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PEDUTO v. CITY OF NORTH WILDWOOD

October 3, 1988

JOHN M. PEDUTO and EL-RO, INC., Plaintiffs,
v.
CITY OF NORTH WILDWOOD, Defendant/Third Party Plaintiff, v. VAN NOTE-HARVEY ASSOCIATES, P.C., Third-Party Defendant



The opinion of the court was delivered by: BROTMAN

 Presently before the court is the motion of defendant City of North Wildwood ("North Wildwood" or "the City") to dismiss plaintiffs' complaint on res judicata grounds or, in the alternative, for summary judgment on the merits. For the reasons stated in this opinion, the court will dismiss the complaint on res judicata grounds.

 I. FACTS AND PROCEDURE

 In August 1985 North Wildwood imposed a sewer moratorium and construction ban based on a directive from the New Jersey Department of Environmental Protection. Plaintiffs John M. Peduto and El-Ro, Inc., were owners and developers of three residential condominium projects in North Wildwood with a total of forty-two individual condominium units. They allege that the City mislead them to believe sewer service would be available for their proposed projects, that they relied on those representations, and that the City failed to notify them before imposing the sewer moratorium and construction ban. Plaintiffs claim that the City should have imposed the moratorium fourteen months before it did, and by delaying the City deprived them of their property for at least eight months.

 In July 1986 the plaintiffs filed a complaint against the City and three other defendants in the Law Division of the Superior Court of New Jersey for Cape May County ("the Cape May County action") raising five claims arising under state common law, 42 U.S.C. § 1983 (1982), and the federal and state constitutions: (1) the state and municipal defendants' actions constituted a taking of property and therefore they must pay compensation; (2) the state and municipal defendants' actions constituted a denial of procedural due process; (3) the state and municipal defendants' actions constituted a denial of substantive due process; (4) the state and municipal defendants breached a duty owed to the plaintiffs and therefore should pay damages pursuant to the New Jersey Tort Claims Act, N.J. Stat. Ann. §§ 59:1-1 to 12-3 (1982 & Supp. 1988); and (5) the private defendant breached a duty owed to the plaintiffs and therefore should pay damages under common-law principles of negligence.

 Several of the defendants, including North Wildwood, moved for summary judgment in the Cape May County action. In a lengthy opinion, Judge Callinan granted the defendants' motions, Peduto v. City of North Wildwood, No. L-068803-86, slip op. (Super. Ct. Law Div. Cape May Cty. Mar. 19, 1987), and issued an order dismissing plaintiffs' complaint against the City and other defendants with prejudice. Peduto v. City of North Wildwood, No. L-068803-86, order (Super. Ct. Law Div. Cape May Cty. May 11, 1987). Judge Callinan's opinion addressed at length the plaintiffs' three federal claims. Slip op. at 6-14.

 In the present action the plaintiffs raise three federal claims arising under the United States Constitution and section 1983: (1) the City's action constituted a taking of property and therefore it must pay compensation; (2) the City's action constituted a denial of procedural due process; and (3) the City's action constituted a denial of substantive due process. North Wildwood now moves to dismiss the plaintiffs' complaint on res judicata grounds, or, in the alternative, for summary judgment on the merits.

 II. DISCUSSION

 The court will address the preclusion issue by analyzing both the claim preclusion and issue preclusion aspects of the defendant's motion. But before proceeding, a brief discussion of the scope of these two branches of the preclusion doctrine will be helpful. A useful starting point is the Supreme Court's synopsis of the two concepts:

 
Issue preclusion refers to the effect of a judgment in foreclosing relitigation of a matter that has been litigated and decided. This effect also is referred to as direct or collateral estoppel. Claim preclusion refers to the effect of a judgment in foreclosing litigation of a matter that never has been litigated, because of a determination that it should have been advanced in an earlier suit.

 Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 77 n. 1, 79 L. Ed. 2d 56, 104 S. Ct. 892 (1984) (citing Restatement (Second) of Judgments § 27 (1982)). However, the distinction between the concepts is less clear than this quotation indicates. Claim preclusion, itself sometimes labelled res judicata, stresses the importance of the prior court's judgment: "'It treats a judgment, once rendered, as the full measure of relief to be accorded between the same parties on the same "claim" or "cause of action."'" 18 C. Wright, supra, § 4402, at 7 (quoting Kaspar Wire Works, Inc. v. Leco Eng'g & Mach., Inc., 575 F.2d 530, 535-36 (5th Cir. 1978)). Thus, while claim preclusion prohibits a second court to consider matters that should have been litigated but never were, it also serves to bar matters stemming from the same claim that have been litigated. Issue preclusion, sometimes called collateral estoppel, stresses the importance of the prior court's record: Issue preclusion "'recognizes that suits addressed to particular claims may present issues relevant to suits on other claims . . . [and it] bars the relitigation of issues actually adjudicated, and essential to the judgment, in a prior litigation between the same parties.'" Id. (quoting Kaspar Wire Works, 575 F.2d at 535-36). See generally J. Friedenthal, M. Kane & A. Miller, Civil Procedure § 14.2 (1985) [hereinafter J. Friedenthal].

 Where two actions are brought on the same claim but for some reason claim preclusion does not apply, issues actually litigated and determined in the first action nonetheless have preclusive effect; this subbranch of issue preclusion is called direct estoppel. See C. Wright, supra, § 4418. Although direct estoppel is an issue-based rather than a claim-based notion, it conceptually overlaps with claim preclusion in the sense that both doctrines in effect prevent relitigation of a claim or issue actually litigated and decided in a prior action. To simplify matters, the court will refer to this concept as falling under the rubric of issue preclusion and will address its applicability to the defendant's motion after the following discussion of the applicability of claim preclusion principles.

 A. Claim Preclusion

 In general, federal courts must honor the judgment of a state court to the same extent that the court that entered the judgment would honor it. See 28 U.S.C. § 1738 (1982); Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380-81, 84 L. Ed. 2d 274, 105 S. Ct. 1327 (1985); 18 C. Wright, supra, § 4469, at 659-61 & n.1. Therefore, unless the Constitution or federal statute dictates otherwise, New Jersey law determines the effect of the Cape May County judgment in this court. For claim preclusion to apply, there must be an identity of causes of action, parties, and issues. Eatough v. Board of Medical Examiners, 191 N.J. Super. 166, 173, 465 A.2d 934 (App. Div. 1983). Furthermore, the prior judgment must have been valid, Massie v. Erie R.R. Co., 196 F.2d 130, 134 n.12 (3d Cir. 1952) (applying New Jersey law), final, see Andersen v. Well-Built Homes, 69 N.J. Super. 246, 254, 174 A.2d 216 (App. Div. 1961), and on the merits. ...


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