Woodward-Clyde Consultants v. Chemical and Pollution Sciences, Inc.

• Decision Date: 09 April 1987
• Docket Number: WOODWARD-CLYDE
• Citation: 105 N.J. 464,523 A.2d 131
• Parties: , 25 ERC 2098 CONSULTANTS, Plaintiff-Appellant, v. CHEMICAL AND POLLUTION SCIENCES, INC., a corporation, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 464

105 N.J. 464

523 A.2d 131, 25 ERC 2098

WOODWARD-CLYDE CONSULTANTS, Plaintiff-Appellant, v. CHEMICAL AND POLLUTION SCIENCES, INC., a corporation Defendant-Respondent.

Supreme Court of New Jersey.

Argued Nov. 17, 1986.

Decided April 9, 1987.

Terence P. Corcoran, Ringwood, for appellant (Corcoran & Higgins, attorneys).

Lee W. Shelly, Holmdel, for respondent (Foley, Shelly & Niemann, attorneys).

The opinion of the Court was delivered by

POLLOCK, Justice.

This appeal requires us to decide whether a dismissal of a counterclaim for failure to comply with a discovery order was with or without prejudice and whether the dismissal violates the entire controversy doctrine. The Law Division's order recited that the counterclaim is "dismissed for failure to comply" with an earlier order directing the defendant to make discovery. In an unreported decision, the Appellate Division assumed that the counterclaim was dismissed with prejudice, modified the dismissal to one without prejudice, and affirmed. We granted certification, 104 N.J. 454, 517 A.2d 441 (1986), and now modify and affirm the judgment of the Appellate Division. We conclude that the order of the Law Division, although it did not so state, was entered pursuant to Rule 4:37-2(a) for defendant's failure to comply with "an order of court" and, in the absence of a specification to the contrary, was without prejudice. We conclude further that the defendant did not violate the entire controversy doctrine by subsequently instituting an independent action asserting the same claims as those asserted in its counterclaim.

I

Defendant, Chemical and Pollution Sciences, Inc., retained plaintiff, Woodward-Clyde Consultants, as an expert in a civil action instituted by the New Jersey Department of Environmental Protection (DEP) against defendant, alleging that defendant spilled toxic wastes on its property in Old Bridge, New Jersey. Plaintiff was to evaluate the merits of the DEP claim and to testify on defendant's behalf at trial. Accordingly, plaintiff tested groundwater samples taken from wells it installed on defendant's premises to determine the extent of contamination, if any, caused by defendant. From tests performed on those samples, plaintiff concluded that defendant was not the source of the contamination. Shortly before June 15, 1981, the date of the trial of the DEP action, however, plaintiff learned that on nights preceding the days on which plaintiff took its samples, defendant's employees had flushed the wells with fresh water to conceal the contamination. When defendant failed to comply with plaintiff's request for either a full disclosure of the facts to all parties and the court or a new series of tests, plaintiff withdrew as an expert. The trial proceeded without plaintiff's services, and on July 31, 1981, the Law Division entered a judgment in excess of $5,000,000 against defendant.

Subsequently, on March 22, 1983, plaintiff instituted a contract action against defendant for services rendered. Nine months later, defendant filed an answer and a counterclaim for $5,000,000, alleging that plaintiff was liable for breach of contract, breach of fiduciary duties, disclosure of confidential information, negligence, and unjust enrichment.

Meanwhile, a state grand jury began an investigation of the allegations that defendant had tampered with the wells, and issued a subpoena to one of defendant's vice presidents, Joseph Kolmer. On May 19, 1983, Kolmer invoked the attorney-client privilege before the grand jury. Consistent with that invocation, defendant, claiming a fifth amendment privilege against self-incrimination, refused to answer plaintiff's interrogatories or to produce its president, Phillip Meisel, for depositions. In particular, defendant refused to answer interrogatories pertaining to its counterclaim. ¹ With that refusal, the parties embarked upon a sea of motions, leading to the entry of the order dismissing the counterclaim.

Although defendant applied for a protective order staying discovery until the outcome of the grand jury proceedings, on February 21, 1984, the Law Division denied the application, ordered defendant to answer the interrogatories by March 11, 1984, and further ordered defendant to produce its president for depositions by March 31, 1984. A subsequent order of April 2, 1984, which extended the deadlines for answers to interrogatories, provided that if defendant failed to comply, the court would dismiss the answer and counterclaim and conduct a hearing on plaintiff's damages.

Defendant failed to comply with the April 2, 1984, order, and the Law Division conducted a proof hearing on June 15, 1984, after which it entered a judgment for plaintiff in the amount of $60,940.35 plus interest. That judgment, defendant's counsel informs us, has been satisfied.

