Source: https://law.justia.com/cases/federal/appellate-courts/F2/918/658/24319/
Timestamp: 2019-07-23 22:51:31
Document Index: 117893313

Matched Legal Cases: ['§ 78', '§ 78', '§ 78', '§ 78', '§ 78', '§ 1738', '§ 1738', '§ 78', 'art, 28', '§ 1738', '§ 1738']

Fed. Sec. L. Rep. P 95,642miguel A. Gargallo, Plaintiff-appellant, v. Merrill Lynch, Pierce, Fenner & Smith, Inc.; and Larry W.tyree, Defendants-appellees, 918 F.2d 658 (6th Cir. 1990) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Sixth Circuit › 1990 › Fed. Sec. L. Rep. P 95,642miguel A. Gargallo, Plaintiff-appellant, v. Merrill Lynch, Pierce, Fenner...
Fed. Sec. L. Rep. P 95,642miguel A. Gargallo, Plaintiff-appellant, v. Merrill Lynch, Pierce, Fenner & Smith, Inc.; and Larry W.tyree, Defendants-appellees, 918 F.2d 658 (6th Cir. 1990)
US Court of Appeals for the Sixth Circuit - 918 F.2d 658 (6th Cir. 1990)
Submitted on Brief Sept. 26, 1989. Decided Nov. 9, 1990
Miguel Gargallo opened a "margin brokerage account" with Merrill Lynch in 1976. He maintained the account until 1980, when his investments apparently went awry and losses occurred, resulting in a debt of some $17,000 owed to Merrill Lynch on margin calls. When the obligation was not paid, the brokerage firm filed suit for collection in the Court of Common Pleas, Franklin County, Ohio. In response, Mr. Gargallo filed an answer and counterclaim against Merrill Lynch, alleging that Merrill Lynch caused his losses through "negligence, misrepresentations, and churning," and that the firm had violated 15 U.S.C. §§ 78g(c), 78i, and 78j of the federal securities laws. After a considerable history of discovery difficulties, the state court dismissed Mr. Gargallo's counterclaim "with prejudice," citing Ohio Civil Rule 37, for refusal to comply with Merrill Lynch's discovery requests and the court's discovery orders.
Mr. Gargallo appealed the dismissal, without success, to the Ohio Court of Appeals. He then filed a complaint in the United States District Court, Southern District of Ohio, charging Merrill Lynch and its account executive, Larry Tyree, who was not a party to the state court action, with violating the margin rules of 15 U.S.C. § 78g(c) and Regulation T and engaging in deceptive investment practices proscribed by 15 U.S.C. §§ 78i, 78j, 78j(b). These claims were based on the same transactions at issue in the state litigation. After preparing a thoughtful written opinion, the district court dismissed the suit against Merrill Lynch on res judicata grounds, finding that the "issues, facts and evidence to sustain this action are identical to the claims asserted [against the brokerage firm] in [Mr. Gargallo's] counterclaim that was dismissed with prejudice by the state court." Since it was undisputed that defendant Larry W. Tyree, was in privity with Merrill Lynch as its employee, the court also dismissed the plaintiff's claim against Tyree, but did so finding that "Tyree has established the elements ... of collateral estoppel." This appeal followed.
There is no dispute in this case about the essential facts relating to the summary judgment, and the ultimate issue is: whether the district court correctly dismissed the plaintiff's claims on res judicata and collateral estoppel grounds. We review that question de novo to determine whether Merrill Lynch and Larry Tyree are entitled to judgments "as a matter of law." Fed. R. Civ. P. 56(c). See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S. Ct. 2505, 2510-11, 91 L. Ed. 2d 202 (1986); Burkart v. Post-Browning, Inc., 859 F.2d 1245, 1249 (6th Cir. 1988).
Mr. Gargallo's state court counterclaim alleged that Merrill Lynch had engaged in deceptive practices in the management of Mr. Gargallo's accounts, including "negligence, misrepresentation, and churning," in violation of federal securities laws, specifically 15 U.S.C. §§ 78g(c), 78i and 78j, and state common law. Mr. Gargallo's suit against the defendants in the district court complained of the same transactions, alleged violation of the same federal securities law, and added alleged violations of certain Securities and Exchange Commission regulations. We agree with the district court that the "issues, facts, and evidence to sustain this action are identical to the claims asserted ... in [plaintiff's state] counterclaim," and we are satisfied that the federal claim or cause of action giving rise to this appeal is the same claim or cause of action that was asserted in the counterclaim dismissed in the state court litigation.
However, the district court in which plaintiff brought his claim is not an Ohio court but a federal tribunal. Consequently, we are faced with the more difficult issue of whether a federal district court may give claim preclusive effect to an Ohio judgment regarding federal securities laws that are within the exclusive jurisdiction of the federal courts. See 15 U.S.C. § 78aa.2
The first rule in determining whether a prior state court judgment has preclusive effect in a federal court is that the full faith and credit statute, 28 U.S.C. § 1738,3 requires a federal court to give a state court judgment the same preclusive effect such judgment would have in a state court:
Allen v. McCurry, 449 U.S. 90, 96, 101 S. Ct. 411, 415, 66 L. Ed. 2d 308 (1980). And the rule is no less applicable in a case in which the state court was without jurisdiction to entertain the exclusively federal claim it adjudicated. The United States Supreme Court has spoken on this issue in an analogous context.
