316 F.3d 213 | 3rd Cir. | 2003
Before: NYGAARD and WEIS, Circuit Judges, and(cid:13) IRENAS,* District Judge.(cid:13) Filed: January 8, 2003(cid:13) Keith J. Miller, Esquire (ARGUED)(cid:13) Robinson & Livelli(cid:13) Two Penn Plaza East(cid:13) Newark, NJ 07105(cid:13) _________________________________________________________________(cid:13) * The Honorable Joseph E. Irenas, United States District Judge for the(cid:13) District of New Jersey, sitting by designation.(cid:13) Ames Davis, Esquire(cid:13) Stanley Graham, Esquire(cid:13) Waller Lansden Dortch & Davis(cid:13) 511 Union Street, Suite 2100(cid:13) Nashville, TN 37219(cid:13) Attorneys for Appellant(cid:13) Sentinel Trust Company(cid:13) Steven H. Rittmaster, Esquire(cid:13) (ARGUED)(cid:13) Mark S. Gamell, Esquire(cid:13) Torre, Lentz, Gamell, Gary &(cid:13) Rittmaster, LLP(cid:13) Mark S. Kundla, Esquire(cid:13) Hardin, Kundla, McKeon, Poletto(cid:13) & Polifroni(cid:13) 673 Morris Avenue(cid:13) Springfield, NJ 07081(cid:13) Attorneys for Appellees(cid:13) United States Fire Insurance(cid:13) Company and Westchester Fire(cid:13) Insurance Company(cid:13) Andrew S. Kent, Esquire (ARGUED)(cid:13) Gage Andretta, Esquire(cid:13) Wolff & Samson, P.A.(cid:13) 5 Becker Farm Road(cid:13) Roseland, NJ 07068(cid:13) Attorneys for Appellee(cid:13) Universal Bonding Insurance(cid:13) Company(cid:13) OPINION OF THE COURT(cid:13) WEIS, Circuit Judge:(cid:13) In this diversity case, an indenture trustee was denied(cid:13) recovery from sureties on performance bonds. In part, the(cid:13) District Court’s ruling under Rule 12(b)(6) rested on(cid:13) findings of fact unfavorable to the trustee in a related case.(cid:13) 2(cid:13) We apply issue preclusion despite the fact that the earlier(cid:13) judgment had been vacated as a term of settlement of that(cid:13) case. Concluding that the District Court did not err in its(cid:13) order of dismissal, we will affirm.(cid:13) The plaintiff, Sentinel Trust Company, having its(cid:13) principal place of business in Nashville, Tennessee, was the(cid:13) indenture trustee for a series of corporate notes of(cid:13) Transportation Leasing Corporation and Voyageur Lines,(cid:13) Inc. issued to various investors. These notes were sold to(cid:13) the public by a group including David Namer of Memphis,(cid:13) with the representation that payments were guaranteed by(cid:13) surety bonds.(cid:13) Universal Bonding Insurance Company, an agency with(cid:13) its principal place of business in New Jersey, and its vice-(cid:13) president Richard Quackenbush, procured bonds from two(cid:13) surety companies running in favor of Sentinel as trustee.(cid:13) When defaults on the notes occurred, Universal and the(cid:13) surety companies refused to honor claims against the(cid:13) bonds. After it became known that Quackenbush had(cid:13) participated with Namer in fraudulently issuing the bonds,(cid:13) Universal agreed to indemnify the surety companies against(cid:13) any loss.(cid:13) Sentinel, as trustee and on behalf of the noteholders,(cid:13) began litigation in 1997 against Universal and the sureties(cid:13) in the United States District Court in New Jersey seeking to(cid:13) compel payment of the bonds. While those actions were(cid:13) pending, Sentinel was removed as trustee by disgruntled(cid:13) noteholders and was replaced by Nevada State Bank, which(cid:13) succeeded to all rights and obligations under the indenture.(cid:13) In 1999, Nevada settled the suits in the New Jersey District(cid:13) Court for $3,585,000, an amount less than the full amount(cid:13) of the bonds.(cid:13) On behalf of the noteholders, Nevada then joined in a(cid:13) pending action brought by other claimants in the Chancery(cid:13) Court for Davidson County, Tennessee, against Sentinel for(cid:13) derelictions it had committed as trustee. The complaint(cid:13) asserted claims for conversion, breach of fiduciary duty,(cid:13) breach of contract, and negligent management of the(cid:13) financing arrangement. In 1999, Sentinel joined Universal,(cid:13) the surety companies, and Quackenbush as third-party(cid:13) defendants in that litigation.(cid:13) 3(cid:13) The Chancery Court filed extensive findings of fact and(cid:13) conclusions of law, and entered summary judgment for(cid:13) Nevada against Sentinel for an amount in excess of $2(cid:13) million. Sentinel then dismissed without prejudice its(cid:13) complaint against third-party defendants, Universal and the(cid:13) surety companies.(cid:13) After the judgment and dismissal, Nevada and Sentinel(cid:13) reached a settlement, one of whose terms was that the(cid:13) Chancery Court’s judgment for damages would be vacated.(cid:13) On February 21, 2001, the Chancery Court signed a(cid:13) consent order vacating its judgment. Universal and the(cid:13) surety companies were not parties to that order.