The opinion of the court was delivered by: CEDARBAUM
This action arises from a series of events which culminated in plaintiff's sale on January 2, 1981, of approximately 35% of the issued and outstanding shares of Corporate Time-Sharing Services, Inc. ("CTS"). Plaintiff, John Cahill ("Cahill"), alleges that the defendant, Arthur Andersen & Company ("Andersen"), participated in a conspiracy to remove him from his position at CTS as an officer, director and shareholder and to gain unlawful control of the company. Plaintiff seeks damages in excess of one billion dollars. For the reasons set forth below, defendant's motion to dismiss the complaint, which I have treated as a motion for summary judgment, is granted.
Cahill was a co-founder of CTS and served as an officer and director of the company from its inception in September 1976 until October 1980, when he alleges he was forcibly removed. He was also a major shareholder of CTS until January 1981, when he sold his shares to Robert Chambers ("Chambers"), another officer of the company. Plaintiff claims that the illegal activities of Andersen and its co-conspirators were intended to force him out of CTS and enable them to gain control in order to transform the company into a public corporation. Plaintiff alleges that, to accomplish this end, "the conspiring shareholders and directors destroyed plaintiff's office, physically assaulted him with armed force, summarily terminated his salary in violation of his employment contract and accused the plaintiff of misuse of corporate funds through his business expense account while preventing him access to his expense receipts with irresistible force." Amended Complaint, para. 12. Plaintiff also claims that he was threatened with legal action if he should oppose the conspirators' scheme and that "stock or jail" became the conspirators' "oft pronounced ultimatum."
On January 2, 1981, plaintiff sold his holdings in CTS
to Chambers for $75,000 and entered into a consulting agreement with CTS whereby he was to receive approximately $500,000 for his services over a ten-year period. The agreement also referred to plaintiff's alleged misuse of corporate funds and provided that plaintiff would agree to an examination by Andersen into those allegations. It also contained a restrictive convenant prohibiting plaintiff from competing with CTS during the period of the consulting agreement. Plaintiff claims that the "false" allegations of misuse of corporate funds forced
him to sign the agreement and to sell his CTS shares. At the same time, plaintiff also agreed to sell his interest in a related partnership for $1,000. Plaintiff contends that the price he received for both the stock and the partnership interest were far below market value. To determine the value of his shares, Cahill relies on a preliminary prospectus published on or about August 9, 1983, which was prepared for a public offering of CTS shares. Plaintiff asserts that because on August 9, 1983, less than 50%, or 750,000 shares ($450,000 worth), were offered to the public at $6.00 per share, 100% of the CTS stock would have been worth $9,000,000 at that time. Plaintiff also claims that on August 9, 1983, CTS's annual revenues were half of what they had been on January 2, 1981, when he sold his stock. Accordingly, plaintiff reasons that, in January 1981, the total value of CTS stock was $18,000,000 and that his roughly one-third holding was worth $6,300,000 (35% of $18,000,000). As a result, the purchase price of $75,000 which plaintiff actually received allegedly constitutes "robbery, extortion, securities fraud, and grand larceny to the tune of $6,225,000." (Amended Complaint, para. 40).
Plaintiff's Prior Action Against Chambers, et al.
In 1982, plaintiff filed a complaint alleging substantially similar claims against Chambers, J. Kevin Murphy, Joseph F. Carlino, James E. Haley, Marc C. Gillen, and John Does 1-5
(82 Civ. 6327). In that action in this court, plaintiff claimed that the named defendants, together with others unknown to plaintiff, conspired to remove him from his position as chief executive officer of CTS by falsely accusing him of misuse of corporate funds, by entering into an unlawful shareholder's agreement without his knowledge or consent, and through numerous acts of mental and physical intimidation and coercion, including the posting of armed guards at the CTS offices and an early morning ransacking of plaintiff's office at CTS. Plaintiff claimed that he was forced by defendants to sell his shares of CTS at a price substantially below market value, to resign from his position at CTS and forfeit his $130,000 per year salary, and to sell an interest in a related partnership for an inadequate price.
Important for the purposes of this suit, plaintiff also alleged that in conjunction with the agreement to sell his shares, he entered into a consulting agreement with CTS, again under extreme duress, which contained a provision permitting Andersen to audit his allegedly improper business expenses. Plaintiff contended that, despite his full compliance with the audit, Andersen failed to issue a report and that such failure was part of defendant's conspiracy to ensure that plaintiff would not expose the conspirators' illegal acts.
Plaintiff asserted numerous claims for relief based on these events. The first two claims called for the rescission of his agreements with the defendants and the return of his CTS stock and the related partnership interest. The third claim requested damages in the amount of $974,000 to compensate plaintiff for the true value of the shares and the partnership interest. The fourth claim, also for rescission, alleged that the agreements were unconscionable and should be set aside. The fifth, sixth and seventh claims were based on alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). The fifth claim asserted that defendants' conduct constituted larceny by extortion, in violation of New York Penal Law § 155.05(2)(e) and constituted a pattern of racketeering activity as defined by 18 U.S.C. § 1961 entitling plaintiff to damages in the amount of $6,702,000 plus costs and attorney's fees. Plaintiff's sixth and seventh claims alleged that defendants' activities violated 18 U.S.C. § 1951, and 18 U.S.C. § 1341, resulting in a pattern of racketeering activity in violation of 18 U.S.C. § 1961.
On April 14, 1983, the parties entered into a stipulation of settlement which settled and discontinued plaintiff's action with prejudice. The stipulation of settlement made minor changes in the January 2, 1981 consulting agreement between plaintiff and CTS, but otherwise fully ratified and confirmed the consulting agreement and all other agreements between the parties, including the purchase price of plaintiff's stock and partnership interest. The parties appeared before the court on April 14, 1983 and submitted a proposed order to the Honorable Henry F. Werker confirming and approving the settlement. On that date, the Court satisfied itself that plaintiff was aware of the implications of the settlement.
Plaintiff's Present Action
Plaintiff has filed this action against Andersen for damages in excess of one billion dollars based on factual allegations virtually identical to those in his 1982 complaint. The present complaint alleges three causes of action against Andersen: (i) securities fraud, (ii) illegal intermeddling in the business affairs of CTS, and (iii) violations of RICO. The defendant has moved, pursuant to Rules 12(b)(6) and 9(b), to dismiss the complaint for failure to state a claim upon which relief can be granted. As grounds therefor, defendant contends that (i) the complaint fails to state a claim for securities fraud, (ii) the complaint fails to state a claim for tortious interference with contractual relations
and, in any case, these claims are barred by the applicable statute of limitations; (iii) plaintiff's RICO claims are barred by the statute of limitations; and (iv) the complaint fails to comply with the requirements of Rule 9(b). Defendant also seeks an award of attorney's fees and costs pursuant to Rule 11. Although defendant has not expressly moved to dismiss on the ground that plaintiff should be precluded by the settlement of the earlier suit from bringing this suit, defendant raises the issue in the Affidavit of Bernard Sellier submitted in support of its motion and attaches as exhibits copies of the complaint, the transcript of the proceedings before the Honorable Henry F. Werker, and the releases executed by plaintiff.
Because the parties have submitted, and I have considered in deciding this motion, matters outside the pleadings, I have treated defendant's motion as one for summary judgment under Rule 56. Both parties have had ample opportunity to present all material relevant to this motion.
The Effect of the Prior Action
The first issue I have considered is what effect, if any, the settlement and dismissal of the prior action should have on plaintiff's present claims. It is clear from comparison of the pleadings in the first and second actions that plaintiff is asserting substantially the same causes of action against Andersen that he asserted against the defendants in the first action. Although plaintiff has elaborated on some of the factual allegations, both suits arise from the series of events leading up to plaintiff's sale to Robert Chambers of the shares he held in CTS and his "forced" retirement from the company. It is indisputable that, had plaintiff named in the present suit any of the defendants named in his first suit, the res judicata effect of the order of discontinuance with prejudice, as well as the releases, would bar plaintiff from relitigating these claims as to those defendants.
A dismissal with prejudice constitutes a judgment on the merits just as fully and completely as if the order had been entered after trial, and bars future suits by plaintiff upon the same causes of action. Lawlor v. National Screen Service Corp., 349 U.S. 322, 327, 99 L. Ed. 1122, 75 S. Ct. 865 (1955); Nemaizer v. Baker, 793 F.2d 58 (2d Cir. 1986). Similarly, a decree of settlement constitutes judgment on the merits, and will be given full res judicata effect in a subsequent suit between the same parties on the same causes of action as those compromised in the settlement. Nemaizer v. Baker, supra; Smith v. Alleghany Corp., 394 F.2d 381, 391 (2d Cir.), cert. denied sub nom. Smith v. Kirby, 393 U.S. 939, 21 L. Ed. 2d 276, 89 S. Ct. 300 (1968).
The doctrine of res judicata was created to promote judicial efficiency and certainty in legal relations and bars repetitive litigation on the same cause of action. Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 92 L. Ed. 898, 68 S. Ct. 715 (1948); Norris v. Grosvenor Marketing Ltd. et al., 803 F.2d 1281 (2d Cir. 1986); Expert Electric, Inc. v. Levine, 554 F.2d 1227 (2d Cir.), cert. denied, 434 U.S. 903, 54 L. Ed. 2d 190, 98 S. Ct. 300 (1977).
I have already determined that there is an identity of issues between the first and second actions. Accordingly, the only question is whether there is sufficient identity of parties to apply the doctrine of res judicata.
Andersen was not a named defendant in plaintiff's first action, although arguably, Andersen was intended as one of the five "John Doe" defendants sued in that action.
Although the requirement of identity of parties has been abandoned for purposes of collateral estoppel against a party who had a full and fair opportunity to litigate the same issue in a prior lawsuit, see e.g., Parklane Hosiery Co. v. Shore, 439 U.S. 322, 58 L. Ed. 2d 552, 99 S. Ct. 645 (1979), Cliff v. Internal Revenue Service, 496 F. Supp. 568 (S.D.N.Y. 1980), courts still require mutuality for claim preclusion. But even for purposes of claim preclusion, the trend is toward a relaxation of strict mutuality by a broadening of the concept of parties and their privies.
In Ruskay v. Jensen, 342 F. Supp. 264 (S.D.N.Y. 1972), aff'd sub nom. Ruskay v. Waddell, 552 F.2d 392 (2d Cir.), cert. denied, 434 U.S. 911, 54 L. Ed. 2d 197, 98 S. Ct. 312 (1977), the shareholders of a mutual fund sued the corporate investment advisor, the directors and officers of the advisor, and the corporation which had acquired over 90% of the outstanding shares of the advisor and merged the advisor into its subsidiary, to recover profits made by the investment advisor's shareholders upon the sale of their stock. The defendants moved to dismiss on the ground that the consolidated derivative suits (four separate suits had been filed) were barred by a judgment in an earlier shareholder's derivative suit. Since the earlier actions were also brought on behalf of the company and its shareholders, the plaintiffs in all the actions were the same. However, two new defendants had been added in the later suit. Regarding the lack of complete identity of parties, Judge Metzner stated:
The present case is a proper one for dispensing with the mutuality requirement. The plaintiffs in Horenstein/Ruskay [the earlier actions] chose the forum in which they litigated, had complete discovery on all issues, and voluntarily surrendered [the plaintiff's] claims in exchange for the $650,000 settlement payment. Furthermore, they were fully aware of the role played by the present defendants who were not parties to the earlier proceeding. The participation of these defendants in the challenged transactions was not independent of that of the other defendants, and in fact in the present complaint they are named merely as "co-conspirators" with the Horenstein/Ruskay defendants.
Id. at 271. The same rationale applies here. Plaintiff chose the forum of the prior litigation as well as the parties from whom he would seek relief. At the time plaintiff agreed to settle the action pending before Judge Werker, he was aware of Andersen's role in the activities which formed the basis of his suit. His first complaint alleged specific acts on the part of Andersen which facilitated the conspiracy,
but, for whatever reason, he chose not to name Andersen as a party to that suit. In addition, Andersen's participation in the activities that the plaintiff now complains of is not independent of the actions of the earlier defendants.
The primary difference ...