Opinion
Case No. C-3-98-112.
March 27, 2000.
Thomas J. Collin, Attorney for Plaintiff.
Walter Reynolds, Stephen B. Meister, Thomas H. Pyer, Attorney for Defendant.
DECISION AND ENTRY OVERRULING MOTION FOR PARTIAL SUMMARY JUDGMENT (DOC. #70) FILED BY PLAINTIFF HOLLOWAY SPORTSWEAR, INC.
This litigation arises out of a soured business relationship involving Plaintiff Holloway Sportswear, Inc. ("Holloway"), Defendant Robert Zeeman and several Defendant entities which are affiliated with Zeeman. Holloway is in the business of manufacturing, selling and distributing sportswear. Zeeman is a buying agent for companies that have apparel manufactured overseas. In 1994, Holloway decided to cut its costs by acquiring merchandise from suppliers in the Far East. As a result, Holloway contacted Zeeman, who agreed to serve as its buying agent. Thereafter, in 1995, an individual named Gary Gray joined Holloway as its national sales manager. Gray subsequently quit his job with Holloway in 1996 and began working for Hartwell Sports, Inc. ("Hartwell"), which competes against Holloway in the sportswear industry. Shortly after commencing his employment with Hartwell, Gray contacted Zeeman to determine whether he would be interested in serving as a buying agent for Hartwell. Zeeman agreed to do so, without informing Holloway of his decision.
The Defendant entities are Lorovi, Inc. ("Lorovi"), Lorovi Direct, and RSZ Sales, Inc. ("RSZ"). Zeeman is the President and sole shareholder of RSZ, through which he acts as a buying agent. Lorovi is a corporation operated by a business associate of Zeeman. RSZ and Lorovi purportedly have entered into a joint venture, under the trade name of Lorovi Direct, for the purpose of acting as an overseas buying agent.
In a September 27, 1999, ruling (Doc. #84), the Court sustained a Motion for Summary Judgment (Doc. #63) filed by Gray, who also was named as a Defendant in this action.
The following year, Holloway learned that Zeeman was acting as an agent for Hartwell. Holloway's discovery sparked a dispute about whether Zeeman had agreed to be an exclusive agent for Holloway. As a result of Zeeman's work for Hartwell, Holloway stopped payment on a commission check and withheld other sums that it owed to Zeeman. In addition, Holloway began dealing directly with various manufacturers located in the Far East. On March 20, 1998, Holloway initiated the present litigation, setting forth various claims against Zeeman, Gray and several entities which are affiliated or associated with Zeeman. Pending before the Court is a Motion for Partial Summary Judgment (Doc. #70) filed by Holloway. In its Motion, Holloway seeks summary judgment on Count 2 of its second Amended Complaint, which sets forth a breach of fiduciary duty claim against Defendants Zeeman, Lorovi, Lorovi Direct and RSZ.
The caption of Count 2 alleges a breach of fiduciary duty and duty of loyalty. (Doc. #53). In their respective Memoranda, the parties refer to Count 2 as a "breach of fiduciary duty" claim, and the Court will do likewise in its analysis herein. The reference to a "duty of loyalty" in the caption does not appear to add anything of substance to Count 2.
I. Summary Judgment Standard
The Court first will set forth the parties' relative burdens once a motion for summary judgment is made. Summary judgment must be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Of course, [the moving party] always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact.Id. at 323. See also Boretti v. Wiscomb, 930 F.2d 1150, 1156 (6th Cir. 1991) (The moving party has the "burden of showing that the pleadings, depositions, answers to interrogatories, admissions and affidavits in the record, construed favorably to the non-moving party, do not raise a genuine issue of material fact for trial[,]" quoting Gutierrez v. Lynch, 826 F.2d 1534, 1536 [6th Cir. 1987]). The burden then shifts to the non-moving party who "must set forth specific facts showing that there is a genuine issue for trial."Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (quoting Fed.R.Civ.P. 56(e)). Thus, "[o]nce the moving party has met its initial burden, the nonmoving party must present evidence that creates a genuine issue of material fact making it necessary to resolve the difference at trial." Talley v. Bravo Pitino Restaurant, Ltd., 61 F.3d 1241, 1245 (6th Cir. 1995). Read together, Liberty Lobby and Celotex stand for the proposition that a party may move for summary judgment by demonstrating that the opposing party will not be able to produce sufficient evidence at trial to withstand a motion for judgment as a matter of law under Fed.R.Civ.P. 50. Street v. J.C. Bradford Co., 886 F.2d 1472, 1478 (6th Cir. 1989).
