Appeal from order of dismissal of complaint on grounds of res judicata by Judge Morris E. Lasker, Southern District of New York. The order is affirmed.
Before Lumbard, Mulligan and Van Graafeiland, Circuit Judges.
L M Ericsson Telecommunications, Inc. (Ericsson) is a New York corporation and a wholly owned subsidiary of Telefonaktiebolaget L M Ericsson (LME), a Swedish manufacturer of telephone equipment. Teltronics Services, Inc. (Teltronics) is a New York corporation engaged in the business of selling, installing and servicing telephone equipment some of which was purchased from Ericsson. Since 1975 Ericsson provided financing to Teltronics by guaranteeing substantial bank loans to that company from Nordic American Banking Corporation (Nordic) and First National City Bank (Citibank) pursuant to a security agreement which included among its terms a provision that Teltronics would pledge to Ericsson certain rental agreements between Teltronics and its customers for rental of telephone systems. On February 28, 1979 Teltronics defaulted in an interest payment to Nordic, whereupon Nordic accelerated all of Teltronics' indebtedness. On the basis of this default Citibank declared Teltronics to be in default and also accelerated its indebtedness. Upon demand from the banks Ericsson paid the debt and brought actions in the state courts to recover the money from Teltronics. Ericsson also sought to attach pledged collateral under the terms of the security agreement and notified Teltronics' lessees that rental payments were to be made to Ericsson.
On March 8, 1979 Teltronics filed its first complaint in the Southern District Court of New York, 491 F. Supp. 538 against Ericsson, LME and Nordic in four counts. The first two counts alleged violations of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. The third and fourth counts alleged restraints of trade based upon alleged threats by defendants to cut off supplies and close down Teltronics' Boston operations. The jurisdictional basis urged upon the court in Paragraph Fifth(A) of the complaint included both the Sherman and Robinson-Patman Acts, 15 U.S.C. §§ 1, 2, 13, 13(a) and 15. Teltronics then moved before Judge Morris Lasker for a preliminary injunction which was denied after a hearing on March 28, 1979. No appeal was taken. The defendants then moved to dismiss the complaint for failure to state a claim upon which relief could be granted. After briefing and oral argument, Judge Whitman Knapp*fn1 dismissed the complaint for failure to state a claim under Fed.R.Civ.P. 12(b)(6). A judgment of dismissal was entered on May 16, 1979. No motion was made to amend the complaint and no appeal from the judgment which became final on June 15, 1979 was ever taken.
On August 27, 1979, Teltronics armed with new counsel filed a second complaint in the Southern District of New York again alleging violations of section 1 of the Sherman Act.*fn2 Ericsson was named as defendant but LME was named only as a co-conspirator. Again the complaint alleged that Ericsson was restraining competition, allocating territories and preventing Teltronics from competing in the Boston area. Teltronics sought damages in the amount of $40 million before trebling. On October 16, 1979 Ericsson moved pursuant to Rule 12(b)(6) to dismiss the second action as barred by res judicata by reason of the dismissal of the first action. By order dated March 28, 1980, reported at 486 F. Supp. 836, Judge Lasker denied the motion to dismiss. In his opinion Judge Lasker noted that Teltronics had admitted on oral argument that the cause of action alleged in the present complaint was "the same as that dismissed in the prior action." Id. at 837. While Teltronics' second action pleaded its antitrust contentions in greater detail, he found that Teltronics "had ample opportunity to present its antitrust claim in the earlier action." Id. at 837 (emphasis in original). Judge Knapp, the court noted, had specifically asked Teltronics' counsel during oral argument on the motion to dismiss, what facts supported the antitrust claim.*fn3 The court further found that since Judge Knapp's order was a dismissal on the merits, it was within Rule 41 Fed.R.Civ.P. and thus "technically bars this action." Id. at 838.*fn4
Despite this finding the court denied the motion to dismiss by reason of equitable considerations including Judge Knapp's failure in his decision to discuss explicitly the merits of the purported antitrust claim and the failure of plaintiff's former counsel to refer to statements and testimony in support of the injunctive relief sought.
On April 17, 1980 Ericsson made a motion for reconsideration which the district court treated as a motion for reargument. In its moving papers Ericsson argued that Judge Knapp's dismissal for failure to state a claim operated as a judgment on the merits which barred the second action under Rule 41, and that Judge Lasker erred by requiring the movants to offer affirmative evidence to show that the dismissal was intended to be with prejudice.*fn5 Judge Lasker granted the motion for reargument and dismissed the complaint because subsequent events created serious doubts of Teltronics' good faith sufficient to invoke the equitable considerations accounted for in denying the motion to dismiss on res judicata grounds.
