SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-6345-96T2
MANHATTAN WOODS GOLF CLUB, INC.,
Plaintiff-Appellant/
Cross-Respondent,
v.
TERUMASA ARAI,
Defendant-Respondent/
Cross-Appellant,
and
STEVEN MORGAN,
Defendant.
________________________________________
Argued June 2, 1998 - Decided June 22, 1998
Before Judges Long, Stern, and Kimmelman.
On appeal from the Superior Court of
New Jersey, Law Division, Monmouth County.
Andrew M. Epstein argued the cause for appellant/
cross-respondent (Epstein, Epstein, Brown &
Bosek, attorneys; Nancy Isaacson, on the brief).
Jonathan J. Lerner argued the cause for respondent/
cross-appellant (Starr, Gern, Davison & Rubin,
attorneys; Ronald L. Davison and Mr. Lerner,
of counsel and on the brief).
The opinion of the court was delivered by
KIMMELMAN, J.A.D.
Plaintiff appeals from the dismissal of its complaint against
defendant Terumasa Arai by way of summary judgment based upon the
entire controversy doctrine. Plaintiff sought damages for
conversion, breach of fiduciary duty, and tortious interference
with its business. The complaint against former defendant Steven
Morgan was withdrawn on jurisdictional grounds. Defendant cross-appeals from the denial of his claimed entitlement to counsel fees
under both R. 1:4-8(b)(2) and the frivolous lawsuit statute,
N.J.S.A. 2A:15-59.1.
Plaintiff corporation was organized to construct a golf course
in New York. Defendant was president and a director of plaintiff,
and Morgan was an officer and director of plaintiff. The
allegation of the complaint was that defendant and Morgan siphoned
off approximately $390,000 from plaintiff by way of conversion and
excessive charges for expenses, some of which claimed expenses were
illusory. Defendant and Morgan caused plaintiff to file a
voluntary petition for bankruptcy in the Southern District of New
York. For reasons not made clear in the record, the voluntary
petition was converted into a Chapter 11 proceeding under the
bankruptcy law. Plaintiff reorganized, and its reconstituted board
of directors discharged both defendant and Morgan.
In the bankruptcy proceeding, defendant filed a proof of claim
alleging that plaintiff owed him $470,000, pursuant to a long-term
employment contract. Morgan also filed a proof of claim alleging
$1,383,333 due from plaintiff. Plaintiff objected and denied both
claims. The claims of both defendant and Morgan were dismissed by
the Bankruptcy Court. On appeal by defendant and Morgan, the
dismissal of their claims was affirmed by the United States
District Court for the Southern District of New York.
On July 30, 1993, the Bankruptcy Court confirmed plaintiff's
first plan of reorganization. The confirmation order, in pertinent
part, provided that:
12. The Debtor [plaintiff] must file any
actions to recover transfers voidable under
Sections 543, 544, 547, 548, 549, or 550 of
the Bankruptcy Code within ninety (90) days of
the entry of this Order, except that nothing
herein shall be deemed to deprive the Debtor
of any rights it may have under applicable New
York State law to proceed in an appropriate
forum that the Debtor would have absent the
commencement of the instant Chapter 11 case.
[(Emphasis added).]
On April 16, 1996, the bankruptcy case was closed. The
complaint herein was filed in the Law Division on October 16, 1996.
On appeal, plaintiff contends that paragraph 12 of the
confirmation order was inserted to preserve its rights to pursue
any claim it might have available to it under New York law in "any
appropriate forum." We agree with plaintiff's position and
therefore reverse.
The operative facts and general law are not in dispute.
New Jersey's long-standing entire controversy doctrine
requires joinder in one action of all legal and equitable claims
related to a single underlying transaction. R. 4:30A; e.g., Oliver
v. Ambrose,
152 N.J. 383, 392 (1998); Mystic Isle Dev. Corp. v.
Perskie & Nehmad,
142 N.J. 310, 322 (1995). This tenet
"encompasses `virtually all causes, claims, and defenses relating
to a controversy,'" including counterclaims and cross-claims.
Oliver, supra, 152 N.J. at 394 (quoting Cogdell v. Hospital Ctr. at
Orange,
116 N.J. 7, 16 (1989)); Mystic Isle, supra, 142 N.J. at
323. It is not necessary that the claims share any "commonality of
legal issues," as long as the "distinct claims are aspects of a
single larger controversy because they arise from interrelated
facts." DiTrolio v. Antiles,
142 N.J. 253, 271 (1995). "[I]t is
the factual circumstances giving rise to the controversy itself .
. . that triggers the requirement of joinder to create a cohesive
and complete litigation." Mystic Isle, supra, 142 N.J. at 323.
However, underlying the entire controversy doctrine are the
principles of "fairness to the parties and fairness to the system
of judicial administration." Gelber v. Zito Partnership,
147 N.J. 561, 565 (1997).
In that context, we observe that the Bankruptcy court does not
have a mandatory joinder rule akin to R. 4:30A. While we
acknowledge that plaintiff's claim against defendant could have
been asserted in the Bankruptcy Court, it was not compulsory for
plaintiff to do so. Further, in a Chapter 11 proceeding,
28 U.S.C.A.
§1334(c)(1) gives a federal courtSee footnote 1 the right to abstain
from hearing a claim related to the bankruptcy proceeding, but
arising under state law.
In our view, the clear language of paragraph 12 of the
confirmation order conferred upon plaintiff the right to assert any
claim which arose under "New York State law" in any appropriate
forum. It is not our province to question why the Bankruptcy Court
declined to entertain such claims, but chose instead to give
plaintiff the right to proceed on any such claim in another
appropriate forum. Obviously, the Bankruptcy Court deemed it fair
and reasonable to divorce plaintiff's affirmative claims from the
action pertaining to the proof of claim submitted by defendant.
28 U.S.C.A.
§1334(c)(1). We must give full faith and credit to the
ruling of that court. See
28 U.S.C.A.
§1738; Security Benefit
Life Ins. Co. v. TFS Ins. Agency, Inc.,
279 N.J. Super. 419, 424
(App. Div.), certif. denied,
141 N.J. 95 (1995).
To be sure, the present assertion by plaintiff of its claim
against defendant is a fragment of the entire controversy which
enveloped the parties. Nevertheless, the court having initial and
original jurisdiction over the case has, by formal order, allowed
the controversy to be fragmented and has afforded plaintiff the
right to institute its claim, which arose under New York law, in
any appropriate jurisdiction. In view of the express grant to
plaintiff contained in paragraph 12 of the confirmation order, we
do not read Mortgagelinq Corp. v. Commonwealth Land Title Ins. Co.,
142 N.J. 336, 338 (1995) to require a different result. See also
Oliver, supra, 152 N.J. at 393.
The entire controversy doctrine is not so intransigent that it
must be applied to foreclose an action which another jurisdiction
has declined to hear by formal order. Watkins v. Resorts Intern.
Hotel & Casino,
124 N.J. 398, 413-14 (1991) (stating that a related
claim raised in a second action will not be barred where the court
in the first action either lacked jurisdiction to hear it or
"`declined to exercise [jurisdiction] as a matter of discretion'")
(quoting Restatement (Second) of Judgments § 25 cmt. e (1982)).
For those reasons, the dismissal of plaintiff's complaint is
reversed. Our ruling automatically disposes of defendant's cross-appeal from the trial court's ruling denying sanctions. That
ruling is affirmed.
Footnote: 1 A Bankruptcy Court is a unit of the Federal District Court for the district in question. 28 U.S.C.A. §151.