Court Opinion

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Opinions of the United
1997 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

6-30-1997

Venuto v. Witco Corp
Precedential or Non-Precedential:

Docket 96-5104

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Recommended Citation
"Venuto v. Witco Corp" (1997). 1997 Decisions. Paper 144.
http://digitalcommons.law.villanova.edu/thirdcircuit_1997/144

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Filed June 30, 1997

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 96-5104

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

v.

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

RALPH VENUTO and AUTOMOTIVE MANAGEMENT
SYSTEMS, INC.,
Appellants

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

D.C. No. 89-2841

Argued February 4, 1997

Before: STAPLETON and MANSMANN, Circuit Judges,
and POLLAK, District Judge*

(Filed June 30, 1997)

_________________________________________________________________

*Honorable Louis H. Pollak, United States District Judge for the Eastern
District of Pennsylvania, sitting by designation.
Alan J. Davis (argued)
Ballard, Spahr, Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, PA 19103
Attorneys for Appellants Venuto
and Automotive Management
Systems, Inc.

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

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

OPINION OF THE COURT

POLLAK, District Judge.

This appeal from a decision of the District Court for the
District of New Jersey presents the question whether the
second of two closely related diversity suits brought against
the same defendant may be maintained. The answer to that
question turns on what, if any, collateral consequences flow
from the fact that, in the first suit, the district court denied
plaintiff's motion to join, as additional parties plaintiff, the
individual and the corporation that subsequently initiated
the second suit. Relying both on res judicata principles and
on New Jersey's entire controversy doctrine, the defendant
moved to dismiss the second suit. The district court found
the entire controversy doctrine inapplicable, but concluded
that res judicata principles were applicable and mandated
dismissal. Our review of the procedural history of these
linked cases yields the following conclusions: we agree with
the district court's entire controversy analysis but disagree
with its res judicata analysis; accordingly, we reverse the
district court's judgment dismissing the second suit.

                    2
I.

In order to explicate the issues posed by this appeal it
will be necessary to examine the procedural history of these
two suits in some detail. Plaintiff-appellants in the case at
bar -- the second of the two suits -- are Ralph Venuto and
Automotive Management Systems, Inc. ("AMS"). Venuto is
sole shareholder and president of Lightning Lube, Inc.
("Lube"), a franchisor of quick-oil-change businesses.
Venuto is also sole shareholder and president of AMS. AMS
operated some of Lube's franchises, and both AMS and
Venuto obtained sites for Lube's other franchisees, acting
as either landlord or loan guarantor.1 Defendant-appellee in
the case at bar is Witco Corporation, Lube's motor oil
supplier.

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

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

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

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

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

                   3
opposed the motion to amend, arguing that the motion was
filed over two months after the deadline for amending the
pleadings had passed and that the additional claims would
greatly prolong discovery.

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

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

MR. LEIBOWITZ: I don't dispute it.

THE COURT: Why would that serve your client's
interests? Or was that more of a rhetorical argument?

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

Listen, Mr. Kramer will have the benefit of thefirst
_________________________________________________________________

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

                    4
case and second case, if he losses [sic], he's going to be
able to go before the jury, looking, res ajudicata, a
judgment was entered against Kendall Refining
Company because it did this and here's the complaint.
Then how much work is he going to have to do? If he
has a complaint for bad faith, that will make this case.
It's even more advantageous for Mr. Kramer to get this
case over with and to have a second case.

App. 324.

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

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

App. 327-28.

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

Shortly thereafter, Venuto and AMS (hereinafter together

                    5
"Venuto") filed the complaint against Witco in the instant
case (which we shall call "Lube II"). 4 Lube II was assigned to
Judge Rodriguez, the judge presiding over Lube I. Judge
Rodriguez then affirmed Judge Simandle's denial of Lube's
motion for reconsideration in Lube I, and stayed any action
in Lube II pending the outcome of Lube I.

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

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

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

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

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

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

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

Venuto now appeals this decision. The district court had
jurisdiction pursuant to 28 U.S.C. § 1332; we have
jurisdiction pursuant to 28 U.S.C. § 1291. Our review of the
district court's application of res judicata rules and the
entire controversy doctrine is plenary. See Lubrizol Corp. v.
Exxon Corp., 929 F.2d 960, 962 (3d Cir. 1991).

II.

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

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

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

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

                    7
The district court concluded that Witco had established
the elements necessary for a res judicata defense. We
assume that the district court's findings were correct.
Nonetheless, because Judge Simandle expressly preserved
Venuto's and AMS's claims for a future action through
denying the motion to amend "without prejudice," we will
reverse.

