ARAGON PARTNERS LP v. HDOX BIOINFORMATICS, INC
Annotate this CaseNOT 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 binding only 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-2937-15T2
ARAGON PARTNERS LP and
AMIR ROSENTHAL,
Plaintiffs-Appellants,
v.
HDOX BIOINFORMATICS, INC.,
Defendant-Respondent.
________________________________
Argued February 13, 2018 – Decided March 19, 2018
Before Judges Hoffman and Mayer.
On appeal from Superior Court of New Jersey,
Law Division, Bergen County, Docket No.
L-6758-15.
Mark F. Heinze argued the cause for appellants
(Ofeck & Heinze, LLP, attorneys; Mark F.
Heinze, on the briefs).
Kenneth R. Rush argued the cause for
respondent (DiLorenzo & Rush, attorneys;
Kenneth R. Rush, of counsel and on the brief).
PER CURIAM
Plaintiffs Aragon Partners LP (Aragon) and Amir Rosenthal
(Amir)1 appeal from a February 5, 2016 Law Division order,
dismissing with prejudice their action against defendant HDOX
Bioinformatics, Inc. (HDOX). Plaintiffs' complaint sought
repayment of a $120,000 loan HDOX received in 2006. In 2012, Zvi
Rosenthal (Amir's father) sued HDOX on the same loan transaction,
basing his claim upon a promissory note (Note) bearing a date of
August 31, 2006. The case went to trial in May 2013. The jury
returned a verdict in favor of HDOX, after finding the Note did
not constitute a binding agreement.2
In 2015, plaintiffs filed suit in the matter under review.
In their complaint, plaintiffs asserted the following claims
against HDOX: 1) breach of contract; 2) unjust enrichment; 3)
quantum meruit; 4) rescission; and 5) declaratory judgment.
Notwithstanding these alternative theories, plaintiffs based their
claim on the same loan transaction Zvi relied upon in his 2012
suit. Before filing an answer to the complaint, HDOX filed a
1
For ease of reference, and intending no disrespect, we refer to
Amir and his family members by their given names.
2
Zvi appealed, arguing the trial court erred in denying various
pre-trial and post-trial motions and providing incorrect jury
instructions. We rejected those arguments and affirmed. Rosenthal
v. HDOX Bioinformatics, Inc., No. A-5402-12 (App. Div. Feb. 3,
2015) (slip op. at 15), certif. denied,
221 N.J. 565 (2015).
2 A-2937-15T2
motion to dismiss. The motion judge granted dismissal, concluding
that res judicata, collateral estoppel, judicial estoppel, and the
entire controversy doctrine (ECD) all applied, thus providing
multiple bases for barring plaintiffs from pursuing their claims
for repayment of the loan. This appeal followed, with plaintiffs
arguing the motion judge mistakenly dismissed their complaint
because the Note and the oral agreement for the same loan are
independent and unrelated. We affirm.
I
We begin by setting forth the relevant facts as summarized
in our 2015 opinion:
[Zvi] has three sons, Amir . . ., Ayal . . .,
and Oren . . . . The Rosenthal sons operated
[Aragon], which pooled and invested the
family's money. Amir became personally
acquainted with Meenashki Degala, the founder
and [CEO] of HDOX, and Pejman Delshad,
technical director and part-owner of
HDOX. . . .
In January 2006, Amir became aware that
the Securities and Exchange Commission ("SEC")
had launched an investigation into the
Rosenthal family for insider trading regarding
an unrelated investment.3 Soon thereafter,
3
Amir, Ayal, and [Zvi] ultimately pled guilty to securities
fraud, and served varying prison sentences. In Zvi's suit, Amir
testified that the trade "we pled guilty to was for a little over
$900,000." He claimed he never considered the possibility that
the government could take the position that the $120,000 loaned
to HDOX was tainted money.
3 A-2937-15T2
Amir began distributing funds from Aragon to
individual members of the Rosenthal family[;]
the partnership was voided as a business
entity in its home jurisdiction of Delaware
on June 1, 2006.4
In August 2006, the parties began
discussing a loan to HDOX. On August 29, 2006,
Amir provided HDOX with a check from Aragon
for $120,000. While the money came from an
Aragon checking account, [Zvi] was listed as
the payee in the Note. Amir told Degala that
"all of Aragon is Zvi's money[,]" and that
after Amir drafted a written contract they
would exchange "original signed copies
with . . . signatures of [both Degala] and
Zvi.
Then, on August 31, 2006, Amir prepared
and sent HDOX a "Promissory Note" ("Note"),
which Degala signed, scanned, and emailed back
to Amir. The signature page mistakenly
identified [Zvi] as the "maker" of the Note
and HDOX as the "payee." The last paragraph
of the Note required that the parties must
cause the Note to be signed and delivered by
their respective authorized officers. The
parties never exchanged original signatures,
and there is no evidence that [Zvi] ever
signed the Note.
Shortly after receiving the scanned copy
of the Note bearing Degala's signature, Amir
advised by email that the first draft had to
be changed, because the signatures of both
parties had to appear on the same page. Amir
then sent a revised draft of the Note, which
was identical to the first version except that
4
As noted in our prior opinion, "Aragon was formed on July 7,
2003. No annual reports were ever filed and the limited
partnership owed $2715.50 in taxes when it was "cancelled-voided"
by the State of Delaware on June 1, 2006." Rosenthal, slip op.
at n.3.
4 A-2937-15T2
the signature lines of both parties were on
the same page.
The Note required HDOX to pay interest
monthly, at an annual rate of eighteen
percent, on the first business day of every
month, with the principal due as a lump sum
on August 31, 2008. . . .
According to HDOX, in addition to the
mistaken identifications on the signature
page, the Note materially altered the terms
of the agreement between the parties by
including a provision that impermissibly
linked HDOX's monthly repayments to funds it
would receive from a contract with the Center
for Disease Control ("CDC"). The Note also
failed to include a conversion provision, a
critical term of the agreement from HDOX's
point of view.
The conversion provision would have
allowed HDOX, at the end of the loan period,
to satisfy any outstanding principal with an
equity interest in HDOX. According to HDOX,
neither Delshad nor Degala read the Note
carefully, and both had wrongly assumed that
the conversion provision was included in the
document. Only after Degala signed and
emailed the scanned Note did they realize that
it did not contain the conversion provision.
Delshad and Degala testified that HDOX asked
Amir to draft an amended Note, omitting the
CDC provision and including the conversion
provision, but this was never done. As to
this point, Amir testified that he never
agreed to a conversion provision.
[Rosenthal, slip op. at 1-5.]
After the judge dismissed plaintiffs' case, this appeal
followed, with plaintiffs arguing that the bars cited by the trial
court do not apply. As noted, plaintiffs assert their claim is
5 A-2937-15T2
mutually exclusive and independent from the one Zvi previously
brought. According to plaintiffs, they do not base their claims
upon the Note, but rather the underlying oral agreement Amir
reached with HDOX before the Note's signing. Notwithstanding the
jury's determination that the Note did not constitute a binding
agreement, plaintiffs assert the loan agreement remains
enforceable based upon an oral contract between Amir and HDOX.
II
We apply a de novo standard of review to a trial court's
order dismissing a complaint under Rule 4:6-2(e). See Stop & Shop
Supermarket Co. v. Cty. of Bergen,
450 N.J. Super. 286, 290 (App.
Div. 2017) (quoting Teamsters Local 97 v. State,
434 N.J. Super.
393, 413 (App. Div. 2014)). Under the rule, we owe no deference
to the motion judge's conclusions. Rezem Family Assocs., LP v.
Borough of Millstone,
423 N.J. Super. 103, 114 (App. Div. 2011).
"[O]ur inquiry is limited to examining the legal sufficiency of
the facts alleged on the face of the complaint." Printing Mart-
Morristown v. Sharp Elecs. Corp.,
116 N.J. 739, 746 (1989) (citing
Rieder v. Dep't of Transp.,
221 N.J. Super. 547, 552 (App. Div.
1987)). However, "[a] pleading should be dismissed if it states
no basis for relief and discovery would not provide one." Rezem
Family Assocs., LP,
423 N.J. Super. at 113 (citing Camden Cty.
6 A-2937-15T2
Energy Recovery Assoc., LP v. N.J. Dep't of Envtl. Prot.,
320 N.J.
Super. 59, 64 (App. Div. 1999), aff'd,
170 N.J. 246 (2001)).
A. Res Judicata
"The application of res judicata is a question of law . . . ."
