Since the Olds v. Donnelly  decision was handed down more than twenty years ago, the law in New Jersey has been that the “entire controversy doctrine” does not bar a legal malpractice claim merely because that claim was not raised as part of the underlying action, in which the malpractice was allegedly committed. The entire controversy doctrine is an equitable rule in New Jersey that requires that litigants consolidate all of their claims arising from a single controversy, whenever possible. Failure to do so can result in a claim that was not raised ultimately being barred.
On March 7, in the matter of Dimitrakopoulos v. Borrus, Goldin, Foley, Vignuolo, Hyman and Stahl, P.C., New Jersey’s Supreme Court discussed the Olds’ doctrine’s applicability to a legal fee collection action. In this case, the plaintiff sued his former attorneys for legal malpractice three years following the conclusion of a collection action filed by those attorneys against their former client, seeking to recover unpaid legal fees. Upon a motion, the trial court dismissed the malpractice claim based on the law firm’s defense under the entire controversy doctrine.
The Supreme Court (and the intermediate Appellate Division) affirmed, noting that the Olds case’s holding – that a legal malpractice claim could not be compelled to be filed as part of the “underlying action” – did not apply to a collections action between a law firm and its former client. In the collection action, the law firm and its former client are already adverse, and none of the privilege and loyalty concerns that prompted the decision in Olds are implicated. As such, a collection action is not an “underlying action” as described by the Olds court.
The court noted, however, that simply because the collection action was not an “underlying action” did not mean that legal malpractice claims must be filed as affirmative defenses to collection actions, or be waived. Rather, the court noted that the entire controversy doctrine is an equitable one, and must be applied on a case-by-case basis. The doctrine cannot apply to bar unknown or unaccrued claims. Legal malpractice claims do not accrue when an attorney breaches a duty of care, but rather when damages are caused by said breach. A former client whose malpractice claim “was not asserted in a collection action may avoid preclusion of that claim by proving that he or she did not know, and should not reasonably have known, of the existence of the claim during the pendency of the collection action.’ Alternatively, if the former client can prove that the former forum – in which the collection action was litigated – did not afford them a fair and reasonably opportunity to fully litigate the malpractice claim.
The Supreme Court remanded the Dimitrakopoulos matter to the trial court for hearings to determine, factually, whether any of the above circumstances could be found.