Paramount Aviation v. Agusta ( 1999 )

  •                                                                                                                            Opinions of the United
    1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                                  for the Third Circuit
    Paramount Aviation v. Agusta
    Precedential or Non-Precedential:
    Docket 98-6257
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    Recommended Citation
    "Paramount Aviation v. Agusta" (1999). 1999 Decisions. Paper 122.
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    Filed May 13, 1999
    NO. 98-6257
    GIOVANNI, Augusta, S.P.A.; AUGUSTA, S.P.A.
    On Appeal From the United States District Court
    For the District of New Jersey
    (D.C. Civ. No. 91-cv-04954)
    District Judge: Honorable John W. Bissell
    Argued: March 25, 1999
    Before: BECKER, Chief Judge, LEWIS and
    WELLFORD,* Circuit Judges.
    (Filed May 13, 1999)
           Wolk & Genter
           1710-12 Locust Street
           Philadelphia, PA 19103
    Counsel for Appellant
    *Honorable Harry Wellford, United States Circuit Judge for the United
    States Court of Appeals for the Sixth Circuit, sitting by designation.
           Foglia & Altieri
           25 East Salem Street
           Hackensack, NJ 07601
           PINO & ASSOCIATES
           Westchester Financial Center
           White Plains, NY 10606
           Counsel for Appellees
    BECKER, Chief Judge.
    New Jersey's entire controversy doctrine is an extremely
    robust claim preclusion device that requires adversaries to
    join all possible claims stemming from an event or series of
    events in one suit. Animated by the laudable goal of easing
    the burdens of excessive litigation, the doctrine was
    developed in the domestic context, precluding suits in New
    Jersey courts based on disputes that were previously the
    subject of litigation in New Jersey courts. It has attained
    interjurisdictional proportions, however, and has been used
    in New Jersey to preclude claims based on a failure to effect
    joinder in previous litigation in non-New Jersey courts,
    where such joinder was not required by those courts' own
    rules. The repercussions of the doctrine have prompted
    adverse scholarly comment. See generally Symposium:
    Entire Controversy Doctrine, 28 Rutgers L.J. 1 (1996).1
    This case began with a helicopter crash, though the facts
    have little bearing on the issue before us. We must decide
    whether a federal court in New Jersey should, when
    1. Until quite recently the entire controversy doctrine required party as
    well as claim joinder. The party joinder aspect of the doctrine, the focus
    of the lion's share of the criticism, has now been eliminated. See N.J. R.
    Civ. Pro. 4:30A. However, the interjurisdictional claim preclusion
    problem, also the subject of considerable scholarly criticism, remains.
    exercising its diversity jurisdiction, apply the entire
    controversy doctrine to bar the plaintiff from asserting
    claims against the defendants because they were not
    asserted in prior litigation involving the instant parties and
    others in federal courts in Pennsylvania, New York, and
    New Jersey. We conclude that we should not. Disagreeing
    with the District Court, which barred the plaintiff 's claim,
    we hold that federal courts should apply the general rule
    that the preclusive effect of a judgment is determined by
    the preclusion law of the issuing court--in this case, a
    federal court. We will, therefore, reverse the District Court's
    grant of summary judgment to the defendants on the
    plaintiff 's tort claims and remand for further proceedings.
    We will also uphold the District Court's determination of
    the amount owed to defendant Agusta Aerospace
    Corporation ("AAC") on its counterclaims, but we will vacate
    the judgment on the counterclaims pending disposition of
    Paramount's tort claims.
    I. Facts and Procedural History
    On October 10, 1989, an Agusta 109A helicopter crashed
    in New Jersey, killing the pilot, co-pilot, and three
    passengers, who were top-echelon employees of the Trump
    Hotel and Casino enterprises. The helicopter was
    manufactured by Costruzioni Aeronautiche Giovanni
    Agusta ("CAGA") and purchased by AAC. CAGA is a
    subsidiary of Agusta S.p.A. and a part of Gruppo Agusta.
    AAC is CAGA's wholly-owned U.S. subsidiary. These are the
    "Agusta defendants." AAC sold the helicopter to Clifton Park
    Association, which sold it to FSQ Air Charter Corporation
    ("FSQ"). Paramount Aviation, Inc. ("Paramount") arranged
    for this sale to FSQ and contracted with FSQ to manage the
    aircraft and to supply one of the two pilots who operated it.
    The first lawsuit arising from the crash was Kent v.
    Costruzioni Aeronautiche Giovanni Agusta, Gruppo Agusta,
    Agusta Aviation Corp., & Paramount Aviation, Inc. ("Kent"),
    filed in the United States District Court for the Eastern
    District of Pennsylvania, on March 30, 1990, by the widow
    and estate of co-pilot Robert Kent. The Agusta defendants
    filed answers asserting cross-claims against Paramount for
    contribution and indemnification, and Paramount's answer
    included cross-claims against the Agusta defendants for
    contribution and indemnification, but no affirmative claims.
    This case settled on November 27, 1990, for $3,150,000, of
    which the Agusta defendants paid $2,900,000 and
    Paramount paid $250,000.
    Second came Trump Taj Mahal Assoc., Trump Castle
    Assoc., Trump Plaza Assoc., & Helicopter Air Services, Inc. v.
    Costruzioni Aeronautiche Giovanni Agusta, Agusta, Gruppo
    Agusta, Agusta Aviation Corp., & Paramount Aviation Corp.
    ("Trump"), filed in 1990 in the Superior Court of New Jersey
    and immediately removed to federal court. Prior to serving
    answers, the defendants filed motions for summary
    judgment, and the district court dismissed all counts,
    ruling that the plaintiff-employers were not entitled to
    recover under any of the theories they had alleged. See
    Trump Taj Mahal Assoc. v. Costruzioni Aeronautiche
    Giovanni Agusta, S.p.A., 
    761 F. Supp. 1143
     (D.N.J. 1991),
    aff 'd mem., 
    958 F.2d 365
     (3d Cir.), cert. denied, 
    506 U.S. 826
     (1992). Paramount and the Agusta defendants asserted
    no cross-claims against each other, nor was there occasion
    for them to do so after the summary judgment motions
    were granted.
    Next came FSQ Air Charter Corp. v. Costruzioni
    Aeronautiche Giovanni Agusta, Agusta, Gruppo Agusta, &
    Agusta Aviation Corp. ("FSQ"),filed in 1991 in the United
    States District Court for the Eastern District of New York.
    AAC filed a third-party complaint against Paramount, and
    Paramount answered without raising affirmative defenses
    or counterclaims. The parties' insurers defended the action,
    which was settled in June 1992 with an exchange of
    mutual releases that specifically excluded the claims in the
    case before us.
