1999 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-13-1999

Paramount Aviation v. Agusta

Precedential or Non-Precedential:

Docket 98-6257

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Recommended Citation

"Paramount Aviation v. Agusta" (1999). 1999 Decisions. Paper 122.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/122
Filed May 13, 1999 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

NO. 98-6257 

PARAMOUNT AVIATION CORPORATION, 

Appellant 

v. 

GRUPPO AGUSTA; AGUSTA AEROSPACE 

CORPORATION; COSTRUZIONI AERONAUTICHE 

GIOVANNI, Augusta, S.P.A.; AUGUSTA, S.P.A. 

On Appeal From the United States District Court 

For the District of New Jersey 

(D.C. Civ. No. 91-cv-04954) 

District Judge: Honorable John W. Bissell 

Argued: March 25, 1999 

Before: BECKER, Chief Judge, LEWIS and 

WELLFORD,* Circuit Judges. 

(Filed May 13, 1999) 

 CATHERINE B. SLAVIN, ESQUIRE 

 (ARGUED) 

 Wolk & Genter 

 1710-12 Locust Street 

 Philadelphia, PA 19103 

Counsel for Appellant 

_________________________________________________________________ 

*Honorable Harry Wellford, United States Circuit Judge for the United 

States Court of Appeals for the Sixth Circuit, sitting by designation. 
 JOHN R. ALTIERI, ESQUIRE 

 (ARGUED) 

 Foglia & Altieri 

 25 East Salem Street 

 Hackensack, NJ 07601 

 RUDOLPH V. PINO, JR., ESQUIRE 

 JOANNA ROBERTO, ESQUIRE 

 PINO & ASSOCIATES 

 Westchester Financial Center 

 White Plains, NY 10606 

 Counsel for Appellees 

OPINION OF THE COURT 

BECKER, Chief Judge. 

New Jersey's entire controversy doctrine is an extremely 

robust claim preclusion device that requires adversaries to 

join all possible claims stemming from an event or series of 

events in one suit. Animated by the laudable goal of easing 

the burdens of excessive litigation, the doctrine was 

developed in the domestic context, precluding suits in New 

Jersey courts based on disputes that were previously the 

subject of litigation in New Jersey courts. It has attained 

interjurisdictional proportions, however, and has been used 

in New Jersey to preclude claims based on a failure to effect 

joinder in previous litigation in non-New Jersey courts, 

where such joinder was not required by those courts' own 

rules. The repercussions of the doctrine have prompted 

adverse scholarly comment. See generally Symposium:

Entire Controversy Doctrine, 28 Rutgers L.J. 1 (1996).1 

This case began with a helicopter crash, though the facts 

have little bearing on the issue before us. We must decide 

whether a federal court in New Jersey should, when 

_________________________________________________________________ 

1. Until quite recently the entire controversy doctrine required party as 

well as claim joinder. The party joinder aspect of the doctrine, the focus 

of the lion's share of the criticism, has now been eliminated. See N.J. R. 

Civ. Pro. 4:30A. However, the interjurisdictional claim preclusion 

problem, also the subject of considerable scholarly criticism, remains. 

 2 
exercising its diversity jurisdiction, apply the entire 

controversy doctrine to bar the plaintiff from asserting 

claims against the defendants because they were not

asserted in prior litigation involving the instant parties and 

others in federal courts in Pennsylvania, New York, and 

New Jersey. We conclude that we should not. Disagreeing 

with the District Court, which barred the plaintiff 's claim, 

we hold that federal courts should apply the general rule 

that the preclusive effect of a judgment is determined by 

the preclusion law of the issuing court--in this case, a 

federal court. We will, therefore, reverse the District Court's 

grant of summary judgment to the defendants on the 

plaintiff 's tort claims and remand for further proceedings. 

We will also uphold the District Court's determination of 

the amount owed to defendant Agusta Aerospace 

Corporation ("AAC") on its counterclaims, but we will vacate 

the judgment on the counterclaims pending disposition of 

Paramount's tort claims. 

I. Facts and Procedural History 

On October 10, 1989, an Agusta 109A helicopter crashed 

in New Jersey, killing the pilot, co-pilot, and three 

passengers, who were top-echelon employees of the Trump 

Hotel and Casino enterprises. The helicopter was 

manufactured by Costruzioni Aeronautiche Giovanni 

Agusta ("CAGA") and purchased by AAC. CAGA is a 

subsidiary of Agusta S.p.A. and a part of Gruppo Agusta. 

AAC is CAGA's wholly-owned U.S. subsidiary. These are the 

"Agusta defendants." AAC sold the helicopter to Clifton Park 

Association, which sold it to FSQ Air Charter Corporation 

("FSQ"). Paramount Aviation, Inc. ("Paramount") arranged 

for this sale to FSQ and contracted with FSQ to manage the 

aircraft and to supply one of the two pilots who operated it. 

The first lawsuit arising from the crash was Kent v. 

Costruzioni Aeronautiche Giovanni Agusta, Gruppo Agusta, 

Agusta Aviation Corp., & Paramount Aviation, Inc. ("Kent"), 

filed in the United States District Court for the Eastern 

District of Pennsylvania, on March 30, 1990, by the widow 

and estate of co-pilot Robert Kent. The Agusta defendants 

filed answers asserting cross-claims against Paramount for 

contribution and indemnification, and Paramount's answer 

 3 
included cross-claims against the Agusta defendants for 

contribution and indemnification, but no affirmative claims. 

This case settled on November 27, 1990, for $3,150,000, of 

which the Agusta defendants paid $2,900,000 and 

Paramount paid $250,000. 

Second came Trump Taj Mahal Assoc., Trump Castle 

Assoc., Trump Plaza Assoc., & Helicopter Air Services, Inc. v. 

Costruzioni Aeronautiche Giovanni Agusta, Agusta, Gruppo 

Agusta, Agusta Aviation Corp., & Paramount Aviation Corp. 

("Trump"), filed in 1990 in the Superior Court of New Jersey 

and immediately removed to federal court. Prior to serving 

answers, the defendants filed motions for summary 

judgment, and the district court dismissed all counts, 

ruling that the plaintiff-employers were not entitled to 

recover under any of the theories they had alleged. See 

Trump Taj Mahal Assoc. v. Costruzioni Aeronautiche 

Giovanni Agusta, S.p.A., 761 F. Supp. 1143 (D.N.J. 1991), 

aff 'd mem., 958 F.2d 365 (3d Cir.), cert. denied, 506 U.S. 

826 (1992). Paramount and the Agusta defendants asserted 

no cross-claims against each other, nor was there occasion 

for them to do so after the summary judgment motions 

were granted. 

Next came FSQ Air Charter Corp. v. Costruzioni 

Aeronautiche Giovanni Agusta, Agusta, Gruppo Agusta, & 

Agusta Aviation Corp. ("FSQ"),filed in 1991 in the United 

States District Court for the Eastern District of New York. 

AAC filed a third-party complaint against Paramount, and 

Paramount answered without raising affirmative defenses 

or counterclaims. The parties' insurers defended the action, 

which was settled in June 1992 with an exchange of 

mutual releases that specifically excluded the claims in the 

case before us. 

Fourth was Paramount Aviation Corp. v. Gruppo Agusta, 

Agusta Aviation Corp., Costruzioni Aeronautiche Giovanni 

Agusta, & Agusta S.p.A. ("PAC I"),filed in the United States 

District Court for the District of New Jersey in 1990. That 

complaint alleged seven counts of tortious behavior, 

including negligence, willful misconduct, and strict tort 

liability. Paramount claimed that the crash caused it 

adverse publicity, public hostility, loss of clients and 

goodwill, loss of income, and other damages. On August 16, 

 4 
1990, the complaint was voluntarily dismissed under

Federal Rule of Civil Procedure 41, without prejudice, prior 

to answer. Kent was still pending at that point, and Trump 

was on appeal. 

Finally, PAC II, the instant case, was filed in New Jersey 

Superior Court in 1991. Alleging the same damages as PAC 

I, plaintiff Paramount stated two counts: (1) negligence, 

gross negligence, and willful and reckless misconduct; and 

(2) strict tort liability. Paramount claimed damages as a 

result of the Agusta defendants' manufacturing and design, 

which allegedly caused the crash. The case was removed, 

and the Agusta defendants (except for "Gruppo Agusta," 

which seems to be an umbrella name without independent 

corporate existence) filed answers in October 1992, while 

AAC also stated a counterclaim against Paramount for 

amounts allegedly owed for another Agusta helicopter and 

for payments for spare parts, service, and training. 

Although the complaint contained a certification about 

Trump and FSQ, as required by N.J. Rule 4:5-1, the Agusta 

defendants did not raise the entire controversy doctrine in 

their answers. The defendants first raised the entire 

controversy doctrine in February 1996 and filed a summary 

judgment motion on that ground in February 1997. 

The District Court granted summary judgment against

Paramount on its claim, reasoning that the claim was 

barred by the entire controversy doctrine. It then granted 

summary judgment for AAC on the counterclaim. 

Paramount appeals. 

II. The Entire Controversy Doctrine 

A. Introduction; The District Court's Rationale 

Under the entire controversy doctrine, a party cannot 

withhold part of a controversy for separate later litigation 

even when the withheld component is a separate and 

independently cognizable cause of action. The doctrine has 

three purposes: (1) complete and final disposition of cases 

through avoidance of piecemeal decisions; (2) fairness to 

parties to an action and to others with a material interest 

in it; and (3) efficiency and avoidance of waste and delay. 

See DiTrolio v. Antiles, 662 A.2d 494, 502 (N.J. 1995). As an 

 5 
equitable doctrine, its application is flexible, with a case-bycase appreciation for fairness to the parties. 

The entire controversy doctrine is an affirmative defense, 

waived if not pleaded or otherwise timely raised. See Brown 

v. Brown, 506 A.2d 29, 35 (N.J. Super. Ct. App. Div. 1986). 

Notwithstanding that principle, the District Court held that 

failure to raise the doctrine in a responsive pleading should 

be viewed in light of the federal policy of liberally allowing 

amendments if the issue was raised at a pragmatically 

sufficient time. See Kleinknecht v. Gettysburg College, 989 

F.2d 1360, 1374 (3d Cir. 1993). Although the defendants 

had not formally raised the entire controversy defense until 

their motion for summary judgment, filed in 1997, the 

District Court decided that it would have granted leave to 

amend the pleadings to assert it. See id. at 1374; see also 

Burrell v. Quaranta, 612 A.2d 379 (N.J. Super. Ct. App. Div. 

1992) (entire controversy defense was not foreclosed where 

the trial judge would have granted leave to amend the 

pleading if asked). 

The District Court further determined that Paramount 

was not prejudiced by this decision. The court reasoned 

that, given the lengthy history of litigation over the crash, 

the application of the doctrine could not have been

unforeseen. Moreover, the court concluded that the long 

delay between the filing of the complaint and the motion for 

summary judgment was not prejudicial because it was

largely the result of Paramount's failure to prosecute the 

action vigorously.2 The court further found that the Kent 

litigation offered Paramount an opportunity to bring its 

claim against the Agusta defendants; Paramount had 

brought cross-claims for contribution and indemnification 

in that case. 

Paramount argued that the doctrine should not apply

when all the previous actions, as well as the instant one, 

were federal, but the District Court reasoned that the 

doctrine had routinely been applied in federal court. See, 

e.g., Petrocelli v. Daniel Woodhead Co., 993 F.2d 27 (3d Cir. 

_________________________________________________________________ 

2. The parties strenuously dispute the causes and effects of the delay, 

but, as we need not reach the issue, we will not address it in greater 

detail. 

 6 
1993). Paramount maintained that the doctrine was 

procedural. The court responded that it was not 

"procedural" simply because it was codified in a rule of 

procedure; as a creature of state common law, the entire 

controversy doctrine was to be applied federally under the 

rule of Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). 

Paramount urges that the District Court abused its 

discretion in its application of the equitable considerations 

behind the entire controversy doctrine. The District Court, 

of course, has great discretion in matters of this sort. 

However, we need not reach the issue, because wefind that 

the entire controversy doctrine is not the right preclusion 

doctrine for a federal court to apply when prior judgments 

were not entered by the courts of New Jersey. 

B. Foreign Application of the Entire Controversy Doctrine 

In order to decide whether to apply New Jersey law or 

federal law, we must follow the rules laid down in Erie and 

its progeny. We are required to weigh the significance and 

substantive character of the state preclusion rule, and the 

likelihood that application of the federal rule would produce 

forum-shopping by parties, against the importance of the 

federal interests underlying the federal rule. See Byrd v. 

Blue Ridge Rural Elec. Co-op., Inc., 356 U.S. 525, 535-40 

(1958). If a rule is outcome-determinative, so that applying 

the federal rule would change the result of a casefiled in 

federal court from the result in an identical state court 

case, it is likely to affect parties' decisions where to litigate, 

and applying the state rule is generally appropriate. On the 

other side, a strong federal policy embodied in 

constitutional principles or federal law justifies the 

application of a federal rule. In this case, the relevant 

federal interests are embodied in Federal Rule of Civil 

Procedure 13, which establishes federal claim joinder rules, 

and in federal principles of res judicata. We conclude that 

New Jersey's interest in the entire controversy doctrine, 

while weighty, does not require us to adopt it in order to 

decide the preclusive effects of non-New Jersey cases. 

 7 
 1. The Parties' Contentions 

Paramount notes that none of the lawsuits filed in the 

aftermath of the accident was litigated in New Jersey state 

court (three were brought in federal court and two were 

removed).3 It argues that the New Jersey Rules of Court 

containing the entire controversy doctrine are procedural 

and therefore should not be applied in federal court. 

Paramount also submits that New Jersey's interest in 

preserving the resources of its courts is minimal, if not 

absent, here, where all of the prior cases were litigated 

outside of the New Jersey courts. See Henkels & McCoy, 

Inc. v. Adochio, 906 F. Supp. 244, 249 (E.D. Pa. 1995) 

(declining to apply the doctrine where both the previous 

case and the instant case were in the Eastern District of 

Pennsylvania). 

Paramount further contends that, when a prior decision's 

preclusive effect is examined, it is the prior jurisdiction's 

preclusion law that should generally be applied. See 

Restatement (Second) of Judgments S 87 (1982). Paramount 

reasons that federal preclusion law should apply to

determine the preclusive effects of federal diversity 

judgments. In the absence of a prior New Jersey judgment 

on the merits, Paramount maintains, we have no reason to 

apply New Jersey's supercharged preclusion doctrine. 

The defendants respond that the Full Faith and Credit 

Act, 28 U.S.C. S 1738 (1994), requires a federal court 

hearing a New Jersey tort claim to be bound by New Jersey 

_________________________________________________________________ 

3. Paramount submits, and the Agusta defendants do not challenge, that 

the fact that actions were originally commenced in state court is 

irrelevant. Once removed, jurisdiction in the District Court is original 

and federal procedure applies. Moreover, the state courts have expended 

negligible resources on the removed case; New Jersey courts do not 

apply the doctrine when a prior case was pending for only a few days 

and no notable activity took place. Cf. Hulmes v. Honda Motor Co., 924 

F. Supp. 673 (D.N.J. 1996) (declining to apply the doctrine when the first 

action was only pending in New Jersey state court for one week before 

its voluntary dismissal); Karpovich v. Barbarula, 696 A.2d 659 (N.J. 

1997) (holding that a settlement did not require application of the 

doctrine where there were only seven days between the state court filing 

and the entry of a consent judgment and virtually no judicial resources 

were used). 

 8 
substantive law, of which the entire controversy doctrine is 

a part. See Rycoline Prods., Inc. v. C&W Unltd., 109 F.3d 

883, 887 (3d Cir. 1997). We note some initial discomfort 

with this description, as we believe that the entire 

controversy doctrine, like all preclusion doctrine, should 

generally be characterized as procedural. We take up 

Rycoline and the substance/procedure divide infra, noting 

here only that the Supreme Court has long instructed us 

that the substance/procedure line is not dispositive when 

federal courts must choose which sovereign's law to apply. 

See Guaranty Trust Co. v. York, 326 U.S. 99 (1945).

The defendants also point out that federal courts have 

occasionally applied the entire controversy doctrine to 

determine the effects of non-New Jersey judgments, but the 

parties in prior decisions have not contested the application 

of the doctrine.4 Nor have we resolved the broader issue of 

whether federal or state res judicata law governs successive 

diversity actions. See Venuto v. Witco Corp., 117 F.3d 754, 

758 & n.7 (3d Cir. 1997). We have, however, decided that 

federal law governs the preclusive effect of a prior diversity 

judgment on a subsequent federal question case. See In re 

Kaplan, 143 F.3d 807, 814-15 (3d Cir. 1998). We noted in 

Kaplan that the Supreme Court used federal law to 

determine the preclusive effect of a prior diversity judgment 

in Heiser v. Woodruff, 327 U.S. 726 (1946). Though the 

issue was not then before us, we also suggested that the 

rationale for applying federal preclusion law to determine 

_________________________________________________________________ 

4. The entire controversy doctrine has indeed been invoked when the 

previous suit was in another state or in a federal court. Melikian v. 

Corradetti, 791 F.2d 274 (3d Cir. 1986), applied the entire controversy 

doctrine, though its only preclusive effect was on a corporation that may 

not even have been a party to the second lawsuit. See id. at 280 & n.3. 

Melikian assumed that the doctrine applied to successive diversity cases 

in New Jersey and did not address the choice of law question. Thus, it 

does not control our decision today. Similarly, in Itzkoff v. F&G Realty, 

Corp., 890 F. Supp. 351 (D.N.J. 1995), the first action was in New York 

state court and the second in New Jersey federal court. The parties and 

the court assumed that the entire controversy doctrine governed. See 

Itzkoff, 890 F. Supp. at 355. The court found that New Jersey (state) 

courts would apply the doctrine to foreign proceedings "where fairness so 

required." Id. at 356. The parties did not broach the specific issue of a 

federal court's application of the doctrine. 

 9 
the effects of a prior diversity judgment on a later federal 

question case was quite similar to the rationale for doing so 

in a later diversity case. See Kaplan, 143 F.3d at 815 n.15. 

 2. Relevant Case Law 

We find two New Jersey decisions particularly helpful in 

elucidating New Jersey's view of the entire controversy 

doctrine. In Watkins v. Resorts International Hotel & Casino, 

Inc., 591 A.2d 592 (N.J. 1991), the New Jersey Supreme 

Court acknowledged the general rule that the preclusive 

effect of a judgment is determined by the law of the 

jurisdiction that rendered it, as a logical consequence of the 

procedures of the issuing court. See id. at 598. This rule 

affects the application of the entire controversy doctrine in 

New Jersey state court. Only in "limited circumstances" 

may the doctrine preclude an action not otherwise 

precluded by the res judicata effects of a federal decision. 

See id. at 598-99. The court held that it was essential to 

consider the federal law of claim preclusion in determining 

whether to apply the entire controversy doctrine, as an 

equitable matter, in state court cases. See id. at 599. 

Watkins thus suggests that New Jersey recognizes the 

interests of other jurisdictions that have differing preclusion 

doctrines. 

In Mortgagelinq Corp. v. Commonwealth Land Title Ins. 

Co., 662 A.2d 536 (N.J. 1995), the New Jersey Supreme 

Court applied the entire controversy doctrine to a plaintiff 

who had previously sued on the same underlying facts in 

the federal District Court for the Eastern District of 

Pennsylvania. Almost a year earlier, a mortgage lender had 

brought an action in the latter court against Pennsylvaniabased companies and individuals who were allegedly the 

central figures in a fraudulent scheme involving mortgage 

financing, and the Federal Home Loan Mortgage 

Corporation ("Fannie Mae") had intervened as a plaintiff. 

The second case was brought in New Jersey state court by 

the lender and Fannie Mae against New Jersey-based 

companies and individuals who participated in the same 

mortgage transactions and who were allegedly accessories 

in the same scheme. 

 10 
Mortgagelinq stated decisively that the entire controversy 

doctrine is procedural, and that it was formulated 

specifically to preserve the resources of New Jersey courts.5 

The Court held that the doctrine bars suits in New Jersey 

against parties who could have been joined in an earlier 

suit in another state or in federal court. The result was 

binding only in New Jersey, however; other jurisdictions 

could permit litigation against earlier-omitted defendants 

despite a New Jersey decision dismissing an action on 

entire controversy grounds. The decision thus attempted to 

cabin the effect of the doctrine outside of New Jersey 

courts: 

 We hold that when a party deliberately chooses to 

 fragment litigation by suing certain parties in another 

 jurisdiction and withholds claims against other parties, 

 a New Jersey court need not later entertain the claims 

 against the omitted parties if jurisdiction was available 

 in the first forum. In doing so we do not export our 

 entire controversy doctrine to other jurisdictions, but 

 merely hold that our notions of procedural fairness do 

 not permit the claims that could have been brought 

 elsewhere to be brought in New Jersey. This ruling 

 presupposes that when the procedural rules of foreign 

 jurisdictions permit the omitted claims to be brought 

 later, the foreign jurisdiction is free to entertain such 

 claims. Just as we do not seek to export our

 procedural requirements of party joinder, we do not 

 seek to export any preclusive effect to our rules of 

 party joinder. 

 . . . . 

_________________________________________________________________ 

5. Guaranty Trust Co. announced that"[i]t is . . . immaterial whether 

statutes of limitation are characterized either as`substantive' or 

`procedural' in State court opinions in any use of those terms unrelated 

to the specific [Erie] issue before us." Guaranty Trust Co., 326 U.S. at 

109. Mortgagelinq, however, is intimately related to the choice of law 

issue, and thus we do not believe that Justice Frankfurter's conclusion 

precludes us from considering that case. More importantly, we believe 

that Watkins and Mortgagelinq provide insight into the scope of New 

Jersey's interest in its doctrine, an issue that is distinct from the 

doctrine's location on the substance/procedure line. 

 11 
 One of the underpinnings of the entire controversy 

 doctrine, in addition to fairness to the parties, is 

 fairness to the system of judicial administration. 

 "Judicial economy and efficiency--the avoidance of 

 waste and delay--remain constants in the application 

 of the entire controversy doctrine. Fragmented and 

 multiple litigation takes its toll on not only the parties 

 but the judicial institution and the public." Each 

 jurisdiction is free to assess the importance of such 

 values. . . . 

 If Pennsylvania courts do not have a comparable 

 party-joinder rule, principles of comity suggest that 

 New Jersey should not seek to export its entire 

 controversy doctrine to regulate the conduct of 

 attorneys in that jurisdiction. In other words, attorneys 

 conducting litigation in Pennsylvania courts should not 

 have to accommodate their practices to the demands of 

 New Jersey courts. A corollary of that proposition, 

 however, is that New Jersey courts need not 

 necessarily grant relief when parties deliberately refrain 

 from seeking relief in other jurisdictions when doing so 

 would have been much fairer to all parties involved. 

 There is a delicate balance between the interests of the 

 two jurisdictions that must accommodate the interests 

 of justice. . . . 

 . . . . 

 Maintaining a cohesive federal system (and the Full 

 Faith and Credit Clause melds the state courts into 

 that system) does not require that the other parts of 

 the federal system honor our entire controversy 

 doctrine. 

Mortgagelinq, 662 A.2d at 537, 540, 541, 542 (citations 

omitted). 

The Mortgagelinq court mentioned that "the federal courts 

are considered those of another sovereign," id. at 541, and 

suggested that the application of the doctrine in a diversity 

action in New Jersey federal court might be governed by 

choice of law principles, indicating that the court did not 

necessarily expect federal courts in New Jersey to apply the 

doctrine exactly as the state courts would. See id. at 542. 

 12 
Thus, while Mortgagelinq continued to embrace an 

expansive view of the doctrine within New Jersey state 

courts, it heralded an awareness of the doctrine's limits 

when interjurisdictional problems were involved. While New 

Jersey cannot, of course, control our understanding of the 

relevant federal law, we consider Watkins and Mortgagelinq 

useful explications of the justifications for the doctrine, and 

hence of New Jersey's interests. We turn, therefore, to an 

assesment of the relevant state and federal interests. 

 3. Analysis of the Relevant State and Federal Interests 

 a. The Import of Rycoline 

Rycoline held that a federal court deciding a federal cause 

of action is bound by the entire controversy doctrine when 

determining the effect of a prior New Jersey state court 

judgment. The court characterized the doctrine as "an 

aspect of the substantive law of New Jersey, by virtue of the 

Full Faith and Credit Act." Rycoline, 109 F.3d at 887. Thus, 

the plaintiffs, who had filed a previous suit in New Jersey 

state court, were subject to the rigors of the entire 

controversy doctrine when they filed a second suit in New 

Jersey federal court, although they were able to proceed 

because we decided that New Jersey would not apply the 

doctrine while the first suit was still pending. 

The defendants claim that the just-quoted phrase from 

Rycoline obligates us to apply the entire controversy 

doctrine as part of New Jersey substantive law under Erie. 

We believe that the question is slightly more complex. The 

Full Faith and Credit Act provides that the judicial 

proceedings of a state court shall have the same full faith 

and credit within every court in the United States as they 

have by law or usage in the courts of the issuing state. 

Thus, federal courts must give the same preclusive effect to 

a state court judgment as another court of that state 

would, unless to do so would violate due process. See 

Rycoline, 109 F.3d at 887. In this case, there are only 

federal judgments, and the Full Faith and Credit Act is not 

by its terms applicable. It is usually thought that federal 

judgments receive full faith and credit by virtue of federal 

common law. See, e.g., Ronan Degnan, Federalized Res 

 13 
Judicata, 85 Yale L.J. 741, 744-50 (1976) (discussing the 

development of the rule requiring respect for federal 

judgments); cf. Embry v. Palmer, 107 U.S. 3, 10 (1883) 

("[T]he judgments of the courts of the United States have 

invariably been recognized as upon the same footing, so far 

as concerns the obligation created by them, with domestic 

judgments of the states, wherever rendered and whereever 

[sic] sought to be enforced."). 

To the extent that Rycoline labelled the entire controversy 

doctrine "substantive" for purposes of the Full Faith and 

Credit Act, we conclude that it meant only that New Jersey 

law governed the preclusive effects of an earlier New Jersey 

state court judgment. This is exactly what the Act requires. 

See University of Tennessee v. Elliott, 478 U.S. 788, 794 

(1986). We decline to read one phrase in a decision that 

depended on completely different issues as determining the 

result in this case. Rather, our interpretation of Rycoline 

renders it consistent with the long line of New Jersey cases 

labelling the entire controversy doctrine "procedural." See, 

e.g., Oliver v. Ambrose, 705 A.2d 742, 746 (N.J. 1998); 

Harley Davidson Motor Co. v. Advance Die Casting, Inc., 696 

A.2d 666, 668 (N.J. 1997); Mortgagelinq; Woodward-Clyde 

Consultants v. Chemical & Pollution Sciences, Inc. , 

523 A.2d 131, 135 (N.J. 1987). At all events, the 

substance/procedure divide is not necessarily the 

controlling factor in determining when a federal court must 

apply state law. See Guaranty Trust Co., 326 U.S. at 109- 

10. 

Under Mortgagelinq, a dismissal on entire controversy 

grounds is not a dismissal on the merits; this rule helps to 

ensure that the doctrine will not have untoward 

extraterritorial effects.6 However, New Jersey law still 

_________________________________________________________________ 

6. The characterization of an entire controversy-based dismissal as one 

not on the merits only matters when the prior decision to which New 

Jersey applies the doctrine is not handed down by a New Jersey state 

court. When the first decision issues from a New Jersey court, that case 

carries its own preclusive effect, deserving of full respect in the courts 

of 

other jurisdictions. If there is a second New Jersey case that is 

dismissed 

on entire controversy grounds, and then a third federal case, we might 

also give the second New Jersey case preclusive effect on the issue of the 

 14 
determines the preclusive effects of a prior New Jersey state 

court judgment on the merits, as in Rycoline. 

 b. New Jersey's Interests and the Risks of Forum- 

 Shopping 

New Jersey's main justification for the doctrine, its 

interest in preserving its judicial resources, is minimized 

when none of the prior litigation took place in New Jersey 

state courts. See Rochelle Cooper Dreyfuss & Linda J. 

