This case was commenced on March 13, 1992 by the filing of a complaint by plaintiffs in Superior Court of New Jersey ("State Action"). Prior thereto, a matter had been commenced on December 18, 1991, in the United States District Court for the District of New Jersey ("Federal Action") by some of the plaintiffs in this case. An Amended Complaint was filed in the Federal Action on January 23, 1992 to include additional plaintiffs, all of whom are identical to those plaintiffs named in the State Action.
The Federal Action was brought by plaintiffs against Car Checkers of America, Inc., its President and Vice President, Wendy M. Geller and Lee S. Geller, respectively (collectively "Car Checkers"). Car Checkers is a New Jersey based national franchisor that offers franchises for the operation of mobile used-vehicle diagnostic inspection and appraisal service businesses. Plaintiffs are various existing or potential franchisees (i.e. those who have entered into franchise development agreements with Car Checkers). Jurisdiction arose out of diversity jurisdiction and federal question jurisdiction based on an alleged violation of the Racketeer Influenced Corrupt Organization Act (RICO).
In their federal complaint, plaintiffs assert that defendants included false information in their Uniform Franchise Offering Circular (UFOC) which was provided to each purchaser or potential franchisee, that they created "Phantom Franchisees" which allegedly did not exist and made material misrepresentations regarding the profitability of the franchise program. In addition, plaintiffs allege: (1) RICO violations; (2) common law fraud; (3) breach of duty of good faith and fair dealing; (4) breach of contract; and (5) negligence.
In their state court complaint, plaintiffs included defendants who were not named in the Federal Action. The state court defendants consist of: Cohen, DuFour & Associates, a public accounting firm; Franchise Brokers Networks, Inc., brokers; Antonio Inacio, Esq., in house counsel and the law firm of Tenzer, Greenblatt, Fallon and Kaplan, outside counsel, all of whom are
various professionals who had been retained by or employed by the Federal Action defendants. In addition, the State Action raises claims of fraud, negligence and similar related allegations as those contained in the Federal Action.
It is argued by the state defendants that the state court complaint arises out of the identical transactions and occurrences which formed the bases for the Federal Action. That is, the State Court Action mirrors the allegations contained in the Federal Action and arise out of identical circumstances as those pleaded in the district court complaint.
Defendant, Cohen, DuFour & Associates, now moves to dismiss the state complaint based on the entire controversy doctrine. All other state court defendants have subsequently joined in this motion. Defendants contend that the entire controversy doctrine bars the plaintiffs from litigating in state court against parties who were not included in the Federal Action.
The "entire controversy doctrine", pursuant to R. 4:30A, provides as follows:
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. . .
This rule does not define the doctrine but nonetheless alerts litigants of potential claim exclusion both against non-parties as well as parties. The rule was adopted, in part, as a result of the New Jersey Supreme Court's decision in Cogdell v. Hospital Center at Orange, 116 N.J. 7, 560 A.2d 1169 (1989). In Cogdell, the Supreme Court set forth the parameters of the rule and extended the application of the entire controversy doctrine to germane claims against non-parties. Pursuant to the holding in Cogdell, which preceded R. 4:30A, the entire controversy doctrine precludes actions against non-parties who should have been joined in a previously filed action.
Our courts have held that the entire controversy doctrine bars a state court suit against parties which could have and should have been joined in a previous federal action. In Mortgagelinq v.
Commonwealth Land Title, 262 N.J. Super. 178, 620 A.2d 456 (Law Div. 1992), plaintiffs brought an action in the U.S. District Court for the Eastern District of Pennsylvania. However, they excluded certain defendants from the suit. Subsequent thereto, plaintiffs filed an act ion in the Superior Court of New Jersey against different defendants than those named in the federal action. The pleadings filed in the state suit were identical with respect to the subject matter of the pleadings in the federal action. The Court determined that the entire controversy doctrine barred plaintiff's state court suit and dismissed the second state court action with prejudice. The Court reasoned that:
The Court is satisfied that plaintiffs knew of their causes of action against the moving parties at least as early as the filing date of the federal action and certainly when they amended that complaint . . . . The Court is also satisfied that the subject matter is identical in both Suits and that plaintiffs affirmatively chose to bifurcate from the federal action trial of the causes against the New Jersey defendants despite this fact. [Id. at 183].
The holding in Mortgagelinq, supra, appears to be consistent with New Jersey case law and the evolving application of the entire controversy doctrine which was articulated by the New Jersey Supreme Court in Ajamian v. Schlanger, 14 N.J. 483, 103 A.2d 9, cert. denied 348 U.S. 835, 99 L. Ed. 659, 75 S. Ct. 58 (1954). Justice Brennan, in Ajamian, outlined the underlying concept of the entire controversy doctrine as:
The just and expeditious determination in a single action of the ultimate merits of an entire controversy between litigants. It is a fundamental objective of this procedural reform to avoid the delays and wasteful expense of the multiplicity of litigation which results from the splitting of a controversy. [Id. at 485].
The application of the 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. It is only that bar which can effectively prevent the evil of '. . . piecemeal litigations of fragments of a single controversy.' [Citations omitted]. [Id. at 292-93].
The point, of course, is that a component of the controversy may not be unfairly withheld, . . . [citation omitted] and a withholding is by definition unfair if its effect is to render the pending litigation ...