(cid:13) Before the vacatur was actually docketed, Sentinel filed a(cid:13) complaint against Universal, the surety companies, and(cid:13) Quackenbush on February 1, 2001 in the District Court for(cid:13) the District of New Jersey. The complaint recited allegations(cid:13) essentially the same as those contained in the third-party(cid:13) complaint Sentinel had previously filed in the Tennessee(cid:13) Chancery Court. Sentinel sought damages in the form of(cid:13) litigation expenses incurred in the Chancery suit,(cid:13) reimbursement of the amounts it paid in the settlement, as(cid:13) well as damages for breach of contract and statutory(cid:13) causes of action under Tennessee law.(cid:13) Relying on Tennessee law, the District Court dismissed(cid:13) the complaint under Fed. R. Civil Procedure 12(b)(6). The(cid:13) Court denied the contract claims because Sentinel was no(cid:13) longer a trustee, and the obligations on the surety bonds(cid:13) were not owed to it personally. Sentinel was viewed as a(cid:13) mere "incidental beneficiary" and, as such, it"had no(cid:13) standing to sue for any alleged breach or inducement to(cid:13) breach obligations on the bonds."(cid:13) The indemnification count was rejected based on the(cid:13) findings of the Tennessee Chancery Court that Sentinel was(cid:13) "liable for its negligent acts." Finally, the Court noted that(cid:13) Nevada, as successor trustee, had released Universal and(cid:13) the surety companies from all claims of the noteholders.(cid:13) Although Sentinel asserted that the consideration for the(cid:13) release was inadequate, the Court ruled that the amount(cid:13) paid was sufficient.(cid:13) 4(cid:13) Sentinel has appealed, asserting that the District Court(cid:13) misconstrued its claims for breach of contract and(cid:13) inducement of breach, as well as improperly relying on the(cid:13) findings of fact underlying the vacated judgment in(cid:13) dismissing the indemnity claim. Rejection of the statutory(cid:13) claims arising under Tennessee law is also alleged to be(cid:13) erroneous.(cid:13) We have jurisdiction under 28 U.S.C. S 1291. Our review(cid:13) of the District Court’s rulings is plenary. Maio v. Aetna Ins.(cid:13) Co., 221 F.3d 472, 481 (3d Cir. 2000).(cid:13) Under Federal Rule of Civil Procedure 12(b)(6), the court(cid:13) must accept the facts set out in the complaint. However, a(cid:13) defendant may supplement the complaint by adding(cid:13) exhibits such as public records and other indisputably(cid:13) authentic documents underlying the plaintiff ’s claims.(cid:13) Pittsburgh v. West Penn Power, 147 F.3d 256, 259 (3d Cir.(cid:13) 1998); ALA v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994);(cid:13) Pension Benefit Guar. Co. v. White Consol. Indus. , 998 F.2d(cid:13) 1192, 1196 (3d Cir. 1993). Our review, as well as the(cid:13) District Court’s ruling, includes consideration of such(cid:13) documents.(cid:13) I. Breach of Contract(cid:13) Sentinel’s claim for breach of contract against Universal(cid:13) and their sureties is based upon their refusal to honor their(cid:13) obligations to guarantee payment of the TLC and Voyageur(cid:13) notes. Sentinel originally made these assertions in the(cid:13) District Court as trustee on behalf of the noteholders. When(cid:13) Nevada succeeded Sentinel as trustee, and settled the(cid:13) noteholders’ claims against Universal and the sureties, it(cid:13) reserved the right to proceed against Sentinel, and did so in(cid:13) the Tennessee Chancery Court.(cid:13) Ultimately, Sentinel paid a substantial sum to Nevada as(cid:13) incumbent trustee in settlement of the Tennessee action. It(cid:13) is that settlement amount and the expenses associated with(cid:13) it that Sentinel seeks to recover here against defendants(cid:13) Universal and the sureties.(cid:13) Sentinel argues that if Universal and the sureties had(cid:13) paid the full amount of the bonds, either upon demand or(cid:13) 5(cid:13) in settlement of the original suit by Nevada, then the(cid:13) noteholders would have had no damages to assert in the(cid:13) Chancery suit. Consequently, Sentinel would, in effect,(cid:13) have been immunized. This scenario is implicitly based on(cid:13) the proposition that the sureties could not have invoked(cid:13) Sentinel’s derelictions as a defense on the bonds. Such a(cid:13) contention is dubious at best.(cid:13) Basic tenets of suretyship may protect a surety from(cid:13) responsibility when the obligee bears fault for the loss. An(cid:13) obligee must act with diligence in transactions with the(cid:13) principal, and must have appropriately performed its(cid:13) contractual obligations in order for the principal and surety(cid:13) to be liable. See M. Michael Egan & Marla Eastwood,(cid:13) "Discharge of the Performance Bond Surety" in The Law of(cid:13) Suretyship 119 (Edward G. Gallagher ed., 2d ed. 2002).(cid:13) A substantial difference exists between contracts of(cid:13) indemnity and those of suretyship. An indemnity policy(cid:13) undertakes to protect a promisee against loss because of(cid:13) his own liability to a third person. The undertaking of a(cid:13) surety, on the other hand, is intended to protect the(cid:13) promisee against loss through failure of a third person to(cid:13) carry out his obligation to the promisee.(cid:13) In certain circumstances, a surety may be released from(cid:13) its obligations when derelictions by the obligee brought(cid:13) about the loss. Under Tennessee law, a compensated surety(cid:13) is entitled to be relieved to the extent of the loss actually(cid:13) caused by breach of an obligee’s duty. Central Towers(cid:13) Apartments, Inc. v. Manton, 453 S.W.2d 789, 796-97 (Tenn.(cid:13) Ct. App. 1969).(cid:13) Here, the District Court pointed out that the bonds were(cid:13) not issued to Sentinel personally, but only in its capacity as(cid:13) trustee. See Rest. (2d) of Trusts, S 196, comment g (1959)(cid:13) (stating that "all powers of a trustee shall be attached to(cid:13) the office and shall not be personal") (citing Uniform Trusts(cid:13) Act, S 10). When Nevada replaced Sentinel as trustee, the(cid:13) surety’s obligations were transferred to Nevada as the(cid:13) representative of the noteholders.(cid:13) The Court further observed that Sentinel, as trustee and(cid:13) thus a mere agent, was not entitled to a portion of the bond(cid:13) proceeds. Rather, the obligations were owed to the office of(cid:13) 6(cid:13) trustee, making Sentinel only an incidental beneficiary. The(cid:13) fact that Sentinel was entitled to compensation for its work(cid:13) as trustee in administering the financial arrangements did(cid:13) not confer standing to sue on its own behalf for breach or(cid:13) alleged inducement to breach the bond agreement. Under(cid:13) Tennessee law, only intended beneficiaries of a contract,(cid:13) and not incidental beneficiaries, may recover for a breach.(cid:13) In Abraham v. Knoxville Family Television, Inc. , 757(cid:13) S.W.2d 8 (Tenn Ct. App. 1988), the Court concluded that(cid:13) plaintiffs are considered to be incidental beneficiaries if(cid:13) they cannot show that the contract was intended for their(cid:13) direct benefit. The Tennessee Supreme Court held in(cid:13) Willard v. Claborn, 419 S.W.2d 168 (Tenn. 1967), that an(cid:13) agent could not maintain a breach of contract suit without(cid:13) a special interest or property interest in the subject matter(cid:13) of the contract. Right to a commission does not amount to(cid:13) such a property interest, and as a mere incidental(cid:13) beneficiary to a contract, an agent could not recover upon(cid:13) a breach of contract, nor on the tort of inducing a breach.(cid:13) We are persuaded that these cases set out the Tennessee(cid:13) law applicable to this case, and therefore, the District Court(cid:13) did not err in denying Sentinel’s claims of a breach of(cid:13) contract and inducement to breach a contract.(cid:13) II. Indemnity(cid:13) Sentinel also asserts that under either implied(cid:13) contractual or equitable theories of indemnification, it is(cid:13) entitled to recover the sums it expended in settlement of(cid:13) the Chancery suit. As Sentinel sees it, Universal and the(cid:13) surety companies conspired with Quackenbush to deprive(cid:13) the noteholders of protection from nonpayment and should(cid:13) be liable for the full amount of the loss.(cid:13) Upon examination of the record, however, it seems that(cid:13) Quackenbush did not defraud the noteholders, but rather(cid:13) the surety companies in causing them to write the bonds(cid:13) without the customary collateral. The liability for this fraud(cid:13) appears to have been resolved when Universal agreed to(cid:13) indemnify the surety companies, and in accordance with(cid:13) that arrangement paid a substantial sum on the(cid:13) noteholders claims. Thus, Quackenbush’s fraud became(cid:13) 7(cid:13) irrelevant to the noteholders’ interest once Universal took(cid:13) control of the litigation against the sureties and assumed(cid:13) their liabilities.(cid:13) Tennessee law on indemnity is summarized in the(cid:13) frequently cited Winter v. Smith, 914 S.W.2d 527 (Tenn. Ct.(cid:13) App. 1995). The concept relies on two principles-- that all(cid:13) should be responsible for their own derelictions and,(cid:13) therefore, wrongdoers should be liable to persons who are(cid:13) required to pay damages that the wrongdoers should have(cid:13) paid. "Indemnification requires the complete shifting of(cid:13) liability for loss from one person to another." Id. at 541.(cid:13) Implied indemnity obligations may be equitable or(cid:13) contractual and are imposed by law. Indemnity will be(cid:13) enforced when the obligation is a necessary element in the(cid:13) parties’ relationship or where fairness "demands that the(cid:13) burden of paying for the loss be shifted to the party whose(cid:13) fault or ‘responsibility is qualitatively different from the(cid:13) other parties.’ " Velsicol Chem. Corp. v. Rowe, 543 S.W.2d(cid:13) 337, 339 (Tenn. 1976) (qualitatively, e.g., as in the active(cid:13) and passive negligence sense).