Case Information
*1 D ISTRICT C OURT O F A PPEAL O F T HE S TATE O F F LORIDA F OURTH D ISTRICT
PHILADELPHIA FINANCIAL MANAGEMENT OF SAN FRANCISCO, LLC,
and BLUE LION MASTER FUND, L.P.
Appellants,
v. DJSP ENTERPRISES, INC., DAVID J. STERN, KUMAR GURSAHANEY,
and GARY CURSON, DPM.
Appellees.
No. 4D16-870
[August 2, 2017] Appeal from the Circuit Court for the Seventeenth Judicial Circuit, Broward County; Jack B. Tuter, Judge; L.T. Case No. 1413041 CACE 07.
Daniel M. Cohen, Matthew E. Miller, and Jonathan W. Cuneo of Cuneo Gilbert & LaDuca, LLP, Washington, DC; Charles J. LaDuca of Cuneo Gilbert & LaDuca, LLP, Bethesda, MD; Scott R. Shepherd and Nathan Zipperian of Shepherd, Finkelman, Miller & Shah, LLP, Weston; David M. Marek of Liddle & Robinson, L.L.P., New York, NY; Joseph E. White, III and Lester R. Hooker of Saxena White, P.A., Boca Raton; Richard S. Wayne and Thomas P. Glass of Strauss & Trоy, LPA, Cincinnati, OH; and Jeffrey P. Harris of Statman Harris & Eyrich, LLC, Cincinnati, OH, for appellants.
Sharon Kegerreis and Lara O’Donnell Grillo of Berger Singerman LLP, Miami, for appellee DJSP Enterprises, Inc.
Spencer A. Tew and Jeffrey A. Tew of Rennert Vogel Mandler & Rodriguez, P.A., Miami, for appellee David J. Stern.
Dennis A. Nowak and Caitlin M. Trowbridge of Rumberger, Kirk & Caldwell, Miami, for appellee Kumar Gursahaney.
K UNTZ , J.
Philadelphia Financial Management of San Francisco, LLC and Blue Lion Master Fund, L.P. (“the investors”) filed a lawsuit in the circuit court asserting claims for fraud and negligent misrepresentation. The court found the claims were barred by the doctrine of res judicata because they *2 were previously raised in a federal court action, and entered final summary judgment in favor of the defendants.
The investors raise two issues on appeal. First, they argue that res
judicata should not have precluded their state court lawsuit due to the
discovery of new evidence after the entry of the federal court’s judgment.
As to this argument, we affirm without further discussion.
See, e.g.
,
Jarvis
v. Analytical Lab. Servs.
,
Second, they argue the federal court’s judgment was not a final adjudication on the merits of their state claims and, therefore, the state lawsuit was not barred by res judicata. For the reasons explained below, we disagree and affirm the circuit court’s detailed order applying res judicata as a bar to the investors’ state court complaint.
Background
Analyzing the applicability of res judicata to the complaint in this case requires a brief review of the investors’ three lawsuits against the defendants:
a. The first federal lawsuit: Philadelphia Financial Management of San Francisco, LLC v. DJSP Enterprises., Inc. , No. 0:10-cv- 61261-WJZ,2011 WL 4591541 (S.D. Fla. Sept. 30, 2011); b. The second federal lawsuit: Philadelphia Financial Management of San Francisco, LLC v. DJSP Enterprises., Inc. , No. 0:12-cv- 61018-WJZ, 2013 WL 12080186 (S.D. Fla. Sept. 12, 2013), adopted by ECF No. 44 (Oct. 2, 2013), aff’d ,572 F. App’x 713 (11th Cir. 2014); and
c. The instant state court action.
a. The First Federal Lawsuit
In 2010, several investors filed a lawsuit in the United States District
Court for the Southern District of Florida against DJSP Enterprises, Inc.,
David J. Stern, and Kumar Gursahaney.
See Phila. Fin. Mgmt. of S.F., LLC
v. DJSP Enters., Inc.
, No. 0:10-cv-61261-WJZ,
Judge Zloch dismissed the investors’ amended complaint in the first federal lawsuit without prejudice, denying a request for further amendment for failure to sufficiently advise the court as to the substance of any potential amendments. Id . at *17–18.
b. The Second Federal Lawsuit
In 2012, the investors filed the second federal lawsuit in the Southern
District of Florida.
See Phila. Fin. Mgmt. of S.F., LLC v. DJSP Enters., Inc.
