Court Opinion

ID: 146029
Source: CourtListenerOpinion
Date Created: 2010-05-06 20:02:17+00
Date Added: 2024-06-11T17:23:51.991956
License: Public Domain

NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT
                                ____________

                                     No. 09-2867
                                    ____________

                                  JOHN MURRAY,
                                          APPELLANT

                                           v.

                           CRYSTEX COMPOSITES LLC

                   On Appeal From the United States District Court
                             for the District of New Jersey
                               (Civ. No. 2:08-cv-02672)
                     District Judge: Honorable William H. Walls

                     Submitted Under Third Circuit LAR 34.1(a)
                                February 25, 2010

          Before: CHAGARES, STAPLETON, and LOURIE,* Circuit Judges

                             (Opinion filed: May 6, 2010)
                                   _____________

                                      OPINION
                                    _____________

CHAGARES, Circuit Judge.

      This appeal requires us to determine whether the District Court erred in granting

summary judgment to appellees, Crystex Composites LLC (Crystex), on the ground that

      *
       The Honorable Alan D. Lourie, Circuit Judge for the United States Court of
Appeals for the Federal Circuit, sitting by designation
appellant John Murray’s claim was barred by the entire controversy doctrine. For the

reasons set forth below, we will affirm the District Court’s decision.

                                             I.

       Because we write solely for the benefit of the parties, we recite only the essential

facts. In 2001, Spaulding Composites Company, Inc. (Spaulding) filed a bankruptcy

petition in the District of New Hampshire and hired Murray, a Certified Public

Accountant, as a consultant. Spaulding’s Mykroy/Mycalex Division (M&M)

manufactured glass and ceramic electronic components. While working with Spaulding,

Murray developed a relationship with George Flores, general manager of M&M. Murray

became interested in purchasing M&M and managing it jointly with Flores. After

notifying Spaulding’s creditors’ committee that he believed M&M to be a valuable asset,

Murray took steps toward purchasing it. The bankruptcy court rejected Murray’s initial

bid but suggested that Murray make an offer directly to one of Spaulding’s main

creditors, CIT Business Group (CIT), to negotiate a purchase of M&M’s assets (an

industrial property with a manufacturing plant, equipment, and machinery located in

Clifton, New Jersey). CIT and Murray eventually agreed upon a purchase price of

$764,000 for M&M’s assets.

       Flores and Murray began to assemble a group of investors who would become the

equity owners of Crystex, to which M&M’s assets would be transferred. Flores, Murray,

and a friend of Murray’s, Larry Milby, each agreed to invest $200,000. Milby’s niece,

                                              2
Donna Franks, also contributed $100,000. CIT issued a loan to Crystex for the balance of

the purchase price, secured by pledges of stock in American BioMedica Corporation

(ABMC) owned by Milby and Murray. Flores solicited three additional investors: Keith

Savel, Howard Zimmerman, and David See, who agreed to invest $150,000 for a 10%

interest in Crystex. A former Spaulding employee, Charles Rizkalla, was granted a 5%

interest in Crystex as “sweat equity” in return for working at a reduced salary.

       Flores contributed his $200,000 and Milby contributed $190,000, but Murray

failed to contribute any portion of the $200,000 he had pledged. Murray’s explanation

was that his ABMC stock was “going to go through the roof” and it would be foolish to

sell the stock before its value increased. Flores v. Murray, 2007 WL 3034512 at *2 (N.J.

Super. Ct. App. Div. Oct. 19, 2007) (per curiam). When Savel, Zimmerman, and See

learned that Murray did not plan to make his contribution, they insisted that the parties

execute a Memorandum of Understanding (MOU). The MOU, dated October 10, 2003,

provided that Murray would contribute $200,000 within six months or “forfeit his shares

and ownership in Crystex.” Appendix (App.) 39. Murray included a handwritten

notation on the MOU, dated October 14, 2003, setting forth the parties’ ownership

interests: 1) Murray-35.75%, 2) Flores-35.75%, 3) Milby-13.5%, 4) Savel, Zimmerman,

and See-10%, and 5) Rizkella-5%. A corrected Certificate of Formation for Crystex was

filed on October 15, 2003.1

       1
       The original Certificate of Formation was filed on October 14, 2003, and named
the company as Crystex Ceramics LLC instead of Crystex Composites LLC.

                                             3
       On October 15, 2003, the bankruptcy court issued an order authorizing the sale of

M&M’s assets to “John F. Murray, or his nominee.” App. 85. On October 23, 2003,

Murray, acting as the Managing Member of Crystex, signed a resolution authorizing

Crystex to purchase the M&M assets. On October 26, 2003, Spaulding transferred

ownership of M&M’s assets to Crystex.

       Within several months, Flores grew concerned about Murray’s performance.

