ERGOWERX INTERNATIONAL LLC, D/B/A SMARTFISHÂ TECHNOLOGIES, LLC VS. MAXELL CORPORATION OF AMERICA (L-8914-15, BERGEN COUNTY AND STATEWIDE) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-0197-16T3
ERGOWERX INTERNATIONAL LLC,
d/b/a SMARTFISH TECHNOLOGIES, LLC,
Plaintiff-Respondent,
v.
MAXELL CORPORATION OF AMERICA,
and HITACHI AMERICA, LTD.,
Defendants-Appellants.
Argued April 26, 2017 – Decided July 26, 2017
Before Judges Alvarez and Accurso.
On appeal from the Superior Court of New
Jersey, Law Division, Bergen County, Docket
No. L-8914-15.
Hilary Preston (Vinson & Elkins LLP) of the
New York bar, admitted pro hac vice, argued
the cause for appellants (Scarinci &
Hollenbeck, LLC, Ms. Preston, and Isabel
Sukholitsky (Vinson & Elkins LLP) of the New
York bar, admitted pro hac vice, attorneys;
Robert E. Levy and Ms. Preston, of counsel and
on the brief; Charles H. Friedrich, Roshan D.
Shah, and Ms. Sukholitsky, on the brief).
Hillel I. Parness argued the cause for
respondent (Parness Law Firm, PLLC and Jay
Nelkin (Nelkin & Nelkin, P.C.) of the Texas
bar, admitted pro hac vice, attorneys; Mr.
Parness and Mr. Nelkin, on the brief).
PER CURIAM
On leave granted, defendants Maxell Corporation of America
and Hitachi America, Ltd., appeal the April 11, 2016 Law Division
denial of their Rule 4:6-2 application to dismiss all counts of
plaintiff Ergowerx International, LLC, doing business as Smartfish
Technologies', complaint for failure to state a claim upon which
relief can be granted. For the reasons that follow, we reverse.
The matter is remanded so the case can proceed on Smartfish's
remaining cause of action for breach of contract.
Smartfish manufactures ergonomically designed computer
keyboards and mice. Maxell is a retailer of computer-related
products. Hitachi, Ltd. is the controlling American branch of
Hitachi Maxell and Maxell Corporation of America.
In its complaint, Smartfish alleged that through fraudulent
promises and misrepresentations, Maxell induced it to enter a
contract on December 22, 2009. The contract called for Maxell to
purchase and distribute Smartfish's products throughout Maxell's
already established distribution channels. Smartfish, dissatisfied
with Maxell's performance under the contract, filed suit initially
in the United States District Court for the Southern District of
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New York. The thirteen-count complaint included claims under both
State and Federal law: breach of contract; promissory estoppel;
intentional interference with prospective economic advantage;
fraud in the inducement; fraud; conversion; patent infringement;
trademark infringement; violations of the Lanham Act, 15 U.S.C.A.
§ 1125(a); violations of The General Business Law of the State of
New York, Gen. Bus. § 360; breach of the implied covenant of good
faith and fair dealing; unjust enrichment; and equitable
accounting.
On April 23, 2014, the district court dismissed twelve of
Smartfish's thirteen claims with prejudice on Maxell's motion.
Ergowerx Int'l, LLC. v. Maxell Corp. of Am., (Ergowerx I) 18 F.
Supp. 3d 430, 452 (S.D.N.Y. 2014). The breach of contract claim
survived in part, although the court ruled that Maxell's liability,
if any, did not extend beyond its commitment to purchase Smartfish
products for an initial eighteen-month period. In a detailed
decision, the court dismissed the remaining counts of the first
amended complaint.
Four counts were dismissed mainly because the causes of action
were precluded under New Jersey's economic loss doctrine. Pursuant
to State Capital & Abstract Co. v. Pappas Bus. Servs., LLC, 646
F. Supp. 2d 668, 676 (D.N.J. 2009)), and other dispositive
precedent, when a party's entitlement to damages arises from a
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breach of contract, it is barred from recovering economic losses
in tort as well.
Accordingly, count two, which asserted a claim of promissory
estoppel, was dismissed as the factual basis for the claim was
indistinguishable from that supporting the breach of contract
claim. Count three, asserting intentional or tortious
interference with prospective economic advantage was also
dismissed as the harm alleged was "fairly encompassed by the breach
of contract claim." Count six, seeking damages for conversion,
and count eleven, asserting breach of the implied covenant of good
faith and fair dealing, were also dismissed because they arose
from the conduct underlying the alleged breach of contract action.
Count twelve, the quasi-contractual claim for unjust enrichment,
could not be pursued because an actual contract existed governing
the relationship between the parties.