Selective Ins. Co. v. McAllister,
327 N.J. Super. 168, 173, (App.
Div. 2000). Thus, we review its application de novo. Walker v.
Choudhary,
425 N.J. Super. 135, 151 (App. Div. 2012).
"The term 'res judicata' refers broadly to the [common law]
doctrine barring [re-litigation] of claims or issues that have
already been adjudicated." Velasquez v. Franz,
123 N.J. 498, 505
(1991). "[T]he doctrine of res judicata provides that a cause of
action between parties that has been finally determined on the
merits by a tribunal having jurisdiction cannot be [re-litigated]
by those parties or their privies in a new proceeding." Ibid.
This doctrine was created to avoid burdening the parties and the
courts with re-litigation, and to prevent inconsistent decisions
on the same matters. Ibid. The principle "contemplates that when
a controversy between parties is once fairly litigated and
determined it is no longer open to re-litigation." Lubliner v.
Bd. of Alcoholic Beverage Control,
33 N.J. 428, 435 (1960)
(citations omitted).
To decide if two causes of action are the same, the court
must determine:
7 A-2937-15T2
(1) whether the acts complained of and the
demand for relief are the same (that is,
whether the wrong for which redress is sought
is the same in both actions); (2) whether the
theory of recovery is the same; (3) whether
the witnesses and documents necessary at trial
are the same (that is, whether the same
evidence necessary to maintain the second
action would have been sufficient to support
the first); and (4) whether the material facts
alleged are the same.
[Wadeer v. N.J. Mfrs. Ins. Co.,
220 N.J.
591, 606-07 (2015) (citation omitted).]
In 2013, Zvi's claim was fully adjudicated and rejected on
the merits. Although plaintiffs asserted alternative theories of
recovery in their 2015 complaint, they essentially sued on the
same claim that Zvi previously advanced, that is, nonpayment of
the loan. To wit: Zvi's 2012 claim and the instant action both
sought the same recovery — full payment of the loan.
If we were to reverse, and allow plaintiffs to proceed with
this second suit, plaintiffs would use the same documents and the
same witness, Amir, as Zvi used in his suit. Such a result would
burden the parties and the trial court with re-litigation and
create the risk of an inconsistent outcome. Accordingly, we
discern no basis to disturb the judge's application of the res
judicata doctrine to bar plaintiffs' claims in this second suit.
8 A-2937-15T2
B. Collateral Estoppel
Plaintiffs next argue collateral estoppel does not preclude
their claims because the matters raised in their complaint were
not litigated in Zvi's lawsuit. Plaintiffs assert the issue
decided in Zvi's claim related to the Note, not the oral agreement.
Additionally, plaintiffs again deny the existence of privity
between themselves and Zvi.
Defendant counters by arguing the breach of the loan agreement
was litigated in 2013. That prior adjudication therefore bars
Amir from asserting any claims because he was in privity with Zvi.
"The doctrine of collateral estoppel . . . bars [re-
litigation] of any issue actually determined in a prior action
generally between the same parties and their privies involving a
different claim or cause of action." Selective Ins. Co.,
327 N.J.
Super. at 173 (citation omitted). For the collateral estoppel
doctrine to apply,
the party asserting the bar must show that:
(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.
