim need not actually be litigated with the underlying action. Our expectation was that once an attorney notified a client of a possible malpractice claim, the trial court would have the discretion to manage the case. Circle Chevrolet, supra, 142 N.J. at 293, 662 A.2d 509. On further consideration, however, we believe that the risk of the disclosure of privileged information and the generally adverse effects on attorney-client relationships outweigh any [NJ442]  benefit from requiring a client to assert a malpractice claim in the pending lawsuit.

With transactional malpractice, such as negligence in drafting a contract or will or performing a real estate closing, the need for an exception to the entire controversy doctrine is not as compelling. The attorney is not saddled with the conflicting roles of advocating on behalf of the client in the underlying litigation and representing his or her own interests as a defendant. Moreover, a legal-malpractice claim alleging transactional negligence is a claim against a primary tortfeasor. As such, the entire controversy doctrine's purposes are served by requiring plaintiffs to notify the trial court of their potential malpractice claims. The attorney, like the other defendants, is a potential cause of a plaintiff's damages. See Circle Chevrolet, supra, 142 N.J. at 286-87, 662 A.2d 509 (characterizing attorneys' negligence as involving an erroneous interpretation of a lease clause); Mystic Isle, supra, 142 N.J. at 320-21, 662 A.2d 523 (describing plaintiff's allegations that its attorneys inappropriately represented plaintiffs in the attorneys' attempts to obtain sewage permits).

The line between transactional and litigation representation, however, is not always clear. Often, the same law firm or even the same attorney may represent a client in both transactional and litigation matters. Thus, transactional attorneys and their firms often have a ongoing relationship with their clients. Requiring a client to notify a trial court of a [A643] potential malpractice claim relating to one transaction when the attorney or firm continues to represent the client on other matters can intrude unduly on the attorney-client relationship.

Basing the application of the entire controversy doctrine on the nature of the alleged malpractice would be difficult to administer. The better response is not to distinguish litigation malpractice from other kinds of malpractice, but to exempt all attorney-malpractice actions from the entire controversy doctrine. The Rules of Professional Conduct still require an attorney to notify the client that he or she may have a legal-malpractice claim even if [NJ443]  notification is against the attorney's own interest. See RPC 1.7(b)(2) ("[a] lawyer shall not represent a client if the representation of that client may be materially limited by the … lawyer's own interests, unless … the client consents after a full disclosure of the circumstances and consultation with the client."); see also Draft Restatement (Third) of the Law Governing Lawyers § 31, cmt. c (1996) ("If the lawyer's conduct of the matter gives the client a substantial malpractice claim against the lawyer, the lawyer must disclose that to the client."). In sum, we conclude that the entire controversy doctrine no longer compels the assertion of a legal-malpractice claim in an underlying action that gives rise to the claim.

V.
Donnelly urges this Court to reinstate the third-party complaint against Maran. That complaint alleges that Maran's negligence caused the dismissal of Olds's complaint against Dr. Donahue.

We decline to hold that Maran, as the successor attorney, owed his predecessor, Donnelly, a duty of care. The trial court, in dismissing the third-party complaint, found that Maran was not responsible for any prejudice to Dr. Donahue resulting from the untimely service. In Malewich v. Zacharias, 196 N.J. Super. 372, 482 A.2d 951 (App.Div.1984), the plaintiff sued her first attorney for malpractice. The first attorney filed a third-party complaint against the plaintiff's second attorney, arguing, as Donnelly does, that the second attorney acted negligently in handling the underlying litigation. Id. at 375, 482 A.2d 951. The Appellate Division held, however, that the successor attorney did not owe to his predecessor a duty that would support a third-party complaint for negligence. Ibid.

