Daewoo Electronics America Inc v. Opta Corp.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DAEWOO ELECTRONICS AMERICA No. 14-17498
INC., a Florida corporation,
Plaintiff-Appellant, D.C. No.
3:13-cv-01247-VC
v.
OPTA CORPORATION, a Delaware OPINION
corporation registered to do
business in California; T.C.L.
INDUSTRIES HOLDINGS (H.K.)
LIMITED, a Hong Kong
corporation; TCL MULITMEDIA
TECHNOLOGY HOLDING LIMITED,
a Cayman Islands Company; TCL
CORPORATION, a Shenzhen,
China, corporation,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
Vince G. Chhabria, District Judge, Presiding
Argued and Submitted December 16, 2016
San Francisco, California
Filed November 27, 2017
2 DAEWOO ELECTRONICS AMERICA V. OPTA
Before: Jay S. Bybee and N. Randy Smith, Circuit Judges,
and Leslie E. Kobayashi,* District Judge.
Opinion by Judge N.R. Smith;
Dissent by Judge Bybee
SUMMARY**
Claim Preclusion
The panel reversed the district court’s dismissal of almost
all of Daewoo Electronics America Inc.’s claims as barred by
a prior judgment of the United States District Court for the
District of New Jersey; and remanded for further proceedings.
Daewoo brought this diversity action to recover unpaid
debt from four entities affiliated with GoVideo for GoVideo’s
purchase of DVD players from Daewoo. Daewoo previously
filed suit in New Jersey federal court seeking to enforce a
guaranty agreement, and the court ruled against Daewoo.
The panel held that the summary judgment ruling of the
federal district court in New Jersey on Daewoo’s prior breach
of contract claim (based on the guaranty agreement) against
Opta Corporation and TCL Industries Holdings Limited did
not preclude Daewoo from bringing the present alter ego and
*
The Honorable Leslie E. Kobayashi, United States District Judge for
the District of Hawaii, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
DAEWOO ELECTRONICS AMERICA V. OPTA 3
successor liability claims against Opta and TCL Multimedia
Technology Holding Limited.
The panel held that because the claims in the present
action and in the prior guaranty action did not arise from the
same transaction or occurrence, New Jersey’s version of
traditional res judicata did not apply. The panel further held
that although New Jersey’s “entire controversy doctrine” may
have prevented Daewoo from bringing the present claims in
New Jersey, this procedural joinder rule did not bar the
claims from being heard in the federal district court sitting in
California. The panel concluded that the district court erred
in ruling that the claims in the present action were precluded
under New Jersey law.
Judge Bybee dissented because the majority opinion erred
in not applying New Jersey law just as New Jersey state
courts would apply it. Judge Bybee would apply New
Jersey’s “entire controversy doctrine” which would bar
Daewoo’s claims, and affirm the district court’s judgment.
COUNSEL
Perry Clark (argued), Law Offices of Perry Clark, Palo Alto,
California, for Plaintiff-Appellant.
Laurence Sandell (argued) and Reece Nienstadt, Mei & Mark
LLP, Washington, D.C., for Defendants-Appellees.
4 DAEWOO ELECTRONICS AMERICA V. OPTA
OPINION
N.R. SMITH, Circuit Judge:
When it is necessary for a federal district court with
diversity jurisdiction to determine the preclusive effect of a
prior decision by a different federal district court sitting in
diversity, the second court must apply preclusion principles
according to the law of the initial court’s state. See Semtek
Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508–09
(2001). Under New Jersey’s traditional res judicata doctrine,
a claim asserting breach of a contractual guarantee of a third
party’s debt does not preclude later alter ego and successor
liability claims to collect the debt directly from entities
related to the debtor. Further, although New Jersey’s
procedural joinder rules may require such claims to be joined
in a single action, New Jersey law declines to impose these
rules on other courts. See Paramount Aviation Corp. v.
Agusta, 178 F.3d 132, 142 (3d Cir. 1999); Mortgagelinq
Corp. v. Commonwealth Land Title Ins., 662 A.2d 536, 537,
540–42 (N.J. 1995). Because the district court failed to apply
New Jersey law correctly, we reverse.
I. BACKGROUND
Underlying this case are the unpaid debts of GoVideo (a
non-party) for the purchase of DVD players from Plaintiff-
Appellant Daewoo Electronics America Inc. (Daewoo).
Daewoo brought the present action to recover this debt from
four entities affiliated with GoVideo: TCL Corporation
(TCLC), TCL Industries Holdings Limited (TCLI), TCL
DAEWOO ELECTRONICS AMERICA V. OPTA 5
Multimedia Technology Holding Limited (TCLM), and Opta
Corporation (Opta).1
GoVideo operated a consumer electronics business in
which it owned patents on electronics technology, bought
DVD players from manufacturers (made pursuant to
GoVideo’s patents), and sold those players to third-party
retailers. From October 2003 through April 2005, Daewoo
manufactured DVD players that it sold to GoVideo on credit.
Shortly after this arrangement began, (on December 4, 2003)
Daewoo, TCLI, and Opta entered into a guaranty agreement.2
Under that agreement, TCLI and Opta guaranteed the
payment of obligations to Daewoo up to $5 million for the
products Daewoo shipped to GoVideo. The agreement
provided that it was to “remain in force for the 12 month
period from the date of [its] execution.” The agreement also
specified that it was governed by New Jersey law.
1
Although Daewoo named all four entities as defendants, only TCLM
and Opta are proper parties to this appeal. Daewoo voluntarily dismissed
TCLC prior to appeal. The district court also dismissed all claims against
TCLI for lack of personal jurisdiction. Daewoo did not contest this ruling
on appeal. Therefore, the issue is waived. Smith v. Marsh, 194 F.3d 1045,
1052 (9th Cir. 1999).
Concerning Defendants’ relationships to GoVideo, the record
indicates that ownership of GoVideo changed substantially during the
course of the parties’ dealings. However, as alleged in the complaint,
TCLC wholly owned TCLI. TCLI owned 55% of TCLM and 89% of
Lotus International Holdings (Lotus). TCLI and Lotus owned,
respectively, 19% and 32% of Opta. And Opta wholly owned Opta
Systems LLC, which formerly did business as GoVideo.
2
Opta was formerly “Lotus Pacific Inc.” and executed the guaranty
under that name.
6 DAEWOO ELECTRONICS AMERICA V. OPTA
During 2004 and 2005, GoVideo had substantial
operating losses. As a result, beginning in late December
2004, GoVideo stopped paying for the DVD players it was
receiving from Daewoo. As of June 2005, GoVideo owed
Daewoo $7,775,670.98. In November 2005, GoVideo brought
suit in the United States District Court for the District of New
Jersey against Daewoo for breach of contract and other
claims based on allegations that Daewoo manufactured
defective products for GoVideo. Daewoo asserted
counterclaims to collect the unpaid debts GoVideo owed for
DVD players. In April 2007, after GoVideo had abandoned
its claims, the district court entered default judgment on the
counterclaims, awarding Daewoo $8,385,168.84 (the amount
of the debt, plus interest).
Unable to collect from GoVideo on this judgment,
Daewoo filed suit in May 2008 against TCLI and Opta, in the
United States District Court for the District of New Jersey,
seeking to enforce the guaranty agreement. In August 2010,
the district court granted Defendants’ motion for summary
judgment in the guaranty action. Applying New Jersey
contract law, the court found that the effective date of the
guaranty was December 4, 2003; that such date was “clear on
[the] face” of the agreement; and that the guaranty expired by
its terms on December 3, 2004, twelve months from that date.