    Fourth was Paramount Aviation Corp. v. Gruppo Agusta,
    Agusta Aviation Corp., Costruzioni Aeronautiche Giovanni
    Agusta, & Agusta S.p.A. ("PAC I"),filed in the United States
    District Court for the District of New Jersey in 1990. That
    complaint alleged seven counts of tortious behavior,
    including negligence, willful misconduct, and strict tort
    liability. Paramount claimed that the crash caused it
    adverse publicity, public hostility, loss of clients and
    goodwill, loss of income, and other damages. On August 16,
    1990, the complaint was voluntarily dismissed under
    Federal Rule of Civil Procedure 41, without prejudice, prior
    to answer. Kent was still pending at that point, and Trump
    was on appeal.
    Finally, PAC II, the instant case, was filed in New Jersey
    Superior Court in 1991. Alleging the same damages as PAC
    I, plaintiff Paramount stated two counts: (1) negligence,
    gross negligence, and willful and reckless misconduct; and
    (2) strict tort liability. Paramount claimed damages as a
    result of the Agusta defendants' manufacturing and design,
    which allegedly caused the crash. The case was removed,
    and the Agusta defendants (except for "Gruppo Agusta,"
    which seems to be an umbrella name without independent
    corporate existence) filed answers in October 1992, while
    AAC also stated a counterclaim against Paramount for
    amounts allegedly owed for another Agusta helicopter and
    for payments for spare parts, service, and training.
    Although the complaint contained a certification about
    Trump and FSQ, as required by N.J. Rule 4:5-1, the Agusta
    defendants did not raise the entire controversy doctrine in
    their answers. The defendants first raised the entire
    controversy doctrine in February 1996 and filed a summary
    judgment motion on that ground in February 1997.
    The District Court granted summary judgment against
    Paramount on its claim, reasoning that the claim was
    barred by the entire controversy doctrine. It then granted
    summary judgment for AAC on the counterclaim.
    Paramount appeals.
    II. The Entire Controversy Doctrine
    A. Introduction; The District Court's Rationale
    Under the entire controversy doctrine, a party cannot
    withhold part of a controversy for separate later litigation
    even when the withheld component is a separate and
    independently cognizable cause of action. The doctrine has
    three purposes: (1) complete and final disposition of cases
    through avoidance of piecemeal decisions; (2) fairness to
    parties to an action and to others with a material interest
    in it; and (3) efficiency and avoidance of waste and delay.
    See DiTrolio v. Antiles, 
    662 A.2d 494
    , 502 (N.J. 1995). As an
    equitable doctrine, its application is flexible, with a case-by-
    case appreciation for fairness to the parties.
    The entire controversy doctrine is an affirmative defense,
    waived if not pleaded or otherwise timely raised. See Brown
    v. Brown, 
    506 A.2d 29
    , 35 (N.J. Super. Ct. App. Div. 1986).
    Notwithstanding that principle, the District Court held that
    failure to raise the doctrine in a responsive pleading should
    be viewed in light of the federal policy of liberally allowing
    amendments if the issue was raised at a pragmatically
    sufficient time. See Kleinknecht v. Gettysburg College, 
    989 F.2d 1360
    , 1374 (3d Cir. 1993). Although the defendants
    had not formally raised the entire controversy defense until
    their motion for summary judgment, filed in 1997, the
    District Court decided that it would have granted leave to
    amend the pleadings to assert it. See id. at 1374; see also
    Burrell v. Quaranta, 
    612 A.2d 379
     (N.J. Super. Ct. App. Div.
    1992) (entire controversy defense was not foreclosed where
    the trial judge would have granted leave to amend the
    pleading if asked).
    The District Court further determined that Paramount
    was not prejudiced by this decision. The court reasoned
    that, given the lengthy history of litigation over the crash,
    the application of the doctrine could not have been
    unforeseen. Moreover, the court concluded that the long
    delay between the filing of the complaint and the motion for
    summary judgment was not prejudicial because it was
    largely the result of Paramount's failure to prosecute the
    action vigorously.2 The court further found that the Kent
    litigation offered Paramount an opportunity to bring its
    claim against the Agusta defendants; Paramount had
    brought cross-claims for contribution and indemnification
    in that case.
    Paramount argued that the doctrine should not apply
    when all the previous actions, as well as the instant one,
    were federal, but the District Court reasoned that the
    doctrine had routinely been applied in federal court. See,
    e.g., Petrocelli v. Daniel Woodhead Co., 
    993 F.2d 27
     (3d Cir.
    2. The parties strenuously dispute the causes and effects of the delay,
    but, as we need not reach the issue, we will not address it in greater
    1993). Paramount maintained that the doctrine was
    procedural. The court responded that it was not
    "procedural" simply because it was codified in a rule of
    procedure; as a creature of state common law, the entire
    controversy doctrine was to be applied federally under the
    rule of Erie R.R. Co. v. Tompkins, 
    304 U.S. 64
    Paramount urges that the District Court abused its
    discretion in its application of the equitable considerations
    behind the entire controversy doctrine. The District Court,
    of course, has great discretion in matters of this sort.
    However, we need not reach the issue, because wefind that
    the entire controversy doctrine is not the right preclusion
    doctrine for a federal court to apply when prior judgments
    were not entered by the courts of New Jersey.
    B. Foreign Application of the Entire Controversy Doctrine
    In order to decide whether to apply New Jersey law or
    federal law, we must follow the rules laid down in Erie and
    its progeny. We are required to weigh the significance and
    substantive character of the state preclusion rule, and the
    likelihood that application of the federal rule would produce
    forum-shopping by parties, against the importance of the
    federal interests underlying the federal rule. See Byrd v.
    Blue Ridge Rural Elec. Co-op., Inc., 
    356 U.S. 525
    , 535-40
    (1958). If a rule is outcome-determinative, so that applying
    the federal rule would change the result of a casefiled in
    federal court from the result in an identical state court
    case, it is likely to affect parties' decisions where to litigate,
    and applying the state rule is generally appropriate. On the
    other side, a strong federal policy embodied in
    constitutional principles or federal law justifies the
    application of a federal rule. In this case, the relevant
    federal interests are embodied in Federal Rule of Civil
    Procedure 13, which establishes federal claim joinder rules,
    and in federal principles of res judicata. We conclude that
    New Jersey's interest in the entire controversy doctrine,
    while weighty, does not require us to adopt it in order to
    decide the preclusive effects of non-New Jersey cases.
           1. The Parties' Contentions
    Paramount notes that none of the lawsuits filed in the
    aftermath of the accident was litigated in New Jersey state
    court (three were brought in federal court and two were
    removed).3 It argues that the New Jersey Rules of Court
    containing the entire controversy doctrine are procedural
    and therefore should not be applied in federal court.
    Paramount also submits that New Jersey's interest in
    preserving the resources of its courts is minimal, if not
    absent, here, where all of the prior cases were litigated
    outside of the New Jersey courts. See Henkels & McCoy,
    Inc. v. Adochio, 
    906 F. Supp. 244
    , 249 (E.D. Pa. 1995)
    (declining to apply the doctrine where both the previous
    case and the instant case were in the Eastern District of
    Paramount further contends that, when a prior decision's
    preclusive effect is examined, it is the prior jurisdiction's
    preclusion law that should generally be applied. See
    Restatement (Second) of Judgments S 87 (1982). Paramount
    reasons that federal preclusion law should apply to
    determine the preclusive effects of federal diversity
    judgments. In the absence of a prior New Jersey judgment
    on the merits, Paramount maintains, we have no reason to
    apply New Jersey's supercharged preclusion doctrine.
