Case Information
*2 CONCIERGE PLUS; GARTH, Circuit Judges INNTRAPORT INTERNATIONAL, INC.; (Opinion filed April 26, 2004) INTELNET N.A., INC.;
INTELEPOWER N.A., INC.; Edward J. Yodowitz, Esq. INTELECABLE N.A., INC.; Skadden, Arps, Slate, Meagher & Flom INTELEMEDIA N.A., INC.; Four Times Square ASSOCIATED BUSINESS New York, NY 10036 TELEPHONE
SYSTEM CORP.; Robert J. Del Tufo, Esq. (Argued) A.B.T.S. INTERNATIONAL Cynthia V. Fitzgerald, Esq. CORPORATION; Danielle A. Cutrona, Esq.
DOMINIC DALIA; Skadden, Arps, Slate, Meagher & Flom One Newark Center, 18 th Floor MICHAEL DALIA; CRAIG BRUNET; Newark, NJ 07102 JOHN DOES 1-10 Attorneys for Appellants/ Cross-Appellees *3
comply with the applicable statute of Arthur R. Miller, Esq. (Argued) limitations. ITT’s RICO claims allege that Harvard Law School Intelnet has engaged in a pattern of 1755 Massachusetts Avenue entering into contracts it cannot perform Cambridge, MA 02138 with the intent of seizing upon its
customers’ purported breaches to extort Jerome M. Congress, Esq. settlements by threats of vexatious Milberg, Weiss, Bershad, Hynes & Lerach litigation. Prior to initiating its federal One Pennsylvania Plaza action, ITT raised substantially identical 48 th Floor claims in a state court case by means of a New York, NY 10119 motion to amend its pleadings. The state
court denied the motion. Carl D. Poplar, Esq. On cross-appeal, Intelnet argues Poplar & Eastlack that the District Court erred in holding that 1010 Kings Highway South it had jurisdiction, as the Rooker-Feldman Building Two doctrine “preclude[s] lower federal court Cherry Hill, NJ 08034 jurisdiction over claims that were actually Attorneys for Appellees/ litigated or ‘inextricably intertwined’ with Cross-Appellants adjudication by a state’s courts.” Parkview
Assocs. P’shp. v. City of Lebanon , 225 F.3d 321, 325 (3d Cir. 2000) (quoting Gulla v. North Strabane Township , 146 OPINION OF THE COURT F.3d 168, 171 (3d Cir. 1998)). We agree with Intelnet that bars federal jurisdiction in this case.
AM BRO, Circuit Judge I. Factual and Procedural History Corp.”), (“Sheraton”) and Starwood Hotels and appeal the District Court’s dismissal of Resorts Worldwide, Inc. (“Starwood”) their Racketeer Influenced and Corrupt for failure to various Intelnet entities Organization Act (“RICO”) action against Plaintiffs ITT Corporation (“ITT ITT Sheraton C orporation Sheraton and Caesar’s World, Inc. (“Caesar’s”). Intelnet International Corp. (“Intelnet International”), Intelnet Services and casinos. [2] Intelecable N.A., Inc., and Intelemedia Services”), INNtraport International, Inc., of North America, ITT Corp. owns and operates hotels Its affiliates include Inc. (“Intelnet N.A., Inc. purchase telephone services in *4 ITT for breach of contract. [3] Intelnet volume from major carriers and resell alleged that in early 1997 Sheraton began those services to hotels and hotel working with other companies, such as companies, as well as residential Microsoft Corporation, to develop customers, at a reduced rate. Sheraton.N et, which w ould service into a series of contracts for Intelnet’s provision of telecommunications and media services to ITT’s hotels and casinos. In 1996, ITT and Intelnet entered argued that the negotiations between Sheraton and M icrosoft breached the C+ Agreement and the RMPA. Sheraton hotel guests in Asia. Intelnet Intelnet represented that it would provide In February 1998 ITT filed various to ITT a proprietary system called the state law counterclaims against Intelnet, “Intelnet Platform,” which it claimed including fraud, misrepresentation, and would provide enhanced services such as breach of contract. Some time later, based high-speed internet access and video-on- purportedly upon information obtained demand. The principal contracts were the through discovery in the New Jersey state C + O p e r a t i n g A g r e e m e n t ( “ C + court action and through its independent Agreement”), dated July 3, 1996, and the investigation, ITT filed a motion to amend A m e n d e d a n d R e s t a te d M a s t e r its pleadings to add counterclaims against Promotional Agreement (“RMPA”), dated Intelnet under the federal and New Jersey October 3, 1996. RICO statutes, 18 U.S.C. § 1962(c) & (d) and N.J. Stat. Ann. § 2C:41-2(c) & (d). The C+ Agreement formed a The proposed counterclaims asserted that limited liability company, Concierge Plus, Intelnet had engaged in a pattern of L.L .C., through which Intelnet racketeering activity by entering into International and ITT Intelnet Investment contracts, knowing that it was incapable of Corp., a wholly owned subsidiary of ITT performing them, with the intent of Corp., would share future profits and extorting settlements from its customers by Intelnet International would provide telecommunications products and services.
