Bank of India v. Trendi Sportswear

• Decision Date: 01 August 2000
• Docket Number: Docket No. 00-7493
• Citation: 239 F.3d 428
• Parties: (2nd Cir. 2000) BANK OF INDIA, Plaintiff, v. TRENDI SPORTSWEAR, INC, Defendant, TRENDI SPORTSWEAR, INC., Third-Party-Plaintiff-Appellant, v. INDU CRAFT, INC., Third-Party-Defendant, INDU CRAFT, INC., Fourth-Party-Plaintiff-Appellant, v. BANK OF BARODA, Fourth-Party-Defendant-Appellee
• Court: U.S. Court of Appeals — Second Circuit

Page 428

239 F.3d 428 (2nd Cir. 2000)

BANK OF INDIA, Plaintiff, v. TRENDI SPORTSWEAR, INC, Defendant, TRENDI SPORTSWEAR, INC., Third-Party-Plaintiff-Appellant, v. INDU CRAFT, INC., Third-Party-Defendant, INDU CRAFT, INC., Fourth-Party-Plaintiff-Appellant, v. BANK OF BARODA, Fourth-Party-Defendant-Appellee.

Docket No. 00-7493

August Term, 2000

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued: October 26, 2000

Decided: December 27, 2000

Appeal from a judgment entered in the United States District Court for the Southern District of New York (Martin, J.), including an order for summary judgment in favor of fourth-party-defendant-appellee, the court having found that fourth-party-plaintiff-appellant's cause of action was barred under the doctrine of res judicata because the claims asserted in the fourth-party complaint could have been pursued in an earlier action based on the same transaction or connected series of transactions.

Vacated in part and remanded.

JOHN D. D'ERCOLE, Robinson Brog Leinwand Greene Genovese & Gluck P.C., New York, NY, for third-party-defendant-fourth-party-plaintiff-appellant.

CONSTANCE M. BOLAND, Nixon & Peabody, New York, NY, for fourth-party- defendant-appellee.

Before: FEINBERG, MINER, and KATZMANN, Circuit Judges.

MINER, Circuit Judge:

Defendant-third-party-plaintiff-appellant Trendi Sportswear, Inc. ("Trendi") and third-party-defendant-fourth-party-plaintiff-appellant Indu-Craft, Inc. ("Indu-Craft") appeal from a final judgment entered on March 30, 2000, including an order granting summary judgment entered on September 14, 1998, in the United States District Court for the Southern District of New York (Martin, J.) in favor of fourth-party-defendant-appellee Bank of Baroda ("Baroda") and dismissing Indu-Craft's fourth-party complaint with prejudice.¹

This litigation involves the interrelationship of two separate lawsuits, the first of which was commenced in 1987. Indu Craft sued Baroda in the 1987 action to recover damages incurred as a result of Baroda's misconduct in regard to a contractual arrangement that provided for Baroda to extend credit to Indu Craft for use in its business of importing clothing. In 1989, the Bank of India ("BOI") commenced an action against Trendi to recover for nonpayment on loans extended to Trendi. Subsequently, Trendi brought a third-party action against Indu Craft for indemnification, lost profits, and loss of business reputation stemming from Indu Craft's breach of its contract to supply Trendi with garments to sell in the United States. This breach allegedly caused Trendi to default on its financial obligations to BOI. Shortly thereafter, Indu Craft brought a fourth-party action against Baroda for indemnification. In that action, Indu Craft sought to pass on to Baroda any liability it might have to Trendi occasioned by the misconduct of Baroda that formed the basis for Indu Craft's 1987 suit. Indu Craft then moved to join Trendi or consolidate its fourth-party action with its 1987 lawsuit against Baroda, but the motion was denied. Indu Craft eventually obtained a judgment against Baroda in the 1987 suit; in the 1989 action (this case), BOI was granted summary judgment against Trendi; and Trendi obtained judgment against Indu Craft in bankruptcy court.

Ultimately, Baroda was granted summary judgment dismissing Indu Craft's claims in the fourth-party action on the grounds that that action was barred by the doctrine of res judicata. The district court found that Indu Craft's indemnification claims, asserted in its fourth-party cause of action, could have been, but were not, pursued in its 1987 action against Baroda. Specifically, the district court determined that Indu Craft's indemnification claims were based on the same transaction that gave rise to the 1987 action, and that Indu Craft's fourth-party action accordingly was barred.

For the reasons that follow, we vacate the judgment of the district court in part and remand for further proceedings consistent with this opinion.

