New Jersey Supreme Court Applies Full Faith & Credit to Tennessee Class Action Settlement
In Simmermon v. Dryvit Systems, Inc. (A55-07), the New Jersey Supreme Court was presented with determining whether the full faith and credit clause of the US Constitution requires a New Jersey court to give preclusive effect to a nationwide class action consumer fraud settlement approved by a Tennessee circuit court. (View the video of oral argument before the NJ Suprem Court http://njlegallib.rutgers.edu/supct/args/A_55_07.php)
The New Jersey Supreme Court held that the Tennessee court is the appropriate forum to determine whether Simmermon should be bound by the settlement entered in that court and thus barred from pursuing his own individual case in New Jersey. However, because of tactical gamesmanship employed by the principal defendant in Simmermon's individual lawsuit, the New Jersey Supreme Court held that the defendant will be responsible for Simmermon's attorneys' fees and litigation expenses.
In the New Jersey lawsuit, the plaintiff asserted the same types of claims against the same defendant named in the Tennessee class action, Dryvit Systems, Inc. ("Dryvit"), a manufacturer of a synthetic stucco exterior installation and finishing system. In 1995, plaintiff Simmermon purchased Dryvit's synthetic stucco system from one of Dryvit's distributors for installation in his custom-made home in New Jersey. Approximately 4 years later in 1999, Simmermon discovered that the stucco was defective due to observable bubbling and peeling. Simmermon filed suit in 2001 against Dryvit, its distributor, and the company that installed the system on his custom-made home.
THE TENNESSEE CLASS ACTION LAWSUIT
Only a year before Simmermon filed his New Jersey lawsuit, a group of Tennessee homeowners filed a class action against Dryvit in the Tennessee Circuit Court, asserting the same basic claims that Simmermon alleged in his Complaint. On April 8, 2002 - 7 months after Simmermon filed his New Jersey complaint - the Tennessee class action, which until then had been limited to Tennessee homeowners, was converted into a nationwide homeowners' class action. On the same day, representatives of the now nationwide class action and Dryvit entered into a settlement agreement that received preliminary approval by the Tennessee Circuit Court. The principal terms of the settlement agreement obligated Dryvit to provide class members with property inspections, 3-year limited warranties, and reimbursement of repair costs as determined by a certain formula.
In furtherance of the settlement, in June 2002 the claims administrator of the settlement sent all identifiable class members a first-class mailing containing settlement information, a claim form, and an opt-out form. Additionally, information about the class action and settlement terms was published in advertisements in national and local newspapers, national magazines, trade publications, and online at http://www.stuccosettlement.com/. Homeowners could opt-out of the class and thus be free to pursue their own individual lawsuits against Dryvit by timely completing and returning the opt-out form to the claims administrator. According to records maintained by the claims administrator in the Tennessee class action, on June 24, 2002 a notification letter was mailed to Simmermon's home in New Jersey as per the terms of the settlement. The letter sent to Simmermon was not among those returned by the US postal service as undeliverable, and Simmermon was not among the class members who filed a request to opt out of the proposed settlement.The Tennessee Circuit Court held a hearing on October 1, 2002 addressing the objections from certain objectors challenging the fairness and adequacy of the notice procedures of the proposed settlement.
On January 14, 2003, the Tennessee Circuit Court approved the class action settlement and determined that the notification to class members "constituted the best practicable notice" and was "reasonably calculated . . . to apprise class members of the pendency of [the] class action, [and of] their right to exclude themselves from the class and the proposed settlement. In addition, the Tennessee Circuit Court ordered that any class member who had not returned the opt-out form to the claims administrator were "permanently barred and enjoined" from obtaining "any benefits or other relief" in a lawsuit filed in another jurisdiction related to claims asserted in the class action."
The Tennessee Court of Appeals stayed enforcement of the class action settlement through January 2005 to allow homebuilders the opportunity to intervene in order that their rights could be determined under the settlement. In April 2005, the Tennessee Circuit Court dismissed the homebuilders' objections, confirmed the fairness of both the settlement notification procedures and the settlement terms, and entered final judgment approving the settlement in all respects.
SIMMERMON'S NEW JERSEY LAWSUIT
Just 3 weeks before the Tennessee Circuit Court certified the nationwide class action against Dryvit and preliminarily approved the class action settlement, on March 15, 2002 Dryvit filed its answer in Simmermon's New Jersey litigation but made no mention of the class action lawsuit as required by New Jersey Court Rule 4:5-1(b)(2). In accordance with this New Jersey pleading rule, in answering a complaint defense counsel is required to certify "whether the matter in controversy [was] the subject of any other action pending in any court . . . or whether any other action . . . [was] contemplated." R. 4:5-1(b)(2). The rule also requires the defendant to file with the "[plaintiff] and with the court an amended certification if there is a change in the original certification." Ibid.
It was undisputed that Dryvit did not comply with R. 4:5-1(b)(2) by informing Simmermon or the Court in its initial answer. or by way of a subsequent amended certification, that the subject matter of Simmermon's lawsuit was also the subject of the previously filed and existing nationwide class action suit in Tennessee.On March 25, 2003, 1 year after filing its answer in the New Jersey case, 11 months after preliminary approval of the nationwide class action settlement, 6 months after the opt-out deadline had expired, and 2 months after the Tennessee court entered its final approval of the settlement, Dryvit's counsel first sent a letter to Simmermon's counsel informing him of the nationwide class action settlement and that it was Dryvit's position that because Simmermon did not opt-out of the settlement that he was "barred and enjoined" from continuing his litigation against Dryvit in New Jersey. It was not until some 2 months later on May 30, 2003 that Dryvit's counsel finally notified the trial court about the Tennessee class action settlement and that it barred Simmermon from proceeding with his claims in New Jersey.
