Browning Ave. Realty Corp. v. Rubin

• Decision Date: 04 August 1994
• Citation: 615 N.Y.S.2d 360,207 A.D.2d 263
• Parties: BROWNING AVENUE REALTY CORP., etc., et al., Plaintiffs-Respondents, v. Ira RUBIN, et al., Defendants-Appellants.
• Court: New York Supreme Court — Appellate Division

Page 360

615 N.Y.S.2d 360

207 A.D.2d 263

BROWNING AVENUE REALTY CORP., etc., et al., Plaintiffs-Respondents, v. Ira RUBIN, et al., Defendants-Appellants.

Supreme Court, Appellate Division First Department.

Aug. 4, 1994.

Before ROSENBERGER, J.P., and ELLERIN, KUPFERMAN, ROSS and RUBIN, JJ.

MEMORANDUM DECISION.

Order, Supreme Court, New York County (Angela Mazzarelli, J.), entered November 3, 1993, which denied the defendants' motion and cross motion for dismissal of the complaint or, alternatively, for summary judgment and denied the Wilner defendants' motion for sanctions, unanimously modified, on the law, to grant the motion and cross motion to dismiss the complaint, the complaint is dismissed, and otherwise affirmed, without costs.

On May 8, 1984, the plaintiffs entered into a joint venture agreement with the non-party defendant Bernard Rosenshein, a now bankrupt developer, for the purpose of constructing a shopping center. In 1987, Rosenshein informed the plaintiff that the cost of the project exceeded the original construction budget of $25,000,000 by fifty percent and requested that they pay one-half of the cost of the shopping center in excess of the permanent financing. The plaintiff rejected this capital call and was denied participation in the completed project.

The plaintiff maintained, inter alia, that the representations of Rosenshein were false when made since he never intended to complete the project for $25 million. The defendants Ira Rubin and Glickman, Rubin and Gaft were Rosenshein's accountants on the project. The defendants Alfred Wilner and Alfred Wilner, Inc. were retained by the mortgagee, European American Bank, to serve as inspecting engineers, who were to conduct monthly inspections of the site and issue reports. The plaintiff contended that the defendants aided and abetted Rosenshein in committing the fraud.

The plaintiff initially instituted an action in State court but, after serving a second amended complaint containing Federal Racketeer Influenced and Corrupt Organizations Act claims ("RICO", 18 U.S.C. § 1961 et seq.), the action was removed to Federal court.

Judge Robert Sweet, in Browning Ave. Realty Corp. v. Rosenshein, 774 F.Supp. 129, dismissed the complaint on the ground that it failed to state a RICO claim against either the Rubin or Wilner defendants and failed to satisfy the particularity requirements for pleading fraud pursuant to Federal Rules of Civil Procedure, rule 9(b). The plaintiff then moved for leave to amend the second amended complaint and submitted a proposed third amended complaint. Judge Sweet converted the motion to one to vacate the summary judgment order and denied the motion. The plaintiff then commenced the instant proceeding alleging, inter alia, common law fraud and breach of fiduciary duties. Although the complaint does not set forth a RICO claim, the pleadings are virtually identical to those contained in the Federal complaints. Judge Charles Haight denied a removal petition noting that the prior Federal proceedings before Judge Sweet "may give rise to defenses based upon res judicata or collateral estoppel, issues upon which I express no view".

The defendants moved to dismiss the instant complaint pursuant to CPLR 3211(a)(5) or, alternatively, pursuant to CPLR 3212 on the ground that the action is barred by res judicata. The Wilner defendants also sought sanctions pursuant to CPLR 8303-a. The Supreme Court denied the motion and cross motion to dismiss the complaint on the ground of res judicata and the alternative request for summary judgment, with leave to renew. The court found that the Federal court's dismissals applied only to the plaintiff's RICO claim and not to its common-law fraud claim. The Wilner defendants' request for sanctions was also denied.

We agree with the Supreme Court that the plaintiff's claims are not barred by res judicata. Pursuant to the transactional analysis approach, which this State has adopted in deciding res judicata issues, "once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy" (O'Brien v. City of Syracuse, 54 N.Y.2d 353, 357, 445 N.Y.S.2d 687, 429 N.E.2d 1158; see also, Matter of Reilly v. Reid, 45 N.Y.2d 24, 407 N.Y.S.2d 645, 379 N.E.2d 172). The doctrine bars not only claims that were actually litigated but also claims that could have been litigated (Nottenberg v. Walber 985 Co., 160 A.D.2d 574, 575, 554 N.Y.S.2d 217). The previous disposition must have been on the merits and the party opposing preclusion must have had a full and fair opportunity to litigate this claim in the prior proceeding (see, Schwartz v. Public Administrator, 24 N.Y.2d 65, 298 N.Y.S.2d 955, 246 N.E.2d 725; Murray v. National Broadcasting Co., 178 A.D.2d 157, 576 N.Y.S.2d 578, appeal dismissed79 N.Y.2d 1036, 584 N.Y.S.2d 442, 594 N.E.2d 936; Brugman v. City of New York, 102 A.D.2d 413, 477 N.Y.S.2d 636, affd. 64 N.Y.2d 1011, 489 N.Y.S.2d 54, 478 N.E.2d 195).

