NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-5867-13T2

J-M MANUFACTURING COMPANY, INC., APPROVED FOR PUBLICATION Plaintiff-Appellant, December 30, 2015 v. APPELLATE DIVISION

PHILLIPS & COHEN, LLP, and JOHN HENDRIX,

Defendants-Respondents.

Argued October 15, 2015 – Decided December 30, 2015

Before Judges Alvarez, Ostrer, and Haas.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-0792-14.

Robert A. Assuncao argued the cause for appellant (Ansa Assuncao, LLP, attorneys; Mr. Assuncao, Steven F. Gooby, and Kenneth A. Burden, on the briefs).

Brian J. Molloy argued the cause for respondent Phillips & Cohen, LLP (Wilentz, Goldman & Spitzer, P.A., attorneys; Mr. Molloy and Willard C. Shih, of counsel and on the brief; Corinne L. McCann, on the brief).

John M. Falzone argued the cause for respondent John Hendrix (Parker Ibrahim & Berg LLC, attorneys; Mr. Falzone, on the brief).

The opinion of the court was delivered by

ALVAREZ, P.J.A.D. Plaintiff J-M Manufacturing Company, Inc., (J-M) appeals

the dismissal, based on the entire controversy doctrine, of its

complaint. For the reasons that follow, we affirm the Law

Division judge's conclusion that J-M should have pursued its

causes of action in the pending California whistleblower qui tam

proceeding filed under the False Claims Act (FCA),

, and not in New Jersey.

I.

Defendant John Hendrix, represented by defendant Phillips &

Cohen, LLP (Phillips), filed the qui tam action on January 17,

2006. The case was filed in California because J-M's

headquarters are there. Hendrix alleged that J-M knowingly

perpetrated a fraud upon various government purchasers in the

sale of PVC pipe having only a fraction of its claimed strength.

We summarize the circumstances Hendrix, the "relator" as

defined in the FCA, alleged in the qui tam final amended

complaint. J-M hired Hendrix, an engineer, in July 2002, to

work in its Livingston, New Jersey products assurance division.

His job included technical oversight responsibilities and

customer interaction regarding "the tensile strength of J-M's

PVC pipe." By 2004, Hendrix "became increasingly aware that J-

M's tensile strength problems were not the result of

2 A-5867-13T2 inadvertence [in the manufacturing process], but rather were

part of a larger scheme to defraud its customers . . . ."

The products were sold to numerous federal, state, and

local governmental entities around the nation. In 2005, Hendrix

wrote a final memorandum to his superiors expressing his

concerns that the PVC pipe did not meet industry standards. He

was terminated approximately a week later.

Pursuant to the FCA process, the United States government

completed a years-long investigation after the qui tam complaint

was filed and placed under seal.

(a). Once

the federal government decided not to assume control of the

case, Hendrix was permitted to proceed on his own.

(c)(3). The federal complaint was unsealed in February

2010. Needless to say, the stakes are high for all parties,

because of the potential recovery authorized by the "bounty

provisions" of the FCA,

(d), potential damage

awards payable by J-M to government purchasers,

(a), and counsel fees payable to the prevailing parties.

(d).

Following a bifurcated trial in California, a jury found

against J-M on forty-nine of forty-nine claims of fraud as to

five exemplar plaintiffs. The California action is currently

pending resolution of the second phase, which will address

3 A-5867-13T2 damages and include non-exemplar plaintiffs. The parties

disagree as to the meaning of the jury's verdict and the status

of the proceedings. Suffice it to say that the federal jury's

verdict was rendered November 14, 2013, and J-M's New Jersey

complaint was filed shortly thereafter, on February 21, 2014.

We also summarize the relevant circumstances alleged in

J-M's twenty-three-page amended complaint in this case.

