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DURHAM INDUS. v. NORTH RIVER INS. CO.

December 11, 1979

DURHAM INDUSTRIES INC., Plaintiff,
v.
THE NORTH RIVER INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: SWEET

In this action to recover damages for abuse of process and Prima facie tort, Durham Industries, Inc. ("Durham") has moved for an order dismissing the four affirmative defenses raised by defendant North River Insurance Company ("North River"). Defendant has responded with a motion for summary judgment pursuant to Fed.R.Civ.P. 56.

The circumstances leading up to this action arose out of an agreement between the Ta Peng Steamship Company ("Ta Peng") and Durham for the delivery of a shipment of toys. After Ta Peng failed to make that delivery, Durham commenced an action before the Honorable Charles E. Stewart, Jr. in the Southern District of New York (Index No. 73 Civ. 4740).

 Durham procured an order of attachment against the bank account of Ta Peng to cover its claimed loss. Ta Peng then applied for and received an order discharging the attachment of its bank account upon the filing of a surety bond which guaranteed the payment of any judgment that might be recovered in the action against Ta Peng. Ta Peng obtained the bond from North River, and as security for issuance of the bond, provided a letter of credit drawn on First National City Bank in the amount of $ 350,000, which permitted North River to draw this amount upon demand.

 On April 28, 1976, a judgment was entered in favor of Durham against Ta Peng in the amount of $ 223,670.08, not including interest or costs. Ta Peng refused to pay this amount and when demand was made upon North River, it also declined to pay. These refusals were apparently due to the fact that the letter of credit had only been extended until April 18, 1976, and North River had failed to draw upon the letter of credit or obtain its extension before that date.

 In June, 1976, Durham brought a separate action against North River before the Honorable Morris E. Lasker in the Southern District of New York (Index No. 76 Civ. 2433), seeking to recover payment under the terms of the bond. North River asserted an affirmative defense of fraud and collusion between Durham and Ta Peng which allegedly released it from its obligation under the terms of the bond.

 At this same time, North River commenced an action against Ta Peng in New York Supreme Court, seeking to compel Ta Peng to reinstitute the collateral for the bond. Ta Peng consented to a judgment on August 25, 1976, and agreed to make 11 monthly payments of $ 20,000 to North River. In fact, only three of those payments were ever made.

 In the action before Judge Lasker, Durham twice moved for summary judgment and orders dismissing North River's affirmative defense of fraud. The second of these motions specifically referred to the settlement of the state court action brought by North River against Ta Peng. The court denied both motions, however, concluding that the defendant had raised genuine issues of fact which could only be resolved after trial.

 After trial, judgment was rendered in the amount of $ 223,670.08, plus interest from the date of the judgment against Ta Peng. That judgment did not include any award of extraordinary costs relating to the prosecution of the case. North River subsequently paid Durham $ 260,992.90 and a satisfaction of judgment was signed by the attorney for Durham on January 30, 1979.

 In this latest action instituted in April, 1979, Durham claims that North River's failure to drop its affirmative defense of fraud after its settlement with Ta Peng constitutes an abuse of process and a Prima facie tort. North River has raised four affirmative defenses in this action: (1) res judicata and/or collateral estoppel; (2) satisfaction of the judgment; (3) failure to state a claim upon which relief can be granted; and (4) lack of in personam jurisdiction over the defendant. Plaintiff seeks to have these defenses stricken as legally insufficient pursuant to Fed.R.Civ.P. 12(f). Defendant has cross-moved for summary judgment on its first two defenses. *fn1"

 1. Res Judicata and Collateral Estoppel

 The binding force of res judicata extends not only to issues actually raised and litigated, but also to issues that might have been raised but were not. See Browning Debenture Holders' Committee v. DASA Corp., 605 F.2d 35, 39 (2d Cir. 1978); Grossman v. Axelrod, 466 F. Supp. 770, 778 (S.D.N.Y.1979). Where a subsequent suit is based on a different cause of action, however, the principle of collateral estoppel renders the prior judgment conclusive only as to matters necessarily litigated and determined in the prior proceeding. Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 597-98, 68 S. Ct. 715, 719, 92 L. Ed. 898 (1948); Expert Electric, Inc. v. Levine, 554 F.2d 1227, 1233 (2d Cir.), Cert. denied, 434 U.S. 903, 98 S. Ct. 300, 54 L. Ed. 2d 190 (1977).

 For a judgment in a prior proceeding to be res judicata in a subsequent action, the prior judgment must have (1) been rendered by a court of competent jurisdiction, (2) been a final judgment on the merits, and (3) involved the same cause of action and the same parties or their privies in both suits. Commissioner of Internal Revenue v. Sunnen, 333 U.S. at 591, 68 S. Ct. 715, 92 L. Ed. 898; Cromwell v. County of Sac, 94 U.S. 351, 352-53, 24 L. Ed. 195 (1877); Expert Electric, Inc. v. Levine, 554 F.2d at 1232-33; Herendeen v. Champion International Corp., 525 F.2d 130, 133 (2d Cir. 1977); 1B Moore's Federal Practice P 0.410(1) at 1152 (2d ed. 1974). In this case, there is no dispute regarding the first two elements and there is no question that the parties are the same in both actions.

 The issue to be resolved is whether the cause of action in this suit and the cause of action that was before Judge Lasker are identical. Unfortunately, the determination as to whether claims are duplicative is not a matter of precision, nor subject to the application of any mechanical formula. See Expert Electric, Inc. v. Levine, 554 F.2d at 1234. The tests have been variously stated as whether a different judgment in the second action would impair rights established by the judgment in the first action; whether the evidentiary basis of the first and second action is the same; or whether the essential facts and issues in the second action were present in the first. Herendeen v. Champion International Corp., 525 F.2d at 133-34.

 The Second Circuit has held that the crucial element underlying all of these standards is the factual predicate of the claim asserted, "(f)or it is the facts surrounding the transaction or occurrence which operate to constitute the cause of action, not the legal theory upon which a litigant relies." Expert Electric, Inc. v. Levine, 554 F.2d at 1234. See also Ellentuck v. Klein, 570 F.2d 414, 428 n. 22 (2d Cir. 1978). Although there is some factual similarity between the earlier action to recover on the ...


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