                                                                                                                           Opinions of the United
2009 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


1-13-2009

Aldrich Nine Assoc v. Foot Locker
Precedential or Non-Precedential: Non-Precedential

Docket No. 07-3672




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                                                           NOT PRECEDENTIAL

                     UNITED STATES COURT OF APPEALS
                          FOR THE THIRD CIRCUIT
                               ____________

                                   No. 07-3672

                                  ____________

                         ALDRICH NINE ASSOC.,
                         a General Partnership,
                                                   Appellant
                                        vs.

                         FOOT LOCKER SPECIALTY, INC.,
                         as Successor in Interest to F.W. WOOLWORTH CO.
                                  ____________

            APPEAL FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF NEW JERSEY
                         (D.C. Civ. No. 06-cv-03981)
                     District Judge: Katharine S. Hayden
                                ____________

                        Argued December 1, 2008
         Before: AMBRO, WEIS and VAN ANTWERPEN, Circuit Judges.

                             (Filed: January 13, 2009)
                                  ____________

William A. Dreier, Esquire (ARGUED)
Robert L. Ritter, Esquire
Lori A. Johnson, Esquire
Susana P. Cruz, Esquire
Schiffman, Abraham, Kaufman & Ritter, P.C.
Three University Plaza, Suite 410
P.O. Box 568
Hackensack, New Jersey 07602



                                        1
Attorneys for Appellant Aldrich Nine Associates

Geoffrey W. Castello, III, Esquire (ARGUED)
Lauri A. Mazzuchetti, Esquire
Kelley Drye & Warren LLP
200 Kimball Drive
Parsippany, New Jersey 07054

Attorneys for Appellee Foot Locker Specialty, Inc.

                                      ____________

                                        OPINION


WEIS, Circuit Judge.

              Plaintiff Aldrich Nine Associates appeals from an order of the District

Court granting defendant Foot Locker Specialty, Inc.’s motion to dismiss. We conclude

that the District Court erroneously applied New Jersey’s entire controversy doctrine to bar

the plaintiff’s suit. Accordingly, we will reverse and remand.

              In May 2002, plaintiff (“owner”) filed a complaint in New Jersey state court

to recover damages on a defaulted lease. The court entered summary judgment on

liability against defendant (“tenant”) “for amounts due under the Lease through January

31, 2006" and ordered that the matter “proceed for a determination of damages due

[owner].”

              The lease provided choices for the recovery of damages in the event of

default. Owner could seek back rent payable “in monthly installments . . . on the rent

days specified in this Lease and any suit brought to collect the amount of the deficiency

                                             2
for any month [would] not prejudice in any way the rights of [owner] to collect the

deficiency for any subsequent month by a similar proceeding.” As an alternative, owner

could pursue accelerated rent, i.e., “an amount equal to the difference between the . . .

[rent] from the date of [the tenant’s] default to the date of expiration of the [lease’s] Term

. . . and the then fair and reasonable rental value (inclusive of . . . [rent]) of the . . .

Premises for the same period.”

               Before the trial on damages began, tenant moved in limine to limit owner to

the accelerated rent option. In denying the motion, the New Jersey court held that the

terms of the lease allowed the issue of damages to “be addressed seriatim.” The judge

explained to counsel:

                  “There clearly has been liability determined by [the
               previous judge] that . . . the [tenant], in fact, is liable up to
               inclusive of 2006. That’s clear . . . .

                  “We do find, in addition thereto, that there are two options
               for being relieved or being addressed in damages at this point:
               [(1)] . . . [that] spells out for back rent at that time or which is
               less global or [(2)] for the rents projected . . . . [The second
               option] does require an expert [to prove]. There is no expert
               here and there is no judicial estoppel because those are the
               two options [owner] had.

                  “Although the entire controversy rationale does - would
               indicate that we should resolve this all in one fell swoop,
               unfortunately with these leases in the [commercial context] as
               they were, they can be addressed seriatim . . . . [G]iven the
               terms of the lease, there is no judicial estoppel. [The previous
               judge] did not rule on anything other than liability attaching
               for the full period of time.



                                                 3
                 “It is up to the [owner] then, by their measure of proof, to
              prove that there is a quantum of damages, be that for the total
              period of 2006 or some salient portion thereof. The portion
              that they have elected to proceed with . . . is up to August 1st
              of 2003.

                 “They’ve elected to go with back rent . . . . [T]here is no
              misleading [here] . . . .

                 “They’ve also indicated . . . that they . . . will endeavor to
              prove damages to August the 1st, 200[3]. . . . [T]his is one of
              the elections that [the] parties negotiated at arms length. . . .
              [The] application [in limine] is denied at this point.”

              The matter then proceeded to a trial on damages. At its conclusion, the

court filed an order that “Judgment be . . . entered in favor of [owner] Aldrich . . . and

against [tenant] Foot Locker . . . for $1,150,632.75.”    Tenant appealed to the Appellate

Division of the New Jersey Superior Court. There, tenant challenged the “order granting

partial summary judgment to plaintiff as to liability, a pre-trial ruling barring the report

and testimony of an expert on behalf of [tenant], and some evidentiary rulings during the

trial.”

              In November 2005, the Appellate Division concluded that the “trial court

was correct to decide the liability issue on summary judgment” and agreed with the

evidentiary rulings. The court saw “no merit sufficient to warrant further discussion” of

the remaining issues on appeal. There was no discussion of the seriatim damage ruling.

              In July 2006, owner filed a second complaint in the New Jersey court to

obtain the remaining damages under the lease. Invoking diversity jurisdiction, tenant



                                               4
removed the action to the District Court for the District of New Jersey and filed a motion

to dismiss asserting a violation of New Jersey’s entire controversy doctrine and res

judicata.

