McNeal v. Paine, Webber, Jackson & Curtis, Inc.

• Decision Date: 08 July 1982
• Docket Number: Nos. 38640,38641,s. 38640
• Citation: McNeal v. Paine, Webber, Jackson & Curtis, Inc., 293 S.E.2d 331, 249 Ga. 662 (Ga. 1982)
• Court: Georgia Supreme Court
• Parties: William W. McNEAL v. PAINE, WEBBER, JACKSON & CURTIS, INC., et al. PAINE, WEBBER, JACKSON & CURTIS, INC., et al. v. William W. McNEAL.

Page 331

293 S.E.2d 331

249 Ga. 662

William W. McNEAL v. PAINE, WEBBER, JACKSON & CURTIS, INC., et al.

PAINE, WEBBER, JACKSON & CURTIS, INC., et al. v. William W. McNEAL.

Nos. 38640, 38641.

Supreme Court of Georgia.

July 8, 1982.

Edward L. Savell, Atlanta, for William W. McNeal.

Gary W. Hatch, Dom H. Wyant, William L. Ballard, Atlanta, for Paine, Webber, Jackson & Curtis, Inc., et al.

CLARKE, Justice.

McNeal, a customer of Paine, Webber (a securities broker-dealer), filed suit in federal court against Paine, Webber alleging violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78j(b) and S.E.C. Rule 10b-5 [17 CFR Par. 240.10(b)(5) ]. In the federal action McNeal contended that Paine, Webber's employee Skone had illicitly "churned" McNeal's file to generate commissions. Damages sought represented the amount allegedly lost by McNeal as a result of Skone's activities. The parties stipulated at trial that proof of churning would render Paine, Webber liable on a theory of respondeat superior. Paine, Webber won a favorable verdict.

On the same day that the federal suit was filed, McNeal filed suit in the State Court of Fulton County against Paine, Webber and Skone (who was not a party to the federal action). The complaint, which alleged fraud and breach of fiduciary duty by Skone, was amended to add a count alleging negligence.

Paine, Webber and Skone filed motions for summary judgment on the basis of collateral estoppel and res judicata. Both motions were denied. The Court of Appeals, 288 S.E.2d 761, reversed the denial of summary judgment as to Paine, Webber and affirmed the denial of summary judgment as to Skone. The reversal of the trial court's denial of summary judgment as to Paine, Webber is appealed by McNeal in No. 38640. The affirmance of the trial court's denial of summary judgment as to its employee Skone is appealed by Paine, Webber in No. 38641.

1. McNeal challenges the Court of Appeals' holding that res judicata bars his claim against Paine, Webber on the basis that the federal and state claims constitute separate and distinct causes of action with different elements. McNeal insists that the application of res judicata to a situation like the present one forces a plaintiff with a claim over which the federal courts have exclusive jurisdiction into a dilemma. He must either forego the federal claim entirely or depend upon the exercise of pendent jurisdiction by the federal court for a hearing on his state claim. McNeal complains that this leaves the fate of plaintiff's state law claim within the sole discretion of the federal court.

This court has held in Pope v. City of Atlanta, 240 Ga. 177, 240 S.E.2d 241 (1977), and, more recently, in Hill v. Wooten, 247 Ga. 737, 279 S.E.2d 227 (1981), that "... where a party fails to present a state law claim in federal court, a later suit in the state courts will be barred if the state claim could have been litigated in the federal court under its pendent jurisdiction." Hill v. Wooten, supra at 738, 279 S.E.2d 227.

McNeal contends that the state law claims and the federal law claims constitute separate causes of action and that for that reason res judicata is not applicable here. The adoption of the Federal Rules of Civil Procedure and the Georgia Civil Practice Act represent an attempt to end esoteric controversies concerning what constitutes a "cause of action." United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966); Fed.Rules Civ.Proc. 2, 18-20, 42; Code Ann. §§ 81A-102, 81A-118-120, 81A-142. "Pendent jurisdiction, in the sense of judicial power, exists whenever there is a claim 'arising under [the] Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority ....' U.S.Const., Art. III, § 2, and the relationship between that claim and the state claim permits the conclusion that the entire action before the court comprises but one constitutional 'case.' " United Mine Workers v. Gibbs, supra at 725, 86 S.Ct. at 1138. In order for the federal and state questions to be considered as one "case," the federal question must be sufficiently substantial to confer subject matter jurisdiction, and the federal and state claims "must derive from a common nucleus of operative fact." Id. That being true here, the federal court would have exercised its pendent jurisdiction over McNeal's state claims. Consequently, the adjudication of his federal claims against Paine, Webber bars pursuit of Paine, Webber in state court by operation of the doctrine of res judicata. Hill v. Wooten, supra; Pope v. City of Atlanta, supra. Accordingly, in Case No. 38640, the opinion of the Court of...