ADT Sec. Services, Inc. v. Synnex Corp.

Superior Court of New Jersey,

Appellate Division.

ADT SECURITY SERVICES, INC., Plaintiff-Appellant,

SYNNEX CORPORATION, as successor in interest to Synnex Information Technologies, Inc., Defendant-Respondent.

Argued Nov. 4, 2009.

Decided Aug. 5, 2010.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-3580-08.

Timothy I. Duffy argued the cause for appellant (Coughlin Duffy, LLP, attorneys; Mr. Duffy, of counsel; Neil M. Day and Clara Y. Choi, on the brief).

Philip A. Bramson argued the cause for respondent (Schindel, Farman, Lipsius, Gardner & Rabinovich, LLP, attorneys; Mr. Bramson, on the brief).

Before Judges SKILLMAN, GILROY and SIMONELLI.

PER CURIAM.

Plaintiff, ADT Security Services, Inc., appeals from the September 12, 2008 order that granted summary judgment to defendant Synnex Corporation. We affirm.

This is the second appeal concerning the parties’ rights and obligations under a contract dated July 11, 2001. Because the procedural history and statement of facts were discussed at length in our prior reported decision, Synnex Corp. v. ADT Security, 394 N.J.Super. 577, 580-84, 928 A.2d 37 (App.Div.2007), it is unnecessary for us to fully detail them here. However, the following summary will place this appeal in context.

ADT sells and monitors burglar alarm systems. Synnex is a distributor of information technology products. In 2001, Synnex requested ADT to design, install, and monitor a burglar alarm system at Synnex’s warehouse in Edison. On July 11, 2002, the parties executed ADT’s form contract, which contained a broad exculpatory provision. Synnex Corp., supra, 394 N.J.Super. at 582, 928 A.2d 37. The paragraph containing the exculpatory provision also governed Synnex’s obligation to indemnify ADT for third-party claims:

IN THE EVENT ANY PERSON, NOT A PARTY TO THIS AGREEMENT, SHALL MAKE ANY CLAIM OR FILE ANY LAWSUIT AGAINST ADT IN ANY WAY RELATING TO THE EQUIPMENT OR SERVICES THAT ARE THE SUBJECTS OF THIS AGREEMENT, INCLUDING FOR FAILURE OF ITS EQUIPMENT OR SERVICE IN ANY RESPECT, CUSTOMER [SYNNEX] AGREES TO INDEMNIFY AND HOLD ADT HARMLESS FROM ANY AND ALL SUCH CLAIMS AND LAWSUITS INCLUDING THE PAYMENT OF ALL DAMAGES, EXPENSES, COSTS AND ATTORNEYS’ FEES.

Pursuant to the contract, ADT installed a security system at the warehouse and provided monitoring services of the system.

On March 8, 2003, six months after ADT had installed the alarm system, a burglary occurred at the warehouse, resulting in a $7,600,000 loss of inventory. At the time of the loss, Mitsui Sumitomo Insurance Group (MSIG) insured Synnex. MSIG paid Synnex $7,100,000 in settlement of the loss. On March 8, 2004, MSIG brought a subrogation action in Synnex’s name against ADT, seeking to recover the monies it paid Synnex under the insurance policy, together with additional losses that Synnex incurred which were not covered by the policy. ADT filed a counterclaim for indemnification, alleging that MSIG was the real party in interest in the action, and thus, Synnex was obligated to indemnify ADT for attorney fees and other expenses it was then incurring in defending the action.

Prior to trial, the parties filed cross-motions for partial summary judgment. ADT sought dismissal of Synnex’s consumer fraud, gross negligence and strict liability claims. Synnex sought not only to dismiss ADT’s counterclaim for indemnification, but also to bar ADT from relying on the exculpatory provision, asserting that it was unenforceable as against public policy. On November 10, 2005, the trial court granted ADT partial summary judgment; the court also granted Synnex partial summary judgment, declaring the exculpatory provision void as contrary to public policy. However, the court did not expressly address that part of Synnex’s motion seeking to dismiss ADT’s claim for indemnification. On the same day, the court entered a confirming order, determining the exculpatory provision unenforceable. The order also dismissed ADT’s counterclaim in its entirety.

On November 28, 2005, ADT filed a motion in limine, seeking to clarify that its indemnification claim had not been dismissed by the court’s November 10 order, contending that the parties’ oral arguments and the court’s ruling were limited to the exculpatory liability provision only and had not addressed the indemnification claim. On December 5, 2005, the court denied the motion, concluding that it had struck the indemnification provision, along with the exculpatory provision in its November 10, 2005 decision.

A jury found each party 50% liable and determined the total loss sustained by Synnex was $7,645,580. The court molded the verdict and entered judgment in favor of Synnex in the amount of $3,822,740, together with pre-judgment interest.

On appeal, ADT argued that the trial court had erred in declaring the exculpatory provision void and in dismissing its indemnification claim. We agreed with ADT that the genesis of the complaint was primarily a subrogation claim brought by MSIG in the name of its insured seeking to recover the monies it paid to Synnex in settlement of the covered loss. Id. at 583, 928 A.2d 37. We also agreed with ADT that the exculpatory provision was valid and enforceable. Id. at 591, 928 A.2d 37. Accordingly, we reversed. Id. at 595, 928 A.2d 37. However, we did not address ADT’s argument concerning its indemnification claim. ADT filed a motion for clarification, seeking guidance as to the effect of our opinion on its contractual indemnification claim, contending that the claim remained viable because we declared the exculpatory provision enforceable. We denied the motion, and ADT did not seek certification by the Supreme Court. Nor did ADT file a Rule 4:50 motion in the Law Division seeking to vacate that part of the November 10, 2005 order that dismissed its counterclaim for contractual indemnification.

On May 6, 2008, ADT filed a new complaint against Synnex seeking a declaratory judgment determining that Synnex is required under the indemnification provision to indemnify it for the attorney fees and costs incurred in defending the underlying action, contending that the action, although filed in the name of Synnex, was filed on behalf of a non-party to the contract, that is, MSIG as subrogee of Synnex. The complaint also alleged causes of action for breach of contract and breach of the duty of good faith and fair dealing based on Synnex’s failure to indemnify ADT for the incurred expenses.

In lieu of an answer, Synnex filed a motion seeking to dismiss the complaint pursuant to Rule 4:6-2(e), supporting the motion with a certification and other documents outside of the pleadings. On September 12, 2008, the trial court, having considered matters outside of the pleadings, converted the motion to one for summary judgment, and granted the motion. In so doing, the court determined that ADT’s claims were barred by res judicata and the entire controversy doctrine (ECD), reasoning in relevant part:

[T]he counterclaim for indemnification in this case was dismissed with prejudice on a motion for summary judgment addressing the merits of the claim.

The Appellate Division did not rule that the indemnification provision entitled ADT to recovery on that ground and did not remand that issue for further finding to the trial court.

The court entered a confirming order the same day.

On appeal, ADT argues that the trial court erred by: 1) granting summary judgment based on the ECD; 2) dismissing the complaint with prejudice under Rule 4:6-2(e) as it adequately pled causes of action for breach of contract and breach of the duty of good faith and fair dealing; and 3) failing to grant oral argument on a dispositive motion.

A trial court will grant summary judgment to the moving party “if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law.” R. 4:46-2(c); see also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523, 666 A.2d 146 (1995). “An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact.” R. 4:46-2(c).

On appeal, “the propriety of the trial court’s order is a legal, not a factual, question.” Pressler, Current N.J. Court Rules, comment 3.2.1 on R. 2:10-2 (2010). “Appellate courts employ the same standard when reviewing summary judgment orders.” Block 268, LLC v. City of Hoboken Rent Leveling & Stabilization Bd., 401 N.J.Super. 563, 567, 952 A.2d 473 (App.Div.2008).

II.

ADT first argues that the trial court erroneously dismissed its contractual claim for indemnification as barred by the ECD. ADT contends that its right to indemnification did not accrue until we issued our opinion reversing the trial court’s determination that the exculpatory provision was not enforceable. ADT further asserts that the ECD does not preclude it from filing a successive action for indemnification when it asserted the claim in the underlying action. We agree that the claim is not barred by the ECD.

The ECD requires mandatory joinder of claims by incorporating the concept of claim preclusion. R. 4:30A. The doctrine requires that whenever possible, a party should assert all claims arising from the same transactional set of facts in a single lawsuit. Harley Davidson Motor Co., Inc. v. Advance Die Casting, 150 N .J. 489, 497, 696 A.2d 666 (1997). A party who fails to join all known claims in a single action does so “at the risk of being precluded from asserting them in the future.” In re Estate of Gabrellian, 372 N.J.Super. 432, 444, 859 A.2d 700 (App.Div.2004), certif. denied, 182 N .J. 430, 866 A.2d 986 (2005). Accordingly, “[m]andatory joinder of claims has been applied to bar claims involving commonality of facts in cases involving piecemeal litigation where parties, for strategic reasons, withhold claims concerning the underlying litigation, thus getting two bites of the apple.” Allstate Ins. Co. v. Cherry Hill Pain & Rehab. Inst., 389 N.J.Super. 130, 140, 911 A.2d 493 (App.Div.2006), certif. denied, 190 N.J. 254, 919 A.2d 848 (2007).

However, the ECD does not “apply to bar component claims either unknown, unarisen, or unaccrued at the time of the original action.” K-Land Corp. No. 28 v. Landis Sewerage Auth., 173 N.J. 59, 70, 800 A.2d 861 (2002) (quoting Pressler, Current N.J. Court Rules, comment 2 on R. 4:30A (2002) (emphasis omitted)). The doctrine only “bars a subsequent action … when a prior action based on the same transitional facts has been tried to judgment or settled.” Arena v. Borough of Jamesburg, 309 N.J.Super. 106, 111, 706 A.2d 790 (App.Div.1998); see also Watkins v. Resorts Int’l Hotel & Casino, Inc., 124 N.J. 398, 415, 591 A.2d 592 (1991).

Here, consistent with the primary purpose of the ECD, that is, “to prevent a party from voluntarily electing to hold back a related component of the controversy in the first proceeding by precluding it from being raised in a subsequent proceeding thereafter,” Oltremare v. ESR Custom Rugs, Inc., 330 N.J.Super. 310, 315, 749 A.2d 862 (App.Div.2000), ADT asserted its claim for contractual indemnification in the underlying action. Because the ECD only precludes claims not asserted in the first action, we agree the trial court erred in dismissing ADT’s complaint on that basis. Nonetheless, we affirm, concluding that the trial court correctly determined that ADT’s claim was precluded by res judicata.

III.

“[T]he doctrine of res judicata provides that a cause of action between parties that has been finally determined on the merits by a tribunal having jurisdiction cannot be re[-]litigated by those parties or their privies in a new proceeding.” Velasquez v. Franz, 123 N.J. 498, 505, 589 A.2d 143 (1991). “The rationale underlying res judicata recognizes that fairness to the defendant and sound judicial administration require a definite end to litigation.” Ibid. “For a judicial decision to be accorded res judicata effect, it must be a valid and final adjudication on the merits of the claim.” Id. at 506, 589 A.2d 143.

For res judicata to apply in a given case, the party asserting the doctrine must establish that: “(1) the judgment in the prior action must be valid, final, and on the merits; (2) the parties in the later action must be identical to or in privity with those in the prior action; and (3) the claim in the later action must grow out of the same transaction or occurrence as the claim in the earlier one.” Watkins, supra, 124 N.J. at 412, 591 A.2d 592.

ADT contends that in the underlying action the trial court erroneously equated the indemnification provision with the exculpatory and limited liability provisions in the contract and entered an order dismissing its counterclaim for contractual indemnification, with prejudice. ADT appealed that dismissal. Although we reversed the trial court’s determination that the exculpatory provision was not enforceable as a matter of public policy, we did not separately address ADT’s claim for indemnification, thus, leaving the trial court’s dismissal of that claim in place. ADT sought clarification on the issue, and we denied the motion. However, ADT never sought certification from the Supreme Court and, accordingly, the order dismissing the counterclaim for indemnification is a final determination on the merits. ADT cannot file a new action seeking to assert the same claim as that dismissed with prejudice in the first action.

What is more, as previously noted, we determined that the nature of the underlying action was primarily a subrogation claim brought by MSIG, albeit, in the name of its insured. Synnex Corp., supra, 394 N.J.Super. at 583, 928 A.2d 37. Subrogation is “ ‘[t]he substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies or securities.’ “ Hanover Ins. Co. v. Borough of Atl. Highlands, 310 N.J.Super. 599, 603, 709 A.2d 328 (Law Div.1997) (quoting Black’s Law Dictionary (5th Ed.1979)), aff’d, 310 N.J.Super. 568, 709 A.2d 236 (App.Div.), certif. denied, 156 N.J. 383, 718 A.2d 1212 (1998).

However, “a subrogee’s rights can rise no higher than those of the subrogor.” Hayes v. Pittsgrove Twp. Bd. of Educ., 269 N.J.Super. 449, 455, 635 A.2d 998 (App.Div.1994). “As the right of subrogation turns on the obligation or duty that the third party itself owes the subrogor, subrogation is wholly dependent on the merits of the subrogor’s claim against the third party.” Holloway v. State, 125 N.J. 386, 396, 593 A.2d 716 (1991). Moreover, “[t]he subrogee, which succeeds to the position of the subrogor, may recover only if the subrogor likewise could have recovered; the subrogee gains no additional rights and is subject to all defenses that were available against the subrogors.” Ibid.

Here, the indemnification provision sought to be enforced only requires Synnex to indemnify ADT for expenses incurred in defending actions by third parties, not in an action brought by Synnex itself. As MSIG filed the underlying action to enforce its subrogation rights, it stepped into the shoes of Synnex, and the indemnification provision is not applicable.

Affirmed.