brought against it by Schlaifer Nance & Company, Inc. ("SNC").
The motion is denied. The stay of discovery in this action,
in effect since March 6, 1991, is vacated.
In a November 1987 licensing agreement (the "Licensing
Agreement") the Estate granted SNC exclusive rights to license
Warhol's artwork, trademarks and copyrights (sometimes
collectively referred to as "Warhol works") to third parties
for use on various products ("Licensed Products").
The Licensing Agreement contains a limited arbitration
clause, which requires disputes under some sections of the
agreement to be arbitrated, and thus leaves those under other
sections to be litigated. Certain rights, duties and
representations in the Licensing Agreement, particularly the
Estate's duties and representations regarding Warhol works,
are set forth both in sections which are subject to
arbitration (see Licensing Agreement § 13) and in others which
are not (see id. §§ 2(a), (b), 4(b), 8(a), 9(iv), (vi)).
In February 1990 SNC sued the Estate, Schlaifer Nance & Co.
v. Estate of Warhol, 742 F. Supp. 165 ("Warhol I"), claiming
that the Estate had fraudulently induced it into the Licensing
Agreement, and had breached the Agreement by false
representations, by refusing to approve the sale of Licensed
Products, and by permitting other entities to sell Licensed
Products, among other things.
The parties are proceeding on some of the Warhol I issues
before a panel of three arbitrators in Atlanta, Georgia (the
In discovery related to Warhol I, the Estate produced to SNC
a copy of a September 29, 1989 agreement between the Estate's
principal beneficiary, the Andy Warhol Foundation for the
Visual Arts, Inc. (the "Foundation"), The Dia Art Foundation
and the Carnegie Institute (the "Museum Agreement"). It
provided for the establishment of an "Andy Warhol Museum,"
which has not yet occurred.
SNC claimed to the arbitrators that the Estate violated
arbitrable provisions of the Licensing Agreement when, in the
Museum Agreement, it granted rights to Warhol works.
Without objection from the Estate, SNC has introduced the
Museum Agreement into evidence before the arbitrators, as well
as testimony concerning the prospective sale of Licensed
Products at the Warhol Museum and whether the Museum Agreement
breached the Licensing Agreement. However, the panel has
excluded testimony respecting the value of the trademark, "The
Andy Warhol Museum" (the "Museum Trademark"), holding that
although SNC had asserted damage claims for the Estate's
prospective permission for the Museum's sale of Licensed
Products, SNC had not in the arbitration claimed that
transferring the Museum Trademark breached the Licensing
Accordingly, SNC brought this action ("Warhol II"), alleging
that the Museum Agreement violated its rights under various
nonarbitrable provisions of the Licensing Agreement, including
"the right to produce or license others to produce Licensed
Products and the right to register, own and use the trademark,
`The Andy Warhol Museum.'" (Warhol II Complaint ¶ 28). SNC also
sues for anticipated future violations of those rights, as well
as breach of its right of first refusal under the Licensing
Agreement. It further claims that the Estate failed to give it
proper notice of transfer to the Foundation of its rights under
the Licensing Agreement.
I. Summary Judgment
Under Fed.R.Civ.P. 56, summary judgment shall be granted "if
the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of
law." Fed.R.Civ.P. 56(c). Purely legal questions, such as the
application of claim preclusion rules here,
are properly resolved on motions for summary judgment. See
Flair Broadcasting Corp. v. Powers, 733 F. Supp. 179, 184
II. Claim Preclusion Resulting From the Arbitration
1. General Principles of Claim Preclusion
"Res judicata will preclude relitigation of a claim where
the earlier decision was a final judgment on the merits
rendered by a court of competent jurisdiction, in a case
involving the same parties or their privies, where the same
cause of action is asserted in the later litigation."
Amalgamated Sugar Co. v. NL Indus., Inc., 825 F.2d 634, 639 (2d
Cir.), cert. denied, 484 U.S. 992, 108 S.Ct. 511, 98 L.Ed.2d
The parties agree that New York law controls the application
of claim preclusion in this diversity action. "It generally
has been held that state law controls the application of the
doctrines of res judicata and collateral estoppel in a
diversity action in federal court where the issues involved in
the prior judgment required the application of State law."
