Court Opinion

ID: 9926613
Source: CourtListenerOpinion
Date Created: 2024-01-25 15:05:38.232761+00
Date Added: 2024-06-11T09:21:47.733361
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-2607-22

NEW JERSEY MANUFACTURERS
INSURANCE COMPANY,

          Plaintiff-Appellant,

v.

LALLYGONE LIMITED
LIABILITY COMPANY,

     Defendant-Respondent.
_____________________________

                   Argued January 17, 2024 – Decided January 25, 2024

                   Before Judges Haas and Gooden Brown.

                   On appeal from the Superior Court of New Jersey, Law
                   Division, Bergen County, Docket No. L-0775-23.

                   Lawrence F. Walker argued the cause for appellant
                   (Cozen O'Connor, PC, attorneys; Lawrence F. Walker,
                   on the briefs).

                   Neal A. Thakkar argued the cause for respondent
                   (Sweeney & Sheehan, PC, attorneys; Denise M.
                   Montgomery, of counsel; Peter P. Sanchez, on the
                   brief).
PER CURIAM

      Plaintiff New Jersey Manufacturers Insurance Company (NJM) appeals

from the Law Division's April 21, 2023 order granting defendant Lallygone

Limited Liability Company's (Lallygone's) motion to dismiss NJM's complaint

seeking to recover monies NJM previously paid to its insured, Efmorfopo

Panagiotou (the Insured). We affirm.

                                       I.

      The facts are not in dispute. The Insured owned a home in Montvale and

obtained a homeowners insurance policy from NJM. In February 2022, he and

Lallygone entered into a contract under which Lallygone agreed to make

alterations to the detached garage on the property. The Insured paid Lallygone

a $22,250 deposit, which represented 50% of the $44,500 contract price. The

Insured made these payments through PayPal.

      Lallygone purchased materials and paid subcontractors before beginning

work on the project on March 21, 2022. Nine days later, the garage collapsed

while one of the subcontractors was removing the existing concrete slab inside

the garage.

      The Insured thereafter filed a claim with NJM, which investigated the

matter. "[A]s subrogee of" the Insured, NJM sent a letter to Lallygone "relative

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to a fire loss [1] that occurred" at the property. The letter informed Lallygone that

its purpose was to "place [Lallygone] on notice of the potential for a subrogation

lawsuit" and the letter "should be immediately forwarded to [Lallygone's]

liability insurance carrier/attorney for review."

        On May 19, 2022, the Insured disputed the $22,500 deposit payment

through PayPal and represented that the "item" he purchased was "defective or

not as described." As a result, PayPal withdrew the funds from Lallygone's

account and returned them to the Insured's account.

        Thereafter, NJM "paid more than $187,000 in damages" to the Insured as

a result of the garage collapse. 2

        On October 6, 2022, Lallygone filed a complaint against the Insured in

the Special Civil Part. Count one alleged breach of contract. Count two alleged

unjust enrichment and asserted the Insured had not paid for any of the work done

by Lallygone. Lallygone's complaint stated that "[a]fter the collapse of the

1
    There is no other reference to a "fire loss" in the record.
2
   The specific amount NJM paid to the Insured, and the date on which it was
paid, are unclear from the record. NJM states in its brief that it "paid the insured
$185,286.10 as compensation for the property damage . . . on or before
September 28, 2022" but NJM cites only to its complaint as support for this
statement. The complaint does not contain this precise figure, referring only to
the "more than $187,000" paid by NJM to the Insured. Nor does the complaint
state when the payments to the Insured were made.
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garage, [the Insured] filed an insurance claim with his homeowner's insurance

carrier, who subrogated and/or resolved the claim with the insurance carriers for

the respective contractors." The complaint certified pursuant to Rule 4:5-1 that

"the claims raised herein are not the subject of any other action or arbitration

inasmuch as the parties here are not parties in any other action involving the

claims herein."

      On November 19, 2022, the Insured, who was represented by an attorney,

answered Lallygone's complaint and filed a counterclaim. In the answer, the

Insured admitted that he withdrew the funds in PayPal following the collapse of

the garage. Count one of the Insured's counterclaim alleged breach of contract,

and stated that Lallygone "failed to properly engineer the garage"; failed to shore

up the garage prior to beginning any renovations; and otherwise failed to

perform the contracted work substantially free from defects in workmanship and

in a good workmanlike manner.

      Count two alleged violations of the Consumer Fraud Act, N.J.S.A. 56:8-1

to -2.13, and stated that Lallygone misrepresented the quality of the work to be

performed, the timeline for completion of the work, and that Lallygone and/or

its agents caused the garage to collapse, all of which resulted in damages to the

Insured. Finally, count three of the counterclaim alleged fraud, and stated that

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Lallygone knowingly or recklessly concealed the condition of the garage "in

order to induce [the Insured] to retain their services."

        In his pleading, the Insured admitted that the insurance claim with NJM

"has been resolved." The Insured's counsel similarly certified under Rule 4:5-1

that there were no other pending matters and that there were no other parties

who should be joined "because of potential liability to any party on the basis of

the same transactional facts."3

        The Special Civil Part conducted a two-day bench trial, which began on

January 12, 2023. George Nader, identified as "the Principal of Lallygone,"

testified on Lallygone's behalf about the terms of the contract between Lallygone

and the Insured as well as the expenses that Lallygone incurred because of taking

the job and performing the necessary work prior to the collapse of the garage.

Nader testified on cross-examination that Lallygone used all the supplies it

bought prior to the collapse of the garage. Nader also testified as to the sequence

at which the work was performed.

        The Insured testified on his own behalf and corroborated Nader's

testimony as to the scope of the work Lallygone performed.           The Insured

testified that he was not present when the garage collapsed and was not sure

3
    Lallygone filed an answer to the counterclaim.
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what caused it to collapse at the time. When asked about his counterclaims, the

Insured offered little evidence in support, and instead relied on his own

observations and his limited experience as a contractor. The Insured did not

offer expert testimony as to why the garage collapsed, and instead relied solely

on the fact that it collapsed as evidence that Lallygone committed consumer

fraud.

         On January 13, 2023, the trial court found for Lallygone and awarded

damages of $9,151.76 because the Insured failed to compensate Lallygone for

the cost of the materials and workmanship prior to the collapse of the garage.

In an oral decision on the record, the court found that Lallygone did not commit

a violation of the Consumer Fraud Act as alleged in the Insured's counterclaim.

In part, the court did not find "ascertainable loss" because at that point the

Insured had not yet "paid a penny to Lallygone." Specifically, the court noted

that it did not have "a scintilla of evidence of damages other than storage and

. . . I do not have any unlawful conduct or any unlawful conduct that resulted in

the ascertainable loss."      Accordingly, the court dismissed the Insured's

Consumer Fraud Act claim.

         The court also found there was no competent evidence in the record as to

what caused the garage to collapse, finding that it was "a dilapidated structure

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that needed a lot of work and the mere fact that that was not successful does not

mean that [Lallygone] did anything wrong," particularly in the absence of any

expert testimony from the Insured as to the potential cause. Therefore, the court

dismissed the Insured's counterclaim in its entirety.

                                        II.

      On February 8, 2023, NJM filed a complaint in the Law Division as

subrogee of the Insured against Lallygone and sought to recover all of the money

it previously paid the Insured on his claim. The complaint consisted of three

counts: count one for negligence, count two for violation of the Contractor's

Registration Act, N.J.S.A. 56:8-136 to -167, and the Consumer Fraud Act, and

count three for breach of contract, specifically, breach of the implied warranty

to perform services in a workmanlike manner. In response, Lallygone filed a

motion to dismiss the complaint under the principle of res judicata and the entire

controversy doctrine based on the Special Civil Part's determination in its favor

in the prior action between it and the Insured.

      Following oral argument, the trial court granted Lallygone's motion and

dismissed NJM's complaint with prejudice.         In its thorough oral decision

rendered on April 21, 2023, the court found that the Insured presented no

evidence in the prior action "to substantiate that Lallygone failed to complete its

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work or that the fact that the garage collapsed was indicative of Lallygone failing

to have completed its work pursuant to appropriate standards and practices." As

a result, the Insured did not meet his burden of proof to sustain his claim that

Lallygone violated the Consumer Fraud Act, or to sustain a cause of action

against Lallygone for breach of contract or for fraud in connection to the work

it completed. Thus, the court found the Insured "prosecuted and lost the claims

for breach of contract, consumer fraud and common law fraud, all of which stem

from the same factual nexus of events related to the collapse of the garage ."

      The court also acknowledged that NJM brought a claim for negligence,

which was not part of the Insured's counterclaim in the Special Civil Part, but

found the addition of that claim was "not relevant to th[e] court's decision, as

that negligence claim is all stemming from the same factual nexus and the same

written contract between [the Insured] and Lallygone." Finally, as to NJM's

claims that it never received notice of the Special Civil Part action, the trial court

highlighted that "it is the counterclaim which generated [the Special Civil Part's]

decisions relating to contract, consumer fraud, common law fraud and theories

of unjust enrichment and that counterclaim was instituted by [NJM]'s insured ."

      The trial court further found that the entire controversy doctrine barred

NJM's complaint against Lallygone. The court noted that this doctrine mandates

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                                          8
that "all parties involved in the litigation should at the very least present in that

proceeding all their claims and defenses that are related to the underlying

controversy." The trial court conducted an analysis of NJM's claims and the

Insured's counterclaims and determined that because the "factual nexus of both

actions [were] identical," the entire controversy doctrine was applicable and

precluded NJM's claims. The court emphasized NJM's status as a subrogee of

the Insured, and determined that NJM "stand[s] in the shoes" of the Insured, and

that "[t]hey do not have any rights greater than that of their insured ." The court

reasoned that "failing to join claims as required by the entire controversy

doctrine results in the preclusion of the claims" and dismissed the matter

accordingly. This appeal followed.

                                        III.

      We begin by addressing the trial court's determination that NJM's claims

against Lallygone were barred by res judicata. NJM argues that the trial court

erred in dismissing the complaint under the doctrine of res judicata because it

was not a party to the original proceeding in the Special Civil Part. NJM further

contends that even if NJM were in privity with the Insured, application of the

doctrine is inequitable because it did not have an opportunity to obtain a full and

fair adjudication of its claims and because its claim for relief greatly exceeds

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                                         9
the Insured's claims. Lallygone asserts that NJM's status as a subrogee prohibits

this action because the subrogor, the Insured, already litigated the same issues

and a court found that the Insured was not entitled to recovery.

      "The application of res judicata is a question of law[]" that we review "de

novo." Walker v. Choudhary, 425 N.J. Super. 135, 151 (App. Div. 2012)

(quoting Selective Ins. Co. v. McAllister, 327 N.J. Super. 168, 173 (App. Div.

2000) (first)); (quoting Manalapan Realty, LP v. Twp. Comm. of Manalapan,

140 N.J. 366, 378 (1995) (second)). "Res judicata prevents relitigation of a

controversy between the parties." Brookshire Equities, LLC v. Montaquiza, 346

N.J. Super. 310, 318 (App. Div. 2002). "The rationale underlying res judicata

recognizes that fairness to the defendant and sound judicial administration

require a definite end to litigation." Velasquez v. Franz, 123 N.J. 498, 505

(1991) (citing Restatement (Second) of Judgments § 19 cmt. a (Am. L. Inst.

1982)).

      For res judicata to apply, there must be "(1) a final judgment by a court of

competent jurisdiction, (2) identity of issues, (3) identity of parties, and (4)

identity of the cause of action." Brookshire Equities, 346 N.J. Super. at 318.

Application of the doctrine is "a question of law 'to be determined by a j udge in

the second proceeding after weighing the appropriate factors bearing upon the

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                                       10
issue.'" Selective Ins. Co., 327 N.J. Super. at 173 (quoting Colucci v. Thomas

Nicol Asphalt Co., 194 N.J. Super. 510, 518 (App. Div. 1984)).

      The parties do not contest that the causes of action and the issues here are

identical to the Special Civil Part action, or that there was a final judgment in

the Special Civil Part. However, NJM argues identity of parties does not exist,

thereby rendering application of res judicata improper. "Judgment or orders

normally do not bind non-parties." N. Haledon Fire Co. No. 1 v. Borough of

North Haledon, 425 N.J. Super. 615, 628 (App. Div. 2012) (quoting In re

Application of Mallon, 232 N.J. Super. 249, 254 n.2 (App. Div. 1989)).

However, a judgment may be binding on a non-party "if their interests have been

represented by a party."    Ibid. (citing Morris Cnty. Fair Hous. Council v.

Boonton Township, 197 N.J. Super. 359, 364-65 (Law Div. 1984)).

      Lallygone asserts that as a subrogee, NJM can only recover as much as

the Insured can recover, and that, because NJM "stands in the shoes" of the

Insured as a subrogee, NJM is bound by the prior actions of the Insured.

Lallygone argues that NJM's issue likely lies with its Insured, because the

Insured is the party who brought the similar claims and ultimately lost on those

claims, which all "stem from the same factual nexus and all relat[e] to the

collapse of the garage." Lallygone's position is correct.

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      "[S]ubrogation is a device of equity to compel the ultimate discharge of

an obligation by the one who in good conscience ought to pay it [and] . . . to

serve the interests of essential justice between the parties." Culver v. Ins. Co.

of N. Am., 115 N.J. 451, 455-56 (1989) (quoting Standard Accident Ins. Co. v.

Pellecchia, 15 N.J. 162, 171 (1954)). "The doctrine is highly favored in the

law." Ibid.

              In the insurance context, subrogation is a doctrine
              allowing the insurer to seek recovery from the party at
              fault, exercised after the insurer has indemnified its
              insured under the terms of an insurance policy. The
              doctrine is based on the principle that a benefit has been
              conferred upon the insured at the expense of the insurer
              and vests in the latter any rights the former may have
              had against a third party who is liable for the damages.

              [Palisades Ins. Co. v. Horizon Blue Cross Blue Shield
              of N.J., 469 N.J. Super. 30, 41 (App. Div. 2021)
              (quoting City of Asbury Park v. Star Ins. Co., 242 N.J.
              596, 604 (2020)).]

Subrogation can arise in one of three ways, either through "(1) an agreement

between the insurer and the insured, (2) a right created by statute, or (3) a

judicial 'device of equity to compel the ultimate discharge of an obligation by

the one who in good conscience ought to pay it.'" Id. at 42 (quoting Culver, 115

N.J. at 456).

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      "The fundamental principle of subrogation is that the subrogee's rights rise

no higher than those of the subrogor[,]" and the right of subrogation turns

entirely on "the merits of the subrogor's claim against the third party." Holloway

v. State, 125 N.J. 386, 398 (1991). "The subrogee, which succeeds to the

position of the subrogor, may recover only if the subrogor likewise could have

recovered; the subrogee gains no additional rights and is subject to all defenses

that were available against the subrogor." Id. at 396.

      Applying these principles, we are satisfied that there is identity of the

parties between the two actions because of NJM's status as a subrogee to the

Insured. A subrogee clearly "steps into the shoes" of the subrogor and does not

obtain any additional rights or privileges other than those available to the

subrogor. Ibid.; see also City of Asbury Park, 242 N.J. at 605 (quoting Pellechia,

15 N.J. at 172 ("In subrogation cases, the insured's right to recovery against a

third-party tortfeasor vests in the insurer, and the insurer 'steps into the shoes of

the insured.'")).

      This is precisely the case here.          When the Insured brought his

counterclaim and raised allegations of breach of contract, common law fraud,

and violations of the Consumer Fraud Act, he initiated an action to recover costs

associated with the collapse of his garage. Why the Insured and his counsel

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                                        13
raised these claims even though he had already made a claim to NJM and was

compensated is not clear from the record. But the fact remains that the Insured

raised these claims and tried them to a decision in a court of competent

jurisdiction. Thus, NJM's subrogation interest was represented by its Insured

and tried to a final decision on the merits in the Special Civil Part.

      NJM next argues that the equitable grounds that are normally applied to

the doctrine of collateral estoppel preclude the application of res judicata in this

case. NJM asserts that the trial court erred by declining to give weight to its

argument that it would be inequitable to find that it is bound by its subrogor's

actions in the Special Civil Part action because it did not know about that

proceeding. We disagree.

      The doctrine of collateral estoppel, or issue preclusion, "is a branch of the

broader law of res judicata which bars relitigation of any issue actually

determined in a prior action generally between the same parties and their privies

involving a different claim or cause of action." Selective Ins., 327 N.J. Super.

at 173 (quoting Figueroa v. Hartford Ins. Co, 241 N.J. Super. 578, 584 (App.

Div. 1990)). For collateral estoppel to apply, the party invoking the doctrine

must show:

             (1) the issue to be precluded is identical to the issue
             decided in the prior proceeding; (2) the issue was

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                                        14
            actually litigated in the prior proceeding; (3) the court
            in the prior proceeding issued a final judgment on the
            merits; (4) the determination of the issue was essential
            to the prior judgment; and (5) the party against whom
            the doctrine is asserted was a party to or in privity with
            a party to the earlier proceeding.