Once the burden of production has shifted, the party opposing summary judgment cannot rest on its pleadings or merely reassert its previous allegations. It is not sufficient to "simply show that there is some metaphysical doubt as to the material facts."Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). See also Michigan Protection and Advocacy Service, Inc. v. Babin, 18 F.3d 337, 341 (6th Cir. 1994) ("The plaintiff must present more than a scintilla of evidence in support of his position; the evidence must be such that a jury could reasonably find for the plaintiff"). Rather, Rule 56(e) "requires the non-moving party to go beyond the [unverified] pleadings" and present some type of evidentiary material in support of its position. Celotex Corp., 477 U.S. at 324. Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Summary judgment shall be denied "[i]f there are . . . 'genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.'" Hancock v. Dodson, 958 F.2d 1367, 1374 (6th Cir. 1992). Of course, in determining whether a genuine issue of material fact exists, a court must assume as true the evidence of the nonmoving party and draw all reasonable inferences in the favor of that party.Anderson, 477 U.S. at 255 (emphasis added). If the parties present conflicting evidence, a court may not decide which evidence to believe, by determining which parties' affiants are more credible; rather, credibility determinations must be left to the fact-finder. 10A Charles Alan Wright, et al., Federal Practice and Procedure § 2726.
In ruling on a motion for summary judgment (in other words, in determining whether there is a genuine issue of material fact), "[a] district court is not . . . obligated to wade through and search the entire record for some specific facts that might support the nonmoving party's claim." Interroyal Corp. v. Sponseller, 889 F.2d 108, 111 (6th Cir. 1989), cert. denied, 494 U.S. 1091 (1990). See also, L.S. Heath Son, Inc. v. ATT Information Systems, Inc., 9 F.3d 561 (7th Cir. 1993); Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 915 n. 7 (5th Cir.) ("Rule 56 does not impose upon the district court a duty to sift through the record in search of evidence to support a party's opposition to summary judgment. . . ."), cert. denied, 506 U.S. 832 (1992). Thus, a court is entitled to rely, in determining whether a genuine issue of material fact exists on a particular issue, upon only those portions of the verified pleadings, depositions, answers to interrogatories and admissions on file, together with any affidavits submitted, specifically called to its attention by the parties.
II. Analysis of Plaintiff's Motion for Partial Summary Judgment (Doc. #70)
The pending Motion for Partial Summary Judgment (Doc. #70) filed by Holloway is directed toward Count 2 of its second amended Complaint (Doc. #53), which sets forth a claim against Zeeman, Lorovi, Lorovi Direct and RSZ for breach of fiduciary duty. The factual basis for the fiduciary duty claim is that Zeeman, acting through the foregoing entities, allegedly "breached his fiduciary duties to Holloway by secretly acting as an agent for Hartwell." (Doc. #70 at 1). In support of its Motion, Holloway insists that there is no genuine issue of material fact as to the Defendants' liability on Count 2. In response, the Defendants contend that res judicata and collateral estoppel preclude Holloway from prevailing on Count 2. The Defendants also argue, alternatively, that they did not breach a fiduciary duty to Holloway or, at a minimum, that a genuine issue of material fact exists on the question. (Doc. #71). In its reply Memorandum, Holloway seeks to persuade the Court that res judicata and collateral estoppel have no applicability herein. (Doc. #75 at 1-4). After reviewing the parties' respective Memoranda and pertinent case law, the Court agrees with the Defendants' assertion that Count 2 is barred by both res judicata and collateral estoppel.
Holloway's Motion for Partial Summary Judgment is directed only toward the issue of liability, not damages. (Doc. #70 at 1).
As noted, supra, Count 2 of the second amended Complaint alleges that Zeeman, acting through Lorovi, Lorovi Direct and RSZ, violated a common law fiduciary duty to Holloway by acting simultaneously as a buying agent for its competitor, Hartwell. Holloway's second amended Complaint contains the following pertinent allegations:
28. As an agent of Holloway, Zeeman and Lorovi and, upon information and belief, Lorovi Direct had a duty not to compete against Holloway concerning the subject matter of the buying agency and a duty not to act or to agree to act for persons whose interests conflict with or are competitive with those of Holloway. Despite this duty of loyalty, Zeeman, either alone or through Sales, and Lorovi and, upon information and belief, Lorovi Direct secretly have acted as an agent on behalf of Hartwell to compete directly against Holloway on the subject matter of their agency with Holloway.
. . .
24. . . . Zeeman, Sales and Lorovi and, upon information and belief, Lorovi Direct secretly began working on behalf of Hartwell as a buying agent at least as early as November 1, 1996. Zeeman, Sales and Lorovi and, upon information and belief, Lorovi Direct continued to do so and earned thousands of dollars in commissions from Hartwell for acting as its buying agent in direct competition with Holloway. . . .
