## Facts

- Minority owners of bus companies alleged discriminatory conduct by a casino that interfered with their bus operations bringing patrons to Atlantic City.
- Plaintiffs first sued in federal district court asserting only federal civil-rights claims under 42 U.S.C. §§ 1981, 1983, 1985(3), and 1988 based on the alleged discrimination.
- The federal action was dismissed on non-substantive grounds, including insufficient service of process and lack of standing.
- Plaintiffs then filed a New Jersey state-court action asserting state-law claims arising from the same alleged discriminatory course of conduct.
- The Law Division dismissed the state action on preclusion grounds, and the Appellate Division affirmed.

## Issues

1. Whether a prior federal judgment dismissing claims for insufficient service of process and lack of standing precludes later state-law claims arising from the same facts.
2. Whether New Jersey preclusion doctrines, including the entire controversy doctrine, can bar the state action when the prior federal dismissal did not reach the merits.

## Decision

- The Supreme Court of New Jersey reversed the dismissal and remanded for further proceedings.
- Under federal preclusion law, dismissals for insufficient service of process and lack of standing are not adjudications on the merits and therefore do not support claim preclusion.
- Issue preclusion did not apply because the substantive discrimination issues were not actually litigated or decided in the federal action.
- The entire controversy doctrine could not be used to convert a non-merits federal dismissal into a bar against later state litigation.

## Legal Principles

- The preclusive effect of a federal-court judgment in state court is determined by federal preclusion rules.
- Claim preclusion requires a valid, final judgment on the merits; dismissals for insufficient service of process or lack of standing are generally non-merits dispositions and do not bar refiling in a court of competent jurisdiction.
- Issue preclusion requires actual litigation and determination of an issue essential to the prior judgment; no such determination occurs when a case is dismissed on service or standing grounds.
- The entire controversy doctrine promotes joinder and finality but does not expand the effect of a prior judgment beyond what was actually and validly decided.

## Conclusion

Because the federal action ended on procedural and jurisdictional grounds rather than a merits determination, the subsequent state-law claims were not barred by res judicata, collateral estoppel, or the entire controversy doctrine, and the case was returned to the trial court to proceed on the state claims.


Watkins v. Resorts Int'l Hotel & Casino, Inc., 591 A.2d 592 (N.J. 1991)