FRANKLIN MUTUAL INSURANCE COMPANY v. CASTLE RESTORATION AND CONSTRUCTION, INC

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is only binding on the parties in the case and its use in other cases is limited. R.1:36-3.

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

FRANKLIN MUTUAL INSURANCE COMPANY

as subrogee of SEVASTYAN

PLOSHCHANSKY,

Plaintiff-Appellant,

v.

CASTLE RESTORATION AND

CONSTRUCTION, INC.,

Defendant,

and

FALCON ENGINEERING, CO., LLC,

Defendant-Respondent.

__________________________________

October 20, 2016

Submitted October 5, 2016 Decided

Before Judges Sabatino, Haas and Currier.

On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-3335-14.

Methfessel & Werbel, attorneys for appellant (I. Blakeley Johnstone, III, of counsel and on the brief; Levi E. Updyke, on the brief).

Hoagland, Longo, Moran, Dunst & Doukas, LLP, attorneys for respondent (Joseph A. Petrillo, of counsel and on the brief).

PER CURIAM

Plaintiff Franklin Mutual Insurance Company ("FMI") appeals from the Law Division's October 31, 2014 order dismissing its complaint1 against defendant Falcon Engineering Co., LLC ("Falcon"). We affirm.

Sevastyan Ploshchansky owned a unit in Harmon Cove Towers ("HCT"), a condominium community in Hudson County. FMI insured Ploshchansky's condominium under a homeowners insurance policy.2

Sometime in early 2010, HCT engaged Falcon as its consulting engineer in connection with a restoration and waterproofing project in the condominium community. HCT also retained Castle Restoration and Construction, Inc. ("Castle") to perform the renovations. During the ensuing construction, Ploshchansky alleged that his "unit incurred substantial water and structural damage due to water invading the premises as the result of exterior renovations undertaken by" HCT.

On October 18, 2010, Ploshchansky filed a complaint in Hudson County ("the Hudson County action")3 against HCT and Taylor Management Company, Inc. ("Taylor"), the company that managed the condominium community for HCT.4 Ploshchansky sought to recover damages against HCT and Taylor for the damages to his condominium.

On April 6, 2011, HCT filed a third-party complaint in the Hudson County action against Falcon and Castle, alleging negligence and breach of contract claims against them. Ploshchansky did not amend his complaint to add any claims he might have had against Falcon or Castle.

Ploshchansky was not the only condominium owner covered by an FMI insurance policy who sued HCT. In April 2012, FMI filed a complaint against HCT, Taylor and Castle in Hudson County5 as the subrogee of Peter Chang, another owner. In that complaint, FMI certified, as required by Rule 4:5-1(b)(2), that the Hudson County action was a related matter in controversy. Although FMI knew of Ploshchansky's pending lawsuit against HCT, it did not seek to intervene in that action, either on its own behalf or as Ploshchansky's subrogee. Instead, FMI denied Ploshchansky's request for coverage under his homeowners policy for the damage to his condominium.

On July 12, 2013, Ploshchansky filed a complaint in Passaic County ("the Passaic County action")6 against FMI. Ploshchansky alleged that FMI wrongfully refused to pay his claim under the terms of the policy or provide him with legal counsel. In November 2013, Ploshchansky filed an amended complaint. In accordance with Rule 4:5-1(b)(2), Ploshchansky's attorney certified that the Hudson County action was pending. In FMI's answer to the amended complaint, FMI's attorney also certified that FMI was aware of the Hudson County action. However, FMI did not seek to intervene in that action as subrogee of Ploshchansky or on its own behalf, and Ploshchansky continued to pursue his claims against HCT. Discovery proceeded in both actions and the court scheduled a trial in the Hudson County action for April 28, 2014.

On March 3, 2014, FMI filed a motion in the Passaic County action to consolidate that matter with the Hudson County action. However, Rule 4:38-1 provides that "[i]f the actions are not triable in the same county or vicinage, the [consolidation] order shall be made by the Assignment Judge of the county in which the venue is laid in the action first instituted on a party's motion." (emphasis added). Ploshchansky had initiated the Hudson County action in October 2010, and did not file the Passaic County action until July 2013. Accordingly, the Passaic County Assignment Judge denied FMI's motion on March 28, 2014 "for failure to file the motion in the county where the first action was instituted." In spite of the judge's order, and the impending trial in the Hudson County action, FMI did not immediately seek to consolidate the two matters by filing an appropriate motion in Hudson County.

