Opinion ID: 1425637
Heading Depth: 3
Heading Rank: 2

Heading: Summary Judgment (Second Action)

Text: In the Second Action, the District Court granted summary judgment for ReliaStar. The Pruskys contend this was error, arguing that neither issue nor claim preclusion bars their second lawsuit, and that the District Court erred in interpreting the contracts. Because we conclude that the application of collateral estoppel here is dispositive, we need not consider the res judicata or contract construction questions, and will affirm solely on issue preclusion grounds. We exercise plenary review over a grant of summary judgment. Doe v. Abington Friends Sch., 480 F.3d 252, 256 (3d Cir.2007). Likewise, we review de novo a trial court's application of collateral estoppel. Jean Alexander Cosmetics, Inc. v. L'Oreal USA, Inc., 458 F.3d 244, 249 (3d Cir.2006). There is no dispute that Pennsylvania preclusion law governs in this diversity action. Riverside Mem. Mausoleum, Inc. v. UMET Trust, 581 F.2d 62, 66 (3d Cir.1978). In Pennsylvania, application of collateral estoppel requires (1) identity of issues, (2) a final judgment on the merits, (3) identity of parties, (4) that the party seeking relitigation had a full and fair opportunity to argue the issue in the prior proceeding, and (5) that the prior determination was essential to the judgment. E.g., Yamulla Trucking & Excavating Co., Inc. v. Justofin, 771 A.2d 782, 786 (Pa.Super.2001). Only the first and fifth elements are disputed here. The Pruskys' first argument that there is no identity of issues is easily dispatched. Initially, it is simply not the case that the First Action concerned the parties' obligations under the insurance prospectus, whereas the Second Action turned on the terms of the insurance contracts. In Prusky I, the District Court cited to a contract term that [a]ll transfers are also subject to any charges and conditions imposed by the Fund whose shares are involved, and opined based on this term that the contract allows ReliaStar to condition its performance on compliance with [a fund's instructions to prohibit or restrict trading.] Prusky I, 474 F.Supp.2d at 700. As a factual matter, this same language appears in both the policies' prospectuses and the insurance contracts themselves. Therefore, it is irrelevant that the District Court cited the prospectus as the source of the particular contractual term in Prusky I, because there is no reason why this identical language should be susceptible to a different construction in a subsequent action involving the same contracts and parties. Nor do we agree with the Pruskys' overly-narrow characterization of the particular legal questions at issue in the two proceedings. That the two actions were precipitated by distinct factual developments, i.e., ReliaStar's refusal to allow electronic trades versus its subsequent refusal to accept all trades, does not detract from the fact that the same legal issue  the extent of ReliaStar's contractual obligations under the insurance contracts  was nevertheless at the heart of both actions. Furthermore, the Pruskys' second point of contention  that the District Court's prior determinations were not essential to the judgment  is also unavailing. The Pruskys argue that the District Court never made any binding determination in the First Action as to the extent of ReliaStar's obligation to accept trades in the event that the mutual funds actually restricted their trades. They claim that because the sole issue in dispute in the First Action was their right to execute trades through electronic means, the District Court's comments as to ReliaStar's performance obligations beyond this narrow issue were merely advisory in nature, and thus could not have been appealed. Plaintiffs are incorrect. It is true that only legal or factual conclusions necessary to a final valid judgment may be given preclusive effect. RESTATEMENT (SECOND) OF JUDGMENTS § 27, at 250 (1982). This necessity requirement is justified by concerns that the first court may not have taken sufficient care in determining an issue that did not affect the result and that appellate review may not be available to ensure the quality of the initial decision. 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, FEDERAL PRACTICE & PROCEDURE § 4421, at 539 (2d ed.2002). Here, the gist of Plaintiffs' claims in the First Action was that ReliaStar's refusal to accept faxed trades constituted breach of contract. However, because ReliaStar defended by arguing, inter alia, that the mutual funds' reluctance to process the trades rendered its performance impracticable, the parties in fact vigorously litigated the impact of fund restrictions on ReliaStar's contractual obligations. [13] The District Court found that ReliaStar was in breach because it did not demonstrate... that it ever received any instructions [from any mutual funds] to restrict the [Pruskys'] trading. Prusky I, 474 F.Supp.2d at 700. However, the Court was explicit that when ReliaStar has received specific instructions from a fund to prohibit or restrict trading, the contract allows ReliaStar to condition its performance on compliance with those instructions. Id. Had the Pruskys simply sued for legal damages in the First Action, they would be correct that this latter finding would not have been essential to the Court's ultimate judgment that ReliaStar had breached the contract. But the problem is that Plaintiffs sought damages as well as injunctive, declaratory, and/or specific-performance relief. JA I at 67a (Compl., ¶ 88). In particular, they asked the District Court to order ReliaStar to perform specifically its obligation under the Contracts to accept and effect sub-account transfer instructions communicated ... by fax, telephone, or other electronic means, and to undertake reasonable efforts to surmount any future obstacles to performance of its obligations under the Contracts. Pls.' Proposed Order, ¶ 4 (emphasis added). [14] This requested relief necessitated a determination as to whether ReliaStar was contractually obligated to make reasonable efforts to continue to perform once the trades were refused by the mutual funds. That the funds had not actually restricted any trades at the time the District Court granted injunctive relief does not render its decision advisory; on the contrary, the legal impact of the restrictions was essential to the question of the scope of the Pruskys' entitlement to relief. Nor are Plaintiffs correct that they could not have appealed from the decision merely because the District Court entered judgment in their favor on the liability issue. Indeed, since they asked for, but did not receive, an order compelling ReliaStar to perform even in the face of actual fund resistence, the Pruskys had standing to appeal. Cf. Watson v. City of Newark, 746 F.2d 1008, 1010 (3d Cir.1984) (a party who receives all of the relief which he sought is not aggrieved by the judgment affording the relief and cannot appeal from it) (emphasis added); N.Y. Tel. Co. v. Maltbie, 291 U.S. 645, 646, 54 S.Ct. 443, 78 L.Ed. 1041 (1934) (phone company that obtained unqualified and permanent injunction against collection of rates did not have standing to appeal the court's conclusions as to the rates that would have been collected under the enjoined practice). That Plaintiffs failed to do so in error does not mitigate the preclusive effect of that prior binding determination. In sum, the Pruskys are collaterally estopped from relitigating the question of the scope of ReliaStar's contractual obligations. ReliaStar was thus entitled to the entry of judgment in its favor.