Weston Funding Corp. v. Lafayette Towers, Inc., 75 Civ. 1305.

Citation410 F. Supp. 980
Decision Date09 March 1976
Docket NumberNo. 75 Civ. 1305.,75 Civ. 1305.
PartiesWESTON FUNDING CORPORATION, Plaintiff, v. LAFAYETTE TOWERS, INC., a corporation of the State of New Jersey, and George C. Peck, Defendants.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

Albert B. Gins, New York City, for plaintiff Weston Funding Corp.

Kane & Zucker, by Stanley Zucker, New York City, for defendants Lafayette Towers, Inc., and George C. Peck.

ROBERT L. CARTER, District Judge.

OPINION

Defendants have moved, pursuant to Rule 56, F.R.Civ.P., for summary judgment on the grounds of res judicata. For the reasons set out below, the motion is granted.

Prior Proceedings

This is an action for brokerage commissions brought by plaintiff Weston Funding Corp. ("Weston"), a New York corporation, against defendants Lafayette Towers, Inc. ("Lafayette"), a New Jersey corporation, and George C. Peck, Lafayette's sole shareholder, a New Jersey resident. On November 1, 1973, the plaintiff corporation and the defendants entered into an agreement whereby Weston was given the exclusive right and authorization (for a period of seven days) to obtain a standby commitment for end loans in the sum of $4,500,000 relative to the financing of Lafayette Towers. Weston was to receive as compensation an amount equal to 3¼% of the total commitment, such sum to be deemed earned and payable when the letter of commitment was issued. This agreement was signed by Peck on behalf of Lafayette and was extended orally by the defendants.

By February, 1974, Weston was finally successful in obtaining a written construction loan commitment from the First National State Bank of New Jersey for the full sum of $4,500,000. On February 25, 1974, Weston wrote to Peck to inform him of the loan commitment. The letter went on to recite as follows:

"CONFIRMING OUR AGREEMENT AND UNDERSTANDING THE AMOUNT OF $191,250 HAS BEEN EARNED AND IS DUE AND PAYABLE TO WESTON FUNDING CORPORATION FOR THEIR BROKERAGE SERVICES IN THIS MATTER.
"YOUR SIGNATURE BELOW IN BOTH PLACES WILL CONSTITUTE YOUR ACCEPTANCE AS AN INDIVIDUAL, AND, FOR THE CORPORATION."

At a subsequent meeting in New Jersey, Peck signed the letter as "accepted and approved" on behalf of himself and Lafayette. Peck then produced a check in the sum of $25,000 as partial payment of the commission due to Weston. The defendants have made no further payments pursuant to the November 1, 1973, agreement. It is plaintiff's contention that the defendant subsequently used the loan commitment obtained by Weston as a springboard to obtain loans from different sources without the plaintiff's knowledge.

On May 21, 1974, Weston filed a complaint in the United States District Court for the District of New Jersey (Civil Action No. 74-746), alleging the facts as stated above and demanding the balance allegedly due for their brokerage services in the amount of $166,250, together with interest and costs. On June 22, 1974, defendants filed an answer and counterclaim, followed by a motion for summary judgment filed on September 21, 1974. On November 6, 1974, Judge James A. Coolahan granted summary judgment in favor of defendants on the grounds that under New Jersey law only brokers licensed in New Jersey could bring suit for commissions in the courts of that state, and that plaintiff was not so licensed. Weston then filed a notice of appeal from the grant of summary judgment in defendants' favor. On March 18, 1975, however, the parties stipulated to a dismissal of the appeal. In May, 1975, Weston filed a new action in the Southern District of New York realleging the same facts and causes of action as in the prior New Jersey action.1 Defendants answered and have now brought on the instant motion for summary judgment.2

Discussion
I.

It is well settled that for a judgment in a prior action to be a bar to reaching the merits in a subsequent action the following elements must be established. First, the prior judgment must have been rendered by a court of competent jurisdiction; second, the prior judgment must have been a final judgment on the merits; and third, the same cause of action and the same parties or their privies must have been involved in both suits.3

I have no difficulty in deciding that the first and third of these elements have been satisfied.4

II.

The second element — whether the prior judgment is deemed to be "on the merits" requires further elaboration.

The requirement that a judgment, to be res judicata, must be rendered "on the merits" guarantees to every plaintiff the right once to be heard on the substance of his claim.

