April 13, 2010
BERK & BERK AT CHERRY TREE, LLC, PLAINTIFF-APPELLANT,
BRAVERMAN KASKEY, P.C., JOHN E. KASKEY, DAVID L. BRAVERMAN, ROBERT C. DANIELS, DEFENDANTS-RESPONDENTS.
On appeal from Superior Court of New Jersey, Law Division, Camden County, Docket No. L-4917-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued March 3, 2010
Before Judges Payne and Waugh.
Plaintiff Berk & Berk at Cherry Tree, LLC (Berk), appeals the dismissal of its complaint against defendants Braverman Kaskey, P.C. (BK), John E. Kaskey, David L. Braverman, and Robert C. Daniels. We reverse.
The following facts and procedural history inform our decision on this appeal.
In 2003, Berk entered into a lease with Braverman Daniels Kaskey, Ltd. (BDK), a law firm, for office space located at the Cherry Tree Corporate Center (Cherry Tree) in Cherry Hill. BDK, which had its principal law office in Philadelphia, used the Cherry Tree office for its New Jersey practice. In a letter dated August 31, 2005, BDK informed Berk that it would surrender possession of the property because of the "termination of BDK's operations as of July 1, 2005."
On September 8, 2005, Braverman and Kaskey formed BK and continued their joint practice of law. At the same time, Daniels left private practice to assume judicial office in Pennsylvania.
On September 30, 2005, Berk filed a complaint against BDK, seeking damages for breach of the lease. After receiving permission to serve BDK in Philadelphia by mail, Berk eventually obtained a default judgment against BDK in the amount of $137,297.32.
On March 28, 2007, Berk moved for leave to reopen the case against BDK to assert claims against BK, as BDK's successor firm, and the individual BDK members. BDK opposed the motion, and Braverman personally appeared at oral argument on April 27, 2007, to argue in opposition. Berk, however, did not appear at oral argument. The motion judge denied the motion, finding that the "[o]ld law firm was still active and [that Berk] knew the principals when he filed the original lawsuit." Berk did not appeal that decision.
On September 28, 2008, Berk filed the present action against BK and the individual defendants. Berk, which had apparently re-leased the offices and partially mitigated its damages, claimed that $76,961.00, plus post-judgment interest, was then due on the judgment against BDK. It sought to collect that amount from BK and the former BDK members under three legal theories.
The first count of Berk's complaint stated a claim for successor liability, asserting that BDK's assets were transferred to BK, and that "BK is a mere continuation of BDK, or a successor in interest." That count further alleged that BK was created by Braverman and Kaskey to "escape" responsibility for BDK's debts and liabilities, including the amount owed to Berk.
The second count of the complaint alleged that defendants violated the Uniform Fraudulent Transfer Act (UFTA), N.J.S.A. 25:2-20 to -34, by transferring "most or all" of BDK's assets to BK, causing BDK to become insolvent. The second count also alleged that Daniels, Braverman, and Kaskey facilitated the transfer. The third count sought to pierce BDK's corporate veil, based upon the conduct of Daniels, Braverman, and Kaskey outlined above. Berk sought to pierce the veil so that it could collect the judgment directly from the principals of BDK.
In March 2009, defendants filed a motion to dismiss Berk's complaint for failure to state a claim under Rule 4:6-2(e). Defendants argued that Berk's suit was barred by the entire controversy doctrine, Rule 4:30A, because the claims arose out of the same conduct alleged in the earlier suit against BDK. They also argued that Berk was seeking a "third bite of the apple," which was barred by the doctrines of res judicata and collateral estoppel. Finally, defendants argued that Berk's complaint failed to state a claim because there were no supporting factual allegations in the complaint.
Following oral argument on April 17, 2009, the motion judge dismissed the complaint, ruling that it failed to state a claim upon which relief could be granted and that it was barred by the entire controversy doctrine, citing Garvey v. Township of Wall, 303 N.J. Super. 93, 100 (App. Div. 1997).
