KEVIN POTTER v. STATE FARM INDEMNITY COMPANY

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0093-04T10093-04T1

KEVIN POTTER,

Plaintiff-Appellant,

v.

STATE FARM INDEMNITY COMPANY,

Defendant-Respondent.

 

Argued September 27, 2005 - Decided

Before Judges Skillman and Francis.

On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-2312-04.

Kevin Potter, appellant, argued the cause pro se.

Donald R. Chierici argued the cause for respondent (Chierici, Chierici & Smith, attorneys; Donald R. Chierici, Jr., on the brief).

PER CURIAM

Plaintiff, Kevin Potter, appeals summary judgment granted in favor of defendant State Farm Indemnity Company dismissing his breach of contract claim based on the doctrine of res judicata and a failure to comply with the statute of limitations pursuant to N.J.S.A. 2A:14-1.6. Plaintiff contends that there is no identity of issues between the instant cause of action, arising out of plaintiff's allegation, as assignee, that defendant breached a settlement agreement with Jeffrey and Elaine Potter (the Potters) and the issues addressed in prior litigation arising from defendant's order to show cause against the Potters and plaintiff to compel the selection of an appraiser. Plaintiff also contends that the complaint was filed within six years, consistent with N.J.S.A. 2A:14-1.6. We find merit in both contentions and reverse.

The facts are uncomplicated. The Potters were involved in an automobile accident on June 2, 1996 and filed a property damage claim pursuant to an insurance policy issued by defendant.

On June 17, 1996, Elaine Potter entered into a personal service contract with plaintiff Kevin Potter. Under the agreement, plaintiff was the Potters' "designated expert" for the purpose of appraising the value of their vehicle. In November 1996, defendant filed an order to show cause to compel the Potters to select an appraiser and named plaintiff as a defendant in the action based on his identification by the Potters as their "designated representative." In response, plaintiff filed a counterclaim against State Farm and a cross-claim against the Potters for amounts due under the terms of the personal service contract. Plaintiff's counterclaim included allegations of malicious interference with contractual relation, malicious abuse of process, intentional infliction of emotional distress, invasion of privacy and civil conspiracy. Plaintiff's cross-claim against the Potters alleged breach of contract. Defendant's order to show cause was granted, and the trial judge also precluded plaintiff from any further representation of the Potters because he was not an attorney. The judge also severed plaintiff's counterclaim against defendant and his cross-claim against the Potters from the action.

On December 1, 1997, the Potters and defendant settled the property damage claim and executed a release that included an indemnification agreement that provided, "[t]his Release is made for your benefit and you [State Farm] agree to indemnify me [the Potters] and hold me [the Potters] harmless against any and all cross claims in the above entitled matter."

On December 17, 1998, Judge Fluharty granted plaintiff's unopposed motion for summary judgment on his cross-claim and entered judgment against Elaine Potter in the amount of $22,526.98.

On January 21, 1999, Elaine Potter wrote defendant demanding indemnification of the plaintiff's judgment pursuant to the terms of the indemnification agreement. Defendant denied the demand by letter dated February 8, 1999.

On December 1, 2003, the Potters assigned to plaintiff their rights to any and all claims against defendant arising out of the settlement agreement of December 1, 1997.

On December 2, 2003, plaintiff filed a complaint against defendant for breach of contract predicated on the indemnification language contained in the release.

In granting summary judgment to defendant, the trial court stated:

Judge Fluharty is very clear in his ruling that Mr. and Mrs. Potter have no claim against State Farm for the payment of these consulting fees.

. . . .

. . . [T]he claims arise out of the same occurrence and the parties are identical to those of the first action. Accordingly, plaintiff's claims are barred by the doctrine of res judicata.

Plaintiff asserts he is entitled to payment from defendant pursuant to an indemnification clause within the settlement agreement because Elaine Potter assigned their rights there under to him on or about December 1, 2003.

Regardless of whether the assignment would entitle plaintiff to relief, these claims are still barred by the doctrine of res judicata. The settlement agreement and release between Elaine Potter and State Farm was executed on December 1, 1997, and the complaint was filed on December 2, 2003.