Because the default judgment against GoVideo arose from
debt incurred starting on December 23, 2004—after the
guaranty expired—the district court held that TCLI and Opta
never had an obligation to pay this debt under the guaranty.
In March 2013, Daewoo brought the present suit against
Opta, TCLM, TCLC, and TCLI in the United States District
Court for the Northern District of California, asserting
California state law claims for (1) actual fraudulent transfer,
DAEWOO ELECTRONICS AMERICA V. OPTA 7
(2) constructive fraudulent transfer, (3) alter ego liability, and
(4) successor liability. Defendants moved to dismiss based on
the res judicata effect of the guaranty action. Judge White
from the Northern District of California rejected the res
judicata argument, holding that the actions were not
sufficiently related so as to arise from the same transaction or
occurrence. Instead, these California claims for relief relied
on entirely different facts. Daewoo later voluntarily dismissed
its claims for fraudulent transfer.
The case was reassigned to Judge Chhabria in April 2014.
Shortly thereafter, Judge Chhabria sua sponte ordered the
parties to brief “whether this lawsuit is barred in whole or in
part under the doctrine of res judicata,” based on the
summary judgment in the guaranty action. Defendants then
moved, under Federal Rule of Civil Procedure 12(c), for
judgment on the pleadings based on res judicata. In ruling on
the motion, the district court found that most of the facts on
which Daewoo bases its present claims were available to
Daewoo during the period that the guaranty action was
pending. Thus, the court held that, because Daewoo could
have asserted the present claims at the same time it brought
the prior action, Daewoo was barred from bringing those
claims in the present action. Daewoo now appeals.
II. STANDARD OF REVIEW
We review de novo the district court’s ruling on a motion
for judgment on the pleadings under Federal Rule of Civil
Procedure 12(c). Lyon v. Chase Bank USA, N.A., 656 F.3d
877, 883 (9th Cir. 2011). Dismissal under Rule 12(c) is
warranted when, taking the allegations in the complaint as
true, the moving party is entitled to judgment as a matter of
law. Id. We also review “questions of choice of law” de novo,
8 DAEWOO ELECTRONICS AMERICA V. OPTA
Paulsen v. CNF Inc., 559 F.3d 1061, 1072 (9th Cir. 2009),
but review for clear error the “factual findings underlying
[the] choice of law determination,” Zinser v. Accufix
Research Inst., Inc., 253 F.3d 1180, 1187 (9th Cir. 2001).
III. DISCUSSION
In short, the summary judgment ruling of the federal
district court in New Jersey on Daewoo’s prior breach of
contract claim (based on the guaranty agreement) against
Opta and TCLI does not preclude Daewoo from bringing the
present alter ego and successor liability claims against Opta
and TCLM.3
Semtek International Inc. v. Lockheed Martin Corp., 531
U.S. 497 (2001), provides the framework for our analysis.4
Under Semtek, “federal common law governs the claim-
preclusive effect of a dismissal by a federal court sitting in
diversity.” Id. at 508. However, in these circumstances,
federal common law requires that we determine the
preclusive effect of the prior decision by reference to the law
3
For purposes of our discussion, we refer to the first forum to address
a particular case as “F1.” The second forum, tasked with determining the
preclusive effect of an F1 judgment, we refer to as “F2.”
4
The present case considers the effect of a federal district court
judgment rendered by a court sitting with diversity jurisdiction on a
subsequent adjudication in a different federal district court also sitting in
diversity. Although Semtek considered the effect of a federal district court
diversity-jurisdiction judgment on a subsequent adjudication in a state
court, 531 U.S. at 499–500, we have since applied Semtek’s holding to
cases where the second court was also a federal diversity court, see Taco
Bell Corp. v. TBWA Chiat/Day Inc., 552 F.3d 1137, 1144 (9th Cir. 2009);
Giles v. Gen. Motors Acceptance Corp., 494 F.3d 865, 884–85 (9th Cir.
2007).
DAEWOO ELECTRONICS AMERICA V. OPTA 9
of the state where the rendering federal diversity court sits.5
Id. Because we must determine the preclusive effect of the
judgment in the guaranty action, rendered by the United
States District Court for the District of New Jersey sitting
with diversity jurisdiction, Semtek mandates that we turn to
New Jersey state preclusion law.
The parties do not dispute that we begin with New Jersey
law for the preclusion question; they disagree as to how that
law operates. Their arguments concern two state law
doctrines: (1) New Jersey’s version of traditional res judicata,
and (2) New Jersey’s “entire controversy doctrine.” We
address the application of each doctrine in turn.6
5
However, the state law is not incorporated in cases where “the state
law is incompatible with federal interests.” Semtek, 531 U.S. at 509.
6
Daewoo argues that Defendants waived their right to raise a
preclusion defense in the present action, because they failed to plead res
judicata in the prior guaranty action (based on the preclusive effect of
Daewoo’s default judgment against GoVideo). Daewoo waived this
argument by failing to raise it in its opening brief. Martinez-Serrano v.
I.N.S., 94 F.3d 1256, 1259 (9th Cir. 1996) (“[A]ppellants cannot raise a
new issue for the first time in their reply briefs.” (citation omitted)); see
also Norwood v. Vance, 591 F.3d 1062, 1068 (9th Cir. 2010) (collecting
cases demonstrating that a party may waive a waiver argument). In
addition, it was the district court, not Defendants, who raised the res
judicata issue. The district court may raise res judicata even where it
would otherwise have been waived, see Plaut v. Spendthrift Farm, Inc.,
514 U.S. 211, 231 (1995) (“[T]rial courts may in appropriate cases raise
the res judicata bar on their own motion.”); see also 18 James Wm. Moore
et al., Moore’s Federal Practice § 131.51 (3d ed. 2017), so long as the
parties have the opportunity to sufficiently address the issue, see McClain
v. Apodaca, 793 F.2d 1031, 1033 (9th Cir. 1986).
10 DAEWOO ELECTRONICS AMERICA V. OPTA
A. Res Judicata
Because there is not substantial overlap of the facts
material to proving, first, the breach of contract claim in the
prior guaranty action and, second, the alter ego and successor
liability claims in the present action, the two actions do not
grow from the same transaction or occurrence, and res
judicata does not apply. For res judicata to apply, “[(1)] the
judgment relied upon must be valid, final and on the merits;
[(2)] the parties in the two actions must be either identical or
in privity with one another; and [(3)] the claims must grow
out of the same transaction or occurrence.” Olds v. Donnelly,
677 A.2d 238, 243 (N.J. Super. Ct. App. Div. 1996), aff’d,
696 A.2d 633 (N.J. 1997). Only the third element is genuinely
in dispute.
Therefore, we turn to whether Daewoo’s alter ego and
successor liability claims grow out of the same transaction or
occurrence as the claim on the guaranty contract. To answer
that question, we must consider four factors:
(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.
DAEWOO ELECTRONICS AMERICA V. OPTA 11
Culver v. Ins. Co. of N. Am., 559 A.2d 400, 405 (N.J. 1989)
(internal citations omitted) (quoting United States v. Athlone
Indus., Inc., 746 F.2d 977, 984 (3d Cir. 1984)). “[T]he focal
points of [the] analysis are whether the acts complained of
were the same, whether the material facts alleged in each suit
were the same and whether the witnesses and documentation
required to prove such allegations were the same.” Athlone,
746 F.2d at 984.7
With respect to the first factor, Defendants’ acts (of which
Daewoo complained and for which Daewoo demanded
corresponding relief) differed in each action. Although
Daewoo’s claims in both actions could have had the effect of
satisfying part of the default judgment against GoVideo (as
both district court judges in the present action
acknowledged), the underlying bases giving Daewoo a right
to bring each suit—the wrongs for which Daewoo sought
redress—did not overlap.
