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. e du/thir dc ir c uit_1997/144Filed June 30, 1997

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 96-5104

RALPH VENUTO, INDIVIDUALLY; AUTOMOTIVE MANAGEMENT SYSTEMS, INC., A New Jersey Corporation; and LIGHTNING LUBE, INC., T/A LASER LUBE, A New Jersey Corporation

v.

WITCO CORPORATION; AVIS INCORPORATED; AVIS SERVICE, INC.; AVIS LUBE, INC.; and AVIS ENTERPRISES, INC.

RALPH VENUTO and AUTOMOTIVE MANAGEMENT SYSTEMS, INC., Appellants

On Appeal from the United States District Court for the District of New Jersey

D.C. No. 89-2841

Argued February 4, 1997

Before: STAPLETON and MANSMANN, Circuit Judges

, and POLLAK, District Judge *

(Filed June 30, 1997)

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*Honorable Louis H. Pollak, United States District Judge for the Eastern District of Pennsylvania, sitting by designation.Alan J. Davis (argued)

Ballard, Spahr, Andrews & Ingersoll 1735 Market Street, 51st Floor Philadelphia, PA 19103 Attorneys for Appellants Venuto and Automotive Management Systems, Inc.

Ronald S. Rolfe (argued) Cravath, Swaine & Moore 825 Eighth Avenue
Worldwide Plaza New York, NY 10019-7415

John G. Gilfillan, III Carella, Byrne, Bain, Gilfillan, Cecchi, Stewart & Olstein
6 Becker Farm Road Roseland, NY 07068 Attorneys for Appellee Witco Corp.

OPINION OF THE COURT

POLLAK, District Judge

.

This appeal from a decision of the District Court f or the District of New Jersey presents the question whethe r the second of two closely related diversity suits broug ht against the same defendant may be maintained. The answer to that question turns on what, if any, collateral conseque nces flow from the fact that, in the first suit, the district court denied plaintiff's motion to join, as additional parties p laintiff, the individual and the corporation that subsequently in itiated the second suit. Relying both on res judicata princ iples and on New Jersey's entire controversy doctrine, the de fendant
moved to dismiss the second suit. The district cour t found the entire controversy doctrine inapplicable, but c oncluded that res judicata principles were applicable and ma ndated dismissal. Our review of the procedural history of these linked cases yields the following conclusions: we a gree with the district court's entire controversy analysis bu t disagree with its res judicata analysis; accordingly, we rev erse the district court's judgment dismissing the second sui t.

2I.

In order to explicate the issues posed by this appe al it will be necessary to examine the procedural history of these two suits in some detail. Plaintiff-appellants in t he case at bar -- the second of the two suits -- are Ralph Ven uto and Automotive Management Systems, Inc. ("AMS"). Venuto is sole shareholder and president of Lightning Lube, I nc. ("Lube"), a franchisor of quick-oil-change business es. Venuto is also sole shareholder and president of AM S. AMS operated some of Lube's franchises, and both AMS an d Venuto obtained sites for Lube's other franchisees, acting as either landlord or loan guarantor.1 Defendant-a ppellee in the case at bar is Witco Corporation, Lube's motor oil supplier.

In 1987, Lube brought a diversity suit ("Lube I ") in federal court in New Jersey against Witco.2 The dispute now before this court had its origins in 1988, when Lube moved to
amend its Lube I complaint by, among other changes, adding Venuto and AMS as additional plaintiffs. Wit co

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1. According to the original complaint in the case at bar, AMS is Lube's parent, with the two corporations sharing a princip al place of business. The first amended complaint, however, (1) makes no mention of an AMSLube parent-subsidiary relationship, and (2) states that AMS's principal place of business is Venuto's residence.

2. The gravamen of Lube's claim in Lube I was that Witco, acting through a division (Kendall Refining Co.), had attempted to destroy Lube. On appeal, this court, speaking through Judge Greenber g, described that
case as follows:

Lightning Lube accused Witco of breaching its suppl y agreement and destroying Lightning Lube's relationship with i ts franchisees to benefit a competing quick-lube business that Witco had started with Avis Services, Inc. (Avis). Witco's actions alleged ly caused Lighting Lube's existing franchisees either to abandon it or to hold back payment of royalty fees and resulted in large numbe rs of prospective franchisees never opening Lightning Lube centers. A s a result, Lightning Lube lacked the cash flow necessary to co ntinue operating and its owner, Ralph Venuto, was forced to sell its assets to another company for far less than their true worth.

