November 15, 2013
HONG'S MERCHANDISING GROUP, INC., HONG'S SEAFOOD CO. a/k/a HONG'S FISH, Plaintiffs-Appellants,
YOUNG JOON PARK, individually and in his Capacity as President of 2053 P&S RESTAURANT, INC., Defendant-Respondent, and MIN J. RHEE, individually, and POONG LIM, LLC, a limited liability corporation, Defendants.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued October 23, 2013
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-5608-12.
Walter M. Luers argued the cause for appellants.
Thomas A. Lodato argued the cause for respondent (Alampi & DeMarrais, attorneys; Mr. Lodato, on the brief).
Before Judges Fuentes, Simonelli and Haas.
Plaintiffs Hong's Merchandising Group, Inc. and Hong's Seafood Co. appeal from the December 7, 2012 Law Division order, which dismissed plaintiffs' complaint with prejudice pursuant to Rule 4:6-2(e). Plaintiffs also appeal from the February 8, 2103 order, which denied their motion for reconsideration. We reverse and remand for further proceedings.
Defendant 2053 P&S Restaurant, Inc. (P&S) owed approximately $74, 000 for goods purchased from plaintiffs. On September 22, 2008, plaintiffs filed a complaint against P&S to collect the amount due (the 2008 action). Prior thereto, on August 15, 2008, P&S entered into a contract to sell its assets to defendants Min J. Rhee and Poong Lim, LLC (Lim). The transaction closed on October 1, 2008, two days before plaintiffs served the complaint on P&S.
In December 2008, the parties mediated the 2008 action and settled for $85, 000 in November 2009. After P&S failed to pay, plaintiffs sought entry of a final judgment in the amount of $91, 195. There is no dispute that prior to entry of the final judgment on December 21, 2009, plaintiffs received documents relating to the sale of P&S's assets (the closing documents), which revealed that Rhee and Lim purchased all of P&S's assets, there were no net proceeds, and P&S had no assets to satisfy P&S's debt to plaintiffs. Plaintiffs did not seek to amend the complaint to join Park, Rhee or Lim, nor did they file and serve an amended certification identifying Park, Rhee and Lim as potentially liable parties, as required by Rule 4:5-1(b)(2). Instead, plaintiffs proceeded to obtain the final judgment.
Nearly three years later, in July 2012, plaintiffs filed a motion for leave to amend the 2008 action to add claims against Park, Rhee and Lim. The court denied the motion because final judgment had been entered long ago. Plaintiffs did not appeal from that decision.
On July 19, 2012, plaintiffs filed a complaint against Park, Rhee and Lim, alleging they had engaged in a fraudulent transfer of P&S's assets in order to evade paying P&S's debt to plaintiffs (the 2012 action). Plaintiffs specifically identified the transactional facts in the 2008 action as the basis for the 2012 action. Plaintiffs also specifically alleged that they had received the closing documents on December 21, 2009, and the documents revealed that P&S had sold all of its assets to Rhee and Lim and had no assets to satisfy the judgment.
Park filed a motion to dismiss the complaint with prejudice pursuant to Rule 4:6-2(e) based on the entire controversy doctrine. Rhee and Lim joined in the motion at oral argument without objection. In a December 7, 2012 order and written opinion, the trial judge granted the motion and dismissed the 2012 action with prejudice as to all defendants. The judge found that plaintiffs were on notice in 2009 that defendants were indispensable parties, and they failed to show any compelling reason for failing to pursue claims against defendants at that time. The judge concluded that the entire controversy doctrine espoused in Rule 4:30A barred the 2012 action.
In a February 8, 2013 order and written opinion, the judge denied plaintiffs' motion for reconsideration. The judge found that plaintiffs had not presented anything new and failed to demonstrate any error in the judge's interpretation of the law. This appeal followed.
On appeal, plaintiffs contend that the judge improperly considered matters outside the record in granting the original motion. Plaintiffs also argue the judge erred in applying the entire controversy doctrine because the 2008 action involved claims entirely different than those in the 2012 action, and the two actions had different parties with different facts. We agree that the two actions had different parties, and for this reason conclude that the judge erred in applying Rule 4:30A instead of Rule 4:5-1(b)(2) in deciding the motion.