On September 18, 1979 Ericsson and three other creditors had filed an involuntary petition in bankruptcy in the Eastern District of New York requesting that Teltronics be declared a bankrupt. In response Teltronics filed a petition for an arrangement under Chapter XI of the Bankruptcy Act. In an opinion dated April 30, 1980 Bankruptcy Judge Goetz dismissed the Chapter XI proceeding and adjudicated Teltronics a bankrupt. Jules J. Hessen qualified as Trustee for the bankrupt on May 20, 1980. The Bankruptcy Judge found that Teltronics had failed to file a complete list of creditors and schedules of its operations, assets, liabilities and executory contracts, had made false and misleading statements to its creditors and the courts, had abused the jurisdiction of the court and had entered into a transaction with Telecom Equipment Corporation whereby in the words of the Bankruptcy Judge, "Teltronics disposed of all, or virtually all, of what assets remained to it in order to pursue its antitrust claims against Ericsson." She found that this transaction required an investigation to determine whether there was in fact a fraudulent conveyance. For these reasons Judge Lasker found that the balance of equities was tipped in favor of Ericsson and warranted dismissal of the second complaint. Judgment was entered on July 7 and the Trustee noticed this appeal on July 19. The Trustee then moved to substitute himself for Teltronics as the plaintiff-appellant. The motion was consolidated with this appeal. On the argument of this appeal the motion of the Trustee for substitution was granted for the limited purpose of this appeal without prejudice to any counterclaims by Ericsson against Teltronics which may still be pending in the District Court. That presents an issue for the District Court to determine. The order dismissing the complaint is affirmed.
We note at the outset that the Trustee does not dispute that under the literal language of Fed.R.Civ.P. 41(b), Judge Knapp's dismissal of all four counts of Teltronics' original complaint operated as an adjudication on the merits. Nonetheless the appellant urges that Teltronics should be relieved from the application of the doctrine of res judicata. None of the reasons advanced, however, are persuasive.
This court has held that "judgments under Rule 12(b)(6) are on the merits, with res judicata effects ...." Exchange National Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1130-31 (2d Cir. 1976). This rule is in accord with the literal language of Fed.R.Civ.P. 41(b). Judge Knapp's memorandum and order of May 9, 1979 clearly granted defendant's motion under Rule 12(b)(6). Although the order does not refer specifically to the Sherman Act it does recite Teltronics' claim that Ericsson had slowed down or stopped shipments of equipment and "(through) these and various unnamed means and various other tactics (Complaint Para. 45) (the third count), defendants also sought to eliminate Teltronics as a competitor of the Ericsson defendants in the Boston area. Accepting as true all of plaintiff's factual allegations, we are unable to find any provision of the securities acts requiring a filing in the situation above described, or anything that would render defendants liable in damages for their pleaded actions."
While Judge Knapp's order did not cite the Sherman Act or indicate the exact basis of the antitrust claims, it is clear that he dismissed all of the counts and made specific reference to the claim that Ericsson had sought to remove Teltronics as a competitor in the Boston area. This court has emphasized that a final judgment is res judicata "not only to all matters pleaded, but to all that might have been" and "not only as to all matters litigated and decided by it, but as to all relevant issues which could have been but were not raised and litigated in the suit." In re Interstate Stores, 558 F.2d 1046, 1047 (2d Cir. 1977) (quoting Heiser v. Woodruff, 327 U.S. 726, 735, 66 S. Ct. 853, 857, 90 L. Ed. 970 (1946)); see Herendeen v. Champion International Corp., 525 F.2d 130, 133 (2d Cir. 1975).*fn6
In this case the same parties, the same cause of action and the same facts form the basis of the second complaint. It was therefore barred by res judicata principles. Appellant seeks to avoid this principle on the theory that its counsel was inexperienced and that the complaint was hastily prepared. This provides no basis for relief here. In Lambert v. Conrad, 536 F.2d 1183, 1186 (7th Cir. 1976) a similar argument was made to avoid the res judicata doctrine. In rejecting the claim, the court stated:
During the interval plaintiff made no effort to amend his complaint to change the defendants or to seek damages. While the initial complaint seeking injunctive relief might have been hastily drafted, plaintiff had ample time to amend his complaint to seek more comprehensive relief; instead he allowed the action to be dismissed. After judgment was entered, plaintiff could have appealed on the grounds that the district court erred by dismissing on the merits rather than for want of ...