Katz v. Mondelblatt

1
UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 7
AARON MONDELBLATT 	:
: 	Bankruptcy No. 05-34020ELF
Debtor 	:
SEAN KATZ 	:
:
Plaintiff 	:
:
v. 	:
:
AARON MONDELBLATT 	:
:
Defendant 	: 	Adversary No. 06-00085ELF
:
MEMORANDUM OPINION
BY: ERIC L. FRANK, United States Bankruptcy Judge
I. INTRODUCTION
In the above-captioned adversary proceeding, a creditor seeks a determination that a debt
is nondischargeable pursuant to 11 U.S.C. §523(a)(9). Before the court is the Motion of Trump
Taj Mahal, Pursuant to Bankruptcy Rule 7024, For an Order Authorizing Trump Taj Mahal to
Intervene in the Above-Captioned Adversary Proceeding (“the Motion”).
For the reasons set forth below, the Motion will be denied.
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II. PROCEDURAL HISTORY
On March 21, 2001 Aaron Mondelblatt (“the Debtor”) was involved in a tragic car
accident on the Atlantic City Expressway, while returning home from Atlantic City. Sean Katz, a
passenger in the car driven by the Debtor, sustained serious injuries in the accident and is now a
ventilator dependent quadriplegic. The accident spawned litigation in Atlantic County, New
Jersey, which I will refer to collectively as “the State Court Litigation.”
The State Court Litigation commenced in December 2001, when Katz filed a negligence
action against the Atlantic City Expressway, the South Jersey Transportation Authority, and the
State of New Jersey, docketed at ATL-L-12-02 (N.J. Super.). This complaint was amended to add
the Debtor on March 5, 2002. Next, on March 18, 2003, Katz filed a separate lawsuit against
Trump Taj Mahal (“Trump”), docketed at ATL-L-689-03 (N.J. Super.), alleging that it negligently
served alcohol to the Debtor, who was under age, in violation of the Dram Shop Act, N.J.S.A.
2A:22A. In response, on or around September 23, 2005, Trump Taj Mahal filed a Third Party
Complaint against the Debtor seeking contribution and indemnity on September 23, 2005.
The Debtor filed a chapter 7 voluntary petition for bankruptcy on October 3, 2005. On
January 31, 2006, Katz initiated this adversary proceeding (“the Adversary Proceeding”) by filing
an adversary complaint to except from discharge pursuant to 28 U.S.C. 523(a)(9) any judgment he
may obtain against the Debtor .
On March 13, 2006, Trump filed the Motion now before me. On May 4, 2006, at my
request, Trump filed a Letter Brief in support of the Motion.
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In this case, the Motion was filed approximately six (6) weeks after the Complaint was1
filed in the Adversary Proceeding and even before the Debtor filed his Answer to the Complaint.
The Motion was filed timely because it sought to intervene at an early stage in the proceedings
when it would not prejudice any of the parties or cause any undue delay. See generally Mountain
Top Condominium Ass’n v. Dave Stabbert Master Builder, Inc., 72 F.3d 361, 369 (3d Cir. 1995)
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III. MANDATORY INTERVENTION
A. 	Introduction
Federal Rule of Civil Procedure 24(a), made applicable to adversary proceedings by
Bankruptcy Rule 7024, provides in relevant part:
(a) Intervention of Right. Upon timely application anyone shall be permitted to
intervene in an action: (1) when a statute of the United States confers an
unconditional right to intervene; or (2) when the applicant claims an interest
relating to the property or transaction which is the subject of the action and the
applicant is so situated that the disposition of the action may as a practical matter
impair or impede the applicant’s ability to protect that interest, unless the
applicant's interest is adequately represented by existing parties.
Fed. R. Civ. P. 24(a).
Courts in the Third Circuit apply a four-part test to determine whether an applicant may
intervene in an action as of right. An applicant is entitled to intervene as of right when: (1) the
application for intervention is timely; (2) the applicant has a sufficient interest in the litigation; (3)
the interest may be affected or impaired, as a practical matter by the disposition of the action; and
(4) the interest is not adequately represented by an existing party in the litigation. Harris v.
Pernsley, 820 F.2d 592, 596 (3d Cir.1987), cert. denied, 484 U.S. 947 (1987) (citation omitted).