Other jurisdictions have held that third-party or cross-complaints filed by an original attorney against a subsequent attorney undermine the subsequent attorney's undivided loyalty to the client. See, e.g., [NJ444] Gibson, Dunn & Crutcher v. Superior Court of Los Angeles County, 94 Cal.App.3d 347, 156 Cal.Rptr. 326, 330 (1979) (holding that to expose attorney to negligence brought by parties other than client "would inject undesirable self-protective reservations into the attorney's counseling role and tend to divert the attorney from single-minded devotion to his client's interests"); Goldfisher v. Superior Court, 133 Cal.App.3d 12, 183 Cal.Rptr. 609, 615 (1982) (finding that "to encourage claims of indemnification where two lawyers successively represented the same client is not for the benefit of the client" because the "inevitable consequence is a corrosion of the sacred attributes of complete confidentiality and undivided loyalty which are the heart of the relationship between lawyer and client"); Hughes v. Housley, 599 P.2d 1250, 1252 (Utah 1979) (finding that, as a matter of policy, no duty should be imposed upon succeeding counsel in favor of preceding counsel: "to impose such a duty would be to subject the second attorney to potential conflicts of interest in trying to serve two masters"). We affirm the Appellate Division's holding that the trial court properly dismissed the third-party complaint. 292 N.J.Super. at 372, 678 A.2d 1152.

VI.
The NJSBA has suggested in its amicus brief that we abolish mandatory party joinder and amend Rule 4:30A by deleting the words "or parties." Similarly, our concurring colleague recommends overruling Cogdell's rule of preclusion. Post at 450-451, 472, 696 A.2d at 646-47, 658). By comparison, Professor Hazard apparently approves of a rule of preclusion, but would sustain it under [A644] expanded notions of res judicata and collateral estoppel, not by recourse to the entire controversy doctrine. Hazard, supra, 29 Rutgers L.J. at 18-19.

Critics of the doctrine assert that its requirement of mandatory party joinder is counterproductive. According to them, mandatory party joinder complicates, prolongs, and increases the cost of litigation. Economy, economy shalt thou follow, 6 N.J.L. 558 (March 10, 1997) (editorial); Allan R. Stein, Commentary: Power, [NJ445]  Duty and the Entire Controversy Doctrine, 28 Rutgers L.J. 27, 39-40 (1996). They state the doctrine generates uncertainty and is too difficult for lawyers and judges to understand. Hazard, supra, 28 Rutgers L.J. at 7. Also, they contend that the doctrine impairs valuable relationships by requiring the assertion of claims against parties one otherwise would not sue. Allan R. Stein, Is New Jersey Out on a Limb With the Entire Controversy Doctrine?, 182 N.J.L. 12, 14 (Jan./Feb.1997). Finally, they assert that the preclusion of a claim because of the failure to assert the claim in an earlier proceeding is overkill. Stein, supra, 28 Rutgers L.J. at 30.

The critics also contend that the doctrine proceeds from the incorrect assumption that mandatory party joinder is necessary to avoid unfairness to absent defendants and others. Id. at 33. Finally, the critics question the premise that a plaintiff controls the initial proceeding. Hazard, supra, 28 Rutgers L.J. at 21-22; Stein, supra, 182 N.J.L. at 14; Stein, supra, 28 Rutgers L.J. at 37.

Much of the criticism is anecdotal. Susan Carboni, The Entire Controversy Opinions of 1995 and Attorney Malpractice: What Price Economy in New Jersey?, 48 Rutgers L. Rev. 1273, 1313 n. 241 (1996). Some may be exaggerated or speculative.

One suggestion is to expand party joinder under Rule 4:28, which is identical to Federal Rule of Civil Procedure 19. The underlying principle is that more aggressive joinder of parties in the original action would obviate preclusion under the entire controversy doctrine in a second action. Some argue that expanded joinder under Rule 4:28 is a mutually exclusive alternative to the entire controversy doctrine under Rule 4:30A. Post at 461-463, 696 A.2d 652-54); cf. John W. Reed, Compulsory Joinder of Parties in Civil Actions, 55 Mich.L.Rev. 327, 335, 337 (1957). Others suggest that the two rules complement each other. Rochelle Cooper Dreyfuss & Linda J. Silberman, Interjurisdictional Implications of the Entire Controversy Doctrine, 28 Rutgers L.J. 123, 154-55 n.159 (1996). Unifying the various suggestions is the [NJ446]  premise that party-joinder requirements are an important part of efficient judicial administration.

