Creed Taylor, Inc. v. CBS, INC.

• Decision Date: 02 August 1989
• Docket Number: No. 88 Civ. 7666 (RLC).,88 Civ. 7666 (RLC).
• Citation: 718 F. Supp. 1171
• Parties: CREED TAYLOR, INC., Plaintiff, v. CBS, INC., CBS Records, Columbia Record Productions, Inc., & Epic Records, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

718 F. Supp. 1171

CREED TAYLOR, INC., Plaintiff, v. CBS, INC., CBS Records, Columbia Record Productions, Inc., & Epic Records, Inc., Defendants.

No. 88 Civ. 7666 (RLC).

United States District Court, S.D. New York.

August 2, 1989.

Uscher, Quiat, Russo & Uscher, New York City, for plaintiff; Michael E. Quiat, of counsel.

Parker Chapin Flattau & Klimpl, New York City, for defendants; Stephen G. Rinehart, of counsel.

OPINION

ROBERT L. CARTER, District Judge.

Plaintiff Creed Taylor, Inc. ("CTI") is a record company known particularly for its jazz recordings. It has brought this action claiming that defendant CBS, Inc. and several of its affiliates¹ engaged in wrongful activities on a continuing basis since approximately 1978 for the purpose of harming CTI and misappropriating its name, label, reputation, and assets. Federal claims are alleged pursuant to the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, along with a variety of pendent state law claims.

CBS has moved for dismissal of the amended complaint for failure to state a claim upon which relief can be granted or, alternatively, for summary judgment on the ground that CTI's claims are barred by res judicata. CBS has also moved for sanctions pursuant to Rule 11, F.R.Civ.P., on the ground that the amended complaint was filed without reasonable inquiry having been made that it was well founded in fact and law.

Background

CTI filed for bankruptcy in early 1978. CBS was one of CTI's creditors, and in 1980 the two companies entered a court sanctioned agreement (the "Distribution Agreement") whereby CBS provided funding that permitted CTI to emerge from bankruptcy in exchange for rights to CTI's catalogue of master recordings (the "masters"). Disputes arose between CBS and CTI regarding the Distribution Agreement, and on or about June 8, 1981, the two companies entered a second agreement (the "Settlement Agreement") that superceded the first. Under the Settlement Agreement, CTI regained control of the masters and agreed to pay CBS $400,000 in eight monthly installments beginning September 10, 1981. CTI's obligation was secured by the masters.

CTI paid only $68,000 of its $400,000 obligation to CBS. Following CTI's default, CBS commenced an action in New York State Supreme Court seeking a judgment as to the remaining $332,000 based on the Settlement Agreement, the promissory notes that CTI signed in connection with the Settlement Agreement, and personal guarantees also executed with the Settlement Agreement. CBS also sought judgment for approximately $32,000 that it claimed was owed to it by CTI for production services. In its fifth and final cause of action CBS sought a judgment of foreclosure and sale of the masters. The case was heard by Justice Arthur E. Blyn.

CBS filed a motion for summary judgment as to this last cause of action. CTI cross-moved for leave to amend its answer, asserting as an affirmative defense that CBS exerted undue economic influence over CTI and coerced it to enter the Settlement Agreement. Justice Blyn granted CBS's motion for summary judgment, holding that there were no triable issues of fact as to the validity of CBS's claim. CTI's defense of economic duress was expressly rejected.

The court finds that there was no threat or act by plaintiff who has a right to enforce its rightful claim. The court also finds that defendants did not establish a lack of good faith on the part of plaintiff in seeking to enforce its lawful claim. The court further finds that the defendants were guilty of laches in raising this defense after three years and doing so only when the plaintiff brought on its motion for a preliminary injunction.

CBS Inc. v. Creed Taylor et al., No. 17421/83, slip op. at 7 (N.Y.Sup.Ct. Oct. 15, 1984). CTI's cross motion was then denied in the following terms. "Defendants' cross-motion for leave to amend their answer to interpose an affirmative defense and counterclaim of duress is denied, in light of this court's granting of partial summary judgment on that very issue." Id. at 8 (emphasis added). By an order and judgment dated February 26, 1985, CTI was ordered to turn over the masters to CBS to "be sold in accordance with the provisions of UCC 9-504," New York Uniform Commercial Code § 9-504 (McKinney 1964, & Supp.1989) hereinafter "UCC", in satisfaction of CTI's $332,000 debt to CBS plus approximately $149,494 in accrued interest and costs. This order and judgment was upheld on appeal "for the reasons stated by Arthur Blyn, J., at Special Term." CBS Inc. v. Creed Taylor et al., 113 A.D.2d 719, 493 N.Y.S.2d 431 (1st Dept. 1985).

