value of a note convertible into 300,000 shares of Audre stock.
The Court surely cannot say to a legal certainty that the note was worth $ 75,000 or less given its exchangeability for the stock. In fact, on July 31, 1988, Whitney agreed to purchase 40,776 units of an Audre private placement, each unit representing two shares and a warrant, for $ 23,000. Even assuming that each warrant was worth the same amount as a share, which of course is most unlikely, the per share value on that date would have been about 19 cents.
Thus, even on assumptions very favorable to the defendant, the 300,000 shares for which the note was exchangeable were worth at least $ 57,000, valued as of July 31, 1988, less the amount of the note.
Were the value of the warrants less than the value of the Audre shares, or if the value of Audre shares appreciated between July and November, plaintiff well might recover more than $ 75,000. Accordingly, defendant is not entitled to summary judgment for lack of subject matter jurisdiction.
Summary Judgment on the Merits
Givotovsky argues also that he is entitled to summary judgment on the merits because (a) he denies having performed any consulting services for Audre, and thus that he diverted any corporate opportunity, and (b) the only evidence to support the corporate opportunity and fraud claims is hearsay and therefore inadmissible pursuant to Fed. R. Civ. P. 56(e). Whitney does not address these arguments, asserting instead that Givotovsky is collaterally estopped from relitigating the corporate opportunity and fraud issues by virtue of Justice Ramos's decision in the prior state court action.
Whitney's issue preclusion argument is misguided. Under New York law,
an issue will not be precluded in a subsequent action unless "(1) the issue in question was actually and necessarily decided in a prior proceeding, and (2) the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the first proceedings."
Plaintiff has failed to establish either of these requirements.
Although a fair reading of the state court record indicates that Justice Ramos did indeed find Givotovsky had diverted a corporate opportunity and failed to disclose his arrangement with Audre to the Whitney board, neither of these findings was actually or necessarily decided in the requisite sense -- i.e., actually before the judge and open to determination when he rendered his decision and necessary to support the result he ultimately reached.
In the first place, the diversion of corporate opportunity and fraud claims were not properly before the state court. During the trial before Justice Ramos, Whitney proposed amending its answer to assert the corporate opportunity and fraud claims against Givotovsky, but then withdrew its request.
A matter cannot actually have been litigated, in the requisite sense, if it has not been placed in issue by a proper pleading.
Justice Ramos consented to the withdrawal of Whitney's request to amend its answer and later alluded to the future lawsuit. Thus, although Justice Ramos stated that Givotovsky diverted a corporate opportunity, the matter was not actually litigated because the issue was not properly before the court. "Matters excluded from consideration in a prior suit cannot be removed from a later suit."
Permitting Whitney to raise a collateral estoppel defense now would be particularly unjust in light of the fact that it was Whitney that withdrew the issue from the prior action, noting that "we're not going to amend our answer. . . . We are going to . . . start another action and deal with that [corporate opportunity] issue in a plenary action."
Nor were Justice Ramos's remarks necessary to the result in the prior decision. In order to sustain its burden,
plaintiff must demonstrate that the issue to be precluded was "material to the first action or proceeding and essential to the judgment therein."
In consequence, even if Justice Ramos were regarded as actually having made a determination on the claim now before this Court, subsequent litigation of that issue is not collaterally estopped if his findings were not essential to the result ultimately reached.
Justice Ramos's colloquy with counsel at the end of trial reveals that he rejected Givotovsky's claims without significant regard to the allegations of corporate opportunity and fraud. He rejected Givotovsky's contract claim because he was not persuaded that a contract ever existed.
As to the quantum meruit claim, Justice Ramos held that there was no agreement to pay a finder's fee and that Givotovsky had done no compensable work for Audre.
In sum, there is no indication that Justice Ramos's comments on the corporate opportunity and fraud allegations were necessary to his conclusions on the contract and quantum meruit claims.
Finally, Givotovsky amply has demonstrated that he did not receive a full and fair opportunity to litigate the issues in the prior proceeding.
A full and fair opportunity determination "requires consideration of 'the realities of the [prior] litigation,' including the context and other circumstances which . . . may have had the practical effect of discouraging or deterring a party from fully litigating the determination which is now asserted against him."
Considerations include "the importance of the claim in the prior litigation, the incentive and initiative to litigate and the actual extent of litigation . . . and the foreseeability of future litigation."
Even a cursory inspection of the state court record reveals that Givotovsky had little if any opportunity to litigate the corporate opportunity or fraud claims in that proceeding. Whitney did not even attempt to raise the claims until the final day of the trial, obviating any chance Givotovsky might have had to conduct discovery or develop arguments on the issues.
Moreover, although Whitney requested leave to amend its answer in order to assert the present claims, Whitney promptly withdrew the request,
asserting it would raise the claims in a subsequent action. Certainly Givotovsky was entitled to believe at that point that the corporate opportunity and nondisclosure issues no longer were in the case. Givotovsky had neither the incentive nor the initiative to litigate the issues, the issues were not actually litigated, and future litigation was imminently foreseeable. Given "the context and circumstances surrounding the prior litigation that may have deterred the party from fully litigating the matter,"
insufficient grounds exist to collaterally estop litigation of the current action.
Absence of Admissible Evidence
Having rejected Whitney's contention that Givotovsky is precluded from contesting liability, the Court turns to Givotovsky's argument that summary judgment is warranted because Whitney has failed to adduce admissible evidence sufficient to demonstrate a genuine issue of material fact.
According to Givotovsky, Whitney's claims rely entirely on documents which are inadmissible hearsay,
specifically (i) the November 30, 1988 letter from Audre to Givotovsky, (ii) the December 12, 1988 letter from Givotovsky to Audre, and (iii) an Audre memorandum dated June 11, 1988.
Under Givotovsky's theory, Whitney has not identified any admissible evidence which would raise a genuine issue of material fact, and Givotovsky therefore is entitled to summary judgment.
Contrary to Givotovsky's assertions, the Court finds that Whitney has identified sufficient admissible evidence to support its claims. While Givotovsky is correct that the November 30, 1988 Audre letter and Audre's June 11, 1990 memorandum are hearsay to the extent they are offered for the truth of the matters asserted, that does not end the inquiry.
First, Givotovsky's own testimony at the state court trial contradicts his present claim that he did not perform any consulting services for Audre.
"Q . . . Before you go to the board November '88 were you providing consulting services to Audre?
"A No, nothing they agreed to pay for on behalf of Whitney.