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MRUZ v. CARING

March 23, 1999

JOHN H. MRUZ, VASILIKE D. NIKA, AND JANE A. JOHNSON, PLAINTIFFS,
v.
CARING, INC., CARING RESIDENTIAL SERVICES, INC., CARINGHOUSE PROJECTS, INC., CARING MEDICAL DAY SERVICES, INC., CARING FELLOWSHIP CENTERS, INC., CARING INTERNATIONAL, INC., COMPREHENSIVE ELDERCARING, INC., COASTAL SUPPORT SERVICES, INC., ANN J. UNDERLAND, CARLISLE W. UNDERLAND, GARFIELD L. GREENE, LEWIS W. FIELD, MARY E. HAYNIE, IAN MEKLINSKY, ESQ, O'BRIEN & FRANKEL, DEFENDANTS.



The opinion of the court was delivered by: Orlofsky, District Judge.

OPINION

This case presents the novel question of whether a litigant may pursue a state law remedy for the filing of a frivolous claim when the claim arises under federal law and this Court's subject matter jurisdiction is based upon a federal question.*fn1 For the reasons set forth below, I hold that, because the jurisdictional basis for the alleged frivolous claim is this Court's federal question jurisdiction, litigants who seek relief for such "litigation abuse" must pursue the arsenal of federal remedies available to address such misconduct. Accordingly, I shall grant Plaintiffs' motion to dismiss the counterclaim. Alternatively, I shall grant the motion to dismiss the counterclaim because a party seeking relief under New Jersey's Frivolous Claims Act may only do so by the filing of a motion, and not by the assertion of a counterclaim.*fn2

I. PROCEDURAL BACKGROUND

The facts and procedural history giving rise to this litigation are set forth in detail in this Court's January 28, 1998, opinion, Mruz, et al. v. Caring, Inc., et al., 991 F. Supp. 701 (D.N.J. 1998) ("Mruz I"), and, therefore, shall not be repeated here. What follows below is the procedural history relevant to Plaintiffs' motion to dismiss the Attorney Defendants' counterclaim for failure to state a cause of action upon which relief can be granted, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.*fn4

On August 8, 1997, Defendants, CARING, Inc., CARING Residential Services, Inc., CARINGhouse Projects, Inc., CARING Medical Day Services, Inc., CARING Fellowship Centers, Inc., Caring International, Inc., Comprehensive ElderCARING, Inc., Coastal Support Services, Inc., Ann J. Underland, Carlisle W. Underland, Garfield L. Greene, Lewis W. Field, Mary E. Haynie (collectively, "Corporate Defendants"), and Defendants, Fox Rothschild, O'Brien & Frankel ("Fox"), and Ian Meklinsky, Esq. ("Meklinsky"), filed motions to dismiss Counts I, II, IV, and V of the Complaint. See Corporate Defendants' Notice of Motion (filed Aug. 8, 1997); see also Attorney Defendants' Notice of Motion (filed Aug. 8, 1997). On January 28, 1998, this Court granted in part and denied in part defendants' motions. See Mruz I, 991 F. Supp. at 704, 721. Specifically, I dismissed Plaintiffs' claim for violation of the Federal False Claims Act, 31 U.S.C. § 3730(h), Count I of the Complaint; denied defendants' motions to dismiss Plaintiffs' claims for violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and the New Jersey Racketeer Influenced and Corrupt Organizations Act, N.J. Stat. Ann. § 2C:41-1 et seq., Counts II and IV; and granted defendants' motions to dismiss Count V of the Complaint, Plaintiffs' state law cause of action, "without prejudice to Plaintiffs' right to file an amended Count V of the Complaint within twenty days. . . ."*fn5 See Order of the Court (filed Jan. 28, 1998); see also Mruz I, 991 F. Supp. at 707-21.

In Mruz I, after concluding that the touchstone of liability under section 3730(h) of the False Claims Act is an "employment relationship," see Mruz I, 991 F. Supp. at 709, I went on to "determine whether Plaintiffs ha[d] pled facts [in Count I of the Complaint] from which an inference of an employment relationship between Plaintiffs and the Attorney Defendants . . . [could] be drawn." See id. at 710 (footnote omitted). In making this determination, I wrote:

  A review of the Complaint confirms that no such
  inference can reasonably be drawn. First and perhaps
  most important, Plaintiffs allege that they were
  employed by various corporate entities, not by the
  Attorney Defendants. . . . [T]here is nothing in the
  Complaint suggesting an employment relationship
  between the Attorney Defendants and Plaintiffs . . .
  Therefore, Count I of the Complaint will be dismissed
  with prejudice . . . as to [the Attorney Defendants].

See id.; see also Order of the Court (filed Jan. 28, 1998).

