July 1, 2010
ANDREW J. SPINNELL, PLAINTIFF-APPELLANT,
PHILIP SELDON, BIRDDOG ASSOCIATES, INC., MAGAZINE EMPORIUM, INC., AND SILENCE IS GOLDEN FOUNDATION, INC., DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-9099-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted May 17, 2010
Before Judges Rodríguez and Yannotti.
Plaintiff Andrew J. Spinnell appeals from an order entered by the Law Division on May 15, 2009, which denied his motion for summary judgment and granted a cross-motion for summary judgment by defendants Philip Seldon (Seldon), Birddog Associates, Inc. (Birddog); Magazine Emporium, Inc. (Magazine); and Silence Is Golden Foundation, Inc. (Silence). For the reasons that follow, we reverse.
This appeal arises from the following facts. On August 3, 2006, a jury in the New York Supreme Court, New York County, returned a verdict for plaintiff and against Seldon in the amount of $500,000. On the following day, $500,000 was withdrawn from Birddog Associates' account in a Connecticut bank. On August 9, 2006, the $500,000 withdrawn from the Connecticut bank was deposited in an account in the name of Birddog Associates at Sun National Bank (Sun National) in Old Bridge, New Jersey.
On November 17, 2006, a judgment for plaintiff and against Seldon was entered in the New York action in the amount of $515,013. Plaintiff claims that on November 13, 2006, Seldon had Magazine incorporated in Delaware, with himself as President and sole shareholder. On November 20, 2006, $400,000 was transferred from Birddog's account at Sun National to a new account opened at that bank in Magazine's name. In addition, on March 23, 2007, $200,000 was transferred from Magazine's account to another account at Sun National in Silence's name.
Plaintiff filed an action in the New York Supreme Court seeking an order requiring that monies in Birddog's bank accounts be turned over to him to satisfy his judgment against Seldon. On June 7, 2007, plaintiff docketed his New York judgment against Seldon in the Superior Court of New Jersey.
The filing of the New York judgment apparently caused Sun National to restrict Magazine and Silence from gaining access to monies in their respective bank accounts. In July 2007, Magazine and Silence filed an action against Sun National in the Superior Court, Middlesex County, seeking to enjoin and restrain Sun National from restricting access to their accounts. This action was docketed as MID-L-5977-07.
Sun National filed an answer and third-party interpleader complaint, naming Seldon, Birddog and plaintiff as third-party defendants. Sun National sought a determination as to the parties' respective interests in the monies on deposit in Magazine's and Silence's accounts. The parties thereafter agreed that the monies in the accounts, which totaled $255,906.52, would be deposited in the court's Trust Fund Unit, pending a decision on the parties' respective interests in those monies.
Sometime thereafter, Magazine and Silence filed a motion in MID-L-5977-07, seeking to withdraw the monies being held in the court's Trust Fund Unit, and plaintiff filed a cross-motion seeking to withdraw those monies to satisfy his judgment against Seldon. The court conducted the first of three evidentiary hearings on the motions on September 25, 2007.
On October 25, 2007, plaintiff filed a four-count complaint in this case, naming Seldon, Birddog, Magazine and Silence as defendants. In his complaint, plaintiff alleged that: Seldon's transfer of $400,000 from Birddog to Magazine was a fraudulent conveyance (count one); the transfer by Seldon and Magazine of $200,000 to Silence was a fraudulent conveyance; Magazine's corporate veil should be "reverse pierced" and it should be liable for Seldon's liabilities and obligations (count three); and Silence's corporate veil also should be "reverse pierced" and it should be liable for Seldon's liabilities and obligations (count four).
By letter dated November 16, 2007, counsel for defendants demanded the voluntary dismissal of plaintiff's complaint, asserting that "[t]he exact issues raised" by plaintiff were being litigated in MID-L-5977-07. Counsel stated that, if the complaint was not withdrawn, he would file a motion for sanctions pursuant to Rule 1:4-8.
On November 23, 2007, plaintiff filed an amended complaint, which limited the claims in this case to the first two counts, seeking the invalidation of the transfer of $400,000 from Birddog to Magazine and the subsequent transfer of $200,000 from Magazine to Silence on the ground that both were fraudulent conveyances. Seldon, Birddog, Magazine and Silence filed an answer dated December 12, 2007, denying the allegations in the amended complaint.
