Court Opinion

ID: 9857244
Source: CourtListenerOpinion
Date Created: 2023-09-24 14:23:04.642145+00
Date Added: 2024-06-11T09:38:20.348574
License: Public Domain

POLLOCK, J.,
dissenting.
I respectfully submit that the majority has reached the wrong result for the wrong reason. Confronted with allegations of a massive fraud, the majority has barred the defrauded parties from seeking redress in the courts of this State. To achieve this untoward result, the majority extends unduly New Jersey’s entire-*349controversy doctrine to determine the preclusive effect of a judgment rendered by a federal court in another state. I dissent.
Because this matter arises on the grant of defendants’ motion for summary judgment. The Court correctly accepts plaintiffs’ statement of the facts and give plaintiffs the benefit of all favorable inferences that flow from those facts. Judson v. Peoples Bank & Trust Co., 17 N.J. 67, 75, 110 A.2d 24 (1954). So viewed, defendants are either title companies or settlement clerks employed by the title companies who participated in defrauding plaintiffs of several million dollars. In a suit in the United States District Court for the Eastern District of Pennsylvania, plaintiffs recovered a judgment against the principal perpetrators. The issue here is whether plaintiffs’ recovery of a judgment against those defendants should preclude plaintiffs from suing the present defendants in the state courts of New Jersey.
Under established choice-of-law principles, the preclusive effect of a judgment is determined by the law of the jurisdiction that rendered it. Watkins v. Resorts Int’l Hotel & Casino, Inc., 124 N.J. 398, 411, 591 A.2d 592 (1991); see also Restatement (Second) of Conflict of Laws § 95 (1971) (“What issues are determined by a valid judgment is determined, subject to constitutional limitations, by the local law of the State where the judgment was rendered.”); Restatement (Second) of Judgments § 86 (1982) (“A valid and final judgment of a state court has the same effects under the rules of res judicata in a subsequent action in a federal court that the judgment has by the law of the state in which the judgment was rendered____”); Restatement (Second) of Judgments § 87 (1982) (“Federal law determines the effects under the rules of res judicata of a judgment of a federal court.”). “If [a] plaintiff would be precluded from maintaining ... a second action in the [jurisdiction] of rendition, he will similarly be barred from maintaining such an action in other [jurisdictions].” Restatement (Second) of Conflict of Laws § 95 comment e (1971). Federal law would not preclude plaintiffs from maintaining an action against *350these defendants in federal courts. Consequently, I would not bar plaintiffs from pursuing the defendants in the courts of this State.
I
The entire-controversy doctrine proceeds from significant policy considerations, including judicial efficiency and fairness to litigants. Cogdell v. Hospital Ctr. at Orange, 116 N.J. 7, 15, 560 A.2d 1169 (1989). Like other legal doctrines, however, the entire-controversy doctrine has its limits. For me, today’s decision exceeds those limits.
To comprehend the reach of the majority’s decision, it may help to compare briefly New Jersey’s entire-controversy doctrine with claim preclusion elsewhere. New Jersey’s approach to claim preclusion, as embodied in the entire-controversy doctrine, is unique. See generally Kevin Haverty, Note, The Entire Controversy Doctrine in New Jersey and the Nominal Party Exception: When is the Entire Controversy Not the Entire Controversy?, 23 Rutgers L.J. 341, 344-45 (1992) (explaining that source of doctrine is 1947 New Jersey Constitution); William J. Volonte, Comment, The Entire Controversy Doctrine: A Novel Approach to Judicial Efficiency, 12 Seton Hall L.Rev. 260, 260 (1982) (providing a historical overview of the development of “an unusual procedural rule called the ‘entire controversy doctrine’ ”). No other jurisdiction has adopted so strict a rule on claims joinder. See Arthur F. Greenbaum, Jacks or Better to Open: Procedural Limitations on Co-Party and Third-Party Claims, 74 Minn.L.Rev. 507, 562 n. 233 (1990) (“New York provides a model of a permissive joinder approach to multi-claim litigation, while New Jersey takes a compulsory joinder approach. The Federal Rules approach falls between the two.”) (citation omitted). Compare FedR.Civ.P. 13(a) (compulsory counterclaims) with FedR.Civ.P. 13(b) (permissive counterclaims) and FedR.Civ.P. 13(g) (permissive cross-claims).