Berk filed a motion for reconsideration on May 26, 2009. The judge denied the motion and placed his decision on the record on June 12, 2009. He noted that Berk failed to appeal the 2007 denial of its motion to amend the original complaint and then did not assert a new action until more than a year had passed.
The plaintiff did not appeal [the] order, and the plaintiff did not attempt to re-file a new action alleging successor liability after it received the order of denial. Instead, the plaintiff waited more than one year to file the instant action which alleges essentially the same claims against the same parties arising out of the same facts as were asserted in the prior matter.
Moreover, the Court finds that based upon these facts, and based upon the absence of a showing by the plaintiff, that its conduct was excusable. That is to say that plaintiff's conduct in failing to file this complaint for over one year after requesting to amend the prior action was denied, was excusable. There is no excusable conduct present to bar application of the entire controversy doctrine, citing Hobart Bros. Co. v. National Union Fire Ins. Co., 354 N.J. Super. 229 (App. Div.)[, certif. denied, 175 N.J. 170 (2002)].
In addition, it would be difficult for the Court to conclude that the defendant suffered no prejudice due to plaintiff's failure to re-file its denied claim or appeal that order for over one year. Thus, the plaintiff's claim herein is barred by the entire controversy doctrine pursuant to Rule 4:30A.
Since the plaintiff's claims as set forth in this complaint are barred by the entire controversy doctrine, it is clear from the pleadings that those claims cannot state a cause of action on which relief may be granted pursuant to Rule 4:6-2(e). Plaintiff's complaint was properly dismissed without prejudice.
The judge further found that Berk had not satisfied the requirements of Rule 4:49-2 for reconsideration because it failed "to set forth any new facts the Court may consider in granting a motion for reconsideration." This appeal followed.
The issue presented on this appeal is whether Berk's claims against BK and the individual BDK members are barred by (1) the entire controversy doctrine, Rule 4:30A, or (2) considerations of issue and claim preclusion such as res judicata or collateral estoppel, or both. We have concluded that none of them is applicable, and consequently reverse the dismissal of the complaint and remand to the Law Division for further proceedings.
Rule 4:30A provides as follows:
Non-joinder 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, except as otherwise provided by R. 4:64-5 (foreclosure actions) and R. 4:67-4(a) (leave required for counterclaims or cross-claims in summary actions).
In terms of this appeal, it is important to note initially that the rule applies only to the joinder of claims against existing parties to a lawsuit, and generally does not require the joinder of additional parties, as it did when originally adopted.
In K-Land Corp. No. 28 v. Landis Sewerage Auth., 173 N.J. 59, 69-70 (2002) (emphasis in original), the Supreme Court explained the change in the rule as follows:
In September 1998, in response to recommendations of the Civil Practice Committee, this 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. Pressler, Current N.J. Court Rules, comment 1 on R. 4:30A (2002). That restored the doctrine's original status as a claim-joinder requirement, the contours of which are described by Judge Pressler in her commentary to the Rule:
The entire controversy doctrine, an equitable prepreclusionary doctrine whose purposes are to encourage comprehensive and conclusive litigation determinations, to avoid fragmentation of litigation, and to promote party fairness and judicial economy and efficiency, was originally conceived of as a claim-joinder mandate, requiring all parties in an action to raise in that action all transactionally related claims each had against any other whether assertible by complaint, counterclaim, or cross-claim. . . . Although the court rules had not initially contained any provision expressly referring to the entire controversy doctrine, R. 4:27-1(b) was added to the rule governing joinder of claims effective September 1979 to provide for mandatory joinder of claims under the doctrine, which, however, was undefined, it having been then and remains still the Supreme Court's view that development of the substantive content of the doctrine is best left to case law.
The rule as to claim joinder continues to require, as a general matter, that all aspects of the controversy between those who are parties to the litigation be included in a single action.
[T]he equitable nature of the doctrine bar[s] its application where to do so would be unfair in the totality of the circumstances and would not promote any of its objectives, namely, the promotion of conclusive determinations, party fairness, and judicial economy and efficiency.
