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United States District Court, S.D. New York

September 22, 2004.


The opinion of the court was delivered by: SHIRLEY KRAM, Senior District Judge


Daniel Tepper ("Plaintiff") filed suit in Nevada District Court against Fidelity Holdings, Inc. ("Fidelity") based on a dispute over securities transactions (the "Nevada Action"). See Tepper v. Fidelity Holdings, Inc., No. 99-1119 (D. Nev. filed Jul. 27, 2001). Judge Quackenbush decided the matter through binding mediation and found Fidelity liable for damages totaling $522,000. Thereafter, Fidelity paid the sum in its entirety to satisfy the judgment. (Rimberg Decl. Ex. B at 1-2).

Plaintiff now sues Bruce Bendell, Doron Cohen, Richard L. Feinstein, Mitchell C. Littman, Esq., Littman Krooks & Roth P.C., Robert L. Rimberg, Esq., and Rimberg & Associates ("Defendants") in their individual capacities as the officers and attorneys of Fidelity for the same losses at issue in the Nevada Action.

  Defendants move pursuant to Fed.R. Civ. P. 12(b) (6) to dismiss Plaintiff's cause of action for failure to state a claim upon which relief may be granted. In the alternative, Defendants move for summary judgment pursuant to Fed.R. Civ. P. 56(c), citing the preclusive effect of the binding mediation on Plaintiff's current claims for damages. Defendants also move to levy sanctions under Fed.R. Civ. P. 11(b), alleging that Plaintiff and his attorney have pursued a frivolous lawsuit.

  For the reasons set forth below, Defendant's motions are granted in part and denied in part.


  Both the facts and procedural history of the transactions at issue have been described previously by this Court. See Tepper v. Bendell, 2002 U.S. Dist. LEXIS 23303, at 2-7 (S.D.N.Y. Dec 5, 2002). Since 2002, however, there have been significant developments affecting the viability of Plaintiff's three remaining claims.

  On March 27, 2003, Plaintiff received a complete satisfaction of the judgment in the Nevada Action. (Rimberg Decl. Ex B at 1-2). This is clearly evinced by a signed document labeled "Satisfaction of Judgment," which states that the "judgment, with interests and costs, has been fully paid." See id. Fidelity therefore fulfilled its obligations under the stipulated mediation, paying Plaintiff $522,000 for his losses on the securities transactions in question. Nonetheless, Plaintiff continues to assert three causes of action against Defendants in their individual capacities as the officers and attorneys of Fidelity. In return, Defendants move to dismiss these claims and move for summary judgment in the alternative.


  A. Applicable Legal Standards

  1. Motion to Dismiss

  To prevail on a Rule 12(b) (6) motion to dismiss, the Court accepts as true the factual allegations in the complaint and draws all reasonable inferences in favor of the plaintiff. See Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999). However, the Rules require that when "matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56." Fed.R. Civ. P. 12(b) (6). Such actions are mandatory when a party wishes to introduce an extraneous document with information not set forth in the complaint. See Carter v. Stanton, 405 U.S. 669, 671 (1972).

  Defendant relies on a document labeled "Satisfaction of Judgment" that was signed by Plaintiff as the primary piece of evidentiary support for his 12(b) (6) motion. (See Rimberg Decl. Ex. B at 1-2). Because the document was not included in Plaintiff's amended complaint, the Court will convert Defendants' motion to dismiss to a Rule 56(c) motion for summary judgment.

  2. Motion for Summary Judgment

  According to Fed.R. Civ. P. 56(c), summary judgment is appropriate where "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). The moving party bears the initial responsibility of demonstrating the basis for its motion by identifying those portions of the pleadings, depositions, answers to interrogatories, or affidavits on file which it believes demonstrates the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The nonmoving party must then come forward with "specific facts showing that there is a genuine issue for trial," Fed.R. Civ. P. 56(e), by "a showing sufficient to establish the existence of [every] element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322.

  The Court "must resolve all ambiguities and draw all reasonable inferences in favor of the party defending against the motion." Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 249 (2d Cir. 1985). But the Court is to inquire whether "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party," Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986), and to grant summary judgment where the nonmovant's evidence is merely colorable, conclusory, speculative or not significantly probative. Id. at 249-50; see also Argus Inc. v. Eastman Kodak Co., 801 F.2d 38, 45 (2d Cir. 1986), cert. denied, 479 U.S. 1088 (1987). In sum, if the court determines that "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting First Nat'l Bank of Arizona v. Cities Serv. Co., 391 U.S. 253, 289 (1969)).

