Saud v. Bank of N.Y.
| Citation | 929 F.2d 916 |
| Decision Date | 08 April 1991 |
| Docket Number | No. 572,D,572 |
| Parties | RICO Bus.Disp.Guide 7725 Mishal Bin SAUD, Plaintiff-Appellant, v. The BANK OF NEW YORK, Defendant-Appellee. ocket 90-7615. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Richard K. Bernstein (Richard K. Bernstein Associates, New York City, of counsel), for plaintiff-appellant.
Robert S. Carlson (Sarah S. Gold, Spengler, Carlson, Gubar, Brodsky & Frischling, New York City, of counsel), for defendant-appellee.
Before FEINBERG, PIERCE, and MINER, Circuit Judges.
This is an appeal from a judgment of the United States District Court for the Southern District of New York, Robert J. Ward, Judge, dismissing an amended complaint upon defendant's motion to dismiss on the ground of res judicata. 734 F.Supp. 628.
Mishal Bin Saud ("Saud") alleges in his amended complaint that The Bank of New York ("the Bank") violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961-1968 (1988), when it acted in concert with its employee, Michael J. Fitzpatrick, and others to obtain profits through a pattern of racketeering activity that involved lending money in interstate commerce. The amended complaint further asserts that because of an alleged cover-up by the Bank of the improper conduct on the part of Fitzpatrick and others, Saud was induced to sign a personal guaranty for a $42 million real estate development loan. Following a default by the principal obligor of the loan, the Bank, in an earlier action, obtained a $19 million default judgment against Saud on his guaranty.
In this later action brought under RICO, Saud principally seeks to recover treble the amount of the default judgment against him and to enjoin the Bank from dissipating funds allegedly wrongfully obtained through a racketeering enterprise.
The Bank moved to dismiss Saud's amended RICO complaint on the ground of res judicata, arguing that Saud's RICO claims are barred by the earlier default judgment obtained by the Bank on Saud's guaranty. The district court agreed and dismissed Saud's amended complaint. Finding no just reason for delay, the district court certified this appeal as to the Bank 1 pursuant to Fed.R.Civ.P. 54(b). We affirm.
The pertinent factual background can be gleaned from the pleadings in the two actions and related documents. In or about 1980-81, loan negotiations took place between Fitzpatrick, on behalf of the Bank, and representatives of Indeco Holdings, Ltd. (a Bahamian corporation) and Indeco Holdings Solymar, Inc. (a Florida corporation) (the two entities are referred to hereinafter as "Indeco Holdings" and "Indeco Solymar" respectively, and collectively as "Indeco"). Indeco Solymar was wholly owned by Indeco Holdings, in which Saud and his partner, Lester Colodney, directly or indirectly each held substantial interests.
Saud sought the loans on behalf of Indeco Solymar to finance the development of a high-rise condominium in Miami, Florida, known as Solymar Place. By December 1982, several land acquisition and development loans had been disbursed by the Bank in connection with Solymar Place. After the various loans were consolidated, Indeco Solymar's total indebtedness to the Bank was $42 million. Upon the closing of the final loan on or about June 30, 1983, Saud executed a personal guaranty in favor of the Bank obligating himself for the full $42 million of the consolidated loans in the event of default by Indeco Solymar.
Indeco Solymar subsequently defaulted on the loan. Thereafter, in May 1984, the Bank brought a foreclosure action in state court in Dade County, Florida, naming the Indeco entities as defendants ("the Foreclosure Action"). Saud was not a defendant in the Foreclosure Action. Indeco Solymar consented to a final judgment in the Foreclosure Action, admitting its default under the loan in the amount of $24,398,086.43.
At the same time the Bank commenced the Foreclosure Action, it also brought suit against Saud on his guaranty in the United States District Court for the Southern District of New York ("the Guaranty Action"). Saud filed an answer in the Guaranty Action in which he asserted eight affirmative defenses against the Bank and impleaded Indeco Solymar and Indeco Holdings, seeking indemnification and contribution.
Nearly three years later, in February 1987, the Bank moved for summary judgment. At Saud's request, Judge Robert W. Sweet, to whom the case was then assigned, adjourned the return date of the motion until April 17, 1987. Shortly before this date, however, Saud discharged his attorneys, failed to retain replacement counsel, and failed to submit any papers in opposition to the Bank's summary judgment motion. On April 21, 1987, the court granted the Bank's summary judgment motion on default, but provided that a motion to open the default would be heard if made on or before May 8, 1987.
