Tofany v. NBS Imaging Systems, Inc.

• Citation: 597 N.E.2d 23
• Decision Date: 06 August 1992
• Docket Number: No. 02A03-9202-CV-33,02A03-9202-CV-33
• Parties: Vincent L. TOFANY, Appellant-Defendant Below, v. NBS IMAGING SYSTEMS, INC., Appellee-Plaintiff Below.
• Court: Court of Appeals of Indiana

Page 23

597 N.E.2d 23

Vincent L. TOFANY, Appellant-Defendant Below, v. NBS IMAGING SYSTEMS, INC., Appellee-Plaintiff Below.

No. 02A03-9202-CV-33.

Court of Appeals of Indiana,

Third District.

Aug. 6, 1992.

J. Frank Kimbrough, Wilks and Kimbrough, Fort Wayne, for appellant.

William T. Hopkins, Jr., Gallucci, Hopkins & Theisen PC, Fort Wayne, for appellee.

STATON, Judge.

Vincent L. Tofany appeals a judgment in favor of NBS Imaging Systems, Inc., raising three issues for our review:

I. Whether the trial court erred in denying his motion for partial summary judgment as to the res judicata effect of a federal court action on the issue of whether a pension plan existed for purposes of Tofany's ERISA counterclaim.

II. Whether the trial court's findings of fact and conclusions of law were adequate to address the issues.

III. Whether the trial court's judgment was inconsistent with the evidence.

NBS raises an additional issue:

IV. Whether NBS is entitled to damages pursuant to Appellate Rule 15(G).

We affirm in part, reverse in part and remand.

In early 1985, Vincent Tofany was the president of a division of Mohawk Data Systems, Inc., a corporation engaged in providing driver's license systems to state agencies. In March of 1985, the division was sold to National Business Systems ("NBS"), a Canadian company which manufactured, marketed, and sold imprinters and credit cards. Tofany accepted a job as president of NBS Imaging Systems, Inc. ("NBS Imaging"), a subsidiary of NBS located in Fort Wayne. He retained that position until he was terminated on February 25, 1988.

Tofany's troubles with NBS Imaging began when it came to light in 1987 that NBS Imaging had inflated its sales and reported fictitious profits of $4.6 million for the third quarter of that year when in fact the company had experienced a $5.2 million third-quarter loss in 1987. When this information became generally known in the financial community, stock prices plummeted and trading was halted on the Toronto Stock Exchange and NASDAQ. The Securities and Exchange Commission and the Ontario Securities Commission began investigating the company's financial status. The Board of Directors of NBS called for a reorganization of management and Hees International Corp. ("Hees"), a management services company, was brought in to clean house. NBS's president was removed and Hees employee Timothy Casgrain was placed in the position of president and CEO. Hees and Casgrain studied the situation, conducted a number of interviews with NBS Imaging staff, and determined that nearly all of the individuals in the top tier of management should be held accountable for the questionable financial dealings of the company. These individuals, including Tofany, were discharged.

After NBS Imaging upper management was discharged, the story was reported in the Fort Wayne News-Sentinel. In an article appearing in the News-Sentinel on March 1, 1988 under the headline "3 NBS Managers Fired for Alleged Irregularities," Casgrain was quoted as stating "There have been some accounting irregularities and because they oversaw accounting, they were held responsible."

Soon after his termination, Tofany began trading barbs with NBS Imaging in a polemic which would escalate into the present lawsuit. Tofany began this altercation by threatening to submit the terms of his alleged employment agreement to arbitration. On March 9, 1988, NBS Imaging countered by filing a complaint to stay the threatened arbitration proceedings in Allen Circuit Court on the grounds that Tofany had no employment agreement. Tofany answered and counterclaimed, alleging that he had an employment agreement and further alleging that he was entitled to executive retirement plan benefits, unreimbursed expenses, and stock funds. NBS Imaging answered and amended its complaint, adding a count alleging that it had guaranteed a note for Tofany in the amount of $80,000, on which Tofany defaulted in December of 1988. Tofany answered the amended complaint and amended his counterclaim, alleging that he suffered a defamation of character as a result of Casgrain's comment to the News-Sentinel which caused permanent damage to his reputation and career. Tofany then filed a motion for partial summary judgment, contending that NBS Imaging was barred from relitigating the existence of a pension plan based upon a decision in the Federal District Court for the Northern District of Indiana in an action against NBS filed by Kenneth James, one of Tofany's fellow management employees at NBS Imaging. See James v. National Business Systems (N.D.Ind.1989), 721 F.Supp. 169, rev'd and rem'd (7th Cir.1991), 924 F.2d 718. This motion was denied by the trial court.

