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finding that counterclaims related to the same contract were compulsory, and noting that "[w]henever two courts look at the same contract, differing interpretations are possible, even if not likely. Even if both courts read the contract in the same way, one of them will have spent its time doing so unnecessarily."
Summary of this case from Skyline Steel, LLC v. PilePro, LLCOpinion
06 Civ. 3414 (WHP).
December 8, 2006
James J. Coster, Esq., Satterlee Stephens Burke Burke LLP, New York, NY, Counsel for Plaintiff.
Kyle C. Bisceglie, Esq., Barton Barton Plotkin, New York, NY. Evelyn Harrison Seeler, Esq., Buchanan Ingersoll PC, New York, NY, Counsel for Defendants.
MEMORANDUM AND ORDER
Plaintiff MMZ Associates, Inc. ("MMZ") brings this action against Defendants Gelco Corporation ("Gelco"), GE Capital Fleet Services, Inc. ("GECFS") and Wachovia Insurance Services Inc. ("Wachovia") for breach of fiduciary duty, misappropriation of confidential information, breach of the duty of good faith and fair dealing, and tortious interference with contractual relations. The Complaint alleges that Gelco and GECFS unlawfully disclosed to Wachovia confidential information about MMZ's customers. Presently before this Court is Plaintiff's motion pursuant to Fed.R.Civ.P. 13(a) to enjoin Gelco from pursuing an action in the District of Minnesota that is purportedly related to the case at bar. For the reasons set forth below, Plaintiff's motion is granted.
BACKGROUND
Beginning in or about 1987, Gelco operated a "lessee insurance program" through which customers insured vehicles they leased from GECFS (the "Program"). (Complaint, dated Dec. 30, 2005 ("Compl.") ¶ 4.) In or about 1992, Gelco retained MMZ to serve as primary broker and administrator for the Program. (Compl. ¶ 5.) Between 1992 and 1999, MMZ co-brokered Program-related insurance policies with GE Capital Insurance Agency, Inc. ("GECIA"). (Compl. ¶ 8.) MMZ's administrative expenses were paid from fees collected from Program participants, and the balance of those fees was split evenly between MMZ and GECIA. (Compl. ¶ 8.)
After GECIA was dissolved in or about 1999, MMZ and Gelco operated the Program as "partners-in-fact and/or as joint venturers," and shared the profits generated by the Program. (Compl. ¶¶ 9-10.) According to MMZ, all Program-related written agreements were entered in furtherance of the parties' "partnership" or "joint venture" arrangement. (Plaintiff's Memorandum of Law, dated Sept. 8, 2006, at 3.) One such written contract was a Risk Management and Consulting Services Agreement dated as of September 1, 1999 (the "Risk Management Agreement"). (Compl. ¶ 11.) Pursuant to the Risk Management Agreement, Gelco agreed to provide certain administrative services to MMZ, including "referral, accident reporting, billing and collection, and risk management consultation." (Declaration of Trudy Fraas, dated Sept. 15, 2006 ("Fraas Decl.") Ex. B.)
The Complaint alleges that prior to February 19, 2003, Gelco secretly entered into an agreement with Wachovia to replace MMZ as co-broker for the Program. (Compl. ¶ 13.) Pursuant to this agreement, Gelco provided Wachovia with "detailed, sensitive, confidential and proprietary information" about MMZ's customers. (Compl. ¶ 14.) MMZ filed this action in New York state court on December 30, 2005, alleging, inter alia, that the disclosure of MMZ's confidential customer information violated Gelco's duty of good faith and fair dealing. Gelco removed the action to the Southern District of New York on May 3, 2006.
On August 7, 2006, Gelco initiated a proceeding against MMZ in the District of Minnesota (the "Minnesota Action"). See Gelco Corp. v. MMZ Assocs., Inc., No. 06 Civ. 3293 (D. Minn.). Gelco claims that MMZ annually brokered an insurance policy for vehicle coverage with Gelco as the sole named insured. (Fraas Decl. ¶ 25.) When customers sought insurance under the Program, they were included on the policies as additional named insureds. (Fraas Decl. ¶¶ 23-30.) However, Gelco remained responsible to the insurer for payment of the policies' premiums and fees, for which Gelco was reimbursed by the Program participants. (Fraas Decl. ¶¶ 27, 30.)
From May 1, 2002 to May 1, 2003, Gelco was named on a policy issued by the American International Group (the "Policy" or "AIG Policy"). (Minnesota Compl. ¶¶ 8-9.) Pursuant to the Policy, Gelco directly paid AIG $922,040.99 in premiums and fees. (Fraas Decl. ¶ 30.) In May 2005, AIG determined that Gelco had overpaid by $601,141, and refunded that amount to MMZ as Gelco's broker. (Minnesota Compl. ¶¶ 10-11.) Gelco alleges that it never received this refund from MMZ. (Minnesota Compl. ¶ 12.) The Minnesota Complaint asserts claims for breach of contract, conversion, unjust enrichment, breach of fiduciary duty and constructive trust (the "Minnesota Claims"). (Minnesota Compl. ¶¶ 13-31.)
Plaintiff contends that the Minnesota Claims are compulsory counterclaims in this action, and seeks to enjoin Gelco from prosecuting the Minnesota Action pursuant to Fed.R.Civ.P. 13(a).
