Apparel Art Intern., Inc. v. Amertex Enterprises Ltd.

• Citation: 48 F.3d 576
• Decision Date: 06 June 1994
• Docket Number: No. 94-1076,94-1076
• Parties: APPAREL ART INTERNATIONAL, INC., Plaintiff, Appellant, v. AMERTEX ENTERPRISES LTD., et al., Defendants, Appellees. . Heard
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

Page 576

48 F.3d 576

APPAREL ART INTERNATIONAL, INC., Plaintiff, Appellant, v. AMERTEX ENTERPRISES LTD., et al., Defendants, Appellees.

No. 94-1076.

United States Court of Appeals First Circuit.

Heard June 6, 1994.

Decided Feb. 17, 1995.

Freddie Perez-Gonzalez with whom Woods, Rosenbaum, Luckeroth & Perez- Gonzalez, San Juan, PR, was on brief, for appellant.

Eugene F. Hestres with whom Bird, Bird & Hestres, San Juan, PR, was on brief, for appellees.

Before SELYA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and LAGUEUX, ^* District Judge.

LAGUEUX, District Judge.

This matter is before the Court on appeal from a decision rendered by Judge Juan M. Perez-Gimenez in the United States District Court for the District of Puerto Rico. Applying Puerto Rico's res judicata doctrine, Judge Perez-Gimenez dismissed appellant Apparel Art International, Inc.'s ("Apparel") claims of fraudulent conveyance, depletion of corporate assets, and alter ego as contained in Apparel's Supplementary Pleadings in Aid of Execution of Judgment. Those pleadings were filed in supplementary proceedings in which Apparel sought to enforce an arbitration award rendered against Amertex Enterprises Ltd. ("Amertex") by American Arbitration Association ("AAA") arbitrators and confirmed by the district court.

I. BACKGROUND FACTS

A. The Parties

Apparel is a Delaware corporation that manufactures clothing at a plant located in Puerto Rico. Amertex is a New York corporation with offices in Puerto Rico. Leo Jacobson is a resident of Puerto Rico and is president and chairman of the board of directors of Amertex. Harriet Jacobson is a resident of Puerto Rico and is the wife of Leo Jacobson. Leo and Harriet Jacobson are the sole stockholders of Amertex. Co-appellee, D.J. Manufacturing Co. ("D.J."), is a Puerto Rico corporation. Co-appellee, Diego Jacobson, is a resident of Puerto Rico and is the son of Leo and Harriet Jacobson. Diego Jacobson is president of D.J. and chairman of its board of directors.

B. The Contractual Relationship Between Apparel and Amertex

In 1985, Apparel entered into a subcontract with Amertex under which Apparel was to manufacture certain components of "Chempro", a camouflage chemical protective suit for military use. Amertex had entered into a contract (the "prime contract") to supply Chempro suits to the United States Department of Defense. This case began when Apparel initiated an arbitration proceeding claiming that Amertex had breached the subcontract. A detailed review of the numerous legal proceedings in this matter, beginning with the arbitration, is a necessary prelude to our determination of the res judicata question at issue on appeal.

C. The Arbitration

On November 17, 1986, Apparel initiated arbitration proceedings against Amertex before the AAA in San Juan, Puerto Rico. The dispute was brought before the AAA pursuant to an arbitration clause contained in the subcontract. As the only signatories to the subcontract, Apparel and Amertex were the only parties to the arbitration. In its Statement of Claims filed with the AAA on July 29, 1987, Apparel alleged that Amertex had engaged in the following misconduct: 1) Amertex breached the subcontract; ¹ 2) Amertex illegally attached Apparel's assets after falsely alleging that Apparel breached the subcontract; 3) Amertex breached certain modifications of the subcontract; 4) Amertex fraudulently and negligently performed under the subcontract; 5) Amertex failed to pay an increase in the unit price; and 6) Amertex fraudulently induced Apparel to enter into the subcontract. On August 6, 1987, Apparel filed a Supplement to its Statement of Claims alleging that Amertex engaged in fraudulent conduct that constituted a pattern of racketeering activity under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961-1968 (1988 & Supp. V 1993). ² On September 16, 1987, the arbitrators dismissed Apparel's RICO claims because under the arbitration clause they lacked subject matter jurisdiction to hear those claims. Apparel did not seek judicial review of that dismissal. On June 27, 1989, after nearly two years of hearings, the arbitrators awarded $387,994.00 to Apparel. The arbitrators further decided that the costs of arbitration were to be borne equally between the parties.

