Opinion ID: 483247
Heading Depth: 2
Heading Rank: 3

Heading: Alternative Arguments for Affirmance of the RICO Dismissals

Text: 168 Defendants urge that if we conclude that the district court's dismissal of the RICO claims on the basis of the jury's answers to interrogatories was improper, we should nonetheless affirm that part of the 1985 Judgment on other grounds. They argue, inter alia, that the district court erred in denying their pretrial motions to dismiss these claims on the ground that the State Court Judgment constitutes res judicata or that the state court ruling that the action could not properly be maintained as a class action constitutes collateral estoppel. We reject both of these arguments. 169 In determining whether any preclusive effect is to be given to a prior state court judgment, a federal court is required by 28 U.S.C. Sec. 1738 (1982) to give that judgment the same effect that it would have in the courts of the state under state law. E.g., Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380-81, 105 S.Ct. 1327, 1331-32, 84 L.Ed.2d 274 (1985). It should not give the state court judgment any greater preclusive effect than the courts of the state would give it. Id. at 384, 105 S.Ct. at 1334. Application of these principles leads us to reject both the res judicata and the collateral estoppel contentions.
170 New York law is clear with respect to two principles that combine to defeat defendants' res judicata argument. First, a claim is not barred by res judicata if the court in which the first action was brought lacked subject matter jurisdiction to adjudicate that claim. See Salwen Paper Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 72 A.D.2d 385, 391, 424 N.Y.S.2d 918, 922 (2d Dep't 1980); Mural Arts, Inc. v. Sonsandi, 82 N.Y.S.2d 153, 154-55 (Sup.Ct. Kings Co. 1948); Restatement (Second) of Judgments Sec. 26(1)(c) (1982); 5 Weinstein-Korn-Miller, New York Civil Practice p 5011.18, at 50-140 (1985). Second, New York regards the federal courts as having exclusive jurisdiction over civil RICO claims, and the New York state courts, therefore, as having no jurisdiction to entertain such claims. See Greenview Trading Co. v. Hershman & Leicher, P.C., 108 A.D.2d 468, 470-73, 489 N.Y.S.2d 502, 504-06 (1st Dep't 1985); Belfont Sales Corp. v. Gruen Industries, Inc., 112 A.D.2d 96, 100, 491 N.Y.S.2d 652, 655 (1st Dep't 1985). 171 Accordingly, under New York's preclusion principles, a judgment in a prior New York state court action does not bar the subsequent assertion of civil RICO claims, see Nordberg v. Lord, Day & Lord, 107 F.R.D. 692, 701 (S.D.N.Y.1985), and plaintiffs' civil RICO claims here are not barred by res judicata.
172 We also find no merit in defendants' contention that the doctrine of collateral estoppel precludes maintenance of the present action as a class action because of the state court's ruling that plaintiffs' 1974 suit in that court could not be maintained as a class action. For application of principles of collateral estoppel, the issue as to which preclusion is sought [must] be identical with the issue decided in the prior proceeding, Capital Telephone Co. v. Pattersonville Telephone Co., 56 N.Y.2d 11, 17, 451 N.Y.S.2d 11, 13, 436 N.E.2d 461, 463 (1982); but issues are not identical when the standards governing them are significantly different, see id. at 18-19, 451 N.Y.S.2d at 14-15, 436 N.E.2d at 464-65; Strizak v. Board of Regents of the University of the State of New York, 29 A.D.2d 1013, 289 N.Y.S.2d 481, 483 (3d Dep't 1968); Courtney v. Nuding, 120 Misc.2d 148, 149, 465 N.Y.S.2d 403, 404 (Sup.Ct. Saratoga Co. 1983). 173 The class action ruling in the state court action was made in the context of the then-prevailing state law standard, namely CPLR Sec. 1005. Section 1005, as interpreted by the state courts, did not permit class actions to be maintained on the basis of separate wrongs to separate persons even if pursuant to a common plan; rather it required that the complaint allege a wrong against the class as a class. E.g., Cullen v. Margiotta, 81 Misc.2d at 811, 367 N.Y.S.2d at 641-42. In contrast, Fed.R.Civ.P. 23, which governs the permissibility of class actions in the federal courts, does not require that plaintiffs seek to redress a common wrong perpetrated against the class as a class. See 3B Moore's Federal Practice p 23.03, at 23-107 (1985). Rather, certification of a class action under Rule 23 is usually warranted when individual wrongs are alleged to have been pursuant to a common plan. See, e.g., Rossini v. Ogilvy & Mather, Inc., 798 F.2d 590, 598-99 (2d Cir.1986). 174 Since the standards governing the propriety of the suit as a class action in the state court and the federal court differed significantly, the state court ruling did not decide the issue presented in this case, and there is no collateral estoppel.
175 Defendants also urge the affirmance of the dismissal of the RICO claims on a number of other grounds, including some relating to the court's certification of the suit as a class action and others relating to contentions never ruled on by the district court. We decline to address these arguments at this time. While, as we noted in Part II.C.4. above, an appeal from a final judgment entered under Rule 54(b) allows us to review the court's pertinent pretrial rulings, we consider it appropriate, in light of our remand of the RICO claims for further proceedings, to leave consideration of defendants' other arguments until there have been definitive rulings by the district court and there is an appeal from a new final judgment fully adjudicating the RICO claims.