Seagoing Uniform Corp. v. Texaco, Inc.

• Decision Date: 24 January 1989
• Docket Number: No. 84 Civ. 1730 (CBM).,84 Civ. 1730 (CBM).
• Citation: 705 F. Supp. 918
• Parties: SEAGOING UNIFORM CORPORATION, Plaintiff, v. TEXACO, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

705 F. Supp. 918

SEAGOING UNIFORM CORPORATION, Plaintiff, v. TEXACO, INC., et al., Defendants.

No. 84 Civ. 1730 (CBM).

United States District Court, S.D. New York.

January 24, 1989.

Silverman & Harnes by Joan Harnes, New York City, for plaintiff.

Simpson Thacher & Bartlett by Roy L. Reardon, George M. Newcombe, Mary Elizabeth McGarry, Elizabeth A. Forman, New York City, for defendants Bass Brothers Enterprises, Inc., Bass Brothers Development Co., Perry R. Bass, Inc., Sid Richardson Carbon & Gasoline Co., Perry R. Bass, Sid R. Bass, E.P. Bass, Robert M. Bass, Lee M. Bass, Richard E. Rainwater, Alfred A. Checchi, Thomas M. Taylor, Wesley Guylay Capital Management and Wesley Richard Guylay.

Skadden, Arps, Slate, Meagher & Flom by Barry H. Garfinkel, New York City, for defendant Texaco Inc.

OPINION

MOTLEY, District Judge.

I. BACKGROUND

In 1984, the Bass defendants, a group of investors, purchased a large quantity of Texaco stock. Pursuant to the provisions of Section 13(d)(1) of the Securities Exchange Act of 1934, the Basses filed a Schedule 13(d) statement representing that the acquisition was solely for investment purposes. Soon thereafter, defendant Texaco announced it would repurchase the Bass stock at terms extremely favorable to the Bass investors. This series of events spawned numerous lawsuits brought by Texaco stockholders.

Plaintiff Seagoing Uniform Corp., a Texaco stockholder, filed suit in the instant case in this court alleging that the Bass defendants' Schedule 13(d) contained material misstatements concerning their true speculative intentions in acquiring Texaco stock, and thus violated Sections 9(a)(2), 10(b) and 13(d) of the Securities Exchange Act.

A class action derivative suit filed on behalf of Texaco stockholders was meanwhile filed in the Delaware Chancery court. This action asserted common law claims of fraud and misrepresentation. The Delaware court, however, was jurisdictionally barred from addressing any claims under the 1934 federal securities laws which are in the exclusive jurisdiction of the federal courts.¹ Seagoing appeared as a class member plaintiff in the Delaware settlement hearings while still maintaining its federal action in this court. The Delaware case was eventually settled, thus ending the litigation of the common law claims. The Bass defendants, who had not initially been defendants in the Delaware action because of that court's limited jurisdictional reach, consented to be included in the action for purposes of settlement only.

In approving the settlement, the Delaware Chancellor expressly declined to rule on the res judicata effect of the disposition. Both the Bass defendants and Texaco have now moved for summary judgment on the grounds that 1) the Delaware state court disposition of plaintiff's claims is res judicata on the present suit and 2) that plaintiff's claims had been released and barred in the Delaware proceeding. Therefore, defendants contend, the proposed amended complaint raising claims which have allegedly been compromised by the plaintiff class in the Delaware litigation, which are further barred by res judicata, and which for various reasons laid out by defendants fails to state a claim, should be denied. For reasons stated below, summary judgment on the grounds of res judicata and of release of claims by the plaintiff class is denied. Plaintiff's motion to amend the complaint is granted.

II. RES JUDICATA

The focus of the present dispute is the res judicata effect of the Delaware decision on Seagoing's federal claims. Defendants claim that because Seagoing chose a forum of limited jurisdiction rather than the available federal forum which could have heard the state and federal claims, it must suffer the consequences of its choice. In other words, Seagoing cannot now argue that its federal claims are somehow exempt from the res judicata bar.

Seagoing concedes that its claim has indeed been split, but argues that under the "jurisdictional competence" exception recognized by Delaware's res judicata law, the particular claim splitting that occurred here is permissible.

The doctrine of res judicata is a judicially-created doctrine "to prevent vexatious litigation and to promote the stability and finality of judicial decrees." Maldonado v. Flynn, 417 A.2d 378, 381 (Del.Ch.1980) (citations omitted). "The doctrine permits a litigant to press his claims but once, and requires him to be bound by the determination of the forum he has chosen, so that he `may have one day in court but not two.'" Id. (quoting Malone Freight Lines, Inc. v. Johnson Motor Lines, Inc., 148 A.2d 770, 775 (Del.Supr.1959)).

