IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

HAY GROUP MANAGEMENT, INC.

v.

BERND SCHNEIDER

:

:

:

:

:

CIVIL ACTION

NO. 04-1236

MEMORANDUM

Bartle, J. February 1, 2018

Plaintiff Hay Group Management, Inc. (“Hay 

Management”) has sued Defendant Bernd Schneider for breach of 

fiduciary and legal duty and civil conspiracy.1

 The allegations 

in the Second Amended Complaint, filed on June 7, 2016, arise 

out of Schneider’s conduct prior to his purported termination in 

2003 as President of Hay Management and as a top executive with 

various Hay entities. Hay Management seeks to recover from him

damages, the bulk of which is approximately $13 million, the 

amount paid to him in connection with a judgment entered by a 

German Court in his favor and against Hay Group Investment 

 

1. The original complaint was filed by Hay Group Management, 

Inc., Hay Acquisition Company, I, Inc., Hay Group, Inc., and Hay 

Group International, Inc. on March 22, 2004 against defendants 

Bernd Schneider, Lucie Boller-Bockius, and Suresh Bhula. Bhula 

filed a counterclaim against Hay Group, Inc. and Chris Matthews 

on May 12, 2004. The four plaintiffs filed a First Amended 

Complaint on September 2, 2014 naming only Schneider as a 

defendant. The plaintiffs subsequently filed a Second Amended 

Complaint on June 7, 2016, again naming only Schneider as a 

defendant. On January 9, 2018 all plaintiffs except Hay 

Management were dismissed by agreement of the parties. On 

January 31, 2018 Chris Matthews was dismissed by agreement as a 

party.
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Holding B.V. (“Hay BV”). The German Court had awarded Schneider

this amount for salary and bonuses which it determined had been 

improperly withheld for the years 2004, 2005, and 2006.2 The 

payment was ultimately incurred by Hay Management. Before the 

court is the motion of Schneider for summary judgment under Rule 

56 of the Federal Rules of Civil Procedure.3

 

We have subject matter jurisdiction pursuant to 

28 U.S.C. § 1332(a). Plaintiff Hay Management is incorporated 

in Delaware and has its principal place of business in 

Pennsylvania. Defendant Schneider is a citizen and resident of 

Germany. 

I

Summary judgment is appropriate “if the movant shows 

that there is no genuine dispute as to any material fact and the 

movant is entitled to judgment as a matter of law.” Fed. R. 

Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 323 

(1986).4 A dispute is genuine if the evidence is such that a 

 

2. The remainder of the damages sought by Plaintiff will be 

discussed in further detail later.

3. This action was originally assigned to Judge Timothy J. 

Savage. It was reassigned on March 31, 2004 to Judge Legrome D. 

Davis. Following the retirement of Judge Davis, the action was 

reassigned on October 5, 2017 to the undersigned. 

4. Rule 56(c)(1) states: 

A party asserting that a fact cannot be or is 

genuinely disputed must support the assertion 
-3-

reasonable factfinder could return a verdict for the nonmoving 

party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986). 

Summary judgment is granted where there is insufficient record 

evidence for a reasonable factfinder to find for the nonmovant. 

Id. at 252.

When ruling on a motion for summary judgment, we may 

only rely on admissible evidence. See, e.g., Blackburn v. United 

Parcel Serv., Inc., 179 F.3d 81, 95 (3d Cir. 1999). A party 

asserting that a particular fact “cannot be or is genuinely 

disputed” must support its assertion by “citing to particular parts 

of materials in the record” or by “showing that the materials cited 

do not establish the absence or presence of a genuine dispute, or 

that an adverse party cannot produce admissible evidence to support 

the fact.” Fed. R. Civ. P. 56(c)(1). In reviewing a motion for 

summary judgment, the court may consider any materials in the 

record but is not required to look beyond those materials cited by 

 

by . . . citing to particular parts of 

materials in the record, including 

depositions, documents, electronically stored 

information, affidavits or declarations, 

stipulations . . . , admissions, interrogatory 

answers, or other materials; or . . . showing 

that the materials cited do not establish the 

absence or presence of a genuine dispute, or 

that an adverse party cannot produce 

admissible evidence to support the fact. 