9 A-2937-15T2
[Olivieri v. Y.M.F. Carpet, Inc.,
186 N.J.
511, 521 (2006) (quoting In re Estate of
Dawson,
136 N.J. 1, 20 (1994)).]
Collateral estoppel is distinguishable from res judicata in
"that it alone bars re-litigation of issues in suits that arise
from different causes of action." Selective Ins. Co.,
327 N.J.
Super. at 173. Thus, "[r]es judicata applies when either party
attempts to relitigate the same cause of action[, whereas
c]ollateral estoppel applies when either party attempts to
relitigate facts necessary to a prior judgment." T.W. v. A.W.,
224 N.J. Super. 675, 682 (App. Div. 1988). Because collateral
estoppel is an equitable doctrine, "it should only be applied when
fairness requires." Pivnick v. Beck,
326 N.J. Super. 474, 486
(App. Div. 1999), aff'd,
165 N.J. 670 (2000). In determining
whether to apply collateral estoppel, courts should consider the
following factors: "conservation of judicial resources; avoidance
of repetitious litigation; and prevention of waste, harassment,
uncertainty and inconsistency." Ibid. Conversely,
factors disfavoring application of collateral
estoppel include: the party against whom
preclusion was sought could not have obtained
review of the judgment in the initial action;
the quality or extensiveness of the procedures
in the two actions were different; it was not
foreseeable at the time of the initial action
that the issue would arise in subsequent
litigation; and the party sought to be
precluded did not have an adequate opportunity
10 A-2937-15T2
to obtain a full and fair adjudication in the
first action.
[Ibid. (internal citations omitted).]
In the matter before us, plaintiffs assert the same claim
that Zvi presented in his lawsuit – HDOX's nonpayment of the loan.
The matter went to trial and the court issued a final judgment
after the jury rendered a verdict. Determining whether any basis
existed to support the validity of the loan was central to the
previous lawsuit. Furthermore, as noted, the parties were in
privity because they shared the same interest with Zvi, and both
plaintiffs and Zvi contend they were aggrieved and injured by the
same transaction. See, e.g., Zirger v. Gen. Accident Ins. Co.,
144 N.J. 327, 339 (1996) (citation omitted) ("Generally, one person
is in privity with another[,] and is bound by . . . a judgment as
though he [or she] was a party[,] when there is such an
identification of interest between the two as to represent the
same legal right . . . .").
Notably, it was foreseeable before the previous trial began
that the jury might find the Note unenforceable, in light of HDOX's
claim that the Note did not reflect the parties' final agreement;
as a result, the need for an alternative basis to enforce the loan
should not have come as a surprise. Based on that potential
outcome, alternative claims regarding the oral agreement's
11 A-2937-15T2
validity could have been asserted in the original litigation.
Moreover, plaintiffs had an opportunity to seek relief by joining
Zvi's suit.
Allowing a new lawsuit would undermine the principles of
judicial efficiency and avoidance of repetitive, piecemeal
litigation. Accordingly, we discern no basis to disturb the
judge's application of collateral estoppel to bar plaintiffs'
claims in this second suit.
C. Judicial Estoppel
Plaintiffs argue that judicial estoppel does not bar their
claim because they were not parties to the previous action. Citing
Cummings v. Bahr,
295 N.J. Super. 374, 386 (App. Div. 1996),
plaintiffs argue that for judicial estoppel to apply, a party must
have succeeded in a previous claim, which they did not. They
argue the jury's finding that the Note was not binding has no
effect on Amir's claim. Additionally, plaintiffs argue that even
if judicial estoppel bars Amir's claim, it does not bar Aragon's
claim because Aragon suffered a monetary loss from HDOX's failure
to pay the loan.
HDOX counters that judicial estoppel applies because in the
2012 suit, Amir testified at trial that he negotiated the loan
between HDOX and his father. Amir now maintains a contrary
position, alleging he entered into a transaction with defendant
12 A-2937-15T2
through an oral agreement. HDOX emphasizes the undeniable privity
between the plaintiffs in both suits. Finally, HDOX contends that
plaintiffs misinterpret Cummings,
295 N.J. Super. at 387, in
concluding that a prior inconsistent position is only prohibited
when successful; instead "[p]rior success does not mean that a
party prevailed in the underlying action, it only means that the
party was allowed by the court to maintain the position." Ibid.
The motion judge found that the judicial estoppel doctrine
"forecloses these [plaintiffs] from making any factual assertion
when they have made contrary assertions in the prior proceedings."
The judge reasoned that the doctrine applies because Amir's
assertions were presented and rejected at the trial level, and
again "on the Appellate level."
