December 4, 2008
GLEASON DESIGN ASSOCIATES, INC., PLAINTIFF-APPELLANT,
PIZZELLI ASSOCIATES, INC. AND DANIEL V. PIZZELLI, DEFENDANTS/THIRD PARTY PLAINTIFFS-RESPONDENTS,
BENDERSON DEVELOPMENT CO., INC., CAREY EXCAVATING, INC. AND CONTROL POINT ASSOCIATES, INC., THIRD-PARTY DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-3215-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted October 29, 2008
Before Judges Cuff and Baxter.
Plaintiff Gleason Design Associates, Inc. appeals from a July 6, 2007 order that dismissed its complaint against defendant Pizzelli Associates, Inc. on the basis of the entire controversy doctrine. The motion judge concluded that because Gleason was aware of the existence of a claim against Pizzelli at the time Gleason settled litigation in Atlantic County, but failed to join Pizzelli in the Atlantic County litigation, the present professional negligence suit against Pizzelli was barred by the entire controversy doctrine. We reverse.
Both the Atlantic County litigation and the instant matter arise out of the same series of contracts related to the installation of soil at a commercial building site in Hamilton Township in Atlantic County. In particular, on or about September 19, 2002, Gleason entered into a contract with third-party defendant Benderson Development Co., Inc. (Benderson). That contract required Gleason to regrade the surface of Benderson's land to accommodate the improvements Benderson intended to make, including drainage areas, parking lots and buildings. The contract between Benderson and Gleason did not specify the number of cubic yards of soil Gleason was obliged to deliver to the site. Instead, Benderson provided measurements by Benderson's surveyors, third-party defendant Control Point Associates, Inc., showing the elevations of various parts of the construction site as of January 10, 2002. In formulating its construction bid, Gleason relied upon those contour drawings to calculate the amount of soil necessary to perform its contract with Benderson.
Gleason was the successful bidder, and signed the contract with Benderson in September 2002. Gleason then engaged the services of Pizzelli to survey the site and to install markings that would identify the areas of the site that had to be excavated and the areas that had to be filled to attain the grading called for by Benderson's contour drawings.
Relying upon the drawings furnished by Benderson, Gleason calculated the quantity of fill needed to attain the specified grade change. Gleason then contracted with third-party defendant Carey Excavating, Inc. (Carey) for the delivery of 25,000 cubic yards, agreeing to pay $7.40 per cubic yard delivered and installed. Not long after the work began, Carey reported to Gleason that the indicated grades had been reached without even spreading all of the approximately 17,000 cubic yards that had been delivered at that time. Gleason, assuming that it had over-estimated its needs, consulted with Pizzelli to verify the accuracy of the staking and, after being assured by Pizzelli of its accuracy, instructed Carey to remove the excess material from the site. Carey then disposed of the excess soil at a construction site adjacent to the Benderson site. Whether Carey gave or sold the material to the contractors there is unknown.
Approximately six months later, after Carey had disposed of the excess fill, Benderson revealed for the first time that the Control Point contour drawings that Benderson had supplied to Gleason were incorrect. Specifically, by letter of April 10, 2003, Benderson informed Carey and Gleason that the "survey that the contract was awarded on was incorrect. Due to this error, an additional 7,500 to 15,000 cubic yards of additional soil may become necessary." Benderson assured both Carey and Gleason that it would reimburse Gleason for the additional soil to be supplied, stating "[r]est assured, whatever amount is determined necessary, Benderson Development Co., Inc. will reimburse Gleason Design Associates at the appropriate unit rate."
Thus, by its April 10, 2003 letter, Benderson implicitly admitted that the error in its own contour drawings had been the cause of Gleason's and Carey's erroneous belief that they had brought excess fill to the site. Notwithstanding the payment assurances Benderson made in its April 10, 2003 letter, Benderson bypassed Gleason by canceling Gleason's contract, and began to deal directly with Carey. Benderson justified the cancellation of its contract with Gleason by asserting that Gleason had stolen soil from the site. Dealing directly with Carey, Benderson induced Carey to deliver all of the remaining soil for the site, including the soil that Carey would have had to deliver if it had fulfilled its contract with Gleason for 25,000 cubic yards of material.