29. The foregoing conduct of Zeeman, either alone or through Sales, and Lorovi and, upon information and belief, Lorovi Direct constitutes a breach of their fiduciary and other duties of loyalty to Holloway and has caused Holloway damages in an amount yet to be determined but believed to exceed at least $75,000, exclusive of interest and costs. Holloway is entitled to recover from Zeeman, Sales, Lorovi and Lorovi Direct, as well, all commission payments made by Holloway, or which may otherwise be due, during the period of their disloyalty, which Holloway reasonably believes to exceed $200,000.
The Court has purposefully quoted the foregoing paragraphs out of order. It has done so in order to demonstrate that the allegations contained in the second amended Complaint repeat, nearly verbatim, a counterclaim previously asserted by Holloway in a New York action.
The Court notes that Holloway asserted a virtually identical cause of action as a counterclaim in a prior New York state court action. In that case, Holloway alleged, in relevant part:
Lorovi, Lorovi Direct and RSZ commenced the New York action against Holloway in March, 1998, alleging breach of contract and several other claims. (Doc. #60 at Exh. 2). A few days later, Holloway filed its initial Complaint in this Court, setting forth claims against Zeeman, Lorovi and Gray for breach of contract, failure to disclose, fraud, misappropriation of trade secrets and tortious interference with contract. (Doc. #1). Holloway later amended its Complaint to include the other Defendants. Holloway also filed a counterclaim in the New York action, alleging a breach of fiduciary duty by Lorovi, based on Zeeman's representation of a competing business. (Doc. #60 at Exh. 8).
67. As an agent of Holloway, Zeeman and Lorovi had a duty not to compete against Holloway concerning the subject matter of the buying agency and had a duty not to act or agree to act for persons whose interests conflict with or are competitive with those of Holloway. Despite this duty, Zeeman and Lorovi secretly have acted as an agent on behalf of Hartwell to compete directly against Holloway on the subject matter of their agency with Holloway.
68. Upon information and belief, Zeeman and Lorovi secretly began working on behalf of Hartwell as a buying agent at least as early as November 1, 1996. Zeeman and Lorovi continued to do so throughout the entirety of 1997 and earned thousands of dollars in commissions from Hartwell for acting as its buying agent in direct competition with Holloway.
69. The foregoing conduct of Zeeman and Lorovi constitutes a breach of their fiduciary duty and other duties of loyalty to Holloway. Accordingly, Holloway is entitled to forfeiture of all commissions earned by Zeeman and Lorovi during the period of their disloyalty.
In January 2, 1999, ruling, the New York Supreme Court entered summary judgment against Holloway on the foregoing counterclaim "to the extent that it rests on the alleged breach of an alleged common law fiduciary duty." (Doc. #60 at Exh. 12, p. 14). In so ruling, the New York court held that Zeeman's representation of Holloway's competitor, Hartwell, did not violate any common law fiduciary duty, because no such duty existed. (Id. at 12-15). Specifically, the court reasoned:
Holloway's New York counterclaim also appears to have alleged the breach of an exclusive oral buying agency agreement. (See, e.g., Doc. #60 at Exh. 8, ¶ 65-67).
Holloway cites to no case in which the breach of a common law fiduciary duty was found where a broker, acting as a procuring agent, was held to violate a common law fiduciary duty by acting as a procuring agent in an open market for the principal's competitor. Independent research has uncovered no case supporting Holloway's contention.
Under Holloway's theory, if Holloway engaged an insurance broker to procure a policy of insurance for Holloway, that broker would have violated Holloway's common law rights by also procuring a policy of insurance for a firm which competed with Holloway. New York law imposes no such common law duty on a broker engaged to obtain goods or services for its principal.
A breach of a contractual obligation is not the equivalent of a breach of a common law obligation of fidelity. Even taking as true Holloway's allegation that Zeeman falsely told Holloway that he was not acting as an agent for Hartwell, any such fraud, if such it be, does not per se constitute a breach of fiduciary duty, as opposed to a claim for common law fraud, even if committed by an employee. (Rodgers v. Lenox Hill Hosp., 239 A.D.2d 140, 657 N.Y.S.2d 616 [1st Dept 1997]).
Accordingly, Holloway's allegations do not constitute a viable defense to plaintiffs' claims for commissions due, or for damages for Holloway's direct dealing with the suppliers to whom Holloway was introduced. To the extent that Holloway's counterclaim rests on the breach of such an alleged common law duty, it must fail, and the plaintiffs are entitled to partial summary judgment dismissing the counterclaim. . . .
(Id. at 13-14).
Despite the New York court's rejection of its breach of fiduciary duty counterclaim, Holloway maintains that the ruling has no preclusive impact whatsoever on Count 2 of its second amended Complaint in this litigation, which sets forth a nearly identical breach of fiduciary duty claim. Upon review, the Court finds Holloway's argument to be meritless. The New York ruling hasboth res judicata and collateral estoppel effect with respect to Count 2 of Holloway's second amended Complaint. It is well settled that a federal court "must give to a state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered." Migra v. Warren City School Dist. Bd. of Educ., 465 U.S. 75, 81 (1984). Thus, the preclusive effect of the state-court ruling is governed by New York law.