Fed. R. Civ. P. 56(c)(1).
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the parties. Fed. R. Civ. P. 56(c)(3). It is not the 

responsibility of the court to “comb the record in search of 

disputed facts.” N.J. Carpenters Pension Fund v. Hous. Auth. & 

Urban Redevelopment Agency of the City of Atl. City, 68 F. Supp. 3d 

545, 549 (D.N.J. 2014). As our Court of Appeals has emphasized, 

“[j]udges are not like pigs, hunting for truffles buried in 

briefs.” Doeblers’ Pa. Hybrids, Inc. v. Doebler, 442 F.3d 812, 820 

n.8 (3d Cir. 2006) (quoting United States v. Dunkel, 927 F.2d 955, 

956 (7th Cir. 1991)). 

II

The Second Amended Complaint, as noted above, alleges 

that Schneider breached his fiduciary and legal duties to Hay 

Management and other Hay entities and engaged in civil 

conspiracy as their top executive. Specifically, it enumerates 

a series of actions Schneider began taking in 2003 that were 

contrary to their best interests. As a result, he was notified 

on December 7, 2003 that he was terminated from all of his 

positions with the Hay entities.

Plaintiff first asserts that Schneider enlisted Lucie 

Boller-Bockius, the former Finance Director and Officer of Hay 

Group GmbH (“Hay Germany”), as his co-conspirator. She aided 

him in his quest to retaliate against those who he perceived 

were his adversaries in the Hay entities or those who had played 
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a role in recommending that he receive less than 100% of his 

bonus opportunity for the fiscal year 2002. 

The Second Amended Complaint also details Schneider’s 

involvement in conducting a “false investigation” into the Chief 

Financial Officer of Hay Group, Inc., Stephen Kaye, in order to 

retaliate against him for the “unjustifiably low bonus” 

Schneider received in 2002. Hay Management maintains that 

Schneider knew that the allegations giving rise to the 

investigation were baseless and that the investigation was a 

waste of company money. 

Hay Management alleges that further acts by Schneider 

constituting breach of fiduciary duty and civil conspiracy 

involved his manipulation of the calculation of the annual 

incentive compensation to be paid to various employees.

Schneider purportedly did so in order to reward those who were 

loyal to him and punish those who were not. He enlisted 

individuals in the Hay entities to assist him in this endeavor. 

Additionally, beginning in January 2003 Schneider took steps 

secretly to increase the salary of Boller-Bockius and secretly 

provided her with a severance payment agreement and a pension in 

the event of early termination.

The final subject of allegations constituting breach 

of fiduciary and legal duty and civil conspiracy concerns 

Schneider’s Employment Agreement with Hay BV and a Cost 
-6-

Allocation Agreement (“CAA”) executed by Hay BV, Hay Management, 

and Hay Germany. Subsequent to his purported termination, 

Schneider filed lawsuits in Germany and the Netherlands against 

Hay BV and other Hay companies, including Hay Management, 

challenging the validity of his termination. Ultimately in 

2014, a German Court entered judgment in favor of Schneider and 

against Hay BV. In March 2015 Hay Germany, as the paying agent 

for Hay BV, paid Schneider $13,794,949.37 in accordance with the 

judgment.5 Pursuant to the CAA, Hay Management reimbursed Hay 

Germany for most of this amount. Hay Management seeks to regain

from Schneider, among other damages, the approximate $13 million

that it ultimately paid to satisfy the award by the German Court 

to Schneider for his improper termination.6

In Hay Management’s view, Schneider acted improperly 

in not having his Employment Agreement assigned in full to Hay 

Germany. It contends that if the Employment Agreement had been 

properly assigned, German law, rather than Dutch law, would have 

governed the validity of the termination notices sent to 

Schneider, and Schneider would not have filed suit in the 

 

5. Although the award was in euros, the parties refer here to 

the amount in dollars. Thus we will refer to the award in 

dollars.

6. Plaintiff seeks an additional award in excess of $343,000. 

This includes the fees paid to the law firm retained to 

investigate an investigation commenced by Schneider and the 

salary and bonuses that were paid to certain individuals in 

connection with the alleged civil conspiracy.
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Netherlands regarding the validity of the notices. Plaintiff 

maintains that under German law the termination notices sent to 

Schneider were valid. Thus had Schneider ensured that under the 

CAA the Employment Agreement was fully assigned to Hay Germany, 

Schneider would have been properly terminated in December 2003. 