As plaintiff alleges, this is a breach of contract claim and is governed by N.J.S.A. 2A:14-1.6 which provides that every action for recovery upon a contractual claim shall be commenced within six years after the cause of action accrues. Since plaintiff filed the complaint more than six years after the accrual, all claims asserted therein are barred by the statute of limitations even if res judicata did not apply.

However, in his December 17, 1998 decision, Judge Fluharty made it clear that he was not "prejudging" any future claims plaintiff might have against defendant, but was merely giving "guidance and advice." The only issue on which Judge Fluharty ruled was plaintiff's summary judgment motion on his cross-claim against the Potters.

The purpose of the doctrine of res judicata is to "prevent the re-litigation of the same controversy between" identical parties. In re Estate of Gabrellian, 372 N.J. Super 432, 446 (App. Div. 2004), certif. denied, 182 N.J. 430 (2005) (citing Brookshire Equities, LLC v. Montaquiza, 346 N.J. Super. 310, 318 (App. Div.), certif. denied, 172 N.J. 179 (2002)). "'In order for res judicata to apply, there must be (1) a final judgment by a court of competent jurisdiction, (2) identity of issues, (3) identity of parties, and (4) identity of the cause of action.'" Ibid. (quoting Brookshire, supra, 346 N.J. Super. at 318).

Judge Fluharty entered final judgment against Elaine Potter. However, the judgment related to a different cause of action and different parties, which did not include defendant. Accordingly, the second through fourth criteria for application of res judicata are not satisfied. The parties in this action are not identical and the issues to be determined with regard to the alleged breach of contract are distinct from the issues confronted by Judge Fluharty when he granted plaintiff's motion for summary judgment based on amounts due from the Potters. Any comments made by Judge Fluharty regarding potential future claims by plaintiff against defendant were not incorporated in the judgment. Res judicata does not apply under these circumstances.

We are equally unconvinced by defendant's contention that plaintiff's claim is barred by the entire controversy doctrine. The purposes of this equitable preclusionary doctrine "are to encourage comprehensive and conclusive litigation determinations, to avoid fragmentation of litigation, and to promote party fairness and judicial economy and efficiency." K-Land Corp. No. 28 v. Landis Sewerage Auth., 173 N.J. 59, 70 (2002). "The entire controversy doctrine applies to successive suits with related claims." Gabrellian, supra, 372 N.J. Super. at 444 (citing DiTrolio v. Antiles, 142 N.J. 253, 268 (1995)); Kaselaan & D'Angelo Assocs., Inc. v. Soffian, 290 N.J. 293, 299 (App. Div. 1996)). "It is 'the factual circumstances giving rise to the controversy itself, rather than the commonality of claims, issues or parties, that triggers the requirement of joinder to create a cohesive and complete litigation." Ibid. (citing Mystic Isle Dev. Corp. v. Perskie & Nehmad, 142 N.J. 310, 322 (1995)). The doctrine does not "'apply to bar component claims either unknown, unarisen or unaccrued at the time of the original action.'" K-Land, supra, 173 N.J. at 70 (quoting Pressler, Current N.J. Rules, comment 2 on R. 4:30A (2005)). "'[T]he twin pillars of the entire controversy doctrine are fairness to the parties and fairness to the system of judicial administration.'" Id. at 72 (quoting Gelber v. Zito P'ship., 147 N.J. 561, 565 (1997)). "A court must consider whether the claimant 'had a fair and reasonable opportunity to have fully litigated the claim in the original action.'" Id. at 73 (citing Joel v. Morrocco, 147 N.J. 546, 555 (1997)).

The facts in Joel were similar to the present matter. In Joel, the plaintiff, after settling her claim against a developer for a sum of money and all efforts at enforcing payment failed, assigned her claim under the settlement agreement to her attorney, whose claim to enforce payment was dismissed based on the entire controversy doctrine. The Court reversed, holding "that a breach of an agreement that produced the dismissal of an earlier federal suit is an entirely distinct cause of action that must have an independent basis." Joel, supra, 147 N.J. at 553-54 (citing Kokkonen v Guardian Life Ins. Co. of Am., 511 U.S. 375, 114 S. Ct. 1673, 128 L. Ed. 2d 391 (1994)).