In 1998, our Supreme Court amended Rule 4:30A to require joinder of claims but not joinder of parties. As to joinder of parties, the issue here, the Court amended Rule 4:5-1(b)(2), which provides in part:
Each party shall include with the first pleading a certification as to whether the matter in controversy is the subject of any other action pending in any court or of a pending arbitration proceeding, or whether any other action or arbitration proceeding is contemplated; and, if so, the certification shall identify such actions and all parties thereto. Further, each party shall disclose in the certification the names of any non-party who should be joined in the action pursuant to R. 4:28 or who is subject to joinder pursuant to R. 4:29-1(b) because of potential liability to any party on the basis of the same transactional facts. Each party shall have a continuing obligation during the course of the litigation to file and serve on all other parties and with the court an amended certification if there is a change in the facts stated in the original certification. The court may require notice of the action to be given to any non-party whose name is disclosed in accordance with this rule or may compel joinder pursuant to R. 4:29-1(b).
The Rule continues:
If a party fails to comply with its obligations under this rule, the court may impose an appropriate sanction including dismissal of a successive action against a party whose existence was not disclosed or the imposition on the noncomplying party of litigation expenses that could have been avoided by compliance with this rule. A successive action shall not, however, be dismissed for failure of compliance with this rule unless the failure of compliance was inexcusable and the right of the undisclosed party to defend the successive action has been substantially prejudiced by not having been identified in the prior action.
See also Alpha Beauty Distribs, Inc. v. Winn-Dixie Stores, Inc., 425 N.J.Super. 94, 101 (App. Div. 2012) (quoting R. 4:5-1(b)(2)).
As we have explained:
[A] trial court deciding an entire controversy dismissal motion must first determine from the competent evidence before it whether a Rule 4:5-1(b)(2) disclosure should have been made in a prior action because a non-party was subject to joinder pursuant to Rule 4:28 or Rule 4:29-1(b). If so, the court must then determine whether (1) the actions are 'successive actions, '
(2) the opposing party's failure to make the disclosure in the prior action was 'inexcusable, ' and (3) 'the right of the undisclosed party to defend 'the successive action has been substantially prejudiced by not having been identified in the prior action.'
[700 Highway 33 LLC v. Pollio, 421 N.J.Super. 231, 236 (App. Div. 2011) (quoting R. 4:5-1(b)(2)).]
"If those elements have been established, the trial court may decide to impose an appropriate sanction. Dismissal is a sanction of last resort." Id. at 236-37 (citing Kent Motor Cars, Inc. v. Reynolds and Reynolds, Co., 207 N.J. 428, 453-54 (2011).
The Court has stated that
The phrase 'substantial prejudice' is used in Rule 4:5-1(b)(2) as a limitation on the court's exercise of the power of dismissal as a sanction. As a result, the Rule is consistent with our general preference for addressing disputes on the merits and reserving dismissal for matters in which those lesser sanctions are inadequate.
[Kent Motor Cars, supra, 207 N.J. at 447.]
We have noted that the lack of availability of information resulting from the delay is "for the most part, determinative of the issue of substantial prejudice. Thus, the party's 'access to relevant information is largely dispositive of the substantial prejudice issue.'" Mitchell v. Procini, 331 N.J.Super. 445, 454 (App. Div. 2000) (quoting Lamb v. Global Landfill Reclaiming, 111 N.J. 134, 152 (1998)); see also Kent Motor Cars, supra, 207 N.J. at 446.
Here, the judge incorrectly relied on Rule 4:30A to grant the motion to dismiss. The motion was governed by Rule 4:5-1(b)(2), which required the judge to first determine whether a disclosure should have been made in the 2008 action because defendants were subject to joinder pursuant to either Rule 4:28 or Rule 4:29-1(b). If so, the judge then has to determine whether: (1) the actions were successive actions; (2) plaintiffs' failure to make the disclosure was inexcusable; and (3) defendants' ability to defend the 2012 action was substantially prejudiced by not having been identified in the 2008 action. Accordingly, we reverse and remand for the judge to make the necessary determinations.
Reversed and remanded for further proceedings consistent with this opinion. We do not retain jurisdiction.