Catullo v. Metzner, s. 86-2099
| Decision Date | 07 October 1987 |
| Docket Number | Nos. 86-2099,86-2100,s. 86-2099 |
| Citation | 834 F.2d 1075 |
| Parties | 24 Fed. R. Evid. Serv. 206 Joseph CATULLO, etc., Plaintiff, Appellee, v. Sidney S. METZNER, et al., Defendants, Appellees. Appeal of Philip E. ROBERTS and Harry A. Ezratty. Joseph CATULLO, etc., Plaintiff, Appellee, v. Sidney S. METZNER, et al., Defendants, Appellees. Conservit, Inc., Defendant, Appellant. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Ruben Nazario with whom Martinez, Odell, Calabria & Sierra, Hato Rey, P.R., was on brief, for Conservit, Inc.
Philip E. Roberts, Hato Rey, P.R., with whom Harry A. Ezratty, San Juan, P.R., was on brief, for plaintiff, appellee in no. 86-2100, and on brief pro se in no. 86-2099.
Before BOWNES, Circuit Judge, TIMBERS, * Senior Circuit Judge, and BREYER, Circuit Judge.
These are two separate but related appeals. No. 86-2100 concerns an alleged breach of fiduciary duty in contravention of the provisions of a court-approved settlement agreement. Defendant contests special jury verdicts on the bases of res judicata and the erroneous exclusion of evidence at trial. In No. 86-2099, the attorneys for plaintiff Joseph Catullo seek reversal of the denial of attorney's fees by the district court. Analysis requires a detailed exposition of the facts leading to the dispute.
Early in 1983, plaintiff Joseph Catullo approached defendant Conservit, Inc., a Maryland corporation, and proposed that the latter join Catullo in an ongoing scrap metal crushing operation in Puerto Rico. Conservit previously had operated a similar venture in Puerto Rico and readily agreed to join Catullo as part of a corporate entity doing business as the Barlof Salvage Company, Inc. (Barlof). The parties entered into an agreement which provided in pertinent part that Conservit would contribute both machinery and operating funds and that Catullo would contribute his labor and expertise. The parties each received a 50% share in Barlof with profits to be divided equally. In addition, the agreement provided that Conservit would receive a payment of $3.00 for every ton of metal crushed by Barlof until the cost of the machinery provided was repaid.
Catullo operated Barlof from August until December of 1983. At that time, Conservit decided to open an alternate crushing operation in Puerto Rico, citing as its reason the mismanagement of Barlof by Catullo. Catullo immediately filed suit in district court, alleging, inter alia, usurpation of corporate opportunity. Conservit filed a separate action against Catullo for breach of contract. Extensive discovery followed. The court consolidated the cases and appointed a receiver. On August 17, 1984, the parties entered into a voluntary settlement.
The settlement agreement was never reduced to a signed writing. The parties met in chambers with the district judge who approved the terms and dismissed the case with prejudice. The settlement agreement, as reflected by the oral recitation of the parties on the record, provided the following: (1) Conservit would manage Barlof; (2) Conservit owned the machinery which it had shipped to Puerto Rico pursuant to the original agreement and would transfer title to Barlof upon the completion of installment payments; (3) the revenues of Barlof would be divided in half, with 50% applied to pay past expenses in the ratio of each party's expenditures and 50% divided equally between the parties as profit; and (4) each party maintained a 50% share in Barlof with a buy-out option. The settlement agreement also provided for the payment of legal fees to both sides as an expense of Barlof. The record does not reflect any discussion at the in-chambers settlement conference of the continued operation by Conservit of a competing scrap metal crushing business.
Eight months after the district court approved the settlement agreement, Catullo filed the instant suit alleging harm both individually and as a representative of Barlof. Catullo named Conservit, Sidney Metzner (the executive officer of Conservit), and Barlof itself as defendants. The complaint set forth two counts, both grounded on breach of fiduciary duty. Count One alleged that Conservit had overpaid itself for certain expenditures and underpaid Catullo for prior expenses and profits due under the settlement agreement. Count Two alleged that Conservit had usurped various corporate opportunities rightfully belonging to Barlof. Defendants' answer stated, inter alia, that (1) res judicata barred the usurpation claim by virtue of the prior settlement and dismissal with prejudice, and (2) plaintiff had received all monies due under the agreement, and that in any event, the only existing claim lay in a suit for execution of the judgment. Defendants filed a motion for partial summary judgment which the court denied. A jury trial ensued.
