Israel v. Carpenter

• Decision Date: 11 August 1997
• Docket Number: No. 1634,D,1634
• Citation: 120 F.3d 361
• Parties: Donald M. ISRAEL; Mark R. Taylor, Plaintiffs-Appellants, v. Daniel E. CARPENTER; Benefit Concepts New York, Inc.; Voluntary Benefit Systems, Inc., Defendants-Appellees. ocket 96-9480.
• Court: U.S. Court of Appeals — Second Circuit

Page 361

120 F.3d 361

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

Argued June 4, 1997.

Decided Aug. 11, 1997.

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 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.

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.

BACKGROUND

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 In deciding the summary judgment issue, the district court considered the preclusive effect of the Massachusetts stipulation of dismissal under principles of Massachusetts law, ² citing Duncan Galvanizing Corp. v. Valspar Corp., No. 93-12368-Z, 1995 WL 96954, at * 1 (D.Mass. Feb. 21, 1995) ("Duncan I "), for the proposition that "Massachusetts applies the principles of contract law to the interpretation of a stipulated dismissal." Summary Judgment Order at * 4. The court concluded that under Massachusetts contract law, the stipulation was unclear as to whether the parties intended to terminate Israel's action against Carpenter with prejudice only as to the reassertion of such claims in Massachusetts, or whether they intended to preclude further litigation of those claims anywhere. Id. at * 5. The district court denied summary judgment on the ground that the ambiguous stipulation and the factual submissions of the parties allowed competing inferences to be drawn about the parties' intent in dismissing the Massachusetts Action "with prejudice." Id. at * 6.

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 and Order, at * 6 (S.D.N.Y. May 15, 1996) ("Summary Judgment Order").

Carpenter filed a notice of appeal from the denial of summary judgment, but withdrew the appeal (without prejudice to any right to seek reinstatement) in order to move in the district court for relief from the Summary Judgment Order under Fed.R.Civ.P. 60(b). See Israel v. Carpenter, No. 95-CV-2703, 1996 WL 563343, Memorandum and Order, at * 1 (S.D.N.Y. Oct. 3, 1996) (the "Rule 60(b) Order"). In support of his Rule 60(b) motion, Carpenter relied on Nemaizer v. Baker, 793 F.2d 58 (2d Cir.1986), which was not previously brought to the district court's attention, and on a subsequent decision in the Duncan Galvanizing case that the court had cited as authority for applying Massachusetts contract law to the interpretation of the parties' stipulation; Carpenter contended that the new opinion, Duncan Galvanizing Corp. v. Valspar Corp., No. 93-CV-12368-GAO, 1996 WL 464048 (D.Mass. July 12, 1996) ("Duncan II "), "overturned" the opinion on which the district court had relied. Rule 60(b) Order at * 1.

With these authorities in hand, the district court determined that its prior order denying summary judgment was erroneous. The court rejected Carpenter's assertion that Duncan II undermined the rule in Duncan I that Massachusetts employs contract principles to construe a stipulation of dismissal; but the court nonetheless found it "instructive" that Duncan II applied res judicata where the stipulation directed a "with prejudice" dismissal, "without making any provision for [the] alleged collateral oral agreement" that was at issue in that case. Rule 60(b) Order at * 2 (quoting Duncan II, 1996 WL 464048, at * 4). Turning to this Court's opinion in Nemaizer, the district court found a similar clear-statement rule in our holding that a plaintiff who "intended to preserve [the] right" to assert an ERISA claim based on the same facts that had supported his voluntarily dismissed state-court claim, "should not have entered into this type of 'with prejudice' stipulation." Id. (quoting Nemaizer, 793 F.2d at 62).

Discerning in Duncan II and Nemaizer "a decided reluctance to find ambiguity in the language of a stipulation of dismissal," the district court felt

constrained to hold that [Israel is] barred from raising in this action the claims that were dismissed by stipulation in Massachusetts. There, [he] agreed to a dismissal "with prejudice" as to Mr. Carpenter. Yet [Israel's] counsel failed to specify that the claims nevertheless could be revived in a different forum, as was purportedly [Israel's] intent. As in both Duncan II and Nemaizer, [Israel] must bear the consequences of this omission.

Id. The district court therefore granted relief under Rule 60(b) and entered summary...