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Mortgagelinq Corp. v. Commonwealth Land Title Ins. Co.

August 1, 1995

MORTGAGELINQ CORPORATION AND FEDERAL HOME LOAN MORTGAGE CORPORATION, PLAINTIFFS-APPELLANTS,
v.
COMMONWEALTH LAND TITLE INSURANCE COMPANY, EDWARD B. CAVALLARO, SR., CONTINENTAL TITLE INSURANCE COMPANY, ELIZABETH A. KEHOE, AND LAWYERS TITLE INSURANCE CORPORATION, DEFENDANTS-RESPONDENTS, AND MARKLAND TITLE SERVICES, INC., AND ROBERTA A. RANKIN, DEFENDANTS.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 275 N.J. Super. 79 (1994).

The opinion of the Court was delivered by O'hern, J. Justices Handler, Garibaldi, and Coleman join in Justice O'Hern's opinion. Justice Pollock has filed a separate Dissenting opinion in which Justice Stein joins. Chief Justice Wilentz did not participate.

The opinion of the court was delivered by: O'hern

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

MORTGAGELINQ CORPORATION, ET AL. V. COMMONWEALTHLAND TITLE INSURANCE COMPANY, ET AL. (A-104-94)

(NOTE: This is a companion case to Circle Chevrolet V. Giordano, Halleran & Ciesla, Mystic Isle Development Corp. v. Perskie & Nehmad and DiTrolio v. Antiles, also decided today.)

Argued March 27, 1995 -- Decided August 1, 1995

O'HERN, J., writing for a majority of the Court.

The issue on appeal is whether the entire controversy doctrine has an extraterritorial effect. Thus, are New Jersey courts obliged to entertain claims against parties that could have been joined with substantially similar claims pursued by the same plaintiffs against other parties in another jurisdiction?

This case arises from a massive fraud committed on Mortgagelinq Corporation (Mortgagelinq), a mortgage lender, and the Federal Home Loan Mortgage Corporation (Freddie Mac), assignee of some of the loans. The principal perpetrators of the fraud were based in Pennsylvania (the Pennsylvania defendants). They purported to be engaged in the acquisition and development of properties, but they were actually engaged in a shell game of selling properties to themselves for a profit. When the scam collapsed, Mortgagelinq and Freddie Mac (hereinafter "the lenders") were left with inadequate collateral. On March 13, 1991, Mortgagelinq sued the Pennsylvania defendants in the U.S. District Court for the Eastern District of Pennsylvania. Mortgagelinq described that action (Mortgagelinq I) as an action "against the central figures in the fraudulent scheme."

On January 31, 1992, Freddie Mac sought to intervene as a plaintiff in Mortgagelinq I. That motion was granted on February 14, 1992. One day Prior to the entry of that order, the lenders filed the complaint that is the subject of this appeal in Superior Court, Law Division, Camden County (Mortgagelinq II). The defendants in this action are three title insurance companies, a title agency, and three individuals alleged to be employees of either the title insurance companies or the title agency (the New Jersey defendants). The allegations in Mortgagelinq II involve the same twenty-four mortgage transactions that form the basis for the allegations contained in the Mortgagelinq I complaint in Pennsylvania. The lenders allege that the title companies who closed title in many of the land transactions by the Pennsylvania defendants must have been aware of the fraud, which involved the same parties repeatedly acquiring properties and reselling them at much higher prices. The scheme and its alleged effect on the lenders are apparently identical.

After filing the Mortgagelinq II complaint, some of the Mortgagelinq I defendants sought to compel the joinder of the New Jersey defendants in the Pennsylvania action. The lenders opposed those applications and the District Court refused to join the New Jersey defendants in the proceedings.

Some of the New Jersey defendants then moved to dismiss the complaints filed against them in New Jersey on the basis of the entire controversy doctrine and other grounds, asserting that the lenders deliberately delayed filing their New Jersey action until after the time period allowed for joinder in the federal action had expired. The Law Division granted the motion and dismissed the complaints on the basis of the entire controversy doctrine. The court found that the lenders were aware of their cause of action against the New Jersey defendants at least as early as the filing date of the federal action in Pennsylvania, and that the subject matter was identical in both suits. The court also found that the lenders deliberately withheld their claims against the New Jersey defendants in the first action. Thus, the court held that the entire controversy doctrine should operate to bar Suits against parties who could and should have been joined in a previous suit despite the fact that the earlier suit was brought in another state or in federal court.

On appeal, the Appellate Division affirmed the dismissal of the complaint. The Supreme Court granted the lenders' petition for certification.

HELD: When a party deliberately chooses to fragment litigation by suing certain parties in another jurisdiction and withholds claims against other parties, a New Jersey court need not later entertain the claims against the omitted parties if jurisdiction was available in the first forum.

