1997 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-30-1997

Venuto v. Witco Corp

Precedential or Non-Precedential:

Docket 96-5104

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Recommended Citation

"Venuto v. Witco Corp" (1997). 1997 Decisions. Paper 144.

http://digitalcommons.law.villanova.edu/thirdcircuit_1997/144
Filed 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) 

_________________________________________________________________ 

*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 for the 

District of New Jersey presents the question whether the 

second of two closely related diversity suits brought against 

the same defendant may be maintained. The answer to that 

question turns on what, if any, collateral consequences flow 

from the fact that, in the first suit, the district court denied 

plaintiff's motion to join, as additional parties plaintiff, the 

individual and the corporation that subsequently initiated 

the second suit. Relying both on res judicata principles and 

on New Jersey's entire controversy doctrine, the defendant 

moved to dismiss the second suit. The district court found 

the entire controversy doctrine inapplicable, but concluded 

that res judicata principles were applicable and mandated 

dismissal. Our review of the procedural history of these 

linked cases yields the following conclusions: we agree with 

the district court's entire controversy analysis but disagree 

with its res judicata analysis; accordingly, we reverse the 

district court's judgment dismissing the second suit. 

 2 
I. 

In order to explicate the issues posed by this appeal it 

will be necessary to examine the procedural history of these 

two suits in some detail. Plaintiff-appellants in the case at 

bar -- the second of the two suits -- are Ralph Venuto and 

Automotive Management Systems, Inc. ("AMS"). Venuto is 

sole shareholder and president of Lightning Lube, Inc. 

("Lube"), a franchisor of quick-oil-change businesses. 

Venuto is also sole shareholder and president of AMS. AMS 

operated some of Lube's franchises, and both AMS and 

Venuto obtained sites for Lube's other franchisees, acting 

as either landlord or loan guarantor.1 Defendant-appellee 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. Witco 

_________________________________________________________________ 

1. According to the original complaint in the case at bar, AMS is Lube's 

parent, with the two corporations sharing a principal 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 Greenberg, described that 

case as follows: 

Lightning Lube accused Witco of breaching its supply agreement 

and destroying Lightning Lube's relationship with its franchisees to 

benefit a competing quick-lube business that Witco had started with 

Avis Services, Inc. (Avis). Witco's actions allegedly caused Lighting 

Lube's existing franchisees either to abandon it or to hold back 

payment of royalty fees and resulted in large numbers of prospective 

franchisees never opening Lightning Lube centers. As a result, 

Lightning Lube lacked the cash flow necessary to continue 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 third-party 

defendants. 

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

filed over two months after the deadline for amending 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 pretrial 

proceedings on behalf of Judge Rodriguez, discussed at 

length the consequences of a denial of Lube's motion 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 it and file 

it downstairs for a second lawsuit?" App. 306. Witco's thencounsel, Benjamin D. Leibowitz, responded shortly 

thereafter, "I'd say, yes, Mr. Kramer, go downstairs and file 

that other complaint," arguing that the addition of the new 

parties would prolong already difficult and protracted 

discovery. App. 309. Mr. Leibowitz later observed that Mr. 

Kramer could "throw rocks in both courts at us, and he's 

not going to lose anything by the other complaint not 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 meant 

what he said: 

THE COURT: Now, a moment ago you argued that 

your your [sic] client at this point would prefer at this 

point to defend second [sic] lawsuit. Mr. Kramer could 

go to the office and file on behalf of his client, which 

contains each and every count, and you don't dispute 

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 argument? 

App. 320-21. Mr. Leibowitz's lengthy response included the 

following two statements: 

Listen, Mr. Kramer will have the benefit of thefirst 

_________________________________________________________________ 

3. In 1992, Judge Simandle became a Judge of the United States District 

Court for the District of New Jersey. 

 4 
case and second case, if he losses [sic], he's going 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 complaint. 

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 this 

case over with and to have a second case. 

App. 324. 

And when we get this case over, Mr. Kramer is either 

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 disposition 

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 subject 

to res ajudicata are going to be res ajudicata in the 

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 has a 

statute of limitations problem, to wait for the outcome 

of this case, and the discovery from this case, the

parties could stipulate to be used in the other case, to 

the extent that it becomes relevant in the other case. 

App. 327-28. 