But Concierge Plus never provided any of the promised services. The RMPA, a Intelnet initially named as defendants only ITT Corp. and Sheraton. The contract between ITT Corp. and Intelnet complaint was later amended to include Services, gave the latter the exclusive right Starwood as well as various affiliates. t o p r o v i d e c e r t a i n e n h a n c e d telecommunications products and services, including high-speed internet access, to the and several of its affiliates. offices, hotels, and casinos of ITT Corp. According to ITT, Intelnet had advised ITT that it could not perform in Asia. ITT also notes that Sheraton.Net was never implemented. We need not examine the
In December 1997 Intelnet filed an viability of Intelnet’s claim for breach of action in New Jersey state court against contract, which is irrelevant to our
disposition of this appeal. *5 threatening to entangle them in extensive intended to encompass and costly litigation based on their breaches of contract, even purported breaches. The State Court, per breaches of contract that Judge John A. Fratto, denied the motion to involve $800 million. . . . amend. Judge Fratto explained: And, I don’t see sufficient in the proposed complaint that
The ru l e s a ys t h at I should permit after three amendments to pleadings and a half years an should be freely given. The amendment to an answer to rule provides that there be a raise a RICO claim with all motion in order to obtain the of its concomitant results[;] amendment to the pleading, so the motion to amend the so it does not mean that you answer will be denied. are automatically entitled to amend the pleadings at any
time. . . . Whether it be Judge Fratto’s accompanying Order did RICO or some other cause not specify whether ITT’s motion was of action, there are judges . denied with or without prejudice. ITT . . that will allow all suggests that the motion was denied amendments on the theory without prejudice because it was filed that they can be dealt with three and one half years after the later on when the other side complaint. Intelnet, by contrast, contends m a k e s a m o t i o n f o r that the state court also rejected the motion summ ary judgm ent, a on the merits and therefore it was with motion to dismiss[], motion prejudice. to strike the pleadings. That h a s n o t b e e n m y ITT filed this action in the United procedure. . . . States District Court for the District of New Jersey in November 2001. Its I’ve looked at the complaint states that “it only was after proposed amendments . . . discovery commenced in the New Jersey and at best it seems that the Litigation . . . that the ITT Parties allegation is . . . that the discovered that the Intelnet Parties had no plaintiffs were unable to ability or intent to perform under Intelnet’s fulfill their contract, and contract with the ITT Parties, and further, every time they wrote a that the Intelnet parties had a history of letter or sent a wire, engaging in this pattern of fraudulent knowing that they were conduct and racketeering activity.” ITT unab le to fulfill their also alleges a variety of fals e contract, the[y] committed a representations by Intelnet regarding its RICO violation. capabilities, describes evidence of I don’t think RICO is or was Intelnet’s “extortionate objectives,” and *6 lists numerous acts of alleged mail and its burden of demonstrating the existence wire fraud. In essence, ITT’s federal of “storm warnings” more than four years action raises the same claims it sought to prior to the initiation of the federal action introduce in the New Jersey case before (specifically, as early as January 1997). It Judge Fratto. further determined that ITT had failed to show that it was unable to discover its In February 2002, Intelnet filed a injuries, despite exercising due diligence, motion to dismiss ITT’s federal complaint within the applicable period. based on the four-year statute of limitations. The District Court granted ITT appeals on the bases that: (1) Intelnet’s motion. In so doing, the Court the District Court misconstrued the nature applied the two-step “injury discovery” of its RICO claims, which were founded rule set out in Mathews v. Kidder, Peabody on extortion through threat of litigation & Co., Inc ., 260 F.3d 239, 250 (3d Cir. rather than fraudulent inducement; (2) the 2001). It concluded that Intelnet had met District Court relied on information
