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Sunday, January 10, 2016

J-M MANUFACTURING COMPANY, INC. VS. PHILLIPS & COHEN, LLP, AND JOHN HENDRIX A-5867-13T2

J-M MANUFACTURING COMPANY, INC. VS. PHILLIPS & COHEN, LLP, AND JOHN HENDRIX
A-5867-13T2
 We affirm the Rule 4:6-2(e) dismissal of J-M's complaint based on application of the entire controversy doctrine. In 2006, defendant John Hendrix, plaintiff J-M's former employee, filed a federal qui tam action in California under the False Claims Act (FCA), 31 U.S.C.A. §§ 3729-3732, alleging J-M defrauded various governmental entities in the sale of PVC pipe. Hendrix gathered the information which formed the basis of the FCA action while represented by his attorneys, defendant Phillips & Cohen. The FCA protects legitimate whistleblowers from counterclaims meant to harass or indemnify a liable defendant by holding the counterclaims in abeyance until a defendant's liability is decided. If a defendant is found liable, the counterclaim is dismissed as the FCA prohibits a defendant from obtaining indemnification or offset for its wrongdoing. No counterclaim was filed by J-M.
While the qui tam action was pending final resolution, J-M sued in New Jersey seeking damages against Hendrix and his attorneys for Hendrix's investigatory activities, including the removal or duplication of confidential documents, customer information, and other claimed breaches of Hendrix's contractual commitments to J-M. We conclude that the entire controversy doctrine mandates dismissal of the New Jersey complaint because it was based on the same transaction or transactional circumstances as the California proceedings. We further conclude that in light of the purpose of the entire controversy doctrine and the policy aims of the FCA, the fact that the cases were being pursued simultaneously did not prevent application of the doctrine.