Deutsch v. Integrated Barter Intern., Inc.

• Decision Date: 28 November 1988
• Docket Number: No. 85 CIV. 10006 (PKL).,85 CIV. 10006 (PKL).
• Citation: 700 F. Supp. 194
• Parties: Bernard DEUTSCH and Sheila Deutsch, Plaintiffs, v. INTEGRATED BARTER INTERNATIONAL, INC., Robert Goldsamt, Mathew Crisci, Jack Feiner, Mark Maged, and IBJ Schroder Bank and Trust Co., Defendants.
• Court: U.S. District Court — Southern District of New York

700 F. Supp. 194

Bernard DEUTSCH and Sheila Deutsch, Plaintiffs, v. INTEGRATED BARTER INTERNATIONAL, INC., Robert Goldsamt, Mathew Crisci, Jack Feiner, Mark Maged, and IBJ Schroder Bank and Trust Co., Defendants.

No. 85 CIV. 10006 (PKL).

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

November 28, 1988.

Peter R. Silverman, Silverman & Skolnick, P.C., New York City, for plaintiffs.

Norman Solovay, Frank McClain-Sewer, Phillips, Nizer, Benjamin, Krim & Ballon, New York City, for defendant Mark Maged.

Laurence May, Hayt, Hayt & Landau, Great Neck, N.Y., for defendant IBJ Schroder Bank & Trust Co.

H. Richard Penn, Bachner, Tally, Polevoy, Misher & Brinberg, New York City, for defendants, Robert Goldsamt and Mathew Crisci.

James J. Higgins, Boyer, Higgins & Hayden, New York City, for defendant Integrated Barter Intern., Inc.

LEISURE, District Judge.

The plaintiffs in this action seek to recover damages under the Federal Securities laws, common law, and New York's General Business Law; and they seek declaratory relief as well. Certain defendants moved for summary judgment under Fed. R.Civ.P. 56(b), essentially asserting that principles of collateral estoppel and/or res judicata block plaintiffs' present claims in this Court. Based on the following findings of fact and conclusions of law, the Court grants summary judgment on all claims as to some defendants, and grants partial summary judgment on only certain claims as to other defendants. The declaratory judgment sought by plaintiffs is denied.

Background

Plaintiff Bernard Deutsch is an experienced and sophisticated investor in securities, and was the primary actor in the events that gave rise to this lawsuit. Plaintiff Sheila Deutsch is his wife; all references to "Deutsch" or "plaintiff" will refer to Bernard Deutsch, unless the context indicates otherwise.

Defendant Integrated Barter International ("Barter") is in the business of buying and selling excess consumer merchandise. Barter made an initial public offering consisting of common stock and warrants in December, 1982. In the next few months, plaintiff acquired, under his daughter's name, a number of these Barter securities.

In late June, 1983, Deutsch submitted to defendant IBJ Schroder Bank & Trust Company (formally J. Henry Bank & Trust Company, hereinafter "Schroder") a loan application. That application listed plaintiff's assessed net worth as being in excess of $10,000,000, with $612,000 cash on hand in banks. Plaintiff's stated intention in applying for the loan was to invest in a company called the Regan Corporation. In July, 1983 Deutsch received a demand loan of $1,000,000 from Schroder, initially collateralized by various securities, including the Barter stock and warrants.

Plaintiff applied $810,000 of that $1,000,000 loan to the purchase of additional Barter securities. In August of 1983 Deutsch applied for, and received, another loan of $600,000 from Schroder, of which $349,000 went to the purchase of Barter securities.

In April, 1984, Deutsch delivered to Schroder a mortgage, as further security on the loans described above. Upon nonpayment of the loans, Schroder brought an action in March, 1985, in New York Supreme Court, Kings County, (the "prior state action") to foreclose on the mortgage properties.

In the prior state action Deutsch, alleged that Jack Feiner ("Feiner"), Robert Goldsamt ("Goldsamt"), and Mathew Crisci ("Crisci") provided Deutsch with a steady flow of information concerning Barter's acquisition plans. These individuals are defendants to the present action in this Court. This alleged flow of (inside) information purportedly caused Deutsch to purchase additional Barter securities. In the prior state action, Deutsch interposed an affirmative defense and counterclaim that charged Schroder with committing, and aiding and abetting, fraud.

Schroder moved for summary judgment in the prior state court action. Deutsch opposed that motion, and moved to further amend his answer to add Barter, Goldsamt, Crisci, Feiner, as well as Mark Maged ("Maged"), an employee of Schroder, as additional defendants to his counterclaim there. Deutsch also moved to stay the prior state action, pending determination of the present action in this Court.

Hon. Anthony T. Jordan, Jr., Justice of the New York Supreme Court, Kings County, denied the motion to stay the state court proceeding on July 18, 1986. Hon. Julius Vinik, Justice of the New York Supreme Court, Kings County, granted summary judgment against Deutsch, and denied Deutsch's motion to amend, in a tenpage decision issued on April 28, 1987. Schroder v. Deutsch, No. 7603/85 (N.Y. Sup.Ct., Kings Cty., April 28, 1987), attached as Exhibit 8 to Solovay Affidavit ("State Opinion").