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

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

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

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

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

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

Nemours & Co., 34 F.3d 172, 176 (3d Cir. 1994). This court has also
applied "the law of the adjudicating state [i.e., the Virgin Islands]" when
a prior action was brought in the District Court of the Virgin Islands
under both federal and Virgin Islands law. See Huck ex rel. Sea Air
Shuttle Corp. v. Dawson, 106 F.3d 45, 48 (3d Cir. 1997), petition for cert.
filed, 65 U.S.L.W. 3755 (U.S. May 1, 1997) (No. 96-1741). But those
opinions did not discuss the choice of law question, and we therefore
regard the question as still an open one.

                     8
Id. § 26 cmt. b.8

Although this court has not previously had occasion to
address whether, as a matter of federal res judicata law, a
court's decision to exclude a claim "without prejudice"
preserves the claim for a second action, several other
circuits have addressed the issue. Each of these courts has
permitted the second action. See Guzowski v. Hartman, 849
F.2d 252, 255 (6th Cir. 1988); Blackwelder v. Millman, 522
F.2d 766, 773 (4th Cir. 1975); see also King v. Provident
Life & Accident Insurance Co., 23 F.3d 926, 929 (5th Cir.
1994) (reversing a res judicata determination when the first
court had expressly reserved certain claims); Stolberg v.
Trustees for the State Colleges of Connecticut, 541 F.2d 890,
893 (2d Cir. 1976) ("If the underlying judgment had
explicitly provided that [a particular] issue had not been
litigated and the defendants were not precluded from
raising it, there would be no question" that res judicata
would not bar a second suit.); cf. Torres v. Rebarchak, 814
F.2d 1219, 1225 (7th Cir. 1987) (concluding that Illinois
would apply the position of the Restatement § 26 when
some claims in the first suit had been dismissed "without
prejudice").9
_________________________________________________________________

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

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

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

9. The only court of appeals opinion to the contrary that we have
identified is one that was decided on the basis of state law; moreover,
the case arose in an unusual procedural setting not present here. In
Abramson v. Harbor Island Marina, Inc., 816 F.2d 975 (4th Cir. 1987), a
state court, after a bench trial regarding a lease dispute, had declined to
award specific performance or damages for out-of-pocket expenses, but
had awarded the return of the lessee's deposit," `without prejudice to the

                    9
Witco responds with three arguments why Venuto's
claims should be barred by res judicata. We think that
none of these arguments has merit. First, Witco argues that
permitting Venuto to bring his claims after the motion to
amend was denied for untimeliness would reward delay. We
need not fear that applying the Restatement rule will
reward delay: if a district court concludes that a litigant
has unduly delayed, it can -- and, presumably, ordinarily
will -- deny a motion to amend "with prejudice." Here,
however, despite the untimeliness of the motion, Judge
Simandle chose to deny the motion "without prejudice."

Witco next argues that the denial of the motion to amend
was superseded by the final judgment in Lube I. It notes
especially that "[n]othing about the final judgment in Lube
I was `without prejudice' to any rights Lube or its privies
may have had." This argument is also meritless. Witco
overlooks the established rule that interlocutory orders,
such as the order denying the motion to amend without
prejudice, merge into the final judgment. See, e.g., In re
Westinghouse Securities Litigation, 90 F.3d 696, 706 (3d
Cir. 1996). In issuing its final judgment, a court need not
review all of its interlocutory orders and expressly reaffirm
their continuing vitality.

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

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

                    10
denying the motion to amend because the motion was
untimely and because granting it would unduly delay
resolution of Lube I, intended to indicate that he would
entertain a second motion to amend at a later time. Rather,
it seems clear that Judge Simandle intended to permit
Venuto and AMS to file their claims in a separate suit, as
had been discussed at the argument on the motion.

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

An order by the first court that its judgment does not
preclude a second suit on specified parts of the claim or
cause of action advanced in the first suit may preserve
valid grounds of recovery without undue violence to the
values of res judicata. The express reservation notifies
the defendant that repose has not yet been achieved.
The plaintiff may have a substantially better
opportunity to prove the reserved claim, or to determine
that it is not worth litigating. For that matter, the
defendant may also prove better able to meet the
unexpected theory in a second suit.

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

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

                    11
conclude that, consonant with the federal cases cited
above, Venuto's claims are not barred by res judicata.10

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

A dismissal without prejudice is not an adjudication on
the merits and does not bar reinstitution of the same
claim in a later action. Malhame v. Borough of
Demarest, 415 A.2d 358 (N.J. Super. Ct. App. Div.
1980) (quoting Christiansen v. Christiansen, 134 A.2d
14 (N.J. Super. Ct. App. Div. 1957). Plaintiff contends,
however, that the institution of a subsequent action
violates the entire controversy doctrine. We disagree.

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

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

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

                    12
[a] dismissal without prejudice is comparable to a
nonsuit under the former practice at law. It adjudicates
nothing. Another action may be instituted and the
same facts urged either alone or in company with
others as the basis of a claim for relief.

134 A.2d at 18 (citations omitted). The Christiansen court
therefore concluded that the claim was not barred by res
judicata.

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

III.

Witco argues that, even if this court concludes that the
district court erred on the res judicata issue, it should
nonetheless affirm on the basis that Venuto's claims were
barred by the entire controversy doctrine.12 The entire
_________________________________________________________________

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

The New Jersey Supreme Court appears to have held that federal res
judicata law governs a second court's actions when the first action was
brought in federal court, see Watkins v. Resorts Int'l Hotel and Casino,
Inc.. 591 A.2d 592. 598 (N.J. 1991) ("the preclusive effect of the
judgment is a function of the procedures of the federal court that
rendered it"); in Watkins, however, thefirst action had been a federal-
question and not a diversity action. The New Jersey court has also
stressed that New Jersey courts' application of the entire controversy
doctrine to bar a state court action after a previous suit was brought in
federal court is not binding on federal courts, stating that "our threshold
is not a barrier elsewhere." Mortgagelinq Corp. v. Commonwealth Land

                    13
controversy doctrine is codified in New Jersey Rule
Governing Civil Practice 4:30A. The New Jersey Supreme
Court has recently summarized the doctrine as follows:

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

....

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

The doctrine has evolved over time through the
common law. . . . The doctrine was . . . extended to
include all affirmative claims that a party might have
against another party, including counterclaims and
cross-claims, as well as all parties with a material
interest in the controversy, i.e., those who can affect or
be affected by the judicial outcome of the
controversy. . . . In essence, it is the factual
circumstances giving rise to the controversy itself,
rather than a commonality of claims, issues or parties,
that triggers the requirement of joinder to create a
cohesive and complete litigation. . . .

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

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

                    14
time. A trial court is empowered to segregate different
claims to assure manageability, clarity and fairness. A
plaintiff who fails to allow the trial court the
opportunity to supervise the entire controversy risks
losing the right to bring that claim later.

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

As noted above in our discussion of res judicata, the New
Jersey Supreme Court held in Woodward-Clyde that a
court's dismissal of a claim "without prejudice" authorizes
a second claim, notwithstanding the entire controversy
doctrine. However, in Mystic Isle the New Jersey Supreme
Court somewhat tightened the entire controversy doctrine.

In Mystic Isle, the court held that a second suit against
four defendants was barred by the entire controversy
doctrine, even though the first court's dismissal of the first
suit against one of the four defendants had been "without
prejudice." The court first distinguished Woodward-Clyde,
stating that "it is the party's original compliance with the
doctrine [by presenting all its claims to the trial court],
rather than the absence of a conclusive determination of a
claim, that ensures preservation of that claim." 662 A.2d at
534.

The Mystic Isle court went on to note that

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

Id. (quoting Restatement (Second) of Judgments § 19 cmt. a
(1982)). In that case, the plaintiff had "deliberately
contrived to have one claim dismissed in the [first] action in
order to circumvent the preclusive effect of the entire
controversy doctrine on its subsequent . . . claim," id. at
535; because of this "manipulat[ion] of the judicial system,"
the plaintiff's claim was barred.

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We do not find the case at bar to be the sort of case that
should, in the words of Mystic Isle, be"barred even though
it stems from the dismissal of a prior action without
prejudice." The major focus of the entire controversy
doctrine is to bring all claims before the trial court for
disposition in one proceeding; once all claims are put
forward, the "trial court has the discretion to structure the
litigation to assure efficient administration, clarity and
fairness." Id. at 534. Here, the plaintiff in the first suit
complied with the dictates of the entire controversy doctrine
and undertook to present all claims for the court's decision
on how best to structure the litigation. The court then
decided -- contrary to the plaintiff's express preference --
that the claims should be heard in separate suits; no
plaintiff "manipulation of the judicial system" occurred.
Therefore, the ruling of the district court in the present
case that this second suit is not barred by the entire
controversy doctrine was correct.

IV.

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

A True Copy:
Teste:

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

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

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