In Bank Leumi U.S. v. Kloss, our Supreme Court has decided an important unresolved issue relating to compulsory counterclaims under the entire controversy doctrine. Responding to a certified question from the Third Circuit, Bank Leumi holds that a defendant who has successfully moved to dismiss under R. 4:6-2 for failure to state a claim may thereafter sue the unsuccessful plaintiff for a claim arising from the same set of operative facts. The decision makes it clear that a counterclaim otherwise compulsory under R. 4:7-1 and R. 4:30A need not be brought until a motion to dismiss is denied and an answer filed.

Bank Leumi arose from a conflict between two lenders to the same borrower, Munire Furniture Co. When it extended a line of credit to Munire, the bank required Kloss to sign a subordination agreement and a reaffirmation agreement giving it priority over his prior loan to Munire. Munire had fraudulently misrepresented its financial condition and went bankrupt. In the bankruptcy, Kloss filed a proof of claim showing that he had been receiving payment from Munire both on the subordinated loan and on a second loan that he had never disclosed to Bank Leumi.

Kloss got to the courthouse first. He sued the bank in Superior Court for negligence in failing to detect Munire's fraud. Rather than answer and counterclaim, the bank successfully moved to dismiss for failure to state a claim. It then sued Kloss in the district court for fraudulent inducement and breach of the subordination agreement to recover Munire's payments to Klos. The district court dismissed based on the entire controversy doctrine, holding that the bank's claims could have been asserted as counterclaims in Kloss's suit and were therefore barred. The court of appeals found this to be a previously undetermined issue and certified to our Supreme Court.