Opinion ID: 743069
Heading Depth: 2
Heading Rank: 1

Heading: Res judicata and the independent action in equity

Text: 28 Appellees initially argue that, based on the stipulation and Order of discontinuance of the 1994 Litigation, the claims in the present action pre-dating August 18, 1994, the date when the earlier suit was dismissed with prejudice, are barred by the doctrine of res judicata. [A] discontinuance with prejudice is deemed a final adjudication on the merits for res judicata purposes on the claims asserted or which could have been asserted in the suit. NBN Broadcasting, Inc. v. Sheridan Broadcasting Networks, Inc., 105 F.3d 72, 78 (2d Cir.1997). 29 Res judicata does not preclude a litigant from making a direct attack ... upon the judgment before the court which rendered it. Weldon v. United States, 70 F.3d 1, 5 (2d Cir.1995) (quoting Watts v. Pinckney, 752 F.2d 406, 410 (9th Cir.1985)). Rule 60(b)'s savings clause allows a court to entertain an independent action to relieve a party from a judgment, order, or proceeding ... or to set aside a judgment for fraud upon the court. Fed.R.Civ.P. 60(b). As allowed by this provision, appellants have brought a direct attack seeking rescission of the stipulation of discontinuance based on allegations that appellees committed fraud in inducing the Settlement Agreement. 30 Appellants do not base their claim for rescission of the settlement on fraud upon the court. Instead, they concentrate on the provision--independent of the provision addressing 'fraud upon the court'--authoriz[ing] an independent action for fraud perpetrated upon a party to prior litigation in which a judgment has been entered. This provision allows independent actions for relief from a judgment based on fraud on a party insofar as established doctrine permits. Fed.R.Civ.P. 60(b) advisory committee notes. 31 The court exercises discretion in determining whether to entertain independent actions for relief and looks to traditional equitable principles to guide its decision. See Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 71 (2d Cir.1990); see also Robinson v. Volkswagenwerk AG, 56 F.3d 1268, 1274 (10th Cir.1995), cert. denied, --- U.S. ----, 116 S.Ct. 705, 133 L.Ed.2d 661 (1996); Winfield Assoc., Inc. v. W.L. Stonecipher, 429 F.2d 1087, 1090 (10th Cir.1970) (stating that [t]he granting of relief in this unusual type of proceeding lies largely within the discretion of the trial judge). Moreover, [a]n appellate court should not disturb the equitable determination of the trial judge unless it can conclude that the trial judge abused his discretion. Winfield Assoc., Inc. v. W.L. Stonecipher, 429 F.2d at 1090-91. The trial court below affirmatively denied appellants' independent action for equitable relief. Campaniello Imports, Ltd. v. Saporiti Italia, 95 Civ. 7685, 1996 WL 437907, at  7 n. 5 (S.D.N.Y. Aug.2 1996) (stating that [s]ince plaintiffs' fraud claims are dismissed, ... plaintiffs' attempt to assert an independent action fails). 32 Generally, claimants seeking equitable relief through independent actions must meet three requirements. Claimants must (1) show that they have no other available or adequate remedy; (2) demonstrate that movants' own fault, neglect, or carelessness did not create the situation for which they seek equitable relief; and (3) establish a recognized ground--such as fraud, accident, or mistake--for the equitable relief. Cresswell v. Sullivan & Cromwell, 922 F.2d at 71 (citing Winfield Assoc., Inc. v. W.L. Stonecipher, 429 F.2d at 1090). 33 In this case, appellants have or have had other available remedies at law. The record demonstrates that the Campaniello companies would have been satisfied with the Settlement Agreement had the Gidatex Agreement been performed as they believed it should have been but for the alleged breaches of contract denominated as fraud. Moreover, the Campaniello companies' purported losses suffered in reliance upon appellees' alleged misrepresentations could be cured by vindication of their rights under the Gidatex agreement. There is no reason that the Campaniello companies can not raise claims either of fraud or breach of contract against the appellees in Italy through the agreed arbitration. Cf. Martina Theatre Corp. v. Schine Chain Theatres, Inc., 278 F.2d 798, 802 (2d Cir.1960) (denying equitable relief where plaintiff could have vindicated whatever rights were violated by this misrepresentation in an action in tort for deceit). In fact, claim two of the amended complaint raises such a claim seeking damages to appellants' goodwill and losses of sales and profits based on the Gidatex Agreement. 34 More importantly, the Campaniello companies have failed to show that their own carelessness did not create the situation for which they now seek equitable relief. Rule 60(b)(3) specifically allows a court to relieve a party from a final judgment for fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party, as long as the motion is made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. The stipulation dismissing the 1994 Litigation was entered on August 18, 1994; thus the appellants had until August 18, 1995 to bring a motion for relief under Rule 60(b)(3). 35 Filippini verbally terminated the Gidatex Agreement with appellants on April 10, 1995. Appellants also allege that appellees ceased all communications with appellants on or about April 6, 1995, and suggest that appellees failed to comply with their contractual promises from the outset of the Gidatex Agreement. If appellants believed that appellees' conduct constituted a fraud, they must have come to this realization at the very latest by April 10, 1995 and possibly sooner. Since appellants premise their independent action for equitable relief on fraud, they had ample time to submit a Rule 60(b)(3) motion before the August 18, 1995 deadline. [I]t is fundamental that equity will not grant relief if the complaining party 'has, or by exercising proper diligence would have had, an adequate remedy at law, or by proceedings in the original action ... to open, vacate, modify, or otherwise obtain relief against, the judgment.'  Cresswell v. Sullivan & Cromwell, 922 F.2d at 71 (citing Winfield Assoc., Inc. v. W.L. Stonecipher, 429 F.2d at 1090 (citation omitted)). 2 Having failed to take advantage of the adequate remedy at law offered by Rule 60(b)(3), appellants may not now seek relief in equity. 36 Moreover, appellants fail to raise a recognized ground for the extraordinary equitable relief of an independent action after the stipulated time for legal relief under Rule 60(b)(3)--namely one year--has gone by and a substituted distributorship has been negotiated and accepted. [T]he type of fraud necessary to sustain an independent action attacking the finality of a judgment is narrower in scope than that which is sufficient for relief by timely motion. Gleason v. Jandrucko, 860 F.2d 556, 558 (2d Cir.1988); see also Geo. P. Reintjes Co. v. Riley Stoker Corp., 71 F.3d at 48 (stating that fraud cognizable to maintain an untimely independent attack upon a valid and final judgement requires more than common law fraud); Restatement (Second) Judgments § 70 cmt. c (stating that a critical consideration concerns whether the claim of fraud is well substantiated and not merely asserted at large). Appellants fail to meet the pleading requirements for even common law fraud, let alone the more stringent criteria for the type of fraud necessary to sustain an independent action under the savings clause in Rule 60(b). 37 Absent a viable direct attack on the stipulation of discontinuance of the 1994 Litigation, res judicata precludes the parties or their privies from relitigating issues that were or could have been raised in that action. Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 2427, 69 L.Ed.2d 103 (1981). Thus, the District Court properly dismissed the claims in this action under res judicata to the extent that they involved issues that were or could have been raised in the 1994 Litigation. We next turn to the claims based on alleged fraudulent conduct subsequent to the commencement of the 1994 Litigation.