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concluding general releases cover all claims pending at the time of execution in an oral settlement agreement
Summary of this case from Spanski Enters., Inc. v. Telewizja Polska, S.A.Opinion
02 Civ. 1224 (DF)
April 28, 2004
MEMORANDUM AND ORDER
In this action, before me on consent pursuant to 28 U.S.C. § 636(c), pro se plaintiff Prakash Melwani ("Melwani") asserts six claims against defendants, alleging improper registration of a website, two counts of false advertising under the Eanham Act, two counts of tortious interference with prospective business advantage or relations, and unfair competition under state law. Defendants have moved for partial summary judgment dismissing Count Three (false advertising) and Count Five (tortious interference), arguing that these two claims as against defendant Pramod Jain ("Pramod") were released as part of a settlement in a prior action. In addition, defendants maintain that there is no factual support for asserting these two claims against Pramod or defendant Diastar, Inc ("DI").
Melwani originally named Pradip Jain ("Pradip") and Royal Silk Products, Inc. ("RSPI") as additional defendants on Counts Three and Five, but voluntarily dismissed those claims against Pradip and RSPI before defendants brought their summary judgment motion. ( See Stipulation of Voluntary Dismissal of Certain Claims, "so ordered" November 26, 2002 (Dkt. 24).) Perhaps unaware that the Court had already ordered that dismissal, defendants have addressed their motion, in part, to the adequacy of Counts Three and Five as against Pradip and RSPI. ( See Notice of Motion, filed Nov. 27, 2002 (Dkt. 25); Defendants' Memorandum of Law in Support for Partial Summary Judgement ("Defs.' Mem."), filed Dec. 2, 2002, (Dkt. 26).) As these claims have already been dismissed against these defendants, there is no need for the Court to consider this aspect of defendants' motion.
For the reasons set forth herein, defendants motion for partial summary judgment is granted with respect to Counts Three and Five against defendant Pramod; with respect to defendant DI, the Court reserves decision pending further submissions, as discussed below.
BACKGROUND
With respect to the factual background of this case, the parties have agreed to stipulate to the same set of facts to which they stipulated in a Joint Pretrial Order filed in a prior action in this Court, Prakash Melwani v. Pradip Jain and Royal Silk, Inc., 00 Civ. 7623 (AJP). ( See Joint Report of Parties and Proposed Scheduling and Discovery Order, filed June 19, 2002 (Dkt. 12); Affirmation of Nicholas P. Otis in Support of Motion for Partial Summary Judgment ("Otis Aff"), dated Nov. 25, 2002 (Dkt. 25), Ex. 1.)
A. The Parties
In 1978, Melwani founded Royal Silk Ltd. ("RSL"), a company engaged in the mail-order catalog sale of silk garments and related products. (Otis Aff. ¶ 5.) RSL owned certain registered trademarks, including a "Royal Silk" service mark for the mail-order and retail-store sale of clothing and similar fashion accessories made wholly or partially of silk. ( Id.) Sometime in 1988, RSL filed for bankruptcy in the United States Bankruptcy Court for the District of New Jersey. ( Id. ¶ 6.)
The defendant Jain brothers (Pradip and Pramod) are officers of corporate defendants RSPI and DI. ( See Affidavit of Pradip Jain in Support of Motion for Partial Summary Judgment ("Pradip Aff") dated Nov. 19, 2002, ¶ 1; Affidavit of Pramod Jain in Support of Motion for Partial Summary Judgment ("Pramod Aff") dated Nov. 19, 2002, ¶ 1.) In September 1991, as part of the liquidation of RSL, the Jain brothers and RSPI, through a related company called Ultra Silk Inc. ("USI"), purchased from a secured creditor of RSL the "Royal Silk" service mark and the goodwill associated with it. ( Id. ¶ 7.) Melwani, who had become acquainted with the Jain brothers, assisted the defendants with the purchase of the "Royal Silk" service mark, which the defendants then registered with the United States Patent and Trademark Office. ( Id. ¶¶ 8-9.)
