Court Opinion

ID: 4429799
Source: CourtListenerOpinion
Date Created: 2019-08-20 19:30:31.866973+00
Date Added: 2024-06-11T14:50:53.275966
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NOT FOR PUBLICATION WITHOUT THE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-2935-17T2

KVK TECH, INC. and AMRUTHAM,
INC.,

          Plaintiffs-Appellants,

v.

MUTHUSAMY SHANMUGAM,

     Defendant-Respondent.
_______________________________________

                   Submitted December 10, 2018 – Decided December 18, 2018

                   Before Judges Sabatino and Haas.

                   On appeal from Superior Court of New Jersey, Law
                   Division, Middlesex County, Docket No. L-1040-17.

                   Klehr Harrison Harvey Branzburg LLP, attorneys for
                   appellants (Lisa A. Lori and Christopher J. Leavell, on
                   the briefs).

                   Orrick, Herrington & Sutcliffe, LLP, attorneys for
                   respondent (James H. McQuade (Orrick, Herrington &
                   Sutcliffe, LLP), of the New York bar, admitted pro hac
                   vice, Mark R. Thompson (Orrick, Herrington &
                   Sutcliffe, LLP) of the New York bar, admitted pro hac
                   vice, and Camille Joanne Rosca, on the brief).
PER CURIAM

     Plaintiff KVK Tech, Inc. ("KVK") and its affiliate company, co-plaintiff

Amrutham, Inc. ("Amrutham"), appeal the trial court's January 19, 2018 order

dismissing with prejudice their complaint against defendant Muthusamy

Shanmugam ("Shanmugam"). The dismissal was fundamentally based on entire

controversy grounds, stemming from the parties' involvement about five years

earlier in another Law Division case litigated in a different county and a separate

lawsuit in Pennsylvania. We affirm.

     KVK and Amrutham are developers, manufacturers, and distributors of

generic pharmaceutical products. Shanmugam is a pharmaceutical professional

who was employed by Novel Laboratories, Inc. ("Novel"), a generic drug

manufacture and a competitor of KVK, as a Vice President of Technical Operations

until May 2010.

     On or about August 5, 2010, the brand name drug known as "SUPREP"

appeared in the Food and Drug Administration (FDA) "Orange Book." The Orange

Book is a publicly available list of drug products that are available for generic

development. The Orange Book is routinely monitored by drug manufacturers as

a source for new drugs available for generic development.

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                                        2
         On August 15, 2010, Shanmugam contacted KVK to discuss entering into a

    possible joint venture to develop the generic form of SUPREP ("the generic drug").

    Shanmugam informed KVK that he learned, through the August 5, 2010 Orange

    Book listing, that SUPREP was subject to genetic manufacture. Shanmugam and

    KVK thereafter began discussions about potential financial terms of a joint venture.

    However, the parties never consummated a joint venture agreement.

         On August 16, 2010, KVK began taking steps to develop the generic drug and

    also began to draft an Abbreviated New Drug Application ("ANDA") to submit to

    the FDA for approval.1       The generic drug, if approved, was going to be

    manufactured and sold by KVK's affiliate, Amrutham.

         On September 2, 2010, before KVK submitted the ANDA to the FDA, counsel

    for Novel sent a letter to KVK. The letter alleged Shanmugam was breaching his

    employment agreement with Novel by working with KVK on the development of

    the generic drug. Novel's allegations were based on a premise that Shanmugam

    worked on the generic drug while he was employed with Novel. Hence, Novel

    asserted ownership over Shanmugam's work on the generic drug.

1
 An ANDA is submitted to the FDA by a company seeking approval to
manufacture and sell a generic drug product.
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                                            3
     After Novel sent the letter, Shanmugam advised KVK that he had never

worked on the drug while employed at Novel. Even so, Shanmugam and KVK

decided to cease working together, and Shanmugam had no further involvement in

the manufacture of the generic drug.