As Judge White observed, the prior suit was an action for
“a breach of a guaranty contract.” Daewoo’s complaint in the
prior action alleged that Defendants became liable to Daewoo
under the contract for $5 million, that Daewoo demanded
payment from Defendants, and that Defendants refused to
pay. It was the breach of the guaranty—Defendants’ refusal
to fulfill their contractual obligation to pay $5 million—that
7
New Jersey’s res judicata standard is very similar to its federal
counterpart applied by the Third Circuit. See In re Mullarkey, 536 F.3d
215, 225 (3d Cir. 2008) (“Both New Jersey and federal law apply res
judicata or claim preclusion when [the same] three circumstances are
present . . . .”); Interfaith Cmty. Org. Inc. v. PPG Indus., Inc., 702 F.
Supp. 2d 295, 303 (D.N.J. 2010) (“New Jersey and federal res judicata
have [the] same elements.” (citing Watkins v. Resorts Int’l Hotel &
Casino, Inc., 591 A.2d 592, 599 (N.J. 1991))).
12 DAEWOO ELECTRONICS AMERICA V. OPTA
was the wrong for which Daewoo sought relief. Although
proof of this claim would require showing that GoVideo was
in debt to Daewoo, the purpose of suing in the guaranty
action would not have been to fulfill GoVideo’s obligation to
pay its debt. Instead, the suit would fulfill Defendants’
independent contractual obligation under an agreement to
which GoVideo was not a party. Conversely, Daewoo seeks
redress in the present action for an obligation to pay a $7.75
million debt incurred by GoVideo that had nothing to do with
the guaranty contract. Daewoo seeks to hold Defendants
directly liable for GoVideo’s unpaid debt, rather than for
Defendants’ independent obligation.
The relief available for each cause of action further
evidences the difference in the underlying wrongs.
Defendants acknowledge that the amount of damages
available under the two actions was substantially different. In
the prior action, Daewoo could have recovered no more than
Defendants’ independent $5 million obligation under the
guaranty. However, under the theories asserted in the present
action, Daewoo could recover $7.75 million, because
Defendants would be held directly liable for the full amount
of GoVideo’s debts. See Wady v. Provident Life & Accident
Ins. Co. of Am., 216 F. Supp. 2d 1060, 1066 (C.D. Cal. 2002).
Because Daewoo brought each action to seek redress for
different underlying conduct, and because the recovery
available in each action was substantially different, this factor
weighs against finding that the claims grew from the same
transaction or occurrence.
Second, the parties and both of the district court judges
have acknowledged that the present action involves theories
of recovery that are legally distinct from those asserted in the
prior action. The guaranty action concerned liability under an
DAEWOO ELECTRONICS AMERICA V. OPTA 13
express contract executed by the parties to the litigation and
governed by New Jersey law. The present action seeks to
hold Defendants directly liable for a third-party’s debt under
California actions of alter ego and successor liability, where
Defendants would otherwise have no independent basis for
that debt. While this factor does not carry as much weight as
others in the analysis, see Athlone, 746 F.2d at 984, it
nonetheless supports the conclusion that claims in the
separate actions did not grow from a common transaction or
occurrence.
The third and fourth factors are intertwined and both
weigh in Daewoo’s favor, because there is not significant
overlap between the material facts or the necessary evidence
in each action. Daewoo argues that the claims asserted in the
separate actions involve substantially different facts and
evidence because the issues in the guaranty action concerned
only formation and interpretation of the guaranty contract,
which are irrelevant to the claims of alter ego and successor
liability. Instead, Daewoo argues, the present action “focuses
on the conduct of Defendants-Appellees in stripping GoVideo
of its assets,” which occurred well after formation of the
guaranty. Daewoo further contends that (although Opta was
involved in both actions) none of the facts or evidence in the
guaranty action would have related to TCLM, because TCLM
was not a party to that case or to the guaranty agreement.
Defendants argue that Daewoo demonstrated the substantial
overlap between the two lawsuits by alleging several of the
same facts in both actions. However, Defendants fail to
explain why any of these common facts (and their supporting
evidence) were material to the guaranty action. Judge
Chhabria’s analysis suffers the same flaw. As Judge White
found, while some of the contextual background facts may
overlap, “Daewoo’s alter ego and successor liability claims
14 DAEWOO ELECTRONICS AMERICA V. OPTA
nonetheless do not directly relate in substance to the guaranty
contract,” and they rely on an entirely different set of facts. In
their analyses of res judicata, neither the district court nor the
parties discuss what specifically must be proved for the
various claims. Examining the required proof makes it clear
that the two actions here would not involve significantly
overlapping facts and evidence.
New Jersey contract law requires a plaintiff to show that
(1) the parties formed a contract, (2) the plaintiff performed
under the terms of the contract, (3) the defendant breached,
and (4) the breach caused a loss to the plaintiff. Globe Motor
Co. v. Igdalev, 139 A.3d 57, 64 (N.J. 2016).
The theory of “alter ego,” under California law, refers to
situations where the “owner of a corporation will be held
liable for the actions of the corporation.” Wady, 216 F. Supp.
2d at 1066 (quoting Roman Catholic Archbishop of S.F. v.
Superior Court, 93 Cal. Rptr. 338, 341 (Cal. Ct. App. 1971)).
Two elements are required: “(1) that there be such unity of
interest and ownership that the separate personalities of the
corporation and the individual no longer exist[,] and (2) that,
if the acts are treated as those of the corporation alone, an
inequitable result will follow.” Id. (quoting Mesler v. Bragg
Mgmt. Co., 702 P.2d 601, 606 (Cal. 1985)). “California courts
emphasize that the alter ego determination is very fact
specific.” Smith v. Simmons, 638 F. Supp. 2d 1180, 1191
(E.D. Cal. 2009), aff’d, 409 F. App’x 88 (9th Cir. 2010).
In considering whether there is sufficient unity of interest
and ownership, relevant factors include whether there was
inadequate capitalization, commingling of
funds and other assets, holding out by one
DAEWOO ELECTRONICS AMERICA V. OPTA 15
entity that it is liable for the debts of the other,
identical equitable ownership, use of the same
offices and employees, use of one as a mere
conduit for the affairs of the other, disregard
of corporate formalities, lack of segregation of
corporate records, and identical directors and
officers.
Id. (citing VirtualMagic Asia, Inc. v. Fil-Cartoons, Inc.,
121 Cal. Rptr. 2d 1, 13 (Cal. Ct. App. 2002)). Finding an
“inequitable result” under the second element of alter ego
liability “generally require[s] some evidence of bad faith
conduct on the part of defendants.” Id. at 1192.
Under a California successor liability claim, a corporation
acquiring substantially all the assets of another corporation
may be liable for the debts of the terminated corporation
where “(1) the purchaser expressly or impliedly agrees to
such assumption, (2) the transaction amounts to a
consolidation or merger of the two corporations, (3) the
purchasing corporation is merely a continuation of the selling
corporation, or (4) the transaction is entered into fraudulently
to escape liability for debts.” McClellan v. Northridge Park
Townhome Owners Ass’n, Inc., 107 Cal. Rptr. 2d 702, 707
(Cal. Ct. App. 2001) (emphasis omitted) (quoting Ortiz v. S.
Bend Lathe, 120 Cal. Rptr. 556, 558 (Cal. Ct. App. 1975)).