The applicant bears the burden of demonstrating that it has met all four prongs. Development
Finance Corp. v. Alpha Housing & Health, 54 F.3d 156, 162 (3d Cir. 1995). United States v.
Alcan Aluminum, Inc., 25 F.3d 1174, 1181 n. 9 (3d Cir.1994).
I am satisfied that Trump has made a timely application. 	I am also satisfied that Trump1
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(“the stage of the proceeding is inherently tied to the question of the prejudice the delay in
intervention may cause to the parties already involved.”).
Trump desires to protect itself from potential liability for allegedly serving the Debtor2
alcohol inside the Taj Mahal on the evening of the accident. See, e.g., Kansas Public Employees
Retirement System v. Reimer & Kroger Assoc., Inc., 60 F.3d at 1308 (8th Cir. 1995) (as a
defendant in a related lawsuit, intervenor had an interest in protecting itself from potential
liability); Gregory v. Correction Connection, Inc., 1990 WL 178207 at *2 (E.D. Pa. 1990)
(finding that an interest that is contingent upon the result of the subject litigation is sufficient to
satisfy Rule 24(a)).
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has a sufficient interest relating to the subject matter of the Debtor’s Adversary Proceeding. 2
However, Trump’s ability to satisfy the third and fourth prongs of the four-part test is less clear.
Since I conclude that Trump has not satisfied the third prong of the test, because there is no
meaningful threat that the pending adversary proceeding will impair Trump’s interests, I find that
Trump is not entitled to intervene in the Adversary Proceeding as a matter of right. It is therefore,
unnecessary to determine whether Trump has satisfied the fourth prong of the test under Rule
24(a).
B. 	Discussion
1.
In determining whether an interest may be affected or impaired within the meaning of Fed.
R. Civ. P. 24(a), the court must assess “the practical consequences of the litigation,” and “may
consider any significant legal effect on the applicant’s interest. ” Brody By and Through
Sugzdinis v. Spang, 957 F.2d 1108, 1123 (3d Cir. 1992) (citations and internal quotations
omitted). It is not sufficient that the claim be incidentally affected; rather, there must be “a
tangible threat” to the applicant's legal interest. Id; see also Development Finance Corp v. Alpha
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To establish liability under the Dram Shop statute, a plaintiff must establish that (1)3
there was negligent service; (2) a nexus exists between the negligent service and the injury; and
(3) the type of injury was a foreseeable consequence of the negligent service. Showalter v.
Barilari, Inc., 312 N.J. Super. 494, 502 (App. Div. 1988). Negligent service includes service to a
minor, under circumstances where the server knew, or reasonably should have known, that the
person served was a minor. N.J.S.A. 2A:22A § 5(b). In determining the dischargeabililty of the
Debtor’s debt, this court does not need to make any findings related to the elements of a Dram
Shop claim. Rather, the three elements which must be proven in order for a debt excepted from
discharge under Section 523(a)(9) are: "(1) there must be a debt for death or personal injury; (2)
the death or personal injury must have been caused by debtor's unlawful operation of a motor
vehicle; and (3) the operation of the motor vehicle must have been unlawful because the debtor
was intoxicated pursuant to state law." In re Pair, 264 B.R. 680, 684 (Bankr. D. Idaho 2001)
(citations omitted). While this court must find a causal relationship between the intoxication and
the injury in order to except the debt from discharge under §523(a)(9) of the Bankruptcy Code,
Pair, 264 B.R. at 684, under the Dram Shop statute, the Plaintiff will have to prove a proximate
relationship between the negligent service and the injury in order to establish Trump’s liability.
Notwithstanding that distinction, I acknowledge that in practical terms, a preclusive finding that
the Debtor, a minor, was served alcohol inside the Taj Mahal could establish a pivotal
component of the overall claim against Trump in the State Court Litigation.
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Housing and Health Care, Inc., 54 F.3d at 162. 	A showing that a judgment might “practically
disadvantage” the applicant suffices to demonstrate such a tangible threat. Pennsylvania Truck
Lines v. International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of
America, et al., 1990 WL 59305 at *6 (E.D. Pa. 1990).
