United States District Court, W.D. New York
June 20, 2005.
EDDIE ASHLEY, LSW INDUSTRIES, INC., and ASHLEY TECHNOLOGIES CORP., Plaintiffs,
EASTMAN KODAK COMPANY, Defendant.
The opinion of the court was delivered by: JOHN CURTIN, Senior District Judge
Defendant Eastman Kodak Company ("Kodak") moves pursuant to
Rule 56 of the Federal Rules of Civil Procedure for summary
judgment dismissing this action on the ground that the claims
asserted in the complaint are barred by principles of res
judicata as the result of final judgment entered in New York
State Supreme Court, Monroe County, in Eastman Kodak Company v.
LSW Industries, Inc., Index No. 99-9863 (October 23, 2002),
aff'd, 6 A.D.3d 1123, 775 N.Y.S.2d 684 (4th Dep't April 30,
2004). For the reasons that follow, defendant's motion is granted.
The following facts are set forth in the pleadings, including
defendant's "Statement of Material Facts Not In Dispute" (Item
68) filed in accordance with Rule 56.1 of the Local Rules of
Civil Procedure for the Western District of New York.*fn1 Plaintiff Eddie Ashley, an African-American, is a shareholder
in Ashley Technologies Corp. ("ATC") and a principal of ATC's
wholly owned subsidiary, LSW Industries, Inc. ("LSW"). On
December 14, 1995, plaintiff signed an agreement with Kodak,
whereby LSW agreed to supply Kodak with wooden pallets and pallet
services for a period of seven years beginning in 1995. The
agreement provided that Kodak would purchase "not less than 18%
of the total annual pallet and pallet services requirements at
Kodak's Rochester, New York facilities . . ." from LSW, and LSW
would be compensated at "market competitive rates" (Item 68, Ex.
3, p. 2).
On September 22, 1999, Kodak commenced the above-referenced
state court action (Index No. 99-9863) against LSW and ATC
seeking judgment declaring that LSW had breached its obligations
under the agreement, and that Kodak was therefore entitled to
terminate the contract. The complaint set forth causes of action
for breach of contract, unjust enrichment, conversion, and
fraudulent misrepresentation based on allegations that LSW had
failed to maintain the agreed-upon inventory and had failed to
reimburse Kodak for raw materials purchased for LSW's benefit
(see Item 68, Ex. 2). On November 19, 1999, LSW and ATC
answered the complaint and asserted affirmative defenses and
counterclaims alleging that Kodak had failed to substantially
perform its obligations under the contract and had fraudulently
induced LSW to enter into the agreement (Item 68, Ex. 4). Then,
on December 28, 1999, plaintiffs Ashley, LSW, and ATC filed a
separate state court action against Kodak (Index No. 99-3518),
seeking an order compelling Kodak to continue to honor the December 14, 1995 agreement (Item 68,
Ex. 5). Both cases were assigned to Hon. Thomas A. Stander,
J.S.C., in Commercial Term.
Meanwhile, on December 10, 1999, plaintiffs filed this federal
court action seeking relief under 42 U.S.C. § 1981, alleging that
Kodak's breach of its obligations under the December 14, 1995
agreement was based upon race (Item 1). The complaint was amended
as of right on December 22, 1999 (Item 3). Kodak answered and
asserted counterclaims identical to the causes of action it had
previously raised in the initial state court action (Item 10).
Plaintiffs subsequently filed a motion for leave to amend the
complaint a second time in order to assert antitrust and RICO
(Racketeer and Corrupt Organizations Act) causes of action (see
Item 11). Kodak responded to the motion to amend, and filed a
motion to stay the federal court action pending final judgment in
the state court cases, pursuant to the abstention doctrine of
Colorado River Water Conservation District v. United States,
424 U.S. 800 (1976)*fn2 (see Item 19). When this court
denied both the motion for abstention (see Item 37) and the
motion to amend the pleadings (see Item 50), the parties
ultimately agreed to stay the federal proceedings pending the
outcome of the state court dispute (see Item 55).
In an order delivered from the bench on September 13, 2003,
Justice Stander granted Kodak's motion for summary judgment in
No. 99-9863, dismissing the action in its entirety (Item 68, Ex.
