Barry A. Kozyra, Arbitrator, Geraldine Della Buono v. Paul J. Allen M & G Convoy, Third-Party v. Angelo Soldani, Third-Party

SLOVITER, Chief Judge,

dissenting.

The. issue in this case is not whether members of this court believe that the expediency considerations underlying the entire controversy doctrine¹ justify precluding the claim of an insured seriously injured in an accident for which she has been found blameless merely because in prior proceedings her insurance company asserted claims for its own benefit. Instead, we must predict whether the New Jersey Supreme Court, which has not yet spoken on the issue, would bar the claim.

The New Jersey courts have repeatedly emphasized that the entire controversy doctrine “is equitable in nature and is fundamentally predicated upon ‘judicial fairness and will be invoked in that spirit.’ ” Caff-erata v. Peyser, 251 N.J.Super. 256, 597 A.2d 1101, 1103 (App.Div.1991) quoting Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 476 A.2d 250, 253 (1984). Moreover, “[a]s a practical matter, the doctrine cannot be dealt with on an a prior basis. It must be applied empirically. That is to say, an evaluation must be made of each potential component of a particular controversy to determine the likely consequences of the omission of that component from the action and its reservation for litigation another day.” Wm. Blanchard Co. v. Beach Concrete Co., 150 N.J.Super. 277, 375 A.2d 675, 683 (App.Div.), certification denied, 75 N.J. 528, 384 A.2d 507 (1977).

Cafferata is particularly instructive with regard to the equitable nature of the entire controversy doctrine. There, the court held that the entire controversy doctrine did not bar Cafferata from bringing an action for medical malpractice even though he had failed to raise that claim in a prior action brought against him by a physicians’ association to recover the money due for the very same medical procedure giving rise to the malpractice claim. When the first action was filed by the physicians’ association as a collection matter in the Special Civil Part, Cafferata responded merely by filing a letter stating that the bill had been submitted to Cafferata’s insurance company and that the insurer would pay the doctor directly. The collection matter was ultimately settled when the insurance company paid most of the bill and Cafferata agreed to pay the $160.80 balance.

Subsequently, Cafferata sued the doctor for malpractice. The Appellate Division held that the even if Cafferata had knowledge of his malpractice claim at the time the collection action was brought, the entire controversy doctrine did not preclude the action. The court reasoned:

Not only did plaintiff appear pro se, but the professional association itself, which was seeking payment of its bill, did not deem the matter of sufficient importance to warrant the presence of its attorney. No judge was involved in the proceeding, which was in effect an informal expedited mediation appropriate to small claims but hardly to significant tort litigation. Nor is there anything in the record to suggest that plaintiff had or should have had the remotest notion that by paying the uncovered $160.80 he would be giving up a substantial tort claim or that the physicians had or should have had the remotest notion that, by accepting the $160.80, they were obtaining protection against the later assertion of that claim against them.

Cafferata, 597 A.2d at 1104. The court added that if the entire controversy doctrine were held applicable in those circumstances, it “would convert the ... doctrine from an equitable device into a trap for the unsuspecting. That is not its function.” Id.

Although the Cafferata court also relied on the “problems inherent in an inequality of forum” in reaching its result, noting that the collection actions “were never intended to have preclusionary consequences beyond their own scope,” id., this case is similar to Cafferata in terms of the parties’ reasonable expectations. Because Della Buono had an insurance contract, when she was served with papers in the first action she submitted the matter to her insurance company which was contractually obligated to provide the defense. There is nothing in the record to indicate that Della Buono was any less “unsuspecting” than Cafferata was that she would be giving up her personal injury claim by submitting the matter to her insurer without filing a claim in that proceeding to recover for her injuries.

Also lending support to Della Buono’s argument is Humble Oil & Refining Co. v. Church, 100 N.J.Super. 495, 242 A.2d 652 (App.Div.1968). There, a truck owned by plaintiff Humble Oil collided with vehicles owned by defendants Church and Gale. Keiffer, a passenger in the Church automobile, was killed, and a wrongful death action was brought on Keiffer’s behalf against Church, Gale, and Humble Oil. The defendants asserted cross claims against each other for contribution, and the matter was subsequently settled. Thereafter, Humble Oil instituted a negligence action against Church and Gale to recover for property damage to its truck and trailer. The trial court granted a motion to dismiss for failure to state a claim on the ground, inter alia, that Humble Oil failed to raise its property damage claim in the first action. The appellate division reversed, reasoning that “[t]he insurance company, not Humble, authorized settlement of the Keiffer action — this under its reserved power to make ‘such settlement of any claim or suit as it deems expedient.’ In consummating the settlement the attorneys acted under authority granted not by Humble but by the insurance company.” Id. at 653-54. Accordingly, the court held that the entire controversy doctrine was inapplicable.