Trump is concerned that this court may find as a fact in the Adversary Proceeding that the
Debtor consumed alcohol at the Trump Taj Mahal on March 21, 2001. Such a finding is possible
regardless whether the Debtor was intoxicated at the time of the automobile accident. Trump
argues that its interest will be impaired because the doctrine of collateral estoppel will apply in the
State Court Litigation to preclude Trump from re-litigating whether the Debtor was served alcohol
inside the Trump Taj Mahal. Accordingly, Trump desires to protect itself from the possibility that
such a finding in this court may be used against Trump in the State Court Litigation.3
In its present form, Rule 24 is a product of the 1966 Amendments to the Federal Rules and
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was intended to overcome what was believed to be a restrictive attitude toward intervention on the
part of the courts. U.S. v. City of Jackson, Miss., 519 F.2d 1147, 1150 (5 	Cir. 1975) (citingth
Advisory Committee Note to Rule 24, 39 F.R.D. 69, 109-111 (1966); Atlantis Development Corp.
v. U.S., 379 F.2d 818 (5 	Cir. 1967)). The amendments substituted a more flexible, non-technicalth
standard of “practical impairment.” Id.; see also Duffy v. Delaware County Bd. of Prison
Inspectors, 1991 WL 193404, *3 (E.D. Pa.1991) (“it is no longer necessary for the applicant to
show that he would be barred by res judicata or collateral estoppel, some practical impairment of
the Intervenors' ability to protect his interest must be present”) (citations and internal quotations
omitted). 	However, my review of the doctrine of collateral estoppel under New Jersey law leads
me to conclude that the application of the doctrine against Trump in the pending State Court
Litigation based on a finding in this court is implausible. Therefore, the unlikely possibility that
the factfinding in the Adversary Proceeding will impair Trump’s interests is too remote to justify
Trump’s intervention as a matter of right.
2.
Under New Jersey law, collateral estoppel may apply if the party asserting preclusion
demonstrates that: (1) the issue to be precluded is identical to the issue decided in the first
proceeding; (2) the issue was actually litigated in the prior action – that is, there was full and fair
opportunity to litigate the issue in the prior proceeding; (3) a final judgment on the merits was
issued in the prior proceeding; (4) a determination of the issue was essential to the prior judgment;
and (5) the party against whom issue preclusion is asserted was a party to or in privity with a party
to the prior proceeding. Pace v. Kuchinsky, 347 N.J. Super. 202 (App. Div. 2002).
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To decide the pending Motion, I need focus only on the fifth element. Privity is typically
used to express the notion that there is some relationship between a nonparty and the formal party
that is “close enough” to justify bringing the nonparty within the scope of preclusion. Collins v.
E.I. DuPont de Nemours & Co., 34 F.3d 172, 176 (3d Cir. 1994) (applying New Jersey Law).
As the New Jersey Superior Court explained in Moore:
Generally, one person is in privity with another and is bound by and entitled to the
benefits of a judgment as though he was a party when there is such an
identification of interest between the two as to represent the same legal right, or if a
person who is not a party controls or substantially participates in the control of the
presentation on behalf of a party, Restatement, Judgments 2d, § 39, or if a person
who is not a party to an action is represented by a party, including an “official or
agency invested by law with authority to represent the person's interests.” Id. §
41(d).
515 A.2d at 273 (citation omitted). “The scope of privity, while largely freed from the very
constrictive common law mutuality anchor, remains small.” Collins, 34 F.3d at 176 (citing
Romano v. Kimmelman, 190 N.J. Super. 554, 464 A.2d 1170, 1174-75 (1983), aff’d, 96 N.J. 66,
474 A.2d 1 (1984)).
As I interpret the relevant New Jersey caselaw, the concept of “privity” is itself not an
analytic tool used in determining whether a party should be bound by the results of prior litigation
in which it did not participate. Rather, if “privity” is found to exist, it expresses the conclusion
that a nonparty’s relationship to the prior litigation is sufficient to justify the application of
preclusion doctrines.
