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characterizing the entire controversy doctrine as a "claim-preclusion device"
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DOCKET NO. A-4004-13T2
10-27-2015
PAULUS, SOKOLOWSKI & SARTOR, LLC, a limited liability entity organized under the laws of the State of Delaware, Plaintiff-Appellant, v. THOMAS DARDEN; WILLIAM GAUGER; JAMES T. HOCKENSMITH; CHEROKEE INVESTMENT PARTNERS, L.L.C., a limited liability entity organized under the laws of the State of Delaware; CHEROKEE INVESTMENT PARTNERS, II, L.P., a limited liability partnership organized under the laws of the State of Delaware; CHEROKEE INVESTMENT PARTNERS, III, L.P., a limited liability partnership organized under the laws of the State of Delaware; CHEROKEE NORTHEAST, L.L.C., n/k/a Jersey Management Services, a limited liability entity organized under the laws of the State of Delaware; NJM CAPITAL, L.L.C., f/k/a Cherokee Meadowlands, L.L.C., a limited liability entity organized under the laws of the State of Delaware; CHEROKEE LOAN II, L.L.C., a limited liability entity organized under the laws of the State of Delaware; and CHEROKEE INVESTMENT PARTNERS LOAN II, L.L.C., a limited liability entity organized under the laws of the State of Delaware, Defendants-Respondents.
David J. Novack argued the cause for appellant (Budd Larner, P.C., attorneys; Philip S. Adelman, on the briefs). Steven P. Benenson argued the cause for respondents Cherokee Investment Partners, L.L.C., Cherokee Investment Partners II, L.P., Cherokee Investment Partners III, L.P., NJM Capital, L.L.C., Cherokee Loan II, L.L.C., and Thomas Darden (Porzio, Bromberg & Newman, P.C., attorneys; Mr. Benenson, of counsel and on the brief; John T. Chester, on the brief). Blank Rome, L.L.P., attorneys for respondents Cherokee Northeast, L.L.C. and William Gauger, join in the brief of respondents Cherokee Investment Partners, L.L.C., Cherokee Investment Partners II, L.P., Cherokee Investment Partners III, L.P., NJM Capital, L.L.C., Cherokee Loan II, L.L.C., and Thomas Darden). Biancamano Law, L.L.C., attorneys for respondent James T. Hockensmith, join in the brief of respondents Cherokee Investment Partners, L.L.C., Cherokee Investment Partners II, L.P., Cherokee Investment Partners III, L.P., NJM Capital, L.L.C., Cherokee Loan II, L.L.C., and Thomas Darden).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Yannotti, St. John, and Guadagno. On appeal from the Superior Court of New Jersey, Law Division, Somerset County, Docket No. L-1080-12. David J. Novack argued the cause for appellant (Budd Larner, P.C., attorneys; Philip S. Adelman, on the briefs). Steven P. Benenson argued the cause for respondents Cherokee Investment Partners, L.L.C., Cherokee Investment Partners II, L.P., Cherokee Investment Partners III, L.P., NJM Capital, L.L.C., Cherokee Loan II, L.L.C., and Thomas Darden (Porzio, Bromberg & Newman, P.C., attorneys; Mr. Benenson, of counsel and on the brief; John T. Chester, on the brief). Blank Rome, L.L.P., attorneys for respondents Cherokee Northeast, L.L.C. and William Gauger, join in the brief of respondents Cherokee Investment Partners, L.L.C., Cherokee Investment Partners II, L.P., Cherokee Investment Partners III, L.P., NJM Capital, L.L.C., Cherokee Loan II, L.L.C., and Thomas Darden). Biancamano Law, L.L.C., attorneys for respondent James T. Hockensmith, join in the brief of respondents Cherokee Investment Partners, L.L.C., Cherokee Investment Partners II, L.P., Cherokee Investment Partners III, L.P., NJM Capital, L.L.C., Cherokee Loan II, L.L.C., and Thomas Darden). PER CURIAM
Plaintiff Paulus, Sokolowski & Sartor, LLC appeals from the March 26, 2014 order of the Law Division granting defendants' motion for summary judgment and dismissing plaintiff's complaint as barred by the Entire Controversy Doctrine (ECD). For the reasons that follow, we affirm.
I.