Lightning Lube, Inc. v. Witco Corp. , 4 F.3d 1153, 1161 (3d Cir. 1993). In that suit, Venuto and AMS were joined by Witco as t hird-party
defendants.

3opposed the motion to amend, arguing that the motio n was

filed over two months after the deadline for amendi ng the pleadings had passed and that the additional claims would greatly prolong discovery.

At a hearing on the motion, the parties and thenMagistrate Judge Simandle,3 who was overseeing pret rial proceedings on behalf of Judge Rodriguez, discussed at length the consequences of a denial of Lube's motio n to amend. Lube's then-counsel, Steven M. Kramer, asked "What good it is to the judicial system to force me today, before I leave the courtroom[,] to take the amended complaint, tear it off, put a summons in front of i t and file it downstairs for a second lawsuit?" App. 306. Witc o's thencounsel, Benjamin D. Leibowitz, responded shortly thereafter, "I'd say, yes, Mr. Kramer, go downstair s and file that other complaint," arguing that the addition of the new parties would prolong already difficult and protrac ted discovery. App. 309. Mr. Leibowitz later observed t hat Mr. Kramer could "throw rocks in both courts at us, and he's not going to lose anything by the other complaint n ot being tied into this action because the claims he's going to make there, presumably, would be whatever they are." App . 314. Judge Simandle then confirmed that Mr. Leibowitz me ant
what he said:

THE COURT: Now, a moment ago you argued that your your [sic] client at this point would prefer a t this point to defend second [sic] lawsuit. Mr. Kramer co uld go to the office and file on behalf of his client, which contains each and every count, and you don't disput e that?

MR. LEIBOWITZ: I don't dispute it.

THE COURT: Why would that serve your client's interests? Or was that more of a rhetorical argumen t?

App. 320-21. Mr. Leibowitz's lengthy response inclu ded the following two statements:

Listen, Mr. Kramer will have the benefit of thefirs t

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3. In 1992, Judge Simandle became a Judge of the Un ited States District Court for the District of New Jersey.

4case and second case, if he losses [sic], he's goin g to be

able to go before the jury, looking, res ajudicata, a judgment was entered against Kendall Refining Company because it did this and here's the complain t. Then how much work is he going to have to do? If he has a complaint for bad faith, that will make this case. It's even more advantageous for Mr. Kramer to get t his
case over with and to have a second case.

App. 324.

And when we get this case over, Mr. Kramer is eithe r going to skate into a second case with a jury award and he's going to say, see, here's their bad faith, and it's going to reduce a lot of work, or we're going to go in there, and he's [sic] going to say, you had nothing then and you don't have anything now, and the dispositio n of this case, as it stands now can proceed more expeditiously, and will in fact directly affect the
outcome of that second case.

There's no question that the issues that are subjec t to res ajudicata are going to be res ajudicata in t he second case. Under the circumstances, what we're saying is Mr. Kramer might be well advised. I don't know what the statute of limitations is, or if he h as a statute of limitations problem, to wait for the out come of this case, and the discovery from this case, the parties could stipulate to be used in the other cas e, to
the extent that it becomes relevant in the other ca se.

App. 327-28.

Judge Simandle later issued a letter opinion and or der granting the motion to amend in part but denying th e portion of the motion seeking to add Venuto and AMS as plaintiffs. He reasoned that Lube had delayed too l ong without explanation in moving to amend, and that introducing additional plaintiffs and claims would unduly complicate the case given the amount of discovery a lready completed. The order specifically provided, however , that the denial was "without prejudice." Judge Simandle later
denied Lube's motion for reconsideration.

Shortly thereafter, Venuto and AMS (hereinafter tog ether

5"Venuto") filed the complaint against Witco in the instant

case (which we shall call "Lube II "). 4 Lube II was assigned to Judge Rodriguez, the judge presiding over Lube I . Judge Rodriguez then affirmed Judge Simandle's denial of Lube's
motion for reconsideration in Lube I , and stayed any action
in Lube II pending the outcome of Lube I

.