The judge also dismissed counts four and five, asserting
claims of fraud in the inducement and common-law fraud. The court
observed that "[i]n New Jersey, the elements of both claims are
identical." The judge concluded the complaint failed to plead
facts that would lead to "a plausible inference" that at the time
Maxell made its commitments its representatives "did not believe
[their] statements to be true. . . ." As to common-law fraud, a
similar analysis mandated dismissal. That claim "effectively
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repackages [c]ount [t]hree's claim that Maxell sold products
outside of its areas of exclusivity, and therefore harmed
Smartfish. This claim is fairly encompassed within [c]ount [o]ne,
for breach of contract."
Count seven, which sought damages for patent infringement,
was dismissed because Maxell was authorized to sell Smartfish's
products pursuant to the contract. The court similarly dismissed
three trademark-related claims: counts eight, nine, and ten.
Noting that Maxell purchased the products pursuant to agreement
with Smartfish, all of the claims failed by operation of the law.
As to count thirteen, which sought an equitable accounting,
the court found no fiduciary relationship existed between
Smartfish and Maxell that required such an accounting. A
commercial transaction does not ordinarily give rise to a fiduciary
relationship.
With regard to the breach of contract claim, the court stated
that "the clear, unambiguous language of the [a]greement
contradicts Smartfish's claim that Maxell was required to purchase
$1.8 million in products every eighteen months, in perpetuity,
until the [a]greement was terminated." Instead, after analyzing
the language of the agreement, the court concluded: "the damages
attributable to the asserted breach of the contract's minimum
purchase obligation are limited to such damages incurred in
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connection with the eighteen-month period, beginning December 22,
2009." The United States Court of Appeals affirmed.
On May 7, 2014, the district court dismissed the remaining
breach of contract claim without prejudice. Ergowerx Int'l, LLC
v. Maxell Corp. of Am., (Ergowerx II) 18 F. Supp. 3d 453, 456
(2014). The court declined to exercise supplemental jurisdiction
over the remaining state claim and explicitly preserved
"Smartfish's right to bring such a claim in state court."
The Law Division judge who declined to dismiss the Smartfish
claims held that the district court decision, and the doctrine of
res judicata, did not bar Smartfish from proceeding in state court.
In state court, Smartfish added a cause of action under the New
Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -20. Additionally,
Hitachi was added as a corporate defendant.
On appeal, Maxell raises the following points of error for
our consideration:
POINT ONE
THE TRIAL COURT ERRED IN REFUSING TO GIVE
PRECLUSIVE EFFECT TO THE JUDGMENT ENTERED IN
THE FEDERAL COURT ACTION.
A. Smartfish Cannot Evade the
Preclusive Effect Of The Federal Court
Judgment.
B. Smartfish Is Additionally Precluded
From Asserting Any And All Claims That
Could Have Been Brought.
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C. Smartfish Cannot Now Attack The
District Court's Jurisdiction.
D. The Trial Court's Unfounded Decision
Must Be Vacated.
1. The Trial Court Erroneously
Reviewed Jurisdiction In Direct
Contravention to Waiver and Review
Principles
2. The Trial Court Erroneously
Addressed Questions Not At Issue
I.
We apply a plenary standard of review when reviewing a trial
court's decision on a motion to dismiss pursuant to Rule 4:6-2.
Razem Family Associates, LP v. Borough of Millstone, 423 N.J.
Super. 103, 114 (App. Div.) certif. denied, 208 N.J. 366 (2011).
This court "owe[s] no deference to the trial court's conclusions."
Ibid.In determining whether a motion to dismiss for failure to
state a claim should be granted, the complaint must "be searched
in depth and with liberality to determine if there is any 'cause
of action suggested by the facts.'" State v. Cherry Hill
Mitsubishi, 439 N.J. Super. 462, 467 (App. Div. 2015) (quoting
Printing-Mart Morristown v. Sharp Elecs. Corp., 116 N.J. 738, 746
(1989)). This "inquiry is limited to 'examining the legal
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sufficiency of the facts alleged on the face of the complaint.'"
Ibid.II.
Maxell first contends that res judicata precludes Smartfish
from making the same claims it brought before the federal court.
Res judicata is grounds for dismissal under Rule 4:6-2. See
Velasquez v. Frank, 123 N.J. 498, 515 (1991).
The preclusive "effect of a judgment is determined by the law
of the jurisdiction that rendered it." Bondi v. Citigroup, Inc.,
423 N.J. Super. 377, 423 (App. Div. 2011) (quoting Watkins v.
Resorts Int'l Hotel & Casino, 124 N.J. 398, 411 (1991)).
Therefore, "[f]ederal law determines the effects under the rules
of res judicata of a judgment of a federal court." Watkins, supra,124 N.J. at 411 (quoting Restatement (Second) of Judgments § 87
(1982)).
