Opinion
DOCKET NO. A-4528-13T4
02-05-2016
JOSEPH OKALY, Plaintiff-Appellant, v. KURT G. SENESKY, ESQ. and SCHENCK, PRICE, SMITH & KING, LLP, Defendants-Respondents, and IRA A. COHEN, ESQ., Defendant.
Peter A. Ouda argued the cause for appellant. Robert J. McGuire argued the cause for respondents (Eckert Seamans Cherin & Mellott, LLC, attorneys; Mr. McGuire and Jason S. Feinstein, of counsel and on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Fisher and Espinosa. On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-21-14. Peter A. Ouda argued the cause for appellant. Robert J. McGuire argued the cause for respondents (Eckert Seamans Cherin & Mellott, LLC, attorneys; Mr. McGuire and Jason S. Feinstein, of counsel and on the brief). PER CURIAM
Plaintiff appeals from an order granting summary judgment to defendants Kurt G. Senesky and Schenck Price Smith & King, LLP (collectively, defendant), dismissing his legal malpractice action. We affirm.
The facts underlying plaintiff's legal malpractice claim are essentially undisputed. Plaintiff was represented by defendant in his divorce action. In October 2003, during the course of the divorce action, plaintiff and his wife, Diane, entered into a consent order that provided for the following: (1) the marital home would be sold and the parties would equally divide the net proceeds; (2) plaintiff's share would be paid to Diane for the purchase of a new residence; (3) Diane would pay plaintiff $115,000 upon their youngest daughter graduating from college or, if not enrolled as a full-time student, upon her reaching twenty-one years of age; and (4) Diane agreed not to place additional mortgages or liens, other than a purchase-money mortgage, on the new residence.
The record before us does not contain the consent order or the parties' judgment of divorce. We rely upon the description provided in the complaint, which is not disputed by defendants.
The parties entered into a property settlement agreement (PSA) that was incorporated into their January 2004 judgment of divorce. Pursuant to the terms of the PSA, plaintiff was entitled to protect his equity interest in Diane's new residence by recording the 2003 Order or, if the county clerk would not accept the Order for recordation, by receiving a promissory note and mortgage from Diane. Defendant did not attempt to record the Order with the county clerk and did not secure a note and mortgage endorsed by Diane. In February 2008, Diane obtained a second mortgage on the residence. Defendant does not dispute that the failures to secure plaintiff's interest constituted negligence.
On October 14, 2005, plaintiff filed a voluntary petition for chapter 7 bankruptcy. In the schedule of assets he filed pursuant to 11 U.S.C.A. § 521(1), plaintiff listed: "$115,000 receivable from ex-spouse from sale proceeds of house, against which future support payments are to be credited." He did not include a legal malpractice claim against defendant in his schedule of assets. Plaintiff received a discharge in bankruptcy in September 2006.
Plaintiff filed two legal malpractice actions thereafter. The first was filed in December 2009 against defendant and other parties. The complaint alleged defendant negligently "fail[ed] to record the Consent Order and/or mortgage to protect [his] equity in the new residence," which allowed Diane to encumber the property with a second mortgage and "impair[] or eliminate[] [his] equity" interest. Motions were filed to dismiss the complaint on grounds of late service and standing. The trial court dismissed the complaint against defendant without prejudice in August 2010. Plaintiff did not appeal from this order.
In addition to defendant, the 2009 action alleged legal malpractice claims against plaintiff's bankruptcy counsel and Diane's attorney in the divorce action.
Plaintiff filed his second malpractice action against defendant more than three years later, in December 2013. He alleged defendant was negligent
by counseling the Plaintiff to delay the receipt of the net proceeds of the sale of the marital home until the youngest daughter graduated college or reached the age of 21, by failing to record the Consent Order and by failing to require Diane Okaly to provide a promissory note and mortgage to protect Plaintiff['s] interest in the new residence. As a result, Diane Okaly was able to encumber the property with a substantial second mortgage in February 2008.
Defendant moved for summary judgment, and sought dismissal on three grounds: (1) the claim was barred under the six-year statute of limitations; (2) plaintiff lacked standing because the claim belonged to the bankruptcy estate; and (3) the 2009 Action precluded plaintiff from bringing the 2013 Action. The trial court granted defendant's motion.
In his appeal, plaintiff argues the trial judge erred in his application of the discovery rule; his legal malpractice claim was not part of the bankruptcy estate because it accrued after he obtained a discharge; and that issue preclusion did not apply based upon his earlier legal malpractice claim. Because we conclude that plaintiff's claim was time-barred, we affirm and need not address his remaining arguments.
We review a ruling on summary judgment de novo, Manahawkin Convalescent v. O'Neill, 217 N.J. 99, 115 (2014), and apply the standard set forth in Rule 4:46-2(c). See also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
Legal malpractice claims are subject to a six-year statute of limitations. N.J.S.A. 2A:14-1. The action "accrues when an attorney's breach of professional duty proximately causes a plaintiff's damages. . . . At that point, the plaintiff has a right to sue and the statute of limitations begins to run." Grunwald v. Bronkesh, 131 N.J. 483, 492 (1993).
