Opinion
Civil No. 98-5721 (JBS)
June 30, 1999
Stuart A. Wilkins, Esq., Law Offices of Stuart A. Wilkins, West Berlin, New Jersey, for Plaintiffs.
Frank Careri, Jr., Esq., Pisarri, McEnroe Careri, Hackensack, N.J., for Defendant Jaluria.
Charles W. Heuisler, Esq., Archer Greiner, P.C., Haddonfield, New Jersey, for Defendant Marquart.
OPINION
The disputes filed in this Court in this matter on December 18, 1998, have their genesis in parallel prior litigation filed by our defendant Donald Marquart in 1997 and which are still currently pending in our sister court in the Eastern District of Louisiana, encaptioned Marquart v. Intelnet International Corp., Intelnet Services of North America, Inc., and Associated Business Telephone Systems Corp., Civil Action No. 98-0057 (E.D.La.) ["the Louisiana action"]. The motion practice herein raises the fundamental question whether the Louisiana action defendants (which are New Jersey entities) may commence and maintain a separate action as plaintiffs in the District of New Jersey arising from the same controversies, when the Louisiana action has been thoroughly prepared for trial and is scheduled imminently for retrial.
Plaintiffs Intelnet International Corp. f/k/a Intelnet Services of North America, Inc. and Associated Business Telephone Systems Corp. (collectively referred to as "Intelnet") filed the instant complaint alleging that defendants Donald Marquart and Rajiv Jaluria engaged in a scheme designed to defraud Intelnet of millions of dollars in stock options. This Court has jurisdiction over this lawsuit pursuant to 28 U.S.C. § 1332.
Defendants filed motions to dismiss or for summary judgment, arguing that the claims of this complaint are barred by New Jersey's entire controversy doctrine and by the litigation privilege. Because both parties rely in part on documents outside of the complaint itself, this Court will treat the motions as ones for summary judgment. As decided herein, defendants' motions to dismiss or for summary judgment upon the grounds of the New Jersey entire controversy doctrine will be denied, and the court does not reach the issue of defendants' assertion of litigation privilege under New Jersey law. For the reasons further stated herein, this case will be dismissed without prejudice against Marquart in its entirety due to the compulsory counterclaim doctrine's applicability across the two federal courts, without prejudice to Intelnet's right to seek leave to bring a counterclaim against Marquart in the pending Louisiana action. Additionally, this Court will temporarily stay and administratively terminate the action against defendant Jaluria upon this docket, without consequence to the statute of limitations. Accordingly, Intelnet is free to seek leave to file a third party complaint against Jaluria in the Louisiana action, or to refile its action against Jaluria in this Court upon the entry of judgment in the Eastern District of Louisiana or for other good cause shown.
I. BACKGROUND
On December 19, 1997, Donald Marquart filed a Petition for Damages and Trial by Jury in Louisiana Trial Court against Intelnet, a Delaware Corporation with its principal place of business in New Jersey, which is registered and doing business in Louisiana (the "Louisiana Action"). (Massengale Certif. Exs. A and B.) According to the Louisiana Complaint, Intelnet approached Marquart in late 1995 to provide telecommunication services to customers in New Orleans and elsewhere. (Louisiana Compl. ¶ 2.) According to Marquart's petition, while Marquart was working with Intelnet (and especially closely with an Intelnet officer and director named Craig Brunet), Intelnet solicited Marquart to become a member of its Board of Directors. (Id. at ¶¶ 2-3.) Marquart alleged that he agreed to serve on the Board and use his time, money, reputation, experience, and contacts to promote Intelnet in return for stock options to purchase shares of Intelnet (id. at ¶ 4), and the Board voted unanimously at a May 5, 1996 meeting to appoint Marquart to the Board and to grant him stock options. (Id. at ¶ 5.) Marquart further alleged that he spent tens of thousands of his own money and hundreds of hours of time promoting Intelnet over the next year, without any compensation other than his stock options; however, on September 3, 1997, Intelnet's president wrote Marquart and denied that he was ever appointed to the Board, and, on October 20, 1997, Stuart A. Wilkins (a director and general counsel for Intelnet and Intelnet's attorney in the instant case) wrote to Marquart and indicated that he was never granted stock options. (Id. at ¶¶ 8-9.) As a result, Marquart filed his complaint in Louisiana alleging that Intelnet engaged in a fraudulent scheme designed to obtain the fruit of Marquart's work without pay. (Id. at ¶ 10.)
