EFCO Corp. v. U.W. Marx, Inc.
| Citation | 124 F.3d 394 |
| Decision Date | 03 September 1997 |
| Docket Number | No. 1652,D,1652 |
| Parties | EFCO CORPORATION, Plaintiff-Appellant, v. U.W. MARX, INC., Defendant-Cross-Defendant-Cross-Claimant-Appellee, Patriot Door & Window, Inc., Defendant-Cross-Defendant-Appellee, Joseph Francese, Inc., Counter-Claimant-Cross-Claimant-Cross-Defendant-Appellee. ocket 96-9473. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Allan C. Samuels and Kenneth D. Greenwald, New York City, for Appellant EFCO Corporation.
Suzanne H. Charles, Clifton Park, NY, for Appellee U.W. Marx Inc.
Chris S. Dodig, Donovan & O'Connor, Adams, MA, for Appellee Joseph Francese, Inc.
Before: WALKER, McLAUGHLIN, PARKER, Circuit Judges.
BACKGROUND
In July 1991, Joseph Francese, Inc. ("Francese") became the general contractor of a construction project at an elementary school in Troy, New York. Francese subcontracted with Patriot Door & Window, Inc. ("Patriot") to put in windows at the school. Around the same time, U.W. Marx ("Marx") was the general contractor for a similar construction project at an elementary school in New Paltz, New York. Marx also subcontracted with Patriot to put in windows at the New Paltz site.
In June 1991, EFCO Corporation contracted with Patriot to supply the necessary windows to Patriot to use on both projects. Because Patriot was installing windows at both sites and EFCO was supplying the windows for both, confusion arose as to who was paying for what at each project. In mid-January 1992, EFCO got a check for $90,462.09 from Patriot; a note on the check indicated that it was in payment for EFCO's windows on the Troy project (Francese). The check bounced.
A few days later, EFCO's people spoke with representatives of Patriot and Marx (New Paltz)--but, notably, not Francese. Patriot explained that a second check was on the way, and Marx now told EFCO that the check was in payment for EFCO's work on the New Paltz project, not the Troy project. There was no note on this check. Relying on Marx's representations and apparently failing to compare the amount of the check with its own invoices, EFCO accepted the check as a payment on the New Paltz account (Marx).
Confusion and controversy reigned. In September 1992, EFCO entered into a full release ("the release") with Marx, upon the understanding that Patriot owed EFCO $17,884.71 for the work on the New Paltz project. In exchange for Marx's payment to EFCO of the $17,884.71, the release stipulated that EFCO discharged Marx from any further liability stemming from the New Paltz project and that EFCO would not file any mechanic's lien against the New Paltz property. Much later, Patriot claimed that Marx had been mistaken and that the $90,462.09 check had actually been issued for work on the Troy project, and that Patriot owed much more than $17,884.71 on the New Paltz project.
Ultimately, EFCO supplied windows and other materials worth approximately $260,000 for both projects. Patriot paid EFCO less than half that amount, and neither Marx nor Francese paid the full amount it owed Patriot, their common subcontractor. Apparently bound by the terms of the release, EFCO filed a mechanic's lien in August 1992, but only against the property at the Troy school (Francese), and not the New Paltz school (Marx).
In February 1993, EFCO sued Patriot, Francese and some other defendants in New York State court to foreclose on the lien in satisfaction of $194,809.32 it claimed it was owed. See EFCO Corp. v. Patriot Door & Window, Inc., No. 1634/93 (N.Y.Sup.Ct. Feb. 11, 1993). EFCO did not sue Marx.
When Francese and other defendants moved for summary judgment, EFCO cross-moved to amend its complaint to add claims of unjust enrichment and quantum meruit against Francese. The court denied the cross-motion because EFCO failed to attach the appropriate supporting affidavit. The court then granted Francese's motion for summary judgment on the ground that EFCO failed to file suit to foreclose the lien within the six-month limitations period set forth in section 18 of New York's Lien Law. See N.Y. Lien Law § 18 (McKinney 1993).
Undeterred, EFCO then turned to federal court. EFCO sued Francese, Marx and Patriot in the Northern District of New York in March 1995, alleging breach of contract and unjust enrichment against Patriot, and unjust enrichment and quantum meruit against Francese and Marx. Francese moved for summary judgment, arguing that EFCO's claims against Francese were barred by res judicata, based upon the state-court ruling. Marx also moved for summary judgment, pointing to the release and to the absence of a contract between itself and EFCO.
The district court granted both motions. EFCO appeals, arguing that (1) the state-court judgment should not be given preclusive effect, because it was not a decision "on the merits"; and (2) it was duped into applying payments to the wrong account and should therefore be able to maintain the current action against all the named defendants, including Marx.