The federal law of claim preclusion requires that:
(1) the judgment in the prior action must be
valid, final, and on the merits; (2) the
parties in the later action must be identical
to or in privity with those in the prior
action; and (3) the claim in the later action
must grow out of the same transaction or
occurrence as the claim in the earlier one."
[Id. at 412 (citing Fed. Dep't Stores v.
Moitie, 452 U.S. 394, 398, 101 S. Ct. 2424,
2428, 69 L. Ed. 2d 103, 108 (1981))]
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It is undisputed that the claims here, and those in the federal
action, derive from the same transaction or occurrence, and that
the same parties, or parties in privity, were present in the
federal action. Therefore, the dispositive inquiry is whether the
federal court's dismissal of the claims was valid, final, and on
the merits.
A dismissal "with prejudice constitutes an adjudication on
the merits 'as fully and completely as if the order had been
entered after trial.'" Velasquez, supra, 123 N.J. at 507 (quoting
Gambocz v. Yelencsics, 468 F. 2d 837, 840 (3d Cir. 1972)). The
United States Supreme Court has long held specifically that a
"dismissal for failure to state a claim under Federal Rule of
Civil Procedure 12(b)(6) is a 'judgment on the merits.'" Moitie,
supra, 452 U.S. at 399 n. 3, 101 S. Ct. at 2428, 69 L. Ed. 2d at110 (citing Angel v. Bullington, 330 U.S. 183, 190, 67 S. Ct. 657,
661 91 L. Ed. 832, 837 (1947)).
However, "[i]t is well established that a dismissal without
prejudice has no res judicata effect on a subsequent claim."
Camarano v. Irvin, 98 F. 3d 44, 47 (2d Cir. 1996). Federal Rule
of Civil Procedure 41(b) expressly exempts dismissals for lack of
jurisdiction from operating as an adjudication on the merits. See
also Velasquez, supra, 123 N.J. at 509 (upholding a dismissal on
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res judicata grounds because the earlier action was "not a
dismissal for lack of jurisdiction").
Contrary to Smartfish's position, the district court's
dismissal was a decision on the merits. The court rendered a
substantive decision on each count, dismissing with prejudice, and
made findings with regard to the only count, count one, which
survived the motion. These findings are dispositive.
The test for "determining the sameness of two causes of
action" considers:
(1) whether the acts complained of and the
demand for relief are the same (that is,
whether the wrong for which redress is sought
is the same in both actions). . . ; (2) whether
the theory of recovery is the same; (3)
whether the witnesses and documents necessary
at trial are the same (that is, whether the
same evidence necessary to maintain the second
action would have been sufficient to support
the first). . . ; and (4) whether the material
facts alleged are the same.
[Bondi, supra, 423 N.J. Super. at 427 (quoting
United States v. Athlone Indus., Inc., 746 F.
2d 977, 984 (3d Cir. 1984)).]
The claims Smartfish now raises in state court are identical
to those disposed of in federal court, with the exception that it
added Hitachi as a party defendant and added consumer fraud claims.
Since the fraud claims were dismissed with prejudice in federal
court, pursuant to Federal Rule of Civil Procedure 12(b)(6), res
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judicata precludes Smartfish from reasserting them in a different
guise in state court. See Velasquez, supra, 123 N.J. at 507.
Smartfish's promissory estoppel claim, count four of the
state court complaint, differs from count two of the federal
complaint only in that it alleges "Maxell and Hitachi" acted
together. But this claim has been disposed of in the federal
court on the merits, not on jurisdictional grounds. Since Maxell
is a subsidiary of Hitachi, the entities are in privity, and the
addition of Hitachi to the complaint does not alter the landscape
for res judicata purposes. Watkins, supra, 124 N.J. at 412.
Therefore, this count of the complaint should have been dismissed.
Count five of the state court complaint alleges intentional
interference with economic advantage. That cause of action was
also dismissed in federal court, and therefore should have been
dismissed by the Law Division judge as barred by res judicata.
Count ten of the state court complaint, which alleges unjust
enrichment, differs from the federal claim only in that the
allegations target both Hitachi and Maxell, who stand in privity.
This too was a quasi-contractual claim barred because an actual
contract exists governing the relationship between the parties.
Res judicata applies to this count as well.
The fraud claims in the state court complaint, counts three,
six, and seven, allege in virtually identical language, the same
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conduct as asserted in the federal complaint. The elements of
these causes of action were also dismissed because Smartfish failed
to plead them with sufficient specificity in the federal court.
These counts are also precluded. See Caballero-Rivera v. Chase
Manhattan Bank, 276 F.3d, 85, 86-87 (1st. Cir. 2002) (holding that
a dismissal for failure to plead with sufficient specificity under
the Federal Rules of Civil Procedure has preclusive effect);
Velasquez, supra, 123 N.J. at 507.