(cid:13) In Southern Coal & Coke Co. v. Beech Grove Mining Co.,(cid:13) 381 S.W.2d 299, 302 (Tenn. Ct. App. 1964), the Court held(cid:13) that one who has discharged the duty owed by another is(cid:13) entitled to indemnity "unless the payor is barred by the(cid:13) wrongful nature of his conduct." (citing Rest. of Restitution,(cid:13) S 76). Further discussion of indemnity under Tennessee law(cid:13) may be found in Owens v. Truckstops of Am., 915 S.W.2d(cid:13) 420, 434 (Tenn. 1996); Houseboating Corp. Of Am. v.(cid:13) Marshall, 553 S.W.2d 588 (Tenn. 1977).(cid:13) It appears that, under general principles of indemnity(cid:13) followed in Tennessee law, a party may not shift the full(cid:13) burden through indemnity, either contractual or equitable(cid:13) when it is responsible for its own negligence or wrongful(cid:13) conduct in connection with the claimed loss.(cid:13) In the case at hand, the District Court observed that(cid:13) "there was a finding by a Tennessee state court that(cid:13) Sentinel was liable for negligent acts . . . . Although that(cid:13) finding was apparently later vacated, Sentinel voluntarily(cid:13) entered into a settlement agreement, after a finding of(cid:13) liability against it was made . . . ." Sentinel insists that the(cid:13) 8(cid:13) District Court’s reliance on the vacated judgment(cid:13) constitutes reversible error.(cid:13) The chronology of the Tennessee proceeding is important(cid:13) in understanding the nature of the issue. As noted earlier,(cid:13) Nevada Bank, on behalf of the noteholders, joined in a suit(cid:13) previously filed by other entities against Sentinel in the(cid:13) Chancery Court of Davidson County, Tennessee.(cid:13) The Chancery Court filed extensive findings of fact and(cid:13) conclusions of law on August 16, 2000, and, on August 24,(cid:13) 2000, entered judgment in favor of Nevada Bank and(cid:13) against Sentinel in an amount in excess of $2 million. No(cid:13) findings were made as to Universal and the sureties as(cid:13) third-party defendants. Some months later, on December 6,(cid:13) 2000, Sentinel took a voluntary non-suit, without(cid:13) prejudice, dismissing the third-party claims against(cid:13) Universal and the sureties. They did not consent to nor(cid:13) contest the motion at that time.(cid:13) Nevada Bank and Sentinel then settled and agreed to a(cid:13) vacatur of the judgment. In accordance with a stipulation,(cid:13) the Chancery Court on February 21, 2001 filed an order(cid:13) stating:(cid:13) "(1) the judgment rendered against Sentinel pursuant to(cid:13) this court’s order dated August 24, 2000 is hereby vacated;(cid:13) (2) plaintiffs’ complaint, including all amendments(cid:13) thereto, is hereby dismissed with prejudice."(cid:13) The vacation of the Chancery Court judgment is an(cid:13) accomplished fact that is beyond our review at this point.(cid:13) Nevertheless, it does have some bearing on the question(cid:13) that remains: whether preclusive effect is to be given to the(cid:13) findings of fact underlying that judgment.(cid:13) In resolving that issue it is helpful to review the use of a(cid:13) stipulation to vacate a judgment as a condition of(cid:13) settlement between the parties. This practice has been a(cid:13) controversial subject for some years. The arguments pro(cid:13) and con have centered upon whether the practice helps or(cid:13) hinders settlements and whether the public interest and(cid:13) rights of third-parties may be affected. Not surprisingly, the(cid:13) 9(cid:13) debate has been the focus of extensive academic(cid:13) commentary.1(cid:13) In appraising the practice, we initially look to Tennessee(cid:13) law to the extent that it furnishes guidance. Migra v.(cid:13) Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984);(cid:13) In re Brown, 951 F.2d 564, 568-69 (3d Cir. 1991). However,(cid:13) none of the parties to this appeal nor our independent(cid:13) research has directed us to any Tennessee appellate cases(cid:13) that discuss the validity of vacatur on stipulation of the(cid:13) parties.(cid:13) Having failed to find any guiding state law, we turn to(cid:13) federal appellate decisions for general principles that may(cid:13) serve to aid our "prediction" on how the highest court in(cid:13) Tennessee would resolve the issue. In view of the(cid:13) continuing controversy over the matter, it is not unexpected(cid:13) to find that the federal courts have not been in agreement.(cid:13) The Court of Appeals for the Seventh Circuit has been(cid:13) firmly opposed to approving settlements that include as a(cid:13) condition that the district court judgment be vacated. In re(cid:13) Mem’l Hosp., 862 F.2d 1299 (7th Cir. 1988). The Second(cid:13) Circuit, once routinely permitted expungements as part of(cid:13) a settlement, Nestles Co. v. Chester’s Mkt., 756 F.2d 280(cid:13) (2d Cir. 1985), but later changed course in concluding that(cid:13) mere settlement is not sufficient to justify recision of a(cid:13) judgment. Bristol Tech. v. Microsoft, 250 F.3d 152 (2d Cir.