extrinsic to the pleadings, thereby converting Intelnet’s motion to dismiss To illustrate, the federal complaint of into a motion for summary judgment without providing notice of conversion; ITT alleges that: (1) Intelnet had “an and (3) ITT did in fact act with reasonable extensive history of entangling their diligence subsequent to the “storm customers and vendors in contracts that the warnings” cited by the District Court. Intelnet Companies could not perform, Intelnet cross-appeals, alleging that the with the ultimate goal of seizing upon a District Court lacked jurisdiction in light pretextual breach of contract by the of the doctrine or should contracting party to extort a settlement have abstained from exercising jurisdiction payment from them under the threat of protracted and expensive litigation,” (2) under the doctrine. Colorado River [6] that the strategy of extortion was integral
to Intelnet’s business strategy, and (3) that ITT, through discovery, had identified While “[i]t is axiomatic that the federal many similar lawsuits. In its prior state courts have a ‘virtually unflagging court counterclaim, ITT alleged that “the obligation . . . to exercise the jurisdiction Intelnet parties used the U.S. Mail as a given them’ by Congress,” Ryan v. critical part of their scheme to defraud the Johnson , 115 F.3d 193, 195 (3d Cir. 1997) ITT parties, all in order to . . . wait until (quoting Colo. River Water Conservation the Intelnet parties could seize upon some Dist. v. United States , 424 U.S. 800, 817 pretext to declare that the ITT parties had (1976)), the Colorado River doctrine breached their agreements with Intelnet permits a federal court to refrain from and then sue the ITT parties for an exercising its jurisdiction when the extraordinary sum of money (hundreds of litigation would be duplicative of a millions of dollars) unless the ITT parties concu rrent foreign or state court paid the Intelnet [sic] exorbitant sums.” proceeding. Because the lower federal *7 Intelnet also argues that ITT has failed to satisfied to trigger Rooker-Feldman , and plead its RICO claims with sufficient we struggle to conjure a scenario in which particularity. As the Rooker-Feldman a claim would be “actually litigated” by a doctrine bars federal jurisdiction in this state court and yet federal litigation of the case, we go no further. same claim would not be “inextricably
II. Discussion intertwined” with judgment. [8] The “actually litigated” test is the state court A. Rooker-Feldman Doctrine as
Interpreted in the Third Circuit
Our Court’s boundaries for
the Rooker-Feldman doctrine are pinched
indeed. See, e.g. , Parkview Assocs. P’ship In Desi’s Pizza , we noted the factors v. City of Lebanon , 225 F.3d 321, 326 (3d for determining whether an issue was Cir. 2000). Nonetheless, the facts of this “actually litigated” by the state courts: a case point to its application here. plaintiff must present its federal claims to circumstances: if the claim was “actually litigated” in state court or if the claim is f e d e r a l , 321 F.3d 411, 419 (3d Cir. Desi’s Pizza, Inc. v. City of 325. Our discussion examines whether a 2003); Parkview Assocs. , 225 F.3d at “inextricably intertwined” with the state adjudication. Wilkes-Barre doctrine bars The Rooker-Feldman j u r i s d ic t i o n u n d er t w o the state court, and the state court must decide those claims. Id. at 419 demonstrate that a claim was “actually Ordinarily, it will be more difficult to . litigated” than to show that the federal the state court judgment. The former claim is “inextricably intertwined” with requires that the state court has considered and decided precisely the same claim that the plaintiff has presented in the federal District Court judgment in favor of ITT on court. Conversely, two claims may the RICO claims would be inextricably proceed on different theories or involve intertwined with the state court litigation. different parties and yet be inextricably Only one prong of the test need be intertwined if the District Court’s judgment would “prevent a state court from enforcing its orders.” Id . at 422. courts lack jurisdiction in this case under The actually litigated prong is the doctrine, we need not principally useful where the claims before address whether abstention would be the state and federal courts are in all appropriate.
respects identical. In such cases, the Habeas corpus petitions are, of course, straightforward application of the “actually an exception to the Rooker-Feldman litigated” test avoids the more complicated “inextricably intertwined” inquiry. See, jurisdictional bar. Blake v. Papadakos e.g. , Saudi Basic Indus. Corp. v. Exxon 953 F.2d 68, 72 n.2 (3d Cir. 1992) Corp. , No. 02-2130, ___ F.3d ___ (3d Cir. (quoting Sumner v. Mata , 449 U.S. 539, 543-44 (1981)). 2004).
a recent development unique to our Court, [9] State and federal claims are and it is potentially misleading in this case inextricably intertwined “(1) ‘when in because of its close relationship to the order to grant the federal plaintiff the relief concepts of claim and issue preclusion. sought, the federal court must determine See, e.g. , Ivy Club v. Edwards , 943 F.2d that the state court judgment was 270, 294 (3d Cir. 1991) (“A party is erroneously entered’ [or] [11] (2) when ‘the precluded from litigating in a subsequent federal court must . . . take action that proceeding both claims that it actually would render [the state court’s] judgment litigated and claims that it could have ineffectual.’” Desi’s Pizza , 321 F.3d at 421 litigated in an earlier proceeding.”) (quoting FOCUS v. Allegheny Cty. Court (citation omitted)). Whereas the term of Common Pleas , 75 F.3d 834, 840 (3d “inextricably intertwined” has been Cir. 1996)). “If the relief requested in the integral to doctrine since federal action requires determining that the its inception, Feldman , 460 U.S. at 486, state court’s decision is wrong or would the term “actually litigated” derives from void the state court’s ruling, then the the preclusion context. [10] issues are inextricably intertwined and the
district court has no subject matter jurisdiction to hear the suit.” FOCUS , 75 In Parkview Associates , 225 F.3d at F.3d at 840 (quoting Charchenkov v. City 325, we briefly inquired whether the state of Stillwater , 47 F.3d 981, 983 (8th Cir. court had “actually litigated” the claims at 1995)).
issue. We are not aware of the term’s use
in any prior discussion by our Court of the
Rooker-Feldman doctrine. Other courts with reference to actual litigation: “When have occasionally invoked Rooker- an issue of fact or law is actually litigated Feldman and the “actually litigated” test in and determined by a valid and final the same breath. See, e.g. , Kropelnicki v. judgment, and the determination is Siegel , 290 F.3d 118, 128 (2d Cir. 2002) e s s e nt i a l t o t he ju d gm e n t , t h e (noting that “[i]n addition to claims that determination is conclusive in a were actually litigated in state court, the subsequent action between the parties, Rooker-Feldman doctrine bars lower whether on the same or a different claim.” federal courts from exercising jurisdiction Comment d. to § 27 defines the term over claims that are ‘inextricably “actu ally litigated” for preclu sion i n t e r t w i n e d ’ w i t h s t a t e c o u r t purposes: “When an issue is properly determinations,” but discussing only the raised, by the pleadings or otherwise, and latter). To our knowledge, however, none is submitted for determination and is has established a formal “actually determined, the issue is actually litigated.” litigated” alternative under the Rooker- Feldman doctrine. The passage in reads Desi’s Pizza
“and” rather than “or.” The Court, The Restatement (Second) of however, considered the two tests in the Judgments, § 27, defines issue preclusion alternative.
In assessing whether the claims There can be little doubt that ITT here are inextricably intertwined, we must presented its RICO claims to the state resolve whether the state court decided court. In its “First Amended Answers and ITT’s RICO claims on the merits. If we First Amended Counterclaims,” ITT conclude that Judge Fratto did not decide devoted more than fifty pages to its state (or should not have decided) the merits of and federal RICO claims. In denying the ITT’s RICO claims, then federal judgment motion to amend, Judge Fratto explicitly for ITT would neither render the state addressed both the substantive allegations court’s remaining judgment—namely, the (“I don’t think RICO is or was intended to denial of the motion to amend based on encompass breaches of contract”) and balancing the sufficiency of the proposed ITT’s delay in filing its motion (“And, I c l a i m w i t h I T T ’ s d e l a y i n don’t see sufficient in the proposed filing 1 2 — nece ssarily erroneous nor complaint that I should permit after three ineffectual. Gulla v. North Strabane [13] and a half years an amendment”). He Township , 146 F.3d 168, 172–73 (3d Cir. differentiated himself from those judges 1998). Conversely, if we conclude that the who “allow all amendments on the theory state court did resolve the claims on the that they can be dealt with later on.” In merits, then the state and federal claims short, Judge Fratto intended to dispose of would be “inextricably intertwined” (as the motion on the merits. [14] well as “actually litigated”). A contrary
decision by a federal court on an issue
resolved on the merits by a state court is precisely the brand of federal appellate Arguably, even the language pertaining to delay reflects a judgment on review that Rooker-Feldman is intended to the merits. Judge Fratto did not simply prevent. deny the amendment based on delay. B. What Did the State Court Hold and Rather, he emphasized that the proposed Did It Intend That Holding To Be on the complaint was insufficient to warrant a Merits? late amendment. Of course, as discussed below, Judge Fratto’s intent to dispose of
“ [ T ] h e f i r st s te p i n a the amendment on the merits will not Rooker-Feldman analysis is to determine alone trigger the Rooker-Feldman exactly what the state court held.” Gulla doctrine; if he should not have reached the 146 F.3d at 171 (internal quotation merits, Rooker-Feldman does not apply. omitted). Unfortunately, the order denying ITT’s motion for leave to file its amended counterclaims is of limited usefulness on this score. Thus we devote substantial attention to the transcript of the motion hearing before Judge Fratto. correct as a matter of federal law is, of Whether Judge Fratto’s conclusion is Rooker-Feldman course, irrelevant for purposes. The underlying rationale of the doctrine is to prevent the lower federal courts from reviewing state See infra note 13. court decisions in an appellate capacity. *10 In addition to the statements made exclusively on the viability of the claims.
