Jacobson v. Fireman's Fund Ins. Co.

• Decision Date: 09 April 1997
• Docket Number: D,764,Nos. 619,s. 619
• Citation: 111 F.3d 261
• Parties: Barry J. JACOBSON, Plaintiff-Appellant-Cross-Appellee, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant-Appellee-Cross-Appellant. ockets 96-7666(L), 96-7684(XAP).
• Court: U.S. Court of Appeals — Second Circuit

Page 261

111 F.3d 261

Barry J. JACOBSON, Plaintiff-Appellant-Cross-Appellee, v. FIREMAN'S FUND INSURANCE COMPANY, Defendant-Appellee-Cross-Appellant.

Nos. 619, 764, Dockets 96-7666(L), 96-7684(XAP).

United States Court of Appeals Second Circuit.

Argued Dec. 4, 1996.

Decided April 9, 1997.

Robert D. Lillienstein, Winick & Rich, P.C., New York City (Alan S. Liebman, on the brief), for Plaintiff-Appellant-Cross-Appellee.

Howard S. Veisz, Kornstein Veisz & Wexler, LLP, New York City (David S. Pegno, on the brief), for Defendant-Appellee-Cross-Appellant.

Before: VAN GRAAFEILAND, JACOBS, and CALABRESI, Circuit Judges.

JACOBS, Circuit Judge.

Plaintiff Barry J. Jacobson appeals from an April 26, 1996 final judgment of the United States District Court for the Southern District of New York (Schwartz, J.) dismissing his complaint for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Jacobson's suit alleged that defendant Fireman's Fund Insurance Company ("Fireman's Fund") improperly denied payment of claims under his homeowner's policy for damage to his residence. The district court held that Jacobson's action was barred by res judicata because all of his claims either (i) had been litigated and determined adversely to him in a New York state court action that Jacobson commenced against Fireman's Fund in 1990, see Jacobson v. Fireman's Fund Ins. Co., No. 95-CV-9380 (AGS), 1996 WL 204468, at * 6 (S.D.N.Y. April 26, 1996), or (ii) could have been but were not asserted by him in that litigation.

On appeal, Jacobson argues that the earlier state court action does not bar his present suit because: (1) the umpire's determination rendered in the state action--the prior ruling that was the basis of the district court's dismissal of his complaint--was never confirmed or entered as a judgment in the state court and therefore lacks res judicata effect; and (2) the rulings of the state court never became "final"--and therefore could not support res judicata--because the parties settled the state action in an agreement containing a limited release that expressly reserved to Jacobson the right to assert his present claims.

We reject both of Jacobson's arguments, and affirm substantially for the reason stated in the district court's opinion, i.e., that Jacobson's prior state court action bars his present claims under the doctrine of res judicata. We write chiefly to address Jacobson's argument, raised for the first time on appeal, regarding the effect of the unconfirmed umpire's determination; this question requires us to reexamine a prior decision of this Court in light of intervening developments in New York state law. Upon that reexamination, we conclude that an unconfirmed umpire's determination in a New York state court proceeding may under certain circumstances serve as the basis for res judicata in the federal court. We also affirm the district court's dismissal of Fireman's Fund's motion for sanctions against Jacobson and his counsel.

BACKGROUND

This Court reviews de novo a dismissal for failure to state a claim upon which relief can be granted. In so doing "we accept as true the factual allegations of the complaint, and draw all inferences in favor of the pleader." Valley Disposal, Inc. v. Central Vermont Solid Waste Management Dist., 31 F.3d 89, 93 (2d Cir.1994) (internal quotations and citations omitted).

In March 1989, Fireman's Fund issued a homeowner's policy to Jacobson that insured, inter alia, "the dwelling and other structures" on his property in Harrison, New York, against loss up to $1,840,950. 1995 Complaint p 3. ¹ The policy was in effect on April 17, 1989, when Jacobson's property was damaged by the negligence of a painting contractor Jacobson had hired to apply wood-stain to his house, decks, fences, etc. 1990 Complaint pp 2, 3, 13, 14, 20. According to Jacobson's claim, the contractor applied the stain with a "spraying device," failed to protect the non-wood surfaces at the site, and thereby caused more than two million dollars' damage to Jacobson's residence. Id. pp 4, 5, 11-14.

Jacobson timely notified Fireman's Fund of the damage and sought recovery under his policy. Fireman's Fund declined to pay the full amount claimed, 1995 Complaint pp 5, 6, and instead invoked the policy's mandatory appraisal process ² to determine the sum payable for losses that were disputed as to either coverage or value. ³ Jacobson, 1996 WL 204468, at * 1. Jacobson refused to participate in the appraisal process, however, and in September 1990 he commenced an action in the New York State Supreme Court, New York County, seeking the full amount of his claim. Id. Upon cross-motions for partial summary judgment, the state court ordered that Jacobson "compl[y] with the appraisal requirement as set forth in the insurance policy," or else the court would grant Fireman's Fund's motion to dismiss his suit. Joint Appendix at 97.

The appraisal went forward, but the first umpire chosen abandoned his duties, left the state without notifying the parties, and never rendered an award. See Jacobson, 1996 WL 204468, at * 1-* 2. Jacobson thereafter renewed his attempt to terminate the appraisal and proceed with his state action, but the state court denied those efforts (twice) and eventually appointed a new umpire to conduct the continued appraisal process: the Honorable Harold Baer, Jr., who was then affiliated with the Judicial Arbitration & Mediation Services, Inc. Id. at * 2; Joint Appendix at 102-104, 113-115.

Judge Baer issued two principal determinations, the first on April 7 and the second on August 25, 1994. First he addressed coverage issues, concluding that Jacobson's policy did not cover damage to his trees and shrubs; that Jacobson was not entitled to prejudgment interest; and that Jacobson had to pay his own appraiser and half of the expenses for both the first (abortive) and second appraisals. Jacobson, 1996 WL 204468, at * 2. Next, Judge Baer determined the amounts of the covered losses, and concluded that Fireman's Fund's unpaid obligation on the claim amounted to over $300,000 in covered losses and over $550,000 in contingent costs (including relocation, moving, and storage expenses, when and if actually incurred). Id.

Fireman's Fund paid the remaining covered losses in accordance with Judge Baer's decision. Subsequently, on May 30, 1995, the parties entered into a settlement of Jacobson's still-pending state court action. Fireman's Fund agreed to pay Jacobson the full contingent amount as determined by Judge Baer, and Jacobson agreed to release Fireman's Fund from any further claims for property damage or living expenses under the policy. Id. at * 2. The release given in settlement contained a limiting clause "specifically reserving to ... Jacobson the right to proceed with any other claims including but not limited to extracontractual liability, bad faith, claims for alleged unfair claim practices and any other additional claims for alleged property damages not previously paid by the company which are specifically reserved." Joint Appendix at 123.

Nothing further occurred in that litigation. Judge Baer's determinations were never confirmed or entered as formal judgments in the state court pursuant to N.Y. C.P.L.R. § 7510 (McKinney 1980) ("The court shall confirm an award upon application of a party made within one year after its delivery to him, unless the award is vacated or modified upon a ground specified in section 7511."); Jacobson never objected to Judge Baer's jurisdiction or authority to issue binding determinations, and never pursued a formal action to contest Judge Baer's substantive findings or ultimate conclusion as to the amount of the award. Jacobson, 1996 WL 204468, at * 5-* 6. In particular, Jacobson never appealed the award under C.P.L.R. § 7511(a) (McKinney 1980): "An application to vacate or modify an award may be made by a party within ninety days after its delivery to him."

On October 18, 1995, Jacobson filed the present suit in New York State Supreme Court, New York County. His complaint alleges that Fireman's Fund: (1) committed fraud by "engag[ing] in a series of bad-faith and fraudulent acts intended to convince or coerce [Jacobson] to accept a substantially lower payment in satisfaction of his claim than that to which he was entitled," including the knowing submission of unrealistically low repair estimates to which no reputable contractor could or would agree or act upon, 1995 Complaint pp 12-17; (2) committed fraud by recommending as umpire for the initial (abortive) appraisal an individual who had prior business dealings with both Fireman's Fund and its appraiser, and who therefore "was not independent and unbiased, although [Fireman's Fund] concealed this fact from [Jacobson] and the [state] Court," id. pp 19-26; and (3) committed a breach of contract by refusing to pay Jacobson the amount he was due pursuant to the final appraisers' award "unless [he] agreed to waive all other claims against [Fireman's Fund]," thereby violating Fireman's Fund's "obligations under the Policy." Id. pp 28-32.

Each claim alleges that Fireman's Fund's acts were "part of a pattern" of intentional misconduct, id. pp 15, 24, 32, and that as a result of each act Jacobson "was compelled to incur substantial legal fees and costs in litigating and arbitrating his claim and suffered a substantial delay in receiving the full payment to which he was entitled." Id. pp 17, 26, 31. On November 3, 1995, Fireman's Fund invoked federal diversity jurisdiction and removed Jacobson's suit to the district court.

Fireman's Fund then moved in federal court to dismiss the complaint on the ground that the prior state court action left no issues to be litigated, and that Jacobson's suit was barred by res judicata. Jacobson, 1996 WL 204468, at * 3. The district court granted the motion and dismissed Jacobson's complaint.

As to Jacobson's first ...