Under the law of New York, "[t]he doctrine of res judicata, or claim preclusion, provides that 'as to the parties in a litigation and those in privity with them, a judgment on the merits by a court of competent jurisdiction is conclusive of the issues of fact and questions of law necessarily decided therein in any subsequent action.'" Field Home-Holy Comforter v. DeBuono, 657 N.Y.S.2d 943, 944 (1997), quoting Gramatan Home Investors Corp. v. Lopez, 46 N.Y.2d 481, 485, 414 N.Y.S.2d 308, 386 N.E.2d 1328 (1979); see also Hellman v. Hoeing, 989 F. Supp. 532, 536 (S.D.N Y 1998). With respect to collateral estoppel, New York law "'has now reached the point where there are but two necessary requirements for invocation of the doctrine. . . . There must be an identity of issue which has necessarily been decided in the prior action and is decisive of the present action, and, second, there must have been a full and fair opportunity to contest the decision now said to be controlling.'" Wilder v. Thomas, 854 F.2d 605, 617 (2nd Cir. 1988), cert. denied, 489 U.S. 1053 (1989), quoting Schwartz v. Pub. Adm'r of Bronx, 298 N.Y.S.2d 955, 246 N.E.2d 725 (1969);see also Continental Casualty Co. v. Rapid-American Corp., 593 N.Y.S.2d 966, 609 N.E.2d 506, 510 (1993) (noting that "the party seeking the benefit of collateral estoppel must show that the party to be estopped had a full and fair opportunity to contest the dispositive decision, or was in privity with one who did[,]" and that there is an identity of one or more issues).
In its reply Memorandum, Holloway insists that neither res judicata nor collateral estoppel prevents it from litigating Count 2 of its second amended Complaint. With respect to res judicata, Holloway argues that: (1) the New York decision is not final, because that court has not entered a final judgment; (2) it lacked a "full and fair" opportunity to litigate its breach of fiduciary duty counterclaim in the New York action; (3) there is no "identity of parties" as to Zeeman, RSZ and Lorovi Direct, and privity cannot be established, as a matter of law, on the present record; and (4) the New York decision is "pure ipse dixit" and should not be followed. (Doc. #75).
Holloway's reply Memorandum (Doc. #75) incorporates, by reference, arguments that it made in a related Memorandum (Doc. #77 at 3-17) opposing a Motion for Summary Judgment filed by the Defendants (Doc. #60). Consequently, the Court will refer to Doc. #77 when discussing Holloway's various arguments on the issues of res judicata and collateral estoppel.
With respect to the doctrine of collateral estoppel, Holloway argues against its applicability herein for several reasons: (1) the New York decision is not final; (2) the New York court's ruling on the breach of fiduciary duty issue was a "purely legal determination"; (3) Holloway lacked a "full and fair" opportunity to litigate the fiduciary duty issue in the New York action; (4) there "is not complete identity of parties" in this litigation and the New York action; and (5) the New York decision will be reversed on appeal. (Doc. #77 at 13-17). Upon review, the Court concludes that res judicata and collateral estoppel both preclude Holloway from pursuing its breach of fiduciary duty claim in this judicial forum.
A. Res Judicata
Turning first to the res judicata issue, the Court cannot agree with any of the arguments set forth by Holloway. First, the New York court's summary judgment ruling is final, and the court did enter a final judgment against Holloway. (See Order and Judgment, Doc. #79 at Meister affidavit, Exh. 1). Among other things, that judgment entry dismissed Holloway's breach of fiduciary duty counterclaim with prejudice. (Id.). Holloway has filed a Notice of Appeal, challenging that aspect of the New York court's ruling. (Id. at Exh. 2). In its reply Memorandum, Holloway now admits that the New York court has entered a final judgment against it on its counterclaim. (Doc. #75 at 1). Accordingly, the Court rejects Holloway's argument that the absence of a judgment entry renders the doctrine of res judicata inapplicable.
Parenthetically, it appears that, under New York law, Holloway could have appealed from the New York court's summary judgment ruling, even without the entry of a judgment. Section 5701 of New York Civil Practice Law and Rules ("CPLR") provides, in pertinent part:
(a) Appeals as of right. An appeal may be taken to the appellate division as of right in an action, originating from the supreme court or a county court:
1. from any final or interlocutory judgment, except one entered subsequent to an order of the appellate division which disposes of all the issues in the action; or
2. from an order not specified in subdivision (b) [not applicable herein], where the motion it decided was made upon notice and it:
. . .
