Watkins v. Resorts Intern. Hotel and Casino, Inc.

• Decision Date: 11 June 1991
• Docket Number: No. A-77,A-77
• Citation: 591 A.2d 592,124 N.J. 398
• Parties: , 60 USLW 2051 Murrell WATKINS and Abraham McDaniel, Plaintiffs-Appellants, v. RESORTS INTERNATIONAL HOTEL AND CASINO, INC., Defendant-Respondent, and Bally's Park Place Casino, Alan McClain, Eugene McDermott, N.J. Department of Transportation, and Frank Fitzsimmons, Defendants.
• Court: New Jersey Supreme Court

Page 398

124 N.J. 398

591 A.2d 592, 60 USLW 2051

Murrell WATKINS and Abraham McDaniel, Plaintiffs-Appellants, v. RESORTS INTERNATIONAL HOTEL AND CASINO, INC., Defendant-Respondent, and Bally's Park Place Casino, Alan McClain, Eugene McDermott,

N.J. Department of Transportation, and Frank

Fitzsimmons, Defendants.

No. A-77

Supreme Court of New Jersey.

Argued Jan. 3, 1991.

Decided June 11, 1991.

Arnold S. Cohen, for plaintiffs-appellants (Balk, Oxfeld, Mandell and Cohen, attorneys), Newark.

William M. Honan, for defendant-respondent (Horn, Kaplan, Goldberg, Gorny & Daniels, attorneys; Joseph G. Antinori, on the brief), Voorhees.

The opinion of the Court was delivered by

POLLOCK, J.

This appeal concerns the preclusive effect of a federal judgment in a state court. Specifically, it requires us to decide whether state law claims brought in a state court are precluded by a prior federal court judgment dismissing federal law claims based on the same facts, if the federal claims were dismissed for insufficient service of process and for lack of standing.

Plaintiffs, Murrell Watkins and Abraham McDaniel and their wholly-owned companies, sued Resorts International (Resorts), Bally's Park Place Casino (Bally's), and other defendants in federal district court, claiming that as minority bus-line owners they had been the targets of discriminatory practices. The claims, which sought relief pursuant to 42 U.S.C. sections 1981, 1983, 1985(3), and 1988, were dismissed on motion for various reasons, including insufficient service of process and lack of standing.

Relying on state law, Watkins and McDaniel then filed this action in the Superior Court based on the same allegations of discrimination that underlay their federal claims. The Law Division granted defendants' motion to dismiss, R. 4:6-2(e), on the ground that plaintiffs were barred by the entire controversy doctrine from relitigating the same cause of action that had already been decided in federal court. See R. 4:30A (formerly R. 4:27-1(b)). In an unreported decision, the Appellate Division affirmed on grounds of res judicata, collateral estoppel, and the entire controversy doctrine. We granted certification, 122 N.J. 195, 584 A.2d 253 (1990), and now reverse the judgment of the Appellate Division and remand the matter to the Law Division. Although state courts must honor judgments of federal courts, dismissals for insufficient service of process or lack of standing do not preclude relitigation. Consequently, the federal judgments against Watkins and McDaniel do not bar their state claims.

-I-

For purposes of this appeal, we accept the facts as alleged in the complaint. Heavner v. Uniroyal, Inc., 63 N.J. 130, 133, 305 A.2d 412 (1973). Plaintiff Watkins and his wife were the sole shareholders in Ocean Breeze Transit Company (Ocean Breeze), a bus company that operated service to Atlantic City casinos. Plaintiff McDaniel owned Cobra Coach Lines, Inc. (Cobra), which also operated bus service to Atlantic City. Plaintiffs, who are black, allege that Resorts and Bally's discriminated against them by interfering with their efforts to operate bus lines to the casinos.

In 1982 Resorts granted Ocean Breeze permission to provide bus service to its casino. When the first Ocean Breeze bus arrived, however, a casino representative told the driver that the buses should not return because they were too old and dirty. According to Watkins, Resorts executive Alan McClain later told Watkins: "[J]ust because you niggers get a license and buses, we do not have to let you into the casino." Finally, McClain informed Watkins that Ocean Breeze would not be allowed to service Resorts unless it used buses less than two years old. Resorts, however, continued to allow white-owned bus companies with older buses to provide transportation to the casino.

Watkins alleges that Bally's also discriminated against him. When Watkins began servicing the casino around 1980, McClain was Bally's project manager. According to Watkins, McClain and another Bally's executive, Eugene McDermott, helped several white-owned bus companies to usurp Watkins's designated territories. Claiming that these companies had failed to comply with licensing requirements, Watkins notified defendant Frank Fitzsimmons of the New Jersey Department of Transportation (DOT), but Fitzsimmons took no action. Watkins alleges that Fitzsimmons's failure to take action "eventually resulted in the revocation of his line run from Cape May to [Resorts and Bally's]." He alleges further that because of defendants' discrimination, he and his wife were forced to mortgage their home and sell their Ocean Breeze shares to avoid personal bankruptcy.