In analyzing the third and fourth factors to determine
whether claims grew out of the same transaction or
occurrence, we consider “the material facts” and the evidence
necessary to prove them. See Culver, 559 A.2d at 405
(quoting Athlone, 746 F.2d at 984). The existence of many
common facts between the two actions does not necessarily
speak to whether the common facts are material to proving
16 DAEWOO ELECTRONICS AMERICA V. OPTA
either claim. Athlone, 746 F.2d at 985–86. “[T]he overlap of
irrelevant facts and probably even tangential facts constitutes
nothing more than surplusage.” Id. at 986. As an initial point,
Daewoo is correct that (because TCLI was dismissed from
the present action for lack of personal jurisdiction) Opta is the
only defendant common to both actions, which tends to
reduce the potential evidentiary overlap. Furthermore,
because, under the guaranty action, neither party seriously
disputed the valid formation of the guaranty agreement, that
Daewoo performed under the agreement, or that Daewoo was
harmed by Defendants’ non-payment, the only disputed
question was that of Defendants’ breach. With respect to this
question, the district court explained that the “central issue”
was “the date that the guaranty became effective.” Because
the district court found that this issue was controlled by the
unambiguous face of the contract, essentially no evidence at
all was necessary to resolve the contract claim. Yet, even if
every element were contested, the material facts and
supporting evidence would revolve exclusively around the
contract: the parties who formed it, when it was formed, the
intended interpretation of the terms, whether Daewoo
performed its obligations under the guaranty agreement,
whether an obligation for Defendants to pay arose under the
terms of the contract, whether Daewoo demanded payment,
whether Defendants refused to pay, whether Daewoo suffered
damages, and the amount of Daewoo’s damages.
Comparing this required proof to that necessary for the
claims in the present action, it is clear there would be very
little overlap. Because the guaranty contract forms an
obligation for Defendants to pay that is separate from
GoVideo’s direct liability for its debt, the guaranty action
would not require any proof concerning the entities’
relationships or an inequitable result, as in the alter ego claim.
DAEWOO ELECTRONICS AMERICA V. OPTA 17
Likewise, the guaranty action would not have required proof
of the circumstances necessary to establish successor liability.
The one area of potential overlap is that both actions would
require proof that GoVideo had a debt to Daewoo. However,
Daewoo had a default judgment establishing GoVideo’s debt
for $7.75 million well before it filed either action. Therefore,
the only evidence required to establish the existence of the
debt would be the default judgment. Because the existence of
the debt is essentially uncontested, the burden imposed (and
the judicial resources expended) by introducing the default
judgment in each action would be minimal. Although there
are some allegations common to the complaints in both
actions, these allegations concern facts immaterial to the
guaranty action. In light of the minimal overlap between the
material facts and evidence necessary to prove the claims in
each action, the third and fourth factors weigh against finding
that the actions grew from the same transaction or occurrence.
Because the two actions asserted distinct theories of
liability to seek redress for different harms, and because the
facts and evidence material to each action did not
significantly overlap, the two actions did not grow from a
common transaction or occurrence. Therefore, the judgment
from the guaranty action does not preclude the claims in the
present action under the New Jersey doctrine of res judicata.
During a July 2014 hearing, “Daewoo’s counsel stated on
the record that Daewoo could have brought the claims at issue
in this case during the [guaranty action] but chose not to do
so.” Defendants and Judge Chhabria place great weight on
this point, seeming to argue that it should dispositively
preclude Daewoo from maintaining the present action.
However, this argument reflects a misunderstanding of the
test for res judicata. While res judicata permits claims to be
18 DAEWOO ELECTRONICS AMERICA V. OPTA
barred where they could have been raised in the prior action
but were not, the requirement remains that the un-alleged
claims must be so closely related to those claims on which the
prior judgment was rendered that they are considered to grow
from the same transaction or occurrence. The required
elements of the res judicata doctrine do not cease to apply
simply because a claim was not alleged when it could have
been. Even if Daewoo could have brought the present claims
in the prior action, it was not required to do so, because the
present claims did not grow from the same transaction or
occurrence as did the guaranty claim.
B. Entire Controversy Doctrine
The present claims are not precluded by New Jersey’s
entire controversy doctrine.
In Semtek, the Supreme Court outlined that we must look
to state law to resolve preclusion issues under the present
circumstances. The Court acknowledged the possibility that
a state’s law could have two preclusion rules that applied
differently (under the same set of facts) depending on the
jurisdiction in which the F2 action was brought. See 531 U.S.
at 503–04 (recognizing a hypothetical situation where
“California law left [a party] free to sue on [a] claim in
Maryland even after the [claim was precluded in California
because the] California statute of limitations had expired”);
Chavez v. Dole Food Co., 836 F.3d 205, 225–28 (3d Cir.
2016) (en banc) (explaining that Semtek alludes to the
possibility of state preclusion law applying differently
depending on the F2 jurisdiction). And giving effect to a
state’s law of preclusion necessarily includes applying any
exceptions that, under the state’s law, prevent application of
certain preclusion principles. See Cummins, Inc. v. TAS
DAEWOO ELECTRONICS AMERICA V. OPTA 19
Distrib. Co., 676 F. Supp. 2d 701, 711–13 (C.D. Ill. 2009),
aff’d, 700 F.3d 1329 (Fed. Cir. 2012).
The New Jersey court system has a “long-held preference
that related claims and matters arising among related parties
be adjudicated together rather than in separate, successive,
fragmented, or piecemeal litigation.” Kent Motor Cars, Inc.
v. Reynolds & Reynolds, Co., 25 A.3d 1027, 1036 (N.J.
2011). New Jersey gives effect to this preference through
court rules reflecting the state’s fairly strict approach to
joinder of claims and parties. For example, New Jersey Rule
of Court 4:30A, titled “Entire Controversy Doctrine,”
provides that the “[n]on-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 . . . .” See also Ricketti v. Barry,
775 F.3d 611, 614 n.2 (3d Cir. 2015) (“[L]itigants invoking
claim joinder as a basis for preclusion must turn to [New
Jersey Court] Rule 4:30A . . . .”). However, these court “rules
by definition apply only in the courts of New Jersey.” NJSR
Surgical Ctr., L.L.C. v. Horizon Blue Cross Blue Shield of
N.J., Inc., 979 F. Supp. 2d 513, 518 (D.N.J. 2013); id. at 519
n.3 (further explaining that the New Jersey Court Rules are
“confined to the state courts”); N.J. Ct. R. 4:1 (providing that
the rules in Part IV of the New Jersey Rules of Court—which
include the entire controversy doctrine—only govern practice
and procedure in the state courts of New Jersey).
These joinder rules are distinct from traditional preclusion
rules like res judicata. Unlike res judicata, the primary
purpose of the entire controversy doctrine is not to enforce an
adjudication that has already taken place. See Fioriglio v. City
of Atl. City, 963 F. Supp. 415, 420 n.1 (D.N.J. 1997). Instead,
“New Jersey’s main justification for the doctrine[ is] its
20 DAEWOO ELECTRONICS AMERICA V. OPTA
interest in preserving its judicial resources,” which the state
attempts to protect by preventing fragmentation of litigation
at the outset. Paramount Aviation Corp. v. Agusta, 178 F.3d
132, 142 (3d Cir. 1999); see also Sutton v. Sutton, 71 F. Supp.
2d 383, 390 (D.N.J. 1999) (“[The doctrine] seeks to promote
judicial economy and efficiency by avoiding fragmented,
multiple and duplicative litigation.” (citation and internal
quotation marks omitted)), aff’d, 216 F.3d 1077 (3d Cir.