While res judicata effect is given to judgments on the merits rendered by Federal courts (see, Murray v. National Broadcasting Co., supra ), res judicata will not bar a State action where it is clear that the pretrial dismissal of the Federal cause of action did not include adjudication of a pendent State claim on its merits (McLearn v. Cowen & Co., 2d Cir., 660 F.2d 845; McLearn v. Cowen & Co., 60 N.Y.2d 686, 468 N.Y.S.2d 461, 455 N.E.2d 1256; Lamontagne v. Board of Trustees, 183 A.D.2d 424, 425, 583 N.Y.S.2d 838, lv. denied 80 N.Y.2d 759, 591 N.Y.S.2d 137, 605 N.E.2d 873).

[W]hether this is because the Federal court lacks jurisdiction over pendent State claims once it dismisses a Federal claim prior to trial (see, McLearn v. Cowen & Co. [2d Cir.], 660 F.2d 845, 848), or because the Federal court is presumed to have declined to exercise its discretionary pendent jurisdiction over the State law claims (supra, at 851 [Lasker, J., concurring], the result is the same as long as there is no clear indication by the Federal court that there was a dismissal of the State claim on the merits (Evans v. Rothschild, Unterberg, Towbin, 131 A.D.2d 278, 282-283 . The rule in New York is that a dismissal of a pendent State action by a Federal court is presumed to be not on the merits absent a clear indication to the contrary (see, e.g., Creative Bath Prods. v. Connecticut Gen. Life Ins. Co., 173 A.D.2d 400

(Lamontagne v. Bd. of Trustees, id., at 425-426, 583 N.Y.S.2d 838).

The instant action is not barred by res judicata since jurisdiction was never assumed by the Federal court over the State claims (see, Creative Bath Prods. v. Connecticut Gen. Life Ins. Co., 173 A.D.2d 400, 570 N.Y.S.2d 31, supra, lv. denied 79 N.Y.2d 751, 579 N.Y.S.2d 651, 587 N.E.2d 289; Travelers Indem. Co. v. Sarkisian, 139 A.D.2d 27, 29, 530 N.Y.S.2d 680). The doctrine will not bar the assertion of the pendent State law claims in this later action (McLearn v. Cowen & Co., supra; Lamontagne v. Board of Trustees, supra; Evans v. Rothschild, Unterberg, Towbin, supra ). The State claims were available in the Federal court only through pendent jurisdiction. Where the Federal court disposed of the case purely on Federal grounds, the Federal court necessarily "declined to exercise jurisdiction over any accompanying claim based exclusively on State law, and ... dismissed that claim without prejudice to its prosecution in the State courts" (Capital Tel. Co. v. New York Tel. Co., 146 A.D.2d 312, 316, 540 N.Y.S.2d 895, citing McLearn v. Cowen & Co., supra; Travelers Indem. Co. v. Sarkisian, supra ).

We agree with the defendants, however, that the complaint must be dismissed on collateral estoppel grounds. In order to invoke the doctrine of collateral estoppel, there must be an identity of issue which was necessarily decided in the prior action and which is decisive of the present action and there must have been a full and fair opportunity to contest the prior determination (Schwartz v. Public Administrator, 24 N.Y.2d, at 71, 298 N.Y.S.2d 955, 246 N.E.2d 725, supra ).

The party seeking the benefit of collateral estoppel has the burden of demonstrating the identity of the issues in the present litigation and the prior determination, whereas the party attempting to defeat its application has the burden of establishing the absence of a full and fair opportunity to litigate the issue in the prior action

(Kaufman v. Eli Lilly & Co., 65 N.Y.2d 449, 456, 492 N.Y.S.2d 584, 482 N.E.2d 63; see also, Ryan v. New York Tel. Co., 62 N.Y.2d 494, 501, 478 N.Y.S.2d 823, 467 N.E.2d 487; Schwartz v. Public Administrator, supra, 24 N.Y.2d, at 73, 298 N.Y.S.2d 955, 246 N.E.2d 725).

Where, as here, the parties in the State and Federal proceedings are identical and where the merits of the plaintiff's claims...