Defendants Schroder and Maged moved this Court for summary judgment, essentially on the preclusive effect of the prior state court action, but also on the legal sufficiency of certain of the plaintiff's claims. Defendants Barter, Goldsamt, and Crisci formally joined in that motion, indicating their positions by letters to the Court, in lieu of formal motions.

I. PRECLUSION.

Terminology in the issue preclusion area has been the cause of some confusion; it is therefore helpful to define briefly the terms that will be used here. The Second Circuit in Murphy v. Gallagher, 761 F.2d 878, 879 (2d Cir.1985), formulated a clear exposition of the concepts that will be utilized by this Court. "Res judicata" refers broadly to the idea that a matter, once judicially decided, should not be relitigated. There are two concepts embraced by res judicata: issue preclusion and claim preclusion. Issue preclusion is often referred to as "collateral estoppel," and that practice will be followed here. It refers to the preclusive effect of a judgment that prevents a party from litigating, for a second time, an issue of fact or law that has once been decided. Id. Collateral estoppel, or issue preclusion, is primarily what defendants presently urge entitles them to summary judgment.

Claim preclusion is often referred to by the name of the broader concept of which it is a part, res judicata. Claim preclusion involves the relief accorded to the parties on the same "cause of action." It prevents litigation of a matter that could have been raised and decided in a previous suit, whether or not it was actually raised. Murphy, 761 F.2d at 879. This idea will be referred to here as "claim preclusion." "Res judicata" will be used only in its broader context.

A federal court incorporates state law principles of issue preclusion in determining whether, and what, preclusive effect should be given to prior state court decisions involving allegedly identical issues. Migra v. Warren City School District Board of Education, 465 U.S. 75, 81, 104 S.Ct. 892, 896, 79 L.Ed.2d 56 (1984); Ruiz v. The Commissioner of the Department of Transportation of the City of New York, 858 F.2d 898 (2d Cir.1988).

New York collateral estoppel principles prevent "a party from relitigating `an issue which has previously been decided against him in a proceeding in which he had a fair opportunity to fully litigate the point.'" Kaufman v. Eli Lilly and Co., 65 N.Y.2d 449, 492 N.Y.S.2d 584, 588, 482 N.E.2d 63, 67 (1985) (quoting Gilberg v. Barbieri, 53 N.Y.2d 285, 441 N.Y.S.2d 49, 50, 423 N.E. 2d 807, 808 (1981)). There are two requirements which must be satisfied before collateral estoppel will be invoked: (1) the identical issue necessarily must have been decided in the prior action and be decisive in the present action; and (2) the party to be precluded must have had a full and fair opportunity to contest the prior determination. Kaufman, 492 N.Y.S.2d at 588, 482 N.E.2d at 67; Schwartz v. Public Administrator, 24 N.Y.2d 65, 70-71, 298 N.Y.S.2d 955, 959, 246 N.E.2d 725, 728 (1969). The party seeking the benefit of the doctrine has the burden of demonstrating the identity of the issues in the present and prior determinations, and the party resisting its application has the burden of establishing the absence of a full and fair opportunity to litigate the issue in the prior action. Kaufman, 492 N.Y.S.2d at 588, 482 N.E.2d at 67; see also, Sullivan v. American Airlines, Inc., 613 F.Supp. 226, 230 (S.D.N.Y. 1985). Notice of appeal of the prior state action does not effect collateral estoppel. Brown v. Manufacturers Hanover Trust Co., 602 F.Supp. 549, 551 (S.D.N.Y.1984). The Court will apply the foregoing principles to the present case. Other concerns that would affect the application of collateral estoppel to this action, and other grounds for summary judgment, will then be considered.

1. Identity of the Issues.

To determine whether the defendants here have met their burden of establishing an identity of the issues, the Court must analyze and compare the prior state action and the present claims in this case.

As noted above, plaintiffs' Amended Complaint ("Complaint") in this action alleges that defendants Barter, Feiner, Goldsamt and Crisci (the "Barter defendants") made a series of misleading statements of material fact, Complaint ¶¶ 18-29, and that plaintiff bought the Barter securities with the loan funds from Schroder. Complaint ¶¶ 35, 38. Defendants Schroder and Maged are alleged only to have aided and abetted the Barter defendants in the allegedly fraudulent sales. Complaint ¶¶ 42-50. The purported fraudulent sales are said, in this action, to constitute 1) a violation of Section 10(b) of the Securities Exchange Act of 1934 ("Section 10(b)"); 2) a violation of Section 17 of that Act ("Section 17"); 3) a violation of Section 352 of the New York General Business Law ("Martin Act"); and 4) common law fraud and deceit.

A. Schroder and Maged.

In Deutsche's amended answer to the state court proceeding ("State Answer"), Deutsch specifically charged Schroder and Maged with "aiding and abeting ... certain officers, directors and undisclosed promoters of Barter in a scheme to fraudulently induce Deutsch to purchase...