Network's motion, although the Commissioner additionally relies on the doctrine of res judicata.6 DVTP, on the other hand, denies that Network is entitled to summary judgment on either ground and moves for summary judgment on Network's counterclaims. Network opposes DVTP's motion for summary judgment and asserts that it is untimely and that Network may maintain a common law action for unfair competition. Despite the court's express invitation, the Commissioner takes no position as to the legal issues involved in the counterclaims.
The standard for granting summary judgment is a stringent one. A court may grant summary judgment only when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Hersh v. Allen Prods. Co., 789 F.2d 230, 232 (3d Cir. 1986); Lang v. New York Life Ins. Co., 721 F.2d 118, 119 (3d Cir. 1983). In deciding whether there is a disputed issue of material fact the court must view all doubt in favor of the non-moving party. Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n. 2 (3d Cir. 1983), cert. dismissed, 465 U.S. 1091, 79 L. Ed. 2d 910, 104 S. Ct. 2144 (1984); Smith v. Pittsburgh Gage & Supply Co., 464 F.2d 870, 874 (3d Cir. 1972). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).
Recent Supreme Court decisions mandate that "a motion for summary judgment must be granted unless the party opposing the motion can produce evidence which, when considered in light of that party's burden of proof at trial, could be the basis for a jury finding in that party's favor." J.E. Mamiye & Sons, Inc. v. Fidelity Bank, 813 F.2d 610, 618 (3d Cir. 1987) (Becker, J., concurring) (citing Anderson, 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505, and Celotex Corp. v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986)). Moreover, once the moving party has carried its burden of establishing the absence of a genuine issue of material fact, "its opponent must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). Thus, if the non-movant's evidence is merely "colorable" or is "not significantly probative," the court may grant summary judgment. Anderson, 477 U.S. at 249-50.
A defense of claim or issue preclusion is one appropriate for summary judgment, because it calls for a legal determination by the court rather than a factual determination by a jury. See John M. Peduto and El-Ro, Inc. v. City of North Wildwood, 878 F.2d 725 (3d Cir. 1989); Purter v. Heckler, 771 F.2d 682, 690 (3d Cir. 1985); Scooper Dooper, Inc. v. Kraftco Corp., 494 F.2d 840 (3d Cir. 1974).
It is now well established that "a federal court must give to a state court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was entered." Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 81, 79 L. Ed. 2d 56, 104 S. Ct. 892 (1984); Peduto, 878 F.2d at 728. Accord Allen v. McCurry, 449 U.S. 90, 96, 66 L. Ed. 2d 308, 101 S. Ct. 411 (1980); 28 U.S.C. § 1738 (1982). In Kremer v. Chemical Constr. Corp., 456 U.S. 461, 466, 72 L. Ed. 2d 262, 102 S. Ct. 1883 (1982), the Supreme Court held that a federal court must give the same preclusive effect to a state court review of an agency decision as would be given in that state's courts. Here, the prior state court proceeding occurred first in the form of an administrative review before the Statewide Health Coordinating Council, the Certificate of Need Analyst, the Assistant Commissioner and the Commissioner, and on appeal before the New Jersey Superior Court, Appellate Division. Therefore the law of preclusion that a New Jersey court would apply controls this court's decision.
The relatively unique procedural posture of this case is one that New Jersey preclusion law is unlikely ever to confront. This case poses the question, what is the preclusive effect of a state court judgment on a prior commenced federal action where the plaintiff could not have brought the entire suit in the federal court because of the Eleventh Amendment limitation to the subject matter jurisdiction of the federal courts. See supra n. 5. The New Jersey "entire controversy" doctrine may force a plaintiff who wishes her case to be heard in federal court to win the race to the courthouse. See Peduto, 878 F.2d at 729 n. 5. This case further asks whether the plaintiff must additionally win the race through the court house to have her federal claims heard in the federal court.