McDaniel alleges that he was the victim of similar racial discrimination. Resorts denied his request for Cobra to provide transportation because it did not want black groups coming to the casino. White-owned companies, however, were subsequently permitted to provide transportation from the same sites. When McDaniel later sought permission to operate new lines from Harlem and the South Bronx, McClain allegedly told him that the people from those neighborhoods were not the type of people Resorts wanted in its casino.

McDaniel further alleges that when he sought to establish a line from Harlem and the South Bronx to Bally's, McClain told him that lines from those neighborhoods were undesirable. According to McDaniel, McDermott said he was concerned about the number of blacks in the casino. Bally's, however later granted permission for a white-owned company to service those areas. McDaniel alleges that as a result of defendants' discrimination, he lost his investment in Cobra and was forced to declare personal bankruptcy.

On August 27, 1984, Watkins, McDaniel, Ocean Breeze, and Cobra filed suit in the United States District Court for the District of New Jersey, claiming civil rights violations under 42 U.S.C. sections 1981, 1983, 1985(3), and 1988. The complaint named the same defendants as in the instant matter: Resorts, Bally's, McClain, McDermott, the DOT, and Fitzsimmons. Plaintiffs did not assert any pendent state claims. Eventually, the federal court dismissed all of the claims. First, on June 12, 1985, the court dismissed plaintiffs' section 1983 claim. Plaintiffs stipulated to a dismissal with prejudice of their section 1985 claim, leaving only the section 1981 claim and the derivative section 1988 claim for attorneys' fees. Then, on November 27, 1985, the court dismissed the complaint against Bally's for insufficient service of process under Federal Rule of Civil Procedure 4(j). Specifically, the court dismissed the complaint without prejudice because plaintiffs had failed to serve the summons and complaint on Bally's within 120 days of filing the complaint, contrary to Federal Rule of Civil Procedure 4(j). Plaintiffs voluntarily dismissed their complaint against DOT.

Most significantly for our purposes, the district court on November 27, 1985, granted Resorts' motion to dismiss the complaint of the individual plaintiffs, Watkins and McDaniel, because they lacked standing to sue. Relying on federal law, the court explained that a shareholder, even a sole shareholder such as McDaniel, cannot maintain a civil rights action to redress damages suffered by a corporation. The court held that Watkins' sale of his Ocean Breeze stock did not confer standing on him to maintain such an action. The United States Court of Appeals for the Third Circuit affirmed the judgment dismissing the individual plaintiffs' claims. In an order dismissing the remaining counts, the district court stated:

It appearing that it has been reported to the Court by plaintiffs' counsel that plaintiffs do not wish to proceed any further in this matter;

It is on this 27th day of May, 1987, ORDERED that this action is hereby DISMISSED with prejudice.

Plaintiffs did not appeal from that order.

Shortly thereafter, Watkins and McDaniel brought suit in the Law Division. As in the federal action, they claimed that as minority bus-line owners they were the targets of discrimination by the two casinos, their employees, and DOT. Plaintiffs alleged the same facts as those in their federal complaint. Instead of alleging violations of federal anti-discrimination laws, however, plaintiffs founded their claims entirely on state law, asserting violations of article I, paragraph 1 of the New Jersey Constitution; the Casino Control Act, N.J.S.A. 5:12-1 to -190, N.J.S.A. 5:12-135; and the New Jersey Law Against Discrimination, N.J.S.A. 10:5-1 to -42.

Resorts moved to dismiss the complaint, arguing that the entire controversy doctrine, res judicata, or collateral estoppel precluded plaintiffs' action. It argued that no private cause of action existed under the Casino Control Act. The court agreed that the state cause of action was essentially the same as the federal action, and that the entire controversy doctrine barred plaintiffs from relitigating the matter. The trial court therefore granted the motion to dismiss. As to DOT, the court dismissed plaintiffs' complaint for failure to state a claim.

Before the Appellate Division, plaintiffs argued that the federal court had not determined the matter on its merits and that therefore neither res judicata, collateral estoppel, nor the entire controversy doctrine should bar the state court action. The Appellate Division disagreed, and affirmed the dismissal. As to Resorts, the court viewed the dismissal for lack of standing as a resolution on the merits, stating that the district court's "holding was that the claims which the individual plaintiffs were asserting belonged solely to their corporations and, therefore, the individuals were not entitled to redress." The court held that plaintiffs' claims against Resorts were barred by res judicata or collateral estoppel. As to Bally's, the court affirmed the dismissal on the ground of the entire controversy doctrine. The court determined...