     Plaintiffs proceeded on their own with the development of the generic drug.

In November 2010, Amrutham filed an ANDA for the generic drug with the FDA.

About a week later, plaintiffs informed Novel that they had decided to pursue

development of the generic drug. In addition, plaintiffs informed Novel that they

had filed a declaratory action against Novel in the Court of Common Pleas of Bucks

County, Pennsylvania, seeking an order declaring that their anticipated

manufacture of the generic drug did not violate the terms of the agreement between

Novel and Shanmugam (the "Pennsylvania action").

     On February 3, 2011, Novel filed a lawsuit against KVK, Amrutham, and

Shanmugam in the Law Division, Somerset County (the "Somerset action").

Novel's claims in the Somerset action centered on KVK and Amrutham's

development of the generic drug.           Shanmugam, KVK, and Amrutham

cooperatively defended the Somerset action as codefendants for nearly nine months

until November 2011. At that point, KVK sought to amend its answer to file cross-

claims against Shanmugam.

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                                       4
         KVK's proposed cross-claim sought contribution and indemnification from

    Shanmugam in connection with the claims that Novel was asserting against KVK

    in the Somerset action. KVK sought leave to assert a cross-claim after depositions

    of several persons in the Somerset action placed in dispute the veracity of

    Shanmugam's representations to KVK about his role at Novel.

         Judge Allison E. Accurso, J.S.C., who was then sitting in the Law Division,

and handling the Somerset action, granted KVK’s motion for leave to assert the

cross-claims against Shanmugam on January 23, 2012. On February 7, 2012, KVK

amended its answer to assert cross-claims against Shanmugam for contribution and

indemnification.2

         Thereafter, on February 16, 2012, Shanmugam and Novel entered into a

settlement in connection with the Somerset action. Shanmugam then moved to

2
   KVK's proposed cross-claim reads: "KVK-Tech, Inc. ("KVK"), without
admitting liability to plaintiff Novel Laboratories, Inc. and only in the event that
KVK is held responsible for any damages alleged in the [c]omplaint, or any
other relief granted to Novel on any grounds whatsoever, hereby demands
contribution and indemnification under the Joint Tortfeasors Act, N.J.S.A.
2A:53A-1 to -48, the Comparative Negligence Act, N.J.S.A 2A:15-5.1 to -5.8
and all other statutory, contractual or common law principles, from defendant
Muthusamy Shanmugam, and any and all other third-party or fourth-party
defendants hereinafter named by any party."             There is no contractual
indemnification provision between plaintiffs and Shanmugam in this case, so
the cross-claim must be based on either common-law or statutory grounds.

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                                           5
dismiss KVK’s cross-claims for indemnification and contribution. KVK opposed

Shanmugam’s motion. In its opposition, KVK conceded the propriety of dismissal

of its cross-claim for contribution, but pressed the claim for indemnification. Before

oral argument on the motion, Assignment Judge Yolanda Ciccone, A.J.S.C., took

over the case from Judge Accurso.

      On June 15, 2012, Judge Ciccone heard oral argument on Shanmugam's

motion to dismiss.     Regarding contribution, Judge Ciccone noted that KVK

"conceded its cross-claim for contribution cannot survive the motion."          As to

indemnification, Judge Ciccone granted Shanmugam's motion and dismissed KVK’s

cross-claim for indemnification "without prejudice." Judge Ciccone dismissed the

cross-claim because KVK failed to plead the requisite "special relationship" between

the parties. As Judge Ciccone reasoned:

                   Thus, here, in order to survive this motion to
             dismiss, KVK must show a sufficient legal relationship
             to support its duty to indemnify.

                    ....

                   Here, KVK argues that any liability that KVK is
             found to have stems from the actions of Shanmugam,
             who directed KVK to the product at issue, and that the
             actions of KVK in pursuing the product that
             Shanmugam suggested were made in good faith.