At the conclusion of the trial, the jury returned five special verdicts. These verdicts assessed damages against Conservit on behalf of both Catullo and Barlof. The specific awards were as follows: (1) $15,000 to Catullo for prior expenses, (2) $42,000 to Catullo for improperly withheld corporate profits, (3) $29,373.25 to Barlof for an overpayment of attorney's fees, (4) $10,000 to Barlof for an overpayment of Conservit's prior expenses, and (5) $35,000 to Barlof for breach of fiduciary duty. The $15,000 award to Catullo for prior expenses was reduced at plaintiff's request to $12,000--the amount proven at trial. The court entered a final judgment on behalf of Catullo for $54,000, and on behalf of Barlof for $74,000. On appeal, Conservit contests three of the jury awards: the damage award of $35,000 for breach of fiduciary duty; the reimbursement of attorney's fees in the amount of $29,373.25; and the profits due under the agreement in the amount of $42,000. Plaintiff's attorneys have appealed the denial of fees for their work in the derivative suit.
Defendant argues that res judicata bars the present action. It contends that plaintiff's complaint merely advances a new legal theory as a guise to return to the same issues raised, settled, and dismissed with prejudice under the August 14, 1984 agreement. The gist of defendant's argument is that its present undertakings in Puerto Rico simply maintain, without extending, its independent operation on the island; that plaintiff had full knowledge of Conservit's competing scrap metal operation and of the continuing contracts held by the company; that the question of the ongoing nature of Conservit's competing enterprise did not enter into the settlement negotiations; and that the resulting agreement has a preclusive effect.
This court recently considered the preclusive effect of a settlement agreement in Oliveras v. Miranda-Lopo, 800 F.2d 3 (1st Cir.1986). The parties in Oliveras entered into a contract for the formation and operation of a computer service business. Five years after the creation of the company, one party filed suit, alleging, inter alia, failure to carry out corporate duties and unjust enrichment. One month after the initial filing, the litigants agreed to a settlement and moved to dismiss the action. Subsequent to the judgment of dismissal, the defendant in the first action filed suit for anticipatory breach of the settlement agreement. Defendants raised the bar of res judicata.
In Oliveras, we found that res judicata did not bar suit on the settlement agreement. Noting that local law applied, id. at 6, we looked to the statutory law of Puerto Rico. The Civil Code limits the presumption of res judicata to situations in which "between the case decided by the sentence and that in which the same is invoked, there be the most perfect identity between the things, causes, and persons of the litigants...." P.R.Laws Ann. tit. 31, Sec. 3343 (1968). Comparing the federal suit with the preceding action in state court, we found that the two cases presented different causes of action. Applying the test of Mercado Riera v. Mercado Riera, 100 P.R.R. 939, 950 (1972) (quotingMillan v. Caribe Motors Corp., 83 P.R.R. 474, 487 (1961)), which inquires into whether the two suits require different evidence, we found it clear that the cause of action for breach of the settlement agreement would require "entirely different evidence" than the suit on the original contract, 800 F.2d at 6, and hence that the first judgment did not preclude the subsequent action.
Oliveras controls the case at bar. Plaintiff's suit for breach of the settlement agreement alleges a new cause of action which could not have been brought in the previous suit. Cf. Lovely v. Laliberte, 498 F.2d 1261, 1263 (1st Cir.) ("res judicata ... bars all grounds that might have been, but were not, presented to the state court."), cert. denied, 419 U.S. 1038, 95 S.Ct. 526, 42 L.Ed.2d 316 (1974). A claim of corporate mismanagement requires new evidence--both of the terms of the agreement and of the post-settlement conduct constituting the violation. Absent perfect identity between the causes, res judicata poses no bar.
Defendant further alleges that the trial court erred in rejecting Conservit's claim that plaintiff's sole remedy lay in an execution of the previous judgment under Federal Rule of Civil Procedure 69(a). We considered, and rejected, a similar claim in Oliveras: "Although it may have been preferable for the parties to return to the Puerto Rico Superior Court, there can be no doubt that the district court has diversity jurisdiction over the cause of action and the parties." 800 F.2d at 8. Accord 15A C.J.S. Compromise & Settlement Sec. 48 (1967) () (footnotes omitted). It was not error to entertain plaintiff's suit on the settlement agreement.
Defendant contends that even if res...
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