MHR Capital Partners LP v. Presstek, Inc., 2007 NY Slip Op 32322(U) (N.Y. Sup. Ct. 7/26/2007)

• Decision Date: 26 July 2007
• Docket Number: 0600490/2005
• Parties: MHR CAPITAL PARTNERS LP, MHR INSTITUTIONAL PARTNERS LP, MHRM LP, Delaware limited partnerships, and MHR FUND MANAGEMENT LLC, a Delaware limited liability corporation, Plaintiffs, v. PRESSTEK, INC. and SILVER ACQUISITIONS CORP., Delaware corporations, Defendants.
• Court: New York Supreme Court

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2007 NY Slip Op 32322(U)

MHR CAPITAL PARTNERS LP, MHR INSTITUTIONAL PARTNERS LP, MHRM LP, Delaware limited partnerships, and MHR FUND MANAGEMENT LLC, a Delaware limited liability corporation, Plaintiffs, v. PRESSTEK, INC. and SILVER ACQUISITIONS CORP., Delaware corporations, Defendants.

0600490/2005

Supreme Court of the State of New York, New York County.

July 19, 2007.

Motion Date June 7, 2007.

July 26, 2007.

Hon. Richard B. Lowe, III:

Defendant Presstek, Inc. (Presstek) moves, pursuant to CPLR 3212, for an granting summary judgment in its favor, dismissing the complaint, dated February 8, 2005 (Complaint) of plaintiffs MHR Capital Partners LP, MHR Institutional Partners LP, MHRM LP, and MHR Fund Management LLC (collectively, the MHR entities) on the grounds that the claims asserted by the MHR entities are barred by the doctrines of law of the case, collateral estoppel and/or res judicata, or, alternatively, on the merits, that the claims are without basis, as a matter of fact and law.

BACKGROUND

MHR Fund Management LLC (MHR Fund) manages the other MHR entities, which are investment limited partnerships. MHR Fund is a limited-liability corporation organized under Delaware law, with its place of business in New York. This action concerns the purchase of the assets or stock of A.B. Dick Company (ABD), a supplier of goods and services to the graphic arts and imaging industries, from ABD's parent, Paragon Corporate Holdings, Inc. (Paragon). ABD eventually filed for bankruptcy, and MHR Fund became its largest creditor.

Presstek is a Delaware corporation with its principal place of business in New Hampshire. It is a goods and services supplier for the graphic arts and imaging industries. Defendant Silver Acquisitions Corp. (Silver), a Delaware corporation, is also involved in the graphic arts and imaging industries.¹

In 2004, defendants considered purchasing ABD and proposed a stock purchase agreement. Under the Stock Purchase Agreement, one or more of the MHR entities would receive fees and other reimbursements. The defendants did not sign the Stock Purchase Agreement because they were allegedly waiting for certain condition precedents to occur; they instead negotiated an Escrow Agreement in June 2004, whereby the Stock Purchase Agreement was escrowed for a period of time. The Escrow Agreement specified certain conditions for the release of the Stock Purchase Agreement, including the requirement that ABD's bank, the Key Bank, sign a consent to the transaction in the form annexed to the Escrow Agreement. In this regard, the Escrow Agreement stated that "the parties hereto have agreed that the escrow provided for hereunder shall in no event be released unless and until Key [Bank] consents to the transaction on the terms and conditions contained herein." Key Bank did not sign the Consent Form by the agreed-upon deadline. Defendants therefore took the position that, in accordance with the terms of the Escrow Agreement, the Stock Purchase Agreement was terminated, and notified all participants in the negotiations, including Key Bank, that all documents associated with the planned sale of ABD were considered null and void. The MHR entities take the position that defendants' declaration that the Stock Purchase Agreement and the Escrow Agreement were terminated was done in bad faith and was a pretext for their plan to purchase ABD on terms more favorable to defendants (and unfavorable to the MHR entities) than that provided for in the Stock Purchase Agreement.

