Donnkenny, Inc. v. Nadler
| Decision Date | 08 May 1989 |
| Docket Number | No. 81 CIV. 6075 (SWK).,81 CIV. 6075 (SWK). |
| Citation | 712 F. Supp. 429 |
| Parties | DONNKENNY, INC., Plaintiff, v. Murray NADLER, Cummings & Carroll, P.C., H.B. Carroll, Glenn O. Thornhill, Galax Apparel Corporation, and DK Investors, Inc., Defendants. DK INVESTORS, INC. and Murray Nadler, Third-Party Plaintiffs, v. OPPENHEIMER & CO. and Oppenheimer & Co., Inc., Third-Party Defendants. |
| Court | U.S. District Court — Southern District of New York |
Lord, Day & Lord, Barrett Smith, New York City by Gerald A. Novack, for Donnkenny, Inc.
Kaye, Scholer, Fierman, Hays & Handler, New York City by Fred A. Freund, Ira S. Sacks, Michael A. Lynn, for Murray Nadler.
Cole & Deitz, New York City by Robert Kushner, for Cummings & Carroll, P.C. and H.B. Carroll.
Stein, Zauderer, Ellenhorn, Frischer & Sharp, New York City by Mark C. Zauderer, for DK Investors, Inc.
Weil, Gotschal & Manges, New York City by Nancy Barton, for Oppenheimer & Co. and Oppenheimer & Co., Inc.
Presently before this Court is the summary judgment motion of defendants Murray Nadler ("Nadler"), DK Investors, Inc. ("DKI"), Cummings & Carroll, P.C. and H.B. Carroll ("the accountants"). These defendants are referred to collectively as "the New York defendants". The New York defendants alternatively seek judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. The New York defendants also seek to have this Court set a hearing to determine the amount of fees and expenses that should be awarded to Nadler under § 145(c) of the Delaware General Corporation law.1 In addition to being a party to the New York defendants' papers, defendant DKI has submitted supplemental papers of its own. This case has a long procedural history.
The facts in this case are fully outlined in a prior opinion by Judge Pollack, Donnkenny, Inc. v. Nadler, 544 F.Supp. 166 (1982), familiarity with which is presumed. Donnkenny, Inc. ("Donnkenny") is a maker of women's clothing. Oppenheimer & Co. ("Oppenheimer") purchased the assets of Donnkenny in 1978. At the time of the purchase, Glenn O. Thornhill ("Thornhill") and Nadler were directors of Donnkenny. After the purchase, they signed employment agreements with Oppenheimer and remained to manage the day-to-day business of Donnkenny. Donnkenny had been a publicly held company, the name of which was changed after the purchase to DK Investors ("DKI"). DKI currently operates as a closed-end investment concern. As the surviving corporate shell of Donnkenny prior to the sale to Oppenheimer, DKI is referred to as "Old Donnkenny". Oppenheimer assumed the name of Donnkenny and held it as a private company.
In 1981, Nadler resigned as president of Donnkenny. Subsequently, the new president, Al Paris, fired Thornhill, the company treasurer, for alleged insubordination, negligence and breach of fiduciary duties. This precipitated a series of lawsuits, discussed below.
The following procedural history is based on the parties' local rule 3(g) statements. On September 12, 1981, Thornhill commenced an action against Donnkenny and Al Paris in the state circuit court for Montgomery County, Virginia, alleging, inter alia, breach of contract and wrongful termination. On October 1, 1981, Donnkenny commenced the present lawsuit in the United States District Court for the Southern District of New York, alleging racketeering activity, fraud and other violations of common law duties. On October 2, 1981, Donnkenny removed the Virginia state court action to the United States District Court for the Western District of Virginia.
On August 3, 1982, this Court stayed the present action as to Thornhill, concluding that the claims against Thornhill should have been filed in Virginia as compulsory counterclaims. On August 24, 1982, Donnkenny answered the complaint in the Virginia federal court and brought in the New York defendants as counterclaim-defendants. The counterclaims asserted by Donnkenny in the Virginia action were substantively identical to the claims it asserted against the New York defendants in the present action.
On January 20, 1983, the Virginia court stayed the counterclaims asserted by Donnkenny against the New York defendants pending resolution of the claims between Thornhill and Donnkenny. On April 5, 1983, this Court stayed this action as against the New York defendants pending resolution of the claims between Thornhill and Donnkenny in Virginia.
On October 11, 1985, the jury in the Virginia action returned a verdict in favor of Thornhill, awarding him $280,000 in damages on his breach of contract claim and $1,000,000 in damages on his wrongful termination claim. Donnkenny's counterclaims against Thornhill not only involved claims for relief by Donnkenny, but also constituted defenses to the alleged breach of Thornhill's employment contract. Since the jury apparently rejected these defenses, defendants argue that plaintiff is estopped from raising Thornhill's alleged wrongful conduct in this action.
On August 11, 1986, the Virginia court ordered that Donnkenny's counterclaims against the New York defendants be transferred to this Court pursuant to 28 U.S.C. § 1404(a). On July 14, 1987, the United States Court of Appeals for the Fourth Circuit affirmed, in relevant part, the judgment entered by the Virginia court against Donnkenny. On August 15, 1988, Donnkenny and defendants Thornhill and Galax entered into a stipulation, agreeing that all of Donnkenny's claims against those two defendants in this action should be dismissed with prejudice.2
Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rule 56(c). In testing whether the movant has met this burden, the Court must resolve all ambiguities against the movant. Lopez v. S.B. Thomas, Inc., 831 F.2d 1184, 1187 (2d Cir.1987) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962)).
The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Adickes v. S.H. Kress and Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). The movant may discharge this burden by demonstrating to the Court that there is an absence of evidence to support the nonmoving party's case on which that party would have the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The non-moving party then has the burden of coming forward with "specific facts showing that there is a genuine issue for trial." Rule 56(e). The non-movant must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Speculation, conclusory allegations and mere denials are not enough to raise genuine issues of fact. To avoid summary judgment, enough evidence must favor the non-moving party's case such that a jury could return a verdict in its favor. See Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) ( the "genuineness" requirement).
Collateral estoppel "is the branch of res judicata doctrine that prevents a party from relitigating an issue of fact or law that has been decided in an earlier suit." Wilder v. Thomas, 854 F.2d 605, 616 (2d Cir.1988), cert. denied, ___ U.S. ___, 109 S.Ct. 1314, 103 L.Ed.2d 583 (1989). This Court accords preclusive effect in this action to factual determinations in the Virginia action that were actually litigated and necessary to the outcome of the Virginia litigation. See N.L.R.B. v. United Technologies Corp., 706 F.2d 1254, 1260 (2d Cir.1983).
The New York defendants argue that Donnkenny's claims are barred by principles of collateral estoppel because they are derivative of, and dependent upon, Donnkenny's assertions against Thornhill in the Virginia action, which were rejected by the jury. In the Virginia wrongful termination action, Donnkenny specifically alleged and argued that it was justified in firing Thornhill for breaching his fiduciary duty to Donnkenny. As the Virginia jury found for Thornhill, thus necessarily denying Donnkenny's defense, the defendants now contend that it has been finally decided that Thornhill did not breach any fiduciary duties to Donnkenny.
Donnkenny, however, argues that its present claims are independent of its claims in Virginia. It asserts that the jury in the Virginia action only necessarily determined that Thornhill had disclosed his conflict of interest to "Donnkenny" which under the jury instructions could have meant disclosure merely to one of the Donnkenny Board members not affiliated with Oppenheimer.
The Thornhill-related RICO claims allege that Nadler and the other New York defendants either participated in Thornhill's alleged wrongful conduct, or at least, failed to disclose Thornhill's wrongful conduct. In regard to the alleged failure to disclose, plaintiff claims that Nadler concealed from Oppenheimer, before and after the sale of Donnkenny, that a) Thornhill was the owner of competing apparel manufacturing plants; b) Thornhill's competing business was guaranteed Donnkenny work by the agreement of Nadler and Thornhill; c) Nadler authorized Thornhill to divert Donnkenny work to Thornhill's plants while Donnkenny plants operated at reduced capacity and suffered significant layoffs; and d) as a result of the above, Donnkenny incurred millions of dollars in unnecessary manufacturing expenses that contributed to its financial decline.
Throughout the long history of this case, Donnkenny has...
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