Attorneys from Phillips, which has offices in California, met

with Hendrix in 2005. As a result of "their concerted activity,

in furtherance of the litigation," J-M claims Hendrix, among

other things, wrongfully removed and copied numerous

confidential documents and electronic data, including trade

secrets, proprietary information, and "proprietary customer

order and pricing information[,]" and either kept notes of

conversations with co-workers and/or secretly taped them. J-M

contends Hendrix violated the specific terms of his written

"Employee Secrecy Agreement," breached his fiduciary duty to his

employer, committed computer related offenses, and committed

"trespass to chattels." J-M alleges Phillips tortiously

interfered with J-M's contractual rights and tortiously

interfered with J-M's prospective economic advantage, and that

both defendants conspired to harm J-M and engaged in

racketeering.

4 A-5867-13T2 Defendants' motions to dismiss pursuant to Rule 4:6-2(e)

were granted on June 30, 2014. During oral argument, when

pressed as to J-M's reason for not pursuing a counterclaim

against Hendrix and Phillips in the California proceeding, no

answer the court considered satisfactory was forthcoming. The

judge found that the claims were compulsory counterclaims under

federal and California law that should have been raised in the

qui tam proceeding, and that in the alternative, the entire

controversy doctrine barred the New Jersey litigation. For

those reasons, he dismissed as to Hendrix.

Since Phillips's exposure was entirely derivative of

Hendrix's liability, arising solely from the firm's

representation of the relator, he also dismissed the counts

against the law firm. The judge noted that any counterclaim

pursuant to federal law could be stayed if necessary in the

California case pending resolution of the qui tam matter.

J-M raises several points on appeal. We only address one,

that the court erred in finding the entire controversy doctrine

barred J-M's pursuit of relief in New Jersey. The remaining

issues are made moot by our decision. See Advanced Elec. Co.,

Inc. v. Montgomery Twp. Bd. of Educ.,

(App. Div.) ("A case is mooted if the disputed issue is

resolved . . . . Thus, a court will not decide a case if the

5 A-5867-13T2 issues are hypothetical, [or] a judgment cannot grant effective

relief[.]" (citations omitted)), certif. denied,

(2002).

II.

In reviewing a Rule 4:6-2(e) dismissal, we employ the same

standard as that applied by the trial court. Donato v. Moldow,

(App. Div. 2005). Our review is

limited to the "legal sufficiency of the facts alleged in the

complaint."

. We "assume the facts as asserted by

plaintiff are true[,]" and we give the plaintiff "the benefit of

all inferences that may be drawn[.]" Banco Popular N. Am. v.

Gandi,

(2005) (quoting Velantzas v. Colgate-

Palmolive Co.,

(1988)). Dismissal is

appropriate only if "the complaint states no basis for relief

and discovery would not provide one."

J-M makes two arguments in support of its contention that

the entire controversy doctrine does not apply to the New Jersey

action despite the California proceedings. First, that the

cases are not sufficiently alike in fact or in the legal

theories relevant to each. Secondly, that the doctrine does not

apply to simultaneous proceedings.

6 A-5867-13T2 III.

J-M contends that its New Jersey complaint is not barred by

the entire controversy doctrine because it lacks the necessary

"commonality of facts" with the California case. See Alpha

Beauty Distribs., Inc. v. Winn Dixie Stores, Inc.,

(App. Div. 2012) (quoting DiTrolio v. Antiles,

(1995)). J-M further contends that different

witnesses and evidence are required and that any liability

determination in the FCA case would have no impact on the New

Jersey proceedings.

The entire controversy doctrine requires that a party

"litigate all aspects of a controversy in a single legal

proceeding." Kaselaan & D'Angelo Assocs. v. Soffian,

(App. Div. 1996) (quoting Leisure Tech.-Ne.,

Inc. v. Klingbeil Holding Co.,

(App.

Div. 1975)). "[A]ll claims arising from a particular

transaction or series of transactions should be joined in a

single action." Archbrook Laguna, LLC v. Marsh,

(App. Div. 2010) (citing Brennan v. Orban,

(1996)). "Non-joinder of claims required to be joined by

the entire controversy doctrine shall result in the preclusion

of the omitted claims . . . ." R. 4:30A.

