KVK TECH, INC. VS. MUTHUSAMY SHANMUGAM (L-1040-17, MIDDLESEX COUNTY AND STATEWIDE) ( 2018 )

NOT FOR PUBLICATION WITHOUT THE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-2935-17T2
KVK TECH, INC. and AMRUTHAM,
INC.,
Plaintiffs-Appellants,
v.
MUTHUSAMY SHANMUGAM,
Defendant-Respondent.
_______________________________________
Submitted December 10, 2018 – Decided December 18, 2018
Before Judges Sabatino and Haas.
On appeal from Superior Court of New Jersey, Law
Division, Middlesex County, Docket No. L-1040-17.
Klehr Harrison Harvey Branzburg LLP, attorneys for
appellants (Lisa A. Lori and Christopher J. Leavell, on
the briefs).
Orrick, Herrington & Sutcliffe, LLP, attorneys for
respondent (James H. McQuade (Orrick, Herrington &
Sutcliffe, LLP), of the New York bar, admitted pro hac
vice, Mark R. Thompson (Orrick, Herrington &
Sutcliffe, LLP) of the New York bar, admitted pro hac
vice, and Camille Joanne Rosca, on the brief).
PER CURIAM
Plaintiff KVK Tech, Inc. ("KVK") and its affiliate company, co-plaintiff
Amrutham, Inc. ("Amrutham"), appeal the trial court's January 19, 2018 order
dismissing with prejudice their complaint against defendant Muthusamy
Shanmugam ("Shanmugam"). The dismissal was fundamentally based on entire
controversy grounds, stemming from the parties' involvement about five years
earlier in another Law Division case litigated in a different county and a separate
lawsuit in Pennsylvania. We affirm.
KVK and Amrutham are developers, manufacturers, and distributors of
generic pharmaceutical products. Shanmugam is a pharmaceutical professional
who was employed by Novel Laboratories, Inc. ("Novel"), a generic drug
manufacture and a competitor of KVK, as a Vice President of Technical Operations
until May 2010.
On or about August 5, 2010, the brand name drug known as "SUPREP"
appeared in the Food and Drug Administration (FDA) "Orange Book." The Orange
Book is a publicly available list of drug products that are available for generic
development. The Orange Book is routinely monitored by drug manufacturers as
a source for new drugs available for generic development.
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On August 15, 2010, Shanmugam contacted KVK to discuss entering into a
possible joint venture to develop the generic form of SUPREP ("the generic drug").
Shanmugam informed KVK that he learned, through the August 5, 2010 Orange
Book listing, that SUPREP was subject to genetic manufacture. Shanmugam and
KVK thereafter began discussions about potential financial terms of a joint venture.
However, the parties never consummated a joint venture agreement.
On August 16, 2010, KVK began taking steps to develop the generic drug and
also began to draft an Abbreviated New Drug Application ("ANDA") to submit to
the FDA for approval.1 The generic drug, if approved, was going to be
manufactured and sold by KVK's affiliate, Amrutham.
On September 2, 2010, before KVK submitted the ANDA to the FDA, counsel
for Novel sent a letter to KVK. The letter alleged Shanmugam was breaching his
employment agreement with Novel by working with KVK on the development of
the generic drug. Novel's allegations were based on a premise that Shanmugam
worked on the generic drug while he was employed with Novel. Hence, Novel
asserted ownership over Shanmugam's work on the generic drug.
1
An ANDA is submitted to the FDA by a company seeking approval to
manufacture and sell a generic drug product.
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After Novel sent the letter, Shanmugam advised KVK that he had never
worked on the drug while employed at Novel. Even so, Shanmugam and KVK
decided to cease working together, and Shanmugam had no further involvement in
the manufacture of the generic drug.
Plaintiffs proceeded on their own with the development of the generic drug.
In November 2010, Amrutham filed an ANDA for the generic drug with the FDA.
About a week later, plaintiffs informed Novel that they had decided to pursue
development of the generic drug. In addition, plaintiffs informed Novel that they
had filed a declaratory action against Novel in the Court of Common Pleas of Bucks
County, Pennsylvania, seeking an order declaring that their anticipated
manufacture of the generic drug did not violate the terms of the agreement between
Novel and Shanmugam (the "Pennsylvania action").
On February 3, 2011, Novel filed a lawsuit against KVK, Amrutham, and
Shanmugam in the Law Division, Somerset County (the "Somerset action").
Novel's claims in the Somerset action centered on KVK and Amrutham's
development of the generic drug. Shanmugam, KVK, and Amrutham
cooperatively defended the Somerset action as codefendants for nearly nine months
until November 2011. At that point, KVK sought to amend its answer to file cross-
claims against Shanmugam.
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KVK's proposed cross-claim sought contribution and indemnification from
Shanmugam in connection with the claims that Novel was asserting against KVK
in the Somerset action. KVK sought leave to assert a cross-claim after depositions
of several persons in the Somerset action placed in dispute the veracity of
Shanmugam's representations to KVK about his role at Novel.