Benderson, however, paid Carey only for the delivery of soil in excess of 25,000 cubic yards on the assumption that Gleason had paid Carey for the 25,000 cubic yards specified in Carey's contract with Gleason. Ultimately, Benderson also reneged on its April 10, 2003 assurances to Gleason as well. Specifically, Benderson paid Gleason only $78,000 of the $235,000 amount that was due to Gleason under the September 19, 2002 contract.
On June 27, 2003, Carey instituted suit in Atlantic County against Gleason and Benderson to recover the sums due from each.
Four days after suit was instituted, Benderson settled with Carey. Gleason, in turn, filed a third-party complaint against Benderson for breach of contract, unjust enrichment and tortious circumvention of the subcontract relationship between Gleason and Carey. In all of the pleadings and discovery exchanged between Gleason and Benderson in the Atlantic County litigation, Benderson never repudiated its letter of April 10, 2003 nor denied it had issued faulty drawings for the existing contours. Moreover, Benderson never denied that its faulty drawings significantly under-estimated the amount of fill that was required to bring the surface up to the required grade.
Not until discovery in the Atlantic County litigation was complete and the parties were engaged in pretrial settlement discussions three weeks before the trial date, did Benderson's counsel mention to Gleason's counsel that Benderson intended to defend against Gleason's contract claim by demonstrating professional negligence on the part of Pizzelli, who was Gleason's surveyor, and who was not a party in the litigation. Benderson had never filed a third-party complaint or obtained an expert report against Pizzelli.
On March 14, 2005, when the parties appeared before the judge in Atlantic County for trial, Benderson's counsel raised with the judge the issue of Pizzelli's professional negligence, causing the judge to ask Gleason why Pizzelli had not been joined as a party. Gleason's counsel advised the judge that up until three weeks earlier, all parties had been proceeding on the assumption that Benderson's admittedly erroneous survey caused all the problems that led Benderson to repudiate its contract with Gleason and negotiate directly with Carey for the purchase of additional soil.
According to a certification filed in the instant litigation, Gleason's counsel informed the judge in Atlantic County that had Benderson raised that issue during the discovery period or even a reasonable time prior to trial, Gleason would have been in a position to pursue it. That same certification further maintained "[i]t was at this time that [the] [j]udge advised that Gleason could settle the matter with Benderson and still institute a civil action against Pizzelli, should it be found necessary to do so." The purported statement by the judge in Atlantic County was never included in any of the settlement documents or releases that were executed when that litigation was concluded. In that settlement, Benderson paid Gleason $12,500, which Gleason then paid to Carey. The settlement also obligated Gleason to pay another $45,000 directly to Carey.
After the Atlantic County litigation was concluded, Gleason sought the advice of an independent expert who opined that Pizzelli's negligence caused or contributed to Gleason's losses. Based upon that professional opinion, Gleason instituted suit against Pizzelli on December 5, 2005, in Mercer County, alleging professional negligence. Pizzelli answered and also filed third-party complaints against Benderson, Control Point and Carey. With no discovery attempted, Pizzelli and the third-party defendants filed motions to dismiss based upon the entire controversy doctrine. Those motions were denied by order of November 3, 2006. Thereafter, Pizzelli moved for dismissal on the same facts, but this time based its dismissal motion on the doctrine of res judicata. The third-party defendants filed similar motions. After argument, the court granted all parties' motions to dismiss and signed orders of dismissal on July 6, 2007.
Several months later, on December 20, 2007, the judge filed a written opinion.*fn1 The court held that "the present professional negligence suit against Pizzelli is barred by the entire controversy doctrine [because] Gleason had actual or practical notice of the existence of a claim against those parties, including Pizzelli, who were part of or associated with the settlement of the Atlantic County case at the time the settlement was entered into."
On appeal, Gleason argues that the entire controversy doctrine does not apply because the facts and theory of recovery in its present case against Pizzelli are entirely different from the facts and theory of recovery in the earlier Atlantic County litigation. Pizzelli argues that the doctrine bars Gleason's claims because the same facts form the basis of this action and the Atlantic County suit.