Intelnet removed the cause of action from the State Court of Louisiana to the United States District Court for the Eastern District of Louisiana on the grounds of diversity jurisdiction pursuant to 28 U.S.C. § 1332. (Messangale Certif. ¶ 5.) On April 3, 1998, Intelnet filed a motion to transfer to the District of New Jersey pursuant to 28 U.S.C. § 1404, but that motion was denied. (Id. at Ex. C.) The Eastern District of Louisiana, through the Honorable Ivan L.R. Lemelle, denied Intelnet's renewed motion to transfer, as well. (Wilkins Certif. ¶ 5 and Ex. C.) The Louisiana action was tried in November of 1998 and resulted in a hung jury. (Id. at ¶ 6.) It is listed for re-trial in the Eastern District of Louisiana for July 12, 1999. (Id.)
On December 18, 1998, the Intelnet entities filed suit against Marquart and Rajiv (who was not a party to the earlier suit but who was a witness in it, see Jaluria Certif. ¶¶ 2-3) in the United States District Court for the District of New Jersey. (Wilkins Certif. Ex. D.) According to the New Jersey Complaint, in late 1996, Jaluria and Marquart were business partners with Craig J. Brunet in a company known as The Lewisberg Group, and The Lewisberg Group and Intelnet, together, were the members of a limited liability company known as Intelnet Plus Two, LLC (the "LLC"). (N.J. Compl. ¶ 8.) The purpose of the LLC was to solicit and procure customers for certain Intelnet services, and Jaluria and Marquart, neither of whom were Intelnet employees but who had a longstanding relationship with each other through another company, did attempt to procure business on behalf of the LLC. (Id. at ¶¶ 9-11.)
Intelnet alleges that because Marquart's and Jaluria's compensation was dependent on their obtaining customers, something at which they were generally unsuccessful, and because they wanted to be compensated for their fruitless efforts, they devised a scheme to defraud Intelnet. (Id. at ¶¶ 12-13.) More specifically, Intelnet alleges that while Jaluria had been invited to serve as the Chairman of Intelnet's Advisory Board, Marquart was never invited nor made a member of Intelnet's Board of Directors. (Id. at ¶ 12.) Marquart and Jaluria allegedly conspired to create the appearance that Intelnet's Board had elected Marquart to the Board and granted both Marquart and Jaluria stock options, and that Marquart and Jaluria tricked Brunet, who had become an Intelnet employee and a member of the Board of Directors, into preparing documents that made it look like the options had been granted. (Id. at ¶¶ 14-18.) In reality, the New Jersey Complaint alleges, Marquart and Jaluria intended to use the documents to blackmail Intelnet. (Id. at ¶ 18.)
The New Jersey Complaint alleges four counts. First, the Complaint alleges that Marquart and Jaluria conspired to defraud Intelnet through this scheme beginning in late 1996 and ending with the filing of the Louisiana action. Count II alleges that Marquart's allegations in the Louisiana Complaint constituted corporate slander against Intelnet. Count III alleges breach of fiduciary duty by both Jaluria and Marquart, and Count IV alleges that Jaluria breached his confidentiality agreement.
On April 6, 1999, Intelnet filed in the Louisiana District Court a motion for reconsideration of the Court's earlier denial of its Motion to Transfer, based, in part, on alleged material misrepresentations that were contained within Marquart's opposition to Intelnet's initial Motion to Transfer, and also so that the Louisiana action could be consolidated with this action. That motion is still pending in the Eastern District of Louisiana. (Wilkins Certif. ¶ 8.)
Now before the Court are the defendants' motions to dismiss or for summary judgment, which this Court will treat as motions for summary judgment to the extent that all parties rely on documents outside of the New Jersey Complaint. This Court does note that no evidence has been presented as to the factual bases of both complaints, e.g., whether any party actually schemed to defraud the other, and this Court makes no findings in this regard. The instant summary judgment motions raise the questions of whether the Entire Controversy Doctrine or the litigation privilege bar Intelnet's suit against Marquart and Jaluria. As discussed in Part II.B, below, neither the New Jersey entire controversy doctrine nor the doctrine of federal claim preclusion bars plaintiffs' Complaint, and thus summary judgment will be denied on these grounds.