After first announcing its intention to auction the masters, CBS decided instead to retain them pursuant to UCC § 9-505(2). CTI did not object within the time period allowed a debtor under that section to force a sale of the collateral.

Almost three years later, at the same time the instant action was commenced, CTI moved in state court that CBS be held in contempt for failing to sell the masters in compliance with Justice Blyn's order. During the pendency of the instant proceedings, this motion was denied by Justice Francis N. Pecora on the ground of laches.

It has been over three years since CTI, the owner of the collateral, received notice from CBS of its election to retain the collateral. Even if CTI's rights were not wholly extinguished by its failure to object on a timely basis, the delay by CTI in raising an objection, combined with the efforts and expenditures of CBS in the interim to maximize the value of the collateral, appear to make it inappropriate for CTI to now seek to engage CBS and this court in burdensome litigation.... In view of the court's holding that the moving defendants are guilty of laches with prejudice to CBS having been amply demonstrated, the court need not address the other issues raised by this motion and all of the relief sought by this motion is accordingly denied.

CBS Inc. v. Creed Taylor et al., No. 17421/83, slip op. at 8-9 (N.Y.Sup.Ct. April 28, 1989) (emphasis in original).

Res Judicata and Collateral Estoppel

If the state court determinations described above bar any of CTI's claims on grounds of res judicata, CBS's challenge to the adequacy of those claims is mooted. Accordingly, the court will first consider the preclusive effect, if any, of these decisions.

In addressing this issue, a choice of law determination is required. If a prior judgment issues from a federal court, its preclusive effect in another federal court is to be determined by an inquiry into the common law and general policies supporting res judicata and collateral estoppel. Allen v. McCurry, 449 U.S. 90, 96, 101 S.Ct. 411, 415, 66 L.Ed.2d 308 (1980). However, if the judgment issues from a state court, the full faith and credit statute, 28 U.S.C. § 1738, requires a federal court to give it "the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered." Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 81, 104 S.Ct. 892, 896, 79 L.Ed.2d 56 (1984).

In the instant case, the prior judgment at issue was rendered by a New York State court, so it must be given the same preclusive effect as it would be given under New York law. Cullen v. Margiotta, 811 F.2d 698, 732 (2d Cir.1987), cert. denied, 483 U.S. 1021, 107 S.Ct. 3266, 97 L.Ed.2d 764 (1987). Consequently, the cases upon which CTI and CBS principally rely are inapposite.

In George v. United Kentucky Bank, Inc., 753 F.2d 50 (6th Cir.1985), cert. denied, 471 U.S. 1018, 105 S.Ct. 2024, 85 L.Ed.2d 306 (1985), a case that CTI cites and discusses at length, the Sixth Circuit construed Kentucky law to decide whether a Kentucky court judgment precluded a subsequent RICO action from being prosecuted in federal court based on the same factual allegations litigated in state court. See also, Wicker v. Board of Education, 826 F.2d 442, 450-51 (6th Cir.1987); Barnes v. McDowell, 848 F.2d 725, 730-31 (6th Cir.1988). Because the decision was based on Kentucky law, rather than New York law, it is irrelevant to a determination of the instant matter.

Cullen v. Paine Webber Group, Inc., 689 F.Supp. 269 (S.D.N.Y.1988) (Lasker, J.), a case upon which CBS places substantial reliance, is similarly inapposite. The issue decided in Paine Webber was whether a prior arbitration panel decision precluded a subsequent civil RICO action from being prosecuted in federal court based on the same factual allegations litigated in the arbitration proceeding. Noting that 28 U.S.C. § 1738 applies only to state judicial proceedings, the court decided the question on the basis of federal rather than state preclusion law. See id. at 278 n. 12. Cases involving prior state court decisions were expressly distinguished on this basis. See id. at 277.

As explained above, the preclusive effect of Justice Blyn's and Justice Pecora's decisions must be decided on the basis of New York law. In doing so, it is necessary to distinguish between the doctrines of res judicata and collateral estoppel, or, as they are now commonly termed, the doctrines of claim preclusion and issue preclusion.

Speaking generally, the doctrine of res judicata or claim preclusion bars the parties to a previously decided case, or their privies, from relitigating any claim that either was or could have been litigated based on the circumstances at issue in the previous action. The doctrine of collateral estoppel has a narrower scope but a broader application. It bars the relitigation of only those issues that actually were decided in the previous case, rather than encompassing issues that could have been litigated but were not. However, it can be invoked in cases that are unrelated to the prior action except for the common issue regarding which preclusion is sought. See Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 414, 66 L.Ed.2d 308 (1980).

In deciding res judicata claims, New York follows...