On appeal, we apply the same standard as the trial judge to determine whether Gleason's claims are barred by the entire controversy doctrine. Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). Rule 4:30A codifies the entire controversy doctrine. The Rule specifies that "[n]onjoinder of claims 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 . . . ." The entire controversy doctrine "has been a cornerstone of New Jersey's jurisprudence for many years." Hobart Bros. Co. v. Nat'l Union Fire Ins. Co., 354 N.J. Super. 229, 240 (App. Div.), certif. denied, 175 N.J. 170 (2002). As we observed in Hobart, the doctrine "has gone through several evolutions, from a doctrine of mandatory joinder of claims, to mandatory joinder of parties, to inclusion of potential legal malpractice claims, to an exemption for legal malpractice claims." Ibid. (internal citations omitted). We explained the purposes and the parameters of the doctrine as follows:
The doctrine requires a litigant to present "all aspects of a controversy in one legal proceeding." It is "intended to be applied to prevent a party from voluntarily electing to hold back a related component of the controversy in the first proceeding by precluding it from being raised in a subsequent proceeding thereafter."
As with many legal principles, it is more easily stated than applied. The entire controversy doctrine, is, at bottom, an equitable one. It rests upon the "twin pillars [of] fairness to the parties and fairness to the system of judicial administration."
Because a violation of the entire controversy doctrine may result in the preclusion of a claim, a court must consider whether the party against whom the doctrine is sought to be invoked has had a fair and reasonable opportunity to litigate that claim. In considering that question, a court must remember that the "entire controversy doctrine is not intended to be a trap for the unwary." On the other hand, a court must also be sensitive to the possibility that a party has purposely withheld claims from an earlier suit for strategic reasons or to obtain "two bites at the apple." A court should not permit itself to be made a party to such strategic choices that wreak unfair results upon others. [Id. at 240-41 (internal citations omitted).]
In 1998, the Court significantly amended Rule 4:30A to restrict the scope of the entire controversy doctrine. The 1998 amendment limited the reach of the doctrine to non-joinder of claims, as opposed to the pre-1998 formulation of non-joinder of claims and parties. Pressler, Current N.J. Court Rules, comment 1 on R. 4:30A (2009). In other words, "[p]reclusion of a successive action against a person not a party to the first action has been abrogated except in special situations involving both inexcusable conduct . . . and substantial prejudice to the non-party resulting from omission from the first suit." Ibid.
We turn first to a determination of whether the claims against Pizzelli in the instant litigation arise from the same transaction or series of transactions that were the subject of the Atlantic County litigation. If so, then Gleason is precluded from maintaining the present litigation if Pizzelli is able to demonstrate both inexcusable conduct and substantial prejudice resulting from Gleason's failure to join Pizzelli in the first suit. Ibid.
The claims in the instant litigation arise from facts related to the earlier Atlantic County litigation because the claims in both suits arise out of defects in Benderson's contour drawings and the supply of soil to the site. While it is true, as Gleason claims, that the Atlantic County litigation did not encompass claims of professional malpractice, Gleason has provided no authority for the proposition that an assertion of professional malpractice in a second suit renders the entire controversy doctrine inapplicable even when both suits arise from the same set of transactions.
Indeed, the doctrine applies even when the claims in one action are premised on a different legal theory from the claims asserted in the second action. DiTrolio v. Antiles, 142 N.J. 253, 271 (1995). "The entire controversy doctrine does not require commonality of legal issues. Rather, the determinative consideration is whether distinct claims are aspects of a single larger controversy because they arise from interrelated facts." Ibid. In this case, the claims that Gleason has asserted against Pizzelli arise from related facts and from the same series of transactions as the claims asserted in the Atlantic County litigation.
Consequently, we turn to an analysis of whether Gleason has engaged in "inexcusable conduct" causing Pizzelli to suffer substantial prejudice. Hobart Bros., supra, 354 N.J. Super. at 242. The party asserting the entire controversy doctrine as a defense, here, Pizzelli, bears the burden of proof. Ibid. In his analysis of the inexcusable conduct prong, the motion judge concluded that "[t]he slightest effort by Gleason would have readily revealed potential claims against . . . Pizzelli."