2000); Kent Motor Cars, 25 A.3d at 1036 (“Underlying the
Entire Controversy Doctrine are the twin goals of ensuring
fairness to parties and achieving economy of judicial
resources.”); K-Land Corp. No. 28 v. Landis Sewerage Auth.,
800 A.2d 861, 871 (N.J. 2002) (“[T]he entire controversy
doctrine [is] designed to conserve judicial resources.”).
For example, in Mortgagelinq Corp. v. Commonwealth
Land Title Insurance, the New Jersey Supreme Court
considered whether the state court (sitting as F2) was
permitted to apply the state’s own entire controversy doctrine
to preclude claims that could have been (but were not)
brought in a prior action in Pennsylvania federal court (F1).
662 A.2d 536, 540 (N.J. 1995). In concluding that New Jersey
could apply the doctrine to close its courthouse doors, the
court did not reason that it was protecting the finality of any
prior adjudications, as would have been the case with
traditional preclusion rules such as res judicata. Instead the
court relied primarily on its interest in “[j]udicial economy
and efficiency—the avoidance of waste and delay.” Id. at
540–41 (quoting Cogdell v. Hosp. Ctr. at Orange, 560 A.2d
1169, 1177 (N.J. 1989)). As Mortgagelinq demonstrates, New
Jersey applies the entire controversy doctrine as a procedural
housekeeping tool that closes the courthouse doors to prevent
a party from litigating a claim in New Jersey courts, based on
DAEWOO ELECTRONICS AMERICA V. OPTA 21
a specific policy choice that New Jersey made regarding the
priority of its judicial resources.8
However, this goal of preserving New Jersey’s judicial
resources does not benefit from a non-New Jersey court
(sitting as F2) closing its courthouse doors. Accordingly, New
Jersey does “not export [its] entire controversy doctrine to
other jurisdictions.” Id. at 537. Rather, given the nature and
principal goal of the doctrine, the New Jersey Supreme Court
has indicated that—even if the entire controversy doctrine
would have precluded an F2 decision in New Jersey—the
entire controversy doctrine would not preclude a different
jurisdiction sitting as F2 (whose own procedural rules allow
the claim) from entertaining the case, because New Jersey
law does not impose on other jurisdictions its procedural
joinder requirements or the preclusive effect of those
requirements. See id. at 537, 540–42; see also Paramount,
178 F.3d at 140–42 (interpreting Mortgagelinq broadly as
“attempt[ing] to cabin the effect of the [entire controversy]
doctrine outside of New Jersey courts,” as “herald[ing] an
awareness of the doctrine’s limits when interjurisdictional
problems were involved,” and as “ensur[ing] that the doctrine
will not have untoward extraterritorial effects”); Archbrook
8
New Jersey courts and their federal counterparts cannot claim to be
entirely consistent when it comes to treatment of the entire controversy
doctrine. Mortgagelinq, itself, acknowledges that “the entire controversy
doctrine is hardly one of either uniform application or universal
acceptance.” 662 A.2d at 541. However, our duty in applying New Jersey
law is to “apply the law as we believe the [New Jersey] Supreme Court
would apply it.” Astaire v. Best Film & Video Corp., 116 F.3d 1297, 1300
(9th Cir. 1997), amended, 136 F.3d 1208 (9th Cir. 1998). And, while there
are cases with language suggesting other interpretations of the entire
controversy doctrine, Mortgagelinq provides the most on-point authority
for how New Jersey applies the doctrine in the extrajurisdictional context.
22 DAEWOO ELECTRONICS AMERICA V. OPTA
Laguna, LLC v. Marsh, 997 A.2d 1035, 1042 (N.J. Super. Ct.
App. Div. 2010) (holding that entire controversy doctrine
(1) precluded, in a F2 New Jersey state action, claims that
could have been brought in a prior F1 Georgia action but
(2) did not limit the plaintiff’s ability to commence an F2
action in a different jurisdiction).
The dissent argues that the entire controversy doctrine’s
exception should not be applied in this case. This is incorrect
for three reasons. First, the dissent incorrectly applies New
Jersey law. Although the dissent argues that “[t]he majority
nevertheless refuses to apply the entire controversy doctrine,”
it is the dissent which truly implements only half of the
doctrine. As the dissent correctly notes, we must “implement
New Jersey preclusion law just as a New Jersey state court
would.” Indeed, this is the central holding in Semtek. Semtek,
531 U.S. at 508. Contrary to the dissent’s conclusion, this
includes applying any exceptions contained in the doctrine.
We do not get to pick and choose which parts to apply. The
entire controversy doctrine is not merely a bar against
bringing claims that could have been brought in a prior
proceeding, but it also includes the exception that New Jersey
does not impose the doctrine outside its state courts.
Mortgagelinq, 662 A.2d at 538 (“Just as we do not seek to
export our procedural requirements of party joinder, we do
not seek to export any preclusive effect to our rules of party
joinder.”). However, the dissent would have this court
implement the doctrine as if it were the New Jersey state
court, not simply applying the New Jersey state court’s law
as the Ninth Circuit. This means the exclusion applies and we
cannot impose the entire controversy doctrine.
Second, the dissent incorrectly reads the import of this
doctrine. New Jersey’s ability to treat this housekeeping
DAEWOO ELECTRONICS AMERICA V. OPTA 23
mechanism as preclusive in its own courts, but not in other
courts, is supported by analogy to other mechanisms that
reach a comparable result, such as statutes of limitation or
forum non coveniens. Semtek foresaw and acknowledged
situations where state law statute of limitations would be
preclusive in one state, but not another. Semtek, 531 U.S. at503–04. The entire controversy doctrine is no different.
Finally, assuming the dissent is correct that failing to
apply the entire controversy doctrine as a bar in this case
would lead to forum shopping and other problems, Daewoo’s
claims would still not be barred under Semtek. Where
applying the state law would be “incompatible with federal
interests,” “[t]his federal reference to state law will not
obtain.” Id. at 509. Forum shopping, as raised by the dissent,
would certainly implicate “federal interests.” Id. at 508–09.
However, instead of modifying the entire controversy
doctrine so as to apply it without its inherent exception,
Semtek’s proffered solution binds the actions of this court. In
that situation, we simply do not apply New Jersey law, but
rather, federal res judicata law, which is substantively the
same as New Jersey’s res judicata law. See supra note 7.
Thus, this court would still reach the same result: Daewoo’s
claims are not barred.
In sum, New Jersey law does not require
extrajurisdictional application of its entire controversy
doctrine. This approach complies with the Supreme Court’s
decision in Semtek, which recognized that a state may have
preclusion rules that bar certain claims within that state while
permitting the same claims elsewhere. Therefore, following
Semtek to give full effect to the preclusion laws of New
Jersey, we must decline to apply the entire controversy
doctrine to this case.
24 DAEWOO ELECTRONICS AMERICA V. OPTA
IV. CONCLUSION
Because the claims in the present action and in the
guaranty action did not arise from the same transaction or
occurrence, New Jersey’s version of traditional res judicata
does not apply. And, although the entire controversy doctrine
may have prevented Daewoo from bringing the present
claims in New Jersey, this procedural joinder rule does not
bar the claims from being heard in the federal district court
sitting in California. Thus, the district court erred in ruling
that the claims in the present action were precluded under
New Jersey law.
REVERSED and REMANDED for further
proceedings.
