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K-Land Corporation No. 28 v. Landis Sewerage Authority

July 16, 2002

K-LAND CORPORATION NO. 28, PLAINTIFF-APPELLANT,
v.
LANDIS SEWERAGE AUTHORITY, DEFENDANT-RESPONDENT, AND BERRYMAN'S BRANCH, LTD., DEFENDANT.



On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

(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).

In this appeal, the Court reviews a trial court's dismissal of a complaint based on the entire controversy doctrine.

K-Land Corporation No. 28 (K-Land) was formed for the purpose of acquiring approximately eighty acres of land in Vineland, New Jersey, that had been approved for development of a three hundred seventy-nine unit mobile home park (project). Although K-Land did not hold title to the project site until July 1989, it controlled the property under an option to purchase. The project's completion was conditioned on K-Land's construction of an off-site sewer line (force main) and a pumping station to connect the project to existing facilities of the Landis Sewerage Authority (LSA). The force main required for the connection was to be a six-inch pipe, extending approximately 15,000 linear feet.

Prior to beginning the construction of the force main, K-Land entered into discussions with LSA regarding sewer services to the Project. At that time, LSA, which realized that there would be a need to service existing and future property owners, requested K-Land to increase the size of the force main from six to eight inches and to increase the size of the pumping station in order to accommodate additional service to those potential users. K-Land agreed to do so, but asked that LSA apply a "fair share" policy allowing for contribution by other users according to their fair share of the cost of the force main and the pumping station. K-Land also asked LSA to provide a credit against connection fees for costs incurred by K-Land in constructing the force main to the extent that those costs were not offset by the contributions from other users. While discussions continued with LSA concerning those issues, K-Land installed the eight-inch force main at a cost of approximately $400,000.

In October 1999, after the force main already had been installed, the City of Vineland (Vineland) inquired of K-Land whether the force main would be dedicated to LSA. K-Land responded, indicating that the force main eventually would be owned by LSA, noting however that the cost of installation or the allocation of such costs was a completely different issue from that of ownership of the force main and appurtenances once installed.

While discussions still were ongoing with LSA regarding the application of a "fair share" policy and of credits toward the cost of the force main, K-Land was engaged in discussions with Berryman's, a mobile park owner and potential user of the proposed sewer facility. In a September 1990 letter to K-Land, LSA agreed with K-Land to a basic "fair share" policy, allowing for the certification of costs for the force main and pumping station and requiring that future users pay their "fair share" of the costs to LSA, which in turn would disburse the payments to K-Land. However, LSA did not agree to provide K-Land with credits against connection fees for the unreimbursed costs. Moreover, according to LSA's connection fees schedule set forth in its letter to K-Land, Berryman's would be required to pay its connection fees prior to connecting to LSA's sewer system.

That notwithstanding, Berryman's was willing to proceed in order to obtain its sewer service, and proposed to K-Land that Berryman's and another potential user assume responsibility for obtaining a permit and constructing the regional pumping station. Berryman's further proposed a plan for cost apportionment, should K-Land's costs in constructing the force main exceed its pro rata share of constructing the pumping station. Although that proposal was reduced to an agreement signed by Berryman's, the agreement never was implemented because of LSA's connection fee policy. While the matter remained unresolved, the owners of K-Land filed for bankruptcy on February 1, 1991. As a result of K-Land's financial difficulties, neither construction of the pumping station nor development of K-Land's project proceeded as scheduled.

In July 1991, Vineland filed a complaint against K-Land, Berryman's, LSA, and the County of Cumberland, seeking only a declaratory judgment concerning the ownership of the eight-inch force main, which had been constructed by K-Land partially on rights-of-way owned by Vineland. Vineland specifically sought a judgment establishing ownership of the existing sewer line either with Vineland or with LSA. Counsel for K-Land attended a conference regarding the declaratory judgment litigation in order to evaluate the suit and its need to participate in it. K-Land never filed an answer to the complaint, apparently based on its conclusion that the pending declaratory litigation did not involve the issues of "fair share" assessments and credits against connection fees, issues independent of the ownership issue, which formed the basis of the declaratory action. Eventually, default judgment was entered against K-Land.

Thereafter, the remaining parties discussed a settlement in the declaration litigation, culminating in a consent judgment filed in June 1992. Under the consent judgment, to which K-Land was not a party and in which K-Land did not participate, Berryman's would be responsible only for its proportionate share of the cost of the construction of the pumping station, and did not provide for payment of the "fair share" costs of the force main from Berryman's or any other potential user. By its terms, the consent judgment was inconsistent with the tentative status of discussions between K-Land and LSA, as reflected in LSA's September 1990 letter to K-Land.

