Tofany v. NBS Imaging Systems, Inc.

• Decision Date: 14 July 1993
• Docket Number: No. 02S03-9307-CV-754,02S03-9307-CV-754
• Parties: Vincent L. TOFANY, Appellant, (Defendant Below) v. NBS IMAGING SYSTEMS, INC., Appellee. (Plaintiff Below)
• Court: Indiana Supreme Court

Page 1034

616 N.E.2d 1034

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

No. 02S03-9307-CV-754.

Supreme Court of Indiana.

July 14, 1993.

John R. Wilks, Wilks and Kimbrough, Fort Wayne, for appellant.

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

ON PETITION TO TRANSFER

KRAHULIK, Justice.

NBS Imaging Systems, Inc., (Appellee-Plaintiff below) ("NBS Imaging") seeks transfer after the Court of Appeals reversed the trial court and approved the offensive use of collateral estoppel by Vincent L. Tofany (Appellant-Defendant below) against NBS Imaging. Tofany v. NBS Imaging, Inc. (1992), Ind.App., 597 N.E.2d 23. In affirming the trial court, we address the following issues:

(1) Whether a person who was not a party to a prior suit may use the judgment from that suit "offensively" to prevent a defendant from re-litigating issues resolved by the prior judgment;

(2) Whether the trial court's findings of fact and conclusions of law supported its' decision;

(3) Whether the trial court's judgment was inconsistent with the evidence; and

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

Facts

The facts of this case are not disputed. The Court of Appeals opinion accurately stated the facts as follows.

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's 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 heading "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.

Id. at 25-26.

Tofany appealed. The Court of Appeals determined that the trial court erred by not granting Tofany's motion for partial summary judgment and remanded the case for a new trial on the retirement plan claim. In reaching this conclusion, the Court of Appeals approved the offensive use of collateral estoppel where the standards stated in Parklane Hosiery Co. v. Shore, 439 U.S. 322, 331, 99 S.Ct. 645, 651, 58 L.Ed.2d 552 (1979), are satisfied. Additionally, the Court of Appeals held that the trial court was not obligated to make special findings of fact and conclusions of law where neither party submitted a written request for them, that the evidence supported the trial court's judgment, and that NBS Imaging was not entitled to damages for an abuse of the judicial process.

Collateral Estoppel

NBS Imaging raises several arguments in support of its assertion that the Court of Appeals improperly applied the offensive use of collateral estoppel. First, NBS Imaging asserts that the Court of Appeals decision contravenes Indiana precedent prohibiting the offensive use of collateral estoppel. Second, NBS Imaging asserts that the Court of Appeals incorrectly decided a new question of law by adopting the offensive use of collateral estoppel. Finally, NBS Imaging asserts that, if a party is able to assert offensive collateral estoppel, the Court of Appeals erred by exceeding the permissible scope of review when it weighed factual determinations that were within the discretion of the trial court.

In response, Tofany asserts that the Court of Appeals properly allowed the offensive use of collateral estoppel. Tofany argues that Indiana precedent is not contravened because Watson Rural Water v. Indiana Cities Water Corp. (1989), Ind.App., 540 N.E.2d 131, recognized the offensive use of collateral estoppel. Tofany also argues that the Court of Appeals did not exceed the permissible scope of review in determining that the standards of Parklane Hosiery have been satisfied because the trial court merely denied the motion for summary judgment without making findings of fact and that, here, the underlying purpose of collateral estoppel is furthered where NBS Imaging had a full opportunity to litigate the issues, through its parent corporation, in a prior action.

Generally, collateral estoppel operates to bar a subsequent re-litigation of the same fact or issue where that fact or issue was necessarily adjudicated in a former suit and the same fact or issue is presented in the subsequent lawsuit. In that situation, the first adjudication will be held conclusive even if the second is on a different claim. Sullivan v. American Casualty Co. (1992), Ind., 605 N.E.2d 134, 137. Collateral estoppel has been referred to as offensive or defensive depending on how a party asserts the former judgment. Regardless of whether the use is termed "offensive" or "defensive," collateral estoppel is asserted against a party who had a prior opportunity to litigate an issue and lost. Parklane Hosiery v. Shore, 439 U.S. 322, 329, 99 S.Ct. 645, 650, 58 L.Ed.2d 552 (1979). The term "offensive" collateral estoppel has been used to describe the situation where the "plaintiff seeks to foreclose the defendant from litigating an issue the defendant had previously litigated unsuccessfully in an action with another party." Parklane Hosiery, 439 U.S. at 326 n. 4, 99 S.Ct. at 649 n. 4. Similarly, when the defendant seeks to prevent a plaintiff from asserting a claim which the plaintiff had previously litigated and lost against another defendant, the use has been termed "defensive" collateral estoppel. Id. Although both are forms of collateral estoppel, and arguably should be treated alike, they have received different treatment by the courts.

Traditionally, Indiana required identity of parties and mutuality of estoppel before collateral estoppel could be invoked. Tobin v. McClellan (1947), 225 Ind. 335, 344, 73 N.E.2d 679, 683; Town of Flora v. Indiana Serv. Corp. (1945), 222 Ind. 253, 257, 53 N.E.2d 161, 163; Dayton v. Fisher (1870), 34 Ind. 356, 358. "Mutuality of estoppel" refers to the requirement that "one taking advantage of the prior adjudication would have been bound had the prior judgment gone the other way." State v. Spiedel (1979), 181 Ind.App. 448, 456, 392 N.E.2d 1172, 1177. "Identity of parties" refers to the requirement that the party to be bound by a prior adjudication must be the same as or in privity with the party in the prior action. Id., 181 Ind.App. at 454, 392 N.E.2d at 1176. Thus, in Indiana, a stranger to the judgment, one who is neither a party nor in privity with a party to the prior judgment, has not been permitted to take advantage of collateral estoppel in the subsequent action. Id. As a result, the traditional requirements of collateral estoppel...