On February 17, 1998, Plaintiffs filed an Amended Complaint. See Amended Complaint (filed Feb. 17, 1998). On March 25, 1998, the Attorney Defendants answered the Amended Complaint, and filed the counterclaim, which forms the subject matter of this Opinion. See Answer and Counterclaim (filed Mar. 25, 1998). The counterclaim asserts a cause of action, under the New Jersey Frivolous Claims Act ("NJFCA"), N.J. Stat. Ann. § 2A:15-59.1 (West 1998),*fn6 for the recovery of attorneys' fees and costs incurred by the Attorney Defendants in defense of Count I of the Complaint, Plaintiffs' False Claims Act claim. See Answer and Counterclaim ("Counterclaim") (filed Mar. 25, 1998). In the counterclaim, the Attorney Defendants allege:

  Plaintiffs asserted that Fox and Meklinsky . . . were
  liable to Plaintiffs under . . . § 3730(h) [of the
  False Claims Act] despite the fact that (a) there has
  never been any employment relationship between one or
  more of the Plaintiffs, on the one hand, and either
  Fox or Meklinsky, on the other hand; and (b) the
  complaint does not even allege that there is or was
  any [such] employment relationship. . . . The [False
  Claims Act claim] was filed against Fox and Meklinsky
  in bad faith and solely for the purpose of
  harassment, delay or malicious injury. . . .
  Plaintiffs knew, or should have known, that the
  [False Claims Act

  claim] against Fox and Meklinsky was without any
  reasonable basis in law or equity and could not be
  supported by a good faith argument for an extension,
  modification or reversal of existing law. By Opinion
  dated January 28, 1998, and Order dated January 28,
  1998, [this Court] dismissed the [False Claims Act
  claim] as against . . . Fox and Meklinsky. As a
  direct result of being named defendants on the [False
  Claims Act claim], Fox and Meklinsky have been
  damaged and have had to expend litigation costs and
  attorneys' fees to defend against the [False Claims
  Act claim]. [The Attorney Defendants] demand judgment
  against [Plaintiffs] pursuant to N.J.S.A. 2A:15-59.1
  for an award of all reasonable litigation costs and
  attorneys' fees for being compelled to defend against
  the [False Claims Act claim].

See Counterclaim, ¶¶ 1-5.

In lieu of answering the counterclaim, on June 26, 1998, Plaintiffs filed a motion to dismiss the counterclaim for failure to state a cause of action upon which relief can be granted, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. See Plaintiffs' Notice of Motion (filed Jun. 26, 1998). In support of their motion, Plaintiffs first contend that the counterclaim is procedurally defective because: (a) the claim for attorneys' fees is not ripe, (b) the right to attorneys' fees under the NJFCA must be asserted in the form of a motion, not as a counterclaim, and (c) the Attorney Defendants did not submit an affidavit in support of the counterclaim as required by § 2A:15-59.1(c). See Plaintiffs' Brief in Support of Motion to Dismiss ("Pl.Brief") at 3-7. Plaintiffs also contend that the Attorney Defendants do not fall within the definition of "prevailing party," as used in the NJFCA, because the Complaint as a whole was not frivolous. See Pl. Brief at 8-9. Finally, Plaintiffs contend that, on the merits, Count I of the Complaint was not alleged in "bad faith solely for the purpose of harassment, delay or malicious injury; [nor] . . . without any reasonable basis in low or equity. . . ." See N.J. Stat. Ann. § 2A:15-59.1; see also Pl. Brief at 9-17.

In opposing the motion, the Attorney Defendants contend:

  [P]laintiffs argue that any claim under the [NJFCA],
  even in federal court, must be brought by motion. In
  doing so, plaintiffs purposefully confuse the
  distinction between a state court procedural rule and
  a substantive cause of action . . . Plaintiffs'
  attempt to elevate form over substance must fail. Fox
  and Meklinsky are not required to adhere to New
  Jersey procedural rules in pleading a cause of action
  in federal court . . . [B]y arguing that Fox and
  Meklinsky must assert their claim under the [NJFCA]
  by motion instead by way of counterclaim, plaintiffs
  are essentially claiming that a New Jersey procedural
  rule trumps the Federal Rules of Civil Procedure.
  Such an argument fails as a matter of law [under
  Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14
  L.Ed.2d 8 (1965)].

See Attorney Defendants' Brief in Opposition to Motion to Dismiss ("Def.Brief") at 4-7 (filed Jun. 26, 1998). In addition, the Attorney Defendants contend that they are "prevailing parties" within the meaning of the NJFCA. See Def. Brief at 7-9. Finally, combing my January 28, 1998, Opinion, for adjectives, such as "misguided" and "unprecedented," the Attorney Defendants contend that, because I dismissed Plaintiffs' False Claims Act claim, the claim was asserted in bad faith and without a reasonable basis in law or equity. See Def. Brief at 7-15 (citing Mruz I, 991 F. Supp. at 716, 719, 722 n. 10).

Curiously, after vigorously contending that they may assert their right to attorneys' fees and costs under the NJFCA by counterclaim, the Attorney Defendants state:

See Def. Brief at 7, 9 (citing McKeown-Brand v. Trump Castle Hotel & Casino, 132 N.J. 546, 562, 626 A.2d 425 (1993)).

II. LEGAL STANDARD GOVERNING A RULE 12(B)(6) MOTION TO DISMISS
    FOR FAILURE TO STATE A CLAIM UPON WHICH ...

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