(iv) involves some part of the merits; or
(v) affects a substantial right. . . .
McKinney's CPLR § 5701 (1999) (Emphasis added).
Second, Holloway did have a full and fair opportunity to litigate its breach of fiduciary duty claim, as a matter of law. Holloway was represented in the New York action by the law firm of Winston Strawn, which filed a thirty-seven page memorandum, with supporting affidavits, addressing, inter alia, its breach of fiduciary duty counterclaim. (Doc. #60 at Exh. 11). Furthermore, the New York court heard oral argument from Holloway's counsel before entering summary judgment against it.
In support of its argument that it was deprived of a "full and fair" opportunity to litigate its fiduciary duty counterclaim, Holloway contends that it possesses "newly discovered evidence." Under New York law, the "availability of new evidence," if material, may support a finding that a party lacked a full and fair opportunity to litigate an issue in a prior proceeding. Hill v. Coca Cola Bottling Co. of New York, 786 F.2d 550, 553 (2nd Cir. 1986). In the present case, Holloway first notes that, prior to the New York court's ruling, Zeeman gave deposition testimony and filed an affidavit in connection with the present litigation. While discussing the business practices of Holloway and Hartwell, Zeeman allegedly testified that "[a]ctually, I would have to say I wouldn't want to tell either one what the other was doing." (Doc. #77 at 7). He also stated that he did not think "it is Holloway's business what Hartwell is doing and I don't think it is Hartwell's business what Holloway is doing." (Id.). Finally, Zeeman stated in an affidavit that Holloway and Hartwell manufactured garments through "separate, distinct and unconnected operations." (Id.). Holloway contends that the New York court was aware of the foregoing testimony and, therefore, may have credited it when ruling on the breach of fiduciary duty counterclaim.
Holloway also implies unfairness because "Lorovi moved for summary judgment before any discovery had been initiated in the New York action, and its motion had the effect of staying all discovery." (Doc. #77 at 7). Under New York law, however, a party opposing summary judgment may assert the need for more discovery in order to oppose such a motion properly. See New York CPLR Rule 3212(f). The record does not reflect that Holloway ever made such a request for additional discovery. Consequently, Holloway's purported lack of discovery in the state court action does not suggest that it was deprived of a full and fair opportunity to litigate its counterclaim.
The Defendants contend that Zeeman's deposition testimony and affidavit, which were provided in connection with the present litigation, were never made a part of the record in the New York action. Therefore, the Defendants argue that the New York court could not have relied upon Zeeman's statements. (Doc. #79 at 11). Based upon the reasoning set forth more fully herein, however, the Court concludes that Holloway was not deprived of a "full and fair" opportunity to litigate its fiduciary duty counterclaim, even if Zeeman's testimony was put before the New York court, and even if that testimony was false.
According to Holloway such a possibility precludes the application of res judicata herein, because it has uncovered "new evidence" which demonstrates that Zeeman's prior deposition testimony and affidavit are false. The new evidence consists of fax communications from Robert Zeeman to Hartwell. The fax communications allegedly show that Zeeman did disclose Holloway's pricing and manufacturing information to Hartwell, contrary to his prior testimony. In light of this new evidence, Holloway insists that it lacked a "full and fair" opportunity to litigate its breach of fiduciary duty counterclaim in the New York action.
Upon review, the Court cannot agree with Holloway's assertion. Holloway's "new evidence" does not undermine, or even call into question, the New York court's holding that Zeeman hadno fiduciary obligation to forego representing Holloway's competitors. As set forth, supra, the New York court entered summary judgment against Holloway on its breach of fiduciary duty counterclaim, finding that Zeeman owed Holloway no fiduciary duty not to act as a buying agent for its competitor, Hartwell. Holloway's new evidence simply has no bearing on the existence, or non-existence, of a fiduciary duty on the part of Zeeman not to represent Hartwell while also representing Holloway. Any disclosures of confidential information by Zeeman to Hartwell may well be relevant to Count 4 of Holloway's second amended Complaint, which alleges the misappropriation of trade secrets. Holloway's "newly discovered evidence" is irrelevant, however, as to the breach of fiduciary duty claim contained in Count 2 of the second amended Complaint, and as to Holloway's fiduciary duty counterclaim in the New York action, which was based solely on Zeeman's "secret" representation of a competitor. Consequently, the new evidence does not establish that Holloway has been deprived of a "full and fair" opportunity to litigate its New York counterclaim.
Holloway did not allege a misappropriation of trade secrets counterclaim in the New York action. Consequently, it does not appear that Holloway's "newly discovered evidence" was material to any aspect of the state-court action. In any event, for the reasons set forth more fully above, the Court concludes that Holloway's newly discovered evidence was not material to the state-court breach of fiduciary duty counterclaim, which was premised solely on Zeeman's secret representation of Hartwell.