Although a malpractice claim is generally deemed to accrue at the time of the negligent conduct, the discovery rule applies to toll the statute of limitations "until plaintiff learns, or reasonably should learn, the existence of that state of facts which may equate in law with a cause of action." Burd v. N.J. Tel. Co., 76 N.J. 284, 291 (1978) (emphasis added); see also Vastano v. Algeier, 178 N.J. 230, 242 (2003) ("The accrual date . . . is set in motion when the essential facts of the malpractice claim are reasonably discoverable."); Grunwald, supra, 131 N.J. at 493-94. It is when the underlying facts, and not the legal effect of those facts, are known or knowable, that the cause of action accrues. Burd, supra, 76 N.J. at 291-92. Once a person knows or has reason to know: (1) he has been injured and (2) the injury is due to the fault of an identifiable individual or entity, the cause of action has accrued because "at that point, he or she is actually or constructively aware 'of that state of facts which may equate in law with a cause of action.'" Abboud v. Viscomi, 111 N.J. 56, 62-63 (1988) (quoting Burd, supra, 76 N.J. at 291); see also Caravaggio v. D'Agostini, 166 N.J. 237, 245 (2001).
Thus, in Grunwald, the Court rejected the argument that the plaintiff in a breach of contract action did not have a legally cognizable injury until an adverse judgment was affirmed on appeal and that his damages were only speculative until then. Grunwald, supra, 131 N.J. at 496. The Court concluded the cause of action accrued when the trial court ruled that the contract was unenforceable "because at that time he clearly knew or should have known that he was harmed by his attorney's negligent advice." Vastano, supra, 178 N.J. at 237 (citing Grunwald, supra, 131 N.J. at 500). The fact that the full measure of the plaintiff's damages was not known at that time did not render the damages speculative and, although the subsequent adverse judgment might increase damages, that judgment did not "constitute an indispensable element to the accrual of a cause of action." Grunwald, supra, 131 N.J. at 495-96.
In Vision Mortgage Corp. v. Patricia J. Chiapperini, Inc., 156 N.J. 580 (1999), the Court concluded the mortgagee plaintiff's cause of action accrued "when the mortgagee knows or has reason to know that its collateral has been impaired or endangered by the [defendant's] negligent appraisal" and was not postponed until the sale of the mortgaged properties resulted in a shortfall. Id. at 585-86 (emphasis added); see also Vastano, supra, 178 N.J. at 237-38.
Plaintiff contends he did not suffer legally cognizable damages until February 2008, when Diane obtained the second mortgage. He argues that, before his interest was so encumbered, any damages were speculative. We disagree.
The 2003 Order and 2004 judgment of divorce documented that it was necessary for something to be recorded with the county clerk to secure plaintiff's interest in Diane's new residence. Together, the orders identified the two ways in which this would be accomplished. The first approach was to attempt to record the consent order. If that effort failed, an alternative method was identified — Diane would execute a promissory note and mortgage that would be recorded. It is evident that if he had exercised reasonable diligence, plaintiff would have known that neither occurred.
Still another event should have prompted plaintiff to exercise reasonable diligence — his bankruptcy in 2006. At that time, he had a "duty" to file "a schedule of assets and liabilities . . . [and] a statement of [his] financial affairs." 11 U.S.C.A. § 521(1). "Because both creditors and the court must rely heavily on these disclosure statements, a court 'cannot overemphasize' the importance of the debtor's obligation to accurately represent its financial position." Ortlieb v. Hudson Bank, 312 F. Supp. 2d 705, 714 (E.D. Pa. 2004) (citation omitted); see also Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 416-17 (3d Cir.) (explaining that this duty includes an obligation that the debtor disclose any litigation likely to arise outside of the bankruptcy proceeding), cert. denied, 488 U.S. 967, 109 S. Ct. 495, 102 L. Ed. 2d 532 (1988).
When he prepared his schedule of assets, plaintiff had not received any confirming documentation from his attorney that his interest had been secured. The fact that the information as to whether his interest in Diane's new residence had been secured by the recording of either the consent order or a mortgage was readily available to him through public records. Therefore, he had reason to know his interest had been "endangered" by his attorney's failure to act. See Vision Mortg., supra, 156 N.J. at 585-86. However, rather than ascertaining the status of his interest as he was required to do in scheduling his assets, he merely listed his interest as a receivable.
Plaintiff's failures to determine whether a document had been recorded to protect his interest will not result in a postponed accrual when a reasonable person in plaintiff's position would have acted. As we stated in Commonwealth Land Title Insurance Co. v. Kurnos, 340 N.J. Super. 25 (App. Div. 2001), "Forbearance in the face of obvious and easily ascertainable facts should not be rewarded by tolling the statute of limitations. Such conduct contravenes the underlying policy of statutes of repose, and cannot be countenanced." Id. at 32.
We conclude that plaintiff's cause of action accrued in October 2005, when he filed his bankruptcy petition and the schedule of assets to be relied upon by the court and creditors pursuant to 11 U.S.C.A. § 521(1). His legal malpractice claim was therefore time-barred.
We note that, even if we delayed the accrual until September 2006, when plaintiff received the benefit of his inaccurate representation by obtaining a discharge in bankruptcy, the filing of this complaint in December 2013 was beyond the six-year statute of limitations. --------
Affirmed.
I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION