Appeal from a judgment order entered in the United States District Court for the Southern District of New York, MacMahon, Judge, dismissing appellant James W. Herendeen's complaint on the ground that the matters complained of were res judicata.
Waterman, Oakes and Meskill, Circuit Judges.
This appeal is from an order of Judge MacMahon of the Southern District of New York dismissing James Herendeen's complaint against the appellees, Champion International Corporation ("Champion"), Nationwide Papers Incorporated ("Nationwide") and the trustees and administrator of the Retirement Income Plan for Salaried Employees of Certain Subsidiaries of U.S. Plywood - Champion Papers, Inc., the ("Plan)," on the ground that the matters complained of were res judicata. The court concluded that the issues set forth in plaintiff's complaint had been previously decided in a state court proceeding which had there resulted in a dismissal of Herendeen's state court complaint for failure to state a claim upon which relief could be granted. The single question presented for review is whether the prior state court judgment is res judicata as to the action now under consideration. We find that it is not. Accordingly, we reverse the order below and remand the case for further proceedings in the district court.
Herendeen is a former employee of defendant Nationwide.*fn1 He voluntarily resigned his position as a paper salesman of Nationwide on May 15, 1969, and took new employment with a competitor of Nationwide. He subsequently instituted suit in the Supreme Court, New York County, against U.S. Plywood - Champion Papers, Inc. (now Champion) and its subsidiary Nationwide and several of its officers and employees. He charged that the corporation acted fraudulently by inducing him to leave the paper business in order to deprive him of his employee and pension benefits by promising him that he would receive a new written employment contract and would continue to receive all of his employment benefits; but that after he relied on the promise he did not obtain a new contract. In that complaint Herendeen sought damages of $200,000 for the loss of his commissions in the paper industry, and $75,000 in lost pension benefits. The suit in the state court was determined on the merits against Herendeen, Herendeen v. U.S. Plywood - Champion Papers, Inc. (Sup. Ct. N.Y. Co., Nov. 20, 1972), reported in New York Law Journal, Jan. 11, 1973, aff'd, 41 A.D.2d 1030, 343 N.Y.S.2d 785 (1973). As the complaint alleged only an oral "agreement to agree," rather than an enforceable contract, Justice Markowitz held it failed to state a claim upon which relief could be granted,*fn2 and, of course, the court did not resolve any issue relative to the kind or amount of damages.
Herendeen subsequently commenced the present diversity action in the United States District Court. In this action he seeks to obtain payments he alleges the defendants owe him under the Plan and have withheld from him. Here he claims that having regularly paid the required contributions into the Plan fund while employed by Nationwide, he is entitled pursuant to the Plan's eligibility rules to receive benefits under it now that he is no longer an employee of the corporation. He seeks $100,000 for the wrongful loss of benefits due him under the Plan, injunctive relief, and $785,000 in exemplary and punitive damages. This complaint was dismissed below on the ground of res judicata.
For a judgment in a prior action to be a bar to reaching the merits in a subsequent action it is firmly established that the prior judgment must have been rendered by a court of competent jurisdiction, been a final judgment on the merits, and that the same cause of action and the same parties or their privies were involved in both suits.*fn3 Only the third element is at issue here; and while we agree with the trial court that the same parties or their privies are defendants in both suits,*fn4 we do not find the requisite measure of identity of the two causes of action essential to support the trial court's finding of res judicata.
The test for determining whether causes of action are the same for purposes of res judicata has been variously expressed. Most frequently cited as the relevant criteria by both this court and the New York courts are whether a different judgment in the second action would impair or destroy rights or interests established by the judgment entered in the first action,*fn5 whether the same evidence is necessary to maintain the second cause of action as was required in the first,*fn6 and whether the essential facts and issues in the second were present in the first.*fn7
In applying these standards we must first determine what the plaintiff claimed and what the court decided in the first action. Herendeen's state court complaint alleged the breach of an oral agreement by which Nationwide promised to appellant that he would be provided with a written contract of employment and would continue to receive all of the employment benefits due him as an employee of the parent corporation Champion. He further alleged that the representations made by the corporation in an effort to persuade him to accept this oral agreement were false and fraudulent, and were made in furtherance of a conspiracy among the defendants designed to induce him to forego certain commissions and to drive him from his employment. Thus, his state action was grounded upon and sought damages for an alleged fraudulent breach of contract, and the pension Plan's benefits allegedly fraudulently lost to plaintiff were mentioned only as an element of all the damages plaintiff allegedly suffered as a consequence of the fraud. The state court judge dismissed the suit on the sole ground that no new written or otherwise enforceable employment contract had been made, and that even if an oral promise had been made to make one, or an oral agreement to agree to make one had been reached, enforcement was barred by the Statute of Frauds.
Appellees contend that Herendeen's present claim for pension benefits, based upon his fifteen years of employment and of participation in the Plan, is but a new claim for relief based upon the same cause of action that was adjudicated previously in the state case, and that the present complaint only presents a new theory for recovering damages for the alleged wrongful acts of defendants that have been already adjudicated. Moreover, they argue that under the applicable rules of procedure Herendeen could have presented all of his grounds for relief in the state court action, and, therefore, the final judgment in defendants' favor in the state court is here conclusive upon Herendeen not only as to the claims there adjudicated, but also as to claims which could have been there adjudicated.
We can agree with appellee that they have correctly stated the law that is applicable when a plaintiff in his second suit, grounded upon the same allegations of defendant liability as alleged in a former suit, advances in the second suit a new theory of damage recovery only.*fn8 Here, however, plaintiff in his second suit has set forth an independent claim of defendant wrongdoing.
In his state suit Herendeen did not raise, and the trial court did not consider in its adjudicating memorandum, the issue of Herendeen's pension rights pursuant to the contract of employment which he had voluntarily terminated on May 18, 1969, - rights which he now claims had vested prior to his resignation. While the same alleged right, the right to receive pension benefits, is involved in both suits, the wrongful acts of defendants alleged in the two complaints are quite different. In the state court proceeding the plaintiff complained that the corporation failed to contract with him as promised, and, as a consequence, he lost pension benefits. In the district court suit here, the plaintiff alleges that the corporation has, as to him, misapplied the Plan regulations, and as a consequence pension benefits his pre-existing employment entitles him to, have been wrongfully denied to him upon his employment by a competitor.
Moreover, there is no "measure of identity" in the two complaints such that a judgment in the district court action could impair the parties' rights established by the judgment entered in the state court in the prior adjudicated state action. A finding in the federal case that defendants had misapplied the Plan regulations and thereby deprived plaintiff of a full participation in the Plan fund would not affect the state court determination that defendants were under no obligation to contract with plaintiff in connection with his resignation, or affect the adjudicated rights of the parties with reference to any alleged fraudulently promised future employment.
Finally, it seems obvious that evidence which would have tended to support or to deny the allegations in the state complaint would not be required to meet the issues presented in the federal complaint, and the evidence plaintiff needs to sustain the allegations of wrongdoing in the present complaint would not have sustained the plaintiff's claims of defendant wrongdoing in the state court complaint.*fn9 Appellant's inability to establish the existence of a new contract with Champion is in no way dispositive of his alleged vested rights in the Plan, which were built up ...