by Judge Fratto, comments made by
counsel at the motion hearing support this While Judge Fratto’s reference to view. For example, counsel for ITT the merits in his final disposition of the argued that because it needed to develop motion was limited, a state court’s brevity the facts, it was entitled to discovery. He does not prevent application of Rooker- noted that, if ITT were permitted to amend Feldman . Gulla , 146 F.3d at 172 (“If a its pleadings, Intelnet could “bring [a] state court considers and rejects a multiplicity of summary and partial constitutional claim on the merits, a summary judgment motions.” ITT would paucity of explicit analysis in the court’s then bear the burden of demonstrating that opinion will not strip the holding of its “a reasonable juror could conclude from validity for purposes of Rooker-Feldman ’s the activities and facts deduced that jurisdictional bar.”). litigation, both in this case and in other cases, was entered into with the absolute
understanding by the plaintiffs that it was C. Would New Jersey Law Regard the spurious and was done simply as a method State Court’s Judgment As Properly on of extorting goods or services.” Implicit in the Merits? this line of reasoning is the possibility that Judge Fratto could dismiss the amendment Judge Fratto’s intent alone, on legal grounds. Significantly, ITT’s however, will not support application of counsel referenced Intelnet’s argument Rooker-Feldman . ITT might avoid “that we are precluded as a matter of law application of the doctrine if it can this morning from such allegations” establish that (1) Judge Fratto’s denial of (emphasis added). the motion to amend would not be recognized as an adjudication on the From this we glean that ITT merits under New Jersey law (and recognized that denial of the amendment therefore does not constitute a state court on the merits was possible. Moreover, judgment for Rooker-Feldman purposes), counsel for Intelnet clearly promoted the or (2) Judge Fratto should not have position that ITT could not make out a considered the merits of the amendment RICO claim based on extortionate under New Jersey law. We consider these litigation. He referenced Intelnet’s issues in turn. argument “that the commencement of a 1. Is the Denial of a Motion to Amend lawsuit . . . does not in any way arguably That Does Not Specify Whether It Is constitute RICO as a matter of law ” (emphasis added). He deemed it with Prejudice Nonetheless a Decision unnecessary to “get into the facts . . . at on the Merits Under New Jersey Law? this point in time.” There was virtually no The first potential argument for discussion before Judge Fratto of the evading is that Judge timeliness of ITT’s motion to amend. Fratto’s order denying ITT’s motion to Instead, oral argument focused almost amend would not be regarded as deciding *11 disciplinary dismissals. [15] Thus a dismissal the merits under state law. ITT suggests that is not jurisdictional or disciplinary is that an order denying a motion to amend is on the merits.
without prejudice, and thereby not on the Reviewing the first two predicates, merits, in the absence of explicit language an objection to a motion to amend for to the contrary. We conclude otherwise. failure to state a cause of action is treated
If the state court’s denial of ITT’s like a motion to dismiss, and a motion to motion to amend its pleadings was “with dismiss is governed by a certain set of prejudice,” and therefore on the merits, the rules—namely, the dismissal is on the doctrine precludes ITT merits unless (1) it states that it is without from filing substantially the same claims prejudice or (2) it is jurisdictional or in the federal courts by withholding disciplinary. We may conclude that denial jurisdiction from those courts. New Jersey of an amendment for failure to state a case law does not address explicitly cause of action is governed by the same set whether a denial of a motion to amend is of rules. Therefore, if the order denying with prejudice when the judgment does not
so specify. We resolve the question by deductive reasoning based on the That rule provides: “For failure of the following propositions. plaintiff to cause a summons to issue within 15 days from the date of the Track