Silberman, Interjurisdictional Implications of the Entire 

Controversy Doctrine, 28 Rutgers L.J. 123, 156 (1996). New 

Jersey state courts still apply the doctrine in such cases, 

which conserves some of New Jersey's judicial resources by 

precluding subsequent litigation in New Jersey. By 

contrast, when both prior and subsequent litigation takes 

place outside the New Jersey state courts, it is hard to see 

any New Jersey resource interest whatsoever, except

inasmuch as the size of the federal docket indirectly affects 

the state courts. 

The risk of unfair surprise is also heightened where the 

initial litigation did not take place in New Jersey; it may be 

difficult for responsible lawyers to predict that litigation in 

New York or California will close the New Jersey federal 

courts to future claims. See id. at 169; cf. Electro-Miniatures 

Corp. v. Wendon Co., 889 F.2d 41, 45 & n.6 (3d Cir. 1989) 

(expressing the concern that, if the entire controversy 

doctrine were applied to out-of-state judgments in New 

Jersey federal court, other jurisdictions would be adversely 

affected by the need to tailor litigation to avoid preclusion 

in New Jersey). But see Perry Dane, Dignity and Glorious 

Chaos: A Comment on the Interjurisdictional Implications of 

the Entire Controversy Doctrine, 28 Rutgers L.J. 173 (1996) 

(arguing that the problems with the doctrine are 

overstated). Given New Jersey's recognition, in Watkins and 

_________________________________________________________________ 

application of the entire controversy doctrine to the facts, see 18 Wright 

et al., Federal Practice & Procedure S 4418, at 171 (1981) (discussing the 

preclusive effects of determinations that do not go to the merits), but we 

need not delve further into these murky preclusion waters to decide the 

case before us. 

 15 
Mortgagelinq, that other jurisdictions have significantly 

different preclusion doctrines and a strong interest in giving 

effect to those doctrines, we do not believe that a decision 

requiring federal courts to apply federal preclusion law 

would depreciate New Jersey law. 

Some commentators have argued that Mortgagelinq was

wrongly decided and that the Full Faith and Credit Act does 

not give New Jersey the freedom to give other courts' 

decisions greater preclusive effect than those courts would 

allow. See Stephen B. Burbank, Where's the Beef? The 

Interjurisdictional Effects of New Jersey's Entire Controversy 

Doctrine, 28 Rutgers L.J. 87 (1996). Professor Burbank 

argues that Mortgagelinq works against the compelling 

interest in national unity by requiring litigants in other 

states to consider the preclusive effects of their cases on 

future cases in New Jersey, regardless of the preclusion law 

of the state in which they file complaints. He concludes 

that, regardless of New Jersey state court practice, federal 

courts in New Jersey should apply standard preclusion law, 

rather than the entire controversy doctrine, to the

judgments of non-New Jersey courts. See Burbank, supra, 

at 100-01; see also Dreyfuss & Silberman, supra, at 157- 

58. 

Professor Burbank further argues that, when a federal 

court in New Jersey tries to resolve this conundrum, it 

should apply the Full Faith and Credit Act rather than Erie 

balancing. Judicial balancing would be unnecessary,

because Congress has explicitly instructed courts how to 

treat the judgments of state courts. See Burbank, supra, at 

103 n.82. Thus, if the previous litigation involved in this 

case had taken place in a state court, we would, as a 

matter of course, give it the preclusive effect it would have 

in that state's courts. 

Though we find this argument persuasive, it does not 

dispose of this case, because the Full Faith and Credit Act 

does not by its terms apply here. When the prior decision 

is a federal decision, the Act applies only by analogy. And 

in that case, it is important to look to Erie principles to 

decide which sovereign's law to apply. The Full Faith and 

Credit Act has an important implication, however: If the Act 

instructs New Jersey federal courts how to determine the 

 16 
preclusive effect of state decisions, there is a compelling 

argument for treating federal cases similarly. There is no 

good reason to apply New Jersey entire controversy law to 

determine the preclusive effects of a federal diversity case 

from Pennsylvania when the preclusive effects of the same 

case would have been governed by the law of the issuing 

court if it had been litigated in Pennsylvania state court. To 

make different rules for the two types of cases would be 

absurd, and would only move the potential forum-shopping 

problem back one level further, to the initial non-New 

Jersey litigation. 

We note another factor that diminishes the force of the 

Erie concerns that generally lead to application of state law. 

Our Erie jurisprudence counsels us to avoid situations in 

which parties who can invoke federal jurisdiction are 

treated differently from those who cannot. Because we are 

considering a preclusion doctrine, the question is whether 

parties who can invoke federal jurisdiction will be able to 

litigate claims that will be precluded for parties who cannot. 

The risk of inequitable preclusion is minimal, for the 

following reason: This situation arises only when there has 

been previous litigation outside the New Jersey state 

courts. However, the entire controversy doctrine would only 

bar a subsequent New Jersey suit if the first forum would 

have had jurisdiction over the claims raised in that 

subsequent suit. It therefore follows that there was an 

alternate non-New Jersey forum for the relevant claims, 

although in some cases that forum would be another state 

court. The relevant point is that no plaintiff in this situation 

will find itself entirely unable to litigate its claims; even if it 

is not able to take advantage of federal jurisdiction, it will 

have another state in which to bring its claims.7 

_________________________________________________________________ 

7. It is possible, of course, that a party who has already participated in 

a foreign lawsuit will mistakenly file a second suit in New Jersey state 

court and will lose on entire controversy grounds after the statute of 

limitations for filing a claim elsewhere has run, although it is not 

entirely 

clear that a plaintiff in such a situation would be subject to the 

doctrine. 

See Erenberg v. Cordero, 683 A.2d 567, 574 (N.J. Super Ct. App. Div. 

1996) (Stern, J., concurring) (stating that the doctrine should only be 

applied to the judgments of foreign courts if the plaintiff 's claim is 

actually capable of being litigated in some non-New Jersey court). After 

 17 
Any resulting disparity is no more than the disparity 

created by the very existence of diversity jurisdiction, which 

allows some parties the option of going to federal court 

whereas others with identical causes of action cannot.8 

While a decision to apply federal preclusion law would be 

outcome-determinative in this case, therefore, it would not 

ex ante cut off or extend any substantive rights that a 

plaintiff would have in the absence of a New Jersey federal 

forum, and would be unlikely to encourage significant 

forum-shopping.9 

Our analysis can be summarized as follows: New Jersey 

has no significant interest in controlling the dockets of 

other court systems. Moreover, application of a federal rule 

in the rather unusual circumstances here would be 

unlikely to create unfairness by causing different results in 

_________________________________________________________________ 

our decision, a plaintiff who files in New Jersey federal court will not 

be 

"mistaken," and will not face this dilemma. Thus, there is a possibility 

that results will differ in some cases. However, Erie rules were designed 

to avoid conscious forum-shopping, not to increase the risks of 

carelessness or unfamiliarity with state law. 