Thoughtful analysis of the alternatives moves us beyond the facts of this case. The wealth of suggestions deserves our careful consideration. Our biennial review of proposed amendments to the Rules of Practice, which we will undertake next term, provides a suitable occasion to review proposals for modifications of the entire controversy doctrine, expanded use of party joinder, and other suggestions to improve the administration of justice. The Civil Practice Committee, to which we regularly look for recommendations on proposed rule changes, already has appointed a subcommittee on the entire controversy doctrine. That subcommittee is the logical entity to consider initially the various proposals concerning the doctrine.

Like other legal doctrines, the entire controversy doctrine continues to evolve. See Crispin, supra, 96 N.J. at 343, 476 A.2d 250 (stating we will "proceed on a step-by-step basis recognizing that the doctrine is one of judicial fairness…."). For policy considerations, we have recognized that the doctrine should not apply in certain contexts such as non-germane claims against a mortgagor in a mortgage foreclosure, Rule 4:30A, and indemnification claims when the putative indemnitee complies with N.J.S.A. 12A:2-607(5)(a). Harley Davidson Motor Co., Inc. v. Advance Die Casting, Inc., et al., 150 N.J. 489, 696 A.2d 666, 672 (1997). Consistent with that approach, we confine our holding in this case to attorney-malpractice claims, without reaching other claims, such as "second-litigation malpractice claims against accountants, architects, engineers, physicians, or psychologists." Post at 451, 696 A.2d at 647. [A645] For present purposes, we note simply that legal malpractice claims uniquely raise the specter of forcing a party in an action to sue the same lawyer who is representing that party in the action.

We have always emphasized that preclusion is a remedy of last resort. See Gelber v. Zito Partnerships, 147 N.J. 561, 565, 688 A.2d 1044 (1997) (finding that "[c]ourts must carefully analyze" both fairness to the parties and fairness to the system of [NJ447]  judicial administration "before dismissing claims or parties to a suit"). The purpose of the doctrine is not to bar meritorious claims, but to encourage litigants to bring to the attention of trial courts persons who should be joined in a proceeding. See id. at 567, 688 A.2d 1044 (stating "the purpose of the rule is not just to notify a new party of the imminence of a future law suit, the purpose of the rule is to secure the coordination and consolidation of all litigation emanating from a single controversy through the joinder of all participants in that controversy in a current action and to subject joinder issues to the supervisory authority of the court"); Petrocelli v. Daniel Woodhead Co., 993 F.2d 27, 31 (3d Cir.1993) (entire controversy doctrine does not require that all claims and parties culminate in one litigation; rather, all claims and parties must initially be joined together for the court, which can then determine how to proceed with various claims and parties); ''cf. Brown v. Brown,'' 208 N.J.Super. 372, 382, 506 A.2d 29 (App.Div.1986) (stating "we therefore hold that a party whose constituent claim arises during the pendency of the action risks its loss unless he appraises the court and his adversary of its existence and submits to judicial discretion the determination of whether it should be joined in that action or reserved"). Essentially, the point is to require submission of issues concerning joinder to the discretion of the trial court, which then can decide how best to manage them.

Some contend that the dominant consideration with party joinder should be the freedom of claimants to decide what defendants to join in an action. They theorize that most plaintiffs' attorneys rationally want to join as many parties as possible, post at 457, 696 A.2d at 650, Hazard, supra, 28 Rutgers L.J. at 21. The reality, however, is that some attorneys have elected to conceal, Crispin, supra, 96 N.J. 336, 476 A.2d 250, or withhold, Cogdell, supra, 116 N.J. 7, 560 A.2d 1169, claims against additional parties. That practice reveals the limitations of party joinder under Rule 4:28. It also illustrates the need for a procedural device, such as Rule 4:30A, to protect parties, the courts and the public from excessive and costly litigation. See Gelber, supra, 147 N.J. at 565, 688 A.2d [NJ448]  1044 (stating "the twin pillars of the entire controversy doctrine are fairness to the parties and fairness to the system of judicial administration"); Prevratil, supra, 145 N.J. at 197, 678 A.2d 243 (stating "one of the twin pillars of the entire controversy doctrine is fairness"). In that limited context, when no lesser remedy would suffice, a court may resort to preclusion. So perceived, mandatory joinder should not be confused with mandatory preclusion. See Post at 456, 696 A.2d at 650 (stating that the Court "adopted a preclusive mandatory party-joinder rule" in Cogdell).

