as if in fact the contract was terminated at that point.
Alesayi initiated this action in October, 1989. Soon thereafter, Sheikh Alesayi instituted an action in March, 1990, against Canada Dry before the Grievances Board of the Tenth Commercial Circuit of the Kingdom of Saudi Arabia ("the Grievances Board") for breach of contract arising from defective extracts, defective bottles, loss of commercial reputation and costumers' confidence, and loss of capital invested over the period of time from 1970 through October, 1982. Alesayi claimed damages of 46,751,427 Saudi Riyals. (Pl.'s Memo. of Law in Oppn. to Def's Mot. to Enjoin Prosecution of Foreign Action, Exh.s B-C; Def's Memo of Law in Supp. of Mot. to Enjoin, at 2). In July, 1990, this court denied Canada Dry's motion to enjoin Alesayi from concurrently prosecuting Canada Dry in Saudi Arabia. Alesayi Beverage Corp. v. Canada Dry Corp., No. 89 Civ. 7221, slip op. (S.D.N.Y. July 6, 1990) (Broderick, J.). The Second Circuit affirmed. Alesayi Beverage Corp. v. Canada Dry Corp., 930 F.2d 909 (2d Cir. 1991).
In October, 1995, the Grievances Board denied Sheik Alesayi's claims. In March, 1996, the Fourth Scrutiny Court upheld the Grievances Board's decision.
II. Claim/Issue Preclusion
Canada Dry argued that the decision by the Saudi Arabian courts precluded this court's consideration of Alesayi's claims. Canada Dry's position necessarily raised the issue of whether the Saudi courts' decisions have effect in this court.
Under federal law, the recognition of foreign judgments and proceedings is governed by principles of comity. Hilton v. Guyot, 159 U.S. 113, 163, 40 L. Ed. 95, 16 S. Ct. 139 (1895); Victrix S.S. Co. v. Salen Dry Cargo, 65 Bankr. 466, 468 (S.D.N.Y. 1986) (Carter, J.), aff'd, 825 F.2d 709 (2d Cir. 1987). In Hilton v. Guyot, the seminal case in the area of enforcement
of foreign judgments, the United States Supreme Court defined comity as "the recognition which one nation allows within its Territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws." Hilton, 159 U.S. at 164. The Court held that if the foreign forum provides a full and fair trial before a court of competent jurisdiction, under a system of procedural fairness akin to the principles governing United States courts, and there is nothing to show either prejudice or fraud in the foreign forum, then "the merits of the case should not, in an action brought in this country upon the judgment, be tried afresh . . . upon the mere assertion of [a] party that the judgment was erroneous in law or in fact." Canadian Imperial Bank of Commerce v. Saxony Carpet Co., Inc., 899 F. Supp. 1248, 1252 (S.D.N.Y. 1995) (Batts, J.) (quoting Hilton, 159 U.S. at 202-03).
It is well established that United States courts are not obliged to recognize judgments rendered by a foreign country, but may choose to give res judicata effect to foreign judgments on the basis of comity. This Circuit has consistently extended comity "whenever the foreign court has proper jurisdiction and enforcement does not prejudice the rights of United States citizens or violate domestic public policy." Victrix S.S. Co. v. Salen Dry Cargo A.B., 825 F.2d 709, 713 (2d Cir. 1987); Pariente v. Scott Meredith Literary Agency Inc., 771 F. Supp. 609, 615 (S.D.N.Y. 1991) (Leisure, J.). The court has previously found that it is primarily principles of fairness and reasonableness that should guide domestic courts in their preclusion determinations. Gordon & Breach Science Pub. v. Am. Inst. of Physics, 905 F. Supp. 169, 179 (S.D.N.Y. 1995) (Sand, J.).
If a final judgment is reached first in the foreign court, it can then be pled as res judicata in the domestic court. Scheiner v. Wallace, 832 F. Supp. 687, 693 (S.D.N.Y. 1993) (Sweet, J.) (citing China Trade & Dev. Corp. v. M.V. Choong Yong, 837 F.2d 33, 36 (2d Cir. 1987)).
Because this is a diversity action, the law of the forum with respect to comity should be applied. British Midland Airways Ltd. v. Int'l Travel, Inc., 497 F.2d 869, 871 n.2 (9th Cir. 1974); Pariente, 771 F. Supp. at 615. New York law therefore determines the extent of the preclusive effect of the Saudi Arabian judgment. With certain exceptions, New York law provides that "a foreign country judgment that is final, conclusive and enforceable where rendered must be recognized and will be enforced as 'conclusive between the parties to the extent that it grants or denies recovery of a sum of money.'"
Pariente, 771 F. Supp. at 615 (quoting In re Union Carbide Corporation Gas Plant Disaster at Bhopal, 809 F.2d 195, 204 (2d Cir.), cert. denied, 484 U.S. 871 (1987)). Employing a liberal standard, New York courts presume that a foreign country judgment is valid "if that judgment, or the pleadings, shows that the court had jurisdiction over the action and is a court of general jurisdiction." Pariente, 771 F. Supp. at 615 (quoting 54 N.Y.Jur.2d, Enforcement and Execution of Judgments § 60, at 90 (1986)). As noted in the commentaries to the New York statute that governs foreign judgments, "so liberal has New York case law been in the recognition of the judgments of foreign nations that the occasion for the use of Article 53 has been rare." Siegel, N.Y.C.P.L.R. § 5301 Practice Commentary, at 486 (McKinney's 1978); Pariente, 771 F. Supp. at 616. Here, the Saudi court had jurisdiction over the action before it; thus, this court can recognize the Saudi decisions. The court turns to whether those decisions have preclusive effect.
A. Res Judicata
The doctrine of res judicata holds that "[a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398, 69 L. Ed. 2d 103, 101 S. Ct. 2424 (1981); Saud v. Bank of New York, 929 F.2d 916, 918 (2d Cir. 1991). Under New York's "transactional approach" to res judicata, claims in a later action that arise out of the same "factual grouping" that formed the predicate for the prior proceeding are deemed to be part of the same "claim." The rationale of this approach is to prevent parties from splitting their claims among various jurisdictions. The court will bar such claims irrespective of whether they are based upon different legal theories or seek different relief. Davidson v. Capuano, 792 F.2d 275, 278 (2d. Cir. 1986) (citing Smith v. Russell Sage College, 54 N.Y.2d 185, 192-93, 445 N.Y.S.2d 68, 71, 429 N.E.2d 746 (1981)).
argued that the October 24, 1995 decision by the Grievances Board of the Tenth Commercial Circuit of the Kingdom of Saudi Arabia precluded the current action. In the that decision, the Saudi court denied Alesayi's claims, finding, inter alia, that Alesayi did not show that Canada Dry violated the contract nor that the alleged acts of Canada Dry caused Alesayi's damages. That decision, as both parties' declarants indicated, while valid, was not enforceable when the parties briefed the issue because Alesayi had filed an appeal within the 30-day appeals period. (Ltr. of 11/28/95 from Samuel D. Rosen to Hon. Robert L. Carter at 4). "A judgment shall become enforceable if the period allowed for appeal lapses without the losing party having appealed or if it has been confirmed by the appellate court within the Board of Grievances." (Decl. of Hassan Mahassni [for Canada Dry] at P 6).
Since the parties' briefing, however, the appellate court has affirmed the Grievances Board decision; that decision is now final and enforceable. (Ltrs. of 4/19/96 and 5/3/96 from Robert E. Pokusa, counsel for Alesayi; Official Translation of the Stamp of the Fourth Circuit of the Grievances Board). For res judicata purposes, it is not material that the Saudi action was brought after Alesayi commenced the action presently before the court. Chicago, R. I. & P. Ry. Co. v. Schendel, 270 U.S. 611, 70 L. Ed. 757, 46 S. Ct. 420 (1926); Restatement of Judgments § 43 (1980).
However, there are situations in which res judicata is not appropriate. These situations--exceptions to the rule against claim-splitting--are set forth in the Restatement (Second) Judgments, Section 26(1). Under Exception (c),
successive actions in various jurisdictions are allowed when a plaintiff is unable to seek relief in the first action because the court does not have subject matter jurisdiction. In this case, Alesayi initiated the New York action on claims arising from November, 1982 to February, 1991. Then Alesayi instituted the Saudi action to recover on claims covering the period of 1970 through October, 1982. Alesayi could not have sought recovery in this court on the Saudi claims because those claims were barred by even the most permissive of the relevant New York limitations bars.
Therefore, regardless of whether the claims before the Saudi court arose from the same factual grouping as the claims in the New York action, the Saudi decision does not have preclusive effect because the statute of limitations bar stripped this court of subject matter jurisdiction over the Saudi claims.