(cid:13) 2001).(cid:13) _________________________________________________________________(cid:13) 1. See, e.g., Jill E. Fisch, Reinventing History; the Propriety of Eradicating(cid:13) Prior Decisional Law Through Settlement and Vacatur , 76 Cornell L. Rev.(cid:13) 589 (1991); Judith Resnik, Whose Judgment? Vacating Judgments,(cid:13) Preferences for Settlement and the Role of Adjudication at the Close of the(cid:13) Twentieth Century, 41 UCLA L. Rev. 1471 (1994). Note, The Benefits of(cid:13) Applying Issue Preclusion to Interlocutory Judgments in Cases that Settle,(cid:13) 76 NYU L. Rev. 874 (2002); Note, Settlement Pending Appeal: An(cid:13) Argument for Vacatur, 58 Fordham L. Rev. 233 (1989); Note, Avoiding(cid:13) Issue Preclusion by Settlement Conditioned Upon the Vacatur of Entered(cid:13) Judgments, 96 Yale L. J. 860 (1987). Note, Erasing the Law, The(cid:13) Implications of Settlements Conditioned upon Vacation of Reversal of(cid:13) Judgments, 50 Wash. & Lee Law Rev. 1229 (1993). Note, Unsettling(cid:13) Settlements; Should Stipulated Reversals be Allowed to Trump Judgments’(cid:13) Collateral Estoppel Effects Under Neary, 85 Cal. L Rev. 479 (1997).(cid:13) 10(cid:13) In Nat’l Union Fire Insur. Co. v. Seafines Corp. , 891 F.2d(cid:13) 762, 765 (9th Cir. 1989) (citing Ringsby Truck Lines, Inc. v.(cid:13) Western Conference of Teamsters, 686 F.2d 720, 722 (9th(cid:13) Cir. 1982), the Court of Appeals for the Ninth Circuit held(cid:13) that the decision to grant vacatur requires the district court(cid:13) to weigh the balance between the "competing values of(cid:13) finality of judgments and right to relitigation of unreviewed(cid:13) disputes." We have voiced our opposition to settlements(cid:13) conditioned on nullification of judgments for money(cid:13) damages, see Clarendon v. Nu-West Indus., 936 F.2d 127(cid:13) (3d Cir. 1991), but have permitted the practice when the(cid:13) trial court’s injunctive order imposed a legal bar to(cid:13) settlement. Orocare D.P.O., Inc. v. Merin, 972 F.2d 519, 522(cid:13) (3d Cir. 1992).(cid:13) Much of the controversy was resolved by the Supreme(cid:13) Court in U.S. Bankcorp Mortg. Co. v. Bonner Mall P’ship,(cid:13) 513 U.S. 18 (1994). In that case, the Court phrased the(cid:13) issue before it as "whether appellate courts in the federal(cid:13) system should vacate civil judgments of subordinate courts(cid:13) in cases that are settled after appeal is filed or certiorari(cid:13) sought." Bonner Mall, 513 U.S. at 19. The Court’s answer,(cid:13) in a unanimous opinion, might fairly be stated as"generally(cid:13) no."(cid:13) The Court discussed the "equitable entitlement to the(cid:13) extraordinary remedy of vacatur," and acknowledged that a(cid:13) party’s "voluntary forfeiture of review constitutes a failure of(cid:13) equity." Id. at 26. The Court also recognized the public(cid:13) interest in judicial precedents that are "presumptively(cid:13) correct and valuable to the legal community as a whole.(cid:13) They are not merely the property of private litigants and(cid:13) should stand unless a court concludes that the public(cid:13) interest would be served by a vacatur." Id .(cid:13) The authors of a leading treatise had taken the position(cid:13) that the parties should be free to settle pending appeal on(cid:13) terms that require vacation of a district court judgment.(cid:13) However, "this view has been emphatically rejected by the(cid:13) Supreme Court" in Bonner Mall. Wright, Miller & Cooper,(cid:13) 13 Fed. Prac. & Proc., S 3533.10 (2001).(cid:13) Bonner Mall, by its terms, is limited to the federal court(cid:13) system and, therefore, is not directly applicable to state(cid:13) 11(cid:13) courts. Nevertheless, a unanimous opinion by the Supreme(cid:13) Court of the United States does have force and furnishes(cid:13) philosophical guidance for resolution of similar situations(cid:13) in the state courts. See, e.g., Comm’r of Motor Vehicles v.(cid:13) Demilo & Co., 659 A.2d 148, 157-58 (Conn. 1995);(cid:13) Paramount Comm. v. Gibralter Cas. Co., 623 N.Y.S.2d 850(cid:13) (App. Div. 1995).(cid:13) Because the Chancery Court’s vacatur is a fait accompli(cid:13) at this stage, the more immediate question for us is(cid:13) whether the Supreme Court of Tennessee would apply(cid:13) preclusive effect to the findings underlying the vacated(cid:13) judgment. We have found no Tennessee law on point and,(cid:13) therefore, we must look to general principles of issue(cid:13) preclusion to aid in our prediction.(cid:13) In Beaty v. McGraw, 15 S.W.3d 819, 824 (Tenn. Ct. App.(cid:13) 1998), the Court explained that issue preclusion is(cid:13) designed "to conserve judicial resources," and"relieve(cid:13) litigants from the cost and vexation of multiple law suits."(cid:13) The doctrine bars the same parties or their privies from(cid:13) relitigating in the second suit issues that were actually(cid:13) raised and determined in an earlier case. Id.