There is no dispute that in determining the res judicata effect of the Delaware action at issue here, it is Delaware's res judicata law that must be applied. In accordance with the principles of "full faith and credit," in determining the res judicata effect of a state court decision on a subsequent federal claim — even a claim within the exclusive jurisdiction of the federal courts — a federal court must use the claim preclusion law of the state that made the first disposition. Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985). Since the question at issue in this summary judgment motion is the effect of the Delaware disposition, Delaware res judicata law applies.

A. Delaware Res Judicata

Delaware employs the "transactional" approach to claim preclusion. DeRamus v. Redman. No. 79C-No.-88 (Del.Super. Nov. 14, 1986) 1986 WL 13089 (LEXIS, states library, Del). Under this approach, all claims arising out of the same "common nucleus of operative facts" must be brought in one action. United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966). "The rule against claim splitting is an aspect of the doctrine of res judicata and is based on the belief that it is fairer to require a plaintiff to present in one action all of his theories of recovery relating to a transaction and all of the evidence relating to those theories, than to permit him to prosecute overlapping or repetitive actions in different courts or at different times." Maldonado, supra, 417 A.2d at 382. If the plaintiff has merely failed to present some facts or neglected to assert a claim which could have been asserted, res judicata will bar the assertion of such omitted claim in a subsequent action. Thus, for example, a plaintiff could not split his claims between an initial federal lawsuit under section 1983, and a subsequent lawsuit asserting common law claims, where the plaintiff could in fact have brought the common law claims in the first lawsuit under the principle of pendant jurisdiction. Id.

There is no dispute that in the instant case, the common law claims and the federal Securities Exchange Act claims arise from the same transaction, ie. the alleged misrepresentation by the Basses of their motives for acquiring the Texaco stock and the ensuing alleged "greenmail" between the Bass defendants and Texaco.

However, Delaware res judicata law also recognizes a "judicial competence" exception to the general prohibition against claim splitting. Maldonado, supra, 417 A.2d at 381. If because of jurisdictional restrictions a plaintiff is unable to assert his claim in its entirety in a prior proceeding, the general rule against claim splitting will not be applicable against him. The Restatement (Second) of Judgments § 61.2(1)(c), which is endorsed and adopted by Delaware, see Maldonado, supra, 417 A.2d at 383, provides that the rule against claim splitting will not apply where:

The plaintiff was unable to rely on a certain theory of the case ... in the first action because of subject matter jurisdiction of the courts ... and the plaintiff desires in the second action to rely on that theory....

Seagoing was jurisdictionally barred from presenting in the Delaware court the securities law claims now being presented to this court. Under Delaware law, the jurisdictional competence exception to res judicata should permit the subsequent assertion of the federal claims here. See e.g., Meding v. Hurd, 607 F.Supp. 1088, 1098-1100 (D.C.Del.1985) ("Although the prior state court judgment obtained by plaintiff arose out of the same operative facts that form the basis of the claims he presently seeks to assert in federal court, the prior court judgment precludes only subsequent claims in which the Superior Court had jurisdiction to award the relief which plaintiff presently seeks.").

Defendants counter that the jurisdictional competence exception is extremely limited. According to defendants, the exception looks not only to the jurisdictional competence of the actual prior court, but also to the jurisdictional competence of any court where plaintiff could have brought its claims initially, whether or not it in fact did. Defendants argue that because Seagoing could have brought suit on both its federal and common law claims in one federal court action, the jurisdictional competence exception cannot now be invoked.

Delaware res judicata law does provide certain limits to the judicial competence exception when dealing with courts in the same system. Under Mells v. Billops, 482 A.2d 759 (Del.Super.1984), plaintiff was barred from asserting claims in a second action that could not have been presented to the first court because of jurisdictional limits. Mells, supra, barred a plaintiff's subsequent personal injury action in Superior Court on the basis of a prior judgment on property damage in a lower local court of very limited jurisdiction. Although plaintiff clearly could not have brought his personal injury claim in the first court, the claim was still barred because he could have brought both his property and personal injury claims in the higher state court of more general jurisdiction. As stated by the Delaware court, "the fact remains ... that plaintiff was not compelled to bring part of his claim in the Justice...