Judge Simandle later issued a letter opinion and order 

granting the motion to amend in part but denying the 

portion of the motion seeking to add Venuto and AMS as 

plaintiffs. He reasoned that Lube had delayed too long 

without explanation in moving to amend, and that 

introducing additional plaintiffs and claims would unduly 

complicate the case given the amount of discovery already 

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 together 

 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 from 

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 affirmed. 

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 Witco to file 

a motion to dismiss. Witco's motion to dismiss asserted 

that the action was barred by (1) New Jersey's entire 

controversy doctrine and (2) res judicata. Because both 

sides relied on materials outside the pleadings, the court 

treated Witco's motion as a motion for summary judgment 

under Federal Rule of Civil Procedure 56. 

The district court held that the action was not barred by 

the entire controversy doctrine. The court reasoned that 

Judge Simandle might have "intended to permit the second 

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 understand 

to mean claim preclusion, as distinct from issue preclusion.5 

_________________________________________________________________ 

4. Lightning Lube, Inc., was originally a plaintiff in Lube II, but was 

dropped as a party plaintiff in the First Amended Complaint, filed in 

1994. 

5. The term "res judicata" has both a broad and a narrow meaning. 

Narrowly, in the sense evidently used by Judge Rodriguez, it refers only 

to claim preclusion. Our use of the term in this opinion likewise relates 

only to the claim preclusion aspect of res judicata doctrine. However, the 

preferred usage of the term encompasses both claim and issue 

 6 
The court determined that Venuto was in privity with 

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 these 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 court had 

jurisdiction pursuant to 28 U.S.C. § 1332; we have 

jurisdiction pursuant to 28 U.S.C. § 1291. Our review of the 

district court's application of res judicata rules and the 

entire controversy doctrine is plenary. See Lubrizol Corp. v.

Exxon Corp., 929 F.2d 960, 962 (3d Cir. 1991). 

II. 

We turn first to whether the district court properly 

determined that Venuto's claims are barred by res judicata. 

In Lubrizol, this court had occasion to discuss the question 

whether federal or state res judicata law governs successive 

diversity actions, but we declined to decide the issue 

"because our holding would be the same under both federal 

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 we once 

again need not decide the choice of law question.7 

_________________________________________________________________ 

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 collateral estoppel, is 

not an issue in this case as presented on appeal, but 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 judicata because of its 

statements to Judge Simandle at the hearing on Lube's motion to 

amend. The court noted that Witco's counsel had referred to res judicata 

and had observed that "Mr. Kramer might be well advised." The court 

concluded that "[b]ecause there was no misrepresentation 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 Collins v. E.I. DuPont de

 7 
The district court concluded that Witco had established 

the elements necessary for a res judicata defense. We 

assume that the district court's findings were correct. 

Nonetheless, because Judge Simandle expressly preserved 

Venuto's and AMS's claims for a future action through 

denying the motion to amend "without prejudice," we will 

reverse. 

Venuto relies on the Restatement (Second) of Judgments 

§ 26, as well as federal and New Jersey case law. The 

Restatement provides as follows: 

(1) When any of the following circumstances exists, the 

general rule of § 24 [the Restatement's general rule 

prohibiting claim splitting] does not apply to extinguish 

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 that 

the plaintiff may split his claim, or the defendant has 

acquiesced therein; or 

(b) The court in the first action has expressly reserved 

the plaintiff's right to maintain the second action . . . . 

Restatement (Second) of Judgments § 26 (1982). The 

commentary to subsection (1)(b) provides, in relevant 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, unless 

reversed or set aside, should ordinarily be given effect 

in the second action. 

_________________________________________________________________ 

Nemours & Co., 34 F.3d 172, 176 (3d Cir. 1994). This court has also 

applied "the law of the adjudicating state [i.e., the 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. 

 8 
Id. § 26 cmt. b.8 

Although this court has not previously had occasion to 

address whether, as a matter of federal res judicata law, a 

court's decision to exclude a claim "without prejudice" 

preserves the claim for a second action, several other 

circuits have addressed the issue. Each of these courts has 

permitted the second action. See Guzowski v. Hartman, 849 

F.2d 252, 255 (6th Cir. 1988); Blackwelder v. Millman, 522 

F.2d 766, 773 (4th Cir. 1975); see also King v. Provident

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); Stolberg 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 not been 

litigated and the defendants were not precluded from 

raising it, there would be no question" that res judicata 

would not bar a second suit.); cf. Torres v. Rebarchak, 814 

F.2d 1219, 1225 (7th Cir. 1987) (concluding that Illinois 

would apply the position of the Restatement § 26 when 

some claims in the first suit had been dismissed "without 

prejudice").9 

_________________________________________________________________ 

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 dictate preclusion 

consequences at the time of deciding a first action, it should have 

power to narrow the ordinary rules of claim preclusion. 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 forestall 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 contrary 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-pocket expenses, but 

had awarded the return of the lessee's deposit," `without prejudice to the 

 9 
Witco responds with three arguments why Venuto's 

claims should be barred by res judicata. We think that 

none of these arguments has merit. First, Witco argues that 

permitting Venuto to bring his claims after the motion to 

amend was denied for untimeliness would reward delay. We 

need not fear that applying the Restatement rule will 

reward delay: if a district court concludes that a litigant 

has unduly delayed, it can -- and, presumably, ordinarily 

will -- deny a motion to amend "with prejudice." Here, 

however, despite the untimeliness of the motion, Judge 

Simandle chose to deny the motion "without prejudice." 

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. Witco 

overlooks the established rule that interlocutory orders, 

such as the order denying the motion to amend without 

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 expressly reaffirm 

their continuing vitality. 

Finally, Witco argues that Judge Simandle's denial of 

Lube's motion to amend was not an express reservation of 

Venuto's claims, and hence did not fall within the scope of 

§ 26(1)(b) of the Restatement. Witco argues that Judge 

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 strains 

credulity. It is highly unlikely that Judge Simandle, after 

_________________________________________________________________ 

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 damages as part of his 

relief and has attempted to prove his damages at trial and where the 

trial judge has found the proof of some damages insufficient 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 partial damages on his 

claims. 

 10 
denying 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 permit 

Venuto and AMS to file their claims in a separate suit, 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 Cooper have 

reasoned, 

An order by the first court that its judgment does not 

preclude a second suit on specified parts of the claim or 

cause of action advanced in the first suit may preserve 

valid grounds of recovery without undue violence to the 

values of res judicata. The express reservation notifies 

the defendant that repose has not yet been achieved. 

The plaintiff may have a substantially better 

opportunity to prove the reserved claim, or to determine 

that it is not worth litigating. For that matter, the 

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 use 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 the entire 

controversy doctrine, although a prior action had been 

dismissed "with prejudice," in part because the phrase had 

been used inadvertently). Judge Simandle and Witco's 

counsel explicitly discussed the possibility of a second 

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 exercised his 

discretion to permit Venuto to file a second action. We 

 11 
conclude that, consonant with the federal cases cited 

above, Venuto's claims are not barred by res judicata.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 thefirst 

court dismissed the claim "without prejudice." In 

Woodward-Clyde Consultants v. Chemical and Pollution

Sciences, Inc., 523 A.2d 131 (N.J. 1987), the New Jersey 

Supreme Court held that a dismissal of a counterclaim was 

without prejudice, and therefore assertion in a second suit 

of the claim put forward in the dismissed counterclaim was 

not precluded by the entire controversy doctrine. The court 

introduced its analysis as follows: 

A dismissal without prejudice is not an adjudication on 

the merits and does not bar reinstitution of the same 

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 contends, 

however, that the institution of a subsequent action 

violates the entire controversy doctrine. We disagree. 

523 A.2d at 135 (citations edited). One of the cases cited, 

Christiansen v. Christiansen, involved a dismissal of one 

claim from an earlier action "without prejudice," and an 

argument that this claim was barred in a second action 

because of res judicata. The Christiansen court stated that 

_________________________________________________________________ 

10. Because we rely on § 26(1)(b) of the Restatement, and on cases 

applying its logic, we need not determine whether the 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 entire 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 controversy 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 adjudicates 

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 Christiansen court 

therefore concluded that the claim was not barred by res 

judicata. 