                  KVK admits that the only information provided
             from Shanmugam to KVK was the identity of the

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                                          6
             product and nothing more. Nothing in KVK's cross-
             claim supports that there's a sufficient legal relationship
             here giving rise to liability.

                    Furthermore, KVK has not informed the court
             that there is some other positive rule of common or
             statutory law providing a duty in this matter giving rise
             to common law indemnification.

                   Without more, and on the record, I am going to
             dismiss the cross-claims without prejudice.

             [(Emphasis added).]

      After the entry of the dismissal without prejudice in June 2012, KVK and

Amrutham continued to litigate the matter against Novel without the involvement of

Shanmugam.      KVK did not re-plead, or seek leave to re-plead, its claim for

indemnification against Shanmugam during this time period.

      On October 3, 2013, Novel, KVK, and Amrutham entered into a settlement

agreement, which resolved both the New Jersey and Pennsylvania actions. Pursuant

to the terms of the settlement agreement, Novel agreed to pay plaintiffs a sum of

money over an eight-year period, and, in exchange, KVK and Amrutham agreed to

withdraw their ANDA for the generic drug and agreed not to take any efforts to

market it. The parties agreed that the matter was settled, notwithstanding their intent

to formalize the terms in a written agreement.

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                                          7
      The parties never executed a written settlement agreement. Rather, at some

point, Novel learned that KVK had subsequently partnered with another

pharmaceutical company to create the generic drug. Novel then moved to enforce

the terms of the settlement agreement.

      On October 10, 2013, Judge Ciccone granted Novel's motion to enforce the

settlement. KVK then appealed to this court, which affirmed Judge Ciccone's

decision in an unpublished opinion issued on February 3, 2015.           See Novel

Laboratories, Inc. v. Shanmugam, No. A-2692-13 (App. Div. Feb. 3, 2015).

      Nearly five years after Judge Ciccone's decision granting Shanmugam's

motion to dismiss the cross-claim, KVK and Amrutham brought suit on February

21, 2017, in the Law Division in Middlesex County against Shanmugam, based

fundamentally on the same issues and facts at issue in the Somerset action. In this

new lawsuit, KVK and Amrutham allege causes of action for: intentional

misrepresentation (count one), negligent misrepresentation (count two), and

indemnification (count three). Amrutham joins KVK's purported indemnification

cause of action, but does not join the purported misrepresentation causes of action.

      In particular, KVK and Amrutham seek damages arising from Shanmugam's

allegedly wrongful conduct, including the costs and expenses they incurred in

connection with the Pennsylvania and New Jersey actions. KVK and Amrutham

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                                         8
allege in pertinent part that "[b]ut for the wrongful actions and inactions of

Shanmugam, as described above, [p]laintiffs would not have been required to

participate in the Pennsylvania Action and the New Jersey Action to protect their

rights."

      Shanmugam moved to dismiss plaintiffs' claims, principally contending they

are precluded under the entire controversy doctrine. Following oral argument, Judge

Arnold L. Natali, Jr., J.S.C., issued an oral decision, granting Shanmugam's motion

to dismiss, relying primarily on the entire controversy doctrine. This appeal by

plaintiffs ensued.

      On appeal, plaintiffs argue the trial court misapplied the entire

controversy doctrine. In addition, plaintiffs contend the court erred in not

finding a viable indemnification claim in the absence of a pleading alleging a

special relationship between plaintiffs and Shanmugam or, alternatively in not

permitting an amendment or discovery to support such a relationship. Lastly,

plaintiffs argue the court erred in dismissing their claims of intentional and

negligent misrepresentation.

      Having carefully considered these arguments in light of the record, the

procedural history of the multiple litigations, and the applicable law, we affirm

the trial court's dismissal of plaintiffs' claims in the Middlesex County lawsuit.

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                                        9
We do so substantially for the sound reasons expressed in Judge Natali's detailed

oral opinion. Only a few amplifying comments are in order.