Freeman v. Marine Midland Bank-New York, 419 F. Supp. 440, 446
(E.D.N.Y. 1976). See also Norris v. Grosvenor Marketing Ltd.,
803 F.2d 1281, 1285 (2d Cir. 1986) (collateral estoppel in
diversity actions determined under state law).
Under New York's transactional theory, res judicata bars all
claims arising out of the same transaction or series of
transactions as claims asserted in a prior proceeding, even if
the later-asserted claims are based on different theories or
seek different remedies. See O'Brien v. City of Syracuse, 54
N Y2d 353, 445 N.Y.S.2d 687, 688, 429 N.E.2d 1158, 1159
(Ct.App. 1981); Smith v. Russell Sage College, 54 N.Y.2d 185,
445 N.Y.S.2d 68, 71, 429 N.E.2d 746, 749 (Ct.App. 1981);
Restatement (Second) of Judgments § 24 (1982). Res judicata
bars claims that could have been asserted in an earlier
proceeding but were not, see Cullen v. Paine Webber Group,
Inc., 689 F. Supp. 269, 276 (S.D.N.Y. 1988), and it applies to
arbitrations. In re Ranni, 58 N.Y.2d 715, 458 N.Y.S.2d 910,
910-11, 444 N.E.2d 1328, 1328-29 (Ct.App. 1982); Burmah Oil
Tankers, Ltd. v. Tri-sun Tankers, Ltd., 687 F. Supp. 897, 899
Claims arising out of a single contract are generally
considered part of the same transaction. Phoenix Canada Oil Co.
v. Texaco Inc., 749 F. Supp. 525, 535 (S.D.N.Y. 1990); Burmah,
687 F. Supp. at 900. See also Prime Mgt. Co. v. Steinegger,
904 F.2d 811, 816 (2d Cir. 1990).
Res judicata cannot bar Warhol II, since the arbitration has
not concluded. However, under the cognate doctrine of "prior
action pending," although a prior action has not yet proceeded
to judgment, "The court has the inherent power to dismiss or
stay this action in favor of the [prior] litigation presenting
the same claims and issues." Continental Time Corp. v. Swiss
Credit Bank, 543 F. Supp. 408, 410 (S.D.N.Y. 1982). See also In
re Interstate Stores, Inc., 558 F.2d 1046, 1047 (2d Cir.
1977) (per curiam) (dismissal proper because prior action will
bar instant claim when it is concluded); Semmes Motors, Inc. v.
Ford Motor Co., 429 F.2d 1197, 1201-04 (2d Cir. 1970).
2. Claims in the Arbitration and Warhol II
In the arbitration, SNC has asserted a claim for lost sales
of Licensed Products at an anticipated shop in the Warhol
Museum. That claim is arbitrable under section 13 of the
Licensing Agreement, in which the Estate agreed not to grant
licenses to Warhol works to third parties.
In Warhol II, SNC asserts that by the Museum Agreement the
Estate transferred its rights in Warhol works and its right to
own and use the Museum Trademark. It asserts that this transfer
breached a number of nonarbitrable sections of the Licensing
Agreement:  sections 2(a) and (b) (grant to SNC of an
exclusive license and right to grant sublicenses to Warhol
works for use in Licensed Products);  section 4(b) (Estate's
promise not to transfer copyrights to Warhol artwork to third
for use in Licensed Products);  section 8(a) (Estate's
promise to protect all Warhol trademarks and keep them in the
Estate's or Warhol's name);  section 9(a)(iv) (Estate's
warranty that it had and would continue to have the sole and
exclusive right to transfer to SNC the rights to Warhol works
granted under the agreement);  section 9(a)(vi) (Estate's
representation that it had not granted and would not grant any
right to Warhol works to third parties);  section 15
(Estate's grant to SNC of a right of first refusal for
transactions involving Licensed Products after the Licensing
Agreement expires or terminates); and  section 19 (Estate
permitted to assign its rights and duties under the Licensing
Agreement and rights to Warhol works to the Foundation if the
Foundation assumed the Estate's obligations under the
agreement and SNC received notice of the assignment).
3. Claim Preclusion Applied
SNC has asserted claims arising out of the Museum Agreement
both in the arbitration and in Warhol II. The Estate contends
that all those claims arise out of a single contract and are
part of a single claim for res judicata purposes. Although in
Warhol II SNC alleges that the Museum contract violates
nonarbitrable provisions of the Licensing Agreement, the Estate
argues that SNC could have asserted those claims under an
arbitrable section of the Licensing Agreement.
Since the arbitration will proceed to final judgment and SNC
could have asserted its Warhol II claims there but did not, the
Estate's argument runs, those claims are barred.
However, SNC has asserted in Warhol II claims under sections
of the Licensing Agreement that are not subject to arbitration.
While those same claims might have been asserted in the
arbitration under another, arbitrable section of that
agreement, SNC chose to bring them here, as the agreement gives
it a right to do:
Arbitration is, however, a matter of contract,
and the contours of the arbitrator's authority in
a given case are determined by reference to the
arbitral agreement. Parties to such an agreement
cannot be required to submit to arbitration any
matter that they did not agree would be subject
to that manner of dispute resolution . . . . A
party who consents to the inclusion in a contract
of a limited arbitration clause does not thereby
waive his right to a judicial hearing on the
merits of a dispute not encompassed within the
ambit of the clause.
Davis v. Chevy Chase Financial Ltd., 667 F.2d 160, 165 (D.C.
Cir. 1981) (citation omitted). See also Campeau Corp. v. May
Dep't Stores Co., 723 F. Supp. 224, 227 (S.D.N.Y. 1989).
While arbitration "will generally bar claims falling under
an arbitration clause even if the claims were not actually
raised in the arbitration proceeding, . . . arbitration cannot
be raised as a bar to claims falling outside the arbitration
agreement." Williams v. E.F. Hutton & Co., 753 F.2d 117, 119
(D.C. Cir. 1985) (citation omitted). See also Schattner v.
Girard, Inc., 668 F.2d 1366, 1368 (D.C. Cir. 1981) ("claims
will not be barred unless they come within the scope of an
The Estate's claims in Warhol II fall outside the parties'
agreement to arbitrate since they are asserted as violations of
nonarbitrable sections of the Licensing Agreement. Therefore,
the arbitration cannot bar them. See Williams, 753 F.2d at 119
(issue is not whether claims could have been brought in
arbitration, but whether they should have been brought there).
The Estate concedes that the parties consented to claim
splitting in their agreement to a limited arbitration clause.
It argues that although SNC could have arbitrated or litigated
the question whether the Museum Agreement breached the
Licensing Agreement, when SNC chose arbitration it was obliged
to submit all arbitrable claims regarding the Museum Agreement
(as one "transaction") to the arbitrators. That argument,
however, gives insufficient regard to the structure of the
Licensing Agreement. A single "transaction" might violate
various of its section — some arbitrable and
some not — and thus lead to claims in two forums.
There is no principled difference between the right that the
Estate acknowledges to split claims and what SNC has done
here. In both situations a party asserts claims arising out of
one "transaction" in both arbitration and litigation and
therefore splits its claim. Since the Licensing Agreement's
limited arbitration clause allows such claim splitting, the
arbitration will not bar Warhol II.
The foregoing analysis has not ignored, but is not altered
by, SNC's attempt to present evidence to the arbitrators about
the Museum Trademark's value. The offer was excluded upon the
Estate's objection, and under the circumstances does not
amount to such a waiver or election as would bar SNC's right
to litigate the claim.
The Estate argues that SNC's claims regarding transfers of
rights to sales of Licensed Products in Warhol II are in fact
identical to claims asserted before the arbitrators. However,
it cannot be decided on the parties' present submissions
whether there is any substantive difference between the two
claims. In any event, SNC asserts in Warhol II other claims
arising out of the Museum Agreement, such as claims for the
Museum Trademark and violation of its right of first refusal,
which are different from those asserted in the arbitration.
The Estate's motion for summary judgment or a stay is
denied. The stay of discovery in Warhol II is vacated.
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