In a final argument on this issue, Holloway suggests that "the question of whether [it] had a full and fair opportunity to litigate is factual, and any denial by Zeeman that Holloway was deprived of a full and fair opportunity to litigate would create an issue of fact for the jury." (Doc. #77 at 8). The Court does not dispute that whether a party had a full and fair opportunity to litigate a claim presents a question of fact. That does not mean, however, that a genuine issue of material fact necessarily exists. Indeed, many "questions of fact" are resolved, as a matter of law, when the evidence is such that a trier of fact could not find for the non-moving party. In the present case, the uncontroverted evidence shows that Holloway was represented in the New York action by highly regarded counsel, who filed a lengthy memorandum addressing, inter alia, its fiduciary duty counterclaim, with substantial evidentiary support. Following oral argument, the New York court issued a decision, expressly rejecting Holloway's breach of fiduciary duty counterclaim. Given that Holloway's "newly discovered evidence" is immaterial to the New York court's ruling, the record is devoid of any evidence from which a trier of fact could find that it lacked a "full and fair opportunity" to litigate its counterclaim. Consequently, the Court finds no genuine issue of material fact, as to whether Holloway had a full and fair opportunity to litigate the counterclaim in the New York action.
Third, Holloway admits that Defendant Lorovi was named as a defendant in its breach of fiduciary duty counterclaim in the New York action. (Doc. #77 at 9). Consequently, the "identity of parties" requirement for res judicata has been met, at least with respect to Lorovi and Holloway, which are both parties to the present action.
With respect to the other Defendants, however, Holloway argues that they were neither parties to its prior state-court counterclaim, nor in privity with Lorovi, which was the only party to that counterclaim. In response, the Defendants stress that Lorovi, Lorovi Direct and RSZ were identified asplaintiffs in the New York action, thereby establishing that they were "parties" to that action, for purposes of invoking res judicata herein. Alternatively, the Defendants argue that privity existed between each of them in the New York action, and that Zeeman was in privity with his closely held corporation, RSZ, which was one of the plaintiffs in the New York action. (Doc. #71). Holloway disputes these contentions, insisting that no privity existed (or presently exists) between Zeeman, Lorovi, Lorovi Direct and RSZ. (Doc. #77).
Although Lorovi Direct and RSZ also were named, as Plaintiffs, in the caption of the New York action, Holloway notes that its breach of fiduciary duty counterclaim was not directed toward those entities. Additionally, although Holloway attempted to hold Lorovi liable for a breach of fiduciary duty, based on Zeeman's actions, Zeeman was not named as a counterclaim defendant in the New York action.
"In order to establish privity under New York law, 'the connection between the parties must be such that the interests of the nonparty can be said to have been represented at the prior proceeding.'" Hellman v. Hoeing, 989 F. Supp. 532, 536 (S.D.N Y 1998) (recognizing the existence of privity between a major shareholder of a close corporation and the corporation itself).
Holloway and the Defendants vigorously dispute this issue, because res judicata applies only to those who were parties to prior litigation and those who are in privity with them. Field Home-Holy Comforter v. DeBuono, 657 N.Y.S.2d 943, 944 (1997), quoting Gramatan Home Investors Corp. v. Lopez, 46 N.Y.2d 481, 485, 414 N.Y.S.2d 308, 386 N.E.2d 1328 (1979).
In order to resolve the present Motion, however, the Court will not (because it need not) determine whether the foregoing Defendants are, or were, in privity with one another. Given Holloway's admission that Defendant Lorovi was a counterclaim defendant in the New York action, res judicata prevents Holloway from pursuing a nearly identical breach of fiduciary duty claim (Count 2) against Lorovi in this litigation. In addition, as will be set forth more fully, infra, regardless of whether Zeeman, Lorovi Direct and RSZ can invoke res judicata herein, the doctrine of collateral estoppel precludes Holloway from pursuing Count 2 against them. Fourth, regardless of whether the New York decision is "pureipse dixit," this Court is obligated to honor that ruling, until such decision is reversed or vacated. This Court cannot usurp New York's appellate courts simply because Holloway believes that the New York trial court committed a gross error by entering summary judgment against it. Under New York law, the summary judgment ruling against Holloway on its breach of fiduciary duty counterclaim constituted a final decision on the merits, and this Court must honor that decision. See, e.g., 28 U.S.C. § 1738. This Court does not sit in review of state court judgments, and it expresses no opinion as to whether the New York court's analysis and holding were or were not correct.
