Source: http://nj.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19990323_0000029.DNJ.htm/qx
Timestamp: 2017-03-23 22:25:23
Document Index: 164072396

Matched Legal Cases: ['§ 3730', '§ 2', '§ 1331', '§ 3730', '§ 1961', '§ 2', '§ 2', '§\n2', '§\n2']

| MRUZ v. CARING
JOHN H. MRUZ, VASILIKE D. NIKA, AND JANE A. JOHNSON, PLAINTIFFS,v.CARING, INC., CARING RESIDENTIAL SERVICES, INC., CARINGHOUSE PROJECTS, INC., CARING MEDICAL DAY SERVICES, INC., CARING FELLOWSHIP CENTERS, INC., CARING INTERNATIONAL, INC., COMPREHENSIVE ELDERCARING, INC., COASTAL SUPPORT SERVICES, INC., ANN J. UNDERLAND, CARLISLE W. UNDERLAND, GARFIELD L. GREENE, LEWIS W. FIELD, MARY E. HAYNIE, IAN MEKLINSKY, ESQ, O'BRIEN &AMP; FRANKEL, DEFENDANTS.
This case presents the novel question of whether a litigant may
pursue a state law remedy for the filing of a frivolous claim
when the claim arises under federal law and this Court's subject
matter jurisdiction is based upon a federal question.*fn1 For
the reasons set forth below, I hold that, because the
jurisdictional basis for the alleged frivolous claim is this
Court's federal question jurisdiction, litigants who seek relief
for such "litigation abuse" must pursue the arsenal of federal
remedies available to address such misconduct. Accordingly, I
shall grant Plaintiffs' motion to dismiss the counterclaim.
Alternatively, I shall grant the motion to dismiss the
counterclaim because a party seeking relief under New Jersey's
Frivolous Claims Act may only do so by the filing of a motion,
and not by the assertion of a counterclaim.*fn2
On March 21, 1997, Plaintiffs, John H. Mruz, Vasilike D. Nika,
and Jane A. Johnson ("Plaintiffs"), filed this action, which
arises out of Plaintiffs' discovery and investigation of alleged
Medicaid and tax fraud by their employers, and Plaintiffs'
subsequent termination. On January 28, 1998, in an Opinion and
Order resolving the defendants' motions to dismiss, this Court
dismissed Plaintiffs' claims for violation of the Federal False
Claims Act, 31 U.S.C. § 3730(h) (Count I), and various state
common law claims (Count V). Mruz, et al. v. Caring, Inc., et
al., 991 F. Supp. 701, 720 (D.N.J. 1998). After Plaintiffs filed
an amended complaint on February 17, 1998, Defendants, Ian
Meklinsky, Esq., and Fox, Rothschild, O'Brien & Frankel (the
"Attorney Defendants"), answered the Amended Complaint and filed
a counterclaim pursuant to the New Jersey Frivolous Claims Act,
N.J. Stat. Ann. § 2A:15-59.1, for attorneys' fees and costs
incurred in defense of Count I of the Complaint. Plaintiffs have
now moved to dismiss the counterclaim for failure to state a
claim upon which relief can be granted. The Court has
jurisdiction over this matter pursuant to 28 U.S.C. § 1331,
1367.*fn3
The facts and procedural history giving rise to this litigation
are set forth in detail in this Court's January 28, 1998,
opinion, Mruz, et al. v. Caring, Inc., et al., 991 F. Supp. 701
(D.N.J. 1998) ("Mruz I"), and, therefore, shall not be repeated
here. What follows below is the procedural history relevant to
Plaintiffs' motion to dismiss the Attorney Defendants'
counterclaim for failure to state a cause of action upon which
relief can be granted, pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure.*fn4
On August 8, 1997, Defendants, CARING, Inc., CARING Residential
Services, Inc., CARINGhouse Projects, Inc., CARING Medical Day
Services, Inc., CARING Fellowship Centers, Inc., Caring
International, Inc., Comprehensive ElderCARING, Inc., Coastal
Support Services, Inc., Ann J. Underland, Carlisle W. Underland,
Garfield L. Greene, Lewis W. Field, Mary E. Haynie (collectively,
"Corporate Defendants"), and Defendants, Fox Rothschild, O'Brien
& Frankel ("Fox"), and Ian Meklinsky, Esq. ("Meklinsky"), filed
motions to dismiss Counts I, II, IV, and V of the Complaint.