8. The decision to apply federal preclusion law affects forum choice in 

this sense only: A well-informed plaintiff might be able to split claims 

between some foreign court and a New Jersey federal court that, if the 

federal court applied the entire controversy doctrine, it would otherwise 

consolidate in the foreign court. But this is not the forum-shopping 

between state and federal court that Erie decried; it is claim-splitting, 

which presents different issues. As long as the plaintiff adheres to the 

other jurisdictions' rules of joinder, we do not think that any inequity 

has occurred. It is theoretically possible that variations between New 

Jersey choice-of-law doctrines and the choice-of-law doctrines of other 

jurisdictions might change the outcome on such a split claim, but we 

doubt that parties will base their forum choices on such exotic 

possibilities. 

9. Relatedly, the forum-shopping concern is diminished simply because 

successive litigation is less common than litigation in the first 

instance; 

there are many factors that go into a decision tofile a second lawsuit, 

and we doubt that a decision to apply federal preclusion law will 

substantially alter the relevant incentives. In this case, Paramount was 

not even the initial plaintiff in the pre-PAC lawsuits; in a real sense, 

Paramount had very little choice over those fora, even though it filed 

counterclaims and cross-claims. 

 18 
federal court than in state court or to cause significant 

forum-shopping. The issues of outcome-determinativeness 

and a consequent incentive to forum-shop are not free from 

doubt, however. Therefore, it is important for us to 

determine whether there is a significant federal interest 

counseling application of the federal rule. See Fauber v. 

KEM Transp. & Equip. Co., 876 F.2d 327, 331 (3d Cir. 

1989). It is to this question that we now turn. 

 c. The Federal Interest 

Federal courts have a significant interest in determining 

the preclusive effects of federal judgments. See Kaplan, 143 

F.3d at 815 n.15 (citing cases). Kaplan applied federal law 

to determine the preclusive effects of a diversity judgment 

on a subsequent federal question case. We believe that its 

logic is equally applicable here, when successive diversity 

cases are at issue. The source of federal jurisdiction over 

the second case should not affect our analysis, because we 

are concerned with the preclusive effect of the first. As the 

Second Circuit has put it: 

 One of the strongest policies a court can have is that 

 of determining the scope of its own judgments. . . . It 

 would be destructive of the basic principles of the 

 Federal Rules of Civil Procedure to say that the effect 

 of a judgment of a federal court was governed by the 

 law of the state where the court sits simply because 

 the source of federal jurisdiction is diversity. 

Kern v. Hettinger, 303 F.2d 333, 340 (2d Cir. 1962). We 

agree. 

Paramount persuasively argues that we should apply the 

general federal rule that the preclusive effects of prior cases 

are determined by the law of the prior forum. Applying the 

federal rule would also give effect to the joinder rules of the 

Federal Rules of Civil Procedure, which define the claims 

that parties must join if they are not to be later barred. Cf. 

Hanna v. Plumer, 380 U.S. 460 (1965) (the strong federal 

policies embodied in the Federal Rules of Civil Procedure 

justify a refusal to apply an outcome-determinative state 

procedural rule); Byrd (outcome-determinative state

procedural rules do not need to be applied when they are 

 19 
not an integral part of the underlying substantive right and 

there is a strong countervailing federal policy, such as the 

policy against disrupting the allocation of power between 

judge and jury in federal court). Paramount draws further 

support from the scholarly opinion in Fioriglio v. City of 

Atlantic City, 963 F. Supp. 415 (D.N.J. 1997), which 

engaged in a calculus similar to ours; Judge Irenas

concluded, as we do, that federal joinder and preclusion 

rules embody an important federal policy that weighs 

heavily against applying the entire controversy doctrine in 

these circumstances. See id. at 424. 

 d. Summary and Conclusion 

We conclude that respecting courts' power to determine 

the preclusive effects of their own rulings is a significant 

federal interest. In particular, the claim joinder provisions 

of the Federal Rules of Civil Procedure express a federal 

policy about what claims must be joined to avoid later 

preclusion. Applying New Jersey preclusion law to 

determine the preclusive effects of federal cases would 

frustrate the policy embodied in the Rules, and we decline 

to do so. Instead we will follow the federal rule that the law 

of the issuing court--here, federal law--determines the 

preclusive effects of a prior judgment.10 

In reaching this result, clearly foreshadowed by Kaplan, 

we follow the majority of circuits to confront the issue of 

the law to be applied in successive diversity cases. See, e.g., 

J.Z.G. Resources, Inc. v. Shelby Ins. Co., 84 F.3d 211, 213- 

14 (6th Cir. 1996); Havoco, Ltd. v. Freeman, Atkins & 

Coleman, Ltd., 58 F.3d 303, 307-08 (7th Cir. 1995);

Johnson v. SCA Disposal Servs., 931 F.2d 970, 974 (1st Cir. 

1991); Empire Fire & Marine Ins. Co. v. J. Transport, Inc., 

880 F.2d 1291, 1293 n.2 (11th Cir. 1989); Shoup v. Bell & 

Howell Co., 872 F.2d 1178, 1179 (4th Cir. 1989); AerojetGeneral Corp. v. Askew, 511 F.2d 710, 715-18 (5th Cir. 

1975); Kern, 303 F.2d at 340 (Second Circuit). But see 

Follette v. Wal-Mart Stores, Inc., 41 F.3d 1234, 1237 (8th 

_________________________________________________________________ 

10. We need not resolve here whether particular aspects of preclusion, 

such as privity, are "substantive" and are governed by state law. Cf. 

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

 20 
Cir. 1994) (applying state law); Pardo v. Olson & Sons, Inc., 

40 F.3d 1063, 1066 (9th Cir. 1994) (same). 

Since we have decided that federal law, rather than the 

entire controversy doctrine, applies, the obvious question 

is: What is the federal law? However, the Agusta defendants 

have not argued, either in the District Court or this court, 

that federal preclusion principles bar Paramount's suit. We 

thus deem a possible res judicata argument waived. See 

Security Servs., Inc. v. K Mart Corp., 996 F.2d 1516, 1519 

(3d Cir. 1993); Brenner v. Local 514, United Bhd. of 

Carpenters & Joiners, 927 F.2d 1283, 1298 (3d Cir. 1991).11 

_________________________________________________________________ 

11. We doubt that such a claim would be meritorious in any event. The 

preclusion inquiry in this case is essentially identical to the question 

whether Paramount's tort claims were compulsory in any of the earlier 

lawsuits. See Publicis Communication v. True North Communications Inc., 

132 F.3d 363, 365 (7th Cir. 1997). There is no compulsory cross-claim 

rule in the federal system, see Wolfe v. Safecard Servs., 873 F. Supp. 

648, 649 (S.D. Fla. 1995), and therefore the Trump suit clearly does not 

preclude this suit. 