Our mandatory party-joinder rule, which deviates significantly from the party-joinder practice in other jurisdictions, is not well-*351known outside our State. Cf. Richard D. Freer, Avoiding Duplicative Litigation: Rethinking Plaintiff Autonomy and the Court’s Role in Defining the Litigative Unit, 50 U.Pitt.L.Rev. 809, 887, 841-51 (1989) (recommending adoption of a mandatory partyjoinder rule); John C. MeCoid, A Single Package for Multiparty Disputes, 28 Stan.L.Rev. 707, 724-28 (1976) (same). The majority recognizes as much: “[T]he entire controversy doctrine can hardly be thought to be a doctrine of either uniform application or universal acceptance.” Ante at 345, 662 A.2d at 541.
Even in New Jersey, the compulsory party-joinder rule has attracted critics. Last year, the Civil Practice Committee proposed the elimination of mandatory party joinder from the entire-controversy rule. The committee “concluded that despite the conceptual appeal of the [entire controversy] rule, it has, as a matter of practice, created many more difficulties than it has resolved. 1994 Report of the Supreme Court Comm. on Civil Practice, 136 N.J.L.J. 581, 589 (Supp. Feb. 14, 1994).
Mandatory party joinder under the Federal Rules of Civil Procedure is less restrictive than under the New Jersey rules. Under the Federal Rules, a plaintiff has more discretion to structure the litigation and to choose which of a multiplicity of defendants to sue. See Fed.R.Civ.P. 20(a) (permissive joinder of all persons asserting, or defending against, joint, several, or alternative right to relief that arises out of same transaction or occurrence and presents common question of law or fact). For example, to preserve complete diversity, a plaintiff may elect to sue some, but not all, conceivable defendants. That election does not foreclose a plaintiff from bringing a subsequent action against defendants not named in the first lawsuit.
The Pennsylvania Federal District Court ruled in the action against the principal perpetrators that plaintiffs need not join the present defendants. The federal rules do not preclude plaintiff from bringing a second action against defendants not a party to the first action. Hence, plaintiffs could have filed a subsequent *352action against the present defendants in the federal courts. New Jersey likewise should allow plaintiffs to maintain such an action.
Moreover, even if the Federal District Court had dismissed plaintiffs’ original suit for failure to join defendants as necessary parties, the federal rules would not preclude plaintiffs from bringing a subsequent action against defendants. Under Federal Rule of Civil Procedure 19(a), certain defendants must be joined if feasible. Rule 19(a), however, applies only if: (1) failure to join the absentee party would prevent complete relief from being accorded among the present parties to the action; or (2) the absentee party claims an interest relating to the subject matter of the action and is so situated that his or her absence from the action (i) will have a prejudicial effect on his or her ability to protect his or her interest, or (ii) will subject any of the persons already parties to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations.
If, for example, joinder is not feasible because of lack of personal jurisdiction over the absent party, the federal court must “determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being regarded as indispensable.” Fed. R-Civ.P. 19(b). Significantly, Federal Rule of Civil Procedure 41(b) provides:
Unless the court in its order of dismissal otherwise specifies, a dismissal under this subdivision and any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction, for improper venue, or for failure to join a party under Rule 19, operates as an adjudication on the merits.
[Emphasis added.]
Because a dismissal for failure to join a necessary or indispensable party is not an adjudication on the merits, such a dismissal has no preclusive effect. See, e.g., Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 2428, 69 L.Ed.2d 103, 108 (1981) (enumerating the three elements of res judicata as (1) same parties from earlier suit or their privies, (2) same cause of action as earlier suit, and (3) a valid final judgment on the merits in the earlier suit). In short, under the federal rules, a plaintiff whose *353case has been dismissed for nonjoinder of an indispensable party may reinstitute suit. It follows that plaintiffs, who recovered a judgment in their first action, should not be in a worse position than a plaintiff whose case was dismissed. In sum, I believe that the majority, by looking to New Jersey’s entire-controversy doctrine rather than applicable federal law, has erred.