Although the conversion count in the New Jersey complaint is
slightly more detailed, both the state and the federal causes of
action allege the same basic conduct. The conversion claim was
dismissed in the federal court because the cause of action failed
to specify the artwork that defendant allegedly converted. Thus,
this count is also precluded by res judicata.
Count nine of the complaint is repeated verbatim from the
federal complaint and alleges breach of the implied covenant of
good faith and fair dealing. Having been substantively dismissed
by the federal court, it too was barred by res judicata.
Count eleven demanded an equitable accounting. No fiduciary
relationship existed between the parties, thus this cause of action
was dismissed. Res judicata precludes it in our courts as well.
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III.
If a federal court in a prior action "would have exercised
pendent jurisdiction over related state claims that were not
asserted, a final judgment on the merits by the federal court
precludes raising those claims in a subsequent action in a state
court." Watkins, supra, 124 N.J. at 413. However, a judgment on
a claim will only have preclusive effect on a subsequent claim
where "the transaction or connected series of transactions at
issue . . . is the same, that is 'where the same evidence is needed
to support both claims, and where the facts essential to the second
were present in the first.'" SEC v. First Jersey Sec., Inc., 101
F. 3d 1450, 1463-64 (2nd Cir. 1996) (quoting NLRB v. United Techs.
Corp., 706 F. 2d 1254, 1260 (2 Cir. 1983)), cert. denied, 522 U.S.
812, 118 S. Ct. 57, 139 L. Ed. 2d 21 (1997).
Although the district court declined to exercise supplemental
jurisdiction over the breach of contract claim in Ergowerx II, it
did not hesitate to exercise its jurisdiction over either that
cause of action or all other related state law claims brought by
Smartfish and dismissed in Ergowerx I. See Ergowerx I, supra, 18
F. Supp. 3d at 430. Only the court's judgment in Ergowerx II has
no preclusive effect, as the court only dismissed the action for
lack of jurisdiction. See Merry v. Coast Comm. College Dist., 97
Cal. App. 3d 214, 228 (1979).
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The judgment in Ergowerx I, however, does have such effect.
In that decision the court demonstrated its willingness to exercise
jurisdiction over Smartfish's state law claims, and dismissed all
but one of them with prejudice. See Ergowerx I, supra, 18 F.
Supp. 3d at 430. Thus, it is apparent that the court "would have
exercised pendent jurisdiction over related state claims that were
not asserted," and, therefore, its judgment precludes Smartfish
from bringing different state law claims arising from the same
transaction here. See Watkins, supra, 124 N.J. at 413. As
detailed below, Smartfish's remaining state law claims all arose
from the same transaction or occurrence as the claims the district
court dismissed in Ergowerx I.
Smartfish alleges a new cause of action under the New Jersey
Consumer Fraud Act based on the following:
By forcing Smartfish to incur extra costs to
purchase Maxell brand batteries not required
by its Agreement, Maxell and Hitachi engaged
in acts of, used, and employed unconscionable
commercial practices, deception, fraud, false
pretenses, false promises, misrepresentation,
and the knowing, concealment, suppression, or
omission of material fact with the intent that
Smartfish rely upon such concealment,
suppression or omission, in connection with
the sale of merchandise and with the
subsequent performance of Maxell.
These facts simply elaborate on Smartfish's main contention, that
after executing an agreement with Maxell, Maxell and Hitachi "began
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to make unreasonable demands on Smartfish and to condition Maxell's
own performance on Smartfish's acquiescence to Hitachi's and
Maxell's unreasonable and extra-contractual demands." The claim
arises from precisely the same transaction, and relies on the same
facts and evidence, as Smartfish's claims that were dismissed in
federal court. Therefore, it is precluded by the federal judgment.
See First Jersey, supra, 101 F. 3d at 1463-64.
With regard to the alleged tortious interference with a
contract, Smartfish in the state court complaint alleges that
"Hitachi wrongfully interfered with [Smartfish's relationship with
Maxell] through dishonest and/or improper means by exercising
control, influence and persuasion over Maxell to ensure that Maxell
would not pay Smartfish the sums owed to Smartfish by Maxell
pursuant to the agreement." Again, these actions are the same as
those disposed of in the federal proceeding. Even if Hitachi used
its influence over Maxell to cause it to breach the contract, its
conduct is still part of the same circumstances already disposed
of in the federal court and should be dismissed as well. See
First Jersey, supra, 101 F. 3d at 1463-64.
Smartfish also claims it is entitled to replevin because
"Maxell has wrongly retained Smartfish goods for which it has
failed to make payment." This claim is obviously integrally
related to the breach of contract claim Smartfish can still pursue.
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Accordingly, we reverse the Law Division judge's decision,
with one exception. The breach of contract cause of action can
proceed against Maxell, but only as to one eighteen-month term.
Reversed and remanded for proceedings in accordance with this
decision.
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