Arab African Intern. Bank v. Epstein, 91-5409
| Decision Date | 09 March 1992 |
| Docket Number | No. 91-5409,91-5409 |
| Citation | 958 F.2d 532 |
| Parties | ARAB AFRICAN INTERNATIONAL BANK, Appellant, v. Jonathan I. EPSTEIN, Richard S. Goldman, Goldman & Epstein, Kendis & Baker, P.C., Sherman L. Kendis. Sherman L. KENDIS, Cross-Claimant, v. Jonathan I. EPSTEIN, Richard S. Goldman, Goldman & Epstein, Cross-Defendants. Jonathan I. ESPTEIN, Richard S. Goldman, Goldman & Epstein, Cross-Claimants, v. KENDIS & BAKER, P.C., Sherman L. Kendis, Cross-Defendants. Sherman L. KENDIS, Cross-Claimant, v. Jonathan I. EPSTEIN, Richard S. Goldman, Goldman & Epstein, Cross-Defendants. |
| Court | U.S. Court of Appeals — Third Circuit |
Merrill M. O'Brien (argued), Dollinger & Dollinger, Rochelle Park, N.J., for appellant.
Robert W. McAndrew (argued), Lawrence J. Hurley, Voorhees & Acciavatti, Morristown, N.J., for appellees Jonathan I. Epstein, Richard S. Goldman, and Goldman & Epstein.
Richard Williams, Mobile, Ala., for Sherman L. Kendis.
Sherman L. Kendis, pro se.
Before SLOVITER, Chief Judge, SCIRICA and ROTH, Circuit Judges.
In this legal malpractice action, the district court granted summary judgment for defendants on the ground of collateral estoppel. 1 We will reverse.
This case arises out of a mortgage loan from Appellant Arab African International Bank to Sencit S/G Development Company, upon which Sencit defaulted. The Bank, a foreign corporation chartered under the laws of Egypt, maintains a place of business in New York. Jonathan Epstein, Richard Goldman, and the law firm of Goldman & Epstein (Appellees) represented Sencit, a New Jersey partnership. On June 20, 1984, Sencit borrowed $3.25 million from the Bank. The loan documents initially provided that they would be executed in New Jersey and that New Jersey law would apply. These provisions were subsequently changed to designate New York as the state in which the documents were executed and whose law would apply, because the New Jersey Banking Act, 17:9A N.J.Stat.Ann. § 330 (West 1984), prohibited foreign banks from doing business in that state.
At the Bank's request, Goldman & Epstein issued an opinion letter signed by Epstein. The letter stated, in part:
[T]he Mortgage and Note ... constitute binding, and enforceable agreements of the Partnership in accordance with their terms (subject as to enforcement of remedies to applicable bankruptcy, reorganization, insolvency, moratorium or other laws or equitable principles affecting the enforcement of creditor's rights, generally from time to time in effect).
Since February 15, 1985, Sencit has failed to pay principal, interest, or real estate taxes. Under the terms of the Note, Sencit is indebted to the Bank in an amount exceeding $5 million.
In August 1985, the Bank initiated foreclosure proceedings in the Superior Court of New Jersey, Chancery Division. Sencit contested the foreclosure, and raised as a defense the New Jersey Banking Act, which provides:
A. A foreign bank shall not be entitled to maintain any action in any court of this State on any cause arising out of its transaction of business in this State in violation of the provisions of this article.
B. A foreign bank which violates any of the provisions of this article and its directors, officers, agents and employees who participate in any such violation shall be guilty of a misdemeanor.
17:9A N.J.Stat.Ann. § 330. The Bank contended that Sencit was estopped from raising the New Jersey Banking Act as a defense, because Sencit's attorney (Epstein) had represented in his opinion letter that the Note was "binding, and enforceable."
After a hearing on the New Jersey Banking Act issue, the Honorable Marvin N. Rimm held that Arab African International Bank was a foreign bank that had violated the Act and was precluded from maintaining its foreclosure action in a New Jersey court. In an oral opinion issued on May 5, 1986, Judge Rimm rejected the Bank's estoppel argument:
The Defendants are not estopped from asserting the defense [of the New Jersey Banking Act]. First of all, I find that the opinion of counsel was an opinion and nothing more, that the Plaintiff bank knew that it was an opinion and nothing more; that in addition to the opinion of counsel for the Defendants, the bank sought and obtained the opinion of its own attorney; and that more important than seeking the opinion of its own attorney, it proceeded with the matter in accordance with the opinion of its attorney that the execution of the documents in New York City constituted this a New York City transaction. I find that the Bank did not rely on the opinion of counsel for Sencit, that if it relied on any opinion, it relied on Mr. Kendis's [bank counsel's] opinion. More important, however, in terms of the question of estoppel, is the wording of the statute itself.... What the Plaintiff bank would have me do is ignore not only a penal but, in fact, a criminal act--a criminal statute of the State of New Jersey.... I cannot believe that a, the [sic] defense based on a penal statute cannot be asserted in a Court of this State, based on an alleged estoppel in any event.