II
I also believe that the majority has reached the wrong result. The polestar of the entire-controversy doctrine is judicial fairness. Reno Auto Sales, Inc. v. Prospect Park Sav. & Loan Ass’n, 243 N.J.Super. 624, 630, 581 A.2d 109 (App.Div.1990); see also Cogdell, supra, 116 N.J. at 27, 560 A.2d 1169 (“ ‘[T]he doctrine is one of judicial fairness and will be invoked in that spirit.’ ”) (quoting Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 343, 476 A.2d 250 (1984)). Distracted by a misplaced perception of judicial efficiency, the majority has, I believe, lost sight of the equities. As Justice Cardozo warned, “[a] system of procedure is perverted from its proper function when it multiplies impediments to justice without the warrant of clear necessity.” Reed v. Allen, 286 U.S. 191, 209, 52 S.Ct. 532, 537, 76 L.Ed. 1054, 1062 (1932) (Cardozo, J., joined by Brandéis and Stone, JJ., dissenting); cf. also Federated Dep’t Stores, supra, 452 U.S. at 403, 101 S.Ct. at 2430, 69 L.Ed.2d at 111 (Blackmun, J., concurring) (stressing that preclusion doctrine should be tempered by “overriding concerns of public policy and simple justice”) (citations omitted); Schum v. Bailey, 578 F.2d 493, 506 (3d Cir.1978) (Gibbons, J., concurring) (explaining that a court must depart from “strict adherence to finality” when fraudulent misrepresentation induced claimant to litigate first in forum with less favorable choice-of-law rules); Velasquez v. Franz, 123 N.J. 498, 539, 542, 589 A.2d 143 (1991) (Stein, J., dissenting) (urging pragmatic approach towards res judicata and positing that public interest occasionally necessitates relaxation of preclusion rules); 1B James W. Moore et al., Moore’s Federal Practice ¶ 0.405[12] (2d ed.1992) (suggesting that res judicata doctrine may *354be subject to equitable tempering if rigid application will produce demonstrably incorrect result).
I fail to see the fairness in preventing defrauded plaintiffs from pursuing just claims against wrongdoers in the courts of this State. It strikes me as manifestly unfair to permit swindlers to escape liability merely because plaintiffs’ counsel did not appreciate that the failure to join defendants in the earlier federal action would preclude plaintiffs from maintaining a subsequent suit in the courts of this State.
Notwithstanding the majority’s assertion to the contrary, ante at 338, 662 A.2d at 537, the necessary implication of its holding is to export the entire-controversy doctrine to another jurisdiction. As a result of the majority’s newly-announced rule, litigants everywhere must join all conceivable parties or forfeit access to the New Jersey courts.
The Third Circuit has recognized the problems that could be caused by extraterritorial application of New Jersey’s entire-controversy doctrine when confronting a similar issue. Electro-Miniatures Corp. v. Wendon Co., 889 F.2d 41, 45 (3d Cir.1989). Writing for a unanimous panel, Judge A. Leon Higginbotham observed:
We note at least the theoretical possibility that such a holding [applying the entire controversy doctrine extraterritorially] might compel careful litigators in other jurisdictions to raise all related claims and issues and seek all available remedies in a single proceeding, because of the possibility that a subsequent claim might arise in New Jersey. In this way, New Jersey would be imposing on litigants and courts in other states its policy choice to encourage parties to litigate all claims, defenses, issues, and remedies related to a particular transaction.
[Id. at 45 n. 6.]
I am persuaded that permitting plaintiffs to proceed is not unfair to defendants and will not pose an undue burden on the New Jersey courts.
Implicitly recognizing the inequity of barring plaintiffs’ claim, the majority suggests that the federal courts should “carefully consider the vindication of’ plaintiffs’ rights. Ante at 348, 662 A.2d at 542. Although the majority precludes plaintiffs from *355suing in the state courts, it leaves them free to pursue a second action in the federal courts. To achieve this result, the majority characterizes a state court dismissal based on the entire-controversy doctrine as one without prejudice. Id. at 346, 347, 662 A.2d at 541, 542. Yet, the majority recognizes that in the state courts the dismissal, in effect, will be preclusive. Id. at 347, 662 A.2d at 542. Ironically, the majority reaches the opposite conclusion when construing the effect of the federal court judgment. The majority, which finds that the first federal court judgment precludes the present action, accords the first federal court judgment greater preclusive effect than would the federal courts.
Like the majority, I believe that fairness and judicial economy undergird the entire-controversy doctrine. From my perspective, however, the majority opinion fails to serve either purpose. I do not see the fairness of preventing defrauded plaintiffs from maintaining an action in New Jersey merely because their counsel, while pursuing a Pennsylvania federal court action, did not follow the New Jersey Rules of Practice. Furthermore, requiring plaintiffs to pursue a second federal court action is inefficient. The fair and efficient solution,- in my view, is to permit the state court action to proceed.
For these reasons, I would reverse the judgment of the Appellate Division and remand the matter to the Law Division.
Justice STEIN joins in this dissent.
For affirmance in part and reversal in part — Justices HANDLER, O’HERN, GARIBALDI and COLEMAN — 4.
For reversal and remandment — Justices POLLOCK and STEIN — 2.