From approximately October 1991 through December 1993, Melwani then rendered consultation services to RSPI and a related company, USI. ( Id. ¶ 10.) When, however, business failed to prosper as defendants had hoped it would, the relationship with Melwani was terminated. ( Id.)
B. Litigation History
In 1998, Melwani commenced an action in the New York State Supreme Court, New York County (the "state court action"), against Pradip, Pramod, and USI, alleging various contract and other claims, and asserting that Melwani was entitled to a portion of the profits of USI's silk business. ( Id. ¶ 12.) Simultaneously, Melwani filed an action in this Court against RSPI (the "1998 federal action"), asserting the same claims as were being asserted in the state court action. ( Id. ¶ 13.) Melwani, however, subsequently voluntarily discontinued the 1998 federal action and joined RSPI as a defendant in the state court action instead. ( Id.; see Prakash Melwani v. Royal Silk Products, Inc., No. 98 Civ. 4134 (TPG), Stipulation of Voluntary Dismissal, entered Feb. 25, 1999 (Dkt. 5).) The state court action was tried, resulting in a verdict for the defendants. (Defs.' Mem. at 4; Ottis Aff. Ex. B.)
The state court action was entitled Prakash Melwani v. Pradip Jain, Pramod Jain, and Ultra Silk, Inc., No. 98-109229.
The 1998 federal action was entitled Prakash Melwani v. Royal Silk Products, Inc., No. 98 Civ. 4134 (TPG).
While the state court action was still in the discovery phase, Melwani filed another action in this Court against Pradip and RSPI (the "2000 federal action"). (Ottis Aff. ¶ 15.) In that action Melwani alleged that he had all rights to the name and mark "Royal Silk," for which he had registered a new trademark for clothing and apparel, and that Pradip and RSPI, by launching and operating a commercial website, "royalsilk.com," violated the Lanham Act and tortiously interfered with Melwani's prospective plans for a new business to be known as Royal Silk. ( Id.)
The 2000 federal action was entitled Prakash Melwani v. Pradip Jain and Royal Silk Products, Inc. No. 00 Civ. 7623 (AJP). ( See n. 2 supra.)
C. The 2001 Settlement
On August 10, 2001, the 2000 federal action was settled on the record before United States Magistrate Judge Andrew J. Peck ( Id. ¶ 16, Ex. A (Transcript of Aug. 10, 2001 conference before Judge Peck ("Settlement Tr.").) The settlement was a global settlement, which finally resolved the state court action, as well as the pending federal action.
As memorialized on the record, the specific terms of the settlement agreement were as follows: In addition to agreeing to injunctive relief, the federal defendants agreed to pay Melwani $15,000 in installments. ( See Settlement Tr. p. 6, 11.6-11.) In exchange, Melwani agreed to refrain from appealing, or to withdraw any appeal he may have already filed in, the state court action. ( See id. p. 8, 11. 1-8.) Further, Judge Peck confirmed that:
upon full payment of all amounts hereunder, [the parties] shall exchange general releases. Mr. Melwani further agrees and the defendants agree that Mr. Melwani and the state court defendants will also exchange general releases. The state court defendants, in addition to Pradip Jain and Royal Silk Products, Inc., are Promod [sic] Jain and Ultra Silk, Inc.
( Id. p. 8, 11. 16-23.) Finally, Judge Peck placed on the record that "[a]ll claims and counterclaims in this action are hereby discontinued with prejudice in accordance with the terms of the stipulation." ( Id. p. 8, 11. 23-25.)
Prior to concluding the conference, Judge Peck questioned Melwani, under oath, to ensure that he understood the implications of the settlement agreement based on what had been said both on and off the record. ( See id. p. 9, 1.21 — p. 10, 1.8.) Melwani confirmed on the record that he understood the settlement agreement in all respects. ( Id. p. 10, 1.9.)