  B. Defendants' Motion For Summary Judgment Is Granted

  Despite receiving full payment for the judgment in the Nevada Action, Plaintiff continues to assert claims for (1) conversion; (2) breach of fiduciary duty; and (3) negligence. Individual analysis of each of these claims is not necessary because they can be addressed uniformly. Since Fidelity has previously compensated Plaintiff for losses on the securities transactions now at issue, Defendant's motion for summary judgment must be granted.

  Plaintiff entered into a binding mediation with District Court Judge Quackenbush on October 15, 2001 to resolve his dispute with Fidelity. The stipulated agreement described the process as "a final and binding judgment" and included a provision waiving any right to appeal. (Tepper Dec. Ex. 2 at 2). Plaintiff knowingly and intelligently entered into this mediation procedure and therefore cannot escape the final determinations entered into the record by Judge Quackenbush.

  There is no dispute that Plaintiff is suing Defendants on the exact same financial losses for which he was compensated in the Nevada Action. (See Am. Compl. ¶¶ 17-34). However, payment in full by a judgment debtor bars further action by the plaintiff in question against another who is liable for the same damages. Restatement (Second) of Torts § 886 comment b; see also, Nagle v. Franzese, 1991 U.S. Dist. LEXIS 519 (S.D.N.Y. Jan. 17, 1991). More specifically, "[w]here the legal relationship between two parties establishes vicarious liability for one party based on the acts of the other, a suit brought against either of the parties will foreclose subsequent action against the other." Murray v. Dominick Corp. of Canada, Ltd., 631 F.Supp. 534, 537 (S.D.N.Y. Apr. 4, 1986). This Court already delineated the aforementioned doctrine in an earlier opinion when addressing Defendants' first motion to dismiss, assuring that "double recovery is foreclosed." Tepper v. Bendell, 2002 U.S. Dist. LEXIS 23303, at 19 (S.D.N.Y. Dec. 5, 2002); see also Restatement (Second) of Torts § 885(3) comment e (stating that "if the payment is made as full satisfaction for a specified item of damage, the claim against the others is terminated with respect to that item"); Restatement (Second) of Judgments § 49 cmt. a (1982). The full payment of damages by Fidelity in the Nevada Action discharged Defendants' liability in their individual capacities. Accordingly, Plaintiff's continued prosecution of this matter contravenes clearly established law.

  Principles of collateral estoppel further undermine Plaintiff's case. Collateral estoppel bars the relitigation of claims against an agent of a corporation whose liability has previously been adjudicated. See Ritchie v. Landau, 475 F.2d 151 (2d Cir. 1973). In situations where successive defendants share vicarious liability or their relationship can be characterized as principal/agent, a suit brought against either of the Defendants will foreclose a subsequent action against the other. See Murray, 631 F.Supp. at 537.

  The Ritchie decision and its progeny require that there be a "full and fair opportunity" to litigate the claim in question in a prior adjudication. See id., at 155; see also Schwartz v. Public Adm. Of County of Bronx, 24 N.Y.2d 65, 298 (1969). Plaintiff certainly had a full and fair opportunity to present his claims in their entirety at trial, but strategically elected to submit them to binding mediation. He now attempts to pursue a duplicate lawsuit in lieu of the fact that Defendants' actions were coextensive with Fidelity's and imputed vicarious liability to the corporation in the first place. Consequently, Defendant had ample opportunity to fully pursue the matter earlier and his claims are collaterally estopped.

  C. Rule 11 Sanctions Denied

  Defendants move for sanctions under Fed.R. Civ. P. 11(b), asserting that Plaintiff's claims against Defendants are frivolous and have been filed for the purposes of harassment. Claims are considered frivolous for purposes of Rule 11 sanctions if "under an `objective standard of reasonableness' it is clear . . . that there is no chance of success and no reasonable argument to modify or reverse the law as it stands." Morley v. Ciba-Geigy Corp., 66 F.3d 21, 25 (2d Cir. 1995) (quoting Caisse Nationale de Credit Agricole-CNCA v. Valcorp, Inc., 28 F.3d 259, 264 (2d Cir. 1994)).

  Sanctions, however, should be imposed with caution, Oliveri v. Thompson, 803 F.2d 1265, 1272 (2d Cir. 1986), and deployed with restraint. Veliz v. Crown Lift Trucks, 714 F. Supp. 49, 59 (E.D.N.Y. 1989). Here, Plaintiff's claims do not rise to the level of objective frivolity required to sustain Defendants' motion for sanctions.


  Defendants' 12(b) (6) motion to dismiss for failure to state a claim is converted to a motion for summary judgment, which is hereby granted. Additionally, Defendant's request for sanctions pursuant to Rule 11 is denied.



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