Alert

New Jersey’s Entire Controversy Doctrine: What You Should Know

September 30, 2020

The New Jersey Supreme Court very recently provided clear guidance to defendants regarding the Entire Controversy Doctrine (ECD). In Bank Leumi USA v. Kloss, the Court held that the ECD does not bar a party who files a successful motion to dismiss for failure to state a claim from asserting claims in a later suit arising from the same transactional facts.

The ECD requires litigants to assert all affirmative claims relating to the controversy and to join all parties with a material interest in the controversy. Otherwise, they will not be able to do so in the future. Pleadings trigger the preclusive effect of the ECD, while motions to dismiss do not as they are not pleadings. This is useful as a strategic matter if dismissal is a realistic possibility and your client would like to avoid filing an answer.

As a reminder, the ECD applies to judgments issued by New Jersey state courts. A federal court may apply the ECD to bar claims that could have been litigated in New Jersey state court in an action on which the state court entered judgment.

The New Jersey Law Journal set out the following scenarios in which the Bank Leumi decision can provide useful guidance:

Removing to federal court: Bank Leumi would allow your client to seek dismissal in state court and, if successful, later assert its own claims in federal court.
Filing in another state: Bank Leumi would allow your client to seek dismissal in a New Jersey state court and, if successful, later assert its own claims in another state’s court with jurisdiction.
Immediately filing your client’s claims: If your client wants to assert its own claims while awaiting the decision on its motion to dismiss, your client may file a parallel action in state court. If the motion to dismiss is granted, you can proceed to litigate the parallel action. If the motion to dismiss is denied, you will have two actions pending but you can generally consolidate them if they arose from the same transaction/series of events.

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