BYBEE, Circuit Judge, dissenting:
This case presents a complex issue of interjurisdictional
preclusion, but it can be solved easily if one adheres to first
principles. The preclusive effect of a prior judgment in a
federal diversity action is governed by the law of the state in
which the rendering court sits. Semtek Int’l Inc. v. Lockheed
Martin Corp., 531 U.S. 497, 506–08 (2001). Here, Daewoo
received a prior judgment in a federal diversity action filed in
the District of New Jersey. The preclusive effect of that prior
judgment is therefore governed by New Jersey state law.
There are two twists. First, New Jersey has an unusually
robust preclusion rule called the “entire controversy
doctrine,” and applying that doctrine here would bar
Daewoo’s claims. Second, the New Jersey Supreme Court
DAEWOO ELECTRONICS AMERICA V. OPTA 25
has said that only its own courts, not federal or other state
courts, need apply the entire controversy doctrine.
Mortgagelinq Corp. v. Commonwealth Land Title Ins. Co.,
662 A.2d 536, 542 (N.J. 1995). None of this, however, alters
our obligation to implement New Jersey preclusion law just
as a New Jersey state court would. I would therefore apply
the entire controversy doctrine and affirm the judgment.
The majority nevertheless refuses to apply the entire
controversy doctrine, citing New Jersey’s limitation of the
doctrine to its own courts. Maj. Op. at 19–23. According to
the majority, we cannot apply the doctrine “as if [we] were
the New Jersey state court,” but rather must apply the “state
court’s law as the Ninth Circuit.” Id. at 22 (emphasis
omitted). Simply put, this is an aberration. We are required
to apply the same law New Jersey state courts would apply.
See Semtek, 531 U.S. at 508. We do not get to apply the law
New Jersey state courts would apply if they were federal
courts. It is not up to New Jersey to “determin[e] the
extraterritorial effect of [its] own laws and judgments,” and
we should have declined its invitation to violate fundamental
principles of interjurisdictional preclusion. Thomas v.
Washington Gas Light Co., 448 U.S. 261, 272 (1980)
(plurality opinion).
I respectfully dissent.
I
This dispute stems from a sour business deal between
Daewoo and GoVideo. Daewoo obtained a default judgment
against GoVideo for some $7.78 million. Unable to collect
from GoVideo itself, Daewoo sued GoVideo’s parent
companies and other affiliates—entities the majority calls
26 DAEWOO ELECTRONICS AMERICA V. OPTA
TCLC, TCLI, TCLM, and Opta. Maj. Op. at 4–5.
Specifically, Daewoo filed two lawsuits, each asserting a
different theory of liability regarding the affiliate companies’
responsibility to cover GoVideo’s debt.
First, Daewoo brought a diversity action against TCLI
and Opta in the District of New Jersey, alleging that those
companies had guaranteed repayment of GoVideo’s debt in
a written agreement. The district court rejected Daewoo’s
theory and entered summary judgment against it. Second,
Daewoo filed this diversity action in the Northern District of
California against all four entities affiliated with GoVideo
(although only TCLM and Opta remain Defendants).
Daewoo alleged, inter alia, that Defendants were alter egos
of GoVideo and liable for its debts. The district court
dismissed almost all of Daewoo’s claims as barred by the
prior judgment. Daewoo appealed.
II
The majority and I agree that the preclusive effect of the
prior judgment is governed by New Jersey state law. See
Maj. Op. at 18. We disagree, however, about how to apply
that law here. What complicates this case is the unique
structure of New Jersey’s preclusion rules, which encompass
both a traditional res judicata doctrine and the entire
controversy doctrine.
New Jersey’s res judicata doctrine “requires substantially
similar or identical causes of action and issues, parties, and
relief sought.” Wadeer v. New Jersey Mfrs. Ins. Co.,
110 A.3d 19, 28 (N.J. 2015) (citation omitted); see also Maj.
Op. at 10–11 & n.7. The state’s entire controversy doctrine
is broader. Melikian v. Corradetti, 791 F.2d 274, 279 (3d Cir.
DAEWOO ELECTRONICS AMERICA V. OPTA 27
1986). Unlike res judicata, the entire controversy doctrine
does not require common legal issues or requested relief but
only that “the claims against the different parties arise from
related facts or the same transaction or series of transactions.”
Wadeer, 110 A.3d at 27 (citation omitted). It is the “core set
of facts” common to two actions that triggers the entire
controversy bar. Id.; see also Mystic Isle Dev. Corp. v.
Perskie & Nehmad, 662 A.2d 523, 529 (N.J. 1995) (“[I]t is
the factual circumstances giving rise to the controversy itself
. . . that triggers the requirement of [claims] joinder to create
a cohesive and complete litigation.” (citation omitted));
Oliver v. Ambrose, 705 A.2d 742, 747 (N.J. 1998) (“The
entire controversy doctrine encompasses ‘virtually all causes,
claims, and defenses relating to a controversy.’” (citation
omitted)).1
1
The doctrine is currently enforced through New Jersey Court 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). Claims of bad faith, which are asserted against
an insurer after an underlying uninsured
motorist/underinsured motorist claim is resolved in a
Superior Court action, are not precluded by the entire
controversy doctrine.
See also N.J. Ct. R. 4:5-1(b)(2) (imposing a duty for parties to disclose
“the names of any non-party who should be joined in the action”). New
Jersey courts have not always clearly articulated the distinction between
res judicata and the entire controversy doctrine, and some have even
equated the two. See, e.g., Long v. Lewis, 723 A.2d 1238, 1243 (N.J.
Super. Ct. App. Div. 1999) (“The claim preclusion aspect of the entire
28 DAEWOO ELECTRONICS AMERICA V. OPTA
Applying the correct preclusion doctrine is of critical
importance in this case. Under New Jersey’s res judicata
doctrine, there is a strong argument that the prior judgment
does not bar Daewoo’s claims here. See Maj. Op. at 10–18.
As the majority notes, the two actions seek slightly different
relief (Daewoo hopes to recover more here), and involve
different theories of recovery, allegations, and potential
evidence. See id. at 11–14. The majority and Daewoo appear
to agree, however, that this action would not survive under
the entire controversy doctrine. Both actions arise from the
same core set of facts, which is all that is necessary for the
entire controversy doctrine to apply. See Wadeer, 110 A.3d
at 27.
III
According to the majority, we can follow New Jersey law
and yet not apply the entire controversy doctrine because
New Jersey has limited the doctrine to its own courts. This
reasoning is both an affront to controlling federal common
law and an open invitation to forum shopping. To show
precisely where the majority goes astray, I first discuss
general principles of interjurisdictional preclusion and then
explain why the New Jersey Supreme Court’s decision in
Mortgagelinq cannot keep us from applying the entire
controversy doctrine here. Throughout, I refer to the first
court to render a judgment as Forum 1 (“F1”) and the second
court considering whether to give preclusive effect to that
judgment as Forum 2 (“F2”).
controversy doctrine is essentially res judicata by another name.”). As the
most recent New Jersey Supreme Court decision on the subject indicates,
however, the doctrines are indeed distinct. See Wadeer, 110 A.3d at
27–28.
DAEWOO ELECTRONICS AMERICA V. OPTA 29
A
Interjurisdictional preclusion rules are least complicated
when F1 is a state court. When a state court enters judgment,
the Full Faith and Credit Clause of the Constitution,
implemented through the Full Faith and Credit Act, requires
every subsequent court occupying the role of F2—whether
state or federal—to protect that judgment by applying the
preclusion law of F1. U.S. Const. art. IV, § 1; 28 U.S.C.
§ 1738. F2 must put itself in the shoes of F1 and give the
same preclusive effect to F1’s judgment as F1 would. See
Kremer v. Chem. Const. Corp., 456 U.S. 461, 466 (1982).