For reasons discussed in Part II.C, below, this Court will nonetheless dismiss the claims against Marquart, without prejudice to Intelnet's right to seek leave from Judge Lemelle to counterclaim against Marquart in the Louisiana action, because Intelnet's claims against Marquart are compulsory counterclaims to Marquart's claims against Intelnet. Additionally, this Court will administratively terminate the action against Jaluria. As discussed below, the Court finds it likely that Jaluria is subject to personal jurisdiction in Louisiana arising from the transactions claimed in this litigation. Intelnet is free to ask Judge Lemelle for leave to file a third party complaint against Jaluria in the Louisiana action. Should such leave not be granted, or for other good cause shown, Intelnet is free to revive its claim against Jaluria in this Court, either before or after the entry of judgment in the Louisiana action, for the temporary stay and administrative termination shall toll the statute of limitations.
II. DISCUSSION
A. Summary Judgment Standard
Summary judgment is appropriate when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Hersh v. Allen Prods. Co., 789 F.2d 230, 232 (3d Cir. 1986). A dispute is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" only if it might affect the outcome of the suit under the applicable rule of law. Id. Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment. Id. In deciding whether there is a disputed issue of material fact the court must view the evidence in favor of the non-moving party by extending any reasonable favorable inference to that party. See Aman v. Cort Furniture Rental Corp., 85 F.3d 1074, 1080-81 (3d Cir. 1996); Kowalski v. L F Products, 82 F.3d 1283, 1288 (3d Cir. 1996). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Liberty Lobby, 477 U.S. at 250.
B. Entire Controversy Doctrine
Defendants argue that because the Louisiana and New Jersey actions involve the same parties and arise out of the same events, this suit is barred under New Jersey's entire controversy doctrine, which seeks to have all claims and defenses related to an underlying controversy presented in one place at one time.Circle Chevrolet v. Giordano, 142 N.J. 280, 289 (1995). However, as the Third Circuit recently found in Paramount Aviation Corp. v. Agusta, No. 98-6257, 1999 WL 301740 (3d Cir. May 13, 1999), federal courts sitting in New Jersey in diversity cases should not just automatically apply New Jersey's entire controversy doctrine. Rather, "federal courts should apply the general rule that the preclusive effect of a judgment is determined by the preclusion law of the issuing court. . . ." Id. at *1. Here, as in Agusta, the alleged "issuing court" is a federal court, and thus federal preclusion law applies. See id. at *11. The New Jersey entire controversy doctrine does not apply in this federal diversity case with respect to previous litigation in Louisiana.
Moreover, neither the entire controversy doctrine nor federal claim preclusion law bar this suit because there has not yet been a final judgment in the Louisiana action. Rather, there was a hung jury in the Louisiana action, and a second trial has been scheduled. There is no final judgment to preclude trial of issues already decided in Louisiana. Summary judgment for the defendants on this ground is denied.
C. Compulsory Counterclaims
Though the parties do not set out separate sections for arguments on this topic, both parties, in the course of briefing the Entire Controversy Doctrine issue, devote considerable time and space to discussing whether counterclaims could have and should have been brought against Marquart in Louisiana. Therefore, this Court must consider the contention that the claims brought in this action should have been brought in Louisiana.
Rule 13(a) of the Federal Rules of Civil Procedure states
A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.
Fed.R.Civ.P. 13(a). Intelnet argues in its opposition brief that it could not have asserted a counterclaim in the Louisiana against Marquart because Jaluria was not subject to the jurisdiction of the Louisiana court, and Intelnet could not sue only one of two alleged co-conspirators. (Pls.' Opp'n Br. at 10.) Marquart argues in response that while there cannot be a conspiracy without two or more people agreeing to commit a crime,State v. Porro, 152 N.J. Super. 179 (App.Div. 1977), a plaintiff need not join all alleged co-conspirators as defendants. Because of this, Marquart argues, not only could the conspiracy charge have been brought against Marquart in Louisiana, but it should have been brought there.
