On January 18, 2017, the Appellate Division for the Superior Court of New Jersey recognized an invaluable mechanism for defendants to defeat claims based on New Jersey’s Consumer Fraud Act—the doctrine of res judicata bars plaintiffs from re-litigating identical causes of action in New Jersey if they fail to file an answer in an out-of-state action.

In Vasquez and 21st Avenue Towing & Recovery, Inc. v. Pacific Associates Corporation, et al., Vasquez leased a tow truck that was financed by Pacific Associates Corporation, a lending company located in California.  When Vasquez made the last lease payment in October 2012, he paid an additional dollar ($1.00) to take advantage of what he thought was a one-dollar-buy-out clause in the lease agreement that gave him ownership of the tow truck.  According to Vasquez, he was enticed by Pacific Associate’s President who told him prior to signing the lease agreement that it contained a clause that would allow him to exercise the one-dollar-buy-out option.  Relying on the one-dollar-buy-out option, Vasquez failed to renew the lease, purchase the tow truck, or surrender the vehicle.  Subsequently, Pacific Associates exercised the forum selection clause in the lease agreement and filed a complaint in the California state courts against Vasquez for damages resulting from a breach of the lease agreement.

Instead of filing an answer in the California state courts and appealing the resulting default judgment, Vasquez filed a complaint against Pacific Associates in the New Jersey state courts alleging unconscionable commercial practices under the New Jersey Consumer Fraud Act.  In lieu of filing an answer, Pacific Associates moved to dismiss the complaint contending lack of subject matter jurisdiction and personal jurisdiction over the defendants.  The motion judge granted defendant’s motion to dismiss based on the forum selection clause in the lease agreement.

On appeal, the Appellate Division affirmed the motion judge’s decision on different grounds.  The Appellate Division reasoned that it was the California court’s entry of default judgment against plaintiff that barred plaintiff’s claims based on the Consumer Fraud Act.  Applying a res judicata analysis, the Court found that the California default judgment against Vasquez resulted in a final decision on the lease agreement dispute.  Vasquez should have pleaded his counterclaims in the California action.

This case demonstrates that New Jersey courts will readily enforce forum selection clauses even if it may place a burden on plaintiffs to litigate an action in an out of state forum.  Defense counsel should analyze all agreements to evaluate whether plaintiff’s action is correctly filed in the appropriate venue.

Thanks to Kenneth Eng for his contribution to this post.