The Court notes the existence of case law, however, suggesting that privity does exist between a corporation and its sole shareholder, and between joint venturers. See, e.g.,Horowitz v. Alloy Automotive Co., 992 F.2d 100, 103 (7th Cir. 1993) ("Horowitz, as Wesco's CEO and sole shareholder, is assuredly in privity with Wesco."); Carlin v. Gold Hawk Joint Venture, 778 F. Supp. 686, 691 (S.D.N.Y. 1991) ("The relationship of the parties in the present action to those in the prior Texas litigation is sufficient to meet the identity of parties requirement. GHJV, a defendant here, was the plaintiff in the Texas action. The individual defendants . . . were not named parties to the prior action. However, [they] were the joint venturers who composed GHJV. As such, their interests were certainly represented by the entity of GHJV in the prior action.").
For the reasons to be set forth more fully, infra, the Court concludes that, under New York law, the Defendants may invoke the doctrine of collateral estoppel against Holloway, regardless or whether they were parties to the New York action or were in privity with a party to that action.
Under New York law, "a discontinuance with prejudice is deemed a final adjudication on the merits for res judicata purposes on the claims asserted or which could have been asserted in the suit." NBN Broadcasting, Inc. v. Sheridan Broadcasting Networks, Inc., 105 F.3d 72, 78 (2nd Cir. 1997).
Based on the reasoning set forth above, the Court concludes that res judicata bars Holloway from asserting Count 2 of its second amended Complaint against Lorovi. The doctrine of res judicata provides that 'as to the parties in a litigation . . ., a judgment on the merits by a court of competent jurisdiction is conclusive of the issues of fact and questions of law necessarily decided therein in any subsequent action.'" Field Home-Holy Comforter v. DeBuono, 657 N.Y.S.2d 943, 944 (1997), quotingGramatan Home Investors Corp. v. Lopez, 46 N.Y.2d 481, 485, 414 N.Y.S.2d 308, 386 N.E.2d 1328 (1979). Based on the reasoning set forth above, the Court finds no genuine issue of material fact as to whether these requirements have been met, at least with respect to Defendant Lorovi. Consequently, Lorovi is entitled to summary judgment on Count 2 of Holloway's second amended Complaint (Doc. #53), because the breach of fiduciary duty claim contained therein is barred by res judicata, insofar as it is directed toward Lorovi.
As noted above, the Court need not determine whether res judicata also precludes Holloway from pursuing Count 2 against the other Defendants. For the reasons to be set forth, infra, the Court concludes that the related doctrine of collateral estoppel prevents Holloway from asserting Count 2 against those Defendants.
B. Collateral Estoppel
With respect to the Defendants' collateral estoppel argument, Holloway insists that the doctrine has no applicability herein because: (1) the New York decision is not final; (2) the New York court's ruling on the breach of fiduciary duty issue was a "purely legal determination"; (3) Holloway lacked a "full and fair" opportunity to litigate the breach of fiduciary duty issue; (4) there "is not complete identity of parties"; and (5) the New York decision will be reversed on appeal. (Doc. #77 at 13-17). Upon review, the Court cannot agree with any of Holloway's arguments.
First, based on the reasoning set forth above, the Court concludes, and Holloway now admits, that the New York court's entry of summary judgment on the breach of fiduciary duty counterclaim was a final decision.
Second, the Court cannot agree with Holloway's argument that the New York court's ruling on its breach of fiduciary duty counterclaim addressed a "purely legal" issue. Holloway raises this argument, based on its belief that collateral estoppel does not bar relitigation of previously decided questions of law. The Court notes, however, that "the doctrine of collateral estoppel can apply to preclude relitigation of both issues of law and issues of fact if those issues were conclusively determined in a prior action." United States v. Stauffer Chemical Co., 464 U.S. 165, 170-171 (1984). An exception exists only for "unmixed questions of law" arising in "successive actions involving unrelated subject matter." Id. at 171, quoting Montana v. United States, 440 U.S. 147, 162 (1979).
In the present case, however, the "subject matter" of Holloway's New York counterclaim and Count 2 of the instant action is identical, not "unrelated." In addition, the New York court did not rule on an "unmixed" or pure question of law, as opposed to a question of fact or a mixed question of fact and law. "The distinction is between an abstract legal proposition and the application of that proposition to particular facts." Stauffer Chemical Co., 464 U.S. at 181 n. 2 (White, J., concurring). In the present case, the New York court applied certain legal principles to the facts at hand and entered summary judgment against Holloway. Indeed, Holloway admits as much in its Memorandum, stating: "The New York court accepted as true Holloway's version of the facts and then held that it could state no claim on these facts." (Doc. #77 at 15). In essence, Holloway's position is that the New York court misapplied agency law to the facts of the present dispute. The purpose of collateral estoppel, however, is to preclude Holloway from relitigating the question of whether, under the facts of this case, Zeeman had (and breached) a fiduciary obligation not to represent Hartwell, even if Holloway believes the New York court ruled in error. Cf. United States v. Mosher, 266 U.S. 236, 242 (1924) ("[A] fact, question or right distinctly adjudged in the original action cannot be disputed in a subsequent action, even though the determination was reached upon an erroneous view or by an erroneous application of the law.").