,
No. 0:12-cv-61018-WJZ, 2013 WL 12080186 (S.D. Fla. Sept. 12, 2013),
adopted by
ECF No. 44 (Oct. 2, 2013),
aff’d
,
With the exception of additional paragraphs that did “not add material facts to the original allegations,” and two slightly amended paragraphs, the complaint filed in the second federal lawsuit was factually similar to the complaint in the first federal lawsuit. Id . at *2, *4. The investors argued to the federal court that the complaint itself was different because “it allege[d] two common-law claims,” state law claims of fraud and negligent misrepresentation. Id . at *5. Notably, the investors asserted that the district court had jurisdiction over the state law claims under bоth 28 U.S.C. § 1332 (diversity jurisdiction) and 28 U.S.C. § 1367(a) (supplemental jurisdiction).
Magistrate Judge Hunt issued a report and recommendation to Judge Zloch: concluding the complaint filed in the second federal lawsuit was substantially similar to the complaint that was dismissed in the first federal lawsuit and it failed to cure any deficiencies; and recommending dismissal. Id. at *4. The report and recommendation also noted that while the court could exercise supplementаl jurisdiction over the pendent state law claims, there was a presumption against pendent jurisdiction and the investors failed to address the issue in their briefing. Therefore, the magistrate judge recommended the state law claims be dismissed, as well. . Later, Judge Zloch overruled the investors’ objections and adopted the magistrate judge’s report and recommendation.
The investors appealed the district court’s dismissal of the sеcond
federal lawsuit, and the Eleventh Circuit affirmed.
Phila. Fin. Mgmt. of S.F.,
LLC v. DJSP Enters., Inc.
,
c. The State Court Lawsuit
After the Southern District dismissed the second federal lawsuit, but two weeks before the Eleventh Circuit аffirmed the dismissal, the investors filed this lawsuit in the Broward County Circuit Court. The state court complaint named the same defendants and asserted the same state law claims at issue in the second federal lawsuit.
The defendants filed a motion for summary judgment, arguing that the investors were required to proceed with the state law claims in federal court—the forum the investors themselves had selected. The state circuit court determined: the federal district court’s dismissal of the second federal lawsuit was a final judgment on the merits; the state court action was precluded because there was a basis for subject matter jurisdiction in the federal action which the investors did not pursue; the state court action arose out of the same transaction or series of transactions as the federal action; and “all the elements of the doctrine of res judicata are present.” Therefore, the court granted the motion for summary judgment and entered judgment in favor of the defendants.
The investors appealed the court’s judgment, challenging the court’s application of the doctrine of res judicata.
Analysis
We review the trial court’s application of the doctrine of res judicata de
novo.
Philip Morris USA, Inc. v. Douglas
,
a. Governing Law
First, we must determine whether state or federal preclusion principles
apply. Generаlly, our case law instructs that when res judicata is asserted
based upon a prior federal court judgment, we apply federal claim
preclusion principles.
Dalbon v. Women’s Specialty Retailing Grp.
, 674 So.
2d 799, 801 (Fla. 4th DCA 1996);
Andujar v. Nat’l Prop. & Cas.
Underwriters
,
The Supreme Court of the United States “has the last word on the
claim-preclusive effect of
all
federal judgments” and we must apply
whatever “
federal rule that th[e] Court deem[s] appropriate
.”
Semtek Int’l
Inc. v. Lockheed Martin Corp.
,
The confusion that the Eleventh Circuit discussed in General Mills exists because “federal common law” is misunderstood and applied inconsistently. Our case law is correct that we apply federal cоmmon law when addressing the preclusive impact of a federal court’s judgment. However, our case law after Semtek does not distinguish between the judgments of a federal court when exercising its federal question jurisdiction and judgments of a federal court when exercising its diversity jurisdiction over the plaintiff’s claims. We uniformly apply a preclusion standard that was borrowed from the federal courts. Consequently, we have confused the law that Semtek compels us to follow.
Based upon Semtek , “federal common law” applies when determining the preclusive impact of a prior federal judgment. However, “the federal common law contains different rules of claim preclusion that change depending on the form of jurisdiction exercised by the federal court that rendered the underlying judgment.” Dan Ryan Builders, Inc. v. Crystal Ridge Dev., Inc. , No. 16-0401, 2017 WL 2537018, at *9 (W. Va. June 8, 2017).
When a federal court enters a judgment exercising its federal question
jurisdiction, federal preclusion prinсiples apply.
Heck v. Humphrey
, 512
U.S. 477, 488 n.9 (1994). However, when a federal court enters a
judgment exercising its diversity jurisdiction, the federal common law
borrows from the state law where the action is pending.
Semtek
, 531 U.S.
at 508. In other words, when analyzing the preclusive effect of a judgment
issued by a federal court exercising its diversity jurisdiction courts apply
federal common law which, in that instance, requires application of the
forum state’s law. .;
see also Taylor v. Sturgell
,
Thus, this court’s prior decisions looked to the federal preclusion
standard when we could, in fact we should, have looked to our own.