              The District Court granted the tenant’s motion to dismiss. Explaining that

the entire controversy doctrine controlled, the Court found it unnecessary to determine

whether res judicata also precluded the owner’s suit.

              Owner appealed and now argues that the District Court erroneously applied

the entire controversy doctrine to bar the 2006 suit. Tenant counters that the District

Court properly granted the motion to dismiss because both the entire controversy doctrine

and res judicata prohibited owner from bringing the second action.

              State court decisions are given “the same preclusive effect in federal court

they would be given in the courts of the rendering state.” Del. River Port Auth. v.

Fraternal Order of Police, Penn-Jersey Lodge 30, 290 F.3d 567, 573 (3d Cir. 2002).

Accordingly, we look to the preclusion law of New Jersey. Id.

              The entire controversy doctrine “requires that a person assert in one action

all related claims against a particular adversary or be precluded from bringing a second

action based on the omitted claims against that party.” In re Mullarkey, 536 F.3d 215,

229 (3d Cir. 2008) (quoting Melikian v. Corradetti, 791 F.2d 274, 279 (3d Cir. 1986)).

“[A] party cannot withhold part of a controversy for later litigation even when the

withheld component is a separate and independently cognizable cause of action.” Id.



                                             5
              Exceptions to the doctrine exist. It

              “does not require that all claims and parties proceed to
              culmination in one litigation. Rather, all claims and parties
              must initially be joined together before one court. The court
              can determine for itself how best to proceed with the various
              claims and parties. In order to exercise this discretion,
              however, the court must be fully informed of the extent of the
              controversy before it.”

Petrocelli v. Daniel Woodhead Co., 993 F.2d 27, 31 (3d Cir. 1993); DiTrolio v. Antiles,

662 A.2d 494, 504-05 (N.J. 1995). Thus, where a trial court “has expressly reserved the

plaintiff’s right to maintain [a] second action or where [the court’s] rulings on related

issues indicate it was likely to have reserved that right, the preclusive effect of the entire

controversy [doctrine] does not apply.” DiIorio v. Structual Stone & Brick Co., 845 A.2d

658, 661 (N.J. Super. Ct. App. Div. 2004); see also Brown v. Brown, 506 A.2d 29, 35-36

(N.J. Super. Ct. App. Div. 1986) (the doctrine does not apply when “the court in the first

action has expressly reserved the plaintiff’s right to maintain the second action”(quoting

Restatement (Second) of Judgments § 26(1)(b))).

              A party’s “conduct may [also] estop him from relying on” the entire

controversy doctrine. Brown, 506 A.2d at 35. Exempt from “the claim-splitting bar [are]

those claims as to which ‘the parties have agreed in terms or in effect that the plaintiff

may split his claim, or the defendant has acquiesced therein.’” Id. (quoting Restatement

(Second) of Judgments § 26(1)(a)).



                                               6
              Our review of the record convinces us that the District Court erred in

concluding that the entire controversy doctrine barred the owner’s 2006 suit against

tenant. All claims and parties had been joined in 2002 before the New Jersey trial judge,

who understood the full extent of the controversy between the parties, exercised his

discretion to allow owner to seek only back rent at that time, and preserved the owner’s

ability to pursue damages in the future. Accordingly, the District Court should not have

applied the entire controversy doctrine to grant the tenant’s motion to dismiss.

              Though not addressed by the District Court, we find res judicata to be

equally inapplicable. “[R]es judicata refers . . . to the common-law doctrine barring

relitigation of claims or issues that have already been adjudicated.” Velasquez v. Franz,

589 A.2d 143, 147 (N.J. 1991) (internal quotation marks omitted). New Jersey applies

res judicata “when three circumstances are present: ‘(1) a final judgment on the merits in

a prior suit involving (2) the same parties or their privies and (3) a subsequent suit based

on the same cause of action.’” In re Mullarkey, 536 F.3d at 225 (quoting Post v. Hartford

Ins. Co., 501 F.3d 154, 169 (3d Cir. 2007)).

              A matter has been actually litigated when the “issue [wa]s properly raised,

by the pleadings or otherwise, and is submitted for determination, and is determined.”

Velasquez, 589 A.2d at 147 (quoting Restatement (Second) of Judgments § 27 cmt. d).

Furthermore, we have determined that in New Jersey res judicata would not bar a

successive suit when a trial judge has “expressly preserved . . . claims for a future action.”



                                               7
Venuto v. Witco Corp., 117 F.3d 754, 758 (3d Cir. 1997); see also Restatement (Second)

of Judgments § 26 cmt. b (“A determination by the court that its judgment is ‘without

prejudice’ (or words to that effect) to a second action on the omitted part of the claim . . .

should ordinarily be given effect in the second action”).

              The record reveals that the judgment in the 2002 action established the

tenant’s liability through January 31, 2006, but awarded damages only for the period up to

August 1, 2003. Losses from August 2, 2003, though January 31, 2006, were not

submitted for determination nor included in the judgment.

              Therefore, a New Jersey court would not have used res judicata as a basis

for granting the tenant’s motion to dismiss. A final judgment as to all of the damages due

to owner did not exist at the culmination of the 2002 suit, and owner had received

permission to pursue a future action for the amounts owed from August 2, 2003, to

January 31, 2006.

              Accordingly, the District Court erred in granting the tenant’s motion to

dismiss. Because neither the entire controversy doctrine nor res judicata bar the owner’s

2006 action, we will reverse and remand with directions that the tenant’s motion to

dismiss be denied.




                                               8