    The defendants respond that the Full Faith and Credit
    Act, 28 U.S.C. S 1738 (1994), requires a federal court
    hearing a New Jersey tort claim to be bound by New Jersey
    3. Paramount submits, and the Agusta defendants do not challenge, that
    the fact that actions were originally commenced in state court is
    irrelevant. Once removed, jurisdiction in the District Court is original
    and federal procedure applies. Moreover, the state courts have expended
    negligible resources on the removed case; New Jersey courts do not
    apply the doctrine when a prior case was pending for only a few days
    and no notable activity took place. Cf. Hulmes v. Honda Motor Co., 
    924 F. Supp. 673
     (D.N.J. 1996) (declining to apply the doctrine when the first
    action was only pending in New Jersey state court for one week before
    its voluntary dismissal); Karpovich v. Barbarula, 
    696 A.2d 659
    1997) (holding that a settlement did not require application of the
    doctrine where there were only seven days between the state court filing
    and the entry of a consent judgment and virtually no judicial resources
    were used).
    substantive law, of which the entire controversy doctrine is
    a part. See Rycoline Prods., Inc. v. C&W Unltd., 
    109 F.3d 883
    , 887 (3d Cir. 1997). We note some initial discomfort
    with this description, as we believe that the entire
    controversy doctrine, like all preclusion doctrine, should
    generally be characterized as procedural. We take up
    Rycoline and the substance/procedure divide infra, noting
    here only that the Supreme Court has long instructed us
    that the substance/procedure line is not dispositive when
    federal courts must choose which sovereign's law to apply.
    See Guaranty Trust Co. v. York, 
    326 U.S. 99
    The defendants also point out that federal courts have
    occasionally applied the entire controversy doctrine to
    determine the effects of non-New Jersey judgments, but the
    parties in prior decisions have not contested the application
    of the doctrine.4 Nor have we resolved the broader issue of
    whether federal or state res judicata law governs successive
    diversity actions. See Venuto v. Witco Corp., 
    117 F.3d 754
    758 & n.7 (3d Cir. 1997). We have, however, decided that
    federal law governs the preclusive effect of a prior diversity
    judgment on a subsequent federal question case. See In re
    143 F.3d 807
    , 814-15 (3d Cir. 1998). We noted in
    Kaplan that the Supreme Court used federal law to
    determine the preclusive effect of a prior diversity judgment
    in Heiser v. Woodruff, 
    327 U.S. 726
     (1946). Though the
    issue was not then before us, we also suggested that the
    rationale for applying federal preclusion law to determine
    4. The entire controversy doctrine has indeed been invoked when the
    previous suit was in another state or in a federal court. Melikian v.
    791 F.2d 274
     (3d Cir. 1986), applied the entire controversy
    doctrine, though its only preclusive effect was on a corporation that may
    not even have been a party to the second lawsuit. See id. at 280 & n.3.
    Melikian assumed that the doctrine applied to successive diversity cases
    in New Jersey and did not address the choice of law question. Thus, it
    does not control our decision today. Similarly, in Itzkoff v. F&G Realty,
    890 F. Supp. 351
     (D.N.J. 1995), the first action was in New York
    state court and the second in New Jersey federal court. The parties and
    the court assumed that the entire controversy doctrine governed. See
    Itzkoff, 890 F. Supp. at 355. The court found that New Jersey (state)
    courts would apply the doctrine to foreign proceedings "where fairness so
    required." Id. at 356. The parties did not broach the specific issue of a
    federal court's application of the doctrine.
    the effects of a prior diversity judgment on a later federal
    question case was quite similar to the rationale for doing so
    in a later diversity case. See Kaplan, 143 F.3d at 815 n.15.
           2. Relevant Case Law
    We find two New Jersey decisions particularly helpful in
    elucidating New Jersey's view of the entire controversy
    doctrine. In Watkins v. Resorts International Hotel & Casino,
    591 A.2d 592
     (N.J. 1991), the New Jersey Supreme
    Court acknowledged the general rule that the preclusive
    effect of a judgment is determined by the law of the
    jurisdiction that rendered it, as a logical consequence of the
    procedures of the issuing court. See id. at 598. This rule
    affects the application of the entire controversy doctrine in
    New Jersey state court. Only in "limited circumstances"
    may the doctrine preclude an action not otherwise
    precluded by the res judicata effects of a federal decision.
    See id. at 598-99. The court held that it was essential to
    consider the federal law of claim preclusion in determining
    whether to apply the entire controversy doctrine, as an
    equitable matter, in state court cases. See id. at 599.
    Watkins thus suggests that New Jersey recognizes the
    interests of other jurisdictions that have differing preclusion
    In Mortgagelinq Corp. v. Commonwealth Land Title Ins.
    662 A.2d 536
     (N.J. 1995), the New Jersey Supreme
    Court applied the entire controversy doctrine to a plaintiff
    who had previously sued on the same underlying facts in
    the federal District Court for the Eastern District of
    Pennsylvania. Almost a year earlier, a mortgage lender had
    brought an action in the latter court against Pennsylvania-
    based companies and individuals who were allegedly the
    central figures in a fraudulent scheme involving mortgage
    financing, and the Federal Home Loan Mortgage
    Corporation ("Fannie Mae") had intervened as a plaintiff.
    The second case was brought in New Jersey state court by
    the lender and Fannie Mae against New Jersey-based
    companies and individuals who participated in the same
    mortgage transactions and who were allegedly accessories
    in the same scheme.
    Mortgagelinq stated decisively that the entire controversy
    doctrine is procedural, and that it was formulated
    specifically to preserve the resources of New Jersey courts.5
    The Court held that the doctrine bars suits in New Jersey
    against parties who could have been joined in an earlier
    suit in another state or in federal court. The result was
    binding only in New Jersey, however; other jurisdictions
    could permit litigation against earlier-omitted defendants
    despite a New Jersey decision dismissing an action on
    entire controversy grounds. The decision thus attempted to
    cabin the effect of the doctrine outside of New Jersey
           We hold that when a party deliberately chooses to
           fragment litigation by suing certain parties in another
           jurisdiction and withholds claims against other parties,
           a New Jersey court need not later entertain the claims
           against the omitted parties if jurisdiction was available
           in the first forum. In doing so we do not export our
           entire controversy doctrine to other jurisdictions, but
           merely hold that our notions of procedural fairness do
           not permit the claims that could have been brought
           elsewhere to be brought in New Jersey. This ruling
           presupposes that when the procedural rules of foreign
           jurisdictions permit the omitted claims to be brought
           later, the foreign jurisdiction is free to entertain such
           claims. Just as we do not seek to export our
           procedural requirements of party joinder, we do not
           seek to export any preclusive effect to our rules of
           party joinder.
            . . . .