Before precluding a second action, a court must determine whether the plaintiff in the earlier action was required to notify the court of the party alleging preclusion. See DiTrolio, supra, 142 N.J. at 271, 662 A.2d 494 ("the determinative consideration is whether distinct claims are aspects of the single larger controversy because they arise from interrelated facts."). If notice was required, the court must discern whether the plaintiff complied with the requirements of the rules in the prior litigation. Although unnecessary, a formal motion under Rule 4:28 to join a party would suffice. The plaintiff need only notify the first trial court of the party now alleging preclusion. Failure to comply with those requirements need not lead to preclusion of the second action. Gelber, supra, 147 N.J. at 565, 688 A.2d 1044 ("[T]he court did not intend the violation of the notice requirements of Rule 4:5-1 should result in automatic orders for dismissal."). If a remedy other than preclusion will vindicate the cost or prejudice to other parties and the judicial system, the court should employ such a remedy. ''Cf. Abtrax Pharmaceuticals, Inc. v. Elkins-Sinn, Inc.,'' 139 N.J. 499, 514, 655 A.2d 1368 (1995) ("Since dismissal [A646] with prejudice is the ultimate sanction, it will normally be ordered only when no lesser sanction will suffice to erase the prejudice suffered by the non-delinquent party….").

Our endeavor from the outset has been to temper efficiency with individual justice. So viewed, mandatory party joinder under the entire controversy doctrine works best in litigation arising [NJ449]  from an identifiable event that may have multiple causes, such as an automobile accident or a product failure, or from a project based on an agreement or related agreements, such as the construction of a building.

As previously indicated, our Committee on Civil Practice has appointed an Entire Controversy Doctrine Subcommittee to examine exemptions from mandatory party joinder under the entire controversy doctrine. We are asking the Committee to broaden the examination to include all other aspects of the doctrine. Consistent with our traditional practice, we shall provide the opportunity for the bar and others to comment on any modification of the entire controversy doctrine, including any proposed amendment to Rule 4:30A.

VII.
The parties have not briefed or argued the issue whether the within decision should apply retroactively or prospectively. In fairness to other litigants and the judicial system, however, we conclude that our decision should apply not only to the present case, but to all pending cases, whether on appeal or in the trial courts.

Ordinarily, judicial decisions apply retroactively. Crespo v. Stapf, 128 N.J. 351, 367, 608 A.2d 241 (1992). Policy considerations may justify giving a decision limited retroactive effect. Ibid. The first consideration is whether litigants reasonably have relied on settled law in ordering their affairs. Id. at 368, 608 A.2d 241. Another consideration is whether retroactive application will advance the purposes of the rule announced in the decision. Id. at 370, 608 A.2d 241. "The final consideration is whether retroactive application would produce inequitable results and adversely affect the administration of justice." Id. at 371, 608 A.2d 241.

Here, those considerations point toward limited or "pipeline" retroactivity of our decision. First, we decided Circle Chevrolet [NJ450]  only two years ago, a factor that affects the extent to which litigants reasonably have relied on the application of the entire controversy doctrine to legal-malpractice claims. Second, the general purpose of the legal-malpractice exception is to preserve the attorney-client relationship. Limited retroactivity will adequately protect existing relationships. Giving the benefit of our decision to litigants with pending cases serves the interests of justice by permitting resolution of their claims on the merits. Complete retroactivity, however, potentially would expose the judicial system to the undue burden of resolving numerous concluded matters.

The judgment of the Appellate Division is affirmed.

title: Olds v. Donnelly/Opinion of the Court