ABD filed for bankruptcy on July 13, 2004 in the United States Bankruptcy Court for the District of Delaware (Bankruptcy Court). ABD and Paragon, as debtors and debtors-inpossession, applied to the Bankruptcy Court for an order authorizing the sale of substantially all of ABD's assets to Silver, pursuant to a so-called "stalking horse auction" wherein third parties are invited to top Silver's purchase proposal. On August 9, 2004, the MDR entities opposed the auction sale of ABD's assets, which was designed, supervised and implemented by the Bankruptcy Court, on the ground, among other things, that Silver was not a "good faith purchaser" within the meaning of 11 USC § 363 (m). On November 3, 2004, following document production, depositions, written submissions, an evidentiary hearing and oral argument, the Bankruptcy Court issued an order overuling the MHR entities' objections, and finding that "Silver is a good faith purchaser under section 363 (m) of the Bankruptcy Code." The sale of ABD's assets to Silver in the Bankruptcy Court-controlled proceeding was thereafter consummated.

The MHR entities appealed the November 3, 2004 order of the Bankruptcy Court to the United States District Court for the District of Delaware (District Court). On May 25, 2005, following a hearing on the appeal, the District Court entered an order dismissing the appeal as moot because the MHR entities had not sought a stay of the sale pending the appeal.

DISCUSSION

Presstek maintains that both the doctrine of collateral estoppel and res judicata preclude the MHR entities from reasserting those previously litigated and determined claims in this action. The MHR entities dispute the application of these doctrines to the facts of this case.

Presstek contends that the issues raised in the Complaint were already litigated and determined adversely to the MHR entities in the Bankruptcy Court and in the District Court. Specifically, Presstek maintains that the objections and contentions asserted by the MHR entities in the Bankruptcy Court and on appeal to the District Court are almost identical to the claims asserted by the MHR entities in the Complaint herein. Presstek additionally points out that the allegations asserted by the MHR entities in paragraphs nine through 25 of the Complaint virtually mirror their allegations in paragraphs seven through 20 of their supplemental objections in the Bankruptcy Court, wherein they charged Presstek with breach of the Escrow Agreement and Stock Purchase Agreement, as they likewise assert here in this action.

"The doctrine, or principle, of res judicata is that `once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different relief (Yonkers Contr. Co. v Port Auth. lons-Hudson Corp., 93 NY2d 375, 380 [1990] citation omitted; see also Luscher ex rel. Luscher v Arruz, 21 AD3d 1005 [2d Dept 2005]; Santiago v New York Bd. of Health, 8 AD3d 179 [1st Dept 2004]; Sound Distrib. Corp. v Ponce Acquisition Corp., 179 AD2d 469 [1st Dept 1992]). `The party seeking to invoke the doctrine of res judicata must demonstrate that the critical issue in the instant action was decided in the prior action and that the party against whom estoppel is sought was afforded a full and fair opportunity to contest such issue' (Luscher ex rel. Luscher v Arruz, 21 AD3d 1005, at 1007, supra). Res judicata is an affirmative defense with the following three elements `(1) the previous action involved an adjudication on the merits; (2) the previous action involved the plaintiffs or those in privy with them [and]; (3) the claims asserted in the subsequent action were, or could have been, raised in the prior action.' (Monahan v City of New York Dept. of Corr., 214 F3d 275, 285 [2d Cir 2000] citations omitted, cert den 531 US 1035 [2000]). `The second lawsuit must, however, also involve the same "claim-or nucleus of operative fact"-as the first suit.' (Fulani v MacKay, Slip Copy, 2007 WL 959308 [SD NY 2007] citation omitted.) A claim is identical if it involves the same primary right (see City of Martinez v Texaco Trading & Transp., Inc., 353 F3d 758 [9th Cir 2003]; cf Glatt v Town of Williamstown, 11 AD3d 1017 [4th Dept 2004])."

(Rosen v Kessler, 5 Misc3d 1139 (A) (Sup Ct, Suffolk County, April 24, 2007, Whelan, J.)

Under New York's transactional approach to res judicata, `once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy' (Ebanks v 547 West 147^th Street housing Development Fund Corp., 37 AD3d 290, 291 [1^st Dept 2007], quoting O'Brien v City of Syracuse, 54 NY2d 353, 357 [1981]). Thus, once a claim is finally adjudicated, all other claims emanating from the same set of events are precluded, even if they are premised on a new legal theory (see ...