7 A-5867-13T2 The doctrine, important to our jurisprudence, was designed:

(1) to encourage the comprehensive and conclusive determination of a legal controversy;

(2) to achieve party fairness, including both parties before the court as well as prospective parties; and

(3) to promote judicial economy and efficiency by avoiding fragmented, multiple and duplicative litigation.

[Mystic Isle Dev. Corp. v. Perskie & Nehmad,

(1995).]

The doctrine, however, is ultimately "one of judicial

fairness and will be invoked in that spirit." Archbrook, supra,

(quoting Crispin v. Volkswagenwerk, A.G.,

(1984)). Causes of action which arise out of

the same transaction or transactional circumstances are

considered duplicative if the "factual circumstances giving rise

to the controversy itself" are the same.

.

Here, J-M's allegations against both Hendrix and Phillips

all stem from Hendrix's conduct in gathering information for the

qui tam complaint, undertaken because of Hendrix's suspicion

that J-M was defrauding governmental entities by its production

of PVC pipe that did not meet industry standards. Both the qui

tam action and this case arise out of J-M's alleged fraud and

Hendrix's subsequent investigation. The information and

8 A-5867-13T2 documents in Hendrix's possession are the basis for the qui tam

action. Even Hendrix's supposed breach of his "Employee Secrecy

Agreement," or other contractual obligations as an employee,

occurred in preparing for the qui tam action. Therefore, this

New Jersey complaint is clearly based on the same transaction or

series of transactions as the qui tam action. See Archbrook,

supra,

.

Moreover, to allow the New Jersey action to proceed would

result in "fragmented, multiple and duplicative litigation" that

would not achieve fairness to the parties. See Mystic Isle,

supra,

. Counterclaims may be filed in qui tam

litigation, although ultimately subject to dismissal to avoid

indemnification or offset in light of the public policy behind

the implementation of the FCA. Madden v. Gen. Dynamics Corp.,

(9th Cir. 1993).

The federal courts have long distinguished between

counterclaims seeking only indemnification, and counterclaims

for independent damages which might nonetheless have the effect

of indemnifying a qui tam defendant.

. Although qui tam defendants are not permitted to

offset their liability by seeking indemnification or

contribution from the relator, "[c]ounterclaims for independent

damages are distinguishable, however, because they are not

9 A-5867-13T2 dependent on a qui tam defendant's liability."

"If a qui

tam defendant is found liable the counterclaims [for independent

damages] can then be dismissed on the grounds that they will

have the effect of providing for indemnification or

contribution."

. "On the other hand, if a qui tam

defendant is found not liable, the counterclaims can be

addressed on the merits."

This "mechanism" is intended

"to insure [sic] that relators do not engage in wrongful conduct

in order to create the circumstances for qui tam suits and to

discourage relators from bringing frivolous actions."

. The causes of action against Hendrix and Phillips accrued,

and became known, once the qui tam complaint was unsealed.

Simply stated, J-M has the right to pursue a counterclaim in the

federal proceeding, in nature no different than the complaint

filed in New Jersey.

In fact in

, the defendant's

counterclaim for damages was strikingly similar to the one here.

It included "1) breach of duty of loyalty and breach of

fiduciary duty; 2) breach of implied covenant of good faith and

fair dealing; 3) violations of the California labor code; 4)

libel; 5) trade libel; 6) fraud; 7) interference with economic

relations; 8) and misappropriation of trade secrets."

10 A-5867-13T2 To allow J-M's New Jersey complaint to stand would be

unfair to Hendrix while sidestepping the public policy goals

behind the FCA. The FCA is designed to protect a relator, and

encourage the very whistleblowing activities for which J-M seeks

recovery in New Jersey.1 Indeed, the law provides for not only a

significant bounty for a relator, but also protection from

employer retaliation. Cell Therapeutics v. Lash Group, Inc.,

(9th Cir. 2010).