Marquart is correct that "it is well-established that under federal law, neither joint tortfeasors nor co-conspirators are indispensable parties." Frink America, Inc. v. Champion Road Machinery Ltd., 961 F. Supp. 398 (N.D.N.Y. 1997) (citing State of Georgia v. Pennsylvania R. Co., 324 U.S. 439, 463 (1945)). See also American Motor Inns, Inc., 521 F.2d 1230, 1245 n. 42 (3d Cir. 1975) (stating that in an anti-trust action, the plaintiff ordinarily need not join all the alleged co-conspirators as defendants); Beckham v. Grand Affair of N.C., Inc., 671 F. Supp. 415, 420-21 (W.D.Va. 1987) (finding that police officers with whom employer allegedly conspired were not indispensable parties to civil rights action). Based on this law, Intelnet appears to be incorrect that it could not have counterclaimed against Marquart in Louisiana just because it could not sue Jaluria there.
Moreover, a counterclaim is compulsory if it arises from the same transaction or occurrences as those that form the basis of the opposing party's claim. In the Louisiana action, Marquart alleges that Intelnet made him a member of its Board of Directors and promised him stock options, as memorialized in several documents, and that Intelnet has failed to follow through with its obligations. Here, Intelnet alleges that it did not make Marquart a member of its Board of Directors and that Marquart's documents to the contrary are forged and are part of a conspiracy to defraud Intelnet. There can hardly be a better example of cases arising out of the same set of occurrences. Given that Intelnet could have sued Marquart in the Eastern District of Louisiana, even without suing Jaluria, and that Intelnet's allegations concern the very same transactions and occurrences as alleged in the Louisiana action, including allegations that it was harmed by Marquart's conduct in the Louisiana litigation itself, Intelnet's claims against Marquart are compulsory counterclaims to Marquart's claims in the Eastern District of Louisiana. Therefore, this Court will dismiss the claims against Marquart without prejudice to Intelnet's right to seek leave from Judge Lemelle to counterclaim against Marquart in the Louisiana action.
Additionally, though this Court makes no findings in this regard, this Court is not at all convinced that there could not be jurisdiction over Jaluria in Louisiana. A number of courts have adopted a "conspiratorial theory of in personam jurisdiction," whereby a court gains personal jurisdiction over a nonresident conspirator through the actions taken by a coconspirator who acts as the nonresident conspirator's agent. See, e.g., Textor v. Board of Regents of N. Ill. Univ., 711 F.2d 1387 (7th Cir. 1983); Glaros v. Perse, 628 F.2d 679, 682 (1st Cir. 1980); Ethanol Partners Accredited v. Wiener, Zuckerbrot, Weiss Brecher, 635 F. Supp. 15, 17-18 (E.D.Pa. 1985); Bennett Waites Corp. v. Piedmont Aviation, Inc., 563 F. Supp. 810, 812 (D.Colo. 1983); National Egg Co. v. Bank Leumi le-Israel B.M., 504 F. Supp. 305, 313 n. 7 (N.D.Ga. 1980) (noting that the 5th Circuit seems to agree with decisions indicating that must show a connection between acts of conspirator who was in the jurisdiction with the conspirator who was absent); Gemini Enterprises, Inc. v. WFMY Television Corp., 470 F. Supp. 559, 565 (M.D.N.C. 1979); McLauglin v. Copeland, 435 F. Supp. 513, 529-530 (D.Md. 1977); Ghazoul v. International Management Services, Inc., 398 F. Supp. 307 (S.D.N.Y. 1975);Mandelkorn v. Patrick, 359 F. Supp. 692 (D.C.D.C. 1973); Turner v. Baxley, 354 F. Supp. 963, 975 (D.Vt. 1972); Geo-Culture, Inc. v. Siam Investment Management S.A., 936 P.2d 1063 (Or. 1996);Instituto Bancario Italiano v. Hunter Eng. Co., 449 A.2d 210 (Del. 1982); Wilcox v. Stout, 637 So.2d 335 (Fla.App. 1994);Hammond v. Butler, Means, Evins Brown, 388 S.E.2d 796 (S.C.),cert. denied, 498 U.S. 952 (1990). As these cases explain, the theory is that due process is not offended by the exercise of in personam jurisdiction over a individual when the plaintiff can allege more than just that there was a conspiracy; the plaintiff must allege that there were substantial acts committed in the forum state in furtherance of the conspiracy of which the nonresident conspirator was aware or should have been aware. See Bennett, 563 F. Supp. at 812; Geo-Culture, 936 P.2d at 541.