Plaintiff's efforts to enforce its judgment in the New York courts resulted in the entry by the New York Supreme Court of an order dated January 24, 2008, which required JP Morgan Chase Bank, N.A. to turn over monies in Birddog's account to plaintiff to satisfy in part his judgment against Seldon. The New York court upheld a determination by a special referee, who had determined that Birddog was Seldon's alter ego and its corporate veil should be "reverse-pierced[,]" thereby making Birddog liable for plaintiff's judgment against Seldon, up to $5.15,013.*fn1
On March 20, 2008, the court rendered a decision from the bench on the cross-motions in MID-L-5977-07. The court found that: Seldon controlled the finances of Birddog, Magazine and Silence; the transfer of $400,000 from Birddog to Magazine was a fraudulent conveyance, which Seldon had effected with the intent to defraud plaintiff; and the transfer from Magazine to Silence also was a fraudulent conveyance, which Seldon had effected with the intent to defraud plaintiff.
The court additionally found that Magazine and Silence are Seldon's alter egos, their corporate veils should be pierced, and the monies that Seldon caused to be withdrawn from their respective bank accounts should be paid to plaintiff in partial satisfaction of his judgment against Seldon.
Magazine and Silence thereafter filed a motion seeking reconsideration of the court's decision. While the motion was pending, the court entered an order dated May 20, 2008, which permitted plaintiff to withdraw $255,906.52 from the court's Trust Fund Unit, plus the interest that had accrued on those monies.*fn2 The court considered the motion on August 18, 2008, and determined that Magazine and Silence had not established any basis for reconsideration.
In its decision from the bench, the court noted that it did not find that Magazine's and Silence's corporate veils should be "reverse pierced" but reiterated its determination that these corporations were Seldon's alter egos and their corporate veils should be pierced. The court entered an order dated August 18, 2008, memorializing its decision.
On February 15, 2009, plaintiff filed a motion for summary judgment in this case. He sought a monetary judgment against Seldon, Magazine and Silence to satisfy the balance that remained due on his New York judgment against Seldon. Plaintiff argued that he was entitled to judgment as a matter of law based on the findings of the court in MID-L-5977-07. Defendants opposed plaintiff's motion and filed a cross-motion for summary judgment. They argued that plaintiff's claims were barred by the entire controversy doctrine, collateral estoppel and res judicata.
A different judge considered the motions on May 15, 2009, and placed her decision on the record on that date. The motion judge determined that plaintiff's claims were barred by the entire controversy doctrine because plaintiff failed to assert them in MID-L-5977-07. The judge additionally determined that plaintiff's claims were barred by collateral estoppel because the claims had been previously decided by the court in MID-L-5977-07. The judge entered an order dated May 15, 2009, denying plaintiff's motion for summary judgment and granting defendants' motion for summary judgment. This appeal followed.
We turn first to plaintiff's contention that the trial court erred by finding that its claims in this action were barred by the entire controversy doctrine.
The entire controversy doctrine "embodies the principle that the adjudication of a legal controversy should occur in one litigation in only one court[.]" Cogdell v. Hosp. Ctr. at Orange, 116 N.J. 7, 15 (1989). Consequently, "all parties involved in a litigation should at the very least present in that proceeding all of their claims and defenses that are related to the underlying controversy." Ibid. The entire controversy doctrine is an equitable principle, which a court may apply in the exercise of its discretion, "based on the factual circumstances of individual cases." Brennan v. Orban, 145 N.J. 282, 291 (1996).
We are convinced that the judge erred by holding that the entire controversy doctrine precludes plaintiff from asserting his claims in this action. The doctrine is an affirmative defense and must be pleaded and, if not, is deemed waived. Brown v. Brown, 208 N.J. Super. 372 (App. Div. 1986); Kopin v. Orange Products, Inc., 297 N.J. Super. 353, 375-76 (App. Div.), certif. denied, 149 N.J. 409 (1997).
Here, defendants did not assert the entire controversy doctrine as an affirmative defense in their answer to plaintiff's complaint. Indeed, defendants did not raise the entire controversy doctrine as a bar to plaintiff's claim until plaintiff moved for summary judgment and they filed a cross-motion for summary judgment. We are convinced that, under the circumstances, defendants waived the entire controversy doctrine as a defense to plaintiff's claims in this case.
This conclusion is consistent with our decision in Brown. There, the parties had been engaged in divorce proceedings. Brown, supra, 208 N.J. Super. at 374. The plaintiff alleged that, during those proceedings, the defendant had assaulted her. Id. at 375. After the trial in the divorce action and the entry of final judgment in the divorce proceedings, the plaintiff filed a tort action against her former spouse. Id. at 376. The defendant answered the complaint and the parties engaged in discovery. Id. at 376-77. Shortly before the matter was scheduled for trial, the defendant moved for summary judgment on the basis of the entire controversy doctrine and the court granted the motion. Id. at 377.
We reversed the trial court's order concluding, among other things, that the defendant had waived the entire controversy defense by failing to plead or otherwise timely assert it. Id. at 384. We also concluded that the defendant was estopped from asserting the doctrine. Ibid. We stated that the defendant continued to prosecute equitable distribution applications in the divorce action after he was served with and answered the tort complaint, without in any way seeking to consolidate it with the open equitable distribution issues, moving to dismiss it, or in any other way attempting to raise a preclusionary defense. Indeed, prior the summary judgment motion which he made virtually on the eve of trial, [the defendant] had vigorously defended the action over the course of a two-and-a-half year period, resorting to such maneuvers as his abortive attempt to relieve himself of the potential burden of the tort claim in the bankruptcy court and his eleventh-hour discovery motions.
[Id. at 383.]
The circumstances presented in this case are substantially similar. Here, defendants did not assert in their answer that the entire controversy doctrine was a defense to plaintiff's claims. Defendants actively litigated plaintiff's right to the monies at issue in MID-L-5977-07 and never sought to consolidate plaintiff's claims in this case with those in MID-L-5977-07. Moreover, defendants never asserted that the entire controversy doctrine barred plaintiff's claims in this case until plaintiff moved for summary judgment and they cross-moved for summary judgment. Our decision in Brown indicates that they waived their right to do so.
Our conclusion also is consistent with our decision in Kopin. In that case, the plaintiff asserted a claim seeking compensation for "business suggestions" he made while employed by the defendant. Kopin, supra, 297 N.J. Super. at 358. The defendant asserted that the claim was barred by the entire controversy doctrine because the plaintiff had previously asserted a wage claim with a state administrative agency. Id. at 374-75.
We held that the defendant waived the entire controversy defense because it did not raise that defense in its answer and defended the case "for over three years without raising or even mentioning the doctrine." Id. at 375-76. Here, as in Kopin, defendants did not raise the entire controversy defense in their answer and never mentioned the doctrine until they filed their cross-motions for summary judgment.
Even if the defendants had not waived the entire controversy defense, we are convinced that it would be inequitable to apply the doctrine in this case. When Sun National filed its third-party interpleader complaint in MID-L-5977-07, plaintiff asserted a claim to the monies in Magazine's and Silence's bank accounts at Sun National, based on his contention that the deposited funds were the product of fraudulent conveyances engineered by Seldon to place the monies beyond his reach. Because the amount of deposit in Sun National was $255,906.52, any judgment in plaintiff's favor in MID-L-5977-07 would be limited to that amount, plus accrued interest.
Plaintiff filed this action in order to preserve his right to assert claims to the balance of the monies he alleged had been fraudulently conveyed. Defendants were well aware of those claims. They were filed in the same vicinage and were pending while the parties actively litigated MID-L-5977-07.
Furthermore, if defendants had timely asserted that the entire controversy doctrine required plaintiff to assert all of his claims in MID-L-5977-07, plaintiff could have filed a motion to consolidate the two actions. Defendants did not raise this issue until they filed their cross-motion for summary judgment in this case. We are satisfied that, under these circumstances, the entire controversy doctrine is not a bar to plaintiff's claims in this case.
We turn to plaintiff's contention that the judge erred by finding that his claims in this case were barred by collateral estoppel.