Lube went on to win a $61.5 million jury verdict fr om Witco in Lube I , $50 million of which consisted of punitive damages. The district court struck the $50 million punitive damage award and reduced the compensatory damages award to approximately $9.5 million. This court aff irmed. See Lightning Lube, Inc. v. Witco Corp. , 4 F.3d 1153 (3d Cir. 1993).

After Lube I was decided on appeal, the district court lifted the stay in Lube II for the purpose of allowing Venuto to file his first amended complaint and allowing Wi tco to file
a motion to dismiss. Witco's motion to dismiss asse rted that the action was barred by (1) New Jersey's enti re controversy doctrine and (2) res judicata. Because both sides relied on materials outside the pleadings, th e court treated Witco's motion as a motion for summary judg ment
under Federal Rule of Civil Procedure 56.

The district court held that the action was not bar red by the entire controversy doctrine. The court reasoned that Judge Simandle might have "intended to permit the s econd action in light of the defendant's apparent support of a second action," thus apparently preserving Venuto's claims for purposes of the entire controversy doctrine.

The district court went on to conclude that Lube II was nonetheless barred by res judicata -- which we unde rstand to mean claim preclusion, as distinct from issue pr eclusion.5

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4. Lightning Lube, Inc., was originally a plaintiff in Lube II , but was dropped as a party plaintiff in the First Amended C omplaint, filed in
1994.

5. The term "res judicata" has both a broad and a n arrow meaning. Narrowly, in the sense evidently used by Judge Rodr iguez, it refers only to claim preclusion. Our use of the term in this op inion likewise relates only to the claim preclusion aspect of res judicata doctrine. However, the preferred usage of the term encompasses both claim and issue

6The court determined that Venuto was in privity wit h Lightning Lube, the plaintiff in Lube I . It then compared the
counts in the Lube II amended complaint with the
transactions at issue in Lube I , and concluded that they
were based on the same "cause of action." With thes e two elements, and the uncontested fact that Lube I was decided on the merits, the court concluded that Lube II was barred by res judicata.6

Venuto now appeals this decision. The district cour t had jurisdiction pursuant to 28 U.S.C. § 1332; we have jurisdiction pursuant to 28 U.S.C. § 1291. Our revi ew of the district court's application of res judicata rules and the entire controversy doctrine is plenary. See Lubrizo l Corp. v. Exxon Corp. , 929 F.2d 960, 962 (3d Cir. 1991).

II.

We turn first to whether the district court properl y determined that Venuto's claims are barred by res j udicata.
In Lubrizol , this court had occasion to discuss the question whether federal or state res judicata law governs s uccessive diversity actions, but we declined to decide the is sue "because our holding would be the same under both f ederal
and state law." Lubrizol , 929 F.2d at 963. In this case as well, we find that the same result would be arrived at under federal and state res judicata law, and therefore w e once again need not decide the choice of law question.7

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preclusion. See, e.g. , Migra v. Warren City School Dist. Bd. of Educ. , 465 U.S. 75, 77 n.1 (1984); 18 Wright, Miller & Cooper, Federal Practice and
Procedure , § 4402, at 8 (1981). Issue preclusion, or collate ral estoppel, is not an issue in this case as presented on appeal, b ut may be an issue
on remand. See text accompanying note 13, infra

.

6. The court also considered and rejected Venuto's argument that Witco should be judicially estopped from pleading res jud icata because of its statements to Judge Simandle at the hearing on Lube 's motion to
amend. The court noted that Witco's counsel had ref erred to res judicata and had observed that "Mr. Kramer might be well adv ised." The court concluded that "[b]ecause there was no misrepresent ation by Witco with regard to the res judicata defense, it is entitled to assert it."

7. Since Lubrizol , this court has on one occasion applied state res judicata law to successive diversity actions. See C ollins v. E.I. DuPont de

7The district court concluded that Witco had establi shed

the elements necessary for a res judicata defense. We assume that the district court's findings were corr ect. Nonetheless, because Judge Simandle expressly prese rved
Venuto's and AMS's claims for a future action throu gh denying the motion to amend "without prejudice," we will

reverse.