"Judicial estoppel is an equitable doctrine precluding a
party from asserting a position in a case that contradicts or is
inconsistent with a position previously asserted by the party in
the case or a related legal proceeding." Tamburelli Props. Ass'n
v. Borough of Cresskill,
308 N.J. Super. 326, 335 (App. Div. 1998).
The doctrine is "meant to protect the integrity of the judicial
system, designed to prevent litigants from 'playing fast and loose
with the courts.'" Ibid. (quoting Scarano v. Cent. R.R. Co.,
203 F.2d 510, 513 (3d Cir. 1953)).
13 A-2937-15T2
"The purpose of the judicial estoppel doctrine is to protect
'the integrity of the judicial process.'" Kimball Int'l, Inc. v.
Northfield Metal Prods.,
334 N.J. Super. 596, 606 (App. Div. 2000),
(quoting Cummings,
295 N.J. Super. at 387). The theory is based
on the principle that if a litigant's position in one matter is
true, then the contrary position in the subsequent matter cannot
be. Id. at 606-07. Judicial estoppel "should be invoked only
'when a party's inconsistent behavior will otherwise result in a
miscarriage of justice.'" Kimball Int'l, Inc.,
334 N.J. Super.
at 608 (quoting Ryan Operations GP v. Santiam-Midwest Lumber Co.,
81 F.3d 355, 365 (3d Cir. 1996)); see also State Farm Fire & Cas.
Co. v. Connolly,
371 N.J. Super. 119, 125 (App. Div. 2004).
We agree with HDOX that our Cummings decision fully supports
the trial court's holding that judicial estoppel also bars
plaintiffs' claims. Plaintiffs' complaint asserts alternative
claims based upon an implicit premise – that Zvi's Note was indeed
invalid – a position opposite to what Amir previously asserted in
sworn testimony in Zvi's suit. Thus, we discern no basis to
disturb the judge's application of judicial estoppel to bar
plaintiffs' claims in this second suit.
D. Entire Controversy Doctrine
Plaintiffs argue that they were neither required to join nor
were they required to intervene in Zvi's litigation. Specifically,
14 A-2937-15T2
they contend that the mandatory joinder of claims rule does not
apply because they were not parties to the previous claim; they
further assert that the joinder of parties rule does not apply
because they were not indispensable parties to the previous
lawsuit. Plaintiffs also argue that even though the jury found
the Note unenforceable in Zvi's lawsuit, the verdict did not
establish that HDOX does not owe any money. Finally, plaintiffs
assert that because they were not parties to the previous claim,
their obligation to join all claims pursuant to the ECD was not
triggered.
HDOX asserts we should reject these arguments, citing Vision
Mortg. Corp. v. Patricia J. Chiapperini, Inc.,
307 N.J. Super. 48,
51-52 (App. Div. 1998), aff’d,
156 N.J. 580 (1999), and emphasizing
that under the ECD, parties are required to present all aspects
of a controversy that might be litigated. As for the joinder
rule, HDOX argues that like the ECD, this rule requires
identification or joinder of all indispensable parties in the
original litigation. The instant facts warrant dismissal because
plaintiffs' claim of a breach of an alleged oral contract directly
relates to the prior Note litigation. Plaintiffs may have been
entitled to relief in the previous action; therefore, they should
have been included pursuant to the joinder of parties rule.
15 A-2937-15T2
Concerning the ECD, the trial court concluded the "doctrine
requires . . . joinder in an action of . . . legal and equitable
claims related to a single, underlining transaction. . . . exactly
what we have here." To allow such "piecemeal litigation . . . .
would be . . . unduly prejudicial" to HDOX, "to go through another
litigation over the same debt with the same exact parties, with
the exact same witness against them that testified" in the first
trial. In addition, a second trial here would result in "a waste
of judicial resources."
The ECD is codified in Rule 4:30A and requires all parties
to an action to raise all transactionally-related claims in that
action. R. 4:30A; see also Pressler & Verniero, Current N.J.