(cid:13) Under Tennessee law, the party invoking issue preclusion(cid:13) must demonstrate that: (1) the precluding issue is identical(cid:13) to that decided in the earlier suit; (2) that the issue was(cid:13) actually litigated and decided on the merits; (3) that the(cid:13) judgment in the earlier suit has become final; (4) that the(cid:13) party against whom preclusion is asserted was a party or in(cid:13) privity in the earlier suit; and (5) that the party had a full(cid:13) and fair opportunity to litigate the issue. Id . at 824-25.(cid:13) Issue preclusion, when used by the defendant in the(cid:13) second suit, does not require party mutuality, Trinity Indus.(cid:13) v. McKinnon Bridge Co., 77 S.W.3d 159, 185 (Tenn. Ct. App.(cid:13) 2001), so long as the issue sought to be precluded is(cid:13) identical in both cases. The concept of privity in this(cid:13) context pertains to the subject matter of the litigation, not(cid:13) to the relationship between the parties themselves. Privity(cid:13) connotes an identity of interest and depends on the facts of(cid:13) each case. Chilar v. Crawford, 39 S.W.3d 172, 181 (Tenn.(cid:13) Ct. App. 2000).(cid:13) 12(cid:13) Here, the matters sought to be precluded from further(cid:13) litigation are Sentinel’s negligent conduct and failure to(cid:13) properly satisfy its fiduciary obligations. There is no doubt(cid:13) that these issues were actually litigated and decided on the(cid:13) merits, as memorialized by the Chancery Court’s findings of(cid:13) fact and conclusions of law. Sentinel was a party to that(cid:13) suit and had a full and fair opportunity to defend itself.(cid:13) That leaves for discussion only the question of whether(cid:13) the judgment of the Chancery Court was "final," or(cid:13) rephrased in the circumstances here, whether the vacatur(cid:13) should be narrowly construed so as to grant validity to the(cid:13) findings of fact. The concepts of equity and fair dealing(cid:13) enter into this determination.(cid:13) As the Court acknowledged in C.O. Christian & Sons, Inc.(cid:13) v. Nashville P.S. Hotel, 765 S.W.2d 754, 756 (Tenn. Ct. App.(cid:13) 1989), "[t]he cases do not provide much guidance, however(cid:13) on the issue of what constitutes a final judgment for(cid:13) purposes of collateral estoppel . . . the principles governing(cid:13) the meaning of final judgment for purposes of appeal may(cid:13) differ from those relevant for purposes of collateral(cid:13) estoppel." In Richardson v. Tennessee Bd. of Dentistry, 913(cid:13) S.W.2d 446 (Tenn. 1995), the judgment was considered(cid:13) final when the chancellor’s memorandum and order(cid:13) conclusively determined all issues and left nothing for(cid:13) further adjudication. Although helpful, these broad(cid:13) propositions do not answer the question of whether the(cid:13) findings of fact may be invoked when the judgment is(cid:13) vacated by consent.(cid:13) Our review of the opinions of the Tennessee appellate(cid:13) courts reveals many instances where the Restatement of(cid:13) Judgments (Second) is cited with approval. We have not(cid:13) encountered any Tennessee case that refers to section 13 of(cid:13) that Restatement, but in light of C.O. Christian & Sons, we(cid:13) think that in an appropriate setting, that section would be(cid:13) cited as reflecting Tennessee law.(cid:13) Section 13 of the Restatement of Judgment (Second)(cid:13) provides that ". . . for purposes of issue preclusion . . . ,(cid:13) ‘final judgment’ includes any prior adjudication of an issue(cid:13) in another action that is determined to be sufficiently firm(cid:13) to be given preclusive effect." Any other interpretation could(cid:13) 13(cid:13) lead to "needless duplication of effort and expense in the(cid:13) second action to decide the same issue." See comment g.(cid:13) See also Lummus v. Commw. Oil & Refining Co., 297 F.2d(cid:13) 80, 87 (2d Cir. 1961); In re Brown, 951 F.2d at 596.(cid:13) In Employees Own Fed. Credit Union v. City of Defiance,(cid:13) 752 F.2d 243 (6th Cir. 1985), a state trial court entered(cid:13) findings of fact and conclusions of law adverse to the(cid:13) plaintiff Credit Union, but allowed it to file an amended(cid:13) complaint within 20 days. Before the expiration of that(cid:13) period, the Credit Union voluntarily dismissed the actions(cid:13) without prejudice and a few days later filed the same claim(cid:13) in federal court. The Court of Appeals held that the state(cid:13) court decision embodying findings of fact and conclusions(cid:13) of law was sufficiently firm to be accorded preclusive effect.