Gleason does not directly challenge that conclusion. Instead, Gleason simply maintains that it decided not to assert claims against Pizzelli in the Atlantic County suit, because Gleason believed all issues arising from the site would be resolved in the Atlantic County suit and that it would recover all of its losses in that litigation. Gleason explains, "Had the Gleason-Benderson contract/interference suit concluded as anticipated by Gleason, Benderson would have disgorged its windfall sufficiently for Gleason to satisfy the contract payments due to Carey. There would have been no need for Gleason to investigate other sources of recovery." That is the same argument that we rejected in Wm. Blanchard Co. v. Beach Concrete Co., 150 N.J. Super. 277, 292-94 (App. Div.) (applying the entire controversy doctrine to dismiss claims asserted late in litigation arising from a complex, multi-party construction project), certif. denied, 75 N.J. 528 (1977).
Our decision in Hillsborough Township Board of Education v. Faridy Thorne Frayta, P.C. is an instance where--although the plaintiff had knowledge of the claims against the defendants during the pendency of the earlier litigation--the second suit was not barred because it was not based on facts related to the earlier litigation. 321 N.J. Super. 275, 286 (App. Div. 1999). A comparison of the facts there with those here demonstrates why Gleason's failure here to join Pizzelli in the earlier litigation is "inexcusable" within the meaning of Hobart.
In Hillsborough, the plaintiff failed to join the defendants, the architect and the construction manager in earlier litigation related to lead in the water supply, and then commenced a second suit against defendants related to a leaky roof. Id. at 280-81. The only issue that was presented in the first suit was the plaintiff's claim for damages associated with the plumber's use of lead solder in the drinking water when the architectural plans and applicable codes required use of non-lead solder. Id. at 286. We reasoned:
Allegations of design defects were not implicated in that complaint at all. The only allegation against Faridy and Wagner was their alleged negligence in failing to supervise the plumbers during their installation of piping while using lead solder. Thus, the claims are clearly separate and discrete. There would be no replication of proofs. The trial court would not be retracing ground that had already been covered. Judicial economy will not, therefore, be sacrificed. The fact that the various claims may have arisen out of the same construction job should not be the determinative factor. [Ibid.]
Consequently, we concluded that "the policies underlying application of the entire controversy doctrine would not be promoted by barring the claims under the circumstances presented [t]here." Ibid. In so holding, we relied upon the significant factual difference between claims pertaining to the lead solder in the drinking water that were asserted in the first suit compared to claims involving the leaking roof that were asserted in the second suit. Ibid. Here, unlike Hillsborough, where the claims were "clearly separate and discrete," ibid., the same allegations about incorrect elevation measurements permeate both suits. Moreover, unlike in Hillsborough, where "[t]here would be no replication of proofs," ibid., here the same proofs would be required in both suits. For those reasons, our opinion in Hillsborough supports the conclusion that the first prong of the Hobart test is satisfied in this case. Gleason's failure to join Pizzelli in the first suit was inexcusable because "the trial court would be retracing ground that had already been covered." See Ibid.
Gleason relies upon our decision in Mocci v. Carr Engineering Associates, P.A., 306 N.J. Super. 302, 304 (App. Div. 1997), certif. denied, 153 N.J. 404 (1998), arguing that the facts of that case are "strikingly similar" to the facts here. In Mocci, the defendant engineering firm raised the entire controversy doctrine as a defense against the Gleason's later suit, where the defendant engineering firm had negligently performed engineering services and been an expert witness in the Gleason's earlier suit. Id. at 304. We held that the doctrine did not bar the Gleason's later suit against the defendant engineering firm because the facts giving rise to the later suit were not known at the time of the earlier suit. Id. at 305, 308.
Mocci, however, is distinguishable. In Mocci, we held the entire controversy doctrine does not require a party to join his own witness as a defendant merely because an adverse party rejects that witness's opinion. Id. at 308. Thus, the rationale and operative facts of Mocci make it distinguishable. We therefore agree with the motion judge's conclusion that Gleason's conduct was inexcusable within the meaning of Hobart.