First, “[o]bjection to the filing of an Assignment Notice or to comply with amended complaint on the ground that it these rules or any order of court, the court fails to state a cause of action should be in its discretion may on defendant’s determined by the same standard motion dismiss an action or any claim applicable to a motion to dismiss. . . .” against the defendant. Such a dismissal Interchange State Bank v. Rinaldi , 696 shall be without prejudice unless otherwise A.2d 744, 752 (N.J. App. Div. 1997). specified in the order.” While ITT seeks Second, under New Jersey law an to apply the exception to this case, no basis order granting a motion to dismiss that exists to do so. Rule 4:37-2(a) extends does not state whether it is with prejudice only to the dismissal of a claim as a court- is “on the merits” except under limited i m p o s e d s a n c t io n , a p r i n c ip l e circumstances not applicable here. New acknowledged by ITT in its own letter Jersey Rule 4:37-2(d) provides: “Unless brief. See, e.g. , Woodward-Clyde the order of dismissal otherwise specifies, Consultants v. Chem. & Pollution Scis. a dismissal under R. 4:37-2(b) or (c) and 523 A.2d 131, 134 (1987); Zaccardi v. any dismissal not specifically provided for Becker , 440 A.2d 1329, 1333 (1982). by R. 4:37, other than a dismissal for lack of jurisdiction, operate[] as . . . Our reasoning approximates what in adjudication[s] on the merits.” Rule 4:37- logic is termed a “hypothetical syllogism”: 2(a) carves out another exception for if A implies B, and B implies C, then A
implies C. See Ruggero J. Aldisert, Logic *12 the amendment is silent as to its prejudicial value, the denial is on the merits unless it explain in the next section, Judge Fratto is jurisdictional or disciplinary. As we to state a claim as a matter of law. His denied ITT’s amendment because it failed prejudice, but neither was it jurisdictional order did not specify whether it was with New Jersey law as an “adjudication on the or disciplinary. It thus qualifies under merits.” state a claim without prejudice, dismissal for failure to 415, suggesting that, while it may be emphasiz ed Moreover, in judicata effect.” adjudication on the merits entitled to res Mystic Isle Development Corp. v. Perskie & Nehmad 662 A.2d 523, 534 (N.J. 1995), the Court involved a defendant whose counterclaim that Woodward-Clyde is nonetheless “an
was dismissed without prejudice for failure to comply with a discovery order—an adjudication wholly unrelated to the for Lawyers: A Guide to Clear Legal merits. Thinking 159 & n.7 (3d ed. 1997).
Whether a claim is dismissed on New Jersey case law explaining the factual or legal grounds is relevant to its preclusive effect of a dismissal for failure preclusive effect. For example, the New to state a claim is somewhat confusing. Jersey Supreme Court has cautioned that Even if we concluded that Judge Fratto’s applications for dismissal under Rule 4:6- judgment was without prejudice, it might 2(e) for failure of a complaint to state a still be on the merits. While a dismissal claim “should be granted in only the rarest with prejudice clearly constitutes an of instances. If a complaint must be adjudication on the merits, a dismissal dismissed after it has been accorded . . . without prejudice only “indicates,” as a m e t i c u l o u s a n d i n d u l g e n t general matter, that there has been no examination, then, barring any other adjudication on the merits of the claim. impediment such as a statute of Velasquez v. Franz , 589 A.2d 143, 148 limitations, the dismissal should be (N.J. 1991); Cornblatt v. Barow , 708 A.2d without prejudice to a plaintiff’s filing of 401, 413 (N.J. 1998). an amended complaint.” Printing Mart-
Per New Jersey’s Supreme Court in Morristown v. Sharp Elecs. Corp. , 563 Woodward-Clyde , 523 A.2d at 135, “[a] A.2d 31, 48 (N.J. 1989). This principle, dismissal without prejudice is not an however, while framed in general terms, is adjudication on the merits and does not bar addressed to the “sufficiency of facts reinstitution of the same claim in a later alleged in a complaint,” id . at 34. action.” Yet in Zaccardi v. Becker , 440 (emphasis added), and has little, if any, A.2d 1329, 1333 (N.J. 1982), the same bearing on pure determinations of law. As Court implied that a dismissal without we conclude in the next section that Judge prejudice of a complaint may later be a Fratto denied ITT’s proposed amendments basis for dismissing a subsequently filed on legal grounds, it follows that a complaint. The Court attempted to resolve subsequent suit on the same legal theory these tensions in Cornblatt , 708 A.2d at would be barred.
2. Should the State Court Have claims only if state law authorized him to Refrained from Considering the Merits decide the motion on the merits. of the Proposed Amended Complaint? Accordingly, we turn yet again to New Jersey law.