            [Id. at 173-74 (quoting In re Est. of Dawson, 136 N.J.
            1, 20 (1994)).]

      "Although collateral estoppel overlaps with and is closely related to res

judicata, the distinguishing feature of collateral estoppel is that it alone bars

relitigation of issues in suits that arise from different causes of action." Id. at

173 (citing United Rental Equip. Co. v. Aetna Life and Cas. Ins. Co., 74 N.J. 92,

101 (1977)). Indeed, collateral estoppel "requires a similar, yet less demanding,

analysis than res judicata or claim preclusion." First Union Nat'l Bank v. Penn

Salem Marina, Inc., 190 N.J. 342, 352 (2007).

      "In brief, [res judicata] applies to all claims growing out of the same facts

that could have been brought, but [collateral estoppel] applies only to those

issues that were actually litigated and decided." Watkins v. Resorts Int'l Hotel

& Casino, 124 N.J. 398, 422 (1991). Under collateral estoppel, then, "[w]hen

an issue of fact or law is actually litigated and determined by a valid and final

judgment, and the determination is essential to the judgment, the determination

is conclusive in a subsequent action between the parties, whether on the same or

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a different claim." Ibid. (quoting Restatement (Second) of Judgments § 27).

The doctrine "is not subject to rigid application but may be applied after a careful

assessment and consideration of all relevant factors both in support of and

against its application." Selective Ins., 327 N.J. Super. at 174; see also Pace v.

Kuchinsky, 347 N.J. Super. 202, 215 (App. Div. 2002) (citing that collateral

estoppel "has its roots in equity, [and] will not be applied when it is unfair to do

so").

        On the other hand, res judicata is a legal, rather than an equitable doctrine.

Velasquez, 123 N.J. at 513. As the Velasquez Court held, the doctrine of res

judicata "serves vital public interests beyond any individual judge's ad hoc

determination of the equities in a particular case." Ibid. (quoting Federated

Dep't Stores v. Moitie, 452 U.S. 394, 401 (1981)). Thus, "there is 'no principle

of law or equity which sanctions the rejection by a . . . court of the salutary

principle of res judicata.'" Ibid. (quoting Heiser v. Woodruff, 327 U.S. 726, 733

(1946)).

        "Only in extraordinary circumstances has the Court departed from strict

deference to res judicata principles." Ibid. "Such circumstances exist where the

issue is purely one of law that affects a substantial public interest, and the

decision would 'frustrate totally the essential purpose of a statute' and result in

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                                         16
inequitable administration of the law if not reconsidered." Id. at 513-14 (quoting

Plainfield v. Pub. Serv. Elec. & Gas Co., 82 N.J. 245, 258-59 (1980)).

      No such circumstances exist in this case. Here, the Insured raised the

identical claims against Lallygone to recover damages stemming from the

collapse of the garage. Under the doctrine of res judicata, the rejection of those

claims by the Special Civil Part in the first proceeding closed the door on NJM

from being able to recover on the same in the second proceeding because NJM

is a subrogee to the Insured. As such, its interests can only rise to the level of

the Insured. Holloway, 125 N.J. at 396, 398 ("The fundamental principle of

subrogation is that the subrogee's rights rise no higher than those of the

subrogor[,]" and the right of subrogation turns entirely on "the merits of the

subrogor's claim against the third party.").

      Thus, as the Insured's interest was tried to conclusion by the Insured

himself, NJM cannot supersede those interests and assert its own on the same

claims. As the Court in Velasquez, quoting the United States Supreme Court,

stated:

            [W]e cannot be expected, for [a party's] sole relief, to
            upset the general and well established doctrine of res
            judicata, conceived in the light of the maxim that the
            interest of the state requires that there be an end to
            litigation—a maxim which comports with common
            sense as well as public policy. And the mischief which

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                                       17
            would follow the establishment of precedent for so
            disregarding this salutary doctrine against prolonging
            strife would be greater than the benefit which would
            result from relieving some case of individual hardship.

            [Velasquez, 123 N.J. at 514 (quoting Reed v. Allen, 286
            U.S. 191, 198-99 (1931)).]

      Accordingly, we affirm the trial court's dismissal of NJM's complaint

against Lallygone under the doctrine of res judicata.          In view of this

determination, we do not address the court's alternative ruling that NJM's claims

were barred by the entire controversy doctrine.

      Affirmed.

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