"Thus, ordinarily, the doctrine may be invoked only after a judgment has been rendered which reaches and determines `the real or substantial grounds of action or defense as distinguished from matters of practice, procedure, jurisdiction or form,' Clegg v. United States, 112 F.2d 886, 887 (10th Cir. 1940), and, at common law, a dismissal on a ground which did not resolve the substantive merit of the complaint was not a bar to a subsequent action on the same claim. Hughes v. United States, 4 Wall. 232, 71 U.S. 232, 237, 18 L.Ed. 303 (1865); Halderman v. United States, 91 U.S. 584, 585-586, 23 L.Ed. 433 (1876)."
Saylor v. Lindsley, 391 F.2d 965, 968 (2d Cir. 1968).

Rule 41(b), F.R.Civ.P., operates as an exception to this general principle.

The last sentence of that Rule provides as follows:

"Unless the court in its order for dismissal otherwise specifies, a dismissal under this subdivision and any dismissal not provided for in this rule, other than a dismissal for lack of jurisdiction, for improper venue, or for failure to join a party under Rule 19, operates as an adjudication upon the merits."

Thus, if the court does not specify that a dismissal is without prejudice, as Judge Coolahan did not specify, and if the dismissal is not embraced within one of the three exceptions to Rule 41(b), the dismissal will be deemed to be with prejudice — i. e., an adjudication on the merits barring a second suit. See Kern v. Hettinger, 303 F.2d 333, 340 (2d Cir. 1962); see generally, 9 Wright & Miller, Federal Practice and Procedure § 2373 (1971 ed.).

There are three stated exceptions to the rule that a dismissal is with prejudice unless the court otherwise specifies — Rule 41(b) does not apply to a dismissal for lack of jurisdiction, for improper venue, or for failure to join a party under Rule 19. In Costello v. United States, 365 U.S. 265, 81 S.Ct. 534, 5 L.Ed.2d 551 (1961), the Supreme Court refused to construe narrowly the lack of jurisdiction exception to Rule 41(b). The court, per Justice Brennan, held:

"It is too narrow a reading of the exception to relate the concept of jurisdiction embodied in Rule 41(b) to the fundamental jurisdictional defects which render a judgment void and subject to collateral attack, such as lack of jurisdiction over the person or subject matter. We regard the exception as encompassing those dismissals which are based on a plaintiff's failure to comply with a precondition requisite to the Court's going forward to determine the merits of his substantive claim." 365 U.S. at 285, 81 S.Ct. at 544, 5 L.Ed.2d at 564.

The Court went on to note that at common law dismissal on a ground not going to the merits was not ordinarily a bar to a subsequent action on the same claim and could "not discern in Rule 41(b) a purpose to change this common-law principle with respect to dismissals in which the merits could not be reached for failure of the plaintiff to satisfy a precondition." The Court therefore concluded that:

"All of the dismissals enumerated in Rule 41(b) which operate as adjudications on the merits — failure of the plaintiff to prosecute, or to comply with the Rules of Civil Procedure, or to comply with an order of the Court, or to present evidence showing a right to the relief on the facts and the law — primarily involve situations in which the defendant must incur the inconvenience of preparing to meet the merits because there is no initial bar to the Court's reaching them. It is therefore logical that a dismissal on one of these grounds should, unless the Court otherwise specifies, bar a subsequent action. In defining the situations where dismissals `not provided for in this rule' also operate as adjudications on the merits, and are not to be deemed jurisdictional, it seems reasonable to confine them to those situations where the policy behind the enumerated grounds is equally applicable." 365 U.S. at 286, 81 S.Ct. at 545, 5 L.Ed.2d at 565.

In light of the Costello decision, this circuit has recognized that Rule 41(b) does not apply in situations in which an action is dismissed because of some initial bar to reaching the merits of plaintiff's claims. Thus, in Saylor v. Lindsley, 391 F.2d 965, 969 (2d Cir. 1968), the court held that a dismissal for failure to post a bond-for-costs would not call for the application of Rule 41(b) and would not constitute an adjudication on the merits so as to bar a subsequent suit. See 9 Wright & Miller, Federal Practice and Procedure § 2373 (1971 ed.). Cf. Nasser v. Isthmian Lines, 331 F.2d 124, 127 (2d Cir. 1964).

In my view, the rationale of Costello prevents the court from blindly or talismanically labelling a dismissal as one with or without prejudice, requiring instead a rigorous and thorough examination of the grounds for dismissal.

Accordingly, we must proceed to consider more fully the substance of defendants' res judicata defense.

III.

As I read his opinion, two issues were raised and decided by Judge Coolahan in the New Jersey action. First, he concluded that the transaction's contacts with New Jersey were sufficient to warrant the application of New Jersey law to the controversy. Second, Judge Coolahan concluded that under New Jersey law the plaintiff was precluded from maintaining his cause of action in the New Jersey courts and hence granted defendants' motion for summary judgment. In particular, the federal trial court relied on Section 2 of the...

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