Judge Peck questioned Melwani, after swearing him in, as follows: "And you have heard the terms of the settlement as described on the record by Mr. Otis and as clarified on the record during various courses of this conference based on your off-the-record discussions with him, correct? . . . [Discussion off the record] And you heard the terms of the settlement agreement in all its aspects, both the settlement agreement and the part of the settlement agreement that grants you injunctive relief and will be provided in a court judgment as well as the settlement agreement. Do you agree to the terms of settlement, Mr. Melwani?" (Settlement Tr. p. 9, 1.21-p. 10, 1.8.) Mr. Melwani responded, "Yes, I do." ( Id., p. 10, 1.9.)
The parties do not dispute that defendants went ahead and paid the $15,000 to Melwani, in accordance with the settlement agreement, but that no written releases were ever exchanged. ( See Defendants' Local Civil Rule 56.1 Statement ("Defs' 56.1 Stmt.") filed Dec. 2, 2002 (Dkt. 27) ¶ 3; Otis Aff. ¶ 16; Melwani Aff. ¶ 8, Ex. B.)
D. The Instant Action and Defendants' Motion
On February 14, 2002, Melwani filed the present action in this Court. ( See Complaint (Dkt. 2).) He subsequently filed an Amended Complaint (Dkt. 3), and then on June 25, 2002, he filed a Second Amended Complaint ("Second Am. Compl.") (Dkt. 14), which is now the operative pleading.
On November 27, 2002, defendants moved for partial summary judgment with respect to Counts Three and Five of the Second Amended Complaint, which, as pleaded, were asserted against defendants Pradip, Pramod, RSPI, and DI, although the claims were later voluntarily dismissed as against Pradip and RSPI. ( See n. 1 supra.) According to defendants, the two counts are, in substance, identical to claims asserted in the 2000 federal action against Pradip and RSPI. Pramod asserts that, as one of the state court defendants at the time, he was promised a release by Melwani under the terms of the 2001 settlement agreement. He further asserts that the settlement should be enforced and that the promised release should be deemed effective, so as to extend to the claims now asserted against him. ( See Otis Aff. ¶ 17; Pramod Aff. ¶ 5.) In addition, both Pramod and DI maintain that Melwani has no good-faith factual basis for asserting either of the two counts in question against either of them. (Defs.' Mem. at 1.)
Count Three in this action and Count One in the 2000 federal action each allege that the defendants named in those claims violated Section 43(a) of the Lanham Act by developing and launching the "royalsilk.com" website on which they advertised a broad range of clothing, and which they "knew or should have known" contained false and misleading information likely to confuse visitors to the site. (Second Am. Compl. ¶¶ 43-46; Complaint filed in Prakash Melwani v. Pradip Jain and Royal Silk Products, Inc. No. 00 Civ. 7623 (AJP) ("2000 Compl."), filed Oct. 10, 2000 (Dkt. 1), ¶¶ 15-18.) Melwani further alleges that he owns the Royal Silk trademark for the apparel category (Second Am. Compl. ¶ 46), and that the defendants' false advertising deceived the public causing damage to Melwani through the loss of the goodwill value of the Royal Silk apparel mark. (Second Am. Compl. ¶ 47; 2000 Compl. ¶ 24.)
Count Five in this action and Count Two in the 2000 federal action each allege that the defendants named in those claims tortiously interfered with Melwani's prospective business advantage by "intentionally us [ing] . . . dishonest, unfair . . . improper" and fraudulent content on the royalsilk.com website. (Second Am. Compl. ¶ 65; 2000 Compl. ¶ 31.) This activity allegedly interfered with Melwani's business relationship with a private equity investment firm from whom he was seeking funding for his own Royal Silk apparel venture. (Second Am. Compl. ¶ 66; 2000 Compl. ¶¶ 31, 34.)