Once K-Land's attorney became aware that the terms of the consent judgment were prejudicial to its right of reimbursement and that it went beyond the issue of ownership, he sought to negotiate directly with counsel for LSA and Berryman's, hoping to avoid further litigation. After those negotiations proved fruitless, K-Land filed suit against LSA and Berryman's seeking relief, including invalidation of the earlier consent judgment.

Before the trial court, K-Land maintained that its rights against LSA did not accrue until LSA permitted other users to use the force main without contributing their "fair share." Accordingly, it did not file a cross-claim against LSA in the declaratory judgment action because that litigation addressed only issues of ownership. K-Land asserted that its claim against LSA did not accrue until LSA entered into a consent judgment excusing Berryman's from contributing to the cost of the force main.

The trial court granted LSA's and Berryman's motions to dismiss, based on the entire controversy doctrine. The court concluded that K-Land's suit was precluded because it should have been involved in the first litigation, wherein the ownership of the line would be resolved and where any credits or any permission to use that line would have been involved. In an unreported opinion, the Appellate Division affirmed, finding that the 1991 litigation presented a full and complete opportunity for K-Land to litigate the issues presented in the litigation K-Land now sought to pursue. The panel noted that although the original declaratory complaint sought only a declaration as to ownership of the sewer line, it was not entirely unpredictable that other related issues, such as the reimbursement issues K-Land now sought to pursue, would arise and might be discussed and resolved in the course of that litigation.

The Supreme Court granted K-Land's petition for certification.

HELD: K-Land's suit seeking compensation for and declaration of matters not encompassed by an earlier declaratory action, in which it intentionally did not participate, is not barred by the entire controversy doctrine.

1. The Court authorized rule amendments to eliminate mandatory party joinder under the entire controversy doctrine and to abrogate preclusion of a successive action against a person not joined in the initial action except in cases involving inexcusable conduct and clear prejudice. (pp. 16-18)

2. The leading cases establishing and applying the entire controversy doctrine as a bar to the subsequent assertion of omitted claims have involved deliberate and calculated claim-splitting strategies designed to frustrate the orderly administration of justice, as opposed to an innocent omission by an uninformed litigant. (pp. 18-24)

3. The polestar for the application of the entire controversy rule is judicial fairness. In this case, the Appellate Division did not focus sufficiently on considerations of fairness when it observed that the 1991 action was the perfect opportunity for K-Land to resolve the issues that has been festering for several years. (p. 24)

4. The Court's interest in mandatory claim joinder should not be viewed as encouraging or requiring the filing of premature or unaccrued claims. In this case, to require K-Land to file a cross-claim in the declaratory judgment action to resolve open issues of reimbursement of and contribution to the cost of the force main, when the record is silent on whether negotiations were likely to result in resolution of that issue, transforms the entire controversy doctrine from one designed to conserve judicial resources to a doctrine designed to encourage litigation. (pp. 24- 25)

5. There are other equitable factors in this case that counsel against dismissal of the K-Land suit, including the fact that the consent judgment affecting K-Land's reimbursement rights was not entered until after K-Land already had defaulted. In addition, no prejudice alleged by either LSA or Berryman's justifies preclusion of K-Land's suit. (pp. 25-26)

Judgment of the Appellate Division is REVERSED and the matter is REMANDED to the Law Division for further proceedings consistent with the Court's opinion.

CHIEF JUSTICE PORITZ and JUSTICES COLEMAN, LONG, VERNIERO, LaVECCHIA, and ZAZZALI join in JUSTICE STEIN's opinion.

The opinion of the court was delivered by: Stein, J.

Argued April 29, 2002

This appeal involves the entire controversy doctrine. K- Land Corporation No. 28 (K-Land) instituted this litigation to obtain reimbursement from the Landis Sewerage Authority (LSA or Authority) of approximately $400,000 that it expended to construct the 15,000-foot force main portion of a sewer system to be operated by LSA for the benefit of K-Land and other property owners in the immediate vicinity of K-Land's property. K-Land's claim against LSA was dismissed by the lower courts because of K-Land's failure to assert that claim in an earlier declaratory judgment suit instituted by the City of Vineland (Vineland) to determine that it had title to the force main, a contention to which K-Land was willing to accede. When the Vineland suit was instituted, K-Land and LSA tentatively had agreed that LSA would assess and collect from adjacent property owners their proportionate share of the cost of the force main and remit the proceeds to K-Land, but had not agreed on how K- Land would be reimbursed for any remaining deficiency. Because the owners of K-Land had filed for bankruptcy and because K-Land was largely indifferent to Vineland's attempt to resolve title to the force main, K-Land defaulted in the declaratory judgment proceeding. Subsequently, the remaining parties, including LSA and Berryman's Branch, Ltd. (Berryman's), owner of an adjacent mobile home park and ...


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