New Jersey recognizes three (3) scenarios whereby a non-party is bound by collateral
estoppel: (1) it failed to take advantage of reasonable opportunities to participate in the first
lawsuit, (2) the nonparty controlled or substantially participated in the prior lawsuit even though it
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did not participate in the prior litigation as a formal party; or (3) the formal party represented the
nonparty as a “virtual representative.” 	None of these three scenarios apply to Trump with respect
to its relationship to the Debtor and the Adversary Proceeding.
First, a non-party who voluntarily fails to intervene in a relevant lawsuit may be precluded
(i.e., subject to the doctrine of collateral estoppel) in a subsequent action. Zirger v. General
Accident Insurance Co., 144 N.J. 327 (1996). However, the preclusion doctrine does not extend to
a party that has been denied an opportunity to intervene in a prior judgment. Preclusion is limited
to situations in which the non-party had “an adequate opportunity to intervene.” Id. at 342. And,
“a person who has unsuccessfully attempted to intervene in an action prior to entry of judgment is
not bound as to the claims therein unless he is thereafter represented by one who is a party.”
Biddle v. Biddle, 166 N.J. Super. 1, 7 (App. Div. 1979). Therefore, under the relevant caselaw in
New Jersey, collateral estoppel should not apply to Trump in the subsequent State Court
Litigation because it has attempted, in a timely manner, to intervene in the Adversary Proceeding
and I have declined to permit the requested intervention.
Second, a nonparty may be bound by a prior judgment if the nonparty controls or
participates in the prior proceeding despite its failure to join in the prior case as a formal party.
Restatement (Second) of Judgments § 39 (1980) (a non-party who “controls or substantially
participates in the control of the presentation on behalf of a party is bound by the determination of
issues decided as though he were a party”). See, e.g., Ross v. Ross, 308 N.J. Super. 132, 148-49
(1998) (holding that even in the absence of a formal motion to intervene, the third party had
“effectively” intervened by choosing to submit a brief and argue the merits of her case at oral
argument and on appeal, and was therefore bound by the original judgment). A nonparty that
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The New Jersey courts have not expressly endorsed the Third Circuit’s interpretation of4
virtual representation under New Jersey law. And, there have been instances where a New Jersey
court found privity in the absence of a pre-existing legal relationship. See, e.g., McNeil v.
Legislative Apportionment Com'n of State, 177 N.J. 364 (2003), cert denied 540 U.S. 1107
(2004) (holding that a group of Republican legislators could be barred from relitigating the
validity of a state redistricting plan where separate groups of plaintiffs, which included other
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controls or otherwise significantly participates in an original proceeding may be bound as a “de
facto” party. See generally Wright, Miller, and Cooper, 18A Federal Practice and Procedure §
4451 (2d ed. 2002) (“Wright & Miller”). In this case, there is no evidence that Trump’s
relationship with the Debtor is anything other than arms-length or that the two parties have allied
themselves in opposition to the Plaintiff in the Adversary Proceeding. Nor is there anything that
suggests that Trump is in a position to “dominate” the Debtor and control the Debtor’s litigation
tactics in the Adversary Proceeding. Therefore, I conclude that Trump can determine its own fate
as to whether it will be exposed to the application of collateral estoppel under this particular
theory. Trump risks “practical impairment” only if it chooses and finds a way to participate in the
Adversary Proceeding.
Finally, a nonparty may be bound to a judgment if the interests of the nonparty are so
closely aligned with one of the parties to the suit that the nominal party serves as the nonparty’s
virtual representative. See generally 18 A Wright& Miller § 4457. Although New Jersey cases
rarely discuss the term “virtual representation” by name, the Third Circuit, applying New Jersey
law, stated that virtual representation requires “a pre-existing legal relationship by which a party
represents a non-party” to establish privity based on virtual representation. Collins, 34 F.3d at
177. In fact, the Third Circuit explained that a pre-existing legal relationship was a “necessary”
condition for privity to exist. Id. (citing E.I.B. v. J.R.B., 259 N.J. Super. 99, 611 A.2d 662, 663
(1992)). 	In this case, there is no evidence of a pre-existing legal relationship between Trump and4
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legislators along with registered voters, had lost two previous cases in federal court); See also
Figueroa v. Hartford, 241 N.J. Super 578 (App. Div. 1990) (holding that a crime victim may be
deemed to be in privity with the perpetrator and that the victim could be collaterally estopped
from relitigating whether the act was “intentional” for purposes of the “intentional acts
exclusion” in the perpetrator’s insurance policy in subsequent civil litigation against the
perpetrator’s insurance company). However, in those cases, the court relied on exceptional
considerations to justify precluding the nonparties. For instance, McNeil relied upon the need for
voters and the recently elected legislators to have a final end to the litigation under circumstances
where there was a potentially endless supply of possible plaintiffs who could challenge the
redistricting plan. 177 N.J. at 400. Brower and Figueroa were based on the state’s interest in
having criminal convictions remain definitive on the issue of the perpetrator’s guilt. See Allstate
Ins. Co. v. Schmitt, 238 N.J.Super. 619, 633 (App. Div. 1990). While these cases demonstrate
that a New Jersey court may be willing to extend preclusion to a nonparty in the absence of a pre-
existing legal relationship, the court is likely to do so only where there are special circumstances
that warrant giving conclusive effect to a prior judgment. I cannot conceive of such special
circumstances to warrant this exception here.
