Opinion
Civil Action No. 02-11375-RWZ
November 21, 2002
MEMORANDUM OF DECISION
Trimless-Flashless Design, Inc. ("TFD") sold molds used to manufacture electronic parts to Augat, Inc. ("Augat"). In 1995, TFD and Augat exchanged and signed mutual nondisclosure agreements ("1995 Agreements"). The following year, the parties added another agreement styled as a "Draft Agreement" ("1996 Draft Agreement"). The business relationship subsequently soured. TFD alleged that Augat terminated its association with TFD and used TFD's design and techniques to develop its own molds and molding process. In late 1999, TFD, John Walker, Robert Walker, and R.W. Technologies ("RWT") brought suit in the Eastern District of Virginia, alleging breach of the 1996 Draft Agreement. Plaintiffs subsequently dismissed the complaint.
On February 11, 2000, TFD brought another suit in Virginia alleging breach of one of the 1995 Agreements but, notably, excluded any mention of the 1996 Agreement in its complaint. Defendants, relying on the arbitration clause of the 1996 Draft Agreement, sought to stay the case pending arbitration. TFD countered that the 1996 Agreement was not a binding contract. The Eastern District of Virginia agreed as did the Fourth Circuit.
The case went to trial in the district court on claims under one of the 1995 Agreements. Defendants continued to rely on the 1996 Draft Agreement as a defense, but TFD did not move to add a 1996 breach claim until the end of the liability phase of the bifurcated trial. Over defendants' objection, the court allowed the motion, and the jury found for TFD under both the 1995 and 1996 Agreements, and awarded $10,466,500 in damages. Defendants then filed a Renewed Motion for Judgment as a Matter of Law, which the court treated as a Rule 15(b) post-trial motion to amend the pleadings with respect to the 1996 breach claims. Noting that the defendants did not consent to the addition of the 1996 breach claims, the court held that "[o]n this record, we find that it would be prejudicial and unjust to permit TFD to affirmatively denounce the 1996 Draft Agreement before this Court and the Fourth Circuit when resisting arbitration and later recover millions of dollars in damages for breach of the very same contract it earlier called vague and unenforceable." Therefore, the court set aside the jury verdict with respect to the 1996 Agreement. For other reasons not here relevant, the court also set aside the verdict with respect to the 1995 Agreement and entered judgment for defendants. TFD appealed and the Fourth Circuit affirmed.
Plaintiffs then filed this suit alleging breaches of the 1996 Draft Agreement during the time period at issue in the Virginia litigation (Count I) and breaches since the jury verdict (Count II). Defendants have filed a Motion to Dismiss and/or for Summary Judgment, or in the Alternative, to Transfer, as to three of the plaintiffs for failure to state a claim upon which relief may be granted and as to the remaining plaintiff, on grounds of claim preclusion.
The motion to dismiss plaintiffs John Walker, Robert Walker, and RWT is allowed. Section 6.4 of the 1996 Draft Agreement, signed by TFD and Augat, states that Massachusetts law applies. "The law in Massachusetts is well-settled that an action on a contract must be brought by a party to the contract." Bonan v. United Pacific Insurance Co., 462 F. Supp. 869, 872 (D.Mass. 1978). Because plaintiffs John Walker, Robert Walker, and RWT are admittedly not parties to the contract, they cannot sustain this action for breach of the contract.
Because the agreement is attached to the Complaint as an exhibit, it is "properly considered part of the pleadings for rule 12(b)(6) purposes." In Re Lane, 937 F.2d 694, 696 (1st Cir. 1991).
The Complaint is also dismissed as to the remaining party, TFD, on res judicata grounds. "It is well settled that denial of leave to amend constitutes res judicata on the merits of the claims which were the subject of the proposed amended pleading." King v. Hoover Group, Inc., 958 F.2d 219 (8th Cir. 1992). Plaintiff's only recourse is to appeal the denial, and, in fact, it did so. Plaintiff cannot assert the claims in a second lawsuit. Integrated Technologies Limited v. Biochem Immunosystems, (U.S.) Inc., 2 F. Supp.2d 97, 103 (D.Mass. 1998). The reasons underlying the Virginia court's denial of plaintiff's post-trial motion to amend the complaint; namely, prejudice and injustice, "are precisely applicable to this new complaint presented in the guise of a new action which is virtually identical to the one unsuccessfully sought to be amended." United States v. McGann, 951 F. Supp. 372, 382 (E.D.N.Y. 1997).
Furthermore, the reasons for applying res judicata in this case are particularly strong. "The underlying rationale is that claim preclusion applies if the formal barriers did not prevent the party from a full and fair opportunity in the first action to litigate the substance of the legal theory advanced and remedy sought in the second action." Puerto Rico Maritime Shipping v. Federal Maritime, 75 F.3d 63, 68 (1st Cir. 1996). TFD had numerous opportunities to add the 1996 breach claim as it became clear that the issue was central to the case. In fact, in its papers, TFD states that "by the time of trial, TFD had absolutely no reason to believe the 1996 Agreement was not in the case" and yet it still did not move to add the 1996 breach claim until after the trial had begun. TFD is attempting to belatedly repair that error with this lawsuit, as is confirmed by the language of Count One of the Complaint, which seeks to enforce the previous jury verdict reached "after a full trial on the merits . . . ." However, the Virginia court set aside that verdict for sound reasons.
Count Two of the Complaint alleges that defendants have continued to breach the 1996 Agreement since "the filing of the complaint, the jury verdict and judgment . . . This claim was not and could not have been litigated in the earlier lawsuit." TFD's contention is meritless. As the Virginia court noted, TFD was aware of the potential for recovery for breach of the 1996 Agreement as evinced by the first suit it filed and then dismissed. TFD should have included the 1996 breach claim in the Virginia lawsuit. Had it done so, the Virginia court's decision would have governed the parties' future rights regarding all breaches. Phoenix Canada Oil, Ltd. v. Texaco Inc., 749 F. Supp. 525, 537 (S.D.N.Y. 1990). TFD's failure to include the claim in the earlier action bars it "for all time from reasserting that claim." Id.
Therefore, the defendant's Motion to Dismiss is allowed. Judgment may be entered for defendants.