In Marrese v. Am. Academy of Orthopaedic Surgeons, 470 U.S. 373, 105 S. Ct. 1327, 84 L. Ed. 2d 274 (1985), the Court reviewed a decision of the Court of Appeals for the Seventh Circuit, sitting en banc, which held, as a matter of federal law, that an Illinois state court judgment involving federal antitrust claims within the exclusive jurisdiction of the federal courts must be given claim preclusive effect in any subsequent federal proceeding involving the same claims. The Supreme Court reversed on the ground that federal courts are required under 28 U.S.C. § 1738 to determine the preclusive effect of prior state court judgments, pursuant to the law of the state in which the judgment was entered, even as to claims within the exclusive jurisdiction of the federal courts. Id. at 375, 105 S. Ct. at 1329. Marrese requires, therefore, that a federal court must determine whether to give claim preclusive effect to a state court judgment upon a cause of action over which the state court had no subject matter jurisdiction by determining whether the state court would give preclusive effect to such a judgment.4
Id. at 381-82, 105 S. Ct. at 1332. But, after noting the proposition that a state court judgment rendered in a matter over which the court had no subject matter jurisdiction is generally given no claim preclusive effect, see Restatement (Second) of Judgments Sec. 26(1) (c) (1982),5 the Court said:
Id. at 382, 105 S. Ct. at 1333 (emphasis in original).
Thus, under Marrese, we are required to determine whether Ohio claim preclusion rules, as construed by the courts of that state, would accord preclusive effect to a judgment rendered by an Ohio court which lacks subject matter jurisdiction over the claim adjudicated. See id. at 386, 105 S. Ct. at 1335.6
LaBarbera v. Batsch, 10 Ohio St.2d 106, 109, 227 N.E.2d 55, 59 (1967) (citing Horovitz v. Shafer, 57 Ohio L.Abs. 341, 43 Ohio Op. 233, 234-35, 94 N.E.2d 201, 202-03 (1950)) (emphasis added). Accord Stale ex rel. City of Mayfield Heights v. Bartunek, 12 Ohio App.2d 141, 145-46, 231 N.E.2d 326, 330 (1967).7
[E]ven if the prior dismissal was premised on Civ.R. 37 for appellant's failure to comply with the discovery order, Civ.R. 41(B) (3) states the effect of such a dismissal is an adjudication on the merits unless the trial court expressly states otherwise in its dismissal entry. The dismissal entry in the instant case did not include the language "otherwise than upon the merits" or "without prejudice."
15 U.S.C. § 78aa states that " [t]he district courts of the United States ... shall have exclusive jurisdiction of violations of this chapter or the rules and regulations thereunder...."
In pertinent part, 28 U.S.C. § 1738 provides that " [t]he Acts of the legislature of any State, Territory, or Possession of the United States" and " [t]he records and judicial proceedings of any court of any such State, Territory or Possession ... shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State, Territory or Possession from which they are taken."
According to the Restatement, when " [t]he plaintiff was unable to rely on a certain theory of the case or to seek a certain remedy or form of relief in the first action because of the limitations on the subject matter jurisdiction of the courts," principles of claim preclusion do not apply and "part or all of the claim subsists as a possible basis for a second action by the plaintiff against the defendant." Restatement (Second) of Judgments Sec. 26(1) (c) (1982)
Marrese teaches that had the factual issues that form the basis of Gargallo's state counterclaim and this federal action been actually litigated in the Franklin County court, we could look to Ohio issue preclusion principles to determine whether the district court was barred from relitigating factual matters previously adjudicated by a court lacking subject matter jurisdiction over the claim giving rise to those issues. 470 U.S. at 385, 105 S. Ct. at 1334. But, because Mr. Gargallo's counterclaim was dismissed as a discovery sanction and, hence, no substantive factual issues were adjudicated in the Ohio court, Ohio's issue preclusion principles are not relevant to this case
62 Ohio Jur.3d Judgments Sec. 110 (1985 & Supp.1990) states, " [a] judgment rendered by a court which has no jurisdiction over the subject matter is coram non judice and void." 63 Ohio Jur.3d Judgments Secs. 441 and 454 (1985 & Supp.1990) respectively provide, " [a] judgment rendered by a court of Ohio of competent jurisdiction may be used as the basis for the operation of the doctrine of res judicata in an action instituted in a federal court" (emphasis added) and, " [a] judgment rendered without jurisdiction cannot be used as a basis for the application of the doctrine of res judicata."
Similar results were reached by this court in Cream Top Creamery v. Dean Milk Co., 383 F.2d 358, 363 (6th Cir. 1967), and DeWitt Motor Co. v. Chrysler Motors Corp., 391 F.2d 912, 913 (6th Cir. 1968), cases involving the question of the claim preclusive effect in a federal court of a prior state judgment upon a federal antitrust claim. See also Cellar Door Productions, Inc. v. Kay, 897 F.2d 1375, 1377-78 n. 2 (6th Cir. 1990). But those cases are not precedent here, because they are statements of federal claim preclusion law. We are concerned here with Ohio claim preclusion law made applicable in a federal court by 28 U.S.C. § 1738