According to Hay Management, if Schneider had been properly 

terminated in 2003, there would have been no judgment in his 

favor for compensation and thus Hay Management would not have 

incurred the damages of $13 million that it was required to 

reimburse Hay Germany as a result of Hay Germany’s payment of 

the judgment to Schneider on behalf of Hay BV. Hay Management

concludes that by failing to ensure that the CAA assigned the 

Employment Agreement to Hay Germany, Schneider did not act in 

the best interest of Hay Management and breached his fiduciary 

and legal duties to it.

III

The following facts are undisputed. Hay Management is 

a subsidiary corporation that is part of a larger organizational 

structure that contains a number of companies known as the 

“Hay entities.” They are in the business of management 

consulting. Atop this organization is parent company HG 

(Bermuda) Limited. Below HG (Bermuda) is third-tier subsidiary 

Hay BV. Hay BV is a Dutch holding company that owns the assets 

of the other Hay entities. Plaintiff Hay Management acts as the 
-8-

worldwide headquarters of the Hay companies. It performs 

corporate and administrative functions for the Hay companies and 

employs most of Hay’s senior executives.

Defendant Schneider is the former CEO of Hay BV and 

the former President of Plaintiff Hay Management. Schneider 

entered into an Employment Agreement with Hay BV on October 1, 

2001 to become its CEO.7 In March 2003, he was appointed as

President of Plaintiff Hay Management and other Hay entities to 

replace an individual named Chris Matthews who had previously 

occupied that role. Matthews is the Chairman and Chief 

Executive Officer of HG (Bermuda) and has held this position

since 1990. Matthews also served from 1990 until December 1, 

2015 as the Chairman of the boards of Plaintiff Hay Management

and Hay BV as well as other Hay companies. From 1990 until 

October 1, 2001, he was the CEO of Hay BV.

The Employment Agreement that Schneider entered into 

with Hay BV governed the terms and conditions of his employment 

with Hay BV. It was signed by Schneider, Matthews, and a third 

individual identified as “managing director.” The Employment 

Agreement set forth the manner in which Schneider’s salary and 

bonus were to be determined and paid by Hay BV. It contained 

clauses providing for the assignment of the Employment 

 

7. The Employment Agreement was entered into on November 2, 

2001 and made retroactive to October 1, 2001.
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Agreement. In the preamble, the Employment Agreement stated, in 

relevant part: 

[Hay BV] and [Schneider] desire that the 

period of service hereunder shall commence 

on October 1, 2001, and at or after such 

date [Hay BV] will assign this Agreement 

pursuant to Article 6.5 hereof to [Hay 

Germany], a Frankfurt corporation, or to 

another member of the Affiliated Group . . . 

to be selected by [Hay BV.] 

Article 6.5 of the Employment Agreement, titled “Assignment,” 

provided that “[Hay BV] may assign this Agreement to any other 

member of the Affiliated Group. With the consent of 

[Schneider], [Hay BV] or any other Employer may also assign this 

Agreement in parts to more than one member of the Affiliated 

Group.” The Employment Agreement also provided that Schneider 

could be terminated “for cause.”

On October 24, 2003, Plaintiff Hay Management, Hay BV, 

and Hay Germany executed the CAA, made retroactive to October 1, 

2001, the date of the Employment Agreement.8

 The CAA contained 

an “assignment clause” that stated that Schneider’s Employment 

Agreement with Hay BV “is assigned to [Hay Germany] for

Execution.” Among other things, the CAA set forth the 

conditions under which Hay Management would reimburse Hay 

Germany for “all costs of management activities rendered by 

 

8. Schneider signed the CAA on October 24, 2003 on behalf of 

Hay Germany and Matthews signed it on November 13, 2003 on 

behalf of Hay Management and Hay BV. 
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[Schneider] which exceed” a certain fixed amount, and that 

“[t]he obligation of [Hay Management] covers all other 

contractual obligations as triggered by the Employment Agreement 

too.” 

The assignment clauses of the Employment Agreement and 

of the CAA later became the subjects of litigation before a 

German Court and are subjects of contention in this action. 

According to Hay Management, the intended purpose of the 

assignment clause in the CAA was to make Hay Management and Hay 

Germany responsible for proportionately allocating the costs of 

Schneider’s compensation under the Employment Agreement and to 

release Hay BV of its obligation in this regard. This assignment 

clause had tax implications for Hay Management and other Hay 

entities.

