• Indemnification and Contribution: Avoiding the Expense of an Affidavit of Merit in Third Party Actions
  • March 11, 2010 | Author: Alicia L. Calaf
  • Law Firm: Marshall, Dennehey, Warner, Coleman & Goggin - Roseland Office
  • A recent New Jersey Supreme Court case has firmly established that third party claims for indemnification and contribution do not require the third party plaintiff to serve an Affidavit of Merit, pursuant to the Affidavit of Merit Statute, N.J.S.A. 2A:53A-27. In addition, the Supreme Court, citing the Entire Controversy Doctrine, rejected the notion that the third party action should be filed after conclusion of the initial lawsuit.

    In Highland Lakes Country Club and Community Association v. Nicastro, Supreme Court of New Jersey, A-10-09, September Term 2009, the plaintiff, Highland Lakes Country Club, sought to resolve a boundary dispute concerning a line separating the parties' lots. In 2004, the defendant, the Nicastros, hired Suburban Consulting Engineers, Inc. and Martin Sikorski to survey and prepare a metes and bounds description of their property in connection with the construction of a new residence. Approximately two years later, while the Nicastros were excavating the land, Highland Lakes notified them that it believed they were excavating on Highland Lakes' property. In response, the Nicastros produced the survey prepared by Suburban and Sikorski.

    In 2007, Highland Lakes filed a litigation against the Nicastros demanding to establish the boundary line. Highland Lakes also requested damages, restitution, and injunctive relief as a result of the Nicastros' alleged trespass. Highland Lakes also asserted that the Nicastros' conduct was willful, malicious, wanton, and a reckless disregard of its rights. The complaint did not allege any direct claims against Suburban or Sikorski as a result of their survey of the subject property. However, Highland Lakes' claim was predicated on a discrepancy between the survey prepared by Suburban and Sikorski and a 1999 subdivision plat and 2006 sketch prepared by Dana J. Behre, P.L.S., as well as a letter expressing Mr. Behre's confidence in the accuracy of his 1999 subdivision plat.

    Shortly after the complaint was filed, the Nicastros filed a third party complaint against Suburban and Sikorski. The third party complaint did not allege professional negligence, but asserted that any liability the Nicastros had to Highland Lakes was "secondary and vicarious" to the primary liability of Suburban and Sikorski. In other words, the Nicastros sought indemnification and contribution pursuant to the Comparative Negligence Act, N.J.S.A. 2A:15-5.1, and the Joint Tortfeasor Contribution Law, N.J.S.A.2A:53A-1. Although Suburban and Sikorski filed answers to the third party complaint in 2007, the Nicastros did not file an Affidavit of Merit pursuant to N.J.S.A.2A:53A-26. The Affidavit of Merit Statute states in relevant part:

    In any action for damages for personal injuries, wrongful death or property damage resulting from an alleged act of malpractice or negligence by a licensed person in his profession or occupation, the plaintiff shall, within 60 days following the date of filing of the answer to the complaint by the defendant, provide each defendant with an affidavit of an appropriate licensed person that there exists a reasonable probability that the care, skill or knowledge exercised or exhibited in the treatment, practice or work that is the subject of the complaint, fell outside acceptable professional or occupational standards or treatment practices.

    After the Affidavit of Merit deadline, but before any expert report was issued, Suburban and Sikorski filed a motion to dismiss the third party complaint, contending that the third party complaint failed to state a cause of action because no Affidavit of Merit was filed. The Nicastros argued, pursuant to New Jersey law, that their claims for indemnification and contribution do not accrue until an error in the survey is established. The trial court agreed with the Nicastros and denied the motion to dismiss. The trial court concluded that the Nicastros should not be compelled to make the plaintiff's case while they defended the accuracy of the third party defendants' survey.

    Suburban and Sikorski filed an appeal, and the Appellate Division affirmed the ruling of the trial court, finding that the application of the Affidavit of Merit Statute to the instant matter would be inconsistent with its overall purpose. Specifically, the goal of the Affidavit of Merit Statute is to weed out frivolous lawsuits in the early stages of litigation, while simultaneously ensuring that meritorious claims proceed to trial. In the present matter, because there were no direct claims of professional negligence against Suburban and Sikorski, the third party complaint is correctly viewed as an effort to avoid future litigation over an error in the survey. Further, since no expert reports had been produced by any party, claims for professional negligence had not yet properly ripened.

    Suburban and Sikorski filed a Motion for Certification to the New Jersey Supreme Court, and that motion was granted. The Supreme Court affirmed, substantially for the reasons asserted by the Appellate Division. The Supreme Court also addressed claims from Suburban and Sikorski that the third party complaint should have been deferred until the conclusion of the underlying action. The Supreme Court relied on the Entire Controversy Doctrine to reject that assertion. The Entire Controversy Doctrine "embodies the principle that the adjudication of a legal controversy should occur in one litigation and only in one court; accordingly, all parties involved in a litigation, should at the very least, present in that proceeding all of their claims and defenses that are related to the underlying controversy." Cogdell v. Hosp. Ctr. at Orange, 116, N.J. 7, 15 (1989).

    In essence, the Supreme Court ruled that claims for indemnification and contribution should be instituted in the underlying litigation, although they do not technically accrue until liability has been established.

    The New Jersey Supreme Court's ruling in Highland Lakes underscores the importance that parties avoid piecemeal litigation. A close eye should be kept on all potential third party claims for contribution and indemnification because a failure to assert them in an underlying litigation could result in the dismissal of subsequent litigation under the Entire Controversy Doctrine. This procedure would also result in a significant savings of litigation costs. Finally, the nature of third party claims should be closely reviewed to avoid the cost of an Affidavit of Merit when it may not be required.

    Key Points:

    • Supreme Court's ruling underscores importance that parties avoid piecemeal litigation.
    • Keep an eye on potential third party claims for contribution and indemnification. Failure to assert them in underlying litigation could result in dismissal of subsequent litigation under Entire Controversy Doctrine.
    • Nature of third party claims should be closely reviewed to avoid cost of Affidavit of Merit when it may not be required.