    5. Guaranty Trust Co. announced that"[i]t is . . . immaterial whether
    statutes of limitation are characterized either as`substantive' or
    `procedural' in State court opinions in any use of those terms unrelated
    to the specific [Erie] issue before us." Guaranty Trust Co., 326 U.S. at
    109. Mortgagelinq, however, is intimately related to the choice of law
    issue, and thus we do not believe that Justice Frankfurter's conclusion
    precludes us from considering that case. More importantly, we believe
    that Watkins and Mortgagelinq provide insight into the scope of New
    Jersey's interest in its doctrine, an issue that is distinct from the
    doctrine's location on the substance/procedure line.
            One of the underpinnings of the entire controversy
           doctrine, in addition to fairness to the parties, is
           fairness to the system of judicial administration.
           "Judicial economy and efficiency--the avoidance of
           waste and delay--remain constants in the application
           of the entire controversy doctrine. Fragmented and
           multiple litigation takes its toll on not only the parties
           but the judicial institution and the public." Each
           jurisdiction is free to assess the importance of such
           values. . . .
            If Pennsylvania courts do not have a comparable
           party-joinder rule, principles of comity suggest that
           New Jersey should not seek to export its entire
           controversy doctrine to regulate the conduct of
           attorneys in that jurisdiction. In other words, attorneys
           conducting litigation in Pennsylvania courts should not
           have to accommodate their practices to the demands of
           New Jersey courts. A corollary of that proposition,
           however, is that New Jersey courts need not
           necessarily grant relief when parties deliberately refrain
           from seeking relief in other jurisdictions when doing so
           would have been much fairer to all parties involved.
           There is a delicate balance between the interests of the
           two jurisdictions that must accommodate the interests
           of justice. . . .
            . . . .
            Maintaining a cohesive federal system (and the Full
           Faith and Credit Clause melds the state courts into
           that system) does not require that the other parts of
           the federal system honor our entire controversy
    Mortgagelinq, 662 A.2d at 537, 540, 541, 542 (citations
    The Mortgagelinq court mentioned that "the federal courts
    are considered those of another sovereign," id. at 541, and
    suggested that the application of the doctrine in a diversity
    action in New Jersey federal court might be governed by
    choice of law principles, indicating that the court did not
    necessarily expect federal courts in New Jersey to apply the
    doctrine exactly as the state courts would. See id. at 542.
    Thus, while Mortgagelinq continued to embrace an
    expansive view of the doctrine within New Jersey state
    courts, it heralded an awareness of the doctrine's limits
    when interjurisdictional problems were involved. While New
    Jersey cannot, of course, control our understanding of the
    relevant federal law, we consider Watkins and Mortgagelinq
    useful explications of the justifications for the doctrine, and
    hence of New Jersey's interests. We turn, therefore, to an
    assesment of the relevant state and federal interests.
           3. Analysis of the Relevant State and Federal Interests
            a. The Import of Rycoline
    Rycoline held that a federal court deciding a federal cause
    of action is bound by the entire controversy doctrine when
    determining the effect of a prior New Jersey state court
    judgment. The court characterized the doctrine as "an
    aspect of the substantive law of New Jersey, by virtue of the
    Full Faith and Credit Act." Rycoline, 109 F.3d at 887. Thus,
    the plaintiffs, who had filed a previous suit in New Jersey
    state court, were subject to the rigors of the entire
    controversy doctrine when they filed a second suit in New
    Jersey federal court, although they were able to proceed
    because we decided that New Jersey would not apply the
    doctrine while the first suit was still pending.
    The defendants claim that the just-quoted phrase from
    Rycoline obligates us to apply the entire controversy
    doctrine as part of New Jersey substantive law under Erie.
    We believe that the question is slightly more complex. The
    Full Faith and Credit Act provides that the judicial
    proceedings of a state court shall have the same full faith
    and credit within every court in the United States as they
    have by law or usage in the courts of the issuing state.
    Thus, federal courts must give the same preclusive effect to
    a state court judgment as another court of that state
    would, unless to do so would violate due process. See
    Rycoline, 109 F.3d at 887. In this case, there are only
    federal judgments, and the Full Faith and Credit Act is not
    by its terms applicable. It is usually thought that federal
    judgments receive full faith and credit by virtue of federal
    common law. See, e.g., Ronan Degnan, Federalized Res
    Judicata, 85 Yale L.J. 741, 744-50 (1976) (discussing the
    development of the rule requiring respect for federal
    judgments); cf. Embry v. Palmer, 
    107 U.S. 3
    , 10 (1883)
    ("[T]he judgments of the courts of the United States have
    invariably been recognized as upon the same footing, so far
    as concerns the obligation created by them, with domestic
    judgments of the states, wherever rendered and whereever
    [sic] sought to be enforced.").
    To the extent that Rycoline labelled the entire controversy
    doctrine "substantive" for purposes of the Full Faith and
    Credit Act, we conclude that it meant only that New Jersey
    law governed the preclusive effects of an earlier New Jersey
    state court judgment. This is exactly what the Act requires.
    See University of Tennessee v. Elliott, 
    478 U.S. 788
    , 794
    (1986). We decline to read one phrase in a decision that
    depended on completely different issues as determining the
    result in this case. Rather, our interpretation of Rycoline
    renders it consistent with the long line of New Jersey cases
    labelling the entire controversy doctrine "procedural." See,
    e.g., Oliver v. Ambrose, 
    705 A.2d 742
    , 746 (N.J. 1998);
    Harley Davidson Motor Co. v. Advance Die Casting, Inc., 
    696 A.2d 666
    , 668 (N.J. 1997); Mortgagelinq; Woodward-Clyde
    Consultants v. Chemical & Pollution Sciences, Inc. ,
    523 A.2d 131
    , 135 (N.J. 1987). At all events, the
    substance/procedure divide is not necessarily the
    controlling factor in determining when a federal court must
    apply state law. See Guaranty Trust Co., 326 U.S. at 109-
    Under Mortgagelinq, a dismissal on entire controversy
    grounds is not a dismissal on the merits; this rule helps to
    ensure that the doctrine will not have untoward
    extraterritorial effects.6 However, New Jersey law still
    6. The characterization of an entire controversy-based dismissal as one
    not on the merits only matters when the prior decision to which New
    Jersey applies the doctrine is not handed down by a New Jersey state
    court. When the first decision issues from a New Jersey court, that case
    carries its own preclusive effect, deserving of full respect in the courts
    other jurisdictions. If there is a second New Jersey case that is
    on entire controversy grounds, and then a third federal case, we might
    also give the second New Jersey case preclusive effect on the issue of the
    determines the preclusive effects of a prior New Jersey state
    court judgment on the merits, as in Rycoline.
            b. New Jersey's Interests and the Risks of Forum-
    New Jersey's main justification for the doctrine, its
    interest in preserving its judicial resources, is minimized
    when none of the prior litigation took place in New Jersey
    state courts. See Rochelle Cooper Dreyfuss & Linda J.