Following the series of actions by Schneider detailed 

in the Second Amended Complaint, the Ownership Board of HG 

(Bermuda), the parent organization of the Hay entities, 

purported to terminate Schneider’s employment on December 7, 

2003 from all of his positions with Hay Management, Hay BV, and 

other Hay entities. Notice of this termination was sent to 

Schneider by Hay BV and Hay Germany. As noted above, Schneider 

thereafter challenged the validity of this termination and 

sought payment of salary and bonuses under his Employment 

Agreement. He first filed suit in Germany in the Frankfurt 
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Labor Court regarding the validity of the termination notices 

and compensation under the Employment Agreement. Schneider 

named as defendants Hay BV, Hay Germany, Hay Acquisition, Hay 

Group, Inc., Hay International, and Hay Management. The portion 

of the action relevant to the instant action was transferred by 

the Frankfurt Labor Court to the Frankfurt Regional Court. 

In March 2005, while the German action was pending, 

Schneider filed suit in the Netherlands alleging that the 

resolution of the management board that led to the termination 

notices was invalid under Dutch law. The Frankfurt Regional 

Court stayed the German action pending the conclusion of the 

Dutch action. 

In July 2006 the Dutch Court found in Schneider’s 

favor. The Dutch Court ruled, among other things, that his

termination was improper under Dutch law since Hay BV failed to 

obtain a valid resolution of its management board and send 

notice of termination in accordance with the resolution.9

 

On November 8, 2010, after the Dutch litigation 

concluded, the Frankfurt Regional Court lifted its stay. Upon 

motion, that court dismissed Hay Acquisition, Hay Group, Inc.,

Hay International, and Hay Management for “lack of international 

 

8. This decision was appealed to the intermediate court of 

appeals, which affirmed the decision. It was then appealed to 

the Dutch Supreme Court, which affirmed the lower court decision 

in December 2009. 
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jurisdiction.” Thereafter the court ruled against Schneider and 

in favor of Hay BV and Hay Germany. This decision was appealed 

to the Higher Regional Court of Frankfurt am Main (“Higher 

Regional Court”). 

On February 19, 2014 the Higher Regional Court 

reversed the lower court decision and ruled that since 

Schneider’s termination was invalid, he continued to be employed 

by Hay BV through 2006 when his contract expired. It found that 

the CAA did not assign the Employment Agreement for all purposes 

from Hay BV to Hay Germany but rather only assigned it for 

purposes of execution. Consequently Hay BV, rather than Hay 

Germany and Hay Management, was responsible for Schneider’s 

outstanding salary and applicable bonuses. 

The Higher Regional Court entered judgment in favor of 

Schneider and against Hay BV for his salary and bonuses for the 

years 2004, 2005, and 2006, plus interest.10 The total amount 

was reduced pursuant to the deduction of wage taxes and the 

judgment entered by the German Court in favor Hay Germany and 

against Schneider on the counterclaim of Hay Germany for breach 

of fiduciary duty.11 The judgment of $13,794,591.37 was paid to

 

10. An appeal of this order was taken and the judgment became 

final when the Federal Court of Justice of Germany declined to 

hear the case.

11. In the counterclaim, Hay Germany sought repayment of 

amounts paid to Lucie Boller-Bockius following her early 
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Schneider by Hay Germany, as paying agent for Hay BV.12 Under 

the CAA, Hay Management was required to reimburse Hay Germany 

for all compensation costs exceeding a certain fixed amount. 

Thus Hay Management reimbursed Hay Germany for most but not all 

of the amount Hay Germany paid to Schneider.

The parties have submitted expert reports pursuant to 

Rule 26(a)(2)(B) of the Federal Rules of Civil Procedure. 

Dr. Philipp S. Fischinger provided an expert report on behalf of 

Hay Management and Dr. Thomas Thees did so on behalf of 

Schneider. 

Dr. Fischinger opined, in relevant part, that while 

“there is no legal rule of compulsory counterclaim” in Germany, 

“it is well established that a defendant who has potential 

claims against a plaintiff is free to either (i) file a 

counterclaim (“Widerklage”) or (ii) sue the plaintiff in a 

completely different lawsuit in the same or a different court.” 