Third, based on the reasoning set forth more fully, supra, the Court concludes that Holloway had a "full and fair" opportunity to litigate its breach of fiduciary duty counterclaim in the New York action.
Fourth, despite Holloway's assertion to the contrary, a "complete identity of parties" is not required in order for a defendant to invoke collateral estoppel. Defensive use of collateral estoppel "precludes a plaintiff from relitigating issues by 'merely switching adversaries[.]'" Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 329 (1979). In other words, the doctrine prevents a plaintiff "from asserting a claim that the plaintiff had previously litigated and lost against another defendant." Id. Thus, Holloway cannot relitigate, in this action, an issue that he unsuccessfully litigated in the New York action.See Robinson v. Scully, 1993 WL 340998 (S.D.N.Y. Aug. 23, 1993) ("[P]laintiff cannot relitigate the same issues he raised against defendant Scully . . . merely by naming Artuz as an additional defendant in this action, any more than he would be permitted to relitigate the same issues in yet another . . . action against Lieutenant Howard Cowan, . . . who was not named as a defendant in either of his actions. . . .").
In the context of collateral estoppel, "[a] requirement of complete identity of parties serves no purpose as long as the person against whom the findings are asserted or his priv[y] has had a full and fair opportunity to litigate the identical issue in the prior action." Carino v. Town of Deerfield, 750 F. Supp. 1156, 1170 (N.D.N.Y. 1990), aff'd, 940 F.2d 649 (2nd Cir. 1991), citingBlonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 329 (1971). Therefore, Holloway cannot litigate any issues in the present action that it fully and fairly litigated to conclusion in the New York action, even if Holloway named a different adversary in the New York action.
In opposition to this conclusion, Holloway cites Continental Casualty Co. v. Rapid-American Corp., 593 N.Y.S.2d 966, 609 N.E.2d 506 (1993), for the proposition that "a defendant seeking to invoke collateral estoppel as a defense must have either been a party to or in privity with a party to the prior action." (Doc. #77 at 17). Holloway then insists that "[w]hether Zeeman individually, Sales or Lorovi Direct is in privity with Lorovi is a question of fact that can not be decided on summary judgment on this record. . . ." (Id.). The Court notes, however, thatContinental Casualty does not support the proposition for which it is cited by Holloway. In relevant part, the New York Court of Appeals stated that "the party seeking the benefit of collateral estoppel must show that the party to be estopped had a full and fair opportunity to contest the dispositive decision, or was in privity with one who did." Continental Casualty, 609 N.E.2d at 510 (Emphasis added). Nothing in the Court of Appeals' ruling suggests that the party seeking to invoke collateral estoppel must have been a party, or in privity with a party, to the prior action. Such a proposition was rejected by the Supreme Court in Parklane Hosiery Co., 439 U.S. at 329, and, as noted above, New York's courts are in agreement with that ruling.
In short, when pursuing its New York breach of fiduciary duty counterclaim, Holloway fully and fairly litigated to conclusion the issue of Zeeman's alleged breach of a fiduciary duty not to represent a competitor of Holloway. The New York court determined that Zeeman owed no such fiduciary duty to Holloway. That issue was actually and necessarily litigated in the New York action, and the same issue is raised in Count 2 of Holloway's second amended Complaint herein. (Doc. #53). Count 2 alleges that Zeeman, either alone or acting through Lorovi, Lorovi Direct or RSZ, secretly "acted as an agent on behalf of Hartwell to compete directly against Holloway on the subject matter of their agency with Holloway," thereby breaching a fiduciary duty to the Plaintiff. (Id. at ¶ 27-28). The New York court ruled against Holloway on the same issue in the New York action, and collateral estoppel precludes the Holloway from relitigating it now against any of the Defendants.
Fifth, as noted, supra, the Court is obligated to honor the ruling of the New York court, despite Holloway's belief that the ruling will be reversed on appeal. See 28 U.S.C. § 1738.
For the reasons set forth above, the Court concludes that collateral estoppel precludes Holloway from litigating, against any of the Defendants, the central issue raised in Count 2 of its second amended Complaint, to wit: whether Zeeman, acting alone or through Lorovi, Lorovi Direct or RSZ, breached a fiduciary duty to Holloway by simultaneously representing Hartwell. Holloway litigated this issue to conclusion in the New York action, and it cannot retry the issue in this judicial forum.
III. Conclusion
Based on the reasoning and citation of authority set forth above, the Partial Motion for Summary Judgment (Doc. #70) filed by Plaintiff Holloway Sportswear, Inc., is overruled.