See Corporate Defendants' Notice of Motion (filed Aug. 8,
1997); see also Attorney Defendants' Notice of Motion (filed
Aug. 8, 1997). On January 28, 1998, this Court granted in part
and denied in part defendants' motions. See Mruz I, 991 F. Supp.
at 704, 721. Specifically, I dismissed Plaintiffs' claim for
violation of the Federal False Claims Act, 31 U.S.C. § 3730(h),
Count I of the Complaint; denied defendants' motions to dismiss
Plaintiffs' claims for violation of the Racketeer Influenced and
Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.,
and the New Jersey Racketeer Influenced and Corrupt Organizations
Act, N.J. Stat. Ann. § 2C:41-1 et seq., Counts II and IV; and
granted defendants' motions to dismiss Count V of the Complaint,
Plaintiffs' state law cause of action, "without prejudice to
Plaintiffs' right to file an amended Count V of the Complaint
twenty days. . . ."*fn5 See Order of the Court (filed Jan. 28,
1998); see also Mruz I, 991 F. Supp. at 707-21.
In Mruz I, after concluding that the touchstone of liability
under section 3730(h) of the False Claims Act is an "employment
relationship," see Mruz I, 991 F. Supp. at 709, I went on to
"determine whether Plaintiffs ha[d] pled facts [in Count I of the
Complaint] from which an inference of an employment relationship
between Plaintiffs and the Attorney Defendants . . . [could] be
drawn." See id. at 710 (footnote omitted). In making this
determination, I wrote:
A review of the Complaint confirms that no such
inference can reasonably be drawn. First and perhaps
most important, Plaintiffs allege that they were
employed by various corporate entities, not by the
Attorney Defendants. . . . [T]here is nothing in the
Complaint suggesting an employment relationship
between the Attorney Defendants and Plaintiffs . . .
Therefore, Count I of the Complaint will be dismissed
with prejudice . . . as to [the Attorney Defendants].
See id.; see also Order of the Court (filed Jan. 28, 1998).
On February 17, 1998, Plaintiffs filed an Amended Complaint.
See Amended Complaint (filed Feb. 17, 1998). On March 25, 1998,
the Attorney Defendants answered the Amended Complaint, and filed
the counterclaim, which forms the subject matter of this Opinion.
See Answer and Counterclaim (filed Mar. 25, 1998). The
counterclaim asserts a cause of action, under the New Jersey
Frivolous Claims Act ("NJFCA"), N.J. Stat. Ann. § 2A:15-59.1
(West 1998),*fn6 for the recovery of attorneys' fees and costs
incurred by the Attorney Defendants in defense of Count I of the
Complaint, Plaintiffs' False Claims Act claim. See Answer and
Counterclaim ("Counterclaim") (filed Mar. 25, 1998). In the
counterclaim, the Attorney Defendants allege:
Plaintiffs asserted that Fox and Meklinsky . . . were
liable to Plaintiffs under . . . &sect; 3730(h) [of the
False Claims Act] despite the fact that (a) there has
never been any employment relationship between one or
more of the Plaintiffs, on the one hand, and either
Fox or Meklinsky, on the other hand; and (b) the
complaint does not even allege that there is or was
any [such] employment relationship. . . . The [False
Claims Act claim] was filed against Fox and Meklinsky
in bad faith and solely for the purpose of
harassment, delay or malicious injury. . . .