Because we need not cede our state laws and rules to the federal system
when not compelled to do so, in the appropriate case—one where the
correct application of
Semtek
impacts the result—we may need to
determine whether our language should be refined to more accurately
reflect the Supreme Court’s holding. However, as explained below, this is
not that case. In this case, we will apply federal common law principles
as directed by
Semtek
except when our case law issued after
Semtek
compels us to do otherwise.
In re Rule 9.331
,
b. Res Judicata Generally
Res judicata is a term applied to various forms of preclusion.
See
generally
18 Charles Alan Wright et al., Federal Practice and Procedure §
4402 (2d ed. 2002). It is also a term that is applied inconsistently.
See
Douglas
, 110 So. 3d at 433, 437;
see also R.J. Reynolds Tobacco Co. v.
Marotta
,
In modern times, the “preclusive effect of a judgment is defined by clаim
preclusion and issue preclusion, which are collectively referred to as res
judicata.”
Sturgell
,
When applying res judicata to a judgment of a federal court arising
pursuant to the court’s diversity jurisdiction,
Semtek
directs us to apply
the “federal common law” which, in that instance, is the law of the forum
state. Generally, in Florida, claim preclusion applies “if the subsequent
claim satisfies the following four elements: ‘1) identity in the thing sued
for; 2) identity of the cause of action; 3) identity of persons and parties of
the action; and 4) identity of the quality in the person for or against whom
the claim is made.’”
W & W Lumber of Palm Beach, Inc. v. Town & Country
*7
Builders, Inc.
,
However, as noted above, our case law after Semtek requires that we apply a slightly different test. See, e.g. , Anderson v. Vanguard Car Rental USA Inc. , 60 So. 3d 570, 572 (Fla. 4th DCA 2011) (recognizing the requirement to apply the “federal common law” but proceeding to apply a “federal” res judicata test). In this case, we reach the same result regardless of whether “federal common law” looks to state or federal law for purposes res judicata. Therefore, we apply the test set forth in our earlier cases frоm which this panel is bound.
As such, we apply res judicata, or claim preclusion, to the judgment of
a federal court when “(1) there has been a final judgment on the merits,
(2) rendered by a court of competent jurisdiction, (3) in a case with
identical parties, (4) on the same cause of action.”
Aronowitz v. Home
Diagnostics, Inc.
,
c. Res Judicata Applied to the Investors’ Complaint Of the four parts of the test we set forth in Aronowitz , it is the first part that we focus on in this case. The second, third, and fourth parts of the test are unquestionably satisfied, as the lawsuits involved the same pаrties, the same causes of action, and a court of competent jurisdiction. Therefore, we analyze only the first part of the test which requires us to determine whether there was a final judgment on the merits.
The investors argue that the federal district court’s dismissal of their second federal lawsuit was not an adjudication on the merits. They argue that this Court “has, without exception, held that dismissals not involving *8 an adjudication of the merits by a federal court, regardless of whether they are effected voluntarily by the plaintiff, or involuntarily by the court, or some combination of the two, do not preclude the subsequent litigation of those claims in a Florida court.” We disagree.
In
Anderson
, a pro se plaintiff filed a complaint in federal court
asserting both federal and state claims.
The investors argue that the pro se plaintiff in Anderson could have brought his claims in federal court under both diversity and supplemental jurisdiction. Therefore, according to the investors, the cases are indistinguishable. But Anderson does not state that the plaintiff could have invoked the federal court’s diversity jurisdiction and the record rеflects that the he only invoked the federal court’s supplemental jurisdiction over his state law claims.
Here, the investors did not voluntarily dismiss their state law claims. While the magistrate judge’s recommendation was to dismiss the federal lawsuit and to decline exercising supplemental jurisdiction over the state claims, the investors had not relied exclusively on supplemental *9 jurisdiction in bringing those claims. Instead, the investors had relied upon both supplemental jurisdiction and diversity jurisdiction. The magistrate judge may have overlooked that fact because the investors did not address the issue in their briefs in response to the defendants’ motion to dismiss in the federal court. Phila. Fin. Mgmt. of S.F., 2013 WL 12080186, at *5.
The investors sought reconsideration after the district court adopted
the magistrate judge’s report and recommendation, but again failed to note
that their complaint had asserted diversity jurisdiction. And, while they
appealed the district court’s order, they did not raise the issue on appeal,
either. In fact, the Eleventh Circuit addressed the state claims in its
opinion noting that “[i]n their appellate brief, the plaintiffs do not challenge
the dismissal of the state-laws claims or the denial of their Rule 59(e)
motion. As such, we consider these issues abandoned.”
Phila. Fin. Mgmt.
of S.F.