1. New Jersey's goals are served by precluding claimants from bringing an action against a party that could have been joined in an earlier action brought elsewhere. A court must consider whether a trial court, confronted in an earlier action with an entire controversy application, would clearly have found grounds to excuse joinder. Here, the Pennsylvania federal court would not have severed the New Jersey defendants had there been a timely effort to join them. Further, any claim that joinder would have been inappropriate is weakened by the lenders' failure to give the trial court the opportunity to make such a determination. Moreover, excusable neglect is not present in this case. The lenders were represented by sophisticated attorneys and there is no evidence of unfairness to the litigants attributable to attorney neglect. Of course, the U.S. District Court need not follow this Court's views of party joinder. (pp. 8-11)

2. If Pennsylvania courts do not have a comparable party-joinder rule, principles of comity suggest that New Jersey should not seek to export its entire controversy doctrine to regulate the conduct of attorneys in that jurisdiction. However, New Jersey courts need not necessarily grant relief when party's deliberately refrain from seeking relief in other jurisdictions when doing so would have been much fairer to all parties involved. There is a delicate balance between the interests of the two jurisdictions that must accommodate the interests of Justice. (pp. 11-12)

3. Because the binding or preclusive effect of a judgment is determined primarily by the jurisdiction that entered it, in the context of federalism, the Court must consider what effect should be given our entire-controversy rule. The Court finds that a dismissal for failure to comply with the entire controversy doctrine is more similar to a threshold adjudication than to an adjudication on the merits of the claim. That does not mean that a successive New Jersey action may be brought because the threshold bar would remain in place and be effective as a final adjudication for purposes of any further New Jersey proceedings. That threshold is not a barrier elsewhere, however. Maintaining a cohesive federal system does not require that the other parts of the federal system honor our entire controversy doctrine. It is assumed that the federal court will carefully consider the powerful federal interest in the vindication of the rights of a federally-created mortgage-lending agency. (pp. 13-17)

Judgment of the Appellate Division is AFFIRMED IN PART, insofar as it applies to the entire controversy doctrine to bar the successive actions in New Jersey under the present circumstances and the judgment is REVERSED IN PART, insofar as it dismissed the complaints with prejudice.

JUSTICE POLLOCK, Dissenting, in which JUSTICE STEIN joins, is of the view that federal law would not preclude the lenders from maintaining an action against the New Jersey defendants in federal courts. Thus, by looking to New Jersey's entire controversy doctrine rather than applicable federal law, the majority has erred. Moreover, distracted by a misplaced perception of judicial efficiency, the majority has lost sight of the equities. Justice Pollock finds it manifestly unfair to permit swindlers to escape liability merely because the lenders' counsel did not appreciate that the failure to join the New Jersey defendants in the earlier federal action would preclude the lenders from maintaining a subsequent suit in the courts of this State. Moreover, despite the majority's assertion to the contrary, the necessary implication of its holding is to export the entire-controversy doctrine to another jurisdiction.

JUSTICES HANDLER, GARIBALDI and COLEMAN join in JUSTICE O'HERN's opinion. JUSTICE POLLOCK filed a separate Dissenting opinion in which JUSTICE STEIN joins. CHIEF JUSTICE WILENTZ did not participate.

The opinion of the Court was delivered by

O'HERN, J.

This is one of a series of entire controversy cases decided this term. See Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, N.J. (1995); Mystic Isle Dev. Corp. v. Perskie & Nehmad, N.J. (1995); DiTrolio v. Antiles, N.J. (1995). Each case presents a slightly different aspect of the problems that have arisen in the application of the entire controversy doctrine. The issue in this case, most broadly stated, is whether the doctrine has an extraterritorial effect. The specific question is whether New Jersey courts are obliged to entertain claims against parties that could have been joined with substantially similar claims pursued by the same plaintiffs against other parties elsewhere.

We hold that when a party deliberately chooses to fragment litigation by suing certain parties in another jurisdiction and withholds claims against other parties, a New Jersey court need not later entertain the claims against the omitted parties if jurisdiction was available in the first forum. In doing so we do not export our entire controversy doctrine to other jurisdictions, but merely hold that our notions of procedural fairness do not permit the claims that could have brought elsewhere to be brought in New Jersey. This ruling presupposes that when the procedural rules of foreign jurisdictions permit the omitted claims to be brought later, the foreign jurisdiction is free to entertain such claims. Just as we do not seek to export our procedural requirements of party joinder, we do not seek to export any preclusive effect to our rules of party joinder.

I

The case arises from a massive fraud committed on the plaintiff mortgage lender, Mortgagelinq Corporation (Mortgagelinq), and the Federal Home Loan Mortgage Corporation (Freddie Mac), assignee of some of the loans. *fn1 There is more than enough blame to go around. Defendants in this case, principally South Jersey title insurance companies, are allegedly accessories to the fraud. What happened was deceptively simple. The principal perpetrators of the fraud were based in Pennsylvania (the Pennsylvania defendants). They purported to be engaged in the acquisition and development of properties, but they were actually engaged in a shell game of selling properties to themselves. They elevated the art of the deal to new heights.

A brief of defendant Lawyers Title Insurance Corporation describes the scheme succinctly. The Pennsylvania defendants would purchase property from its owner for a purchase price near its fair market value (the A transaction). The property was fraudulently resold on the same day to another Pennsylvania defendant (the B transaction) at a price substantially higher than the purchase price of the A transaction. All but one of the twenty-four mortgage transactions alleged to be part of the fraudulent scheme involved property located within Atlantic County, New Jersey. The transactions took place between May 1990 and February 1991. In each instance, Mortgagelinq, a New Jersey/Pennsylvania-based mortgage lender, provided mortgage financing based on the inflated purchase price in the B transaction. Mortgagelinq sold some of the mortgages to Freddie Mac. The Pennsylvania defendants pocketed the difference between the real price and the fake price. In fact, sometimes the sham deals closed before the ...


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