D. Apparel I--The District Court Action Before Judge Perez-Gimenez

On September 26, 1989, Apparel filed this lawsuit, Civil Action No. 89-1272 (PG) (hereinafter "Apparel I"), against Amertex and the AAA as co-defendants in the United States District Court for the District of Puerto Rico. The case was assigned to Judge Perez-Gimenez. Apparel's complaint sought to set aside the arbitration award under the procedures authorized by the Federal Arbitration Act, 9 U.S.C. Secs. 10-11 (1988 & Supp. V 1993). Apparel alleged that the arbitration process was arbitrary and the award was insufficient. Apparel prayed that the court set aside the arbitration award and resubmit the merits of the case for resolution by the court. In the alternative, Apparel prayed that the court remand the case to the arbitrators so the award could be clarified.

Amertex moved to dismiss the complaint on the grounds that the action was time-barred because Apparel failed to provide required notice. On March 26, 1990, Apparel voluntarily consented to the dismissal, without prejudice, of its claim against the AAA. Apparel also moved to convert the suit against Amertex to an action to enforce the arbitration award pursuant to the Federal Arbitration Act, 9 U.S.C. Sec. 9 (1988). Judge Perez-Gimenez granted Apparel's motion on April 10, 1990, and entered an order dismissing the action as to the AAA, confirming the award against Amertex, and entering judgment for Apparel in the amount of $384,994.00 plus interest, costs, and attorneys' fees. The court subsequently, on the motion of Amertex, modified the judgment to remove the imposition of court costs and attorneys' fees against Amertex.

After entering judgment on the arbitration award, the district judge permitted Apparel to conduct post-judgment discovery in supplementary proceedings so that Apparel could execute the judgment against Amertex. In January of 1991, Apparel moved the court to compel production of documents and for sanctions. Apparel alleged that it was investigating the transfer of assets from Amertex to D.J., a company which Apparel suspected to have been created for the purpose of defrauding Amertex's creditors. Amertex opposed the motion on the grounds that Apparel's discovery request was onerous. On January 8, 1991, Apparel moved for execution of the judgment against Amertex because Amertex had not paid the judgment. Apparel requested the court to execute the judgment via attachment or garnishment against a balance owed by D.J. to Amertex. In its opposition to this motion, Amertex argued that D.J. was not a party to the action and Apparel had not filed notice of the motion with D.J., and requested a show cause hearing to determine whether D.J. should be subject to an order to execute the judgment. On January 10, 1991, Amertex also requested that the court issue a protective order insulating Amertex from further discovery requests. On January 24, 1991, the district court denied Amertex's request for a protective order, ordered the execution of the judgment, and ordered attachments and garnishments to be served on Amertex's debtors--including a writ of attachment ordering D.J. to pay to Apparel any sums that D.J. owed to Amertex.

In response to Apparel's Motion Requesting an Order for Garnishment of Funds to be served on the United States Government, on January 31, 1991, Amertex filed an "acquiescence" to Apparel's motion for garnishment and requested that the court issue a protective order staying Apparel from filing additional motions for execution of the judgment. In its opposition to Amertex's request for a protective order, Apparel argued that Amertex's claim against the government was uncertain and that the proceeds from that claim had already been assigned by Amertex to the Banco Popular de Puerto Rico. Apparel alleged that Amertex had informed Apparel it was unable to satisfy the judgment because it had no assets. Apparel further alleged that through post-judgment discovery it had discovered evidence of illegal transfers of assets, conspiracy, alter ego, and the misuse of corporate funds by Leo Jacobson and others. On May 8, 1991, Judge Perez-Gimenez denied Amertex's request for a protective order, noting that Amertex had not yet satisfied the money judgment owed to Apparel.

E. Apparel II--The District Court Action Before Judge Fuste

While the enforcement proceedings were ongoing before Judge Perez-Gimenez, on May 31, 1990, Apparel initiated a separate civil action in the United States District Court for the District of Puerto Rico. In that case, Civil Action No. 90-1756 (JAF) (hereinafter "Apparel II"), assigned to Judge Jose Antonio Fuste, Apparel made several claims under RICO against Amertex, as well as D.J., Leo Jacobson, Harriet Jacobson, Diego Jacobson, and Donald Sherry. ³ These were essentially the same allegations that had been dismissed by the arbitrators for lack of subject matter jurisdiction. Apparel alleged that Amertex engaged in bribery of government officials and submitted false information to the government in its effort to secure the Chempro contract. In addition, Apparel alleged that both during the arbitration hearings and after the award was rendered, Leo Jacobson, conspiring with Diego Jacobson, diverted Amertex's assets to D.J. in order to avoid satisfying the arbitration award. These allegations were made prior to the post-judgment discovery conducted in connection with the enforcement proceeding pending before Judge Perez-Gimenez, but raised new fraudulent conveyance and alter ego claims which were never brought before the arbitrators. On March 4, 1991, Apparel moved to amend its complaint, further...