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the Debtor.
Finally, Trump expresses a concern that the New Jersey court will apply what one New
Jersey Court called the “modern rule” of privity (“the Modern Rule”). In Moore, the court held
that privity should be applied when: (1) the claim of the nonparty is based on the same transaction
or occurrence; (2) the interest of both claimants are similar and no adverse interests exists; (3) the
nonparty had notice of the earlier action; and (4) the nonparty did or had an opportunity to
participate or intervene in the earlier case.” 515 A.2d at 274.
For several reasons, consideration of the Modern View does not persuade me that Trump
is subject to a meaningful risk of adverse consequences from the denial of its intervention request
in the Adversary Proceeding. First, as the Third Circuit pointed out, Moore’s reference to this
modern view was dicta and is “in significant tension with the New Jersey cases holding that
similarity of interests do not create privity.” Collins, 34 F.3d at 178 n. 2. Thus, it is questionable
whether the Modern Rule even expresses the current state of the law on this issue in New Jersey.
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Moreover, even if it is applicable, the Modern Rule requires that the nonparty participated
or had an opportunity to participate in the prior case. Thus, the denial of the Motion in the
Adversary Proceeding by itself should bar application of collateral estoppel under the Modern
Rule. In addition, it is difficult to see this as a case in which “no adverse interest” exists as
between Trump and the Debtor. 	Although defense of the claims raised by the Plaintiff causes the
interests of Trump and the Debtor to overlap in part, their interests also diverge and may be
adverse, as is demonstrated by the existence of Trump’s third party complaint against the Debtor
in the State Court Litigation. Further, Trump’s trial strategy may differ from the Debtor’s because
the Debtor must only establish, for purposes of dischargeability, that he was not intoxicated.
Although the Debtor has an incentive to dispute being served alcohol inside the Taj Mahal, he
may not be so concerned with a finding if the amount of alcohol served was minimal. Trump on
the other hand, has less incentive to focus on whether the Debtor was or was not intoxicated, and
a greater incentive to address the precise location where the Debtor may have consumed alcohol.
In short, for the reasons expressed above, I conclude that there is virtually no risk that
Trump is subject to the application of collateral estoppel in the State Court Litigation following
the conclusion of the Adversary Proceeding (in which it is not a party). In the absence of a
plausible risk that Trump’s interest may be affected or impaired by the disposition of the
Adversary Proceeding, I conclude that Trump is not entitled to intervene as a matter of right
pursuant to Federal Rule 24(a).
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B. 	Permissive Intervention
Trump alternatively asserts that the court should grant the Motion under Fed. R. Civ. P.
24(b), applicable herein pursuant to Fed. R. Bankr. P. 7024, which provides for permissive
intervention.
Permissive intervention may be granted pursuant to Rule 24(b) when either (1) a federal
statute provides a conditional right to intervene; or (2) a movant's claim or defense and the main
action have a question of law or fact in common. Rule 24(b), by its terms, leaves the decision of
whether to grant permissive intervention to the discretion of the court. Harris v. Pernsley, 820
F.2d 592, 597 (3d Cir.1987). 	See also Hoots v. Pennsylvania, 672 F.2d 1133, 1135-36 (3d
Cir.1982). In exercising its discretion, the court is required to consider “whether the intervention
will unduly delay or prejudice the adjudication of the rights of the original parties.” Fed. R. Civ.
