The ALPS Risk Management Report

If You Make a Mistake, When and What Should You Tell Your Client?

By Sean T. O’Neil, Staff Attorney

Advising a client of a mistake and the client’s resultant right to consider a possible substitution of counsel and a suit for malpractice is a difficult decision for most attorneys, for two reasons. First, because such advice is contrary to the attorney’s own interests. Second, because if the attorney in fact is, or truly believes she is, best-suited for the client’s case, then a substitution of counsel well may not be in the client’s best interest. Still, the client is entitled to know about the mistake and any rights that may flow therefrom. Se RPC 1.7(b)(2).

In our Spring 1999 On the Docket, we discussed a New Jersey intermediate-level appellate case on attorney negligence. That case, Olds v. Donnelly, 677A.2d238(NJ Sup Ct AD 1996), resulted in a further appeal to the New Jersey Supreme Court, on the ground that the Superior Court, Appellate Division’s opinion was inconsistent with the Supreme Court’s 1995 ruling in Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 662 A.2d 509 (NJ 1995). In Circle Chevrolet, the Court held that when a client’s attorney negligence action accrues during the pendency of a lawsuit the attorney is handling for that client, New Jersey law compels two things: the attorney must disclose the mistake; and, under the claims joinder aspect of the "entire controversy doctrine," the client is compelled to bring within the pending litigation the malpractice action against the attorney. 662 A.2d at 520.

Shortly after the Circle Chevrolet opinion, New Jersey attorneys began to question whether the Supreme Court used practical wisdom in that case. Critics observed that inevitably, it would create conflict in the attorney-client relationship extant in pending litigation. For example, critics asked the follows. At what point should the attorney raise the issue of mistake? Can an arguably bad choice between competing tactical strategies constitute such a mistake? Wouldn’t such concerns cause the attorney to begin acting with self-interest, rather than as a zealous advocate for her client? See, e.g., Practice and Malpractice after Circle Chevrolet: Some Practical Considerations of the Entire Controversy Doctrine, 28 Rutgers, L.J. 78, 84 (1996).

In Olds v. Donnelly, New Jersey’s Supreme Court took note of the criticism, and candidly acknowledged that its decision and rationale in Circle Chevrolet "ha[d] not fulfilled [the Court’s] expectations." Olds, 696 A.2d at 641. The Court observed that Circle Chevrolet would have a chilling effect upon attorney-client relations, mainly because requiring the client to join his malpractice cause of action with the pending litigation his attorney conducts on his behalf would make that attorney "testify guardedly" in the malpractice action, even though such testimony might be contrary to the client’s interest in the pending action. Id. Further, the mandatory joinder puts the client in the impossible position of believing he must sue his attorney now, or forever lose that malpractice cause of action. Id. at 642. The Supreme Court therefore invalidated its holding in Circle Chevrolet, and ruled that "the entire controversy doctrine no longer compels the assertion of a legal-malpractice claim in an underlying action that give rise to claim." Olds, 696 A.2d at 643. The Court held likewise in two parallel cases decided the same day. See Karpovich v. Barbarula, 686 A.2d 659 (NJ 1997), and Donohue v. Kuhn, 696 A.2d 664 (NJ 1997).

In more recent cases, state and federal courts in New Jersey have held that pursuant to Olds, notice of an attorney’s negligence in a pending action does not require the client to bring a malpractice suit and join it with that pending action. See Bailey v. Pocaro & Pocaro, 701 A.2d 916 (NJ Super AD 1997); Smith v. Farber, 704 A.2d 569 (NJ Super AD 1997); and Greig v. Macy’s Northeast, Inc., 1 F.Supp.2d 397 (DNJ 1998). See also, Fornarotto v. American Waterworks Co., Inc., 144 F.3d 276, 285 at n.10 (3d Cir 1998) (noting that in Olds, the Court "realiz[ed] the havoc to the attorney-client relationship that follows from application of" the Circle Chevrolet ruling and rationale).

The Olds case does not infringe upon a client’s right to know of his attorney’s error. However, it does recognize that courts should not use "mandatory claims joinder" to require the client to bring a malpractice action and join it with the pending, underlying matter. Such joinder is unwise because it fails to note that an act of negligence is not the sole determinant of a viable cause of action for attorney malpractice. The client also must prove damages and a causal link between the damages, if any, often are not determined until the underlying matter is resolved. Further, attorney-client relations can become chilled and estranged when joinder of an attorney malpractice lawsuit is mandatory.

For these reasons, the New Jersey Supreme Court properly and wisely recognized that it is improper to apply the "entire controversy" or "mandatory joinder" concept to attorney malpractice actions that accrue during pending litigation.

What can we learn from the New Jersey Supreme Court’s decision and rationale in Olds? Certainly, an attorney should tell his client about the factual aspect of a mistake as soon as possible after making the mistake. He also should inform his client that she may want to consult another attorney to examine her rights in view of the mistake. However, we believe that it would be imprudent for him to go so far as to advise his client that she has (rather than may have) a malpractice action available to her. The client’s malpractice cause of action generally does not accrue until her attorney’s error has caused her damages. This means that the attorney has a conflict of interest in the issue of whether his mistake caused damages to his client. For this reason, the attorney should not advise his client regarding whether she has a malpractice cause of action against him.

On the positive side, the attorney’s early advice of the fact of a mistake not only is ethically required under RPC 1.7(b)(2), it helps avoid the client’s future allegations that he "hid" the mistake from his client. Thus, the attorney’s early advice can avoid exacerbation of any damage that might be caused by his error.