Melwani argues that he misunderstood the meaning of the general releases to which he agreed in the 2001 settlement. (Melwani Aff. ¶¶ 37-41.) He asserts that he never believed that the release would include the instant claims against Pramod, who was not a party to the 2000 federal action, because the meaning of a "general release" was never properly explained to him. (Melwani Aff. ¶ 41.) In any event, Melwani argues that, because no such release was ever executed ( id. ¶ 44), it should not be enforced. In addition, Melwani asserts that there is a sufficient factual basis for now bringing these two claims against both Pramod and DI. ( Id. ¶¶ 9-20, 22-31.)
DISCUSSION
I. Summary Judgment Standards
Under Rule 56(c), a motion for summary judgment may be granted when the parties' sworn submissions show that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986); Holt v. KMI — Continental, Inc., 95 F.3d 123, 128 (2d Cir. 1996). The moving party bears the burden of showing that no genuine issue of material fact exists. See Adickes v. S.H. Kress Co., 398 U.S. 144, 157 (1970).
In considering a summary judgment motion, the Court must "view the evidence in the light most favorable to the party against whom summary judgment is sought and must draw all reasonable inferences in his favor." L.B. Foster Co. v. Am. Piles, Inc., 138 F.3d 81, 87 (2d Cir. 1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986)); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Further, where the party opposing summary judgment is proceeding on a pro se basis, the Court must read that party's papers liberally and interpret them "to raise the strongest arguments that they suggest." McPherson v. Coombe, 174 F.3d 276, 280 (2d Cir. 1999) (internal quotation marks and citation omitted). Even a pro se plaintiff, however, cannot withstand a motion for summary judgment by relying merely on the allegations of a complaint. See Champion v. Artuz, 76 F.3d 483, 485 (2d Cir. 1996). Rather, when confronted with evidence of facts that would support judgment in the defendant's favor as a matter of law, the plaintiff must come forward with evidence in admissible form that is capable of refuting those facts. See Fed.R.Civ.P. 56(e); see also Jermosen v. Coughlin, 877 F. Supp. 864, 867 (S.D.N.Y. 1999) ( pro se plaintiffs must make proper evidentiary showing in order to defeat summary judgment).
Overall, the Court "cannot try issues of fact; it can only determine whether there are issues to be tried." Am. Mfrs. Mut. Ins. Co. v. Am. Broad. — Paramount Theatres, Inc., 388 F.2d 272, 279 (2d Cir. 1967); accord Sutera v. Schering Corp., 73 F.3d 13, 15-16 (2d Cir. 1995). Only where there is no genuine issue of material fact, viewing the evidence in the light most favorable to the nonmoving party, is summary judgment appropriate. See Liberty Lobby, 477 U.S. at 248; Binder v. Long Island Lighting Co., 933 F.2d 187, 191 (2d Cir. 1991).
II. The Claims Against Pramod
As noted above ( see supra, n. 7), Counts Three and Five in this action mirror Counts One and Two in the 2000 federal action, although the claims were then asserted against fewer defendants. Pramod maintains that, even though he was not named as a defendant on the earlier claims, Melwani is nonetheless precluded from asserting such claims against him now, under the terms of the 2001 settlement agreement. ( See Otis Aff. ¶ 17; Pramod Aff. ¶ 5; Defs.' Mem. at 3.) While conceding that he agreed to generally release any claims against Pramod, Melwani asserts that his supposed lack of understanding of his own agreement, as well as the lack of any signed, written documentation of the release, preclude its enforcement. (Plaintiffs Memorandum of Law in Opposition to Defendants' Motion for Partial Summary Judgment ("Melwani Mem.") filed Dec. 20, 2002 (Dkt. 29) at 5-6; Melwani Aff. ¶¶ 40-45.)