In this opinion, Dr. Fischinger also stated that under German 

procedure, “a party’s means of defense (or attack) can be barred 

 

termination pursuant to her severance agreement. Hay Germany 

alleged that Schneider breached his fiduciary duty to Hay 

Germany by taking secret steps to ensure that Boller-Bockius’ 

severance payment was increased in the event of her early 

termination. 

12. The amounts awarded to Schneider and to Hay Germany, 

respectively, by the Higher Regional Court were awarded in 

euros. However since the parties refer to the amount paid to 

Schneider by Hay Germany on behalf of Hay BV in dollars, we too 

refer to it in dollars.
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because of presenting its facts too late, this does not apply to

counterclaims as counterclaims are not deemed to be means of 

defense (attacks), but as an independent counter attack” 

(emphasis in original).

Dr. Thees opined, in relevant part, that:

Usually in German litigation all counter 

claims against a claim are made by the 

defendant prior to the last oral hearing in 

the court of first instance in order to 

avoid that such counter claims are barred 

(“prӓkludiert”). Counter claims that are 

raised after the last oral hearing in the

court of first instance usually are excluded 

from the litigation. They can only be 

considered by the court of second instance 

if the relevant party can prove that it did 

not act negligently by not asserting the 

means of defense earlier. . . . Therefore in 

German civil court litigation all facts 

relevant for defenses and counter claims are 

usually asserted in the first instance[.]

Although the experts disagree as to whether the filing of any 

counterclaim arising out of the original lawsuit is compulsory 

under German law, there is no dispute that a defendant in a 

German lawsuit may file counterclaims and of course may raise 

defenses to plaintiff’s claims.

Dr. Thees concludes in his expert report that “all of 

the claims asserted by the U.S. Hay entities in the U.S. were 

either asserted by counterclaim or defense, or could have been 

asserted in the German proceedings.” While Dr. Fischinger 

disagrees that all the claims were asserted in the German 
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litigation, tellingly, he does not disagree that the claims 

raised here “could have been asserted” by way of counterclaims

or defenses.

IV

Schneider argues in support of his motion for summary 

judgment that this action is barred under the doctrine of 

res judicata as a result of the judgment entered in his favor as 

a plaintiff in the German Higher Regional Court. Since our 

subject matter jurisdiction is based on diversity of 

citizenship, we must first determine whether federal or state 

law of res judicata, that is claim preclusion, applies.13

In Lubrizol Corporation v. Exxon Corporation, 929 F.2d 

960, 962-63 (3d Cir. 1991), our Court of Appeals noted that 

where successive diversity cases are involved, the majority of 

Courts of Appeals apply federal res judicata law, while a number 

of decisions of the Third Circuit have applied state law without 

any discussion of the choice of law issue.14

 

13. The term claim preclusion is now generally favored rather 

than res judicata. However, since the parties use res judicata, 

we will do so in this Memorandum. 

14. We note that in this case we do not have two successive 

diversity actions or one diversity action and a state court 

action. See Hartmann v. Time, Inc., 166 F.2d 127 (3d Cir. 

1947), cert. denied, 334 U.S. 838 (1948). Instead, a German 

appellate court entered a judgment in the first action and only 

this pending action is based on diversity of citizenship. 
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The Court of Appeals then cited two Supreme Court 

cases which were decided after the Third Circuit decisions 

applying state res judicata law: Hanna v. Plumer, 380 U.S. 460 

(1965) and Byrd v. Blue Ridge Rural Elec. Coop., Inc., 356 U.S. 

525 (1958). Lubrizol, 929 F.2d at 963. Those two decisions 

recognized that earlier Supreme Court precedents directed 

federal courts sitting in diversity actions to apply state 

substantive law and to make use of an outcome-determinative test 

to determine what is substantive. See Erie R. Co. v. Tompkins, 

304 U.S. 64 (1938); Guar. Trust Co. v. York, 326 U.S. 99 (1945). 

Nonetheless, Byrd and Hanna explain that this test should not be 

applied woodenly. In Byrd, the Supreme Court ruled that in a 

diversity action in the District Court of South Carolina, 

“strong federal policy” required that a jury be permitted to 

decide an issue where South Carolina law provided for the issue 

to be decided by a judge. 356 U.S. at 538. The Supreme Court 

acknowledged that as a result of its decision the outcome of the 

case may be different than if state law applied. 