,
The investors clearly knew of the existence of diversity jurisdiction, as
they themselves asserted it in their complaint. Yet they abandoned it in
opposition to the defendant’s motion to dismiss and on appeal. Therefore,
in this state court proceeding, the circuit court appropriately relied upon
Kale v. Combined Insurance Co. of America
,
In Kale , the court framed the issue as follows: [W]hen a state-law claim, originally brought pendent to a federal claim, is dismissed without prejudice for want of subject matter jurisdiсtion following rejection of the joined federal claim on the merits, under circumstances where the plaintiff could have asserted an alternative jurisdictional basis but did not, and the plaintiff thereafter brings a new suit against the same defendant which includes the pendent state- law claim as well as other state-law claims which could have been pleaded in the initial suit; quaere : are the state-law claims in the second suit precluded by thе original adjudication?
Id . at 1165. Finding the plaintiff’s federal and state claims arose from the same cause of action, the court held that “unless res judicata is to be robbed of its doctrinal significance, [the plaintiff] had an obligation to cluster his theories of recovery in [the first federal action], by whatever necessary jurisdictional means, or else forever hold his peace.” . at 1166.
Kale cited to Shaver v. F.W. Woolworth Co. , 840 F.2d 1361 (7th Cir. 1988). In Shaver , the federal court granted summary judgment to the defendant on the plaintiff’s federal claims and dismissed the plaintiff’s state claims for lack of pendent jurisdiction. The plaintiff knew diversity jurisdiction existed, yet made no effort to pursue his state law claims in the federal court after they were dismissed. The Seventh Circuit found the plaintiff’s state law claims were thereafter barred by the doctrine of res judicata. The Seventh Circuit held that “[b]ecause Shaver neglected to assert the existеnce of diversity jurisdiction in his prior action in order to pursue his breach of contract claims, both the strict test of and the policy behind the res judicata doctrine bars the present action.” Shaver , 840 F.2d at 1367–68.
More recently, the Eleventh Circuit addressed a similar situation. In
Shurick v. Boeing Co.
,
Here, when the investors filed their second federal lawsuit asserting fеderal claims and state claims arising from the same cause of action, they invoked the federal court’s diversity jurisdiction over the state law claims. When the federal court dismissed the claims, the investors chose not to appeal the dismissal of the state claims nor otherwise challenge the dismissal. They cannot now proceed on those claims in state court.
Conclusion
In their second federal action the investors invoked the federal court’s diversity jurisdiction over their state law claims which arose under the same nucleus of operative facts as their federal claims. However, facing dismissal of their state law claims for lack of supplemental jurisdiction, the investors failed to defend their claims in federal court by advising the court that they had invoked the court’s diversity jurisdiction. They failed to raise the issue in their motion for reconsideration of the judgment entered against them, and failed to address the claims on appeal to the Eleventh Circuit. These actions led the Eleventh Circuit to conclude that the investors’ state law claims were abandoned.
The investors then proceeded to file the identical state law claims against the same parties in state court. A party cannot sit idly and watch a court of competent jurisdiction decline to hear a disрute, and later try to assert the same claims in a different forum. The district court’s judgment against them, affirmed by the Eleventh Circuit, precluded the investors from proceeding with the same claims in state court. Therefore, the circuit court applied res judicata correctly, and the court’s final summary judgment is affirmed.
Affirmed .
G ROSS and C ONNER , JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
Notes
[1] As noted, in this case the investors’ complaint in the second federal lawsuit invоked the court’s federal question jurisdiction over the federal claims and both diversity jurisdiction and supplemental jurisdiction over their remaining claims. However, in his report and recommendation the magistrate judge declined to exercise supplemental jurisdiction over the state law claims and, therefore, presumably overlooked the fact that the investors had asserted diversity jurisdiction. In this case we are following our сase law which applies the same test for res judicata regardless of whether the federal court was exercising its supplemental or diversity jurisdiction over the state law claims. Therefore, we need not determine whether the federal court was exercising its diversity jurisdiction, as pled by the investors, or its supplemental jurisdiction, as indicated in the magistrate judge’s report and recommendation.
[2] Our holding in
Anderson
was based upon the spеcific facts of that case. In
certain circumstances, res judicata applies to a state claim asserted after the
entry of judgment by a federal court exercising its supplemental jurisdiction.
See generally
Restatement (Second) of Judgments § 25 (1982) (“Even if diversity of
citizenship between the parties did not exist, the federal court would have had
‘pendent’ jurisdiction to entertain the state theory. Therefore unless it is clear
that the federаl court would have declined as a matter of discretion to exercise
that jurisdiction (for example, because the federal claim, though substantial, was
dismissed in advance of trial), the state action is barred.”). Res judicata applies
in those circumstances because “the doctrine of res judicata not only bars issues
that were raised, but it also precludes consideration of issues that could have
been raised but were not raised in the first case.”
Fla. Dept. of Transp. v. Juliano
,