Thereafter, on October 11, 1984, the Law Division entered another order denying defendant's application to reinstate the answer, entering default against defendant retroactively to June 15, 1984, and denying defendant's motion to vacate proofs. The court, however, granted defendant's motion to reinstate the counterclaim on condition that defendant supply certified answers to interrogatories within twenty days of September 26, 1984, and that it produce its president for depositions before October 30, 1984. Finally, the court ordered that discovery be sealed and disseminated only to the court and plaintiff's attorney.

Defendant failed to make discovery as directed by the October 11, 1984, order and, on February 1, 1985, on plaintiff's motion, the Law Division entered an order dismissing defendant's counterclaim. Unfortunately, however, the February order did not state whether the dismissal was with or without prejudice.

The Appellate Division affirmed the October 11, 1984, order directing defendant to make discovery, but concluded that the February 1, 1985, order dismissing the counterclaim was an adjudication on the merits under Rule 4:37-2(d) and constituted a dismissal with prejudice. The court, however, modified that order to a dismissal without prejudice.

Before us, plaintiff challenges the modification of the dismissal from one "with" to one "without" prejudice. Plaintiff contends that the transformation violates the entire controversy doctrine because it allows defendant to bring a related claim in a subsequent action. Defendant's counsel has advised us that since oral argument defendant has instituted a separate action against plaintiff asserting the same claims as those contained in the dismissed counterclaim. Counsel advises further that the indictment returned against defendant on June 6, 1986, was dismissed with prejudice on October 30, 1986.

II

Underlying plaintiff's challenge to the Appellate Division's attempt to convert the dismissal of the counterclaim to one without prejudice is the assumption that the Law Division's February 1, 1985, order was with prejudice. Defendant contends, however, that under Rule 4:37-2(a) the February 1, 1985, order, which did not recite that it was "with prejudice," was "without prejudice" and, therefore, that the Appellate Division's purported modification was superfluous. We agree.

Rule 4:37-2(a) provides:

For Failure to Comply with Rule or Order. For failure of the plaintiff * * * to comply with * * * any order of the court, the court in its discretion may on defendant's motion dismiss an action or any claim against him. Such dismissal shall be without prejudice unless otherwise specified in the order.

The sanctions of Rule 4:37-2(a), although expressed in terms of the "failure of the plaintiff," apply also to a counterclaimant. R. 4:37-3. Consequently, the dismissal of a counterclaim for failure to comply with a court order, like the dismissal of the complaint, unless otherwise specified in the order, constitutes a dismissal without prejudice. See West Milford Township Bd. of Educ. v. Rockwell Mfg. Co., 173 N.J.Super. 506, 508, 414 A.2d 613 (Law Div.1980), certif. denied, 89 N.J. 419, 446 A.2d 148 (1982). Because the February 1, 1985, order, without otherwise specifying, dismissed defendant's counterclaim "for failure to comply with an Order" dated October 11, 1984, the dismissal was without prejudice.

That conclusion is consistent with the general principle that a dismissal with prejudice is a severe sanction that should be imposed sparingly and "only when no lesser sanction will erase the prejudice suffered by the non-delinquent party." Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 345, 476 A.2d 250 (1984). The Appellate Division proceeded on the assumption that the February 1, 1985, order dismissing defendant's counterclaim was an adjudication on the merits under Rule 4:37-2(d) and, therefore, was with prejudice. A close reading, however, leads to the conclusion that Rule 4:37-2(d) does not apply. Rule 4:37-2(d) provides:

Dismissal with Prejudice; Exceptions. Unless the order of dismissal otherwise specifies, a dismissal under R. 4:37-2(b) or (c) and any dismissal not specifically provided by R. 4:37, other than a dismissal for lack of jurisdiction, operates as an adjudication on the merits.

Subsections (b) and (c) refer to involuntary dismissals at trial. The February 1, 1985, order, however, was not such a dismissal. It was not a dismissal upon completion of plaintiff's case, R. 4:37-2(b), or a dismissal of a claim for contribution, R. 4:37-2(c). Nor was it a "dismissal not specifically provided by R. 4:37." It was a dismissal for failure to comply with a court order and, therefore, was a dismissal without prejudice under Rule 4:37-2(a). The Appellate Division misperceived the Law Division's order to be with prejudice, and amended the dismissal to one without prejudice. Thus, the court reached the right result for the wrong reasons.

III

We turn now to the effect of the dismissal without prejudice on defendant's institution of an independent action asserting the same cause as was contained in the ...