Similarly, in Hanna, the Supreme Court held that the 

Federal Rules of Civil Procedure relating to service of process 

governed over a more restrictive Massachusetts statute on 

service even though application of the federal rule in that case 

would be outcome determinative. 380 U.S. at 463-64. The 

Federal Rules, the Court reasoned, are procedural and not 
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substantive in the sense understood in Erie. Id. at 464-65. As 

the Supreme Court stated in Hanna, “The ‘outcome-determinative’ 

test . . . cannot be read without reference to the twin aims of 

the Erie rule: discouragement of forum-shopping and avoidance 

of inequitable administration of the laws.” Id. at 468. After 

reference to Byrd and Hanna, the Court of Appeals in Lubrizol

did not resolve the issue of whether federal or state 

res judicata law applied in the matter before it because it 

concluded that the law was the same either way. 929 F.2d at 

963.

We note preliminarily that the doctrine of 

res judicata does not go to or affect the merits of any claim. 

See Answering Serv., Inc. v. Egan, 728 F.2d 1500, 1503-06 

(D.C. Cir. 1984). The purpose of the rule is to promote 

judicial economy, to establish certainty in legal relations, and 

to avoid inconsistent decisions. See Comm’r of Internal Rev. v. 

Sunnen, 333 U.S. 591, 597 (1948); Turner v. Crawford Square 

Apartments III, L.P., 449 F.3d 542, 548-49 (3d Cir. 2006). In 

our view, it is designed for “avoidance of inequitable 

administration of the laws.” Hanna, 380 U.S. at 468. There is 

nothing before us to indicate that the substantive or 

outcome-determinative test as explained in Byrd and Hanna

compels the application of state law.
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Under the federal doctrine of res judicata, a 

defendant must establish that there has been: (1) a final 

judgment on the merits; (2) the same parties or their privies; 

and (3) a subsequent suit based on the same cause of action. 

Lubrizol, 929 F.2d at 963. 

The first requirement of federal res judicata has been 

satisfied here. There is no dispute that a valid final judgment 

from a German court has been entered in favor of Bernd 

Schneider, the current defendant who was the plaintiff in that 

earlier action. Furthermore, the parties agree that the foreign 

judgment is deserving of comity. See United States ex rel

Saroop v. Garcia, 109 F.3d 165, 169-70 (3d Cir. 1997); Hilkmann 

v. Hilkmann, 858 A.2d 58, 64-67 (Pa. 2004). 

The next issue to be resolved is whether Hay 

Management, the plaintiff here, is in privity with Hay BV, the 

Hay entity against whom the judgment was entered in favor of 

Schneider in the Higher Regional Court. Privity exists where 

there is “a close or significant relationship” between the two 

parties. Lubrizol, 929 F.2d at 966. This relationship can 

exist where the successive parties are parent and subsidiary. 

Id. 

Hay BV, a wholly-owned subsidiary of the ultimate 

parent corporation HG (Bermuda) Limited, is a holding company. 

Hay Management is also a wholly-owned subsidiary and serves as 
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the worldwide headquarters for all of the Hay companies. 

Hay Management is where most of the senior corporate officers 

are employed and where corporate and administrative functions 

are performed for the Hay entities. At all relevant times, 

Hay BV and Hay Management had the same Chairman, Chris Matthews. 

In addition, Hay Management had a prior contractual 

relationship under the CAA with Hay BV and Hay Germany whereby 

Hay Management was required to reimburse Hay Germany for 

Schneider’s salary that exceeded a certain fixed amount. 

Hay Germany was used as the paying agent on Hay BV’s behalf. 

Nonetheless, Hay Management was bound to reimburse Hay Germany 

for the majority of the judgment paid to Schneider. Indeed, 

while the judgment of the Higher Regional Court was against 

Hay BV, it was Hay Management which ultimately was out-of-pocket 

for the money as a result of its contractual obligation to Hay 

Germany and the use of Hay Germany as Hay BV’s paying agent. 

