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For the second time this Term, Sherman Atlas has secured a victory for one of its clients in a case before the New Jersey Supreme Court. Julian W. Wells and Jordan D. Weinreich represented firm client Bank Leumi USA on an issue of first impression regarding the scope of the entire controversy doctrine. In a unanimous decision, the New Jersey Supreme Court held that the entire controversy doctrine does not bar a party who files a successful motion to dismiss for failure to state a claim from later asserting claims that arise from the same transactional facts. 

This case was before the New Jersey Supreme Court on a question certified by the United States Court of Appeals for the Third Circuit.  In the underlying case, Bank Leumi had successfully moved to dismiss baseless claims asserted against it in an action pending in Passaic County Superior Court. It subsequently filed affirmative claims that it has against the plaintiff in a separate suit in the United States District Court for the District of New Jersey. The District Court dismissed Bank Leumi’s claims pursuant to the entire controversy doctrine, finding that if Bank Leumi wanted to preserve its claims, it should not have moved to dismiss and should have instead filed an answer with counterclaims, and asserted the affirmative defense of failure to state a claim therein.

The New Jersey Supreme Court, noting that R. 4:6-2 grants litigants two options for responding to meritless claims—(i) answer with affirmative defense or (ii) motion to dismiss—held that an expansion of the doctrine’s preclusive reach would render the second option unavailable to litigants, and declined to create what the Court considered to be a “such a strong disincentive for a valid option countenanced by the court rules.” The New Jersey Supreme Court further held that fairness dictates that a litigant should be able to seek dismissal of baseless claims brought against it without concern that later claims may be barred.

The Court’s decision effectively aligns New Jersey’s Entire Controversy Doctrine with Rule 13(a) of the Federal Rules of Civil Procedure regarding compulsory counterclaims, in that preclusion does not attach unless a responsive pleading is filed, and a motion is not a pleading.