The Kent suit raises a somewhat trickier issue, because Paramount 

and the Agusta defendants filed cross-claims for contribution and 

indemnification against one another in that case. Arguably, the filing of 

a cross-claim makes parties "opposing parties" within the meaning of 

Federal Rule of Civil Procedure 13. See Schwab v. Erie Lackawanna R.R. 

Co., 438 F.2d 62, 66 (3d Cir. 1971) (dicta). A conversion into "opposing 

party" status would imply that, although cross-claims are never 

compulsory in themselves, the filing of one cross-claim would trigger 

duties on both sides to file all claims that were compulsory under Rule 

13(a). However, we suspect that a compulsory cross-claim rule would be 

limited to situations in which the initial cross-claim included a 

substantive claim, as opposed to claims for contribution and indemnity, 

in order to avoid needless complication of litigation. See Hall v. General 

Motors Corp., 647 F.2d 175, 184 (D.C. Cir. 1980); Rainbow Mgmt. Group, 

Ltd. v. Atlantis Submarines Hawai'i, L.P., 158 F.R.D. 656, 660 (D. Haw. 

1994) (cited in 6 Wright et al., Federal Practice & Procedure S 1404, at 2 

(Supp. 1997), for the proposition that filing one cross-claim turns 

coparties into opposing parties). But see Kane v. Magna Mixer Co., 71 

F.3d 555, 562 (6th Cir. 1995) (holding that indemnity claims trigger the 

compulsory cross-claim rule). Thus, the cross-claims for contribution 

and indemnity in Kent would not likely bar the present litigation. 

FSQ, in which AAC filed a third-party complaint against Paramount, 

raises the specter of an omitted compulsory counterclaim that would 

 21 
We will therefore vacate the judgment in favor of the 

defendants and remand to the District Court for further 

proceedings on Paramount's tort claims. 

III. The Counterclaims 

In its counterclaims, AAC alleged that it was entitled to 

payments for the lease of one helicopter and for goods and 

services provided for three other helicopters. It presented 

three counterclaims, but the third counterclaim in actuality 

duplicated the claims of the first two, and the District Court 

granted summary judgment on those two. In order to 

prevail on summary judgment, a party stating an 

affirmative claim must come forward with evidence entitling 

it to a directed verdict. See International Shortstop, Inc. v. 

Rally's, Inc., 939 F.2d 1257, 1264 (5th Cir. 1991).

The first counterclaim was for $34,629 plus 1.5% interest 

per month for breach of a helicopter lease contract entered 

into on March 20, 1987, and expiring November 15, 1989. 

The second was for $28,159.98 plus 1.5% interest per 

month for breach of a contract for the sale and supply of 

spare parts, services, and training related to three of 

Paramount's helicopters. The third was for an account 

stated between AAC and Paramount for $62,788.98 for

unpaid lease payments and goods, services, and training, 

plus 1.5% interest per month after September 1989. The 

contracts were governed by Pennsylvania law. 

AAC proffered the relevant lease agreements and invoices, 

and an affidavit from its Vice President of Finance and 

Administration, Vincent Genovese, detailing the amounts 

_________________________________________________________________ 

preclude the present suit. However, we are inclined to think that the 

releases in FSQ, which specifically excluded the PAC claims, would 

operate as a waiver of a preclusion defense. See Publicis, 132 F.3d at 

366; cf. Bristol Farmers Market & Auction Co. v. Arlen Realty & Devel. 

Corp., 589 F.2d 1214, 1220-21 (3d Cir. 1978) (parties are not precluded 

from arbitrating claims that would normally be precluded by the 

compulsory counterclaim rule if they have agreed to arbitrate those 

claims); Restatement (Second) of Judgments S 26(1)(a) (providing that 

parties may agree "in terms or in effect" that a plaintiff may split a 

claim). 

 22 
not paid and calculating the interest due thereunder. For 

its account stated claim, AAC submitted a November 14, 

1991, letter from Genovese to Al Bartone, Paramount's 

president. The letter states: 

 This letter shall formalize our agreement in which you 

 have agreed to make monthly payments of $3,000 

 commencing 1/1/1992 in order to satisfy the debts 

 owed by Paramount to Agusta Aerospace. As of October 

 31, 1991, the outstanding balance was $88,829.02 

 which includes interest of $10,361.00. Interest will 

 continue to accrue on the principal amount of the debt 

 until it is paid in full. 

 Please indicate your agreement with these terms by 

 signing below. 

Bartone signed "Agreed" on November 14, 1991. Paramount 

states that, in addition to this letter, it entered into a 

"short-term lease agreement" with AAC on the same day. 

This agreement gave Paramount the right to lease a newer 

model 109 helicopter from AAC for an hourly rental fee, and 

Paramount agreed to attempt to sell this aircraft on 

commission. Paramount contends that this new lease 

agreement was part of a package deal that also included 

the agreement relating to past debts quoted above. 

However, Paramount does not challenge AAC's basic 

underlying evidence regarding the existence and terms of 

the 1987 helicopter lease and the service contract.

Paramount defended against the account stated claim by 

noting that, although the November 14 Genovese/Bartone 

letter was signed two days after AAC filed counterclaims, 

the amount in the letter differs from that in the 

counterclaim, and the letter makes no mention of those 

counterclaims. Paramount also argued that AAC did not 

submit proof that it demanded payment before filing the 

counterclaims. The District Court found Paramount's

arguments persuasive to defeat the account stated claim, 

but ultimately irrelevant, because the relief sought on the 

account stated claim was exactly the same relief sought on 

the two breach of contract claims, on which it granted 

summary judgment to AAC. We agree. 

 23 
In fact, Paramount did not effectively challenge AAC's 

entitlement to the amounts asserted in the counterclaims, 

except to offer a number of defenses: an argument that the 

November 14 letter constituted an accord and satisfaction 

or a novation; a claim that AAC had waived its 

counterclaims; and various equitable defenses. It also 

asserted a set-off. The District Court rejected these 

defenses. We take them up in turn, except for the equitable 

defenses, which we dispose of summarily in the margin.12 

A. Accord and Satisfaction or Novation 

Paramount contends that there was an accord and 

satisfaction or a novation, based on the November 14 letter. 

An accord and satisfaction is a substitute contract for 

settlement of a debt by some alternative other than full 

payment. See Occidental Chem. Corp. v. Environmental 

Liners, Inc., 859 F. Supp. 791 (E.D. Pa. 1994). The

consideration is the resolution of a disputed claim. The 

District Court found that the November 14 letter might be 

evidence of an accord, but that there was no evidence that 

Paramount had made payment according to the agreement, 

which is required for satisfaction. See Beechwood Commons 

Condominium Ass'n v. Beechwood Commons Assocs., Ltd., 

580 A.2d 1, 5 n.2 (Pa. Super. Ct. 1990). We agree. When an 

accord is breached, the non-defaulting party can enforce, at 

its option, the underlying agreement or the accord. See 

_________________________________________________________________ 

12. Paramount asserted a hodgepodge of equitable defenses, which the 

court held inapplicable to AAC's counterclaims. Estoppel, for example, 

requires material misrepresentation, reasonable reliance, and resulting 

damage. See Greenberg v. Tomlin, 816 F. Supp. 1039, 1055 (E.D. Pa. 