This court faced a similar issue of interjurisdictional preclusion in John M. Peduto and El-Ro, Inc. v. City of North Wildwood, 696 F. Supp. 1004 (D.N.J. 1988), aff'd, 878 F.2d 725 (3d Cir. 1989). That case involved plaintiffs who brought an inverse condemnation proceeding in state court before bringing a civil rights claim under 42 U.S.C. § 1983 (1982) in federal court. The Third Circuit held that where the state court's jurisdiction was invoked in the first instance, the New Jersey entire controversy doctrine required the plaintiffs to bring the entire case in the state court. Relying on Allen v. McCurry, 449 U.S. 90, 66 L. Ed. 2d 308, 101 S. Ct. 411 (1980), the Third Circuit held that although the operation of New Jersey preclusion law and federal takings jurisprudence required that the plaintiff bring the federal constitutional claims in state court, the "denial of a federal forum, however, does not amount to denial of due process." Peduto, 878 F.2d at 729.
In Peduto this court declined to fashion a federal common-law exception to Section 1738. 696 F. Supp. at 1011, aff'd, 878 F.2d 725 (3d Cir. 1989). Here, if such a common law exception were to be constructed, it would have to be founded on the Eleventh Amendment and the due process clause.
In framing Section 1738, Congress could not have foreseen its application to the instant situation. Section 1738 was adopted in its original form in 1790. See Burbank, Interjurisdictional Preclusion, Full Faith and Credit, and Federal Common Law: A General Approach, 71 Cornell L.Rev. 733, 740 (1986). The Eleventh Amendment was not ratified until 1798, largely in response to the United States Supreme Court decision in Chisholm v. Georgia, 2 U.S. 419 (2 Dall. 1793), 1 L. Ed. 440. See C. Wright, Federal Courts § 48, at 206 (2d ed. 1976); Smith, Pennhurst v. Halderman: The Eleventh Amendment, Erie, and Pendent State Law Claims, 34 Buffalo L.Rev. 227, 245-50 (1985).
Similarly, the difficult situation facing this court is probably one not anticipated by the framers of the Eleventh Amendment. Only as recently as 1984 did the Supreme Court make clear in Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 79 L. Ed. 2d 67, 104 S. Ct. 900 (1984), that the state court claims in the instant case could be brought only in the state court.
Although there might be some tenuous basis for finding that the Eleventh Amendment together with the due process clause are an express or implied repeal of Section 1738, see Kremer, 456 U.S. at 481-82; Burbank, Interjurisdictional Preclusion, Full Faith and Credit, and Federal Common Law: A General Approach, 71 Cornell L.Rev. 733, 797-98 (1986), this court adheres to the well-established principle that a court should avoid an unnecessary constitutional determination. See Lake Carriers Ass'n v. MacMullan, 406 U.S. 498, 510, 32 L. Ed. 2d 257, 92 S. Ct. 1749 (1972); Railroad Comm'n v. Pullman Co., 312 U.S. 496, 498, 85 L. Ed. 971, 61 S. Ct. 643 (1941); Burton v. United States, 196 U.S. 283, 295, 49 L. Ed. 482, 25 S. Ct. 243 (1905). Rather than wade into the constitutional abyss, this court will follow the path of New Jersey preclusion law. See Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 84 L. Ed. 2d 274, 105 S. Ct. 1327 (1985).
1. Res Judicata
As the Supreme Court has observed, "under res judicata, a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Allen v. McCurry, 449 U.S. 90, 94, 66 L. Ed. 2d 308, 101 S. Ct. 411 (1980). See Purter, 771 F.2d at 690 (citing United States v. Athlone Indus., Inc., 746 F.2d 977, 983 (3d Cir. 1984)). The New Jersey entire controversy doctrine requires that "'a party who has elected to hold back from the first proceeding a related component of the controversy be barred from thereafter raising it in a subsequent proceeding.'" Peduto, 878 F.2d at 727 (emphasis added) (quoting Woodward-Clyde Consultants v. Chemical and Pollution Sciences, Inc., 105 N.J. 464, 473, 523 A.2d 131, 135, 25 ERC (BNA) 2098 (1987)).