BACKGROUND

A more detailed account of the factual background underlying this litigation may be found in our previous decisions, see Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490 (2d Cir. 1995); Indu Craft, Inc. v. Bank of Baroda, 87 F.3d 614 (2d Cir. 1996), and those of the district courts, see Indu Craft, Inc. v. Bank of Baroda, No. 87 Civ. 7379, 1991 WL 107438 (S.D.N.Y. June 11, 1991); Indu Craft, Inc. v. Bank of Baroda, No. 87 Civ. 7379, 1993 WL 535116 (S.D.N.Y. Dec. 17, 1993); Indu Craft, Inc. v. Bank of Baroda, No. 87 Civ. 7379, 1995 WL 479516 (S.D.N.Y. Aug. 10, 1995); Bank of India v. Trendi Sportswear, Inc., No. 89 Civ. 5996, 1991 WL 12369 (S.D.N.Y. Jan. 29, 1991); and Bank of India v. Trendi Sportswear, Inc., No. 89 Civ. 5996, 1998 WL 614189 (S.D.N.Y. Sept. 14, 1998). We here review only the events relevant to a determination of this appeal.

I. The Lawsuits

A. The 1987 Action

Indu Craft, a New York corporation with its principal place of business in New York City, imported garments from several Asian countries and sold them to customers in the United States from 1982 to 1987. In order to import these garments, Indu Craft assured payment to its overseas manufacturers by arranging for letters of credit. Manufacturers exported the garments to Indu Craft only after verifying the issuance of these letters of credit. Baroda is a banking corporation organized under the laws of India with its principal place of business in India. It issued the letters of credit that enabled Indu Craft to conduct its importing business.

In February 1983, Baroda granted Indu Craft a $500,000 line of credit for use by Indu Craft in its business operations. This line of credit increased periodically over the next three years, reaching $2.7 million in December 1986, and also included a limit for total advances (i.e., overdraft) of $1.2 million. Baroda's extension of credit was secured by a security interest in Indu Craft's assets and the personal guarantee of Hemant C. Mehta, Indu Craft's principal. Over this period of time, Indu Craft was permitted to exceed its advance limits without consequence. Mehta primarily dealt with Krishnakant Chokshi, Executive Vice President of Baroda in charge of North American operations, in matters relating to the line of credit.

In November 1986, Chokshi approached Mehta with a business investment opportunity for the benefit of Chokshi's son, Anil. After evaluating this business opportunity, Mehta decided not to invest and informed Chokshi and Anil of his decision in February 1987. Shortly thereafter, Indu Craft received a letter dated March 30, 1987, from Baroda, informing Indu Craft that its line of credit had been reduced from $2.7 million to $2.3 million, and that its advance limit was reduced from $1.2 million to $1 million. In addition, substantial delays in the issuance of letters of credit occurred, and some of the requested letters of credit were not issued at all. These delays and refusals to issue new letters of credit hurt Indu Craft's business. Indu Craft's suppliers lost confidence in Indu Craft's creditworthiness and either stopped producing goods or delayed shipment of those goods. As a result, Indu Craft eventually ceased operations in November 1987.

On October 15, 1987, Indu Craft commenced a diversity action against Baroda and Chokshi in the United States District Court for the Southern District of New York (the "1987 Action"). The complaint included allegations: (1) that Baroda breached the covenant of good faith and fair dealing implied in the parties' revolving credit agreement; (2) that Baroda was liable for tortious interference with Indu Craft's contracts with its overseas manufacturers; and (3) that Baroda and Chokshi committed a prima facie tort by wrongfully reducing Indu Craft's line of credit as a result of Mehta's decision not to participate in Chokshi's proposed business investment opportunity. Baroda asserted five counterclaims, which included one for recovery of approximately $1.7 million that Indu Craft owed on a promissory note. The case was assigned to the Honorable Kevin J. Duffy.

B. The BOI Action

Trendi is a corporation organized under the laws of New York with its principal place of business in New York City. It is a wholesale importer of garments from India and the Far East for sale in the United States. BOI is a banking corporation incorporated in India with its principal place of business in Bombay, India, and is licensed to do business in New York.²

In December 1985, BOI and Trendi entered into an agreement whereby BOI would extend credit facilities in the form of letters of credit and import trust receipts to Trendi in connection with Trendi's importation of merchandise from India and the Far East into the United States. Initially, credit facilities were established for the maximum amount of $500,000, but BOI would enhance the limits of Trendi's credit facilities from time to time. In connection with the extension of these credit facilities, Trendi executed a Demand Promissory Note (the "Note") and a General Security Agreement on December 5, 1985, both in the amount of $500,000.

At some point in 1987, Indu Craft contracted with Trendi to supply Trendi with garments for shipment to the United States.³ However, beginning in May 1987, Indu Craft supplied those goods late or failed to supply any goods due to its difficulties with Baroda. As a result, Trendi was unable to import garments it had ordered, rendering it unable to meet its projected sales, and forcing it to sell the garments received late at a reduced price. BOI, however, continued to make payments on the credit facilities extended on Trendi's behalf during the period December 1987 to September 1988. After repeated requests for repayment had been ignored by Trendi over the next several months, in a letter dated July 17, 1989, BOI finally demanded immediate payment on all of the outstanding credit facilities. Trendi was unable to...