Thus, although Judge Rimm felt the latter ground to be "more important," his decision not to apply estoppel clearly rested on alternative grounds: (1) lack of reliance on the Epstein opinion letter; and (2) inapplicability of estoppel to defenses based on penal statutes.
Based on his determination that the New Jersey Banking Act barred the Bank from maintaining its foreclosure action, Judge Rimm entered a Final Judgment and Order of dismissal on May 19, 1986. The Order specified that the dismissal would not affect Sencit's counterclaim. The Final Judgment and Order were not appealed.
Sencit then moved to amend its counterclaim to seek cancellation of the Note and Mortgage. In response, the Bank moved to amend its Answer to Sencit's counterclaim to assert its own counterclaim for foreclosure.
Judge Rimm orally denied the Bank's motion to amend its Answer to Sencit's counterclaim on December 5, 1986, and orally denied Sencit's motion to amend its counterclaim on March 6, 1987. He formally denied both motions by written Order dated June 22, 1987. Both parties appealed from the June 22, 1987 Order. On November 1, 1988, the Appellate Division of the Superior Court of New Jersey affirmed by per curiam opinion.
On June 19, 1990, the Bank filed this legal malpractice action in the United States District Court for the District of New Jersey, alleging fraud, material misrepresentation, and negligence on the part of attorneys Jonathan I. Epstein, Richard S. Goldman, Sherman L. Kendis, and the firms of Goldman & Epstein and Kendis & Baker, a professional corporation. Epstein, Goldman, and the firm of Goldman & Epstein moved for summary judgment, alleging among other grounds the doctrine of collateral estoppel, or issue preclusion.
The district court granted the motion, stating:
[T]his court finds that the reliance issue [an essential element of each of Appellant's legal malpractice claims] was raised and resolved in this case against the plaintiff in the proceedings in state court, and that as a matter of law collateral estoppel applies to prevent this action here against defendants Epstein, Goldman, and the firm of Epstein & Goldman [sic]. 2
Our review of the district court's grant of summary judgment on the ground of issue preclusion is plenary. All inferences to be drawn from the facts should be viewed in the light most favorable to the Bank. General Comm. of Adjustment, United Transp. Union v. CSX R.R. Corp., 893 F.2d 584, 589 (3d Cir.1990).
The issue presented here is whether the doctrine of issue preclusion bars the Bank from re-litigating the question of the Bank's reliance on Epstein's opinion letter. We apply New Jersey law. Peduto v. City of North Wildwood, 878 F.2d 725 (3d Cir.1989). New Jersey has adopted section 27 of the Restatement (Second) of Judgments on issue preclusion. Watkins v. Resorts Int'l Hotel & Casino, 124 N.J. 398, 423, 591 A.2d 592 (1991).
Section 27 of the Restatement (Second) of Judgments provides, in part:
When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.
....
i. Alternative determinations by court of first instance. If a judgment of a court of first instance is based on determination of two issues, either of which standing independently would be sufficient to support the result, the judgment is not conclusive with respect to either issue standing alone.
....
o. Effect of an appeal.... If the judgment of the court of first instance was based on a determination of two issues, either of which standing independently would be sufficient to support the result, and the appellate court upholds both of these determinations as sufficient, and accordingly affirms the judgment, the judgment is conclusive as to both determinations. In contrast to the case discussed in Comment i, the losing party has here obtained an appellate decision on the issue, and thus the balance weighs in favor of preclusion.
If the appellate court upholds one of these determinations as sufficient but not the other, and accordingly affirms the judgment, the judgment is conclusive as to the first determination.
If the appellate court upholds one of these determinations as sufficient and refuses to consider whether or not the other is sufficient and accordingly affirms the judgment, the judgment is conclusive as to the first determination.
Restatement (Second) of Judgments § 27, cmts. i, o (1982). 3
Here, Judge Rimm's refusal to apply the doctrine of estoppel to bar Sencit from asserting the New Jersey Banking Act as a defense to the Bank's foreclosure action was based on: (1) absence of reliance; and (2) unavailability of estoppel...
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