Fee Collection and Legal Malpractice Actions: Impact of the Entire Controversy Doctrine Clarified – Or Is it?

While not limited to family law matters, at the conclusion of a case a client may often have an outstanding balance due for legal fees in regards to services rendered by the attorney in the a615c5170cfbe42ac3ed71065bce6f12-300x199underlying action. Most of the time payment arrangements end up getting worked out. Sometimes they are not. In those instances most attorneys are reluctant to initiate legal proceedings against their former client to collect the outstanding fees, viewing it as a matter of last resort. However, even before being able to pursue same, an attorney is obligated to advise the client of his/her opportunity to request fee arbitration, a program implemented by the New Jersey Supreme Court as a means to resolve fee disputes between an attorney and client under R.1:20A-1 et. seq. Sometimes clients choose not to proceed with fee arbitration. Other times, a fee arbitration request may be declined as being beyond the jurisdictional limits of the program. In those instances, an attorney may feel he/she is left with no alternative but to file a civil action complaint against his/her former client to collect its outstanding fee.

In certain of these instances, a former client may express dissatisfaction with the legal services rendered by the attorney on their behalf. Perhaps the client is displeased with what he/she views to be an unfavorable result, and blames the lawyer for this outcome. Perhaps the client questions the specific services rendered or fees charged. However, there may be times where the client believes that the attorney did not represent them properly or was somehow negligent, alleges that they sustained some sort of damage or loss, and which they assert gives rise to a claim for legal malpractice.

When must a claim for legal malpractice be brought? If an attorney has already filed a collection action, would this impact how and when such claims must be filed? Are there circumstances where a legal malpractice claim may be barred? In the recent case of Dimitrakopoulos v. Borrus et als 2019 N.J. LEXIS 272, 2019 WL 1065049, the New Jersey Supreme Court attempted to address and clarify these questions, specifically in the context of what is known as the Entire Controversy Doctrine.

What is the Entire Controversy Doctrine? The Entire Controversy Doctrine is an equitable preclusionary doctrine. It’s purposes are to encourage comprehensive and conclusive litigation determinations, avoid fragmentation of litigation, and promote party fairness and judicial efficiency. The doctrine was conceived of as a claim-joinder mandate, requiring all parties in an action to raise in that action all transactionally related claims each had against the other whether assertable by complaint, counterclaim or cross-claim. See R.4:30A and the Comments thereto. See also Wadeer v. New Jersey Mfrs. Ins. Co., 220 NJ 591(2015). That Rule states that the non-joinder of claims 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. What does this actually mean? Unfortunately the mandatory joinder of claims under this doctrine is undefined, the Supreme Court being of the view that the development of the substantive content of the doctrine being equitable in nature is best left to case law, i.e. “…the boundaries of the Entire Controversy Doctrine are not limitless. It remains an equitable doctrine whose application is left to judicial discretion based on the factual circumstances of individual cases”.  Highland Lakes Country Club & Cmty. Ass’n v. Nicastro, 201 NJ 123, 125(2009).

That being said, how does the Entire Controversy Doctrine impact the interplay of collection actions and legal malpractice claims between attorneys and clients? In Dimitrakopoulos, the New Jersey Supreme Court confronted this issue. In this case, Dimitrakopoulos retained the law firm of Borrus Goldin to represent him to address certain disputes he had involving his business partner, Elefteriou. Ultimately, Borrus Goldin filed a complaint on behalf of Dimitrakopoulos against Elefteriou. Shortly thereafter the Borrus Firm made a motion to withdraw as Dimitrakopoulos’ attorney. At or around the same time, Dimitrakopoulos and Elefteriou agreed to submit their dispute to binding arbitration, and after an arbitrator had been selected, the Borrus Firm was permitted to withdraw as counsel and Dimitrakopoulos retained substitute counsel. In March of 2011, the Borrus Firm filed a collection action against Dimitrakopoulos for unpaid legal fees. Dimitrakopoulos, acting pro se, filed an answer. In September 2011, Dimitrakopoulos and Elefteriou settled their business dispute during arbitration. Approximately 10 months later, in July of 2012, the court in the collection matter granted the Borrus Firm’s unopposed motion for a final judgment by default against Dimitrakopoulos. Dimitrakopoulos did not appeal. However, in September of 2015, more than three years later, Dimitrakopoulos sued the Borrus Firm for legal malpractice. The Borrus Firm moved to dismiss that complaint based on the Entire Controversy Doctrine and waiver. Dimitrakopoulos opposed the motion claiming that it was brought within the 6-year statute of limitations on malpractice actions, that they did not know of the malpractice during the pendency of the “underlying action” although acknowledging the damages claimed were known when they settled their dispute with Elefteriou in September of 2011. The trial court granted the Borrus Firm’s motion and dismissed Dimitrakopoulos’ malpractice complaint, finding that they could have asserted their malpractice claim in the collection action and that Dimitrakopoulos was aware of that claim at least 10 months prior to the conclusion of the collection action and which afforded Dimitrakopoulos ample opportunity to litigate that claim. The Appellate Division affirmed. The Supreme Court granted certification.

First, the Supreme Court reiterated its holding in Olds v. Donnelly, 152 NJ 424(1997) that the Entire Controversy Doctrine does not compel a client to assert a legal malpractice claim against an attorney in the “underlying litigation” in which the attorney had represented the client or which may have given rise to the claim of alleged malpractice, even if the two claims arose from the same or related facts. Rather, a collection action brought by a law firm against its client was not deemed to constitute such “underlying litigation” for purposes of the principle in Olds, the Court noting that the assertion of a malpractice claim in such an action – in which the attorney and client are already adverse – does not raise the privilege and loyalty concerns that warranted the exception to the Entire Controversy Doctrine. Hence, the Court held that in appropriate settings, a court may apply the Entire Controversy Doctrine to preclude a legal malpractice claim that a client declined to assert in the attorney’s action to collect fees. However, since the Entire Controversy Doctrine was constrained by principles of equity, the Court noted that a client 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 and/or by demonstrating that the prior forum did not afford a fair and reasonable opportunity to fully litigate the malpractice claim. The Court concluded that while the Borrus Firm’s collection action was not an “underlying action” such that the Entire Controversy Doctrine may apply to bar the malpractice claim, the “record” on this appeal was viewed to be inadequate to determine if the equitable considerations noted above existed, and therefore reversed and remanded for further proceedings to address same.

What is the takeaway from the Supreme Court’s decision in Dimitrakopoulos? First, it is clear that the Entire Controversy Doctrine may preclude a legal malpractice claim if it is not bought or joined with a collection action filed by the attorney against the client, and that such collection actions are not considered an “underlying action” which would give rise to an exception to the doctrine. However, the word MAY must be emphasized. Notwithstanding that the circumstances surrounding the extent of the defendant’s knowledge and opportunity to litigate appear to have been clear to both the trial court and the Appellate Division, the Supreme Court chose to reverse and remand, invoking the equitable nature of the doctrine and that claim preclusion be viewed as a “remedy of last resort”. Rather than settle the law on this issue, it would appear that trial courts may now be required to conduct a Lopez-type hearing to address these “equitable considerations”, whenever the Entire Controversy Doctrine is raised in these situations.