We review a grant of summary judgment de novo, drawing all factual inferences and resolving all ambiguities in favor of the nonmoving party. See Torres v. Pisano, 116 F.3d 625, 630 (2d Cir.1997).
We are required to give the state-court judgment the same preclusive effect it would have in New York. See 28 U.S.C. § 1738 (1994); Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81, 104 S.Ct. 892, 896, 79 L.Ed.2d 56 (1984). Under New York law, a prior decision dismissed "on the merits" is binding in all subsequent litigation between the same parties on claims arising out of the same facts, even if based upon different legal theories or seeking different relief on issues which were or might have been litigated in the prior action but were not. See Burgos v. Hopkins, 14 F.3d 787, 790 (2d Cir.1994); see also Restatement (Second) of Judgments § 19 cmt. f reporter's note (1982) (hereinafter Restatement ); id. § 25 cmts. d, f and j.
We address two principal questions: (1) whether the state-court judgment was "on the merits" for purposes of res judicata; and (2) whether EFCO's instant claims against Francese are so related to the lien-foreclosure action that they could have been brought in the state-court action.
Under New York law, an action dismissed in a New York court for failure to sue within the applicable statute of limitations is considered a determination "on the merits" for res judicata purposes. See Bray v. New York Life Ins., 851 F.2d 60, 64 (2d Cir.1988) (citing cases); Smith v. Russell Sage College, 54 N.Y.2d 185, 445 N.Y.S.2d 68 72, 429 N.E.2d 746, 750 (1981); De Crosta v. A. Reynolds Constr. & Supply Corp., 41 N.Y.2d 1100, 396 N.Y.S.2d 357, 358-59, 364 N.E.2d 1129, 1130 (1977) (citing cases); see also Restatement, supra, § 19 cmt. a. New York courts view such a dismissal as "on the merits" because a statute of limitations is a legislative limit on a party's ability to bring an action, see United States v. Kubrick, 444 U.S. 111, 117, 100 S.Ct. 352, 356-57, 62 L.Ed.2d 259 (1979), and a dismissal based on a statute of limitations constitutes a final resolution of the party's remedy in that it "bars the remedy sought to be enforced and terminates the right of access to the courts for enforcement of the existing right." Consolidated Rail v. Primary Indus. Corp., 868 F.Supp. 566, 576 (S.D.N.Y.1994); see 10 Jack B. Weinstein et al., New York Civil Practice: CPLR p 5011.11, at 50-115 (1997).
On the other hand, an action dismissed on the basis of a failure to satisfy a "condition precedent" is generally not a decision on the merits: it does not preclude subsequent satisfaction of the condition and enforcement of the statutory right. See Restatement, supra, § 20(2) cmts. k and m, illus. 6; cf. Carrick v. Central Gen. Hosp., 51 N.Y.2d 242, 434 N.Y.S.2d 130, 135-37, 414 N.E.2d 632, 637-38 (1980). Hence, a party's failure to satisfy a condition precedent does not necessarily bar his remedy. See Restatement, supra, § 20 cmt. k.
Section 10 of New York's Lien Law provides that a prospective lienor must file a notice of lien within eight months after providing the materials that serve as the basis of the lien. See N.Y. Lien Law § 10 (McKinney 1993). Section 18 adds that "[i]f the lien is for labor done or materials furnished for a public improvement, it shall not continue for a longer period than six months from the time of filing the notice of such lien, unless an action is commenced to foreclose such lien within that time." Id. § 18. After six months, the lien is "discharged" by "lapse of time." Id. § 21(2)(a).
EFCO's state suit to foreclose on the mechanic's lien was dismissed because EFCO failed to foreclose or extend the lien within the requisite six-month period. Hoping to avoid the res judicata effect of a determination "on the merits," EFCO argues that its failure to foreclose constituted a failure to satisfy a condition precedent, rather than a failure to sue within the applicable statute of limitations.
We should take care to examine the practical function of the limitation period. New York's Court of Appeals has observed that for purposes of determining the res judicata effect of a prior judgment the Restatement (Second) of Judgments "completely abandoned the term 'on the merits.' " Russell Sage College, 445 N.Y.S.2d at 72 n. 3, 429 N.E.2d at 750 n. 3. The current Restatement explains that "judgments not passing directly on the substance of the claim have come to operate as a bar," and thus the use of the locution "on the merits" has "possibly misleading connotations." Restatement, supra, § 19 cmt. a. Commentators stress that to determine the res judicata effect of a prior claim requires examination of "what was intended by the first decision and what the logical consequences of that decision are." Weinstein, supra, p 5011.11, at 50-114.
The six-month limitation period here operated as a statute...
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