We have concluded that Judge Fratto intended to dispose of ITT’s New Jersey Rule 4:9-1 provides proposed amendments on the merits, and that motions for leave to amend “shall be that a judgment by the state court on freely given in the interest of justice.” A substantive grounds triggers Rooker- court nonetheless retains discretion to deny Feldman regardless whether it is labeled an amendment un der appropriate “with prejudice.” These conclusions do circumstances. Kernan v. One Washington not, however, get Intelnet home. In Gulla , Park Urban Renewal Assocs ., 713 A.2d we held that the District Court had 411, 421 (N.J. 1998). ITT points to a jurisdiction to hear a claim addressed by substantial body of New Jersey case law the state court because the latter, though it addressing whether a court, in determining purported to decide the merits of the whether to grant a motion to amend, may plaintiff’s claims, should not have done so consider the merits of the amendment. under Pennsylvania law. Gulla , 146 F.3d See, e.g. , Hansen v. Hansen , 770 A.2d at 172 (“Under Pennsylvania law, the court 1278, 1286 (N.J. Super. Ct. App. Div. could not resolve the merits of the 2001); Interchange State Bank v. Rinaldi [plaintiffs’] claims if they lack standing to 696 A.2d 744, 752 (N.J. Super. Ct. App. bring their suit.”). Judge Fratto’s denial Div. 1997); City Check Cashing, Inc. v. of the proposed amendment precludes Nat’l State Bank , 582 A.2d 809, 811 (N.J. federal jurisdiction over ITT’s RICO Super. Ct. App. Div. 1990). These cases
do indeed limit a court’s freedom to consider substantive issues in ruling on a motion to amend. See, e.g. , Rinaldi , 696 We need not resolve these nuances A.2d at 752 (stating that a motion for leave
of New Jersey law because we have to amend should ordinarily be decided determined that ITT’s state and federal “without consideration of the ultimate claims are substantially the same. merits of the amendment”). Consequently, under New Jersey preclusion law, a second action would be Nonetheless, New Jersey case law barred regardless whether Judge Fratto is explicit that there are no firm rules previously denied them on factual or legal prohibiting consideration of the merits in grounds and regardless whether the these cases. “[C]ourts are free to refuse dismissal was with prejudice. For even a leave to amend when the newly asserted judgment that is without prejudice has claim is not sustainable as a matter of law. preclusive effect with respect to a In other words, there is no point to “subsequent suit between the same parties, permitting the filing of an amended asserting the same claims, based on the pleading when a subsequent motion to same facts in state court.” Velasquez , 589 dismiss must be granted.” Rinaldi , 696 A.2d at 144. *14 A.2d at 752 (quoting Mustilli v. Mustilli , explicitly construed the claims in a light 681 A.2d 650 (N.J. Super. Ct. Ch. Div. most favorable to the moving party (“at 1995)). Denial of an amendment for best it seems”). Judge Fratto denied the failure to state a claim should be examined amendment based on his conviction that under the standard applicable to a motion to dismiss under New Jersey Rule 4:6-2(e). language, one might argue that the state See Maxim Sewerage Corp. v. Monmouth court did not “actually litigate” the claim Ridings , 640 A.2d 1216, 1219 (N.J. Super. advanced by ITT in federal court because Ct. Law Div. 1993) (citing Banks v. Wolk Judge Fratto misc onstrue d ITT’s 918 F.2d 418 (3d Cir. 1990)), which allegations. We hesitate to parse the “requires treating all the allegations of the language in this fashion, given that ITT pleading as true, and considering only explained its RICO theory to the state whether those allegations are legally court in the same terms as in the federal sufficient to establish the necessary litigation. We construe Judge Fratto’s elements of the claimed cause of action.” reference to “breaches of contract” as
It is in this context that our earlier convenient shorthand for the alleged examination of whether Judge Fratto scheme. According to ITT, Intelnet used denied ITT’s motion to amend its the United States mail (a) fraudulently to counterclaims for legal reasons becomes induce the ITT parties to execute their important. As already noted, there is little agreements, (b) consistently to postpone doubt that he denied ITT’s proposed performance while concealing its inability amendment as a matter of law. After to perform, with the purpose (c) of seizing examining ITT’s lengthy allegations and upon pretexts to declare that ITT had hearing counsel at argument, Judge Fratto breached the agreements and extorting concluded, “[A]t best it seems that the settlements. There was extensive allegation is . . . that the plaintiffs were discussion at the motion hearing as to what unable to fulfill their contract, and every these allegations entailed, and Judge Fratto time they wrote a letter or sent a wire, likely believed his oral summation was knowing that they were unable to fulfill adequate against that backdrop. their contract, the[y] committed a RICO In any case, this strategy is violation.” He continued, “I don’t think unavailing because it runs up against the RICO is or was intended to encompass “inextricably intertwined” prong of the breaches of contract, even breaches of doctrine. If Judge Fratto contract that involve $800 million.” He denied ITT’s proposed amendment
because he concluded, whatever his reasoning, that it failed to state a claim Judge Fratto appears subtly to have upon which relief might be granted, a misstated the theory advanced by ITT in federal judgment permitting a substantially federal court—that Intelnet violated RICO identical claim to proceed would render by seizing on a pretextual breach to the state court decision necessarily threaten litigation. Based on this erroneous.