(cid:13) Similarly, in Birgel v. Bd. of Comm’rs of Butler County,(cid:13) 125 F.3d 948 (6th Cir. 1997), the Court said that ordinarily(cid:13) collateral estoppel requires a final judgment. However, the(cid:13) plaintiff ’s voluntary dismissal of a claim after it had been(cid:13) remanded by the state appellate court for further(cid:13) proceedings in the state trial court barred relitigation of the(cid:13) same claim in federal court. The order of the state court(cid:13) had been sufficiently firm, even in the absence of a formal(cid:13) judgment, to allow preclusion. "We will not permit a(cid:13) plaintiff to abandon his failing state court suit and file a(cid:13) virtually identical suit in federal court in hopes of achieving(cid:13) a more favorable result." Id. at 952.(cid:13) Other courts have also adopted this position on finality in(cid:13) the collateral estoppel context. In Chemetron Corp. v.(cid:13) Business Funds, Inc., 682 F.2d 1149 (5th Cir. 1983),(cid:13) vacated on other grounds, 460 U.S. 1007 (1983), the Court(cid:13) applied issue preclusion even though the trial court had(cid:13) vacated a judgment as a condition of settlement. 2 See also(cid:13) Bates v. Union Oil Co., 944 F.2d 647 (9th Cir. 1982); John(cid:13) Morrell v. Local Union, 913 F.2d 544 (8th Cir. 1990);(cid:13) O’Reilly v. Malon, 747 F.2d 820 (1st Cir. 1984).(cid:13) _________________________________________________________________(cid:13) 2. Chemetron has had a somewhat checkered career in the Fifth Circuit.(cid:13) It was criticized in Avondale Shipyards v. Insured Lloyd’s, 786 F.2d 1265(cid:13) (5th Cir. 1986), and J.R. Clearwater Ashland Chem. v. Ashland Chem.,(cid:13) 93 F.3d 176 (5th Cir. 1996). However, it was cited in Cycles Ltd. v.(cid:13) Navisteer Fin. Corp., 37 F.3d 1088 (5th Cir. 1994).(cid:13) 14(cid:13) Taking guidance from these general principles, we first(cid:13) observe that the Chancery Court’s order did not purport to(cid:13) expunge the findings of fact and conclusions of law.(cid:13) Contrast the silence of the Tennessee Court’s order on that(cid:13) point with that in Harris Trust & Sav. Bank v. John(cid:13) Hancock Mut. Life Ins., 970 F.2d 1138 (2d Cir. 1992), where(cid:13) preclusion was denied. In that case, the first court’s order(cid:13) directed that "the order, together with the findings and(cid:13) conclusions embodied therein, is . . . vacated, and shall be(cid:13) of no force or effect against the defendant by . . . third(cid:13) parties for collateral estoppel or other preclusive purposes."3(cid:13) Id. at 1146. The Chancery order in this case contains no(cid:13) such language, but merely states that the "judgment" is(cid:13) vacated.(cid:13) Next, we note that the judgment and findings of fact(cid:13) against Sentinel were entered by the Chancery Court(cid:13) during the time when Universal was a third-party(cid:13) defendant. This being so, Sentinel could and should have(cid:13) litigated its claims in the Chancery Court. Consequently,(cid:13) whatever force the arguments against non-mutual estoppel(cid:13) might have is not implicated here. Although not specified as(cid:13) applicable to the third-party proceedings, the findings of(cid:13) fact were of obvious benefit to Universal in its defense of(cid:13) Sentinel’s complaint against it.(cid:13) No doubt because of the disadvantageous position in(cid:13) which the findings had placed it, Sentinel unilaterally took(cid:13) a voluntary non-suit without prejudice against Universal,(cid:13) an action to which it did not consent. Tennessee Rules of(cid:13) Civil Procedure 41.01 provides that a plaintiff may take a(cid:13) voluntary non-suit "at any time before the trial of a cause(cid:13) . . . or by oral notice ‘in open court during the trial of a(cid:13) cause; or in jury trials at any time before the jury retires to(cid:13) consider its verdict and prior to the ruling of the court(cid:13) sustaining a motion for a directed verdict.’ " Rule 41.03(cid:13) extends that rule to cover the "dismissal of . . . third-party(cid:13) claims."(cid:13) Our reading of the Tennessee procedural rules leads us(cid:13) to question whether Sentinel had the right to dismiss(cid:13) _________________________________________________________________(cid:13) 3. We need not decide whether such a stipulation could bind absent(cid:13) parties.(cid:13) 15(cid:13) without prejudice when the Chancellor had already entered(cid:13) findings of fact and judgment against it. We may not review(cid:13) the validity of the non-suit because at this point it is not(cid:13) subject to reversal by federal courts. However, the dismissal(cid:13) of the third-party complaint at that stage and subsequent(cid:13) filing of essentially the same document in the New Jersey(cid:13) District Court is a flagrant instance of forum shopping.(cid:13) Based on the proceedings to that point, Sentinel(cid:13) apparently believed its chances of success in the third party(cid:13) action against Universal in the Chancery Court were dim(cid:13) and decided to try another forum. This is an example of the(cid:13) unnecessary duplication of litigation that the doctrine of(cid:13) issue preclusion is designed to prevent. The circumstances(cid:13) are quite similar to those in Employees Own Fed. Credit(cid:13) Union v. City of Defiance, 752 F.2d 243 (6th Cir. 1985),(cid:13) where the Court applied res judicata to findings of fact that(cid:13) were entered before the plaintiff took a voluntary dismissal.