The rule makes sense: if F2 were permitted to honor or
ignore F1’s judgment as it pleased, the Full Faith and Credit
Act would lose its intended function as a “nationally unifying
force.” Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 439
(1943).
The full faith and credit obligations of F2 have equal
force even when F1 purports to limit the extraterritorial
effects of its preclusion rules. It is simply not F1’s
prerogative to tell other courts to apply its preclusion
doctrines differently than it itself would. See Thomas,
448 U.S. at 270. As the Supreme Court has emphasized:
To vest the power of determining the
extraterritorial effect of a State’s own laws
and judgments in the State itself risks the very
kind of parochial entrenchment on the
interests of other States that it was the purpose
of the Full Faith and Credit Clause and other
provisions of Art. IV of the Constitution to
prevent.
30 DAEWOO ELECTRONICS AMERICA V. OPTA
Thomas, 448 U.S. at 272.2 All F1 can do “to determine the
extraterritorial effect of its judgment” is prescribe “the effect
of its judgments within the State.” Id. at 270.
In accord with the Supreme Court’s guidance, federal and
state courts sitting as F2 have consistently applied New
Jersey’s entire controversy doctrine where F1 was a New
Jersey state court. For example, in Rycoline Products, Inc. v.
C & W Unlimited, the Third Circuit addressed whether a
federal court presented with a mix of federal and state claims
should apply the entire controversy doctrine when a New
Jersey state court had previously issued a judgment on the
same subject matter. 109 F.3d 883, 887 (3d Cir. 1997). The
Third Circuit held that it was “bound by New Jersey’s Entire
Controversy Doctrine, an aspect of the substantive law of
New Jersey, by virtue of the Full Faith and Credit Act.” Id.;
see also Zahl v. Warhaftig, 655 Fed. App’x 66, 75 & n.8 (3d
Cir. 2016) (applying the entire controversy doctrine as F2);
Chrystal v. New Jersey Dep’t of Law & Pub. Safety, Div. of
State Police, 535 Fed. App’x 120, 122–23 (3d Cir. 2013)
(same). Other courts have followed suit. See Stochastic
Decisions, Inc. v. DiDomenico, 995 F.2d 1158, 1170 (2d Cir.
1993); Hammel v. State Farm Mut. Auto. Ins. Co., 114 F.
Supp. 2d 478, 481 (W.D.N.C. 2000), aff’d, 6 Fed. App’x 169
(4th Cir. 2001).
2
Although Thomas’s discussion of the extraterritorial effects of state
judgments appears in a plurality opinion, at least six Justices agreed with
the principle. See id. at 290–91 (Rehnquist, J., dissenting). The remaining
three Justices conceded that the states’ attempts to dictate how their
preclusion rules are to be applied in other jurisdictions “rest on
questionable foundations.” Id. at 289 (White, J., concurring in the
judgment).
DAEWOO ELECTRONICS AMERICA V. OPTA 31
B
The rules are slightly more complex when F1 is a federal
court. In that scenario, the Full Faith and Credit Act offers no
guidance because it protects only judgments of state courts.
See 28 U.S.C. § 1738. The Supreme Court, however, has
addressed this doctrinal gap and filled it with federal common
law. See Taylor v. Sturgell, 553 U.S. 880, 891 (2008);
Semtek, 531 U.S. at 506–08.
The federal common law takes two forms depending on
whether F1 exercises federal-question or diversity
jurisdiction. If the former, F2 applies federal preclusion
rules. See Taylor, 553 U.S. at 891. If the latter, F2 applies
“the law that would be applied by state courts in the State in
which [F1 sits].” Semtek, 531 U.S. at 508. This rule
promotes “nationwide uniformity” by ensuring that “the same
claim-preclusive rule . . . appl[ies] whether the dismissal has
been ordered by a state or a federal court.” Id. at 508.
“[A]ny other rule would produce the sort of ‘forum-shopping
. . . and . . . inequitable administration of the laws’ that Erie
seeks to avoid.” Id. at 508–09 (quoting Hanna v. Plumer,
380 U.S. 460, 468 (1965)).
C
Deferring to the New Jersey Supreme Court’s decision in
Mortgagelinq—as the majority does here, Maj. Op. at
20–21—contravenes these fundamental principles of
interjurisdictional preclusion. Mortgagelinq addressed
whether federal law or New Jersey’s entire controversy
doctrine governs the preclusive effect of a judgment by a
Pennsylvania federal court (F1) on claims subsequently
32 DAEWOO ELECTRONICS AMERICA V. OPTA
brought in New Jersey state court (F2). 662 A.2d at 540.
Indeed, the court summarized the issue before it as follows:
Had Mortgagelinq I and Mortgagelinq II been
brought successively in New Jersey courts,
there would be little doubt that application of
the entire controversy doctrine would
preclude the omitted claims. The issue is
whether the non-joinder of parties in a related
action in the Pennsylvania federal court
results in the same party preclusion in New
Jersey.
Id. The New Jersey Supreme Court concluded that the entire
controversy doctrine applied, but only as a bar to “successive
actions in New Jersey” and not as “a barrier elsewhere.” Id.
at 542. The court therefore affirmed dismissal of the action
based on the entire controversy doctrine, but without
prejudice, inviting the plaintiffs to file their claims elsewhere.
Id. (“Maintaining a cohesive federal system . . . does not
require that the other parts of the federal system honor our
entire controversy doctrine.”).
A vigorous dissent noted the perversity of this “untoward
result,” preferring a straightforward application of traditional
interjurisdictional preclusion rules:
Under established choice-of-law principles,
the preclusive effect of a judgment is
determined by the law of the jurisdiction that
rendered it. . . . Restatement (Second of
Judgments) § 87 (1982) (“Federal law
determines the effects under the rules of res
judicata of a judgment of a federal court.”).
DAEWOO ELECTRONICS AMERICA V. OPTA 33
“If [a] plaintiff would be precluded from
maintaining . . . a second action in the
[jurisdiction] of rendition, he will similarly be
barred from maintaining such an action in
other [jurisdictions].” Restatement (Second of
Judgments) § 95 comment e (1971). Federal
law would not preclude plaintiffs from
maintaining an action against these defendants
in federal courts. Consequently, I would not
bar plaintiffs from pursuing the defendants in
the courts of this State.
Id. at 543 (Pollock, J., dissenting) (all but the first alteration
in original).3
Not surprisingly, Mortgagelinq attracted considerable
controversy among federal-courts scholars almost
immediately after it was issued. See generally Stephen B.
Burbank, Where’s The Beef? The Interjurisdictional Effects
of New Jersey’s Entire Controversy Doctrine, 28 RUTGERS
L.J. 87 (1996); Rochelle Cooper Dreyfuss & Linda J.
Silberman, Interjurisdictional Implications of the Entire
3
Mortgagelinq was decided pre-Semtek. Neither opinion
distinguished the two types of federal preclusion rules discussed above.
In fact, at the time, there was considerable debate over what rule applied
to protect the judgment of a federal court sitting in diversity as F1.
Compare Stephen B. Burbank, Interjurisdictional Preclusion, Full Faith
and Credit and Federal Common Law: A General Approach,
71 CORNELL L. REV. 733, 805–17 (1986) (arguing in favor of the rule that
Semtek eventually adopted), with Ronald E. Degnan, Federalized Res
Judicata, 85 YALE L.J. 741, 750–55 (1976) (arguing in favor of uniform
federal res judicata rules irrespective of the source of F1’s jurisdiction).
It is not clear which federal preclusion rule should have applied in
Mortgagelinq because the decision does not mention the basis for
jurisdiction in F1.