P. 24(b); Brody, 957 F.2d at 1124. While the length of delay is a factor to be considered, it is not
dispositive. Molthan v. Temple Univ., 93 F.R.D. 585, 587 (E.D. Pa. 1982). The court must assess
the impact of intervention on the case as it presently stands. Id. The factors to be considered by
the court include:
the nature and extent of the intervenors' interest, their standing to raise relevant
legal issues, the legal position they seek to advance, and its probable relation to the
merits of the case. . . . whether the intervenors' interests are adequately represented
by other parties, whether intervention will prolong or unduly delay the litigation,
and whether parties seeking intervention will significantly contribute to full
development of the underlying factual issues in the suit and to the just and
equitable adjudication of the legal questions presented.
Spangler v. Pasadena City Board of Education, 552 F.2d 1326, 1329 (9 	Cir. 1977) (footnotesth
omitted).
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As mentioned above, there is a common factual nexus between the Adversary Proceeding
and the State Court Litigation. The evidence presented in the Adversary Proceeding necessarily
will involve the factual questions whether the Debtor consumed alcohol on the night of the
accident and, if so, how much was consumed. In the course of the trial of the Adversary
Proceeding, the evidence may well also address the location where alcohol (if any) was consumed.
Thus, it is possible, perhaps even probable, that evidence will be presented at trial relating to the
fact issue whether the Debtor was served alcohol at the Trump facility. Thus, I will assume that
Trump has satisfied the threshold hurdle for the Rule 24(b). See 7C Wright & Miller § 1911. (“If
there is a common question of law or fact, the requirement of the rule has been satisfied and it is
then discretionary with the court whether to allow intervention.”).
However, in the exercise of my discretion, I conclude that the better course is to deny
Trump’s intervention request. The situs of the alleged consumption of alcohol by the Debtor
strikes me as an ancillary issue, not the central issue, in the Adversary Proceeding. Yet, for
Trump, it is the critical issue. I see no particular benefit to the resolution of the bankruptcy issues
by expanding the §523(a)(9) proceeding to explore, in further detail, the location where the
Debtor may have been served and consumed alcohol. At the same time, I am concerned that
Trump’s intervention in the case will extend and complicate the trial and lead to a needless
injection of time and expense addressing a non-material factual issue in the case. See Fisher
Foods, Inc. v. Ohio Dept. of Liquor Control, 555 F.Supp. 641, 651 (D. Ohio 1982) (even though a
common question of law or fact exists, it is still within the discretion of the court whether to allow
intervention and intervention will frequently be denied if collateral or extrinsic issues would be
brought in).
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In exercising my discretion, I am influenced by two other factors. First, as explained
above, I perceive, at best, only an extremely remote possibility that Trump will suffer any
realistic impairment of its legal position in the State Court Litigation by findings made in this
court in the Adversary Proceeding. Also, all of the issues relating to Trump are fully capable of
being aired and are more appropriately resolved in the existing State Court Litigation. See
Korioth v. Brisco, 523 F.2d 1271, 1279 (5 	Cir. 1975).th
Consequently, I will deny Trump’s Rule 24(b) intervention request. An order consistent
with this Memorandum Opinion follows.
Date: 	September 12, 2006
ERIC L. FRANK
U.S. BANKRUPTCY JUDGE
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UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 7
AARON MONDELBLATT 	:
: 	Bankruptcy No. 05-34020ELF
Debtor 	:
SEAN KATZ 	:
:
Plaintiff 	:
:
v. 	:
:
AARON MONDELBLATT 	:
:
Defendant 	: 	Adversary No. 06-00085ELF
:
ORDER
AND NOW, for the reasons set forth in the accompanying Memorandum Opinion, it is
hereby ORDERED that the Motion of Trump Taj Mahal, Pursuant to Bankruptcy Rule 7024, for
an Order Authorizing Trump Taj Mahal to Intervene in the Above-Captioned Adversary
Proceeding is DENIED.
Date: 	September 12, 2006
ERIC L. FRANK
U.S. BANKRUPTCY JUDGE
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