Saylor v. LindsleySaylor v. Lindsley
- Reporters:
- , , ,
- Before:
- Anderson
The present derivative action was brought on behalf of the Tonopah Mining Co. of Nevada (Tonopah), in the District Court for the Southern District of New York on October 6, 1964 by J. Ralph Saylor, the plaintiff-appellant. Several of the directors of Tonopah and certain corporations, allegedly affiliated with Tonopah or under the control of its directors, are charged with violations of the federal securities laws and with breach of fiduciary duty under state law. Jurisdiction is based upon federal statute and the doctrine of pendent jurisdiction. Diversity of citizenship is not alleged.
The transactions in question are the sale and transfer by Tonopah to Mines Incorporated (Mines), in 1951 of 60%, and in 1953 of the remaining 40%, of the stock of a subsidiary, Tonopah Nicaragua Company (Tonopah Nicaragua), the principal asset of which was a copper mine located in Nicaragua (the Rosita Mine), and the subsequent transfer in 1955 of the Rosita Mine to a wholly-owned subsidiary of one of the defendant corporations, La Luz Mines Limited (La Luz). It is alleged that, at the time of these events the seller (Tonopah), the buyer (Mines), and the eventual transferee (La Luz), were all under the domination and control of the defendants; that the sale of the Tonopah Nicaragua stock to Mines was affected at less than a fair consideration; that the defendants conspired to invest ownership of the
By motion dated April 22, 1965, certain of the defendants moved for summary judgment on the ground that the claims asserted by the plaintiff Saylor were res judicata and, alternatively, on the ground that the suit was barred by the applicable statute of limitations.
The claim of res judicata was based upon the fact that an earlier derivative suit, brought on behalf of Tonopah in 1957 by a stockholder named Hawkins, Hawkins v. Lindsley, 2 Cir., 327 F.2d 356, and founded upon the same allegedly fraudulent transactions as the present action, was dismissed “with prejudice” in 1961 due to Hawkins’ failure to comply with an order of the court requiring that he post a security-for-costs bond. The motion was heard by the District Court which granted summary judgment in favor of the defendantsappellees on June 13, 1967.4 It held that the complaint filed against the defendants in the present suit was substantially the same as the complaint in the Hawkins litigation, and that the dismissal “with prejudice” in Hawkins was a judgment on the merits, and was binding on all the stockholders of Tonopah under the principle of res judicata. On this disposition, the court did not resolve the difficult questions raised by the defense of the statute of limitations, but suggested that, had the issues been reached, the case would have been inappropriate for summary disposition because of the presence of one or more material questions of fact, e. g. when did Saylor discover or when should he reasonably have discovered the facts allegedly amounting to fraudulent conduct so as to start the running of the limitations period. A judgment dismissing the complaint as to the moving defendants was entered on Juñe 22, 1967 and, from it, the plaintiff-appellant has appealed.
In this court the appellant has advanced three arguments, any one of which, if accepted here, would require a reversal of the trial court’s decision on res judicata. He claims that the dismissal in Hawkins is not res judicata as to the present action, first, because the two suits are not based upon the same cause of action because additional legal theories for recovery have been added to the instant complaint; second, because the dismissal in Hawkins for failure to post a security-for-costs bond is not a judgment “on the merits” for the purposes of res judicata-, and, third, because the dismissal in Hawkins, even if on the merits, is not binding on the plaintiff, Saylor, and the other stockholders of Tonopah who were not given actual notice and an opportunity to intervene before the action was ordered dismissed. Upon careful consideration of each of the arguments made by the appellant, and of the counter-arguments advanced by the ap
The general rule of res judicata is that a valid, final judgment, rendered on the merits, constitutes an absolute bar to a subsequent action between the same parties, or those in privity with them, upon the same claim or demand. It operates to bind the parties both as to issues actually litigated and determined in the first suit, and as to those grounds or issues which might have been, but were not, actually raised and decided in that action. The first judgment, when final and on the merits, thus puts an end to the whole cause of action. See Cromwell v. County of Sac, 94 U.S. 351, 24 L.Ed. 195 (1877); Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 597, 68 S.Ct. 715, 92 L.Ed. 898 (1948); 1B Moore’s Federal Practice ¶0.405[1] (1965 ed.).