On May 8, 1987, Alexander Aghayan, an attorney, wrote to Judge Sweet on Saud's behalf but "not as [Saud's] counsel of record," explaining the reasons for Saud's current unavailability and informing the court that Saud would be properly represented by counsel shortly. On May 22, 1987, two more letters, signed by Saud himself and dated May 19, 1987, were submitted to the court. Saud requested that the court treat the letters as motion papers and set forth his arguments for opening the default. After considering the letters, the court found no basis for opening the default and, on June 24, 1987, entered judgment in favor of the Bank against Saud in the principal amount of $19,071,196.51 plus interest. No appeal was taken from this judgment.
On January 9, 1989, Saud commenced this action under RICO seeking, inter alia, to recover treble the amount of the default judgment obtained by the Bank in the Guaranty Action and to enjoin the Bank from dissipating funds allegedly wrongfully obtained through a racketeering enterprise ("the RICO Action"). Saud named as defendants the Bank, Fitzpatrick, and John Does 1-10, representing employees of the Bank who allegedly were involved in negotiating, approving and supervising the loans and who "had substantial dealings with Fitzpatrick."
In the RICO complaint, Michael J. Fitzpatrick was identified as a loan officer at the Bank, who served at various times as treasurer, assistant vice-president and vice-president. Fitzpatrick allegedly negotiated and obtained the Bank's credit committee approvals for the Indeco Solymar loan transactions during 1981 and 1982. As of November 19, 1982, Fitzpatrick's employment at the Bank was terminated. According to Saud, Fitzpatrick, then a vice-president, was terminated because of his mishandling of the Indeco and other accounts. Saud contends that the Bank never conducted an investigation into Fitzpatrick's activities or filed a report with state bank officials and that this failure constituted part of an illegal cover-up by the Bank.
Saud specifically asserted, inter alia, that Fitzpatrick unlawfully diverted funds from the Indeco loan proceeds for his personal use and deposited them in a Panamanian bank account. Saud also alleged that the Bank knowingly failed to assure that certain pre-conditions required by the loan agreement were satisfied before obtaining Saud's personal guaranty and that the Bank sued Saud on his guaranty in furtherance of the Bank's alleged cover-up.
Saud further charged that the Bank was guilty of mismanagement in supervising Fitzpatrick and other loan officers and in monitoring the application of loan proceeds, willfully failing to notify borrowers and guarantors of wrongdoing by its officers of which the Bank was aware, and participating in a scheme to defraud amounting to a cover-up. This cover-up was alleged to have occurred not only in connection with the Indeco Solymar loans, but also in connection with unrelated loans made by the Bank for real estate development projects in New Jersey and Rhode Island. The Bank's conduct, according to Saud, violated both federal and state laws, in particular the provisions of RICO, 18 U.S.C. Sec. 1962(a)-(c).
Under the doctrine of res judicata, "[a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 2428, 69 L.Ed.2d 103 (1981); see Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1979); NLRB v. United Technologies Corp., 706 F.2d 1254, 1259 (2d Cir.1983). See generally 1B J. Moore, J. Lucas & T. Currier, Moore's Federal Practice p 0.405 (2d ed. 1988) (). There is no dispute that Saud and the Bank were parties to the prior Guaranty Action.
The requirement that the prior judgment be a final judgment on the merits is also clearly met here. " 'A judgment of a court having jurisdiction of the parties and of the subject matter operates as res judicata, in the absence of fraud or collusion, even if obtained upon a default.' " Morris v. Jones, 329 U.S. 545, 550-51, 67 S.Ct. 451, 455, 91 L.Ed. 488 (1947) (quoting Riehle v. Margolies, 279 U.S. 218, 225, 49 S.Ct. 310, 313, 73 L.Ed. 669 (1929)); 1B J. Moore, J. Lucas & T. Currier, supra, at p 0.409. It is noteworthy that the default in this case did not occur because Saud failed to appear or answer after being properly served. Saud did appear and answer in the Guaranty Action--indeed, he asserted numerous affirmative defenses and impleaded two third party defendants. Saud's default occurred three years later when, after obtaining several adjournments, he failed to respond to the Bank's motion for summary judgment.
In determining whether the default judgment in the Guaranty Action may be given preclusive effect in this subsequent suit between the same parties, the question before us is whether the RICO claim asserted in this suit is one that...
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