    Silberman, Interjurisdictional Implications of the Entire
    Controversy Doctrine, 28 Rutgers L.J. 123, 156 (1996). New
    Jersey state courts still apply the doctrine in such cases,
    which conserves some of New Jersey's judicial resources by
    precluding subsequent litigation in New Jersey. By
    contrast, when both prior and subsequent litigation takes
    place outside the New Jersey state courts, it is hard to see
    any New Jersey resource interest whatsoever, except
    inasmuch as the size of the federal docket indirectly affects
    the state courts.
    The risk of unfair surprise is also heightened where the
    initial litigation did not take place in New Jersey; it may be
    difficult for responsible lawyers to predict that litigation in
    New York or California will close the New Jersey federal
    courts to future claims. See id. at 169; cf. Electro-Miniatures
    Corp. v. Wendon Co., 
    889 F.2d 41
    , 45 & n.6 (3d Cir. 1989)
    (expressing the concern that, if the entire controversy
    doctrine were applied to out-of-state judgments in New
    Jersey federal court, other jurisdictions would be adversely
    affected by the need to tailor litigation to avoid preclusion
    in New Jersey). But see Perry Dane, Dignity and Glorious
    Chaos: A Comment on the Interjurisdictional Implications of
    the Entire Controversy Doctrine, 28 Rutgers L.J. 173 (1996)
    (arguing that the problems with the doctrine are
    overstated). Given New Jersey's recognition, in Watkins and
    application of the entire controversy doctrine to the facts, see 18 Wright
    et al., Federal Practice & Procedure S 4418, at 171 (1981) (discussing the
    preclusive effects of determinations that do not go to the merits), but we
    need not delve further into these murky preclusion waters to decide the
    case before us.
    Mortgagelinq, that other jurisdictions have significantly
    different preclusion doctrines and a strong interest in giving
    effect to those doctrines, we do not believe that a decision
    requiring federal courts to apply federal preclusion law
    would depreciate New Jersey law.
    Some commentators have argued that Mortgagelinq was
    wrongly decided and that the Full Faith and Credit Act does
    not give New Jersey the freedom to give other courts'
    decisions greater preclusive effect than those courts would
    allow. See Stephen B. Burbank, Where's the Beef? The
    Interjurisdictional Effects of New Jersey's Entire Controversy
    Doctrine, 28 Rutgers L.J. 87 (1996). Professor Burbank
    argues that Mortgagelinq works against the compelling
    interest in national unity by requiring litigants in other
    states to consider the preclusive effects of their cases on
    future cases in New Jersey, regardless of the preclusion law
    of the state in which they file complaints. He concludes
    that, regardless of New Jersey state court practice, federal
    courts in New Jersey should apply standard preclusion law,
    rather than the entire controversy doctrine, to the
    judgments of non-New Jersey courts. See Burbank, supra,
    at 100-01; see also Dreyfuss & Silberman, supra, at 157-
    Professor Burbank further argues that, when a federal
    court in New Jersey tries to resolve this conundrum, it
    should apply the Full Faith and Credit Act rather than Erie
    balancing. Judicial balancing would be unnecessary,
    because Congress has explicitly instructed courts how to
    treat the judgments of state courts. See Burbank, supra, at
    103 n.82. Thus, if the previous litigation involved in this
    case had taken place in a state court, we would, as a
    matter of course, give it the preclusive effect it would have
    in that state's courts.
    Though we find this argument persuasive, it does not
    dispose of this case, because the Full Faith and Credit Act
    does not by its terms apply here. When the prior decision
    is a federal decision, the Act applies only by analogy. And
    in that case, it is important to look to Erie principles to
    decide which sovereign's law to apply. The Full Faith and
    Credit Act has an important implication, however: If the Act
    instructs New Jersey federal courts how to determine the
    preclusive effect of state decisions, there is a compelling
    argument for treating federal cases similarly. There is no
    good reason to apply New Jersey entire controversy law to
    determine the preclusive effects of a federal diversity case
    from Pennsylvania when the preclusive effects of the same
    case would have been governed by the law of the issuing
    court if it had been litigated in Pennsylvania state court. To
    make different rules for the two types of cases would be
    absurd, and would only move the potential forum-shopping
    problem back one level further, to the initial non-New
    Jersey litigation.
    We note another factor that diminishes the force of the
    Erie concerns that generally lead to application of state law.
    Our Erie jurisprudence counsels us to avoid situations in
    which parties who can invoke federal jurisdiction are
    treated differently from those who cannot. Because we are
    considering a preclusion doctrine, the question is whether
    parties who can invoke federal jurisdiction will be able to
    litigate claims that will be precluded for parties who cannot.
    The risk of inequitable preclusion is minimal, for the
    following reason: This situation arises only when there has
    been previous litigation outside the New Jersey state
    courts. However, the entire controversy doctrine would only
    bar a subsequent New Jersey suit if the first forum would
    have had jurisdiction over the claims raised in that
    subsequent suit. It therefore follows that there was an
    alternate non-New Jersey forum for the relevant claims,
    although in some cases that forum would be another state
    court. The relevant point is that no plaintiff in this situation
    will find itself entirely unable to litigate its claims; even if it
    is not able to take advantage of federal jurisdiction, it will
    have another state in which to bring its claims.7
    7. It is possible, of course, that a party who has already participated in
    a foreign lawsuit will mistakenly file a second suit in New Jersey state
    court and will lose on entire controversy grounds after the statute of
    limitations for filing a claim elsewhere has run, although it is not
    clear that a plaintiff in such a situation would be subject to the
    See Erenberg v. Cordero, 
    683 A.2d 567
    , 574 (N.J. Super Ct. App. Div.
    1996) (Stern, J., concurring) (stating that the doctrine should only be
    applied to the judgments of foreign courts if the plaintiff 's claim is
    actually capable of being litigated in some non-New Jersey court). After
    Any resulting disparity is no more than the disparity
    created by the very existence of diversity jurisdiction, which
    allows some parties the option of going to federal court
    whereas others with identical causes of action cannot.8
    While a decision to apply federal preclusion law would be
    outcome-determinative in this case, therefore, it would not
    ex ante cut off or extend any substantive rights that a
    plaintiff would have in the absence of a New Jersey federal
    forum, and would be unlikely to encourage significant
    Our analysis can be summarized as follows: New Jersey
    has no significant interest in controlling the dockets of
    other court systems. Moreover, application of a federal rule
    in the rather unusual circumstances here would be
    unlikely to create unfairness by causing different results in
    our decision, a plaintiff who files in New Jersey federal court will not
    "mistaken," and will not face this dilemma. Thus, there is a possibility
    that results will differ in some cases. However, Erie rules were designed
    to avoid conscious forum-shopping, not to increase the risks of
    carelessness or unfamiliarity with state law.