Court Rules, cmt. 1 on R. 4:30A (2018). "Underlying the [ECD] are
the twin goals of ensuring fairness to parties and achieving
economy of judicial resources." Kent Motor Cars, Inc. v. Reynolds
& Reynolds, Co.,
207 N.J. 428, 443 (2011). The Supreme Court has
articulated the goals of the doctrine to include "the needs of
economy and the avoidance of waste, efficiency and the reduction
of delay, fairness to parties, and the need for complete and final
disposition through the avoidance of 'piecemeal decisions.'"
Ibid. (quoting Cogdell v. Hosp. Ctr. at Orange,
116 N.J. 7, 15
(1989), superseded by statute on other grounds as stated in
Ricketti v. Barry,
775 F.3d 611, 613-14 (3d Cir. 2015)).
16 A-2937-15T2
The court, rather than the parties, retains the ultimate
authority to control the joinder of parties and claims. Kent
Motor Cars,
207 N.J. at 446. Application of the ECD is "left to
judicial discretion based on the factual circumstances of
individual cases." Oliver v. Ambrose,
152 N.J. 383, 395 (1998)
(quoting Brennan v. Orban,
145 N.J. 282, 291 (1996)). The
doctrine's joinder requirements may be relaxed on the grounds of
"equitable considerations." Id. at 395.
The doctrine applies to successive suits with related claims.
DiTrolio v. Antiles,
142 N.J. 253, 268 (1995). "In determining
whether successive claims constitute one controversy for purposes
of the doctrine, the central consideration is whether the claims
against the different parties arise from related facts or the same
transaction or series of transactions." Id. at 267. It is the
factual context "giving rise to the controversy itself, rather
than a commonality of claims, issues or parties, that triggers the
requirement of joinder to create a cohesive and complete
litigation." Mystic Isle Dev. Corp. v. Perskie & Nehmad,
142 N.J.
310, 323 (1995); see also DiTrolio,
142 N.J. at 267-68 ("It is the
core set of facts that provides the link between distinct claims
against the same or different parties and triggers the requirement
that they be determined in one proceeding.").
17 A-2937-15T2
Our Supreme Court has recognized the interplay between Rule
4:5-1(b)(2) and Rule 4:30A, stating:
Taken together, both Rule 4:30A and Rule 4:5-
1(b)(2) advance the same underlying purposes.
As it relates to claims and to parties, they
express a strong preference for achieving
fairness and economy by avoiding piecemeal or
duplicative litigation. Both, however,
recognize that the means of accomplishing
those goals rests with the court. That is,
Rule 4:30A requires joinder of claims but
grants authority to a trial judge to create a
safe harbor in an appropriate case. Similarly,
Rule 4:5-1(b)(2) requires that names of
potentially liable or relevant parties be
disclosed to the court, leaving to it the
decision about whether to join them or not.
[Kent,
207 N.J. at 445.]
According to that standard, a slight variation in the proposed
legal theory is not sufficient to justify a failure to join related
claims pursuant to the ECD. As with res judicata, the purpose of
the ECD is to avoid waste and piecemeal decisions. Allowing
litigation of the instant claim would go against those principles.
Similarly, concerning the joinder of parties, Amir and Aragon
should have been named in the original claim; their joinder was
not permissive because they held a stake in the matter's
resolution. Aragon issued the check for the loan, and therefore
was eligible for recovery. Amir negotiated the loan for his
father, but now claims an interest in the recovery of the monies.
18 A-2937-15T2
For these reasons, the court correctly barred plaintiffs' claim
based on by both joinder and the ECD.
Zvi could have joined all claims and all parties in the
earlier action. If Zvi had presented the issue of the oral
agreement in his action, the jury could have been asked to resolve
any inconsistencies between the written Note and the oral
agreement. Zvi made a tactical decision to litigate only the
enforceability of the written Note, without pursuing any
alternative theories. Thus, this second suit represents an
improper attempt to litigate a claim that plaintiffs should have
presented as part of Zvi's suit. In light of the fact the Rosenthal
sons controlled Aragon, and Amir is Zvi's son who acted on behalf
of his father, the record fully supports the application of the
EDC to plaintiffs' suit. We discern no basis to disturb the
judge's application of the EDC to bar plaintiffs' claims in the
matter under review.
Affirmed.
19 A-2937-15T2
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