      Plaintiffs clearly violated the tenets of the entire controversy doctrine, and

the public policies it is designed to advance, by failing to attempt to revive their

claims in the Somerset action and instead waiting five years to present them in

yet another lawsuit.

      The entire controversy doctrine, as codified in Rule 4:30A, requires all parties

to an action to raise all transactionally related claims in that action. R. 4:30A.

"Underlying the [e]ntire [c]ontroversy [d]octrine are the twin goals of ensuring

fairness to parties and achieving economy of judicial resources." Kent Motor Cars,

Inc., v. Reynolds & Reynolds, Co., 207 N.J. 428, 443 (2011). The Supreme Court

has articulated the goals of the doctrine to include "'the needs of economy and the

avoidance of waste, efficiency and the reduction of delay, fairness to parties, and the

need for complete and final disposition through the avoidance of piecemeal

decisions.'" Ibid. (quoting Cogdell v. Hosp. Ctr. at Orange, 116 N.J. 7, 15 (1989)).

Furthermore, the doctrine is "'intended to be applied to prevent a party from

voluntarily electing to hold back a related component of the controversy in the first

proceeding by precluding it from being raised in a subsequent proceeding

thereafter.'" Wreden v. Twp. of Lafayette, 436 N.J. Super. 117, 129 (App. Div.

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                                         10
2014) (quoting Hobart Bros. Co. v. Nat'l Union Fire Ins. Co., 354 N.J. Super. 229,

240-41 (App. Div. 2002)).

      We recognize, as did the trial court, that Judge Ciccone's June 2012 order

in the Somerset action dismissed KVK's cross-claim for indemnification on a

"without prejudice" basis. However, in Mystic Isle Dev. Corp. v. Perskie &

Nehmad, 142 N.J. 310, 333 (1995), the Supreme Court explained: "In 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." (Emphasis added). See also DiTrolio v. Antiles, 142 N.J. 253,

278-79 (1995) (holding that a settlement or dismissal without prejudice is but one

factor court should consider when applying entire controversy bar). The Court in

Mystic Isle, quoting the Restatement (Second) of Judgements, explained:

             The rule that a defendant's judgment acts as a bar to a
             second action on the same claim is based largely on the
             ground that fairness to the defendant, and sound
             judicial administration, require that at some point
             litigation over the particular controversy come to an
             end. These considerations may impose such a
             requirement even though the substantive issues have
             not been tried, especially if the plaintiff has failed to
             avail himself of opportunities to pursue his remedies in
             the first proceeding, or has deliberately flouted orders
             of the court.

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                                         11
            [Ibid. (emphasis added) (quoting Restatement (Second) of
            Judgments § 19 cmt. (a) (1982).]

      We discern no practical or legal impediment that plaintiffs would have

encountered in an attempt to revive the indemnification claim before a final

global settlement was achieved in the Somerset and Pennsylvania actions.

Instead, plaintiffs waited until those cases were long over, and the files were

long closed, before bringing this present lawsuit many years later in a different

forum. The effort bespeaks "forum shopping" and inefficiency. Moreover, as

to Amrutham in particular, there was never any attempt to pursue a cross-claim

on its behalf in the Somerset action, even though it was a co-defendant with

KVK and Shanmugam in that case.

      Judge Natali wisely applied the entire controversy doctrine in this case.

In doing so, he appropriately recognized the time, effort, and expense that could

have and should have been expended in the prior litigations if KVK wished to

pursue claims of indemnification.

      Moreover, we discern no merit to the substance of plaintiffs' proposed

causes of action. No "special relationship" among the parties was established in

a joint venture that was never consummated. Nor are there sufficient indicia of

misrepresentation to justify reactivating litigation that had long since concluded,

even if those claims could have been viable at a much earlier juncture.

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                                       12
Affirmed.

                 A-2935-17T2
            13