TRIAL COURT LEVEL
At the trial court level, Dryvit moved to dismiss Simmermon's claims based on the terms of the Tennessee class action settlement which by that time was considered as a final judgment in Tennessee. In other words, Dryvit asserted that the New Jersey court should give full faith and credit to the final judgment of a sister state - Tennessee. The trial court agreed with Dryvit, finding that the Tennessee court properly exercised jurisdiction over the class action and that Simmermon was subject to jurisdiction as a class member in Tennessee, the settlement notification procedure and opt-out provision satisfied federal due process requirements, and Simmermon's failure to opt-out rendered him bound by the settlement.
APPELLATE DIVISION
On appeal, the Appellate Division reversed the trial court, holding that Dryvit's failure to timely disclose to Simmermon and to the court its knowledge of the class action settlement, pursuant to R. 4:5-1(b)(2), prevented Dryvit from invoking the preclusive effect of the Tennessee judgment. The Appellate Division declined to address the due process analysis conducted by the trial court because the Appellate Division panel concluded that Dryvit's violation of R. 4:5-1(b)(2) was an independent legal basis for not enforcing the Tennessee judgment.
SUPREME COURT HOLDING
On petition for certification, the New Jersey Supreme Court reversed the Appellate Division's decision, holding that the Tennessee judgment is entitled to full faith and credit in the absence of Simmermon obtaining relief therefrom in a Tennessee court. This means that Simmermon must apply to a Tennessee court to avoid the preclusive effect of the settlement entered in the nationwide Tennessee class action. If Simmermon is unsuccessful in Tennessee, then the New Jersey courts must abide by the terms of the nationwide class action settlement reduced to judgment in Tennessee. On the other hand, if Tennessee excludes Simmermon from the class action settlement, then he may proceed with his New Jersey claims against Dryvit, the New Jersey Supreme Court declared.
Under either scenario (i.e., should Simmermon's succeed or fail in his future application to the Tennessee court), the New Jersey Supreme Court at least put Simmermon in a position to recoup his attorneys' fees and litigation expenses. The Court was particularly critical of Dryvit's failure to comply with the certification requirements of R. 4:5-1(b)(2), noting that Simmermon would have avoided unnecessary legal fees and costs and the New Jersey courts' resources had been spared had Dryvit simply been more forthcoming in its disclosure about the Tennessee class action lawsuit and settlement.
About the author: Glenn R. Reiser is a New Jersey attorney and partner at the law firm of LoFaro & Reiser, LLP with offices in Montclair and Hackensack, N.J. Mr. Reiser did not represent any party to this lawsuit. To visit LoFaro & Reiser's official websites, go to www.njlawconnect.com and www.new-jerseylawyers.com.
At the trial court level, Dryvit moved to dismiss Simmermon's claims based on the terms of the Tennessee class action settlement which by that time was considered as a final judgment in Tennessee. In other words, Dryvit asserted that the New Jersey court should give full faith and credit to the final judgment of a sister state - Tennessee. The trial court agreed with Dryvit, finding that the Tennessee court properly exercised jurisdiction over the class action and that Simmermon was subject to jurisdiction as a class member in Tennessee, the settlement notification procedure and opt-out provision satisfied federal due process requirements, and Simmermon's failure to opt-out rendered him bound by the settlement.
APPELLATE DIVISION
On appeal, the Appellate Division reversed the trial court, holding that Dryvit's failure to timely disclose to Simmermon and to the court its knowledge of the class action settlement, pursuant to R. 4:5-1(b)(2), prevented Dryvit from invoking the preclusive effect of the Tennessee judgment. The Appellate Division declined to address the due process analysis conducted by the trial court because the Appellate Division panel concluded that Dryvit's violation of R. 4:5-1(b)(2) was an independent legal basis for not enforcing the Tennessee judgment.
SUPREME COURT HOLDING
On petition for certification, the New Jersey Supreme Court reversed the Appellate Division's decision, holding that the Tennessee judgment is entitled to full faith and credit in the absence of Simmermon obtaining relief therefrom in a Tennessee court. This means that Simmermon must apply to a Tennessee court to avoid the preclusive effect of the settlement entered in the nationwide Tennessee class action. If Simmermon is unsuccessful in Tennessee, then the New Jersey courts must abide by the terms of the nationwide class action settlement reduced to judgment in Tennessee. On the other hand, if Tennessee excludes Simmermon from the class action settlement, then he may proceed with his New Jersey claims against Dryvit, the New Jersey Supreme Court declared.
Under either scenario (i.e., should Simmermon's succeed or fail in his future application to the Tennessee court), the New Jersey Supreme Court at least put Simmermon in a position to recoup his attorneys' fees and litigation expenses. The Court was particularly critical of Dryvit's failure to comply with the certification requirements of R. 4:5-1(b)(2), noting that Simmermon would have avoided unnecessary legal fees and costs and the New Jersey courts' resources had been spared had Dryvit simply been more forthcoming in its disclosure about the Tennessee class action lawsuit and settlement.
About the author: Glenn R. Reiser is a New Jersey attorney and partner at the law firm of LoFaro & Reiser, LLP with offices in Montclair and Hackensack, N.J. Mr. Reiser did not represent any party to this lawsuit. To visit LoFaro & Reiser's official websites, go to www.njlawconnect.com and www.new-jerseylawyers.com.
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