(cid:13) According to the Court, "we see no reason to allow a party(cid:13) to get an adverse judgment in state court and turn around(cid:13) and sue on the same claim in federal court. One bite at the(cid:13) apple is enough." Id. at 245.(cid:13) Moreover, as noted above, concepts of equity and fair(cid:13) dealing come into play. Sentinel’s tactics were carefully(cid:13) timed. When it presented the motion to vacate the(cid:13) judgment, Universal was no longer a party to the Chancery(cid:13) suit, and the vacatur was thus unopposed. It is also(cid:13) interesting that Sentinel filed the action in the federal court(cid:13) in New Jersey before the vacation order was entered by the(cid:13) Chancery Court. At the time the litigation was commenced(cid:13) in New Jersey, therefore, a final judgment had been entered(cid:13) against Sentinel and findings of fact underlying that(cid:13) judgment were in full force and effect.(cid:13) We are persuaded that in view of all the circumstances(cid:13) here, if the case were submitted to the Supreme Court of(cid:13) Tennessee, it would apply issue preclusion.(cid:13) The Chancery Court found that Sentinel breached its(cid:13) obligations to the noteholders in a number of respects,(cid:13) including failure to ensure that the security interests in the(cid:13) collateral were perfected, allowing collateral to be(cid:13) improperly sold and transferred out of trust, failing to(cid:13) 16(cid:13) collect loan payments from the notemakers, failing to make(cid:13) timely demands on the sureties, and making improper(cid:13) investment of funds entrusted to it. These findings of fact(cid:13) established violations of Sentinel’s obligations as trustee(cid:13) and serve as a defense to the indemnity claim.(cid:13) The District Court correctly ruled that Sentinel was not(cid:13) entitled to indemnity in these circumstances.(cid:13) III. The Tennessee Consumer Protection Act (cid:13) Sentinel also asserts a claim under the Tennessee(cid:13) Consumer Protection Act. Tenn. Code Ann. S 47-18-104 to(cid:13) 109. That statute prohibits unfair or deceptive acts or(cid:13) practices affecting the conduct of any trade or business,(cid:13) including the practices of insurance companies. Sentinel(cid:13) contends that the issuance of the performance bonds fell(cid:13) within the purview of the Act. We need not discuss the(cid:13) merits of this claim, because it is time barred.(cid:13) Tenn. Code Ann. S 47-18-110 provides that a cause of(cid:13) action under the Act "shall be brought within one year from(cid:13) a person’s discovery of the unlawful act or practice, but in(cid:13) no event shall an action under Tenn. Code Ann. S 47-18-(cid:13) 109 be brought more than four years after the date of the(cid:13) consumer transaction giving rise to the claim for relief." The(cid:13) bonds were issued in February and November 1994, and(cid:13) according to the findings of fact in the Tennessee Chancery(cid:13) Court, the default occurred in 1997.(cid:13) Defendants acknowledge that the "discovery of the(cid:13) unlawful act or practice" may be considered to have been(cid:13) established as of September 1, 1998, when a complaint(cid:13) averring fraud against Namer, Quackenbush, and Universal(cid:13) was filed in the United States District Court for the Western(cid:13) District of Tennessee. However, the action before us was(cid:13) not commenced until February 1, 2001. Under the one year(cid:13) limitation period, Sentinel’s claim is barred.(cid:13) Sentinel argues that the claim was timely under the(cid:13) Tennessee "saving statute." Tenn. Code Ann.S 28-1-105(a).(cid:13) This provision permits an otherwise untimely claim if it was(cid:13) originally commenced within the statutory period, was(cid:13) subject to disposition "against the plaintiff upon any(cid:13) 17(cid:13) ground not concluding the plaintiff ’s right of action," and(cid:13) thereafter commenced within one year of that disposition.(cid:13) However, Sentinel’s argument is unavailing. Its claims(cid:13) under the Act were originally asserted against the(cid:13) defendants in the third party complaint in the Tennessee(cid:13) Chancery action, filed on December 6, 1999. Under the(cid:13) date fixing the "discovery of the unlawful act or practice,"(cid:13) that action is also beyond the one year limitation period.(cid:13) Accordingly, the judgment of the District Court will be(cid:13) affirmed.4(cid:13) A True Copy:(cid:13) Teste:(cid:13) Clerk of the United States Court of Appeals(cid:13) for the Third Circuit(cid:13) _________________________________________________________________(cid:13) 4. The District Court included Defendant Quackenbush it its Order(cid:13) granting defendants’ motion to dismiss. We find no error in this(cid:13) determination, and affirm the District Court’s Order in its entirety.(cid:13) 18