B. Collateral Estoppel
Collateral estoppel ("issue preclusion") bars a party from relitigating matters determined adversely to him in a prior action.
The Second Circuit has held that in New York, collateral estoppel requires two levels of inquiry: (1) the court must determine if the issues are identical and the issues necessarily decided in the prior action are decisive in the present action; and, (2) the court must determine whether the party to be bound had a full and fair opportunity to contest the determination. Conte v. Justice, 996 F.2d 1398, 1400 (2d Cir. 1993).
The party seeking the benefit of collateral estoppel bears the burden of proving that the issues resolved in a prior proceeding and those raised currently are identical. Khandhar v. Elfenbein, 943 F.2d 244, 247 (2d Cir. 1991); Ryan v. New York Telephone Co., 62 N.Y.2d 494, 501, 478 N.Y.S.2d 823, 827, 467 N.E.2d 487 (1984). Issues are not identical when the standards governing them are significantly different. Cullen v. Margiotta, 811 F.2d 698, 732 (2d Cir.), cert. denied, 483 U.S. 1021 (1987).
Here, there is evidence that the standards governing Alesayi's breach of contract claim in the Saudi action and the current action are significantly different--Alesayi need only prove its case by a preponderance of the evidence to this court while it had to meet a much higher, stricter standard before the Grievances Board.
Thus, on this inquiry alone, Canada Dry fails to show that collateral estoppel bars Alesayi's current claims.
Since neither res judicata nor collateral estoppel bars subject matter jurisdiction in this case, the court turns to a consideration of the claims--breach of contract arising from defective and overaged extracts and breach of express and implied warranties--and the counterclaim--breach of contract arising from a violation of the Agreement's dilution of efforts clause--on their merits.
III. Choice of Law
The License Agreement between Canada Dry and Alesayi provides that New York law governs the issues in this case; neither party contested the choice of law clause. Ostano Commerzanstalt v. Telewide Systems, Inc., 794 F.2d 763, 765 n.1 (2d Cir. 1986); (Joint Exh. 1 at 6). Under New York law, the plaintiff bears the burden of proving the material allegations of the complaint by a fair preponderance of the evidence. Canada Dry, as a counterclaim-plaintiff, bears the same burden on its counterclaim. V.S. Int'l, S.A. v. Boyden World Corp., 862 F. Supp. 1188, 1195 (S.D.N.Y. 1994) (Leisure, J.).
IV. Breach of Contract
A. Statute of Limitations
By characterizing the Agreement as a contract for the sale of goods--the extracts--Canada Dry argued that the Uniform Commercial Code dictated the appropriate four-year limitations period. Alesayi asserted that the Agreement should be governed by the six-year statute of limitations for contracts under New York's C.P.L.R. § 213 because the Agreement was a contract for both goods and services.
Whether a contract is for the sale of goods or for services provided is a question of fact. Farm Automation Corp. v. Senter, 84 A.D.2d 757, 443 N.Y.S.2d 765, 765 (N.Y. S. Ct. 1981). In determining whether the violation of a contract providing both for the sale of goods and for the furnishing of services is controlled by the four-year statute of limitations of U.C.C. § 2-725 (McKinney's 1993) or the six-year statute of limitations in N.Y.C.P.L.R. § 213(2), the test is whether the contract is "predominantly" one for the sale of goods or for the providing of services. Levin v. Hoffman Fuel Co., 94 A.D.2d 640, 462 N.Y.S.2d 195, 196 (N.Y. S. Ct.), aff'd, 60 N.Y.2d 665, 468 N.Y.S.2d 104, 455 N.E.2d 663 (1983). If the provision of services or rendering of other performance predominates and is not merely incidental or collateral to the sale of goods, then the U.C.C. does not apply. Compania Sud-Americana de Vapores v. IBJ Schroder Bank & Trust, 785 F. Supp. 411, 431 n.19 (S.D.N.Y. 1992) (Kram, J.). This inquiry depends heavily on the facts and terms peculiar to that contract. McNally Wellman Co. v. New York State Electric & Gas Co., 63 F.3d 1188, 1194 (2d Cir. 1995) (resting the determination of the applicable statute of limitations period on the essential terms and consequences of the contract); see also Coca-Cola Bottling Co. of Elizabethtown v. Coca-Cola Co., 696 F. Supp. 57, 85 (D. Del. 1988) (discussing cases in which courts have alternatively found actions involving franchises, distributorships, or other "mixed" goods and services contracts as both outside and within the U.C.C. for statute of limitations purposes), aff'd in part and rev'd in part on other grounds, 988 F.2d 386 (3d Cir. 1993), cert. denied, U.S. , 114 S. Ct. 289 (1993).
The court finds that while the contract provides for the sale of extracts, it also provides for services that were not incidental to the sale of goods. Specifically, Article 7 of the Agreement indicates that the purpose behind the agreement was the establishment of a bottling business by Alesayi, not just the sale of extracts from Canada Dry to Alesayi:
The Bottler agrees to establish and commence operation of a plant for the production of "CANADA DRY" beverages, at Bottler's expense no later than July 31, 1969. . . . When the demand for "CANADA DRY" beverages in the territory shall necessitate additional facilities, the Bottler agrees to establish such additional facilities.
Article 7, License Agreement (emphasis added).
Furthermore, Shabb testified that the Agreement contemplated other activities beyond the sale of extract. (Tr. at 134). After carefully evaluating the Agreement in its entirety, the court finds that the sale of extracts did not predominate and therefore the breach of contract action is subject to the six-year statute of limitations under New York's C.P.L.R. § 213(2). Because Alesayi and Canada Dry entered into an agreement to toll the statute of limitations as of November 1, 1988, Alesayi may recover on claims for damages accruing from November 1, 1982.
B. Standards For Breach of Contract
A party seeking recovery for breach of contract must show: (1) a contract; (2) performance by the party seeking recovery; (3) breach of the contract by the other party; and (4) damages attributable to the breach. Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522 (2d Cir. 1994). When a party materially breaches, it has failed to substantially perform the contract and the other party is discharged from performing its obligations. Jafari v. Wally Findlay Galleries, 741 F. Supp. 64, 68 (S.D.N.Y. 1990) (Sweet, J.).
The power to terminate a contract following breach is one of election. Bigda v. Fischbach Corp., 849 F. Supp. 895, 901 (S.D.N.Y. 1994) (Carter, J.). The non-breaching party faces two options: it may either continue to perform under the contract or it may terminate the contract. Id. If the non-breaching party elects to continue performance, it may not later choose to terminate the contract on account of the breach. Id. However, the non-breaching party may later sue for breach, even though it elected to continue to perform rather than terminate the agreement, if notice of the breach was given to the breaching party. Nat'l Westminster Bank v. Ross, 130 Bankr. 656, 675 (S.D.N.Y. 1991) (Kram, J.), aff'd sub nom, Yaeger v. Nat'l Westminster, 962 F.2d 1 (2d Cir. 1992).
C. The Alleged Breaches
At trial, Alesayi claimed that the market rejected its Canada Dry orange soda as off-taste and off-color because Canada Dry sold Alesayi defective orange extracts and knowingly labelled the extracts with incorrect expiration dates--two acts that constituted a breach of the License Agreement. As a result, Alesayi suffered a loss of profits and loss of value in its business as a going concern. However, Canada Dry contested whether Alesayi satisfied the second element of its breach of contract claim--that Alesayi faithfully performed its contract obligations. To the contrary, Canada Dry argued, Alesayi breached the Agreement by violating the dilution of efforts provision of Article 10 and that Alesayi therefore cannot recover.
1. Article 10 -- Dilution of Efforts
Canada Dry alleged that when Alesayi began to bottle and sell Fifa products in late 1984, Alesayi violated Article 10 of the License Agreement. Alesayi responded that Article 10 did not prohibit the contract bottling of other beverages; rather, it only prohibited the distribution and sale of other beverages that would dilute or tend to dilute Alesayi's efforts on behalf of Canada Dry.
Alesayi also challenged Canada Dry's evidence of dilution and Canada Dry's assertion that Alesayi's de minimis efforts
on behalf of Fifa--while in contravention to the parties' agreement signed on November 14, 1984--rose to the level of a material breach.
Article 10 provides:
The Bottler agrees to devote all of its efforts to the promotion of sales of "CANADA DRY" beverages in the territory, and the Bottler shall not engage in any undertaking, or sell or distribute any beverages other than "CANADA DRY" which shall dilute or tend to dilute the Bottler's effort. Compliance by Bottler with the provisions of this article constitutes a material consideration to Canada Dry in granting this agreement.