Judge Allison E. Accurso, J.S.C., who was then sitting in the Law Division,
and handling the Somerset action, granted KVK’s motion for leave to assert the
cross-claims against Shanmugam on January 23, 2012. On February 7, 2012, KVK
amended its answer to assert cross-claims against Shanmugam for contribution and
indemnification.2
Thereafter, on February 16, 2012, Shanmugam and Novel entered into a
settlement in connection with the Somerset action. Shanmugam then moved to
2
KVK's proposed cross-claim reads: "KVK-Tech, Inc. ("KVK"), without
admitting liability to plaintiff Novel Laboratories, Inc. and only in the event that
KVK is held responsible for any damages alleged in the [c]omplaint, or any
other relief granted to Novel on any grounds whatsoever, hereby demands
contribution and indemnification under the Joint Tortfeasors Act, N.J.S.A.
2A:53A-1 to -48, the Comparative Negligence Act, N.J.S.A 2A:15-5.1 to -5.8
and all other statutory, contractual or common law principles, from defendant
Muthusamy Shanmugam, and any and all other third-party or fourth-party
defendants hereinafter named by any party." There is no contractual
indemnification provision between plaintiffs and Shanmugam in this case, so
the cross-claim must be based on either common-law or statutory grounds.
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dismiss KVK’s cross-claims for indemnification and contribution. KVK opposed
Shanmugam’s motion. In its opposition, KVK conceded the propriety of dismissal
of its cross-claim for contribution, but pressed the claim for indemnification. Before
oral argument on the motion, Assignment Judge Yolanda Ciccone, A.J.S.C., took
over the case from Judge Accurso.
On June 15, 2012, Judge Ciccone heard oral argument on Shanmugam's
motion to dismiss. Regarding contribution, Judge Ciccone noted that KVK
"conceded its cross-claim for contribution cannot survive the motion." As to
indemnification, Judge Ciccone granted Shanmugam's motion and dismissed KVK’s
cross-claim for indemnification "without prejudice." Judge Ciccone dismissed the
cross-claim because KVK failed to plead the requisite "special relationship" between
the parties. As Judge Ciccone reasoned:
Thus, here, in order to survive this motion to
dismiss, KVK must show a sufficient legal relationship
to support its duty to indemnify.
....
Here, KVK argues that any liability that KVK is
found to have stems from the actions of Shanmugam,
who directed KVK to the product at issue, and that the
actions of KVK in pursuing the product that
Shanmugam suggested were made in good faith.
KVK admits that the only information provided
from Shanmugam to KVK was the identity of the
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product and nothing more. Nothing in KVK's cross-
claim supports that there's a sufficient legal relationship
here giving rise to liability.
Furthermore, KVK has not informed the court
that there is some other positive rule of common or
statutory law providing a duty in this matter giving rise
to common law indemnification.
Without more, and on the record, I am going to
dismiss the cross-claims without prejudice.
[(Emphasis added).]
After the entry of the dismissal without prejudice in June 2012, KVK and
Amrutham continued to litigate the matter against Novel without the involvement of
Shanmugam. KVK did not re-plead, or seek leave to re-plead, its claim for
indemnification against Shanmugam during this time period.
On October 3, 2013, Novel, KVK, and Amrutham entered into a settlement
agreement, which resolved both the New Jersey and Pennsylvania actions. Pursuant
to the terms of the settlement agreement, Novel agreed to pay plaintiffs a sum of
money over an eight-year period, and, in exchange, KVK and Amrutham agreed to
withdraw their ANDA for the generic drug and agreed not to take any efforts to
market it. The parties agreed that the matter was settled, notwithstanding their intent
to formalize the terms in a written agreement.
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The parties never executed a written settlement agreement. Rather, at some
point, Novel learned that KVK had subsequently partnered with another
pharmaceutical company to create the generic drug. Novel then moved to enforce
the terms of the settlement agreement.
On October 10, 2013, Judge Ciccone granted Novel's motion to enforce the
settlement. KVK then appealed to this court, which affirmed Judge Ciccone's
decision in an unpublished opinion issued on February 3, 2015. See Novel
Laboratories, Inc. v. Shanmugam, No. A-2692-13 (App. Div. Feb. 3, 2015).
Nearly five years after Judge Ciccone's decision granting Shanmugam's
motion to dismiss the cross-claim, KVK and Amrutham brought suit on February
21, 2017, in the Law Division in Middlesex County against Shanmugam, based
fundamentally on the same issues and facts at issue in the Somerset action. In this
new lawsuit, KVK and Amrutham allege causes of action for: intentional
misrepresentation (count one), negligent misrepresentation (count two), and
indemnification (count three). Amrutham joins KVK's purported indemnification
cause of action, but does not join the purported misrepresentation causes of action.
In particular, KVK and Amrutham seek damages arising from Shanmugam's
allegedly wrongful conduct, including the costs and expenses they incurred in
connection with the Pennsylvania and New Jersey actions. KVK and Amrutham
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allege in pertinent part that "[b]ut for the wrongful actions and inactions of
Shanmugam, as described above, [p]laintiffs would not have been required to
participate in the Pennsylvania Action and the New Jersey Action to protect their
rights."