Murray “refused to honor a financial obligation owed to one of the company’s

manufacturing representatives, wanted to penalize valued customers, and used offensive

language when dealing with Crystex’s accounts payable clerk.” Flores, 2007 WL
3034512 at *5. Flores discovered that Murray was paying his son, a Crystex employee,

an unauthorized salary out of the operating account instead of the payroll account. Some

employees’ paychecks bounced after Murray forgot to transfer money into the payroll

account. In addition, Murray still had not contributed his $200,000.

       On May 3, 2004, Flores called a special meeting of Crystex’s members where a

majority voted that Murray “failed to live up to his obligations and that he no longer had

an interest in Crystex.” Id. at *6. On February 18, 2005, the individual members of

Crystex filed an action in the Law Division of the Superior Court of New Jersey, Flores v.

Murray, requesting, inter alia, a declaratory judgment that due to Murray’s failure to make

his capital contribution, he never had an ownership interest in Crystex, or in the

alternative, that he no longer had an interest due to the action taken at the May 3, 3004

                                             4
meeting. Crystex was not originally a party to the action, but Murray later joined Crystex

as a third-party defendant. Murray’s Counterclaim/Third Party Complaint alleged in part

that the members of Crystex conspired to oust him before the true value of the assets

became known. Murray’s Third Party Complaint also included a cause of action for

unjust enrichment against the members as well as Crystex.

       Following a five-day bench trial in May 2006, the Law Division found that the

MOU was an enforceable contract and that Murray violated his contractual obligations by

failing to make his capital contribution. As a result, “Mr. Murray never acquired a

membership interest in Crystex” App. 124. The Law Division also found that the

members proved that Murray had no employment contract with Crystex, breached his

fiduciary duty to the shareholders of Crystex, and fraudulently induced the members to

invest in Crystex by promising to invest $200,000 of his own money.

       Murray appealed the Law Division’s decision. The New Jersey Superior Court

Appellate Division affirmed in part and reversed in part. The Appellate Division reversed

the trial court’s decision insofar as it awarded the members counsel fees and held that

Murray fraudulently induced the members to invest in Crystex. Flores, 2007 WL
3034512 at *1. In all other respects, the Appellate Court affirmed the judgment of the

Law Division. The Appellate Division agreed that Murray’s “failure to deliver his

contribution rendered his membership interest a nullity.” Id. at *11.

       On May 27, 2008, Murray filed this action seeking a declaratory judgment that

                                             5
Murray is the legal owner of the M&M assets and alleging that Crystex misappropriated

the M&M assets and was unjustly enriched. Crystex moved for summary judgment and

on May 29, 2009, the District Court granted Crystex’s motion and dismissed Murray’s

complaint based on the entire controversy doctrine. The District Court held that Murray’s

claims to ownership of the M&M assets arose from the same series of transactions as

those underlying the New Jersey state court proceedings and that New Jersey’s entire

controversy doctrine required Murray to assert his claims in the earlier proceedings. The

District Court rejected Murray’s argument that his claims did not accrue until the state

court determined that he had no ownership interest in Crystex. Murray timely appealed to

this Court.

                                             II.

       The District Court had jurisdiction pursuant to 28 U.S.C. § 1332(a)(1). This Court

has jurisdiction pursuant to 28 U.S.C. § 1291.

       We review the District Court’s grant of summary judgment de novo, applying the

same standard that it used. Lawrence v. City of Philadelphia, 527 F.3d 299, 310 (3d Cir.

2008). We will affirm if “the pleadings, the discovery and disclosure materials on file,

and any affidavits show that there is no genuine issue as to any material fact and that the

movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2).

                                            III.

       The District Court relied on the New Jersey entire controversy doctrine to award

                                             6
summary judgment to Crystex.2 This doctrine is codified in Rule 4:30A of the New

Jersey Court Rules 3 and “requires that a person assert in one action all related claims

against a particular adversary or be precluded from bringing a second action based on the

omitted claims against that party.” In re Mullarkey, 536 F.3d 215, 229 (3d Cir. 2008)

(internal citations omitted). The doctrine prevents a party from withholding part of a

controversy to litigate later, even if the withheld claim constitutes a separate and

independent cause of action. Id. As the Supreme Court of New Jersey has explained:

       the entire controversy doctrine seeks to assure that all aspects of a legal
       dispute occur in a single lawsuit. The goals of the doctrine are to promote
       judicial efficiency, assure fairness to all parties with a material interest in an
       action, and encourage the conclusive determination of a legal controversy.

Olds v. Donnelly, 696 A.2d 633, 637 (N.J. 1997). The doctrine does not apply to claims

that are “unknown, unarisen or unaccrued at the time of the original action.” K-Land

Corp. No. 28 v. Landis Sewerage Auth., 800 A.2d 861, 868 (N.J. 2002).