Under these undisputed facts, Hay BV and Hay Management were 

privies. Thus the second prong of federal res judicata has been 

met.15

 

15. The fact that Hay Management, Hay Acquisition, Hay Group, 

Inc., and Hay International were dismissed from the German 

litigation on December 23, 2010 does not affect our res judicata 

analysis. Two parties can be in privity for res judicata 

purposes even though the court in the first lawsuit for some 

reason did not have subject matter or personal jurisdiction over 

one of the parties in privity. The issue for res judicata is 
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The only question remaining is whether the present 

lawsuit arises out of the same cause of action as litigated in 

the German courts. The Court of Appeals in United States v. 

Althone Industries, Inc., 746 F.2d 977, 983 (3d Cir. 1984), 

noted that for purposes of res judicata a “cause of action” 

cannot be “precisely defined.” The focus begins with the 

requirement that the plaintiff present in one lawsuit “all the 

claims for relief that he may have arising out of the same 

transaction or occurrence.” Id. at 984. The inquiry is fact 

driven. We must determine whether there is “the essential 

similarity of the underlying events giving rise to the various 

legal claims[.]” Davis v. United States Steel Supply, 688 F.2d 

166, 171 (3d Cir. 1982). If so, res judicata applies. A 

plaintiff’s reliance on different legal theories in a second 

action is irrelevant.

Res judicata is not limited to the situation found in 

Lubrizol, Althone, and Davis where the parties are aligned in 

the same way in the original and subsequent lawsuits. 

Res judicata may also be applicable where the parties are 

reversed, that is, where the plaintiff in the first suit is now 

the defendant in the second suit and the defendant or a privy of 

the defendant in the original suit is now the plaintiff. The 

 

whether the parties have a close or significant relationship. 

Their citizenship or location is irrelevant.
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Supreme Court has explained that res judicata “prevents 

litigation of all grounds for, or defenses to, recovery that 

were previously available to the parties, regardless of whether 

they were asserted or determined in the prior proceeding.” 

Brown v. Felsen, 442 U.S. 127, 131 (1979). 

To decide for res judicata purposes whether the same 

cause of action is being raised a second time, the court looks 

not only at the basis of the plaintiff’s claim in the first 

action but also to what constituted available defenses or 

counterclaims, including those not raised and not established by 

competent evidence in the first lawsuit. See id. For example, 

if a judgment in favor of a plaintiff upholding a promissory is 

entered, a subsequent lawsuit by the defendant raising for the 

first time a defense such as forgery, writ of consideration, or 

payment is “of no legal consequence.”16 See Cromwell v. Cty. of 

Sac, 94 U.S. 351, 352 (1876). More broadly, res judicata 

controls so as to bar the privy of a defendant who lost the 

first lawsuit, now turned plaintiff, from seeking to nullify in 

a second lawsuit a valid judgment obtained against that 

defendant in the first lawsuit. See Bank of Montreal v. Kough, 

 

16. We recognize that if a defense for some legitimate reason 

is not available to a defendant in the first lawsuit, 

res judicata may not apply. This is not the situation here. 

See Restatement (Second) of Judgments § 22, cmt. f. 
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612 F.2d 467, 472-73 (9th Cir. 1980); Restatement (Second) of 

Judgments § 22(2)(b), cmt. f, and illus. 9.

Again, the court must look not to the legal theories 

advanced in the different lawsuits or to some narrow definition 

of cause of action useful in other contexts but to whether there 

is an essential similarity of underlying events. Here the court 

must also take into account any defenses or counterclaims that

Hay BV had available in the German lawsuit as a defendant and 

whether Plaintiff Hay Management, a privy to Hay BV, seeks in 

effect to nullify in this lawsuit the German judgment entered 

against Hay BV. 

At issue in the German litigation was Schneider’s 

purported termination, Hay BV and Hay Germany’s notices of 

termination to Schneider, and Schneider’s compensation. In 

adjudicating these issues, the Higher Regional Court scrutinized 

the language of the Employment Agreement and the CAA. For 

example, the Court noted that Schneider’s Employment Agreement 

had been “individually adjusted,” rather than simply being a 

standard “form contract.” The Court considered that Matthews 

and Schneider had signed the Employment Agreement and CAA on 

behalf of themselves and behalf of Hay entities, respectively. 

The Court analyzed the effect on the Hay entities of the 

assignment language contained in the Employment Agreement and 

the CAA. In sum, the language of these contracts, as well as 
-23-

their effect on the various Hay entities, were woven throughout 

the decision of the Higher Regional Court.