The New Jersey Meadowlands Commission (Commission) was created to plan and implement the remediation and development of 21,000 acres of land known as the Meadowlands located in several contiguous municipalities in northern New Jersey. N.J.S.A. 13:17-6. In 1998, the Commission began the process of selecting developers for a large remediation and development project (the Project or Meadowlands Project). N.J. Office of Inspector Gen., Report on the Meadowlands Remediation and Redevelopment Project, 5 (Feb. 28, 2008). EnCap Golf, LLC (EnCap Golf), owned by Louis Gonda and defendant William Gauger, was initially selected. Before the contracts for the Project were signed, Gonda sold his interest in EnCap Golf, and a successor company, EnCap Golf Holdings, LLC (EnCap) was formed. Id. at 6 n.3.
Defendant Cherokee Investment Partners, LLC (CIP) is a private equity firm specializing in developing, financing, and constructing projects that involve the remediation of brownfields and other environmentally impacted properties. Defendant Thomas Darden was CEO and managing member of CIP. In September 2000, defendant Cherokee Investment Partners II, LP (CIP II), a private equity fund, established a wholly-owned subsidiary, defendant NJM Capital, LLC (NJM). On October 1, 2000, NJM acquired a majority interest in EnCap. Gauger was then appointed EnCap's manager in charge of day-to-day operations. On October 26, 2000, the Commission entered into a Landfill Closure and Development Agreement (LDA) with EnCap for the Meadowlands Project.
NJM was initially named Cherokee Meadowlands, LLC. Its name was changed to NJM Capital, LLC in September 2007. --------
In 2002, Cherokee Investors III, LP and other limited partners established another private equity fund, defendant Cherokee Investment Partners III, LP (CIP III). Defendant Cherokee Loan II, LLC (Loan II) is a subsidiary of CIP III. Cherokee Northeast was a subdivision of CIP. CIP served as the "manager" of CIP II, CIP III, and Loan II, and all four entities invested and/or loaned funds in connection with the Meadowlands Project.
On April 16, 2001, EnCap retained plaintiff to perform environmental, remediation, and civil engineering services for the Meadowlands Project. Plaintiff was required to submit monthly invoices to EnCap, which EnCap was required to repay within thirty days of receipt.
In September 2007, EnCap and plaintiff entered into a Master Services Agreement (MSA), retroactively effective to April 16, 2001, continuing the agreed-upon services and amending various provisions. The MSA was executed to supplement the prior professional services agreement (PSA) and incorporate any future amendments into the PSA.
In March 2003, the Commission and EnCap entered into an Amended LDA, which provided for EnCap to (1) obtain performance bonds in the event of its default; (2) purchase instead of lease the development property; and (3) develop an additional golf course, a hotel, 2,580 residences, and up to 100,000 square feet of commercial space.
On May 3, 2004, American Home Assurance Company (AHA), as surety, and EnCap, as principal, delivered a $148 million bond to ensure EnCap's performance under the Amended LDA. Once the bond was issued, the Commission conveyed 785 acres of landfill and contaminated property to EnCap for $17,160,000.
During 2004, EnCap negotiated multiple forms of public funding for the Meadowlands Project. EnCap received $107 million in proceeds from bonds issued by the New Jersey Environmental Infrastructure Trust, $103 million in bond sale proceeds from the Bergen County Improvement Authority, and a $104 million loan from the New Jersey Department of Environmental Protection, for a total of approximately $315 million in public funding. EnCap also entered into payment in lieu of taxes (PILOT) agreements with the Borough of Rutherford and the Town of Lyndhurst on December 23, 2004 and January 10, 2005, respectively. Under the PILOT agreements, EnCap would receive a portion of the towns' PILOT payments and was permitted to securitize that anticipated portion by way of a bond issuance, thus providing the potential for an additional $450 million of funds for the Meadowlands Project. EnCap obtained Letters of Credit from Wachovia Bank to support its bond sales, in exchange for a mortgage on the property. Loan II later recorded a subordinate lien on the property.
Between 2004 and 2007, EnCap spent $317 million on the Project and completed nearly half of the remediation and other site work, but ultimately, the Project failed. EnCap defaulted on its obligations and, on November 15, 2007, plaintiff recorded three construction liens on the Project's property pursuant to N.J.S.A. 2A:44A-3.
In December 2007, Wachovia commenced a suit seeking to foreclose its mortgage on the property. The Commission declared EnCap in default and set May 9, 2008 as the termination date of the parties' contractual relationship. On May 8, 2008, EnCap filed for Chapter 11 bankruptcy protection. Plaintiff was named as a creditor in the bankruptcy action. The bankruptcy filing temporarily stayed the Wachovia foreclosure action, but in February 2009, the bankruptcy proceeding was dismissed and the Wachovia foreclosure action was reinstated.
The Commission then filed declaratory judgment and quiet title actions, seeking to extinguish the claims of Wachovia, junior mortgagees, and construction lienholders, including plaintiff, based upon the triggering of its reversionary interest in the property.
On February 26, 2009, plaintiff filed a complaint in the Law Division, Bergen County, seeking to enforce its construction liens, as well as alleging breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment by EnCap (the Bergen Action). In addition to EnCap, plaintiff named several entities that held financial interests or liens in the properties subject to plaintiff's construction lien, including two of the Cherokee defendants here, CIP III and Loan II, and two other Cherokee entities, Cherokee Investment Partners III Parallel Fund, L.P. and NJM Loan III, LLC.
On March 16, 2009, plaintiff's action was administratively consolidated with the Wachovia foreclosure action, the Commission's quiet title action, and two other matters, including a declaratory action by AHA seeking to have its bond declared the first priority encumbrance on the property.
EnCap neither appeared nor responded to plaintiff's claims in the Bergen Action, and default was entered against it on January 26, 2010. On October 1, 2010, the trial court entered a default judgment against EnCap in plaintiff's favor for $5,848,824.50.
On August 8, 2012, plaintiff filed the instant complaint against the Cherokee entities in Somerset County (the Somerset Action). An amended complaint was filed on February 4, 2013, adding the individual defendants Darden, Hockensmith, and Gauger. On January 2, 2014, the Cherokee defendants moved for summary judgment based on the ECD.
After hearing oral argument, the motion judge granted summary judgment on March 26, 2014, and dismissed plaintiff's complaint. In a thorough and comprehensive written opinion, Judge Hany Mawla found that plaintiff clearly pled the breach of contract claims in the Bergen Action which formed the basis of the Somerset Action against the Cherokee defendants. Judge Mawla found that plaintiff knew since October 2010 that EnCap would not satisfy the default judgment; plaintiff knew since January 2011 that neither the property nor AHA's performance bond could be used to satisfy the judgment; and plaintiff could have raised its veil-piercing claims anytime between filing the Bergen Action in February 2009 and its dismissal in January 2011.
Plaintiff raises the following points on appeal:
POINT I
STANDARD OF REVIEW
POINT II
PS&S'S AMENDED COMPLAINT WAS ERRONEOUSLY DISMISSED BECAUSE THE ENTIRE CONTROVERSY DOCTRINE WAS NOT APPLICABLE.
POINT III
THE TRIAL COURT FAILED TO PERFORM THE PROPER LEGAL ANALYSIS TO DETERMINE THE APPLICABILITY OF THE ENTIRE CONTROVERSY DOCTRINE.
A. REQUISITE LEGAL ANALYSIS TO DETERMINE WHETHER TO APPLY THE ENTIRE CONTROVERSY DOCTRINE.
B. THE TRIAL COURT DID NOT EMPLOY THE PROPER ANALYSIS.
C. PS&S WAS NOT REQUIRED TO MAKE DISCLOSURES UNDER RULE 4:5-1(2)(b).
D. DEFENDANTS HAVE NOT INCURRED SUBSTANTIAL PREJUDICE AND PS&S'S CONDUCT WAS EXCUSABLE.
POINT IV
THE ENTIRE CONTROVERSY DOCTRINE DOES NOT BAR SUBSEQUENT CLAIMS TO ENFORCE A JUDGMENT.
POINT V
JOINDER OF PARTIES IS NOT REQUIRED UNDER THE ENTIRE CONTROVERSY DOCTRINE THEREBY PERMITTING A SUCCESSIVE ACTION AGAINST DEFENDANTS NOT PARTY TO THE BERGEN COUNTY ACTION.