J-M, the defendant in the California proceedings, should

not be able to effectively indemnify itself for any portion of

its qui tam liability by suing the relator and his lawyers in

this state. Nor should J-M be able to sidestep the employee

protection the FCA gives Hendrix by filing its claim in New

Jersey. Clearly, the New Jersey litigation is being pursued to

gain unfair advantage and to engage in the very forum shopping

1 Prior to oral argument, J-M's counsel brought to our attention the Supreme Court's decision in State v. Saavedra,

(2015). The case disallowed self-help in employment discrimination cases as an alternative to legal processes. It allowed the criminal prosecution for theft of documents to go forward; however, the documents in that case were individual student records removed from a school in violation of federal and state confidentiality laws. Furthermore, the Court distinguished between criminal prosecutions and retaliatory civil actions which may still be barred pursuant to a multi- factor balancing test. See Quinlan v. Curtiss-Wright Corp,

(2010).

11 A-5867-13T2 that the entire controversy doctrine is intended to avoid. See

Archbrook, supra,

.

It follows that we agree with the Law Division judge that

the complaint must be dismissed as to Phillips as well. J-M

fails to assert a theory under which Phillips could be found

liable other than for assisting or directing Hendrix's

investigation.

If Hendrix's conduct was not illegal or tortious, a

question dependent on the outcome of the qui tam action,

Phillips cannot be held accountable for assisting or directing

legal non-tortious conduct. In a civil conspiracy, the "gist of

the claim is . . . the underlying wrong, which absent

conspiracy, would give a right of action." Banco Popular,

supra,

-78 (quoting Morgan v. Union Cty. Bd. of

Chosen Freeholders,

(App. Div. 1993)).

To impose liability for "aiding and abetting" it is "essential

that the conduct of the actor be in itself tortious[.]" State,

Dep't. of Treasury v. Qwest Commc's Int'l, Inc.,

(App. Div. 2006) (quoting §876(b) of the Restatement

(Second) of Torts (1979)). If Hendrix did nothing wrong,

Phillips's representation cannot be considered conduct amounting

to a civil conspiracy.

12 A-5867-13T2 The same analysis applies to J-M's other allegations of

wrongdoing by Phillips. We cannot imagine a scenario, and J-M

does not suggest one, in which Phillips could be held

individually responsible for damages without Hendrix being first

found to have been a wrongdoer. Any liability on Phillips is

derivative of Hendrix's liability. We agree with the Law

Division judge on the point.

Additionally, the entire controversy doctrine mandates

dismissal as to Phillips when applied directly. Although

Phillips is not a party to the California litigation, the

complaint against Phillips arises out of the same transaction.

J-M argues it must separately sue Phillips because the law

firm could not be joined in a counterclaim while acting as

counsel in the qui tam action. Procedurally, however, as is the

practice with counterclaims against relators, the causes of

action against Phillips could be held in abeyance pending the

final outcome of the qui tam action. See Cell Therapeutics,

supra,

. Thereby the court most familiar

with the federal proceedings and the parties could separately

deal with any claims against Phillips after J-M's liability has

been determined.

13 A-5867-13T2 IV.

Alternatively, J-M contends that this action falls outside

the scope of the entire controversy doctrine because it does not

apply to litigation conducted simultaneously. In response,

Hendrix and Phillips point out that this argument is raised for

the first time on appeal. They therefore argue that we should

not consider the issue as it was not plain error, is not

jurisdictional in nature, nor does it involve important issues

of public interest. See Nieder v. Royal Indem. Ins. Co.,

(1973).

Under the plain error standard, where an error is "clearly

capable of producing an unjust result," Rule 2:10-2, an order or

judgment will be reversed. First, however, a determination must

be made that an error occurred.

Since we find the judge

did not err at all, his decision was not plain error. The issue

is not jurisdictional in nature. However, we do consider the

question to be one of sufficient importance to merit discussion.

J-M relies on Kaselaan as support for the argument that the

entire controversy doctrine does not apply to simultaneous

proceedings. In Kaselaan, the plaintiff filed an action in the

Law Division when he already had a case arising out of the "same

sequence of events" pending in federal district court.