    8. The decision to apply federal preclusion law affects forum choice in
    this sense only: A well-informed plaintiff might be able to split claims
    between some foreign court and a New Jersey federal court that, if the
    federal court applied the entire controversy doctrine, it would otherwise
    consolidate in the foreign court. But this is not the forum-shopping
    between state and federal court that Erie decried; it is claim-splitting,
    which presents different issues. As long as the plaintiff adheres to the
    other jurisdictions' rules of joinder, we do not think that any inequity
    has occurred. It is theoretically possible that variations between New
    Jersey choice-of-law doctrines and the choice-of-law doctrines of other
    jurisdictions might change the outcome on such a split claim, but we
    doubt that parties will base their forum choices on such exotic
    9. Relatedly, the forum-shopping concern is diminished simply because
    successive litigation is less common than litigation in the first
    there are many factors that go into a decision tofile a second lawsuit,
    and we doubt that a decision to apply federal preclusion law will
    substantially alter the relevant incentives. In this case, Paramount was
    not even the initial plaintiff in the pre-PAC lawsuits; in a real sense,
    Paramount had very little choice over those fora, even though it filed
    counterclaims and cross-claims.
    federal court than in state court or to cause significant
    forum-shopping. The issues of outcome-determinativeness
    and a consequent incentive to forum-shop are not free from
    doubt, however. Therefore, it is important for us to
    determine whether there is a significant federal interest
    counseling application of the federal rule. See Fauber v.
    KEM Transp. & Equip. Co., 
    876 F.2d 327
    , 331 (3d Cir.
    1989). It is to this question that we now turn.
            c. The Federal Interest
    Federal courts have a significant interest in determining
    the preclusive effects of federal judgments. See Kaplan, 143
    F.3d at 815 n.15 (citing cases). Kaplan applied federal law
    to determine the preclusive effects of a diversity judgment
    on a subsequent federal question case. We believe that its
    logic is equally applicable here, when successive diversity
    cases are at issue. The source of federal jurisdiction over
    the second case should not affect our analysis, because we
    are concerned with the preclusive effect of the first. As the
    Second Circuit has put it:
           One of the strongest policies a court can have is that
           of determining the scope of its own judgments. . . . It
           would be destructive of the basic principles of the
           Federal Rules of Civil Procedure to say that the effect
           of a judgment of a federal court was governed by the
           law of the state where the court sits simply because
           the source of federal jurisdiction is diversity.
    Kern v. Hettinger, 
    303 F.2d 333
    , 340 (2d Cir. 1962). We
    Paramount persuasively argues that we should apply the
    general federal rule that the preclusive effects of prior cases
    are determined by the law of the prior forum. Applying the
    federal rule would also give effect to the joinder rules of the
    Federal Rules of Civil Procedure, which define the claims
    that parties must join if they are not to be later barred. Cf.
    Hanna v. Plumer, 
    380 U.S. 460
     (1965) (the strong federal
    policies embodied in the Federal Rules of Civil Procedure
    justify a refusal to apply an outcome-determinative state
    procedural rule); Byrd (outcome-determinative state
    procedural rules do not need to be applied when they are
    not an integral part of the underlying substantive right and
    there is a strong countervailing federal policy, such as the
    policy against disrupting the allocation of power between
    judge and jury in federal court). Paramount draws further
    support from the scholarly opinion in Fioriglio v. City of
    Atlantic City, 
    963 F. Supp. 415
     (D.N.J. 1997), which
    engaged in a calculus similar to ours; Judge Irenas
    concluded, as we do, that federal joinder and preclusion
    rules embody an important federal policy that weighs
    heavily against applying the entire controversy doctrine in
    these circumstances. See id. at 424.
            d. Summary and Conclusion
    We conclude that respecting courts' power to determine
    the preclusive effects of their own rulings is a significant
    federal interest. In particular, the claim joinder provisions
    of the Federal Rules of Civil Procedure express a federal
    policy about what claims must be joined to avoid later
    preclusion. Applying New Jersey preclusion law to
    determine the preclusive effects of federal cases would
    frustrate the policy embodied in the Rules, and we decline
    to do so. Instead we will follow the federal rule that the law
    of the issuing court--here, federal law--determines the
    preclusive effects of a prior judgment.10
    In reaching this result, clearly foreshadowed by Kaplan,
    we follow the majority of circuits to confront the issue of
    the law to be applied in successive diversity cases. See, e.g.,
    J.Z.G. Resources, Inc. v. Shelby Ins. Co., 
    84 F.3d 211
    , 213-
    14 (6th Cir. 1996); Havoco, Ltd. v. Freeman, Atkins &
    Coleman, Ltd., 
    58 F.3d 303
    , 307-08 (7th Cir. 1995);
    Johnson v. SCA Disposal Servs., 
    931 F.2d 970
    , 974 (1st Cir.
    1991); Empire Fire & Marine Ins. Co. v. J. Transport, Inc.,
    880 F.2d 1291
    , 1293 n.2 (11th Cir. 1989); Shoup v. Bell &
    Howell Co., 
    872 F.2d 1178
    , 1179 (4th Cir. 1989); Aerojet-
    General Corp. v. Askew, 
    511 F.2d 710
    , 715-18 (5th Cir.
    1975); Kern, 303 F.2d at 340 (Second Circuit). But see
    Follette v. Wal-Mart Stores, Inc., 
    41 F.3d 1234
    , 1237 (8th
    10. We need not resolve here whether particular aspects of preclusion,
    such as privity, are "substantive" and are governed by state law. Cf.
    Lubrizol Corp. v. Exxon Corp., 
    929 F.2d 960
    , 962 n.2 (3d Cir. 1991).
    Cir. 1994) (applying state law); Pardo v. Olson & Sons, Inc.,
    40 F.3d 1063
    , 1066 (9th Cir. 1994) (same).
    Since we have decided that federal law, rather than the
    entire controversy doctrine, applies, the obvious question
    is: What is the federal law? However, the Agusta defendants
    have not argued, either in the District Court or this court,
    that federal preclusion principles bar Paramount's suit. We
    thus deem a possible res judicata argument waived. See
    Security Servs., Inc. v. K Mart Corp., 
    996 F.2d 1516
    , 1519
    (3d Cir. 1993); Brenner v. Local 514, United Bhd. of
    Carpenters & Joiners, 
    927 F.2d 1283
    , 1298 (3d Cir. 1991).11
    11. We doubt that such a claim would be meritorious in any event. The
    preclusion inquiry in this case is essentially identical to the question
    whether Paramount's tort claims were compulsory in any of the earlier
    lawsuits. See Publicis Communication v. True North Communications Inc.,
    132 F.3d 363
    , 365 (7th Cir. 1997). There is no compulsory cross-claim
    rule in the federal system, see Wolfe v. Safecard Servs., 
    873 F. Supp. 648
    , 649 (S.D. Fla. 1995), and therefore the Trump suit clearly does not
    preclude this suit.
    The Kent suit raises a somewhat trickier issue, because Paramount
    and the Agusta defendants filed cross-claims for contribution and
    indemnification against one another in that case. Arguably, the filing of
    a cross-claim makes parties "opposing parties" within the meaning of
    Federal Rule of Civil Procedure 13. See Schwab v. Erie Lackawanna R.R.