While lower state court decisions are not controlling, “federal courts must attribute significant weight to these decisions in the absence of any indication that the highest state court would rule otherwise.” See Wisniewski v. Johns-Manville Corp., 759 F.2d 271, 273-74 (3d Cir.1985). The majority correctly observes that Humble Oil was decided before the codification of the entire controversy doctrine in a rule governing mandatory joinder of claims, but it is not clear that this means, as the majority concludes, that Humble Oil is of “limited prec-edential value.” See Majority Op. at 1112.

As the majority notes, the Rule in effect at the time of this case provided:

Mandatory Joinder. Each party to an action shall assert therein all claims which he may have against any other party thereto insofar as may be required by application of the entire controversy doctrine.

1989 Rules Governing the Courts of the State of New Jersey, Rule 4:27-l(b) (emphasis added) (subsequently deleted June 29, 1990).² The language of this Rule does not define the boundaries of the doctrine, which was already in existence under New Jersey caselaw at the time Humble Oil was decided. See Ajamian v. Schlanger, 14 N.J. 483, 103 A.2d 9, 10 (N.J.), cert. denied, 348 U.S. 835, 75 S.Ct. 58, 99 L.Ed. 659 (1954). Although there may indeed be factors that can be used to distinguish Humble Oil, that'case demonstrates not only the New Jersey courts’ concern with alleviating the occasional harsh effect of the entire controversy doctrine but also their willingness to recognize the practical distinction between the insurer and insured as parties for that purpose. Cf. Comment, The Entire Controversy Doctrine: A Novel Approach to Judicial Efficiency, 12 Seton Hall L.Rev. 260, 286 n. 241 (1982) [hereinafter Seton Hall Comment] (Humble Oil “involved a settlement procured by the litigant’s insurance carrier under a contract arrangement where there was apparently little incentive to vigorously pursue the client’s interests”).

The majority states that “[t]he only exception recognized by the New Jersey Supreme Court [to the entire controversy doctrine] concerns problems inherent in an inequality of forum.” Majority Op. at 1113. However, the New Jersey courts have carved out exceptions to the doctrine in various other circumstances where its application would be unfair, including situations involving unknown claims, see Citibank, N.A. v. Errico, 251 N.J.Super. 236, 597 A.2d 1091, 1098 (App.Div.1991), and unanticipated future claims, see 9W Contractors, Inc. v. Englewood Cliffs Borough, 176 N.J.Super. 603, 1 N.J.Tax 465, 424 A.2d 461, 464 (1980); see also Aetna Ins. Co. v. Gilchrist Bros., Inc., 85 N.J. 550, 428 A.2d 1254, 1257-58 (1981) (interpreting doctrine as inapplicable to claims by or against persons who were not parties in the first suit). See generally Seton Hall Comment at 279-86 (discussing exceptions to entire controversy doctrine). Of particular significance here, “inequality of forum” also fails to explain the exception to the doctrine recognized in Humble Oil, which involved circumstances very similar to those at issue here.

Here, as in Humble Oil, it was Della Buono’s insurer that effected the settlement in the first action and caused the first action to be dismissed against her. I do not think one can fairly characterize Della Buono as “sitting on her rights” as the majority does. According to Della Buono’s affidavit, she never spoke with an attorney from her insurance company and never received any correspondence regarding the suit except the initial suit papers and a letter indicating that an arbitration was being held and that her presence was not required. Indeed, she did not even know the name of the attorney or firm that represented her in that action. Nor was her lack of knowledge concerning the first action unreasonable, inasmuch as her insurer was obligated to defend the action and, in reality, was the entity that would be most directly affected by an unfavorable outcome in the matter.

Because the application of the entire controversy doctrine in these circumstances amounts to a “trap for the unwary” and is incompatible with the spirit of judicial fairness in which the New Jersey courts have repeatedly stressed the doctrine should be invoked, I respectfully dissent.

SUR PETITION FOR REHEARING

Present: SLOVITER, Chief Judge, BECKER, STAPLETON, MANSMANN, GREENBERG, HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO, ROTH and ROSENN^*, Circuit Judges.

The petition for rehearing filed by Geraldine Della Buono in the above-entitled case having been submitted to the judges who participated in the decision of this court and to all the other available circuit judges of the circuit in regular active service, and no judge who concurred in the decision having asked for hearing, and a majority of the circuit judges of the circuit in regular active service not having voted for rehearing by the court in banc, the petition for rehearing is denied.

1 . The entire controversy doctrine is broader than the provision of the Federal Rules of Civil Procedure under which cross-claims are permissive rather than compulsory. See Fed.R.Civ.P. 13(g).

2 . Currently, Rule 4:30A provides:

Non-joinder of claims or parties 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.

1992 Rules Governing the Courts of the State of New Jersey, Rule 4:30A.