Kaselaan, supra,

. In Kaselaan, we

14 A-5867-13T2 concluded that the entire controversy doctrine did not require

dismissal where multiple actions involving the same or related

claims were pending simultaneously.

. Instead, we

suggested other procedural tools to prevent any unfairness to

litigants or the waste of judicial resources, such as a stay of

our proceedings until the disposition of the case in federal

court.

.

But in Kaselaan, we also said: "where it would be

inappropriate for both cases to proceed simultaneously, 'the

general rule [is] that the court which first acquires

jurisdiction has precedence in the absence of special

equities.'"

(alteration in original) (quoting Yancoskie

v. Delaware River Port Auth.,

(1978)).

Clearly, the California court was not only the first, but was

for several years, the only court dealing with these parties.

Kaselaan makes the point that there should not be a

mechanistic application of the entire controversy doctrine.

Rather, courts should carefully examine the interests of the

parties, expenditure of judicial resources, and any procedural

mechanisms available to achieve a just result. See id. at

300-01.

Since Kaselaan, we have restated those principles. The

decision whether to apply the entire controversy doctrine is

15 A-5867-13T2 "ultimately 'one of judicial fairness and will be invoked in

that spirit.'" Archbrook, supra,

(quoting

). It is not an

artificial bright line rule. See id. at 104-05.

In Archbrook, the New Jersey plaintiff dismissed its

counterclaim in the Georgia case, where it was the defendant,

and filed suit here based on "the same transaction or series of

transactions." Supra,

. There was

no showing that the Georgia court would have barred the

counterclaim, which was equivalent to the complaint in New

Jersey.

. The Georgia case was tried, and the

plaintiff there, defendant here, recovered a total judgment in

excess of two million dollars,

, while the New Jersey

action was pending. In Archbrook, we applied the entire

controversy doctrine to affirm the summary judgment dismissal of

the New Jersey proceedings because the case was filed to gain

unfair advantage in this state, as opposed to disposing of all

the claims on the merits in the Georgia proceeding.

The New Jersey plaintiff's dismissal of its counterclaim in

Georgia, and attempt to litigate in New Jersey, was precisely

the kind of deliberate manipulation and forum shopping that the

entire controversy doctrine is intended to avoid.

.

We even expressed concern that the New Jersey defendant failed

16 A-5867-13T2 to earlier move for summary judgment, possibly to gain some

procedural advantage in the Georgia proceeding.

. As

we observed, equitable considerations might result in a court's

refusal to apply the entire controversy doctrine because

although the "parties are entitled to zealously litigate in

their own best interests, they also owe the judicial system a

further duty."

Since a defendant in a qui tam proceeding has the right to

pursue a counterclaim against the relator seeking money damages,

and even to pursue an independent claim against third parties, 2

the circumstances approximate those in Archbrook, not Kaselaan.

The concern in Kaselaan was that the plaintiff would lose his

ability to have his dispute adjudicated at all. The concern in

Archbrook was that the complaint was filed in New Jersey by the

Georgia defendant in an effort to double the litigation expense

for the Georgia plaintiff and avoid a possible negative outcome

in Georgia.

Hence we conclude that J-M's reading of Kaselaan

misinterprets the holding in that case. The thrust of Kaselaan,

followed in Archbrook, is that the entire controversy doctrine

must be applied in order to achieve fairness. The substantive

question is whether application of the doctrine meets the goals

2 See Cell Therapeutics, supra,

.

17 A-5867-13T2 of fairness to the parties while allowing for judicial economy

and efficiency.

Having assumed that the facts as asserted by J-M are true,

and drawing all inferences in its favor, we nonetheless conclude

dismissal is mandated by the entire controversy doctrine. The

issues are properly adjudicated in conjunction with the

California qui tam proceeding. We do not reach J-M's remaining

points of error.

Affirmed.

18 A-5867-13T2