ITT had failed to state a claim as a matter of law, and he had the discretion to do so p r o c e ed i n g . S e e , e .g . , D i c i v . l a w . 1 9 u n d e r N e w J e r s e y Pennsylvania, 91 F.3d 542, 548 (3d Cir. 1996). ITT raises a final objection to Rooker- We see no reason why a different
Feldman based on the non-identity of the rule should govern Rooker-Feldman . On parties in the state versus federal actions. several occasions, to be sure, we have (Various Intelnet affiliates are defendants declined to apply Rooker-Feldman to bar in the federal case but were not parties in a federal claim by a non-party to a state the New Jersey action, and ITT affiliates action. For example, in Marks v. Stinson , that were named defendants in state court 19 F.3d 873, 885 n.11 (3d Cir. 1994), we are not plaintiffs in the federal action.) held that “ Rooker-Feldman [does] not bar The argument finds some support in our the district court from hearing the claims decision in Valenti v. Mitchell , 962 F.2d of the [] plaintiffs because they were not 288 (3d Cir. 1992). In that case, we parties to any of the state court declined to apply Rooker-Feldman against proceedings on the matter.” Similarly, in plaintiffs who were not parties to the state National Railroad Passenger Corp. v. action. Relying on the “close affinity” Pennsylvania Public Utility Commission between the Rooker-Feldman doctrine and 342 F.3d 242, 257 (3d Cir. 2003), we claim and issue preclusion, we explained noted that “[a] state court order to which that “[w]e [had] found no authority which [the plaintiff] was not a party cannot be the would extend the Rooker-Feldman basis to deny [the plaintiff] its statutory doctrine to persons not parties to the right to a federal forum.” Id. But we have proceedings before the state . . . court.” Id . n e v e r d e e m e d R o o k e r - F e ld m a n at 297. inapplicable based on the non-participation
However, the “close affinity” in state court of a party asserting the between the Rooker-Feldman and jurisdictional bar. On the contrary, we preclusion doctrines that supported federal have applied Rooker-Feldman to bar a jurisdiction in Mitchell undercuts ITT’s federal claim by a plaintiff whose state theory that does not proceeding was non-adversarial (in other apply in this case. We did not decide in words, there was apparently no defendant V a l e n t i w h e t h e r t h e R o o k e r - at the state level). The parties to the Feldman jurisdictional bar can be asserted federal action in that case were necessarily by a non-party to the state court action non-identical. See E.B. v. Verniero , 119 against a party to both proceedings. In the F.3d 1077, 1092 (3d Cir. 1997). preclusion context, however, the rule is In this case, ITT lost in state court: quite clear. While res judicata may Judge Fratto denied its motion to amend its require total identity of the parties, pleadings. Now, after raising the same collateral estoppel usually requires only claims in federal court, it asserts that that the party against whom preclusion is jurisdiction is appropriate because it has being sought participated in the prior named defendants who were not parties to
jurisdiction in this case. Accordingly, we vacate the decision of the District Court III. Conclusion and dismiss for lack of jurisdiction. We summarize as follows. ITT
presented its RICO claims to the state
court in the form of a proposed pleading
amendment adding counterclaims. New
Jersey law permits a state court to deny an
amendment on procedural grounds (such
as inordinate delay in filing) or because
the amendment fails to state a claim. The
latter is treated like a motion to dismiss for
failure to state a claim and is a permissible
decision on the merits under state law and
thus for Rooker-Feldman purposes. Judge
Fratto denied the amendment at least in
part on the ground that it failed, as a matter
of law, to state a claim upon which relief
can be granted. In this context, the
Rooker-Feldman doctrine bars federal
the state court action. We will not permit
a party to end-run the Rooker-Feldman
doctrine in this manner. The opinion of
our Court in Saudi Basic Industries Corp.
v. Exxon Corp. , No. 02-2130, ___ F.3d
___, ___ (3d Cir. 2004), borrowing from
preclusion concepts, concluded that
“[c]laims and issues decided against an
entity bind also its parties in privity” for purposes. Per Saudi
Basic, ITT may not evade Rooker-
Feldman ’s grasp by adding affiliates as
plaintiffs in the federal suit. In a similar
vein, we now hold that Rooker-Feldman
bars jurisdiction where, as here, related but
non-identical defendants (the Intelnet
affiliates) were drawn into the federal
litigation by the parties (ITT Corp. and its
affiliates) against whom the state court
action was decided.
[1] Unless the context requires otherwise, for convenience purposes we use “ITT” entity or entities on the other. when referring to any ITT-related entity or
[2] In February 1998, ITT Corp. became a entities on the one hand, and “Intelnet” when referring to any Intelnet-related wholly owned subsidiary of Starwood.