Nor does the doctrine apply to bar component claims either unknown, unarisen or unaccrued at the time of the original action.
[Pressler, Current N.J. Rules, comments 1 & 2 on R. 4:30A (2002) (emphasis added).]
In determining the appropriate scope of the entire controversy's claim joinder requirement, it is significant that the leading cases establishing and applying the entire controversy doctrine as a bar to the subsequent assertion of omitted claims appear to 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. [Prevratil v. Mohr, 145 N.J. 180, 203 (1996) (Stein, J., dissenting).]
Here, Berk's initial, one count lawsuit for breach of the lease was brought only against BDK, its tenant. At that time, it had no currently viable claim against the BDK members, who had not guaranteed the lease, or BK, with which it had no contract. Consequently, even if the entire controversy doctrine applied to the joinder of parties, it would not have required joinder of BK or the individual defendants because whatever cause of action Berk may have against them had not yet ripened. See Circle Chevrolet Co. v. Giordano, Halleran & Ciesla, 142 N.J. 280, 294 (1995), overruled on other grounds, Olds v. Donnelly, 150 N.J. 424 (1997) (The doctrine "does not apply to bar component claims that are unknown, unarisen, or unaccrued at the time of the original action.").*fn1 The claims against the current defendants only ripened when BDK failed to pay the judgment and became insolvent. In that regard, we note that defendants admitted the insolvency in their opposition to Berk's motion to reopen the earlier action.
We now turn to the issue of res judicata and collateral estoppel, which are closely related. As the Supreme Court observed in First Union National Bank v. Penn Salem Marina, Inc., 190 N.J. 342, 352 (2007), [t]he doctrines of collateral estoppel, issue preclusion, res judicata, and the like serve the important policy goals of "finality and repose; prevention of needless litigation; avoidance of duplication; reduction of unnecessary burdens of time and expenses; elimination of conflicts, confusion and uncertainty; and basic fairness[.]" Hackensack v. Winner, 82 N.J. 1, 32-33 (1980). If an issue between the parties was fairly litigated and determined, it should not be relitigated.
Because the present defendants were not parties to the first lawsuit, the applicable doctrine, if any, would be collateral estoppel. Id. at 351-52. In applying the doctrine, New Jersey courts follow the Restatement of Judgments. See Hernandez v. Region Nine Hous. Corp., 146 N.J. 645, 659 (1996) (quoting Restatement (Second) of Judgments § 27 (1982)), which provides that:
When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.
There are five prerequisites to collateral estoppel: (1) the issue to be precluded is the same as the issue decided in the prior proceeding; (2) the issue to be precluded was fully litigated in the prior proceeding; (3) there was a final decision on the merits in the prior proceeding; (4) reaching a disposition on the issue was essential to resolution of the prior proceeding; and (5) the party against whom the doctrine is to be applied is the same as in the prior proceeding, or in privity thereto. Olivieri v. Y.M.F. Carpet, Inc., 186 N.J. 511, 521 (2006); Hennessey v. Winslow Twp., 183 N.J. 593, 599 (2005).
There has been no prior adjudication on the merits of the claims set forth in the present complaint against BK and the former BDK members. The denial of Berk's motion to reopen was simply not an adjudication on the merits. It was a procedural motion that was denied. The claims had not even been pled yet and their merits were not addressed in the denial of leave to reopen, nor could they have been.
Defendants' remaining arguments with respect to the viability of the claims against them are not germane to this appeal and do not warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We note only that they have the option of moving for a more definite statement pursuant to Rule 4:6-4(a) on remand.
In summary, we have concluded that Berk's claims against BK and the former BDK members are not barred by the entire controversy doctrine or considerations of res judicata or collateral estoppel. They appear to state causes of action upon which relief can be granted, although we express no opinion as to their merits, if any. We reverse the order of dismissal and remand to the Law Division for further proceedings consistent with this opinion.
Reversed and remanded.