Here, the breach of the indemnification agreement alleged in plaintiff's complaint against defendant was a different cause of action than the one adjudicated by Judge Fluharty. Consequently, as in Joel, it was defendant that concluded the prior proceeding by executing a settlement agreement that included the indemnification obligation that is the basis for plaintiff's current cause of action.

We are also unpersuaded by defendant's contention that collateral estoppel applies. The doctrine of collateral estoppel applies to foreclose litigation if:

(1) the issue to be precluded is identical to the issue decided in the prior proceeding; (2) the issue was actually litigated in the prior proceeding; (3) the court in the prior proceeding issued a final judgment on the merits; (4) the determination of the issue was essential to the prior judgment; and (5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding.

[In Re Estate of Dawson, 136 N.J. 1, 20-21 (1994) (citations omitted).]

The issues presented in the prior adjudication were not identical to those presented by plaintiff in the present action, which was based on the indemnification clause. The issue raised by plaintiff was not litigated in the prior action and was not essential to the judgment. Although there was a final judgment in the prior action, it did not adjudicate the claim plaintiff asserts in the present action.

We are unpersuaded by defendant's contention that plaintiff's claim is barred by the statute of limitations.

Recovery on express or implied contractual claims or liability is governed by N.J.S.A. 2A:14-1.6, which provides that such actions must be commenced within six years "after the cause of any such action shall have accrued." The cause of action accrues on "'the date upon which the right to institute and maintain a suit first arises." Holmin v. T.R.W., Inc., 330 N.J. Super. 30, 34 (App. Div. 2000), aff'd, 167 N.J. 205 (2001) (quoting Hartford Accident & Indem. Co. v. Baker, 208 N.J. Super. 131, 135-36 (Law Div. 1985)). "Where the agreement indemnifies for loss, the cause of action accrues at the point that liability is discharged by payment and the indemnitee suffers an actual loss." First Indem. of Am. Ins. Co. v. Kemenash, 328 N.J. Super. 64, 72 (App. Div. 2000) (citing Bernstein v. Palmer Chevrolet & Oldsmobile, Inc., 86 N.J. Super. 117, 122 (App. Div. 1965)). "Where the agreement provides indemnification for liability, the cause of action arises with liability and the plaintiff is entitled to recover the amount necessary to enable it to discharge the liability itself." Id. at 72-73 (citing North v. North & Son, Inc., 93 N.J.L. 438, 442 (E. & A. 1919)).

In this case, the indemnification clause makes no distinction in its application as it relates to loss or liability. In First Indemnity, we adopted the approach set forth in U.S. Credit Bureau, Inc. v. Claus, 179 P.2d 36, 37 (Cal. App. 1947), in which "the California appellate court found two separate 'covenants' based on language in an indemnity agreement that provided the surety with 'the right of immediate action . . . for any 'loss or liability when . . . paid, adjusted, incurred or assumed . . . whether the same shall have been actually paid or not.'" First Indem., supra, 328 N.J. Super. at 75 (quoting Claus, supra, 179 P. 2d at 37).

There being no loss in the present action, consistent with a liability analysis, the Potters' rights under the terms of the indemnification agreement accrued when Judge Fluharty granted plaintiff's motion for summary judgment and entered judgment against Elaine Potter on December 17, 1998. The alleged breach occurred on February 8, 1999, when defendant denied Elaine Potter's demand for indemnification.

We are convinced that the court erred in calculating the six-year statute of limitations from the settlement date and, instead, should have utilized December 17, 1998 or February 8, 1999. As the instant matter was filed on December 2, 2003, both dates fall within the six-year limitation period.

 
We reverse and remand for further proceedings consistent with this opinion.

Defendant's statement of procedural history also refers to a November 20, 1998 order of Judge Charles A. Little granting summary judgment in favor of plaintiff as to all claims against the defendant. There is no record of such an order before this court.

(continued)

(continued)

11

A-0093-04T1

December 15, 2005