Having determined that Gleason engaged in "inexcusable conduct," we turn to an analysis of whether Pizzelli has demonstrated substantial prejudice as a result of Gleason's failure to join Pizzelli as a party in the Atlantic County litigation. This requires us to analyze "fairness to the parties and fairness to the system of judicial administration." Gelber v. Zito P'ship, 147 N.J. 561, 565 (1997). "Fairness is thus a protective concept that focuses primarily on whether defendants would be in a better position to defend themselves if the claims against them had been raised and asserted in the first litigation." DiTrolio, supra, 142 N.J. at 273.
Gleason argues Pizzelli will not suffer substantial prejudice if this case continues because the statute of limitations has not run and Pizzelli can just as easily defend against Gleason's claims now as it could have during the Atlantic County suit. Pizzelli asserts that it will be substantially prejudiced if Gleason's complaint is reinstated because it was unable to participate in the settlement agreements during the Atlantic County suit and those settlements will now have to be unraveled if Gleason secures a judgment against defendant. The motion judge found, without any explanation, that Pizzelli and the parties that settled the Atlantic County suit would be substantially prejudiced if Gleason were allowed to pursue this litigation. We disagree with the judge's conclusion.
We held in Hillsborough that the entire controversy doctrine should not bar the later suit because the defendants would not suffer substantial prejudice. 321 N.J. Super. at 287-88. We based that conclusion upon three factors: the evidence remained intact because the leaky roof at issue in the second suit had not been modified; the statute of limitations had not run; and there was no indication that the parties intended the first suit as a "global settlement" of all claims. The rationale of Hillsborough is certainly applicable here because the evidence of Pizzelli's alleged professional negligence, namely its engineering drawings, remains intact; the statute of limitations has not run against Pizzelli;*fn2 and nothing in the Atlantic County litigation suggests that the parties intended a global settlement.*fn3
Our conclusion that Pizzelli has not suffered substantial prejudice is bolstered by Pizzelli's failure to demonstrate how the delay has prejudiced its ability to maintain a defense in the present litigation. "Substantial prejudice 'means substantial prejudice in maintaining [a] defense.'" Mitchell v. Charles P. Procini D.D.S., P.A., 331 N.J. Super. 445, 454 (App. Div. 2000), (quoting Blank v. City of Elizabeth, 318 N.J. Super. 106, 114-15 (App. Div.), aff'd as modified, 162 N.J. 150 (1999)). The Court reached the same result three years later in K-Land Corp. No. 28 v. Landis Sewerage Auth., 173 N.J. 59, 75 (2002) (reasoning that Gleason's claim in later litigation should be no more difficult to defend against than it would have been if asserted in the earlier suit). Furthermore, "[d]elay alone does not serve to create substantial prejudice." Mitchell, supra, 331 N.J. Super. at 454. "[I]t is the lack of availability of information which results from the delay that is, for the most part, determinative of the issue of substantial prejudice." Ibid.
Here, the information currently available to Pizzelli would also have been available as a defense in the Atlantic County litigation. Specifically, Pizzelli has access to the same design drawings, invoices and measurements that were available to the parties in the Atlantic County litigation. Indeed, nothing has changed. Consequently, because Pizzelli has not demonstrated a lack of availability of information resulting from the delay, Pizzelli has not established substantial prejudice.
We likewise reject Pizzelli's argument that the earlier settlement between Gleason, Benderson and Carey will have to be dismantled if Gleason's claims are reinstated and Gleason succeeds in securing a judgment against Pizzelli. However, this should not bar Gleason's claims, as the earlier settlement can be credited against any judgment secured by Gleason in the instant litigation. Id. at 456-57.
Accordingly, we conclude Pizzelli has not demonstrated that it would suffer substantial prejudice if this action is not dismissed under the entire controversy doctrine. "We have always emphasized that preclusion is a remedy of last resort." Olds v. Donnelly, 150 N.J. 424, 446 (1997). "'Courts must carefully analyze' both fairness to the parties and fairness to the system of judicial administration' before dismissing claims or parties to a suit.'" Id. at 446-47 (quoting Gelber, supra, 147 N.J. at 565). Because Pizzelli has not demonstrated substantial prejudice resulting from Gleason's failure to join it as a party in the Atlantic County litigation, Pizzelli should not be permitted to now use the entire controversy doctrine as a sword.
Reversed and remanded.