On April 28, 2014, HCT settled the claims it had raised against Falcon in its third-party complaint in the Hudson County action.7 As noted above, Ploshchansky did not raise any claims against Falcon in that action, even though he obviously knew of Falcon's role in the construction project that caused the damages to his condominium.

On May 2, 2014, FMI filed a motion to intervene in the Hudson County action and file a complaint and cross-claim for subrogation. In an accompanying certification, FMI's attorney stated that (1) "[t]he occurrence out of which this matter arises is the same giving rise to a separate lawsuit filed by . . . Ploshchansky in" the Passaic County action; (2) "[t]he property damages at issue in the Passaic County action are the same damages which form the basis of" Ploshchansky's complaint in the Hudson County action; and (3) "the damages alleged by . . . Ploshchansky in [the Hudson County action] overlap with and/or are identical to the damages asserted by Ploshchansky against FMI in the Passaic County action." However, FMI subsequently withdrew its motion to intervene and it was not submitted to the trial court for consideration.

After a bench trial, the trial judge in the Passaic County action entered a judgment in favor of Ploshchansky against FMI. In his May 8, 2014 order, the judge granted Ploshchansky $107,160 in damages, interest, and costs. FMI did not appeal that order to this court.

By July 7, 2014, the Hudson County action, including Ploshchansky's claims against HCT and HCT's claims against Castle, was settled8 and the matter was dismissed.

On July 31, 2014, FMI filed a complaint in Hudson County9 against Falcon and Castle. Although all the claims raised in the Hudson County action had already been settled and dismissed, FMI stated it was acting as Ploshchansky's subrogee in the new action. FMI alleged that it paid Ploshchansky for a loss he sustained under the insurance policy and "[a]s a result of the aforementioned payment, [FMI] has become subrogated to the rights and causes of action of its insured."

On September 15, 2014, FMI filed a motion to consolidate its new complaint with the dismissed Hudson County action. In support of this motion, FMI's attorney certified that the issues raised in its new complaint "arise[] out of the same occurrence" as the now-dismissed Hudson County action. Counsel further certified that "both matters arise out of the same set of circumstances and involve the same parties." On October 10, 2014, the trial judge denied FMI's motion, noting that the initial Hudson County litigation had already been "settled [and] closed on" July 7, 2014.

Falcon filed a motion to dismiss FMI's complaint for failure to state a claim under Rule 4:6-2(e). Falcon alleged that FMI's complaint against it was barred by the entire controversy doctrine because Ploshchansky's property damage claim in the Hudson County action included all potential claims for damages arising out of the construction project undertaken by HCT, Falcon, and Castle, and that claim had already been resolved.

Following oral argument, the trial judge granted Falcon's motion and dismissed FMI's complaint. In doing so, the judge noted the unique circumstances of this "fact[-]sensitive case." The judge found that FMI was fully aware of the action its putative subrogee, Ploshchansky, filed in Hudson County against HCT, and the fact that the defendant which FMI now sought to pursue, Falcon,10 was a party in that action. FMI also conceded that the facts and issues raised in all of the actions were the same. Yet, FMI permitted Ploshchansky to pursue his case to its conclusion before seeking to file its separate complaint as Ploshchansky's subrogee. Under these circumstances, the judge concluded there were no longer any claims for FMI to pursue, and he therefore dismissed FMI's complaint against Falcon. This appeal followed.

On appeal, FMI contends the judge erred by dismissing its claims against Falcon under the entire controversy doctrine.11 We disagree.

In reviewing a Rule 4:6-2(e) dismissal, we employ the same standard as that applied by the trial court. Donato v. Moldow, 374 N.J. Super. 475, 483 (App. Div. 2005). Our review is limited to the "legal sufficiency of the facts alleged in the complaint." Id. at 482. 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, 184 N.J. 161, 166 (2005) (quoting Velantzas v. Colgate-Palmolive Co., 109 N.J. 189, 192 (1988)). Dismissal is appropriate only if "the complaint states no basis for relief and discovery would not provide one." Ibid.

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, 290 N.J. Super. 293, 298 (App. Div. 1996) (quoting Leisure Tech.-Ne., Inc. v. Klingbeil Holding Co., 137 N.J. Super. 353, 357 (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, 414 N.J. Super. 97, 105 (App. Div. 2010) (quoting Brennan v. Orban, 145 N.J. 282, 290 (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.

