120 F.3d 361 (2nd Cir. 1997), 1634, Israel v. Carpenter

Docket Nº:1634, Docket 96-9480.
Citation:120 F.3d 361
Party Name:Donald M. ISRAEL; Mark R. Taylor, Plaintiffs-Appellants, v. Daniel E. CARPENTER; Benefit Concepts New York, Inc.; Voluntary Benefit Systems, Inc., Defendants-Appellees.
Case Date:August 11, 1997
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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120 F.3d 361 (2nd Cir. 1997)

Donald M. ISRAEL; Mark R. Taylor, Plaintiffs-Appellants,


Daniel E. CARPENTER; Benefit Concepts New York, Inc.;

Voluntary Benefit Systems, Inc., Defendants-Appellees.

No. 1634, Docket 96-9480.

United States Court of Appeals, Second Circuit

August 11, 1997

Argued June 4, 1997.

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Jay D. Fischer, Fischer Weisinger Caliguire Porter & Pierce, New York City (Philip Pierce, of counsel), for Plaintiffs-Appellants.

Jack E. Robinson, Carpenter & Robinson, LLP, Stamford, CT, for Defendants-Appellees.

Before: MESKILL, JACOBS, and LEVAL, Circuit Judges.

JACOBS, Circuit Judge:

This appeal raises a question under Massachusetts law as to the scope and effect, for res judicata purposes, of a stipulation to dismiss "with prejudice" one of two lawsuits pending between the same parties based on essentially identical claims. Appellants Donald M. Israel and Mark R. Taylor (collectively "Israel") have asserted the same breach of contract claims against appellee Daniel E. Carpenter in three separate lawsuits, in two jurisdictions. 1 The stipulation at issue dismissed the first of these actions, a Massachusetts state-court suit; but the parties took no contemporaneous step to terminate the second suit between them (contesting the same issues), which was pending simultaneously in the United States District Court for the Southern District of New York. The suit underlying this appeal is a subsequently asserted third action (removed to the Southern District) between the same interests, on the same claims. The district court (Francis, Magistrate Judge ) initially ruled that the present suit was not barred by res judicata notwithstanding the dismissal "with prejudice" of the Massachusetts action, and denied

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Carpenter's motion for summary judgment; but the court later granted Carpenter's motion pursuant to Fed.R.Civ.P. 60(b) to vacate that ruling, and dismissed Israel's breach of contract claims. On appeal, Israel argues that the court's October 3, 1996 Memorandum and Order, granting the Rule 60(b) motion and dismissing his claims, was an abuse of discretion.

We conclude that the district court erred by considering the parties' stipulation of dismissal under general federal-law principles, and gave insufficient consideration to the principles of contract construction--under Massachusetts law--that properly govern interpretation of the stipulation agreement. Accordingly, we vacate the judgment dismissing Israel's claims, and remand for further proceedings.


Israel, Taylor, and Carpenter were once partners in an insurance brokerage and employee benefit consulting business. This controversy arises from what the district court characterizes as their "less than amicable" "business divorce." See Israel v. Carpenter, No. 93-CV-1961, 1995 WL 133773, Memorandum and Order, at * 1 (S.D.N.Y. Mar. 28, 1995). The underlying dispute concerns the distribution of their business assets, including the allocation of trademark rights; in particular, Israel alleges that Carpenter breached the terms of the parties' Buyout Agreement, which contained various stock-purchase and licensing provisions. Id.

The Prior Actions. In February 1993, Israel sued Carpenter and three corporate defendants for breach of contract in Massachusetts state court (the "Massachusetts Action"). The next month, Carpenter caused a corporation wholly owned by him, Benefit Concepts New York, Inc. ("BCNY"), to bring suit against Israel (and two other corporate defendants) in the Southern District of New York (the "First Southern District Action"), asserting, inter alia, federal trademark claims under sections 32(1) and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a). Israel then filed a third-party complaint against Carpenter in the First Southern District Action, alleging essentially the same state-law breach of contract claims that he had asserted in Massachusetts.

The Massachusetts Action was concluded by a voluntary Stipulation of Dismissal, dated August 10, 1993, that "dismissed with prejudice " Israel's claims against Carpenter and "dismissed without prejudice " his claims against the three corporate defendants. The First Southern District Action continued to pend for some 20 more months; that action was concluded when the district court (i) granted Israel's motion for summary judgment dismissing BCNY's federal trademark claims with prejudice, and (ii) declined to exercise supplemental jurisdiction, pursuant to 28 U.S.C. § 1367(c), over Israel's pendent state-law claims, thereby dismissing those claims without prejudice. See Israel, 1995 WL 133773, at * 6.

The Present Action. The lawsuit underlying this appeal (the "Present Action") was filed on March 29, 1995, the day after the First Southern District Action was dismissed. In this third action, Israel sued Carpenter, BCNY, and another corporate defendant (collectively, "Carpenter") in New York State Supreme Court, New York County, once more alleging essentially the same breach of contract claims that he had asserted against Carpenter twice before. Carpenter removed this case to federal district court, invoking diversity jurisdiction; he thereafter moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), arguing that Israel's claims were barred by res judicata and collateral estoppel by virtue of the with-prejudice dismissal of those claims in the Massachusetts Action. See Israel v. Carpenter, 95-CV-2703, 1996 WL 257643, Memorandum and Order, at * 1 (S.D.N.Y. May 15, 1996). Israel cross-moved to remand the case to state court, asserting lack of diversity jurisdiction. See Israel v. Carpenter, 95-CV-2703, 1995 WL 640534, Memorandum and Order, at * 1 (S.D.N.Y. Oct. 31, 1995). Both parties sought sanctions.

After further motion practice and several interim rulings, the district court denied Israel's motion to remand (finding that complete diversity existed), Israel v. Carpenter, 95-CV-2703, 1996 WL 11252, Memorandum

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and Order, at * 2 (S.D.N.Y. Jan. 11, 1996), and denied Carpenter's motion seeking summary judgment on the ground of res judicata, Israel v. Carpenter, 95-CV-2703, 1996 WL 257643, Memorandum...

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