Further, the conduct of Schneider as a top executive 

of the Hay entities played a role in the German Court’s 

determination of the bonus to be awarded to Schneider. In 

considering his request for compensation under the Employment 

Agreement, the Court discussed Schneider’s fiduciary duty, and 

any breach thereof, to Hay BV and Hay Germany. The German Court

ultimately based its award to Hay Germany on its counterclaim

for repayment of severance money paid to Lucie Boller-Bockius on 

a breach of fiduciary duty by Schneider. 

These very same allegations about Boller-Bockius from 

the German lawsuit are repeated in the Second Amended Complaint 

in this action. Both the German Court’s decision and 

Plaintiff’s Second Amended Complaint also reference Schneider’s 

investigation of Hay Group, Inc.’s Chief Financial Officer

Stephen Kaye. Again, Dr. Fischinger and Dr. Thees, the experts 

for the parties here, confirm that Hay BV or the various Hay 

entities either did or could have raised by defense or 

counterclaim all the factual allegations and legal theories that 

Hay Management has set forth in its Second Amended Complaint. 

All but a small part of the damages Hay Management 

seeks to recover from Schneider in this second lawsuit consists 

of the very $13 million which it paid as a result of the German 
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judgment entered against Hay BV and in Schneider’s favor. 

Viewing side-by-side the German litigation and the allegations 

in the Second Amended Complaint, there is clearly an essential 

similarity of underlying events in the two lawsuits. Davis, 

688 F.2d at 171. The existence of different legal theories in 

the two lawsuits, which Plaintiff stresses, is of no 

significance.

Putting it in its starkest terms, Hay Management, as 

Hay BV’s privy, is seeking to nullify the valid final judgment 

of the Higher Regional Court where Schneider prevailed. This is 

precisely what res judicata is intended to prevent. See Bank of 

Montreal, 612 F.2d at 472-73; Restatement (Second) of Judgments

§ 22(2)(b), cmt. f, and illus. 9. Under the federal doctrine of 

res judicata, this action is barred.

Like the Court of Appeals in Lubrizol, we now turn to 

an analysis of the relevant state res judicata jurisprudence to 

determine if a different result would obtain. 929 F.2d at 965. 

Under Erie, we must apply in this diversity case the substantive 

law of the forum where the federal court sits. 304 U.S. at 78. 

If the doctrine of res judicata is deemed to be substantive 

under the framework of Byrd and Hanna, we must apply the law of 

Pennsylvania. In Balent v. City of Wilkes-Barre, 669 A.2d 309, 

313 (Pa. 1995), the Pennsylvania Supreme Court explained:
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Res judicata, or claim preclusion, is a 

doctrine by which a former adjudication bars 

a later action on all or part of the claim 

which was the subject of the first action. 

Any final, valid judgment on the merits by a 

court of competent jurisdiction precludes 

any future suit between the parties or their 

privies on the same cause of action. Allen 

v. McCurry, 449 U.S. 90, 94 (1980). 

Res judicata applies not only to claims 

actually litigated, but also to claims which 

could have been litigated during the first 

proceeding if they were part of the same 

cause of action. Id.

(internal citations omitted). We do not see any material 

difference between Pennsylvania law of res judicata and the 

federal law. Thus, we need not decide which law governs as this 

action cannot proceed under either scenario.

Finally, Plaintiff asserts that Pennsylvania would, 

pursuant to its conflict of laws rules, apply Delaware law on 

the issue of res judicata. See Klaxon Co. v. Stentor Elec. Mfg. 

Co., 313 U.S. 487 (1941). It argues that its claim of breach of 

fiduciary duty against Schneider is governed by Delaware law 

since the plaintiff was incorporated in that state. This 

argument need not detain us long. Even if Pennsylvania would 

invoke Delaware res judicata law, Delaware law in this regard is 

similar in all material respects to federal and Pennsylvania 

law. See Mott v. State, 49 A.3d 1186, 1189-90 (Del. 2012). The 

application of Delaware res judicata principles would not affect 

the outcome.
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Accordingly, the motion of defendant Bernd Schneider 

for summary judgment against Plaintiff Hay Management will be 

granted.17

 

17. Defendant has raised a number of other arguments in support 

of his motion for summary judgment. In light of our decision, 

we need not reach them.