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. Brennan, supra, 145 N.J. at 290. In addition, "[c]laim preclusion applies not only to matters actually determined in an earlier action, but to all relevant matters that could have been so determined." Watkins v. Resorts Int'l Hotel & Casino, 124 N.J. 398, 411 (1991) (citing Angel v. Bullington, 330 U.S. 183, 192-93, 67 S. Ct. 657, 662, 91 L. Ed. 832, 838-39 (1947); Culver v. Ins. Co. of N. Am., 115 N.J. 451, 463 (1989)). Underlying the doctrine of claim preclusion is the policy "that fairness to the defendant and sound judicial administration require a definite end to litigation." Velasquez v. Franz, 123 N.J. 498, 505 (1991) (citing Restatement (Second) of Judgments 19 comment a (1982); 1B James W. Moore et al., Moore's Federal Practice 0.405 (2d Ed. 1998)).

The entire controversy doctrine, which is a form of claim preclusion, was designed

(1) to encourage the comprehensive and conclusive determination of the 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, 142 N.J. 310, 322 (1995).]

The doctrine, however, is ultimately "one of judicial fairness and will be invoked in that spirit." Archbrook Laguna, supra, 414 N.J. Super. at 104 (quoting Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 343 (1984)). "Because a violation of the entire controversy doctrine may result in the preclusion of a claim, a court must consider whether the party against whom the doctrine is sought to be invoked has had a fair and reasonable opportunity to litigate the claim." Hobart Bros. Co. v. Nat'l Union Fire Ins. Co., 354 N.J. Super. 229, 241 (App. Div. 2002) (citing Hillsborough Twp. Bd. Of Educ. v. Faridy Thorne Frayta, 321 N.J. Super. 275, 284 (App. Div. 1999)).

Applying these principles to the specific facts of this case, it is clear that any claim Ploshchansky had against Falcon for the damages caused to his condominium was barred by the entire controversy doctrine once the initial Hudson County action was resolved and his complaint was dismissed. Ploshchansky limited the claims he made in that case to HCT. However, Falcon was a third-party defendant in that action. The facts that gave rise to Ploshchansky's claims against HCT were exactly the same as those underlying any possible claims he may have had against Falcon.

Thus, Ploshchansky himself was required to bring any claims he had concerning Falcon's involvement in the Hudson County action. Archbrook Laguna, supra, 414 N.J. Super. at 105. Because he did not, any claim he might have raised in a future action against Falcon would clearly be barred by the entire controversy doctrine.

The fact that FMI was not a party to the Hudson County action is of no moment. FMI's only standing to bring an action against Falcon arose from its derivative status as Ploshchansky's subrogee. It is well established that a subrogee "steps into the shoes of the insured and can recover only if the insured likewise could have recovered." Standard Accident Ins. Co. v. Pellecchia, 15 N.J. 162, 172 (1954). Thus, the subrogee is "subject to all legal and equitable defenses that the third party may have either against him or against the insured and there can be recovery only if the cause is just and enforcement is consonant with right and justice." Id. at 172-73. In other words, "the right of subrogation turns on the obligation or duty that the third-party owes the subrogor" and, therefore,

subrogation is wholly dependent on the merits of the subrogor's claim against the third party. The subrogee, which succeeds to the position of the subrogor, may recover only if the subrogor likewise could have recovered; the subrogee gains no additional rights and is subject to all defenses that were available against the subrogor.

[Holloway v. State, 125 N.J. 386, 396 (1991) (citing Aetna Ins. Co. v. Gilchrist Bros., 85 N.J. 550, 560-61 (1981)).]

Thus, FMI's claims against Falcon, as Ploshchansky's subrogee, were subject to all the defenses Falcon had against Ploshchansky, including the entire controversy doctrine. Because that doctrine barred Ploshchansky from filing any claims against Falcon for its role in causing damage to his condominium after the Hudson County litigation was fully resolved prior to the filing of FMI's complaint, FMI's claims against Falcon were also barred. Thus, the trial judge properly dismissed FMI's complaint against Falcon.

FMI argues throughout its brief that the entire controversy doctrine should not be applied to bar its claims as Ploshchansky's subrogee against Falcon because its subrogation rights did not "vest" until after the trial court ordered it to pay Ploshchansky's claim under its insurance policy in the Passaic County action. Until the issuance of that order, FMI asserts it was barred from intervening in the Hudson County action or otherwise taking steps to protect its subrogation rights. This argument lacks merit.