The collateral estoppel doctrine, like the doctrines of issue preclusion and res judicata, "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[.]'" First Union Bank v. Penn Salem Marina, Inc., 190 N.J. 342, 352 (2007) (quoting Hackensack v. Winner, 82 N.J. 1, 32-33 (1980) (alteration in original)). Collateral estoppel will be applied if the party asserting the bar establishes that:
(1) the issue to be precluded is identical to the issue decided in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the court in the prior proceeding issued a final judgment on the merits; (4) the determination of the issue was essential to the prior judgment; and (5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding. [Hennessey v. Winslow Twp., 183 N.J. 593, 599 (2005) (quoting In re Estate of Dawson, 136 N.J. 1, 20-21 (1994) (citations omitted)).]
Here, the judge found that all of the elements for collateral estoppel were present. The judge stated that the issues to be decided in this case were whether Magazine's and Silence's corporate veils should be pierced and these issues had been decided in MID-L-5977-07. The judge also stated that the decision on these issues was essential to the judgment in MID-L-5977-07, which gave plaintiff ownership of the $255,906.52 that had been on deposit in Sun National and was being held in the court's Trust Fund Unit. The judge additionally stated that the orders entered in MID-L-5977-07 indicated that the court had refused to find that Magazine's and Silence's corporate veils should be "reverse-pierced" and the judge could not reverse those orders in this case.
We are convinced that the judge erred by applying collateral estoppel to plaintiff's claims. In both cases, plaintiff sought determinations that the transfers of $400,000 from Birddog to Magazine and $200,000 from Magazine to Silence were fraudulent conveyances engineered by Seldon. The relief sought in MID-L-5977-07 was the $255,906.52 that had been on deposit in Magazine's and Silence's bank accounts at Sun National. In this case, plaintiff sought a judgment for the balance of the monies that were allegedly fraudulently transferred by Seldon and the other defendants.
Although the judge in this case suggested that the judgment entered in MID-L-5977-07 had limited Magazine's and Silence's liabilities to the monies that had been on deposit at Sun National, the court made no such ruling. Rather, the court limited its findings and conclusions to the claim before it, a claim to the $255,906.52 in dispute. Thus, the issue raised by plaintiff's claims in this matter were not resolved in MID-L-5977-07.
We recognize that the court in MID-L-5977-07 refused to include language in its order indicating that Magazine's and Silence's corporate veils should be "reverse-pierced." The court in Sweeney, Cohn, Stahl & Vaccaro v. Kane, 6 A.D. 3d 72, 75-76, 773 N.Y.S.2d 420, 425 (2nd Dept. 2004), explained that:
[p]iercing the corporate veil is an equitable concept that allows a creditor to disregard a corporation and hold its controlling shareholders personally liable for the corporate debt. Reverse-piercing flows in the opposite direction and makes the corporation liable for the debt of the shareholders. In both situations there is a disregard of the corporate form, and the controlling shareholders are treated as alter egos of the corporation and vice versa. [(citations omitted).]
The court in MID-L-5977-07 did not find that Magazine's and Silence's corporate veils could not be "reverse-pierced." Rather, the court determined that a ruling on that issue was not required in order to resolve the question of whether plaintiff was entitled to the $255,906.52 that had been on deposit in Magazine's and Silence's bank accounts at Sun National. Therefore, the orders entered in MID-L-5977-07 do not reflect a determination by the court that the "reverse-piercing" doctrine could not be applied.
Moreover, the court in MID-L-5977-07 never held that Magazine's and Silence's liabilities were limited to the $255,906.52 at issue in that case. In addition, the court in MID-L-5977-07 never addressed Seldon's liability for his role in conveyances found to be fraudulent. Therefore, we conclude that the judge erred by finding that plaintiff was collaterally estopped from pursuing his claims against defendants.
Plaintiff additionally argues that the judge erred by denying his motion for summary judgment. We decline to address this contention.
The judge merely determined that plaintiff's claims were barred by the entire controversy doctrine and collateral estoppel. As we have explained, we are convinced that the judge erred in doing so. We remand the matter to the trial court to determine whether there are any genuine issues of material fact relevant to plaintiff's claims and whether he is entitled to judgment as a matter of law. R. 4:46-2(c).
Reversed and remanded for further proceedings in accordance with this opinion.