14). Justice Stander found that the December 14, 1995 agreement was unambiguous, and that Kodak had performed its contractual
obligation to pay LSW market competitive prices for pallets and
pallet services. He also found that LSW breached the agreement by
failing to maintain required inventory in the amount of
$36,197.00, and by failing to deliver $46,448.64 worth of
finished pallets. Justice Stander also dismissed LSW's
counterclaims for fraudulent inducement and misrepresentation
(id.). By written order dated October 18, 2002, Justice Stander
entered judgment in favor of Kodak in the amount of $86,646.00
(Item 68, Ex. 15). On April 30, 2004, the Appellate Division,
Fourth Department, unanimously affirmed. Eastman Kodak Company
v. LSW Industries, Inc., 6 A.D.3d 1123, 775 N.Y.S.2d 684
(4th Dep't 2004).
Kodak now moves for summary judgment dismissing this action on
the ground that it is barred by principles of res judicata. For
the reasons that follow, Kodak's motion is granted.
The doctrine of res judicata, or "claim preclusion,"*fn3
makes a final, valid judgment on the merits of a case
"`conclusive on the parties, and those in privity with them, as
to all matters, fact and law, [that] were or should have been
adjudicated in the proceeding.'" Waldman v. Village of Kiryas
Joel, 207 F.3d 105, 108 (2d Cir. 2000) (quoting Wm. James Moore,
Moore's Federal Practice ¶ 0.405, at III-7 (2d ed. 1996)).
The judgment "is a finality as to the claim or demand in
controversy, concluding parties and those in privity
with them, not only as to every matter which was
offered and received to sustain or defeat the claim
or demand, but as to any other admissible matter
which might have been offered for that purpose."
Securities and Exch. Comm'n v. First Jersey Secs., Inc.,
101 F.3d 1450, 1463 (2d Cir. 1996) (quoting Nevada v. United
States, 463 U.S. 110, 129-30 (1983)), cert. denied,
522 U.S. 812 (1997).
The party seeking to establish the preclusive effect of a prior
judgment must show that (1) the previous action involved an
adjudication on the merits, (2) the previous action involved the
plaintiffs or those in privity with them, and (3) the claims
asserted in the subsequent action were, or could have been,
raised in the prior action. Monahan v. New York City Dept. of
Corrections, 214 F.3d 275, 285 (2d Cir.), cert. denied,
531 U.S. 1035 (2000). It is beyond dispute in this case that the
judgment entered in state court involved an adjudication on the
merits of the contractual dispute between the parties.
Accordingly, the only question for this court is whether
plaintiffs' Section 1981 "discriminatory breach of contract"
claim was, or could have been, raised in state court.
The focus of this inquiry is whether the second suit involves
the same claim, or "nucleus of operative fact," as the first
suit. Interoceanica Corp. v. Sound Pilots, Inc., 107 F.3d 86,
90 (2d Cir. 1997) (quoting Apparel Art International, Inc. v.
Amertex Enterprises Ltd., 48 F.3d 576, 583 (1st Cir. 1995)).
This determination depends on whether "`the transaction or
connected series of transactions at issue in both suits is the
same, that is, where the same evidence is needed to support both
claims, and where the facts essential to the second were present
in the first.'" Id. at 91, quoting Securities and Exch. Comm'n
v. First Jersey Secs., Inc., 101 F.3d at 1464; see National
Labor Relations Bd. v. United Techs. Corp., 706 F.2d 1254, 1260 (2d Cir. 1983). The Second
Circuit has identified the following factors for courts to
consider when conducting this inquiry: (1) whether the facts are
related in time, space, origin, or motivation, (2) whether the
facts form a convenient trial unit, and (3) whether treating the
facts as a unit conforms to the parties' expectations. Waldman,
207 F.3d at 108. "[Second Circuit] cases consistently hold that
the facts essential to the barred second suit need not be the
same as the facts that were necessary to the first suit. It is
instead enough that `the facts essential to the second were
[already] present in the first.'" Id. at 110-11 (quoting
Computer Associates International, Inc. v. Altai, Inc.,
126 F.3d 365, 369 (2d Cir. 1997), cert. denied, 523 U.S. 1106
(1998)); see also Interoceanica, 107 F.3d at 91.
There can be no question in this case that the facts underlying
the matters adjudicated by Justice Stander and the matters set
forth in the plaintiffs' federal complaint are rooted in the same
nucleus of operative facts. The entire federal cause of action is
centered on Kodak's alleged failure to perform its obligations
under the December 14, 1995 agreement (see Item 3, ¶¶ 21-30),
and that the failure to perform was "based solely on the fact
that the plaintiff Eddie Ashley is of the African-American race"
(id., ¶ 32). These allegations are substantially related in
time, space, origin, and motivation to the facts ruled upon by
Justice Stander and the Fourth Department. Specifically, Justice
Stander found as follows:
The intent of the parties as expressed in the Letter
Agreement is that Ashley would provide pallets and/or
pallet services at market competitive rates, with
pricing to be bench marked by formal quotation
processes and other analytical means. The parties
agreed to work together to determine the fair selling
price/profit margin for Ashley. . . . The evidence presented on this motion for summary
judgment shows that Kodak performed formal quotation
processes and other analytical means to assess and
determine pricing that it would accept for pallets.
The defendants [LSW and ATC] have failed to show a
question of fact that the prices paid by Kodak were
not at market competitive prices. The facts establish
that the prices paid to LSW for pallets and pallet
services was at or above market rates paid to other
suppliers for the same goods and services.
(Item 68, Ex. 14, pp. 3-4). As already discussed, Justice Stander
not only found that Kodak had performed its contractual
obligations, but he also found that LSW breached the agreement by
failing to maintain required inventory and failing to deliver
finished product (see id. at pp. 5-6).
Clearly, the transactions at issue in both suits are the same,
and the facts necessary to support plaintiffs' "discriminatory
breach of contract" claim in this case were "already present" in
the state court action. Waldman, 207 F.3d at 111. Both actions
are centered around the parties' performance of their contractual
obligations under the December 14, 1995 agreement, and the
reasons for Kodak's termination of the agreement. There is
nothing in the record now before the court to suggest that
further discovery would yield any additional support for
plaintiffs' claim that the agreement was terminated by Kodak
because of Mr. Ashley's race, and not as Justice Stander found
as the result of LSW's breach. Under these circumstances, this
court has little problem concluding that the facts underlying
both suits form a convenient trial unit, and that treating them
as such would conform to the parties' reasonable expectations.
Indeed, plaintiffs do not dispute that the state and federal
actions are based on the same nucleus of operative facts with
respect to Kodak's performance of its contractual obligations.
Instead, plaintiffs maintain that this court should not accord
preclusive effect to the state court judgment because the discrimination claim
raised in this action under 42 U.S.C. § 1981 is governed by
federal law, and remains undecided (Item 71, ¶ 6). This
contention is based on a misreading of the law, and must be
It well established that a plaintiff cannot avoid the effects
of res judicata by "splitting" a claim into various suits,
based on different legal theories. Waldman, 207 F.3d at 110
(citing Woods v. Dunlop Tire Corp., 972 F.2d 36, 39 (2d Cir.
1992), cert. denied, 506 U.S. 1053 (1993); 1B Moore's Federal
Practice ¶ 0.410). As stated by the Second Circuit, "[i]t is
[the] identity of facts surrounding the occurrence which
constitutes the cause of action, not the legal theory upon which
[the plaintiff] chose to frame [the] complaint." Woods,
972 F.2d at 39 (citing Berlitz Sch. of Languages of Am., Inc. v.
Everest House, 619 F.2d 211, 215 (2d Cir. 1980) ("[W]hatever
legal theory is advanced, when the factual predicate upon which
claims are based are substantially identical, the claims are
deemed to be duplicative for purposes of res judicata.")). In
other words, res judicata applies regardless of whether in the
state court action plaintiffs chose to focus their defense and
counterclaims on Kodak's alleged failure to perform, rather than
on the discriminatory animus alleged in this action. See
Waldman, 207 F.3d at 110.
Plaintiffs also rely on the Supreme Court's holding and
rationale in England v. Louisiana State Board of Medical
Examiners, 375 U.S. 411 (1964), for the proposition that "a
litigant who has properly invoked the jurisdiction of a Federal
District Court to consider federal constitutional claims can
[not] be compelled, without his consent and through no fault of
his own, to accept instead a state court's determination of those
claims." Id. at 415. In England, the plaintiffs were a group
of chiropractors who had commenced an action in federal court challenging on federal constitutional grounds a
Louisiana state statute establishing educational requirements for
medical practice. The district court abstained under the doctrine
of Railroad Commission v. Pullman Co., 312 U.S. 496 (1941), on
the ground that a state court decision interpreting the statute
could moot the constitutional claims. The plaintiffs then
voluntarily submitted both the state law and constitutional
claims to the state court, which decided them adversely to
plaintiffs. Upon returning to federal court, the plaintiffs were
met with a motion to dismiss, which the district court granted on
the ground that it lacked the power to review the Louisiana state
court's rulings, including that denial of the federal
constitutional claim. The Supreme Court eventually reversed and
remanded, holding that the plaintiffs could have avoided the
preclusive effect of the state court's rulings by informing the
state court that they intended to return to federal court to
pursue the federal claims should the state court rule against
them on the question of state law. England, 375 U.S. at 421-22.
I find the holding in England to be inapplicable here. By its
express language, England applies only to "cases where, but for
the application of the abstention doctrine, the primary fact
determination would have been by the District Court," id. at
417, and where the party seeking to avoid preclusion has not
otherwise elected to forgo the right to litigate federal claims
fully in the federal courts by willingly submitting to the
jurisdiction of the state tribunal. Id. at 417-18. In this
case, the court refused to invoke the Colorado River abstention
doctrine, and plaintiffs voluntarily submitted to state court
jurisdiction by answering, counterclaiming, and initiating a
separate state court action without any reservation of their right to avail themselves of federal court
jurisdiction in the event of an adverse determination.
Furthermore, the Second Circuit has limited the holding of
England to Pullman abstention cases. See Temple of the Lost
Sheep Inc. v. Abrams, 930 F.2d 178 (2d Cir.), cert. denied,
502 U.S. 866 (1991); Hoblock v. Albany County Bd. of Elections,
341 F.Supp.2d 169, 174 (N.D.N.Y. 2004). Accordingly, even if this
court had seen fit to abstain under Colorado River, and even if
plaintiffs had not willingly submitted to state court
jurisdiction over the parties' contractual dispute, England's
limitation on the preclusive effect of the state courts' rulings
would not apply.
Finally, Kodak's reliance on Carr v. Health Insurance Plan of
Greater New York, Inc., 111 F.Supp.2d 403 (S.D.N.Y. 2000), is
persuasive. In that case, the plaintiff was an African-American
orthopedic surgeon employed by a medical practice group which had
contracted with an HMO to provide medical services to its
customers. The contract required physicians affiliated with the
group to obtain board certification in their respective
specialties. When the plaintiff failed to obtain board
certification, the HMO notified him that he would no longer be
allowed to provide care for its patients, and the group
eventually terminated his employment. In 1996, the plaintiff
commenced a contract action in state court by way of a motion for
a preliminary injunction seeking to enjoin the practice group and
the HMO "from terminating plaintiff's employment with [the Group]
or his ability to provide medical services to patients insured"
by the HMO. Id. at 407. The state court denied his motion for
preliminary injunctive relief, and eventually granted the
defendants' summary judgment motion upon default. The plaintiff subsequently brought an action in federal court
in 1999 alleging that the practice group and HMO violated his
federally protected right to contract under 42 U.S.C. § 1981, and
the defendants moved for summary judgment on the grounds of res
judicata. The district court granted the defendants' motion,
finding that the plaintiff's § 1981 claim was barred by the prior
adjudication of his state court contract claim. The court stated:
[I]t can hardly be doubted that plaintiff's
[discrimination] claim springs from the same triable
group of underlying facts as his previous state
action. The papers Carr submitted in support of his
[prior] action clearly show that he was aware at
least 57 other doctors were allegedly being treated
differently than he was. Had plaintiff pursued his
state action, and not defaulted on it once he was
denied preliminary relief, he would have been
entitled to explore the reasons that he was allegedly
being treated differently than the 57 other doctors.
As a result, the motivation for this alleged
differential treatment should have been adjudicated
in the prior proceeding. The fact that in 1996,
plaintiff brought a contract action, and now he
brings a race discrimination action is immaterial. . . .
Both claims raise questions "related in time,
space, origin, [and] motivation, [and] they form a
convenient trial unit."
Carr, 111 F.Supp.2d at 410 (quoting Waldman,
207 F.3d at 110).*fn4
Similarly, there can be no doubt in this case that plaintiffs'
discrimination claim arises from the same nucleus of operative
facts as the claims adjudicated by Justice Stander in the state
court action. The record before the court contains no indication
that, in the pursuit of discovery to support their state court
defenses and counterclaims, plaintiffs were in any way prevented
from exploring Kodak's motivation for its contractual dealings.
The fact that the state court litigation focused on contractual
performance rather than the motivation underlying Kodak's
dealings with plaintiffs is immaterial. Simply put, the claims in both the state and federal actions are based upon
substantially identical facts, raising questions related in time,
space, origin, and motivation.
Based on this analysis, the court finds that defendant has met
its burden to establish that plaintiffs' § 1981 claim in this
action is precluded by application of the principles of res
judicata as the result of final judgment entered by Justice
Stander in Eastman Kodak Company v. LSW Industries, Inc., Index
No. 99-9863. Accordingly, there is no genuine issue of material
fact for trial, and defendant is entitled to summary judgment
dismissing the complaint as a matter of law. Fed.R.Civ.P.
For the foregoing reasons, defendant's motion for summary
judgment (Item 66) is granted, and the case is dismissed in its
entirety. The Clerk of the Court is directed to enter judgment in
favor of defendant.