Venuto relies on the Restatement (Second) of Judgme nts § 26, as well as federal and New Jersey case law. T he Restatement provides as follows:

(1) When any of the following circumstances exists, the general rule of § 24 [the Restatement's general rul e prohibiting claim splitting] does not apply to exti nguish the claim, and part or all of the claim subsists as a possible basis for a second action by the plaintiff against the defendant:

(a) The parties have agreed in terms or in effect t hat the plaintiff may split his claim, or the defendant has acquiesced therein; or

(b) The court in the first action has expressly res erved the plaintiff's right to maintain the second action

. . . .

Restatement (Second) of Judgments § 26 (1982). The commentary to subsection (1)(b) provides, in releva nt part,
that

[a] determination by the court that its judgment is "without prejudice" (or words to that effect) to a second action on the omitted part of the claim, expressed in the judgment itself, or in the findings of fact, conclusions of law, opinion, or similar record, unl ess reversed or set aside, should ordinarily be given e ffect
in the second action.

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Nemours & Co. , 34 F.3d 172, 176 (3d Cir. 1994). This court has a lso applied "the law of the adjudicating state [i.e., t he Virgin Islands]" when a prior action was brought in the District Court of the Virgin Islands under both federal and Virgin Islands law. See Huck ex rel. Sea Air Shuttle Corp. v. Dawson , 106 F.3d 45, 48 (3d Cir. 1997), petition for cert

. filed , 65 U.S.L.W. 3755 (U.S. May 1, 1997) (No. 96-1741) . But those opinions did not discuss the choice of law question , and we therefore regard the question as still an open one.

8Id. § 26 cmt. b.8

Although this court has not previously had occasion to address whether, as a matter of federal res judicat a law, a court's decision to exclude a claim "without prejud ice" preserves the claim for a second action, several ot her
circuits have addressed the issue. Each of these co urts has permitted the second action. See Guzowski v. Hartma n , 849 F.2d 252, 255 (6th Cir. 1988); Blackwelder v. Millm an , 522 F.2d 766, 773 (4th Cir. 1975); see also King v. Pro vident
Life & Accident Insurance Co. , 23 F.3d 926, 929 (5th Cir. 1994) (reversing a res judicata determination when the first court had expressly reserved certain claims); Stolb erg v. Trustees for the State Colleges of Connecticut , 541 F.2d 890, 893 (2d Cir. 1976) ("If the underlying judgment had explicitly provided that [a particular] issue had n ot been litigated and the defendants were not precluded fro m raising it, there would be no question" that res ju dicata would not bar a second suit.); cf. Torres v. Rebarc hak , 814 F.2d 1219, 1225 (7th Cir. 1987) (concluding that Il linois would apply the position of the Restatement § 26 wh en some claims in the first suit had been dismissed "w ithout prejudice").9

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8. Professors Wright, Miller, and Cooper share the Restatement view that the first court reviewing a claim has at least some power to determine the preclusive effects of its judgments:

Despite the general rule that a court cannot dictat e preclusion consequences at the time of deciding a first action , it should have power to narrow the ordinary rules of claim preclus ion. A judgment that expressly leaves open the opportunity to bring a second action on specified parts of the claim or cause of action that was advanced
in the first action should be effective to forestal l preclusion.

18 Wright, Miller, and Cooper, Federal Practice and Procedure , § 4413, at 106 (1981 & Supp. 1997).

9. The only court of appeals opinion to the contrar y that we have
identified is one that was decided on the basis of state law; moreover, the case arose in an unusual procedural setting not present here. In Abramson v. Harbor Island Marina, Inc. , 816 F.2d 975 (4th Cir. 1987), a state court, after a bench trial regarding a lease dispute, had declined to award specific performance or damages for out-of-po cket expenses, but had awarded the return of the lessee's deposit," `w ithout prejudice to the

9Witco responds with three arguments why Venuto's

claims should be barred by res judicata. We think t hat none of these arguments has merit. First, Witco arg ues that permitting Venuto to bring his claims after the mot ion to
amend was denied for untimeliness would reward dela y. We need not fear that applying the Restatement rule wi ll reward delay: if a district court concludes that a litigant has unduly delayed, it can -- and, presumably, ordi narily will -- deny a motion to amend "with prejudice." He re, however, despite the untimeliness of the motion, Ju dge Simandle chose to deny the motion "without prejudic e."

