Paramount Aviation v. Agusta ( 1999 )

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
5-13-1999
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Precedential or Non-Precedential: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
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 98-6257
PARAMOUNT AVIATION CORPORATION,
Appellant
v.
GRUPPO AGUSTA; AGUSTA AEROSPACE
CORPORATION; COSTRUZIONI AERONAUTICHE
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)
CATHERINE B. SLAVIN, ESQUIRE
(ARGUED)
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.
JOHN R. ALTIERI, ESQUIRE
(ARGUED)
Foglia & Altieri
25 East Salem Street
Hackensack, NJ 07601
RUDOLPH V. PINO, JR., ESQUIRE
JOANNA ROBERTO, ESQUIRE
PINO & ASSOCIATES
Westchester Financial Center
White Plains, NY 10606
Counsel for Appellees
OPINION OF THE COURT
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.
2
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
3
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,
4
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
5
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
detail.
6
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 (1938).
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.
7
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
Pennsylvania).
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 (N.J.
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).
8
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 (1945).
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
Kaplan, 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.
Corradetti, 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,
Corp., 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.
9
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,
Inc., 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
doctrines.
In Mortgagelinq Corp. v. Commonwealth Land Title Ins.
Co., 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.
10
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
courts:
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.
11
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
doctrine.
Mortgagelinq, 662 A.2d at 537, 540, 541, 542 (citations
omitted).
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.
12
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
13
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-
10.
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
of
other jurisdictions. If there is a second New Jersey case that is
dismissed
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
14
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-
Shopping
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.
15
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-
58.
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
16
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
entirely
clear that a plaintiff in such a situation would be subject to the
doctrine.
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
17
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
forum-shopping.9
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
be
"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
possibilities.
9. Relatedly, the forum-shopping concern is diminished simply because
successive litigation is less common than litigation in the first
instance;
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.
18
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
agree.
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
19
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).
20
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.
Co., 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
21
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.
Corp., 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
claim).
22
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.
23
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.
24
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),
aff'd, 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.
25
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
26
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
remand.
27
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:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
28