There is a substantial question as to whether DVTP elected not to bring the federal claims in the state proceeding because it is not clear that the federal claims could have been brought in the state proceeding.
This determination requires an evaluation of whether the state court had the power to hear the claims. Cf. Fay v. South Colonie Central School Dist., 802 F.2d 21, 29 (2d Cir. 1986) (New York res judicata law did not preclude subsequent action in federal court where state court lacked power to adjudicate claim) (citing Davidson v. Capuano, 792 F.2d 275, 278 (2d Cir. 1986)); Restatement (Second) of Judgments § 26(c) and Comment (c)(1).
The Health Care Facilities Planning Act, 26 N.J Stat. Ann. § 26:2H-1 et seq. (West 1987 & Supp. 1989), states that no CON "shall be denied without the approval of the [Health Care Administration] board and prior to the determination by the board, the applicant shall have been granted opportunity for hearing . . . ." Id. § 26:2H-9 (emphasis added). The statute makes no specific provision for a hearing when the board has decided to issue a CON. Cf. N.J.Admin.Code tit. 8, § 33-3.6(f) (applicant entitled to hearing if Commissioner disapproves CON application). Further, the statute makes no provision for a hearing for a non-applicant who may take some position as to the issuance or denial of a CON to the applicant.
The court finds that DVTP did not elect not to present its constitutional claims in the state proceeding. To the contrary, DVTP sought repeatedly to present factual evidence in an open and public hearing. At every turn, however, DVTP's efforts were frustrated. The Statewide Health Coordinating Council informed DVTP "that a full review was not necessary and that the administrative review process was appropriate." Pretrial Order at 42. The minutes of the Statewide Health Coordinating Council further state that DVTP "requested a hearing, but the Regulation and Statutes do not afford [DVTP] the right to this procedure." Pretrial Order at 41.
DVTP was not entitled to such a public hearing at any point in the state proceedings as a matter of state law. The determination whether to submit an application to the administrative review process rests with the Department of Health. N.J.Admin.Code tit. 8, § 33-4.1(f). The administrative code provides that the administrative review process shall be the process for obtaining a CON in the case of a transfer of ownership between existing health care facilities. Id. § 2.10(b). The consolidation of Network and Our Lady of Lourdes was considered a transfer of ownership. Pretrial Order at 36. Accordingly, the Commissioner's decision was reviewable only by the Department of Health, and the administrative review "process is generally of shorter duration than the full review process and normally does not include a review by the Statewide Health Coordinating Council. N.J.Admin.Code tit. 8, § 33-1.6. There is no provision for a plenary public hearing, see id. § 4.2, and the Department of Health determination is then the final determination of the state agency, unless the matter is remanded. Id. § 3.6(i). The Department of Health decision is reviewable only in the Superior Court Appellate Division. N.J.R.Ct. 2:2-3(a)(2) (1989).
The New Jersey Superior Court Appellate Division's review of the Commissioner's issuance of the CON similarly failed to afford DVTP a full and fair opportunity to present its claims. In New Jersey, courts have a limited role in reviewing agency decisions. Henry v. Rahway, 81 N.J. 571, 579, 410 A.2d 686, 690 (1980). An appellate court will not reverse the decision of an administrative agency unless it is arbitrary, unreasonable, capricious, lacks fair support in the evidence, or violates legislative policies. See Campbell v. Department of Civil Serv., 39 N.J. 556, 563, 189 A.2d 712, 715 (1963). The Appellate Division has jurisdiction only to review the agency decision and cannot entertain new claims for the first time on appeal. See N.J.R.Ct. 2:2-3(a)(2) (1989).
The closest case to the facts of the instant case is In re the Applications of Overlook Hospital and Morristown Memorial Hospital For Certificate of Need, 215 N.J. Super. 401, 414, 521 A.2d 1350, 1356 (1987), in which rejected applicants sought review of the Commissioner's decision not to issue a CON to them although a CON had been issued to another applicant hospital. There the New Jersey Superior Court held that the rejected applicants were not entitled to introduce evidence from beyond the face of the application of the successful hospital, although the rejected applicants were entitled to a more complete development of the record for the purposes of reviewing the denial of their applications.