       Murray argues on appeal that his claim for ownership of the M&M assets had not

arisen or accrued until after the Law Division entered final judgment establishing that

Murray had no ownership interest in Crystex. Alternatively, Murray contends that

considerations of fairness should prevent this Court from applying the entire controversy

doctrine to his claims.

       2
           The parties agree that New Jersey law applies to this case.
       3
        “Non-joinder of claims or parties required to be joined by the entire controversy
doctrine shall result in the preclusion of the omitted claims to the extent required by the
entire controversy doctrine . . . .” R. 4:30A.

                                                7
       Under New Jersey law, “a cause of action accrues when any wrongful act or

omission resulting in any injury, . . . for which the law provides a remedy, occurs.”

Beauchamp v. Amedio, 751 A.2d 1047, 1050 (N.J. 2000). Murray relies on cases in

which the entire controversy doctrine did not bar later claims to collect legal fees from an

earlier litigation, S & A Realty Corp. v. Kearny Industrial Associates, LLP, 2007 WL
2323492 (N.J. Super. Ct. App. Div. Aug. 16, 2007), and to collect on a prior judgment,

Karo Marketing Corp., Inc. v. Playdrome America, 752 A.2d 341, 343 (N.J. Super. Ct.

App. Div. 2000). In those cases, the wrongful acts occurred after the commencement of

litigation. That is not the case here. Crystex had been in possession of the assets at issue

since October 2003, long before the state court litigation commenced and the Law

Division issued its judgment. The wrongful act resulting in Murray’s purported damages

occurred at the time of the underlying transaction. The Superior Court’s decision did not

result in Murray’s alleged injury – rather, according to Murray’s claims, his injury was

caused by the circumstances surrounding the transfer of M&M’s assets.

       Murray argues that it would be contrary to the entire controversy doctrine’s

fairness requirement to bar his claims against Crystex and relies upon the New Jersey

Supreme Court’s decision in K-Land. In K-Land, the City of Vineland had filed a

complaint against K-Land and other parties seeking a declaratory judgment establishing

ownership of a force main financed by K-Land. K-Land Corp., 800 A.2d at 863-64. K-

Land had no preference amongst the potential owners of the force main because it had

                                              8
reached agreement with the relevant parties on almost all of K-Land’s rights to

reimbursement. K-Land failed to respond to the City’s complaint and a default judgment

was entered against it. The other parties to the City’s law suit later agreed to a consent

judgment that went beyond the issue of ownership and was prejudicial to K-Land’s right

to reimbursement for the costs related to installation of the force main. Id. at 865. K-

Land instituted an action against the sewerage authority and another land owner seeking

reimbursement. The trial court dismissed K-Land’s action as barred by the entire

controversy doctrine, and the Appellate Division affirmed. Id. at 867.

       The New Jersey Supreme Court overturned the Appellate Division, emphasizing

that “the polestar for the application of the entire controversy rule is judicial fairness.” Id.

at 871 (internal marks omitted). Because the City’s declaratory judgment suit sought to

clear title only, and at the time, the reimbursement issue had been mostly resolved, K-

Land was not on notice that the suit implicated its right to reimbursement. Id. The K-

Land court noted that the leading entire controversy doctrine cases “appear to have

involved deliberate and calculated claim-splitting strategies . . . as opposed to an innocent

omission by an uninformed litigant.” Id. at 868 (citations omitted).

       Unlike K-Land, Murray was not an “uninformed litigant” and he was not

indifferent to the outcome of the first litigation. The Flores complaint requested a

judgment that Murray had no ownership interest in Crystex. As previously noted, Murray

was aware that Crystex was in possession of the M&M assets. Thus, Murray was on

                                               9
notice that the dispute over Crystex in the Flores litigation implicated his potential rights

to the M&M assets.

       Judicial efficiency and fairness to the parties weigh in favor of applying the entire

controversy doctrine in this case. Murray’s claims involve the same parties and the same

underlying transaction as the Flores litigation. The central inquiry is whether the claims

“arise from related facts or the same transaction or series of transactions.” Fields v.

Thompson Printing Co., 363 F.3d 259, 265 (3d Cir. 2004). The factual allegations

Murray sets forth in this action track the facts at issue in the state court litigation: the

events leading up to the purchase of the M&M assets, the formation of Crystex, and the

transfer of assets from Spaulding to Crystex. Thus, there is a “sufficient commonality of

facts” to apply the entire controversy doctrine to Murray’s complaint. See id. Under

these circumstances, piecemeal litigation would delay complete adjudication of the

controversy and “unnecessarily clog [the] courts with multiple lawsuits arising out of the

same transaction and having a common nucleus of facts.” See Highland Lakes Country

Club and Cmty. Ass’n v. Nicastro, 988 A.2d 90, 92 (N.J. 2009).

                                              IV.

       For the foregoing reasons, we will affirm the judgment of the District Court.

                                               10