    438 F.2d 62
    , 66 (3d Cir. 1971) (dicta). A conversion into "opposing
    party" status would imply that, although cross-claims are never
    compulsory in themselves, the filing of one cross-claim would trigger
    duties on both sides to file all claims that were compulsory under Rule
    13(a). However, we suspect that a compulsory cross-claim rule would be
    limited to situations in which the initial cross-claim included a
    substantive claim, as opposed to claims for contribution and indemnity,
    in order to avoid needless complication of litigation. See Hall v. General
    Motors Corp., 
    647 F.2d 175
    , 184 (D.C. Cir. 1980); Rainbow Mgmt. Group,
    Ltd. v. Atlantis Submarines Hawai'i, L.P., 
    158 F.R.D. 656
    , 660 (D. Haw.
    1994) (cited in 6 Wright et al., Federal Practice & Procedure S 1404, at 2
    (Supp. 1997), for the proposition that filing one cross-claim turns
    coparties into opposing parties). But see Kane v. Magna Mixer Co., 
    71 F.3d 555
    , 562 (6th Cir. 1995) (holding that indemnity claims trigger the
    compulsory cross-claim rule). Thus, the cross-claims for contribution
    and indemnity in Kent would not likely bar the present litigation.
    FSQ, in which AAC filed a third-party complaint against Paramount,
    raises the specter of an omitted compulsory counterclaim that would
    We will therefore vacate the judgment in favor of the
    defendants and remand to the District Court for further
    proceedings on Paramount's tort claims.
    III. The Counterclaims
    In its counterclaims, AAC alleged that it was entitled to
    payments for the lease of one helicopter and for goods and
    services provided for three other helicopters. It presented
    three counterclaims, but the third counterclaim in actuality
    duplicated the claims of the first two, and the District Court
    granted summary judgment on those two. In order to
    prevail on summary judgment, a party stating an
    affirmative claim must come forward with evidence entitling
    it to a directed verdict. See International Shortstop, Inc. v.
    Rally's, Inc., 
    939 F.2d 1257
    , 1264 (5th Cir. 1991).
    The first counterclaim was for $34,629 plus 1.5% interest
    per month for breach of a helicopter lease contract entered
    into on March 20, 1987, and expiring November 15, 1989.
    The second was for $28,159.98 plus 1.5% interest per
    month for breach of a contract for the sale and supply of
    spare parts, services, and training related to three of
    Paramount's helicopters. The third was for an account
    stated between AAC and Paramount for $62,788.98 for
    unpaid lease payments and goods, services, and training,
    plus 1.5% interest per month after September 1989. The
    contracts were governed by Pennsylvania law.
    AAC proffered the relevant lease agreements and invoices,
    and an affidavit from its Vice President of Finance and
    Administration, Vincent Genovese, detailing the amounts
    preclude the present suit. However, we are inclined to think that the
    releases in FSQ, which specifically excluded the PAC claims, would
    operate as a waiver of a preclusion defense. See Publicis, 132 F.3d at
    366; cf. Bristol Farmers Market & Auction Co. v. Arlen Realty & Devel.
    589 F.2d 1214
    , 1220-21 (3d Cir. 1978) (parties are not precluded
    from arbitrating claims that would normally be precluded by the
    compulsory counterclaim rule if they have agreed to arbitrate those
    claims); Restatement (Second) of Judgments S 26(1)(a) (providing that
    parties may agree "in terms or in effect" that a plaintiff may split a
    not paid and calculating the interest due thereunder. For
    its account stated claim, AAC submitted a November 14,
    1991, letter from Genovese to Al Bartone, Paramount's
    president. The letter states:
           This letter shall formalize our agreement in which you
           have agreed to make monthly payments of $3,000
           commencing 1/1/1992 in order to satisfy the debts
           owed by Paramount to Agusta Aerospace. As of October
           31, 1991, the outstanding balance was $88,829.02
           which includes interest of $10,361.00. Interest will
           continue to accrue on the principal amount of the debt
           until it is paid in full.
            Please indicate your agreement with these terms by
           signing below.
    Bartone signed "Agreed" on November 14, 1991. Paramount
    states that, in addition to this letter, it entered into a
    "short-term lease agreement" with AAC on the same day.
    This agreement gave Paramount the right to lease a newer
    model 109 helicopter from AAC for an hourly rental fee, and
    Paramount agreed to attempt to sell this aircraft on
    commission. Paramount contends that this new lease
    agreement was part of a package deal that also included
    the agreement relating to past debts quoted above.
    However, Paramount does not challenge AAC's basic
    underlying evidence regarding the existence and terms of
    the 1987 helicopter lease and the service contract.
    Paramount defended against the account stated claim by
    noting that, although the November 14 Genovese/Bartone
    letter was signed two days after AAC filed counterclaims,
    the amount in the letter differs from that in the
    counterclaim, and the letter makes no mention of those
    counterclaims. Paramount also argued that AAC did not
    submit proof that it demanded payment before filing the
    counterclaims. The District Court found Paramount's
    arguments persuasive to defeat the account stated claim,
    but ultimately irrelevant, because the relief sought on the
    account stated claim was exactly the same relief sought on
    the two breach of contract claims, on which it granted
    summary judgment to AAC. We agree.
    In fact, Paramount did not effectively challenge AAC's
    entitlement to the amounts asserted in the counterclaims,
    except to offer a number of defenses: an argument that the
    November 14 letter constituted an accord and satisfaction
    or a novation; a claim that AAC had waived its
    counterclaims; and various equitable defenses. It also
    asserted a set-off. The District Court rejected these
    defenses. We take them up in turn, except for the equitable
    defenses, which we dispose of summarily in the margin.12
    A. Accord and Satisfaction or Novation
    Paramount contends that there was an accord and
    satisfaction or a novation, based on the November 14 letter.
    An accord and satisfaction is a substitute contract for
    settlement of a debt by some alternative other than full
    payment. See Occidental Chem. Corp. v. Environmental
    Liners, Inc., 
    859 F. Supp. 791
     (E.D. Pa. 1994). The
    consideration is the resolution of a disputed claim. The
    District Court found that the November 14 letter might be
    evidence of an accord, but that there was no evidence that
    Paramount had made payment according to the agreement,
    which is required for satisfaction. See Beechwood Commons
    Condominium Ass'n v. Beechwood Commons Assocs., Ltd.,
    580 A.2d 1
    , 5 n.2 (Pa. Super. Ct. 1990). We agree. When an
    accord is breached, the non-defaulting party can enforce, at
    its option, the underlying agreement or the accord. See
    12. Paramount asserted a hodgepodge of equitable defenses, which the
    court held inapplicable to AAC's counterclaims. Estoppel, for example,
    requires material misrepresentation, reasonable reliance, and resulting
    damage. See Greenberg v. Tomlin, 
    816 F. Supp. 1039
    , 1055 (E.D. Pa.
    1993). The District Court found no evidence of misrepresentation. As for
    unclean hands, that defense applies when the party seeking relief is
    guilty of fraud, unconscionable conduct, or bad faith directly related to
    the matter at issue that injures the other party and affects the balance
    of equities. See Equibank v. Adle, Inc., 
    595 A.2d 1284
    , 1287 (Pa. Super.
    Ct. 1991). However, Paramount does not allege that the invoices that are
    the subject of the counterclaim deal with services that were negligently
    provided, nor would a vibration problem in one helicopter be enough to
    establish the defense. Furthermore, the court found no evidence of
    unconscionability or that the contract was against public policy. The
    equitable defenses are essentially conclusory and we think that the
    District Court was correct to reject them.
    Nowicki Constr. Co. v. Panar Corp.,   
    492 A.2d 36
    , 40 (Pa.
    Super. Ct. 1985). Thus, without any   evidence of satisfaction
    (and there was none), there was not   a scintilla of evidence
    supporting this defense. We find no   error in the District
    Court's reasoning on this point.
    Paramount then argued that the letter was a novation,
    extinguishing the former obligation by another new
    promise. In a novation, the new promise itself satisfies the
    preexisting claims, whereas in an accord it is the
    performance of the new promise that does so. See id. A
    novation bars revival of the preexisting duty. See
    Beechwood, 580 A.2d at 5. The essential difference between
    an accord and a novation is the parties' intent. See Nowicki,
    492 A.2d at 40. The party asserting a novation has the
    burden of proof. See Buttonwood Farms, Inc. v. Carson, 
    478 A.2d 484
    , 486 (Pa. Super. Ct. 1984). The District Court
    found that there was no evidence of any kind that the
    parties intended to extinguish their obligations under the
    original lease and contract.
    Paramount claims that a jury could find the letter to be
    a novation, especially when viewed in context with the lease
    agreement for the new model 109A helicopter executed the
    same day and given that the amount in the letter differed
    from that stated in the counterclaim. The existence of a
    substituted contract is generally for the jury. See Proie
    Bros., Inc. v. Proie, 
    301 F. Supp. 680
    , 682 (W.D. Pa. 1968),
    414 F.2d 1365
     (3d Cir. 1969). However, we do not
    think that a reasonable jury could find that the November
    14 lease agreement or the counterclaim evidence an intent
    to enter into a novation. There is simply no suggestion in
    the record that either of the parties considered the
    November 14 letter to be a new contract. On its face it is no
    more than an agreement to pay amounts owed on a certain
    schedule, and Paramount has offered no other evidence of
    the parties' intent.13
    13. If there was a new contract, Paramount further argues, the statute
    of limitations has run on it, because the counterclaim was never
    amended to include the new contract. Because we conclude that there
    was no new contract, we need not resolve this issue.
    B. Waiver
    Paramount also argues that AAC waived its claim by
    failing to send dunning notices or to take any steps to
    collect the debts that were due and owing until Paramount
    sued. Under Pennsylvania law, waiver of legal rights can
    arise by clear, unequivocal, and decisive action by a party
    with knowledge of such rights and evident purpose to
    surrender them. Waiver can be express or implied from
    conduct in situations that would support equitable
    estoppel. The party claiming implied waiver must show that
    it was misled and prejudiced by the other party's conduct.
    See Prousi v. Cruisers Div. of KCS Int'l, Inc., 
    975 F. Supp. 768
    , 771-72 (E.D. Pa. 1997). Under these requirements, the
    court held, Paramount could not prove waiver. Even
    assuming that AAC made no attempt to collect on its debts
    until sued, Paramount was neither misled nor prejudiced.
    Moreover, failure to demand payment is simply not a clear,
    unequivocal, and decisive action. As long as the claim was
    asserted within the statute of limitations, as it was,
    Paramount had no reasonable expectation that it would be
    free from the counterclaim.
    C. Disputes as to Amount
    Paramount also makes several claims about the amount
    due. First, it argues that the award of 1.5% interest on the
    goods and services contract was inappropriate, because
    only the helicopter lease agreement provided for interest,
    and because many of the invoices for goods and services
    were issued after September 1989, while interest was
    calculated on the entire amount in controversy starting
    from September 1989. See App. at 640. However, as the
    District Court observed, Paramount never attempted to
    rebut AAC's calculation, expressed in the affidavit of its
    Vice President, Mr. Genovese. We will not allow it to do so
    on appeal.
    Second, Paramount contends that AAC sought
    compensation for goods and services with respect to a
    helicopter numbered 7341, which Paramount never owned
    or operated. However, Paramount never submitted evidence
    to the District Court to counter AAC's affidavit. Although
    Paramount denied knowledge or information about the
    helicopter in its responses to requests for admission, its
    general denial is insufficient to create a genuine issue of
    fact. See United States v. Bottenfield, 
    442 F.2d 1007
    , 1008
    (3d Cir. 1971).
    Paramount finally argues that there was a difference
    between the amount claimed in the counterclaim
    ($62,788.98 without interest) and the amount stated in the
    November 14 letter ($78,468.02 without interest), despite
    the fact that the counterclaim was filed two days before the
    letter was sent, and that this creates a genuine issue of
    material fact. We disagree, concluding that the District
    Court was correct to award judgment on the breach of
    contract claim based on the Vice President's affidavit about
    the amounts Paramount owed. This is true regardless of
    what the November 14 letter said, because if it was an
    accord it was never satisfied and thus Paramount was
    responsible for the initial obligation.
    D. The Setoff
    Paramount asserted a setoff based on the same facts that
    grounded its initial claim, i.e., Paramount alleged that the
    1989 crash was caused by Agusta's defective
    manufacturing and maintenance, and that the crash
    caused Paramount significant harm. Paramount argued
    that the helicopter that was the subject of the counterclaim
    also had a vibration problem like the problem that caused
    the crash, although the District Court found the
    maintenance records difficult to decipher on that point.
    Thus, Paramount contends that it is entitled to recover
    from the Agusta defendants for the harm caused by the
    crash-related events, which offsets any amount it might
    owe AAC. The District Court rejected the setoff claim on
    entire controversy grounds. Because we have found the
    entire controversy doctrine inapplicable to Paramount's
    claims, Paramount will be entitled to try to prove its case
    on remand and, if it prevails, it may offset any recovery
    against the amount owed on the counterclaims. In sum, we
    uphold the District Court's determination of the amount
    due on the counterclaims. However, because the setoff may
    be a valid claim, we will vacate the judgment on the
    counterclaims pending resolution of Paramount's claims on
    IV. Conclusion
    For the foregoing reasons, we will reverse the District
    Court's grant of summary judgment to the Agusta
    defendants on Paramount's tort claims and remand for
    further proceedings. We will affirm the District Court's
    determination of the amount owed on AAC's counterclaims,
    but vacate the judgment on the counterclaims pending
    disposition of Paramount's tort claims.
    A True Copy:
           Clerk of the United States Court of Appeals
           for the Third Circuit

Document Info

DocketNumber: 98-6257

Filed Date: 5/13/1999

Precedential Status: Precedential

Modified Date: 10/13/2015

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