Witco next argues that the denial of the motion to amend was superseded by the final judgment in Lube I . It notes especially that "[n]othing about the final judgment in Lube

I was `without prejudice' to any rights Lube or its privies may have had." This argument is also meritless. Wit co overlooks the established rule that interlocutory o rders, such as the order denying the motion to amend witho ut prejudice, merge into the final judgment. See, e.g. , In re Westinghouse Securities Litigation , 90 F.3d 696, 706 (3d Cir. 1996). In issuing its final judgment, a court need not review all of its interlocutory orders and expressl y reaffirm their continuing vitality.

Finally, Witco argues that Judge Simandle's denial of Lube's motion to amend was not an express reservati on of Venuto's claims, and hence did not fall within the scope of § 26(1)(b) of the Restatement. Witco argues that Ju dge Simandle's use of the term "without prejudice" was only intended to preserve Lube's opportunity to move to amend its complaint at a later time, if discovery proved to be more lengthy than anticipated. This interpretation strai ns credulity. It is highly unlikely that Judge Simandl e, after

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right of either party to sue the other for damages in a Court of law.' " Id. at 976. The Fourth Circuit, applying Maryland law, refused to permit a second action "where a plaintiff has prayed for dam ages as part of his relief and has attempted to prove his damages at tr ial and where the trial judge has found the proof of some damages ins ufficient and has entered an award of other damages." Id. at 977. Needless to say, Venuto has not yet had a trial nor has he been awarded par tial damages on his
claims.

10denying the motion to amend because the motion was

untimely and because granting it would unduly delay
resolution of Lube I , intended to indicate that he would
entertain a second motion to amend at a later time. Rather, it seems clear that Judge Simandle intended to perm it Venuto and AMS to file their claims in a separate s uit, as had been discussed at the argument on the motion.

We find the logic of § 26(1)(b) of the Restatement to be persuasive. As Professors Wright, Miller, and Coope r have reasoned,

An order by the first court that its judgment does not preclude a second suit on specified parts of the cl aim or cause of action advanced in the first suit may pres erve valid grounds of recovery without undue violence to the values of res judicata. The express reservation not ifies the defendant that repose has not yet been achieved

. The plaintiff may have a substantially better opportunity to prove the reserved claim, or to dete rmine that it is not worth litigating. For that matter, t he defendant may also prove better able to meet the unexpected theory in a second suit.

18 Wright, Miller, and Cooper, Federal Practice and
Procedure , § 4413, at 107 (1981).

In finding that logic applicable to the case at bar , we note
that this is not an instance in which the court's u se of the phrase "without prejudice" was inadvertent. Compare Hulmes v. Honda Motor Co., Ltd. , 924 F. Supp. 673 (D.N.J. 1996) (refusing to find a second action barred by t he entire controversy doctrine, although a prior action had b een dismissed "with prejudice," in part because the phr ase had been used inadvertently). Judge Simandle and Witco' s counsel explicitly discussed the possibility of a s econd action, and Witco's counsel stated that "Mr. Kramer will
have the benefit of the first case and second case" and "he
can throw rocks in both courts at us." In these circumstances, Judge Simandle appropriately exercis ed his discretion to permit Venuto to file a second action . We

11conclude that, consonant with the federal cases cit ed

above, Venuto's claims are not barred by res judica ta.10

We reach the same result applying state law. To the extent that New Jersey retains its own res judicata law, separate from the entire controversy doctrine,11 it likewise allows a second suit to be brought on a claim if th efirst court dismissed the claim "without prejudice." In Woodward-Clyde Consultants v. Chemical and Pollutio n Sciences, Inc. , 523 A.2d 131 (N.J. 1987), the New Jersey Supreme Court held that a dismissal of a countercla im was without prejudice, and therefore assertion in a sec ond suit of the claim put forward in the dismissed countercl aim was not precluded by the entire controversy doctrine. T he court introduced its analysis as follows:

A dismissal without prejudice is not an adjudicatio n on the merits and does not bar reinstitution of the sa me claim in a later action. Malhame v. Borough of

Demarest , 415 A.2d 358 (N.J. Super. Ct. App. Div. 1980) (quoting Christiansen v. Christiansen , 134 A.2d 14 (N.J. Super. Ct. App. Div. 1957). Plaintiff cont ends, however, that the institution of a subsequent actio n violates the entire controversy doctrine. We disagr ee.