A bench trial was conducted and judgment was entered in favor of Tofany for $1,492.00 paid into stock funds. Recovery was not permitted on any of the other claims. Tofany appeals this judgment.

I. Collateral Estoppel

Tofany first contends that the trial court erred in denying his motion for partial summary judgment on the issue of the existence of the pension plan. In his motion for summary judgment, Tofany argued that NBS Imaging was collaterally estopped from relitigating the existence of an ERISA pension plan by the decision in James v. National Business Systems, supra. On appeal, NBS Imaging argues that the trial court correctly denied Tofany's motion because the elements of collateral estoppel are not present.

Until recently, in order to succeed on a claim of collateral estoppel or "issue preclusion," the litigant was required to show that four elements were present. While these elements have been variously characterized, in substance collateral estoppel required:

1) a final judgment on the merits in a court of competent jurisdiction;

2) identity of the issues;

3) mutuality of estoppel; and

4) identity of the parties.

See, e.g., Burtrum v. Wheeler (1982), Ind.App., 440 N.E.2d 1147, 1150, transfer denied; Town of Flora v. Indiana Service Corp. (1944), 222 Ind. 253, 257, 53 N.E.2d 161, 163.

Earlier this year, we elected to follow the growing trend away from the strict adherence to the third and fourth prongs of the collateral estoppel test. In White v. Allstate Ins. Co. (1992), Ind.App., 591 N.E.2d 586, we stated, "[W]e must agree with the trend of cases holding that it is clearly a waste of judicial resources to allow a party to continue the identical issue in subsequent cases against different parties." Id. at 591-92. Accordingly, we adopted the rule stated in Bernhard v. Bank of America (1942), 19 Cal.2d 807, 122 P.2d 892, allowing the application of collateral estoppel where the party seeking estoppel can show:

1) a final judgment on the merits in a court of competent jurisdiction;

2) identity of the issues; and

3) the party to be estopped was a party or the privy of a party in the prior action.

White, supra, at 589, 592. We limited our holding in White to cases where collateral estoppel was sought to be used defensively. Id. at 592.

The present case involves the offensive use of collateral estoppel. Offensive use of collateral estoppel occurs when a plaintiff (or a party similarly situated) seeks to foreclose the defendant from litigating an issue the defendant has previously litigated unsuccessfully in an action with the plaintiff or another party. Parklane Hosiery Co., Inc. v. Shore (1979), 439 U.S. 322, 326, at n. 4, 99 S.Ct. 645, 649, at n. 4, 58 L.Ed.2d 552. Defensive collateral estoppel occurs when a defendant seeks to prevent a plaintiff from asserting a claim the plaintiff has previously litigated and lost against the defendant or another party. Id. Since Tofany seeks to use collateral estoppel to establish an issue relating to his counterclaim against NBS Imaging, he is attempting to employ offensive collateral estoppel.

At least one case decided prior to White opined that the offensive use of collateral estoppel is not permitted in Indiana. Alsup v. Spratt (N.D.Ind.1983), 577 F.Supp. 557, 559, aff'd sub nom. Morris v. Spratt (7th Cir.1985), 768 F.2d 879. ¹ This view was based upon Indiana's requirement of identity of parties and mutuality of estoppel. Id. However, offensive use of collateral estoppel was allowed in Watson Rural Water v. Indiana Cities Water Corp. (1989), Ind.App., 540 N.E.2d 131, 135 at n. 1, transfer denied. Thus, our task is to examine the availability of offensive collateral estoppel in the face of the elimination of the mutuality requirement and the alteration of the requirement that the parties of the two actions be identical.

The elimination or alteration of these two requirements appear to obviate any reservations harbored by the district court in Alsup regarding the offensive use of collateral estoppel. Moreover, the use of the doctrine in Watson may indicate that the Alsup court's reading of Indiana law was incorrect. At any rate, after White the backdrop against which we are to make our decision has changed significantly. Thus, in deciding whether and on what grounds to permit the offensive use of collateral estoppel, we profit by seeking guidance from a jurisdiction whose requisites for collateral estoppel are the same as those set out in White. We can find such guidance in the case of Parklane Hosiery, supra.

In Parklane Hosiery, the United States Supreme Court noted that offensive collateral estoppel should be treated differently from defensive collateral estoppel because it does not necessarily promote judicial economy in the same manner as defensive collateral estoppel and it may result in unfairness to a defendant if the defendant had little incentive to mount a vigorous defense in the first suit. Id. 439 U.S. at 329-31, 99 S.Ct. at 650-51. With those considerations in mind, the Court determined that the best approach would not be to preclude its use, but merely to afford broad discretion to trial courts as to when it should be applied. Id. In determining whether to permit offensive collateral estoppel, the...