The question of when a party's subrogation rights accrue has been debated in the case law and appears dependent on the unique facts of each case in which the issue has been addressed. Compare Rutgers Cas. Ins. Co. v. Vassas, 139 N.J. 163, 170 (1995) (holding that "the causes of action for subrogor and subrogee accrue at the same time" and, therefore, the applicable statute of "limitations period for a subrogation action begins to run at the same time as the limitations period for the underlying action"), and Foley Mach Co. v. Amland Contractors, 209 N.J. Super. 70, 77 (App. Div. 1986) (holding that an insurer had standing to raise a claim as subrogee notwithstanding the fact that it had not paid the insured's claim), with Culver v. Ins. Co. of N. Am., 221 N.J. Super. 493, 500 (App. Div. 1987), (stating that the right of subrogation does not arise until the "injured party's claim has been paid in full"), rev'd on other grounds, 115 N.J. 451 (1988).

However, we need not wade into that debate under the particular circumstances of this case because it remains clear that, regardless of when FMI's subrogation rights accrued, FMI was standing in Ploshchansky's shoes as his subrogee on July 31, 2014, the date it filed its complaint against Falcon. By that date, Falcon had already been dismissed from the Hudson County action and, under the entire controversy doctrine, Ploshchansky could no longer file a claim against Falcon for its role in the construction project that damaged his condominium. Because Ploshchansky's claims against Falcon were barred, FMI could also not file a claim against Falcon as its subrogee.

Contrary to FMI's contention, this result was manifestly fair in view of the idiosyncratic facts of this matter. Here, FMI was fully aware that its potential subrogee, Ploshchansky, was seeking to recover damages from HCT and that, in turn, HCT had filed a third-party complaint against Falcon. Indeed, Ploshchansky advised FMI of the pendency of the Hudson County action when he filed his complaint against FMI in the Passaic County action for failing to pay his insurance claim.

FMI had several viable options available to it to protect its future subrogee rights. First, it could have filed a motion in the proper county to consolidate the Hudson County and Passaic County actions. If that had occurred, FMI could have sought to bifurcate the two matters, for example, by having the coverage case resolved first, followed by a determination of Ploshchansky's claims against Falcon.

Second, FMI could have filed a timely motion to intervene in the Hudson County action to protect its interests.12 In particular, FMI could have sought relief in that pending case against Falcon, which was already a party to the litigation.

Third, FMI could have filed a complaint in Hudson County as subrogee for Ploshchansky and had a judge resolve any perceived issue as to whether its right to subrogation had accrued. Finally, FMI could have filed a third-party complaint against Falcon in the Passaic County action pursuant to Rule 4:8-1(a), which permits a defendant to serve such a pleading "upon a person not a party to the action who is or may be liable to defendant for all or part of the plaintiff's claim against defendant." (emphasis added).

Instead of pursuing any of these courses of action, FMI permitted Ploshchansky to proceed with his claims in the Hudson County action without its involvement, but with full knowledge that (1) the issues in both the Hudson and Passaic County actions involved the same set of facts, and (2) the damages sought in both actions were identical. Because FMI "had a fair and reasonable opportunity to litigate" its claim prior to the dismissal of the claims against Falcon in the Hudson County action, the trial judge properly applied the entire controversy doctrine to dismiss FMI's belated subrogation complaint. Hobart Bros. Co., supra, 354 N.J. Super. at 241.

Affirmed.

1 FMI filed its complaint "as subrogee of Sevastyan Ploshchansky."

2 The policy FMI provided to Ploshchansky is not part of the record on appeal.

3 Docket No. HUD-L-5675-10.

4 Ploshchansky also named a fictitious entity, "ABC Corporation," as a defendant. He asserted that this entity "refused to fulfill, in whole or in part, [its] duties and obligations with regard to the property management of the subject premises[.]"

5 Docket No. DC-008459-12.

6 Docket No. L-2733-13.

7 The terms of the settlement are not disclosed in the appellate record and, in any event, are not relevant to our analysis of the issues.

8 The specific terms of this settlement are also not part of the record on appeal, and are likewise irrelevant to our decision.

9 Docket No. L-3335-14.

10 The record indicates that Castle went out of business and did not respond to FMI's complaint against it. Based on Castle's default, the trial court entered a default judgment in favor of FMI on June 12, 2015. That judgment required Castle to pay FMI $107,600 plus costs.

11 FMI also contends the judge erred by concluding that its claims were barred by the doctrine of res judicata. Because we are satisfied the judge properly dismissed FMI's complaint under the entire controversy doctrine, we do not reach FMI's contentions concerning res judicata.

12 Notably, FMI's claim that it could not take any action against Falcon because its subrogation rights had not accrued is belied by FMI's attempt to consolidate the Hudson and Passaic County actions by incorrectly filing the application in Passaic County before judgment was entered in the insured's favor, and its subsequent untimely attempt to intervene in the Hudson County action after that action was dismissed.