It therefore seems plain that New Jersey courts recognize 

that a dismissal of a claim without prejudice removes the 

claim from a res judicata bar. Because both New Jersey 

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 that the 

district court erred on the res judicata issue, it should 

nonetheless affirm on the basis that Venuto's claims were 

barred by the entire controversy doctrine.12 The entire 

_________________________________________________________________ 

12. We note that the considerations that would argue for the application 

of federal res judicata law in successive diversity actions would appear 

to argue with equal force that the entire controversy doctrine -- a 

creature of state law -- should not be held applicable in successive 

diversity suits. However, as already noted, this court has not yet had 

occasion to decide whether federal or state res judicata law applies in 

such situations. See in this connection Judge Irenas'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 that federal res 

judicata law governs a second court's actions when the first action was 

brought in federal court, see Watkins v. Resorts Int'l Hotel and Casino,

Inc.. 591 A.2d 592. 598 (N.J. 1991) ("the preclusive effect of the 

judgment is a function of the procedures of the federal 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 previous suit was brought in 

federal court is not binding on federal courts, stating that "our threshold 

is not a barrier elsewhere." Mortgagelinq Corp. v. Commonwealth Land

 13 
controversy doctrine is codified in New Jersey Rule

Governing Civil Practice 4:30A. The New Jersey Supreme 

Court has recently summarized the doctrine as follows: 

The fundamental principle behind the inclusion 

policy of the entire controversy doctrine is that the 

adjudication of a legal controversy should occur in one 

litigation in only one court; accordingly, all parties 

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 controversy. 

 . . . . 

The objectives behind the doctrine are threefold: (1) to 

encourage the comprehensive and conclusive 

determination of a legal controversy; (2) to achieve 

party fairness, including both parties before the court 

as well as prospective parties; and (3) to promote 

judicial economy and efficiency by avoiding fragmented, 

multiple and duplicative litigation. 

The doctrine has evolved over time through the 

common law. . . . The doctrine was . . . extended to 

include all affirmative claims that a party might have 

against another party, including counterclaims and 

cross-claims, as well as all parties with a material 

interest in the controversy, i.e., those who can affect 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 parties, 

that triggers the requirement of joinder to create a 

cohesive and complete litigation. . . . 

 . . . It is for [sic] trial court to determine whether or 

not joinder is appropriate in a given case, and thus 

litigants should be compelled to bring all actions at one 

_________________________________________________________________ 

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, Interjurisdictional Implications of

the Entire Controversy Doctrine, 28 Rutgers L.J. 123 (1996). 

 14 
time. A trial court is empowered to segregate different 

claims to assure manageability, clarity and fairness. A 

plaintiff who fails to allow the trial court the 

opportunity to supervise the entire controversy risks 

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 also

Rycoline Products, Inc. v. C & W Unlimited, 109 F.3d 883, 

885-86 (3d Cir. 1997) (summarizing the entire controversy 

doctrine). 

As noted above in our discussion of res judicata, the New 

Jersey Supreme Court held in Woodward-Clyde that a 

court's dismissal of a claim "without prejudice" authorizes 

a second claim, notwithstanding the entire controversy 

doctrine. However, in Mystic Isle the New Jersey Supreme 

Court somewhat tightened the entire controversy doctrine. 

In Mystic Isle, the court held that a second suit against 

four defendants was barred by the entire controversy 

doctrine, even though the first court's dismissal of the first 

suit against one of the four defendants had been "without 

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 determination of a 

claim, that ensures preservation of that claim." 662 A.2d at 

534. 

The Mystic Isle court went on to note that 

[i]n certain circumstances, especially where a plaintiff 

manipulates the judicial system in order to fragment 

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 cmt. a 

(1982)). In that case, the plaintiff had "deliberately 

contrived to have one claim dismissed in the [first] action in 

order to circumvent the preclusive effect of the entire 

controversy doctrine on its subsequent . . . claim," id. at 

535; because of this "manipulat[ion] of the judicial system," 

the plaintiff's claim was barred. 

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

should, in the words of Mystic Isle, be"barred even though 

it stems from the dismissal of a prior action without 

prejudice." The major focus of the entire controversy 

doctrine is to bring all claims before the trial court for 

disposition in one proceeding; once all claims are put 

forward, the "trial court has the discretion to structure the 

litigation to assure efficient administration, clarity and 

fairness." Id. at 534. Here, the plaintiff in the first suit 

complied with the dictates of the entire controversy 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 preference -- 

that the claims should be heard in separate suits; no 

plaintiff "manipulation of the judicial system" occurred. 

Therefore, the ruling of the district court in the present 

case that this second suit is not barred by the entire 

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 preclusion 

or collateral estoppel -- may be applicable to some or all of 

Venuto's and AMS's claims (and, conceivably, to some 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 issue preclusion at the 

hearing on Lube's motion to amend its complaint, when he stated that 

"[t]here's no question that the issues that are subject 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. 

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