Plaintiffs knew, or should have known, that the
[False Claims Act
claim] against Fox and Meklinsky was without any
reasonable basis in law or equity and could not be
supported by a good faith argument for an extension,
modification or reversal of existing law. By Opinion
dated January 28, 1998, and Order dated January 28,
1998, [this Court] dismissed the [False Claims Act
claim] as against . . . Fox and Meklinsky. As a
direct result of being named defendants on the [False
Claims Act claim], Fox and Meklinsky have been
damaged and have had to expend litigation costs and
attorneys' fees to defend against the [False Claims
Act claim]. [The Attorney Defendants] demand judgment
against [Plaintiffs] pursuant to N.J.S.A. 2A:15-59.1
for an award of all reasonable litigation costs and
attorneys' fees for being compelled to defend against
the [False Claims Act claim].
See Counterclaim, ¶¶ 1-5.
In lieu of answering the counterclaim, on June 26, 1998,
Plaintiffs filed a motion to dismiss the counterclaim for failure
to state a cause of action upon which relief can be granted,
Procedure. See Plaintiffs' Notice of Motion (filed Jun. 26,
1998). In support of their motion, Plaintiffs first contend that
the counterclaim is procedurally defective because: (a) the claim
for attorneys' fees is not ripe, (b) the right to attorneys' fees
under the NJFCA must be asserted in the form of a motion, not as
a counterclaim, and (c) the Attorney Defendants did not submit an
affidavit in support of the counterclaim as required by §
2A:15-59.1(c). See Plaintiffs' Brief in Support of Motion to
Dismiss ("Pl.Brief") at 3-7. Plaintiffs also contend that the
Attorney Defendants do not fall within the definition of
"prevailing party," as used in the NJFCA, because the Complaint
as a whole was not frivolous. See Pl. Brief at 8-9. Finally,
Plaintiffs contend that, on the merits, Count I of the Complaint
was not alleged in "bad faith solely for the purpose of
harassment, delay or malicious injury; [nor] . . . without any
reasonable basis in low or equity. . . ." See N.J. Stat. Ann. §
2A:15-59.1; see also Pl. Brief at 9-17.
In opposing the motion, the Attorney Defendants contend:
[P]laintiffs argue that any claim under the [NJFCA],
even in federal court, must be brought by motion. In
doing so, plaintiffs purposefully confuse the
distinction between a state court procedural rule and
a substantive cause of action . . . Plaintiffs'
attempt to elevate form over substance must fail. Fox
and Meklinsky are not required to adhere to New
Jersey procedural rules in pleading a cause of action
in federal court . . . [B]y arguing that Fox and
Meklinsky must assert their claim under the [NJFCA]
by motion instead by way of counterclaim, plaintiffs
are essentially claiming that a New Jersey procedural
rule trumps the Federal Rules of Civil Procedure.
Such an argument fails as a matter of law [under
Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14
L.Ed.2d 8 (1965)].
See Attorney Defendants' Brief in Opposition to Motion to
Dismiss ("Def.Brief") at 4-7 (filed Jun. 26, 1998). In addition,
the Attorney Defendants contend that they are "prevailing
parties" within the meaning of the NJFCA. See Def. Brief at
7-9. Finally, combing my January 28, 1998, Opinion, for
adjectives, such as "misguided" and "unprecedented," the Attorney
Defendants contend that, because I dismissed Plaintiffs' False
Claims Act claim, the claim was asserted in bad faith and without
a reasonable basis in law or equity. See Def. Brief at 7-15
(citing Mruz I, 991 F. Supp. at 716, 719, 722 n. 10).
Curiously, after vigorously contending that they may assert
their right to attorneys' fees and costs under the NJFCA by
counterclaim, the Attorney Defendants state:
Fox and Meklinsky always intended to and will file a
motion pursuant to the [NJFCA]. However, consistent
with New Jersey Supreme Court precedent,
Fox and Meklinsky will do so at the end of the
litigation after the Court has considered the
totality of the case. Thus, plaintiffs' assertion
that the counterclaim must be dismissed because Fox
and Meklinsky did not present their claims under the
[NJFCA] by motion must be rejected.
See Def. Brief at 7, 9 (citing McKeown-Brand v. Trump Castle
Hotel & Casino, 132 N.J. 546, 562, 626 A.2d 425 (1993)).
II. LEGAL STANDARD GOVERNING A RULE 12(B)(6) MOTION TO DISMISS
FOR FAILURE TO STATE A CLAIM UPON WHICH ...