1993). The District Court found no evidence of misrepresentation. As for 

unclean hands, that defense applies when the party seeking relief is 

guilty of fraud, unconscionable conduct, or bad faith directly related to 

the matter at issue that injures the other party and affects the balance 

of equities. See Equibank v. Adle, Inc., 595 A.2d 1284, 1287 (Pa. Super. 

Ct. 1991). However, Paramount does not allege that the invoices that are 

the subject of the counterclaim deal with services that were negligently 

provided, nor would a vibration problem in one helicopter be enough to 

establish the defense. Furthermore, the court found no evidence of 

unconscionability or that the contract was against public policy. The 

equitable defenses are essentially conclusory and we think that the 

District Court was correct to reject them. 

 24 
Nowicki Constr. Co. v. Panar Corp., 492 A.2d 36, 40 (Pa. 

Super. Ct. 1985). Thus, without any evidence of satisfaction 

(and there was none), there was not a scintilla of evidence 

supporting this defense. We find no error in the District 

Court's reasoning on this point. 

Paramount then argued that the letter was a novation, 

extinguishing the former obligation by another new 

promise. In a novation, the new promise itself satisfies the 

preexisting claims, whereas in an accord it is the 

performance of the new promise that does so. See id. A 

novation bars revival of the preexisting duty. See 

Beechwood, 580 A.2d at 5. The essential difference between 

an accord and a novation is the parties' intent. See Nowicki, 

492 A.2d at 40. The party asserting a novation has the 

burden of proof. See Buttonwood Farms, Inc. v. Carson, 478 

A.2d 484, 486 (Pa. Super. Ct. 1984). The District Court 

found that there was no evidence of any kind that the 

parties intended to extinguish their obligations under the 

original lease and contract. 

Paramount claims that a jury could find the letter to be 

a novation, especially when viewed in context with the lease 

agreement for the new model 109A helicopter executed the 

same day and given that the amount in the letter differed 

from that stated in the counterclaim. The existence of a 

substituted contract is generally for the jury. See Proie 

Bros., Inc. v. Proie, 301 F. Supp. 680, 682 (W.D. Pa. 1968), 

aff'd, 414 F.2d 1365 (3d Cir. 1969). However, we do not 

think that a reasonable jury could find that the November 

14 lease agreement or the counterclaim evidence an intent 

to enter into a novation. There is simply no suggestion in 

the record that either of the parties considered the 

November 14 letter to be a new contract. On its face it is no 

more than an agreement to pay amounts owed on a certain 

schedule, and Paramount has offered no other evidence of 

the parties' intent.13 

_________________________________________________________________ 

13. If there was a new contract, Paramount further argues, the statute 

of limitations has run on it, because the counterclaim was never 

amended to include the new contract. Because we conclude that there 

was no new contract, we need not resolve this issue. 

 25 
B. Waiver 

Paramount also argues that AAC waived its claim by 

failing to send dunning notices or to take any steps to 

collect the debts that were due and owing until Paramount 

sued. Under Pennsylvania law, waiver of legal rights can 

arise by clear, unequivocal, and decisive action by a party 

with knowledge of such rights and evident purpose to 

surrender them. Waiver can be express or implied from 

conduct in situations that would support equitable 

estoppel. The party claiming implied waiver must show that 

it was misled and prejudiced by the other party's conduct. 

See Prousi v. Cruisers Div. of KCS Int'l, Inc., 975 F. Supp. 

768, 771-72 (E.D. Pa. 1997). Under these requirements, the 

court held, Paramount could not prove waiver. Even 

assuming that AAC made no attempt to collect on its debts 

until sued, Paramount was neither misled nor prejudiced. 

Moreover, failure to demand payment is simply not a clear, 

unequivocal, and decisive action. As long as the claim was 

asserted within the statute of limitations, as it was, 

Paramount had no reasonable expectation that it would be 

free from the counterclaim. 

C. Disputes as to Amount 

Paramount also makes several claims about the amount 

due. First, it argues that the award of 1.5% interest on the 

goods and services contract was inappropriate, because 

only the helicopter lease agreement provided for interest, 

and because many of the invoices for goods and services 

were issued after September 1989, while interest was 

calculated on the entire amount in controversy starting 

from September 1989. See App. at 640. However, as the 

District Court observed, Paramount never attempted to 

rebut AAC's calculation, expressed in the affidavit of its 

Vice President, Mr. Genovese. We will not allow it to do so 

on appeal. 

Second, Paramount contends that AAC sought 

compensation for goods and services with respect to a 

helicopter numbered 7341, which Paramount never owned 

or operated. However, Paramount never submitted evidence 

to the District Court to counter AAC's affidavit. Although 

Paramount denied knowledge or information about the

 26 
helicopter in its responses to requests for admission, its 

general denial is insufficient to create a genuine issue of 

fact. See United States v. Bottenfield, 442 F.2d 1007, 1008 

(3d Cir. 1971). 

Paramount finally argues that there was a difference 

between the amount claimed in the counterclaim 

($62,788.98 without interest) and the amount stated in the 

November 14 letter ($78,468.02 without interest), despite 

the fact that the counterclaim was filed two days before the 

letter was sent, and that this creates a genuine issue of 

material fact. We disagree, concluding that the District 

Court was correct to award judgment on the breach of 

contract claim based on the Vice President's affidavit about 

the amounts Paramount owed. This is true regardless of 

what the November 14 letter said, because if it was an 

accord it was never satisfied and thus Paramount was 

responsible for the initial obligation. 

D. The Setoff 

Paramount asserted a setoff based on the same facts that 

grounded its initial claim, i.e., Paramount alleged that the 

1989 crash was caused by Agusta's defective 

manufacturing and maintenance, and that the crash 

caused Paramount significant harm. Paramount argued

that the helicopter that was the subject of the counterclaim 

also had a vibration problem like the problem that caused 

the crash, although the District Court found the 

maintenance records difficult to decipher on that point. 

Thus, Paramount contends that it is entitled to recover 

from the Agusta defendants for the harm caused by the 

crash-related events, which offsets any amount it might 

owe AAC. The District Court rejected the setoff claim on 

entire controversy grounds. Because we have found the 

entire controversy doctrine inapplicable to Paramount's 

claims, Paramount will be entitled to try to prove its case 

on remand and, if it prevails, it may offset any recovery 

against the amount owed on the counterclaims. In sum, we 

uphold the District Court's determination of the amount 

due on the counterclaims. However, because the setoff may 

be a valid claim, we will vacate the judgment on the 

counterclaims pending resolution of Paramount's claims on 

remand. 

 27 
IV. Conclusion 

For the foregoing reasons, we will reverse the District 

Court's grant of summary judgment to the Agusta 

defendants on Paramount's tort claims and remand for 

further proceedings. We will affirm the District Court's 

determination of the amount owed on AAC's counterclaims, 

but vacate the judgment on the counterclaims pending 

disposition of Paramount's tort claims. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

 28