The requirement that a judgment, to be res judicata, must be rendered “on the merits” guarantees to every plaintiff the right once to be heard on the substance of his claim. Thus, ordinarily, the doctrine may be invoked only after a judgment has been rendered which reaches and determines “the real or substantial grounds of action or defense as distinguished from matters of practice, procedure, jurisdiction or form,” Clegg v. United States, 112 F.2d 886, 887 (10 Cir. 1940), and, at common law, a dismissal on a ground which did not resolve the substantive merit of the complaint was not a bar to a subsequent action on the same claim. Hughes v. United States, 4 Wall. 232, 71 U.S. 232, 237, 18 L.Ed. 303 (1865); Halderman v. United States, 91 U.S. 584, 585-586, 23 L.Ed. 433 (1876). To this general rule, however, there are exceptions. One, embodied in
In its opinion, the court below cited
In Costello v. United States, 365 U.S. 265, 81 S.Ct. 534, 5 L.Ed.2d 551 (1961) the Supreme Court held that the dismissal of a denaturalization proceeding brought under § 340(a) of the Immigration and Nationality Act, due to the Government’s failure to file with the court the affidavit of good cause required by the statute, was not “on the merits” by virtue of
Although neglect to prosecute would normally provide an appropriate occasion for the invocation of
Another factor, which provides an added reason for at least questioning the fairness and justice of treating the dismissal of the Hawkins action as an adjudication on the merits, is the confused state of the record as to what complaint was actually before Chief Judge Ryan when he ordered the dismissal in 1961. This matter was called to the attention of counsel at the oral argument of the present case and they were allowed time specially to prepare and file supplemental briefs on this point, which they did. It still remains unclear, however, whether the dismissal involved the “first amended complaint,” which contained only a claim for breach of fiduciary duty under state law, or the “second amended complaint,” which contained both the state law ground for relief, and additional claims based on various provisions of the federal securities laws. The question is not whether either or both of the Hawkins complaints and the complaint in the present case pertain to the same transactions and arise out of the same operative facts.6 Their allegations show that they do. The question rather has to do
On the remaining question of whether the present action is barred by the applicable statute of limitation, we agree with the district court that the possible existence of a material issue of fact, i. e., when the plaintiff did discover, or reasonably should have discovered, the facts which give rise to the action, prevents summary disposition of the suit on the limitations ground.
Where, as here, the federal statute upon which the suit is based does not provide a specific period for its enforcement, a district court will borrow a period of limitation from the law of the state in which the court sits, International Union, United Auto., etc., Workers, etc. v. Hoosier Cardinal Corp., 383 U.S. 696, 86 S.Ct. 1107, 16 L.Ed.2d 192 (1966); Moviecolor Ltd. v. Eastman Kodak Co., 288 F.2d 80, 83, 90 A.L.R.2d 252 (2 Cir.), cert. denied 368 U.S. 821, 82 S.Ct. 39, 7 L.Ed.2d 26 (1961), which, in the present case, is the law of New York. We accept, arguendo, the defendants’ assumption that the applicable New York statute of limitation is the six year period provided in former Civil Practice Act § 48, subsections (2) and (8), which, unlike the period in § 48, subsection (5), runs from the date of the perpetration of the wrong rather than from the date of its discovery. Nevertheless, because the present complaint alleges a claim of federal origin cognizable only in a federal forum,
Reversed and remanded.
Notes
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. The opinion of the district court is reported at 274 F.Supp. 253 (S.D.N.Y. 1967).
. The pertinent part of
. Assuming that the first amended complaint is the relevant one, the appellant argues that the addition of federal theories of recovery in the present action makes his claim different from that alleged in Hawkins, and, therefore, that the dismissal in Haiokins cannot be res judicata here. The argument has no merit, however, because the allegations in both suits clearly pertain to the same disputed transactions and arise out of the same operative facts. In such a case, a new theory does not create a new cause of action. See Williamson v. Columbia Gas & Electric Corp., 186 F.2d 464, 468 (3 Cir. 1950), cert. denied, 341 U.S. 921, 71 S.Ct. 743, 95 L.Ed. 1355 (1951); Norman Tobacco & Candy Co. v. Gillette Safety Razor Co., 295 F.2d 362 (5 Cir. 1961); Wolcott v. Hutchins, 245 F.Supp. 578 (S.D.N.Y.1965), aff’d 365 F.2d 833 (2 Cir. 1966).