The Court finds that the Intelnet entities are asserting claims against Marquart that must be filed instead as compulsory counterclaims in the Louisiana action. It would make no sense to have two separate federal tribunals hear parts of the same controversy, burdening two juries, risking inconsistent outcomes, and potentially placing conflicting demands upon the lawyers and parties to the two suits. In this circumstance, this Court will yield to the Eastern District of Louisiana, which has the familiarity with the major parties and disputes gained from the pretrial practice and mistrial.
It is well-recognized that a federal court may stay or abstain from entertaining such litigation where the same or mirror-image claims have been pending (or by compulsory counterclaim should have been pending) in another federal district court. See Landis v. North American Co., 299 U.S. 248, 254-255 (1936). As the Supreme Court said in Landis,
the power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants. How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance.Id. Courts may stay proceedings, holding "one lawsuit in abeyance to abide the outcome of another which may substantially affect it or be dispositive of the issues," Bechtel Corp. v. Local 215, Laborers' International Union of North America, AFL-CIO, 544 F.2d 1207, 1215 (3d Cir. 1976), even when the parties to the two lawsuits are not identical. Landis, 299 U.S. at 254. This is especially true when a stay or abstention will avoid duplicative litigation in the federal court system. See Remington Rand Corp.-Delaware v. Business Systems Incorporated, 830 F.2d 1274, 1275-1276 (3d Cir. 1987) (citing Colorado River Water Conserv. Dist. V. United States, 424 U.S. 800, 817 (1976)). This Court's order will effectuate the result of a single federal trial forum in the Eastern District of Louisiana.
Intelnet is free to argue to Judge Lemelle that there is jurisdiction over Jaluria in Louisiana either under this theory or under other tenets of Louisiana jurisdiction or Jaluria's contacts with that state. This Court will administratively terminate Intelnet's action against Jaluria, tolling the statute of limitations until after the entry of judgment in the Louisiana action. Intelnet may try to persuade Judge Lemelle to allow it to add a third party complaint against Jaluria in the Louisiana action. If such joinder of Jaluria is denied, Intelnet will be free to seek to set aside the order for administrative termination and to revive its case against Jaluria. It is this Court's hope, however, that all these related claims, including those against Jaluria, may go forward in the pending case in the Eastern District of Louisiana if that court determines it is appropriate to do so.
III. CONCLUSION
For the foregoing reasons, this Court will dismiss Intelnet's claim against Marquart without prejudice to Intelnet's right to seek leave to counterclaim against Marquart in the Louisiana action. This Court temporarily stays and administratively terminates the action against Jaluria, tolling the statute of limitations from running until after entry of judgment in the Louisiana action. If Intelnet's motion to join Jaluria in the Louisiana action is denied, Intelnet may revive its claim against Jaluria upon this docket. Moreover, if other good cause is shown, Intelnet may request the Court to restore its remaining claims against Jaluria to this docket.
The "administrative termination" is a direction to the Clerk of Court to terminate the matter upon his docket, as merely a docket control device, due to the temporary stay, because the case becomes inactive in this District while proceedings are conducted in another District. It does not operate as a dismissal. The docket which is administratively terminated may be restored to active status for good cause shown.
The accompanying Order is entered.
ORDER
This matter having come before the Court upon defendants' motions to dismiss or for summary judgment; and the Court having considered the parties' submissions; and for the reasons expressed in an Opinion of today's date;
IT IS this 30th day of June 1999 hereby
ORDERED that defendants' motions to dismiss plaintiffs' Complaint on grounds of the New Jersey entire controversy doctrine and federal claim preclusion is DENIED; and it is
ORDERED that defendants' motions to dismiss be GRANTED to the extent that plaintiffs' claims against defendant Marquart shall be DISMISSED WITHOUT PREJUDICE to plaintiffs' right to seek leave in the Eastern District of Louisiana to file counterclaims against defendant Marquart in the case encaptioned Marquart v. Intelnet International Corp., Intelnet Services of North America, Inc., and Associated Business Telephone Systems Corp., Civil Action No. 98-0057 (E.D.La.) ["the Louisiana action"], and plaintiffs' claims against defendant Jaluria shall be temporarily stayed and ADMINISTRATIVELY TERMINATED without impact to the statute of limitations, such that plaintiffs are free to seek leave to join claims against defendant Jaluria in the Louisiana action; if such motion is denied, or for other cause shown, Intelnet will be free to revive claims against defendant Jaluria upon this docket in the District of New Jersey.