POINT VI
THE ENTIRE CONTROVERSY DOCTRINE'S TWIN PILLARS OF FAIRNESS TO THE PARTIES AND TO THE SYSTEM OF JUDICIAL ADMINISTRATION DICTATE REVERSAL OF THE TRIAL COURT'S DECISION.
POINT VII
THE ENTIRE CONTROVERSY DOCTRINE IS NOT APPLICABLE BECAUSE PS&S'S CLAIMS HAD NOT ARISEN AT THE TIME OF THE BERGEN COUNTY ACTION.
POINT VIII
THE BERGEN COUNTY ACTION IS AKIN TO A FORECLOSURE ACTION AND THEREFORE NOT SUBJECT TO THE ENTIRE CONTROVERSY DOCTRINE.
POINT IX
SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED BECAUSE DISCOVERY IS NOT COMPLETE.
II.
We review a ruling on summary judgment de novo. Davis v. Brickman Landscaping, Ltd., 219 N.J. 395, 405 (2014). Summary judgment is proper if, after drawing all inferences in favor of the non-moving party, "no genuine issue as to any material fact" exists. R. 4:46-2(c). A genuine factual issue exists "if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." Ibid.
The ECD is an equitable, claim-preclusion device codified in Rule 4:30A:
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).The doctrine requires parties to present all claims and defenses "related to the underlying controversy" in a single proceeding. Wadeer v. N.J. Mfrs. Ins. Co., 220 N.J. 591, 605 (2015). It is intended to prevent a party from voluntarily omitting components of the controversy in the first case by precluding such omissions in a subsequent proceeding. Hobart Bros. Co. v. Nat'l Union Fire Ins. Co., 354 N.J. Super. 229, 240-41 (App. Div. 2002).
Plaintiff first argues that summary judgment was improper because discovery was incomplete. This argument lacks merit and is procedurally barred by the invited error doctrine. The invited error doctrine bars a litigant from taking a position on appeal contrary to a position advanced in the trial court. N.J. Div. of Youth & Family Servs. v. M.C. III, 201 N.J. 328, 341 (2010); State v. Pontery, 19 N.J. 457, 471 (1955). "Elementary justice in reviewing the action of a trial court requires that that court should not be reversed for an error committed at the instance of a party alleging it." Brett v. Great Am. Recreation, Inc., 144 N.J. 479, 503 (1996) (internal quotations omitted).
Here, plaintiff conceded that no further discovery was needed for Judge Mawla to decide the question of the applicability of the ECD:
THE COURT: Do you agree that the [existing] discovery relates to the veil-piercing as opposed to really whether or not I should be adjudicating this matter on the basis of the entire controversy doctrine?
In other words, I have got enough to determine whether or not the entire controversy applies. Right?
[PLAINTIFF'S COUNSEL]: Yes, I would agree.
. . . .
. . . I do think that your Honor has enough information to determine whether or not the entire controversy doctrine applies.
Given plaintiff's concession, it cannot now argue that additional discovery was needed before Judge Mawla could determine whether the ECD applies. M.C. III, supra, 201 N.J. at 341.
In applying the ECD, the "central consideration" is whether the later claims "arise from related facts or the same transaction or series of transactions." Wadeer, supra, 220 N.J. at 605 (internal quotations omitted). Thus, Judge Mawla's role was simply to determine whether the claims before him derive from the same nucleus of operative facts as those in the Bergen Action, and are thereby precluded by the ECD. This requires a common sense comparison of the facts alleged in the first and second complaints, and the additional discovery now requested by plaintiff is irrelevant to that assessment.
Plaintiff next asserts that the ECD is inapplicable as a matter of law because the Bergen Action is "akin" to a foreclosure action. We disagree.
The ECD does not apply to foreclosure actions. R. 4:30A, 4:64-5. Rule 4:30A carves out an express exception for foreclosure actions based on Rule 4:64-5. Rule 4:64-5 distinguishes claims that are "germane" or "non-germane" to a foreclosure action, and precludes the joinder of non-germane claims in same. Non-germane claims explicitly include "claims on the instrument of obligation evidencing the mortgage debt[.]" R. 4:64-5.
Plaintiff never held a mortgage and filed the Bergen Action in the Law Division alleging breach of contract and related claims. Plaintiff sought and obtained a money judgment.
Although plaintiff's complaint was consolidated with the Wachovia foreclosure action, it was solely for administrative purposes. Such an administrative consolidation does not change the nature of the underlying action.