523 A.2d at 135 (citations edited). One of the case s cited,
Christiansen v. Christiansen , involved a dismissal of one claim from an earlier action "without prejudice," a nd an argument that this claim was barred in a second act ion because of res judicata. The Christiansen court stated that

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10. Because we rely on § 26(1)(b) of the Restatemen t, and on cases applying its logic, we need not determine whether t he statements of
Witco's counsel at the Lube I hearing on the motion to amend the complaint constitute acquiescence under § 26(1)(a) of the Restatement.

11. As we noted in Lubrizol , 929 F.2d at 965, New Jersey appears to retain a res judicata doctrine apart from the entir e controversy doctrine. See Culver v. Insurance Company of North America , 559 A.2d 400, 404-06 (N.J. 1989) (explicating res judicata law). The New Jersey Supreme Court has noted, however, that the entire c ontroversy doctrine "attempts to avoid the delay, waste and expense of fragmented litigation" and that "[t]o this extent, the entire controversy doctrine is wholly consistent with the doctrine of res judicata." Id. at 406.

12[a] dismissal without prejudice is comparable to a

nonsuit under the former practice at law. It adjudi cates nothing. Another action may be instituted and the same facts urged either alone or in company with
others as the basis of a claim for relief.

134 A.2d at 18 (citations omitted). The Christianse n court
therefore concluded that the claim was not barred b y res judicata.

It therefore seems plain that New Jersey courts rec ognize that a dismissal of a claim without prejudice remov es the claim from a res judicata bar. Because both New Jer sey and federal law are in agreement that res judicata should not bar Venuto's suit, the district court's ruling on this point was in error.

III.

Witco argues that, even if this court concludes tha t the district court erred on the res judicata issue, it should
nonetheless affirm on the basis that Venuto's claim s were barred by the entire controversy doctrine.12 The en tire

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12. We note that the considerations that would argu e for the application of federal res judicata law in successive diversity actions would appear to argue with equal force that the entire controver sy doctrine -- a creature of state law -- should not be held applica ble in successive diversity suits. However, as already noted, this co urt has not yet had occasion to decide whether federal or state res jud icata law applies in such situations. See in this connection Judge Irena s's thoughtful opinion in Fioriglio v. City of Atlantic City , -- F. Supp. --, 1997 WL 249234 (D.N.J. May 6, 1997).

The New Jersey Supreme Court appears to have held t hat federal res judicata law governs a second court's actions when the first action was brought in federal court, see Watkins v. Resorts In t'l Hotel and Casino,

Inc. . 591 A.2d 592. 598 (N.J. 1991) ("the preclusive ef fect of the judgment is a function of the procedures of the fed eral court that rendered it"); in Watkins , however, thefirst action had been a federalquestion and not a diversity action. The New Jersey court has also stressed that New Jersey courts' application of the entire controversy doctrine to bar a state court action after a previo us suit was brought in federal court is not binding on federal courts, sta ting that "our threshold is not a barrier elsewhere." Mortgagelinq Corp. v. Commonwealth Land

13controversy doctrine is codified in New Jersey Rule

Governing Civil Practice 4:30A. The New Jersey Supr eme Court has recently summarized the doctrine as follo ws:

The fundamental principle behind the inclusion policy of the entire controversy doctrine is that t he adjudication of a legal controversy should occur in one litigation in only one court; accordingly, all part ies involved in the litigation should at the very least present in that proceeding all of their claims and defenses that are related to the underlying controv ersy.

. . . .

The objectives behind the doctrine are threefold: ( 1) to encourage the comprehensive and conclusive determination of a legal controversy; (2) to achiev e party fairness, including both parties before the c ourt as well as prospective parties; and (3) to promote judicial economy and efficiency by avoiding fragmen ted, multiple and duplicative litigation.

The doctrine has evolved over time through the
common law. . . . The doctrine was . . . extended t o include all affirmative claims that a party might h ave against another party, including counterclaims and cross-claims, as well as all parties with a materia l interest in the controversy, i.e., those who can af fect or be affected by the judicial outcome of the controversy. . . . In essence, it is the factual circumstances giving rise to the controversy itself

, rather than a commonality of claims, issues or part ies, that triggers the requirement of joinder to create a cohesive and complete litigation. . . .