DISCUSSION
Under Fed.R.Civ.P. 13(a), a counterclaim is compulsory when it "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction." "A counterclaim . . . `arises out of the transaction or occurrence that is the subject matter of the opposing party's claim' . . . when there is a `logical relationship' between the counterclaim and the main claim.'"Jones v. Ford Motor Credit Co., 358 F.3d 205, 209 (2d Cir. 2004) (quoting United States v. Acquvella, 615 F.2d 12, 22 (2d Cir. 1979)); see also Goldman Marcus, Inc. v. Goldman, No. 99 Civ. 11130 (KMW), 2000 WL 297169, at *3 (S.D.N.Y. Mar. 17, 2000) ("Courts in this Circuit employ a case-by-case approach that looks to the strength and nature of the `logical relationship' between counterclaims and the jurisdiction-conferring claims.") Thus, "[a] claim is compulsory if . . . `the essential facts of the claims are so logically connected that considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.'" Critical-Vac Filtration Corp. v. Minuteman Int'l, Inc., 233 F.3d 697, 699 (2d Cir. 2000) (quotingAdam v. Jacobs, 950 F.2d 89, 92 (2d Cir. 1991)); see also Treppel v. Biovail Corp., No. 03 Civ. 3002 (PKL), 2005 WL 2086339, at *11 (S.D.N.Y. Aug. 30, 2005); Silva Run Worldwide Ltd. v. Gaming Lottery Corp., No. 96 Civ. 3231 (RPP), 2003 WL 22358805, *1 (S.D.N.Y. Oct. 15, 2003). When an action is brought in one federal district court and a compulsory counterclaim is later asserted before another district court, the first court may enjoin prosecution of the second action. Meeropol v. Nizer, 505 F.2d 232, 235 (2d Cir. 1974).Plaintiff contends that this action and the Minnesota Action are logically related because they both arise from the parties' relationship as "partners-in-fact and/or as joint venturers." Gelco responds that the parties' relationship was governed by a collection of discrete contracts rather than a comprehensive partnership or joint venture. Gelco contends that the Minnesota Action is governed by the AIG Policy, whereas this action at most concerns only the Risk Management Agreement. (Defendant's Memorandum of Law, dated Sept. 15, 2006 ("Def. Mem.") at 10.) In the alternative, Gelco asserts that even if all claims arise from the same agreement, Plaintiff still fails to establish a logical relationship between its claims, which pertain to the alleged disclosure of confidential matters, and Gelco's claims, which relate to the alleged conversion of a reimbursement from the insurer.
At this stage of the litigation, the true nature and scope of the parties relationship is unclear. MMZ has thus far offered insufficient support to establish the legal significance of, or all the relevant details about, any "partnership" or "joint venture" between the parties. Likewise, Gelco claims that the broker-insured relationship described in the Minnesota Complaint is governed by the Policy but, at the same time, concedes that "the parties did not reduce their broker-insured relationship to writing." (Def. Mem. at 10.) Gelco also argues that whether the parties had a written brokerage agreement "is beside the point because MMZ's obligation to return the premium is imposed by" statutory insurance law, regardless of the governing policy. (Def. Mem. at 10.) Yet the Minnesota Complaint avers breach of contract without any mention of the insurance statutes. (Minnesota Compl. ¶¶ 13-19.)
Before deciding Gelco's breach of contract claim, the Minnesota district court would be required to clarify the parties' relationship to determine which agreement governs. Likewise, in the action before this Court, MMZ alleges that Gelco breached its duty of good faith and fair dealing. To invoke the covenant of good faith and fair dealing, a plaintiff must "identify sufficiently the contract allegedly breached." Shah v. Royce Labs., Inc., No. 94 Civ. 61 (KMW), 1994 WL 693891, at *2 (S.D.N.Y. Dec. 12, 1994); see also Stillman v. Townsend, No. 05 Civ. 6612 (WHP), 2006 WL 2067035, at *4 (S.D.N.Y. July 26, 2006) ("To invoke the covenant of good faith and fair dealing, Plaintiff must first allege an enforceable . . . agreement.");Banco Espirito Santo de Investimento, S.A. v. Citibank, N.A., No. 03 Civ. 1537 (MBM), 2003 WL 23018888, at *5 (S.D.N.Y. Dec. 22, 2003) ("There can be no breach of the duty of good faith and fair dealing when there is no valid and binding contract from which such a duty would arise." (internal quotation omitted)). Therefore, the nature and scope of MMZ and Gelco's contractual relationship is also relevant to this action.
Because of the overlap between this action and the Minnesota Action, "considerations of judicial economy and fairness dictate that all the issues be resolved in one lawsuit." Critical-Vac Filtration Corp., 233 F.3d at 699 (internal quotations omitted). "Whenever two courts look at the same contract, differing interpretations are possible, even if not likely. Even if both courts read the contract in the same way, one of them will have spent its time doing so unnecessarily." Keith A. Keisser Ins. Agency v. Nat. Mut. Ins. Co., 246 F. Supp. 2d 833, 836 (N.D. Ohio 2003); see also Sage Realty Corp. v. Ins. Co. of N. Am., 34 F.3d 124, 129 (2d Cir. 1994) (holding that a counterclaim was compulsory when it arose from the same contract as the initial claim); Bezuszka v. L.A. Models, Inc., No. 04 Civ. 7703 (NRB), 2006 WL 770526, at *19 (S.D.N.Y. Mar. 27, 2006) (same); King Bros. Prods., Inc. v. RKO Teleradio Pictures, Inc., 208 F. Supp. 271, 275 (S.D.N.Y. 1962) (same). Although this action and the Minnesota Action are not identical, combining the actions will serve the interest of judicial economy by preventing likely duplication of effort. See Jones, 358 F.3d at 209 (noting that "the logical relationship test does not require an absolute identity of factual backgrounds" (internal quotations omitted));Kristensons-Petroleum, Inc. v. Sealock Tanker Co., 304 F. Supp. 2d 584, 588 (S.D.N.Y. 2004) (same).
CONCLUSION
Accordingly, Plaintiff's motion to enjoin Gelco from pursuing Civil Action Number 06 Civ. 3293 in the District of Minnesota is granted.
SO ORDERED.