34 DAEWOO ELECTRONICS AMERICA V. OPTA
Controversy Doctrine, 28 RUTGERS L.J. 123 (1996); Perry
Dane, Sovereign Dignity and Glorious Chaos: A Comment on
the Interjurisdictional Implications of the Entire Controversy
Doctrine, 28 RUTGERS L.J. 173 (1996) . More importantly, it
led directly to the majority’s error in this case.
D
The majority followed Mortgagelinq’s two-system
approach: apply one rule if F2 is a New Jersey state court;
apply a different rule if F2 is a federal court. That principle
flatly contradicts Semtek. Under Semtek, we must, as F2,
apply “the law that would be applied by state courts in the
State in which [F1 sits].” 531 U.S. at 508. Because F1 here
sits in New Jersey, we must apply the law “that would be
applied by [New Jersey] state courts,” id.—i.e., the entire
controversy doctrine. The answer is that easy; our analysis
should have begun and ended there.
As noted at the outset, the majority responds that we
cannot apply “the [entire controversy] doctrine as if [we]
were the New Jersey state court,” but rather must apply “the
New Jersey state court’s law as the Ninth Circuit.” Maj. Op.
at 22. This simply makes no sense. Our task is to put
ourselves in the New Jersey state court’s shoes and to give
the same preclusive effect to New Jersey’s judgments as New
Jersey would. It is not for New Jersey to tell any other court,
including our own, to apply the entire controversy doctrine
differently than it itself would. See Thomas, 448 U.S. at 270(“[A] State is permitted to determine the extraterritorial effect
of its judgment; but it may only do so indirectly by
prescribing the effect of its judgments within the State.”).
DAEWOO ELECTRONICS AMERICA V. OPTA 35
The majority also contends that the entire controversy
doctrine is a mere “procedural housekeeping tool” meant only
to “‘preserv[e] [New Jersey’s] judicial resources.’” Maj. Op.
at 19–21 (quoting Paramount Aviation Corp. v. Agusta,
178 F.3d 132, 142 (3d Cir. 1999)); id. at 22–23. This makes
no difference. Irrespective of New Jersey’s reasons for
adopting the entire controversy doctrine, the doctrine is
clearly a rule of preclusion. See, e.g., Kent Motor Cars, Inc.
v. Reynolds & Reynolds, Co., 25 A.3d 1027, 1036 (N.J. 2011)
(stating that the entire controversy doctrine is a “claim
preclusion rule”); McNeil v. Legislative Apportionment
Comm’n, 828 A.2d 840, 858–59 (N.J. 2003) (“The concept
that a party is required to bring all possible claims in one
proceeding is embodied in the closely linked concepts of res
judicata and the entire controversy doctrine.”).4 Even New
Jersey Rule of Court 4:30A, which enforces the entire
controversy doctrine, refers to “preclusion” as a sanction for
“omitt[ing] claims.”
Indeed, the New Jersey Supreme Court has stated, time
and time again, that the purpose of the entire controversy
4
Accord Prevratil v. Mohr, 678 A.2d 243, 246 (N.J. 1996) (“[The
entire controversy doctrine] stems directly from the principles underlying
the doctrine of res judicata or claim preclusion.”); Paulus, Sokolowski &
Sartor, LLC v. Darden, No. A-4004-13T2, 2015 WL 6456124, at *4 (N.J.
Super. Ct. App. Div. Oct. 27, 2015) (characterizing the entire controversy
doctrine as a “claim-preclusion device”); VW Credit, Inc. v. Coast Auto.
Grp., Ltd., No. A-0553-04T3, 2005 WL 3750752, at *5 (N.J. Super. Ct.
App. Div. Feb. 14, 2006) (describing res judicata and the entire
controversy doctrines as “rules of claim preclusion”); Accident Fund Ins.
Co. v. PML Holdings Grp., L.L.C., No. A-3436-08T1, 2009 WL 4724804,
at *6 (N.J. Super. Ct. App. Div. Dec. 11, 2009) (“[The entire controversy
doctrine] is a preclusionary device, intended to prevent fractionalized
litigation by requiring the assertion of all claims arising from a single
controversy in a single action.”).
36 DAEWOO ELECTRONICS AMERICA V. OPTA
doctrine is threefold: “(1) the need for complete and final
disposition through the avoidance of piecemeal decisions;
(2) fairness to parties to the action and those with a material
interest in the action; and (3) efficiency and the avoidance of
waste and the reduction of delay.” Wadeer, 110 A.3d at 27;
DiTrolio v. Antiles, 662 A.2d 494, 502 (N.J. 1995); Cogdell
by Cogdell v. Hosp. Ctr. at Orange, 560 A.2d 1169, 1173
(N.J. 1989). These three goals are virtually identical to those
of res judicata, and the New Jersey Supreme Court has said
so:
Res judicata, like the entire controversy
doctrine, serves the purpose of providing
“‘finality and repose; prevention of needless
litigation; avoidance of duplication; reduction
of unnecessary burdens of time and expenses;
elimination of conflicts, confusion and
uncertainty; and basic fairness[.]’”
Wadeer, 110 A.3d at 27–28 (citation omitted); see also VW
Credit, Inc. v. Coast Auto. Grp., Ltd., No. A-0553-04T3, 2005
WL 3750752, at *4 (N.J. Super. Ct. App. Div. Feb. 14, 2006)
(“The entire controversy doctrine in our State advances the
policies of mandatory joinder and claim preclusion associated
with the more widely known doctrine of res judicata.”); In re
Crispino, 160 B.R. 749, 756 (Bankr. D.N.J. 1993) (“The
purposes of the entire controversy are similar if not identical
to the purposes of res judicata.”).
Because the entire controversy doctrine is a rule of
preclusion, we must apply it here. We do not look to whether
New Jersey harbors especially warm feelings for its
preclusion rules or could not care less about preclusion
generally. All that matters is that New Jersey has a rule that
DAEWOO ELECTRONICS AMERICA V. OPTA 37
applies in its courts. Federal common law requires us to
honor that rule, and that is the end of the matter.5
Finally, if there is an arch-principle overlaying
interjurisdictional preclusion, it is one of fairness to all
parties. When we sit in diversity, we sit in the place of state
courts and do not want parties to game the system by
choosing a forum based on what preclusion rules will apply.
The majority ignores this principle and, in doing so, not only
facilitates forum shopping but approves it in this case. Cf.
Semtek, 531 U.S. at 508–09 (noting that having different
preclusion rules in federal versus state court “would produce
the sort of ‘forum-shopping . . . and . . . inequitable
administration of the laws’ that Erie seeks to avoid”) (citation
omitted)).
* * *
Interjurisdictional preclusion can be complex, but this
case boils down to a few simple premises. New Jersey gets
to decide its preclusion law. It does not get to dictate how
federal courts apply that law. We apply New Jersey law just
as New Jersey state courts would apply it. The majority did
not do that.
5
Even if New Jersey’s reasons for adopting the entire controversy
doctrine were relevant, would not preserving federal judicial resources be
an equally valid reason to apply the same rule New Jersey courts would?
That is, even granting that New Jersey is not concerned with our
time—“this goal of preserving New Jersey’s judicial resources does not
benefit from a non-New Jersey court (sitting as F2) closing its courthouse
doors,” Maj. Op. at 21—we still care about our time as much as New
Jersey courts care about theirs. The majority’s contention that applying
New Jersey’s doctrine here would be “incompatible with federal
interests,” Maj. Op. at 23, is both unsupported and inapplicable.
38 DAEWOO ELECTRONICS AMERICA V. OPTA
I respectfully dissent.