A. Enforceability of Settlement Made on the Record
Whether analyzed under state or federal law, a stipulation of settlement made in open court is binding and enforceable. See N.Y. C.P.L.R. § 2104, Lopez v. City of New York, 242 F. Supp.2d 392, 393 (S.D.N.Y. 2003) (citing Janus Films Inc. v. Miller, 801 F.2d 578, 583 (2d Cir. 1986) and Hallock v. State, 64 N.Y.2d 224, 230, 485 N.Y.S.2d 510, 474 N.E.2d 1178 (1984)); see also Foster v. City of New York, No. 96 Civ. 9271 (PKL), 2000 WL 145927, at *3 n. 4 (S.D.N.Y. Feb. 7, 2000); Davis v. New York City Housing Authority, 300 A.D.2d 531, 531-32, 754 N.Y.S.2d 285, 286 (2d Dept. 2002).
Even where made on the record, however, an oral agreement should only be enforced where the parties intended to be bound. Lopez, 242 F. Supp.2d at 393; see Alvarez v. City of New York, 146 F. Supp.2d 327, 335 (S.D.N.Y. 2001). The Second Circuit has developed a four-part test for determining the intent of the parties to be bound by an oral settlement agreement: "(1) whether there has been an express reservation of the right not to be bound in the absence of a signed writing; (2) whether there has been partial performance of the contract; (3) whether all of the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is usually committed to writing." Ciaramella v. Reader's Digest Assoc., Inc., 131 F.3d 320, 323 (2d Cir. 1997) (citing Winston v. Mediafare Entertainment Corp., 777 F.2d 78, 80-81 (1995)). B. Consideration of the Relevant Factors
In this case, the balance of factors favors a finding that the parties intended to enter into a binding settlement agreement.
First, no party to the settlement expressed any reservation on the record of a right not to be bound absent an executed agreement, despite the fact that Judge Peck gave the parties ample opportunity to state their understandings. Further, even if Melwani planned to execute a written general release subsequent to stating his agreement on the record, that would not satisfy the express reservation of rights requirement. Lopez, 242 F. Supp.2d at 393 (citing Conway v. Brooklyn Union Gas Co., 236 F. Supp.2d 241, 249-50 (E.D.N.Y. 2002)); see, e.g, Reich v. Best Built Homes, Inc., 895 F. Supp. 47, 49-50 (W.D.N.Y. 1995) (fact that the parties were to subsequently execute a written Consent Judgment embodying the terms set forth orally on the record, but did not do so, did not negate the enforceability of the settlement) (citing Int'l Telemeter Corp. v. Teleprompter Corp., 592 F.2d 49, 56 (2d Cir. 1979)).
Second, there is no dispute that there was partial performance, as the parties agree that Melwani was paid the $15,000 settlement amount. (Melwani Aff. ¶ 8; Defs.' 56.1 Stmt. ¶ 3.)
Third, there is no issue here that only certain terms of the settlement were agreed to on the record, with other terms still to be determined. On the contrary, the parties do not dispute that the record of the settlement memorialized all of the material terms of the agreement, and the only dispute is whether Melwani should be bound by those terms. (Defs.' Mem. at 4; Melwani Aff. ¶ 40.)
Fourth, although a settlement agreement is normally reduced to writing, an on-the-record agreement may substitute for a writing, and, since the settlement here was on the record, this factor favors enforcement of the settlement as well. See Lopez, 242 F. Supp.2d at 393 (citing Shabtai v. Honeywell, Inc, No 94 Civ. 0524, 1998 WL 823617, at *1 (S.D.N.Y. Nov. 25, 1998)).
In addition, under the circumstances of this case, where the termination of both federal and state court actions were explicitly made a part of the parties' agreement, it is apparent that defendants wished to have a global settlement that would put an end to the various claims which Melwani had or could have brought against them, wherever those claims had, or could have been, asserted. ( See Pramod Aff. ¶ 4 ("At the time the prior action was settled . . . I was also concerned that Mr. Melwani might file suit against me for the same claims he was settling against Pradip Jain and RSPI. Mr. Melwani has sued us four (4) times in four (4) years . . . Thus my fear that Mr. Melwani would sue me over the same claims he was settling was well founded. In fact he has done just that."); see also Monaghan v. SZS 33 Assocs., L.P., 73 F.3d 1276, 1282 (2d Cir. 1996) (noting that equitable considerations and reliance by one party should be taken into account when enforcing the terms of an oral settlement agreement); Ruskay v. Waddell, 552 F.2d 392, 395-96 (2d Cir. 1977) (noting that circumstances surrounding the agreement to execute a release may be examined in construing the nature and scope of the release).)
Finally, public policy strongly favors enforcement of a settlement agreement that is placed on the record by the Court. Ruskay, 552 F.2d at 398 ("[S]ettlement of complex lawsuits is a welcome development. . . . [S]trong policy considerations require that what all parties thought to be a close matter remain so. One who [agrees to] a general release has had the opportunity to press his claim; before waiving his rights, he should carefully consider the development such as the one that gave birth to this lawsuit. That risk was implicit in the settlement . . . once the decision to settle is made, a party must abide by it."); Foster, 2000 WL 145927, at *3 (noting the presumption favoring enforcement of oral settlement agreements); In re Cuffee, 232 B.R. 53, 56 (E.D.N.Y. 1999) ("A stipulation of settlement on the record in Court is one of the strongest and most binding agreements in the field of law."), aff'd, 201 F.3d 430 (Table) (2d Cir. 1999).
For all of these reasons, the parties' on-the-record settlement agreement in the 2000 federal action is fully enforceable. As for Melwani's argument that he should not be bound to the agreement because of his lack of understanding of the terms, his bald and belated assertion that he did not understand the nature of the releases to which he agreed cannot serve to invalidate the on-the-record agreement. See, e.g, Clark v. Buffalo Wire Works Co., Inc., 3 F. Supp.2d 366, 373 (W.D.N.Y. 1998) ("[T]he enforceability of a release does not depend on whether the releasor was subjectively aware of the precise claims to which the release pertains upon executing the release.").
There is no question that the releases to which Melwani agreed would cover the two claims now asserted against Pramod. At the time of the settlement, Melwani agreed to provide Pramod with a "general release." A general release is a release that covers "all claims and demands due at the time of its execution." Kaul v. Hanover Direct, Inc., 296 F. Supp.2d 506, 517 (S.D.N.Y. 2004) (citation omitted); see Ruskay, 552 F.2d at 395 (a general release bars claims arising out of any controversy that pre-dates the execution of the release). Thus, Melwani agreed that he would not thereafter assert any type of claim against Pramod, to the extent such claim arose from Pramod's conduct prior to the date of the settlement, which was August 10, 2001. The terms of the general release would certainly include the claims against Pramod in Count Three and Count Five in the current action, which are based on the same activity raised in the 2000 federal action, and which thus plainly accrued prior to the date of the settlement agreement.
As the challenged claims against Pramod would fall within the scope of the general release agreed to by Melwani, and as Melwani's agreement is binding and enforceable, there is no genuine issue of fact that would preclude summary judgment in Pramod's favor. Accordingly, summary judgment dismissing Counts Three and Five as against Pramod is granted. III. The Claims Against DI
As Pramod is entitled to summary judgment because of Melwani's agreement to release claims against him, the Court need not consider Pramod's alternative argument that he is entitled to summary judgment because Melwani cannot show factual support for the claims at issue.
DI does not assert that the claims against it were similarly released by Melwani, but argues that Counts Three and Five against it should be dismissed nonetheless, on the ground that Melwani has not demonstrated a factual basis for those claims. (Defs.' Mem. at 1, 3; Defs.' 56.1 Stmt. at ¶ 8.) Whether or not this is the case — and Melwani disputes that it is — the Court need not reach the question. Rather, it appears that the claims against DI are subject to dismissal on the separate ground that, for res judicata purposes, DI was in privity with defendants in the second federal action, and that the resolution of those claims in that action thus serves to bar Melwani from asserting them now against DI.
As noted above, these two counts are identical to claims previously litigated in the 2000 federal action, in which DI was not named as a party. Defendants maintain that this was because there was, at that time, no basis for the claims to be asserted against DI, and that nothing in discovery in this action has now shown otherwise. ( See Defs.' Mem. at 1-2.) Melwani, however, asserts that information regarding DFs involvement in the alleged illegal conduct came to light during, and subsequent to, the settlement discussions of the 2000 federal action, and that there is now a sufficient factual basis for him to assert these claims against DI. (Melwani Mem. at 3.)
The doctrine of res judicata, or claim preclusion, provides that "once a final judgment has been entered on the merits of a case, that judgment will bar any subsequent litigation by the same parties or those in privity with them concerning the transaction or series of connected transactions, out of which the first action arose." Maharaj v. Bankamerica Corp., 128 F.3d 94, 97 (2d Cir. 1997) (citing Restatement (Second) of Judgments § 24(1) (1982)). An essential objective of res judicata is to "relieve parties of the cost and vexation of multiple lawsuits [and to] conserve judicial resources." Alien v. McCurry, 449 U.S. 90, 94 (1980). Even where a defendant does not raise a res judicata defense, the Court may consider it sua sponte. See, e.g., Salahuddin v. Jones, 992 F.2d 447, 449 (2d Cir. 1993) ("The failure of a defendant to raise res judicata in answer does not deprive a court of the power to dismiss a claim on that ground."); Femicola v. Specific Real Property in Possession, No. 00 Civ, 5173 (MBM), 2001 WL 1658257, at *4 n. 5 (S.D.N.Y. Dec. 26, 2001) ("[A] court may consider the issue of res judicata sua sponte, assuming the court has all the relevant data and legal records.").
The defense of res judicata requires a party to show that "(1) the previous action involved an adjudication on the merits; (2) the previous action involved the [parties] or those in privity with them; [and] (3) the claims asserted in the subsequent action were, or could have been, raised in the prior action." Monahan v. New York City Dep't of Corr., 214 F.3d 275, 285 (2d Cir. 2000) (citations omitted). Further, "[i]t is clear that a dismissal, with prejudice, arising out of a settlement agreement operates as a final judgment on the merits for res judicata purposes." Marvel Characters, Inc. v. Simon, 310 F.3d 280, 287 (2d Cir. 2002); see Putney Arms LLC v. Shaw Indus., No. 3:00 Civ. 2052 (JBA), 2002 WL 31094971, at *3 (D. Conn. Sept. 6, 2002) ("A dismissal with prejudice, such as that provided for in the terms of the settlement stated on the record before the Magistrate Judge, is subject to the same rules of res judicata and is effective not only on the immediate parties but also on their privies.") (internal quotation marks and citation omitted).
Here, there is no dispute that all claims in the 2000 federal action were discontinued with prejudice as a result of the stipulated settlement of that case. There can thus be no dispute that res judicata will act as a bar to Melwani's re-assertion, against any of the same defendants, of any of the claims previously raised in that case. Further, while DI was not a party to the 2000 federal action, Melwani himself makes assertions that, if true, would demonstrate that DI was in privity with defendants in that action, and that the doctrine of res judicata should thus operate to bar the same claims from being asserted against DI, as well.
Specifically, Melwani asserts (and defendants do not deny) that DI financed and controlled the defense of the 2000 federal action. (Melwani Aff. ¶¶ 8, 9, 17.) In support of this assertion, Melwani shows that the payment made to him in settlement of that case was actually made by DI. ( See Melwani Aff. Ex. B.) If true that DI financed and controlled the prior action, this would be sufficient to establish the required privity. Waldman v. Village of Kiryas Joel, 39 F. Supp.2d 370, 380 (S.D.N.Y. 1999) (in the res judicata context, privity exists where a non-party controlled and financed both suits), aff'd, 207 F.3d 105 (2d Cir. 2000).
Further, Melwani asserts (and defendants agree) that DI's alleged liability, if any, is wholly derivative of RSPI's liability. (Melwani Aff. ¶¶ 7, 9; see Nicholas Otis Reply Affirmation in Further Support of Defendants' Motion for Partial Summary Judgement ("Otis Reply Aff") dated Jan. 2, 2003, ¶ 8.) Melwani concededly has no basis for asserting his claims against DI other than his argument that DI controlled and "dominat[ed]" RSPI (Melwani Aff. ¶ 7-14; Melwani Mem. at 3), which was named as a defendant on the same claims in 2000. Again, if the Court were to accept as true Melwani's assertions of domination and control, they would be sufficient to establish privity for res judicata purposes. Moreover, the mere fact that any liability would be derivative itself demonstrates DI's and RSPI's identity of interest with respect to the asserted claims. See Monahan, 214 F.3d at 285 (literal privity is not required in the res judicata context, instead a party will be bound by a previous judgment if its interests were adequately represented); Chase Manhattan Bank v. Celotex Corp., 56 F.3d 343, 345-46 (2d Cir. 1995) (res judicata may bar non-parties to earlier litigation when the interests and incentives involved in the prior litigation are virtually identical to those in the later litigation); Zoll v. Ruder Finn, Inc., No. 02 Civ. 3652 (CSH), 2003 WL 22283830, at *8 (S.D.N.Y. Oct. 2, 2003) (privity found between party to original action and non-party where the claims were identical, the same witnesses, facts, and legal theories were involved, and the first action did not involve any defense unique to those parties).
Although, in the context of arguing that Melwani's claims against DI lack factual support, defendants assert that DI and RSPI are separate entities, that they were not involved in each others' activities during the time period in question, and that the corporate boundaries between them should not be disregarded (Otis Reply Mem. ¶ 9), this would not preclude a finding of privity between the two companies for res judicata purposes. See, e.g., Chase Manhattan Bank, 56 F.3d at 345 (finding that privity may exist for the purpose of determining one legal question but not another depending on the circumstances and legal doctrines at issue).
Finally, privity between DI and Pradip, who was a defendant in the 2000 federal action, is likely established by their identity of interest in this matter. It is undisputed fact that Pradip was and remains an officer of DI ( see Pradip Aff. ¶ 1), and the claims that Melwani would now assert against DI are the same as those previously asserted against Pradip, based on the same underlying facts ( see Melwani Mem. at 4). Under these circumstances, it is difficult to see how Pradip's and DI's interests diverge. See Fernicola, 2001 WL 1658257 at *4 (finding a sufficient identity of interest between the CEO of a hospital and the hospital itself to establish privity for res judicata purposes).
It therefore appears that Counts Three and Five as against DI are barred under the doctrine of res judicata, and that Melwani would be hard-pressed to argue otherwise in light of statements he has already made to the Court. However, in recognition of the fact that res judicata was not argued by defendants on their motion, that Melwani has thus had no opportunity to respond on this point, and that Melwani is proceeding pro se, the Court will afford Melwani an opportunity to address the issue before the Court dismisses the claims on this basis. See, e.g, Well-Made Toy Mfg. Corp. v. Lotus Onda Indus. Co., Ltd., 02 Civ. 1151 (CBM), 2002 WL 31519630, at *1 (S.D.N.Y. Nov. 12, 2002) (allowing parties to submit supplemental briefs on the narrow issue of whether plaintiff's claim ought to be precluded pursuant to the doctrine of res judicata where the issue had not been raised in the underlying motion to dismiss).
CONCLUSION
For all of the foregoing reasons, Counts Three and Five of the Second Amended Complaint are hereby dismissed as against defendant Pramod K. Jain.
As to the motion to dismiss these two counts as against defendant Diastar, Inc., if plaintiff wishes to oppose the Court's dismissal of these claims on the ground of res judicata, he should serve and file a supplemental brief in opposition no later than May 28, 2004, and defendants, if they wish, may serve and file a reply no later than June 11, 2004.
SO ORDERED.