Plaintiff next argues that the ECD is inapplicable as a matter of law because its veil-piercing claims were unaccrued at the time of the Bergen Action. Again, we disagree.
The ECD does not apply to claims that were unknown or unaccrued at the time of the first litigation. Wadeer, supra, 220 N.J. at 606. Plaintiff argues that the ECD cannot bar the claims now pending because they did not accrue until after the judgment was secured and after plaintiff learned that the judgment would not be satisfied. Specifically, plaintiff claims that it did not learn that EnCap could not satisfy the default judgment until after its entry in October 2010, and did not learn that other contractors filed veil-piercing claims until after the deadline for complaint amendment passed in June 2009.
Judge Mawla rejected this claim and concluded that plaintiff was aware of the facts comprising the Somerset Action before it filed the Bergen Action. Specifically, Judge Mawla found that plaintiff knew of EnCap's bankruptcy and defendants' lack of liquidity, as well as other veil-piercing claims against EnCap by other Meadowlands Project contractors. He determined that plaintiff was familiar with the Cherokee defendants and their respective roles in the Meadowlands Project "long before it filed its Bergen County action." These conclusions find adequate support in the record and we agree with Judge Mawla that there was no legal impediment to plaintiff pursuing a veil-piercing claim in the Bergen Action.
Plaintiff was a named party creditor and filed pleadings in EnCap's May 2008 bankruptcy proceeding. After the administrative consolidation, plaintiff was aware that other parties, such as Mactec and PB Americas, were asserting veil-piercing claims against EnCap. More significantly, the facts giving rise to the claims of negligent misrepresentation and conspiracy in the Somerset Action occurred between 2001 and 2008, while EnCap was operational, prior to its bankruptcy filing. Plaintiff's argument that it was unaware that EnCap could not satisfy a $5.85 million judgment prior to October 2010 is unsupported in the record. Rather, the record shows that plaintiff was aware of these facts by 2009 and its claims had accrued by the time the Bergen Action was filed.
Plaintiff next argues that the ECD does not bar subsequent actions to enforce an earlier obtained judgment. Relying on our decision in Karo Marketing Corporation v. Playdrome America, 331 N.J. Super. 430 (App. Div.), certif. denied, 165 N.J. 603 (2000), plaintiff claims that we sanctioned the filing of a second complaint to pierce the corporate veil to collect on a judgment from a prior related action. We find plaintiff's reliance on Karo misplaced.
In Karo, the plaintiff advertising company sued one of its clients for breach of contract and unjust enrichment arising from its failure to pay fees, and obtained an $82,000 judgment. Id. at 434. The plaintiff then filed a subsequent enforcement suit, claiming fraud, RICO, and conspiracy on the ground that the client allegedly abandoned its company and formed a shell, specifically to avoid satisfying the judgment. Id. at 435. The trial court summarily dismissed the second suit for failure to state a claim. Id. at 437. We reversed because different evidence was required to prove breach of contract and conspiracy/fraud, the subsequent conspiracy/fraud allegations "were neither litigated nor adjudicated," and the conspiracy/fraud cause of action did not accrue until the judgment was entered. Id. at 443-45. We specifically noted that the ECD did not bar the second suit because the plaintiff's cause of action for fraud arising from the defendants' evasion of the obligation to pay the judgment did not accrue until after the judgment was entered. Id. at 444 n.2. Unlike the claims in Karo, plaintiff's veil-piercing claims alleged in the Somerset Action occurred before judgment was entered in the Bergen Action.
Moreover, as plaintiff conceded at oral argument, veil piercing is not a separate cause of action. Rather, it is an equitable remedy, "not . . . a mechanism for imposing legal liability." Verni ex rel. Burstein v. Harry M. Stevens, Inc., 387 N.J. Super. 160, 199 (App. Div. 2006) (internal quotations and citations omitted), certif. denied, 189 N.J. 429 (2007).
We are satisfied that plaintiff had a fair opportunity to assert the veil-piercing claims in the Bergen Action and Judge Mawla properly held that those claims were barred by the ECD when raised in the Somerset Action. We find plaintiff's remaining arguments lack sufficient merit to warrant further discussion in our opinion. R. 2:11-3(e)(1)(E).
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION