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ASHLEY v. EASTMAN KODAK COMPANY

June 20, 2005.

EDDIE ASHLEY, LSW INDUSTRIES, INC., and ASHLEY TECHNOLOGIES CORP., Plaintiffs,
v.
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.

BACKGROUND

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.

  DISCUSSION

  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[1], 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, ...


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