In this instance, DVTP was not in a batched application pool, as were the rejected applicants in Applications of Overlook Hospital ; had that been the case there might have been a more complete hearing concerning the issuance of Network's CON. N.J.Admin.Code tit. 8, § 33-3.6(f). More importantly, there might have been an opportunity for DVTP to pursue the very claims it seeks to press in this action. Moreover, DVTP had not applied for a CON and therefore could not introduce evidence not previously considered by Statewide Health Coordinating Council.
This extended recitation of the proceedings in New Jersey is not meant in any way to undermine this court's obligation to respect the state court's determination of the state law issues present in this case. Erie v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938); 28 U.S.C. § 1738 (1982). Rather, the review of the state procedures demonstrates that DVTP was not afforded the opportunity to pursue its federal claims.
Under New Jersey law of claim preclusion, if the claim was one that could not have been brought, it cannot be precluded. Peduto, 878 F.2d at 727. New Jersey follows the Restatement (Second) of Judgments. See Gareeb v. Weinstein, 161 N.J. Super. 1, 9-10, 390 A.2d 706, 710 (App. Div. 1978). Accord Jalil v. Avdel Corp., 873 F.2d 701, 704 (3d Cir. 1989) (New Jersey follows Restatement for issue preclusion). Section 26 of the Restatement sets forth several exceptions to the general rule that second action on the same claim is barred, one of which is relevant to the facts here:
The plaintiff was unable to rely on a certain theory of the case or to seek a certain remedy of form of relief in the first action because of the limitations on the subject matter jurisdiction of the courts or restrictions on their authority to entertain multiple theories or demands for multiple remedies or forms of relief in a single action, and the plaintiff desires in the second action to rely on that theory or to seek that remedy or form of relief.
Id. § 26(c). This describes the situation in the state proceeding in this case.
Accordingly, the court concludes that DVTP's claims are not barred by res judicata.
2. Collateral Estoppel
"Under collateral estoppel, once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case." Allen, 449 U.S. at 94 (citing Montana v. United States, 440 U.S. 147, 153, 59 L. Ed. 2d 210, 99 S. Ct. 970 (1979)).
Under the law of collateral estoppel of New Jersey, questions "distinctly put in issue" and "directly determined" preclude relitigation of the same issues by the parties against whom the estoppel is asserted. O'Hara v. Board of Educ. of the Vocational School on the County of Camden, 590 F. Supp. 696, 702 (D.N.J. 1984) (citing New Jersey-Philadelphia Presbytery of the Bible Presbyterian Church v. New Jersey State Bd. of Higher Educ., 654 F.2d 868, 876 (3d Cir. 1981)), aff'd, 760 F.2d 259 (3d Cir. 1985); Plainfield v. Public Serv. Elec. & Gas Co., 82 N.J. 245, 257-58, 412 A.2d 759, 765-66 (1980); Washington Township v. Gould, 39 N.J. 527, 533, 189 A.2d 697, 700 (1963).
Both the papers filed with the state court and the Appellate Division opinion make clear that DVTP did not put in issue any claims other than the state law claims which could not be adjudicated in the federal action. Cf. Switlik v. Hardwicke Co., Inc., 651 F.2d 852, 858-59 (3d Cir.) (precluding plaintiffs who filed first in state court and litigated constitutional claims in state court), cert. denied, 454 U.S. 1064, 70 L. Ed. 2d 601, 102 S. Ct. 614 (1981). The Civil Appeal Case Information Statement filed in the state court proceeding includes a section requiring the appellant to list the issues to be raised on appeal. In that section, DVTP listed the following issues:
a. whether Commissioner Coye followed the proper administrative procedure for considering the subject certificate of need;
b. whether Commissioner Coye followed Dept. of Health regulations regarding regionalization of services;
c. whether Commissioner Coye improperly engaged in rule making without following the procedures of the Administrative Procedures Act.