. . . It is for [sic] trial court to determine whe ther or not joinder is appropriate in a given case, and thu s litigants should be compelled to bring all actions at one

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Title Ins. Co. , 662 A.2d 536, 542 (N.J. 1995). See generally Stephen B. Burbank, Where's the Beef? The Interjurisdictional Effects of New Jersey's Entire Controversy Doctrine , 28 Rutgers L.J. 87 (1996); Rochelle Cooper Dreyfuss & Linda J. Silberman, Interjurisdic tional Implications of the Entire Controversy Doctrine , 28 Rutgers L.J. 123 (1996).

14time. A trial court is empowered to segregate diffe rent

claims to assure manageability, clarity and fairnes s. A plaintiff who fails to allow the trial court the opportunity to supervise the entire controversy ris ks losing the right to bring that claim later.

Mystic Isle Development Corp. v. Perskie & Nehmad , 662 A.2d 523, 529-30 (1995) (citations omitted); see al so Rycoline Products, Inc. v. C & W Unlimited , 109 F.3d 883, 885-86 (3d Cir. 1997) (summarizing the entire contr oversy doctrine).

As noted above in our discussion of res judicata, t he New Jersey Supreme Court held in Woodward-Clyde that a court's dismissal of a claim "without prejudice" au thorizes a second claim, notwithstanding the entire controve rsy doctrine. However, in Mystic Isle the New Jersey Supreme Court somewhat tightened the entire controversy doc trine.

In Mystic Isle , the court held that a second suit against four defendants was barred by the entire controvers y doctrine, even though the first court's dismissal o f the first suit against one of the four defendants had been "w ithout prejudice." The court first distinguished Woodward- Clyde

, stating that "it is the party's original compliance with the doctrine [by presenting all its claims to the trial court],
rather than the absence of a conclusive determinati on of a claim, that ensures preservation of that claim." 66 2 A.2d at
534.

The Mystic Isle court went on to note that

[i]n certain circumstances, especially where a plai ntiff manipulates the judicial system in order to fragmen t litigation, the principles underlying the entire controversy doctrine may mandate that a suit be barred even though it stems from the dismissal of a prior action without prejudice.

Id. (quoting Restatement (Second) of Judgments § 19 cm t. a (1982)). In that case, the plaintiff had "deliberat ely contrived to have one claim dismissed in the [first ] action in order to circumvent the preclusive effect of the en tire controversy doctrine on its subsequent . . . claim, " id. at 535; because of this "manipulat[ion] of the judicia l system," the plaintiff's claim was barred.

15We do not find the case at bar to be the sort of ca se that

should, in the words of Mystic Isle , be"barred even though it stems from the dismissal of a prior action witho ut prejudice." The major focus of the entire controver sy doctrine is to bring all claims before the trial co urt for disposition in one proceeding; once all claims are put forward, the "trial court has the discretion to str ucture the litigation to assure efficient administration, clar ity and
fairness." Id. at 534. Here, the plaintiff in the first suit complied with the dictates of the entire controvers y doctrine and undertook to present all claims for the court's decision on how best to structure the litigation. The court then decided -- contrary to the plaintiff's express pref erence -- that the claims should be heard in separate suits; no plaintiff "manipulation of the judicial system" occ urred. Therefore, the ruling of the district court in the present case that this second suit is not barred by the ent ire controversy doctrine was correct.

IV.

We conclude that Venuto's and AMS's claims against Witco are not barred by the claim preclusion aspect of res judicata or by the entire controversy doctrine. We note that another aspect of res judicata -- namely, issue pre clusion or collateral estoppel -- may be applicable to some or all of Venuto's and AMS's claims (and, conceivably, to som e or all of Witco's defenses),13 but we leave these matters to the district court. The judgment of the district court is reversed and the case remanded for further proceedings.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

___________________________________________________ ______________

13. Witco's counsel was evidently referring to issu e preclusion at the hearing on Lube's motion to amend its complaint, wh en he stated that "[t]here's no question that the issues that are sub ject to res ajudicata are going to be res ajudicata in the second case." App. 328. See also Mr. Leibowitz's arguments quoted supra at page 5.

16