Shanmugam moved to dismiss plaintiffs' claims, principally contending they
are precluded under the entire controversy doctrine. Following oral argument, Judge
Arnold L. Natali, Jr., J.S.C., issued an oral decision, granting Shanmugam's motion
to dismiss, relying primarily on the entire controversy doctrine. This appeal by
plaintiffs ensued.
On appeal, plaintiffs argue the trial court misapplied the entire
controversy doctrine. In addition, plaintiffs contend the court erred in not
finding a viable indemnification claim in the absence of a pleading alleging a
special relationship between plaintiffs and Shanmugam or, alternatively in not
permitting an amendment or discovery to support such a relationship. Lastly,
plaintiffs argue the court erred in dismissing their claims of intentional and
negligent misrepresentation.
Having carefully considered these arguments in light of the record, the
procedural history of the multiple litigations, and the applicable law, we affirm
the trial court's dismissal of plaintiffs' claims in the Middlesex County lawsuit.
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We do so substantially for the sound reasons expressed in Judge Natali's detailed
oral opinion. Only a few amplifying comments are in order.
Plaintiffs clearly violated the tenets of the entire controversy doctrine, and
the public policies it is designed to advance, by failing to attempt to revive their
claims in the Somerset action and instead waiting five years to present them in
yet another lawsuit.
The entire controversy doctrine, as codified in Rule 4:30A, requires all parties
to an action to raise all transactionally related claims in that action. R. 4:30A.
"Underlying the [e]ntire [c]ontroversy [d]octrine are the twin goals of ensuring
fairness to parties and achieving economy of judicial resources." Kent Motor Cars,
Inc., v. Reynolds & Reynolds, Co., 207 N.J. 428, 443 (2011). The Supreme Court
has articulated the goals of the doctrine to include "'the needs of economy and the
avoidance of waste, efficiency and the reduction of delay, fairness to parties, and the
need for complete and final disposition through the avoidance of piecemeal
decisions.'" Ibid. (quoting Cogdell v. Hosp. Ctr. at Orange, 116 N.J. 7, 15 (1989)).
Furthermore, the doctrine is "'intended to be applied to prevent a party from
voluntarily electing to hold back a related component of the controversy in the first
proceeding by precluding it from being raised in a subsequent proceeding
thereafter.'" Wreden v. Twp. of Lafayette, 436 N.J. Super. 117, 129 (App. Div.
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2014) (quoting Hobart Bros. Co. v. Nat'l Union Fire Ins. Co., 354 N.J. Super. 229,
240-41 (App. Div. 2002)).
We recognize, as did the trial court, that Judge Ciccone's June 2012 order
in the Somerset action dismissed KVK's cross-claim for indemnification on a
"without prejudice" basis. However, in Mystic Isle Dev. Corp. v. Perskie &
Nehmad, 142 N.J. 310, 333 (1995), the Supreme Court explained: "In certain
circumstances, especially where a plaintiff manipulates the judicial system in order
to fragment litigation, the principles underlying the entire controversy doctrine may
mandate that a suit be barred even though it stems from the dismissal of a prior action
without prejudice." (Emphasis added). See also DiTrolio v. Antiles, 142 N.J. 253,
278-79 (1995) (holding that a settlement or dismissal without prejudice is but one
factor court should consider when applying entire controversy bar). The Court in
Mystic Isle, quoting the Restatement (Second) of Judgements, explained:
The rule that a defendant's judgment acts as a bar to a
second action on the same claim is based largely on the
ground that fairness to the defendant, and sound
judicial administration, require that at some point
litigation over the particular controversy come to an
end. These considerations may impose such a
requirement even though the substantive issues have
not been tried, especially if the plaintiff has failed to
avail himself of opportunities to pursue his remedies in
the first proceeding, or has deliberately flouted orders
of the court.
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[Ibid. (emphasis added) (quoting Restatement (Second) of
Judgments § 19 cmt. (a) (1982).]
We discern no practical or legal impediment that plaintiffs would have
encountered in an attempt to revive the indemnification claim before a final
global settlement was achieved in the Somerset and Pennsylvania actions.
Instead, plaintiffs waited until those cases were long over, and the files were
long closed, before bringing this present lawsuit many years later in a different
forum. The effort bespeaks "forum shopping" and inefficiency. Moreover, as
to Amrutham in particular, there was never any attempt to pursue a cross-claim
on its behalf in the Somerset action, even though it was a co-defendant with
KVK and Shanmugam in that case.
Judge Natali wisely applied the entire controversy doctrine in this case.
In doing so, he appropriately recognized the time, effort, and expense that could
have and should have been expended in the prior litigations if KVK wished to
pursue claims of indemnification.
Moreover, we discern no merit to the substance of plaintiffs' proposed
causes of action. No "special relationship" among the parties was established in
a joint venture that was never consummated. Nor are there sufficient indicia of
misrepresentation to justify reactivating litigation that had long since concluded,
even if those claims could have been viable at a much earlier juncture.
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Affirmed.
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