Opinion ID: 3011627
Heading Depth: 2
Heading Rank: 1

Heading: Collateral Estoppel Under New York Law

Text: The doctrine of collateral estoppel provides that once a court has decided an issue of fact or law necessary to its 11 judgment, that decision may preclude relitigation of the issue in a suit on a different cause of action involving a party to the first case. Allen v. McCurry , 449 U.S. 90, 94 (1980). By federal statute, judicial proceedings . . . 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 . .. . 28 U.S.C. S 1738. The parties agree that New York law governs this issue. In adjudicating a case under state law, we ar e not free to impose our own view of what state law should be; rather, we are to apply existing state law as interpr eted by the state's highest court in an effort to pr edict how that court would decide the precise legal issues befor e us. Koppers Co., Inc. v. Aetna Cas. and Sur. Co., 98 F.3d 1440, 1445 (3d Cir. 1996) (citing Kowalsky v. Long Beach Township, 72 F.3d 385, 388 (3d Cir. 1995)). Given that we are faced with an absence of guidance from New York's highest court, we must look to decisions of state intermediate appellate courts and of federal courts interpreting New Y ork law. Id. Neither party disputes that 28 U.S.C. S 1738 r equires federal courts, in cases where state law applies, to give preclusive effect to state court judgments whenever courts of the state from which the judgment emanated would do so. What the parties dispute is whether the state court judgment in this case meets the New York collateral estoppel test such that the District Court can give it preclusive effect as a matter of law. The District Court cited to Hickerson v. City of New York, 146 F.3d 99 (2d Cir. 1998), for New Y ork's collateral estoppel principles. Although a federal court decision, Hickerson explained and applied New York collateral estoppel law, stating that an issue may not be r elitigated if the identical issue was necessarily decided in a previous proceeding, provided that the party against whom collateral estoppel is being asserted had a full and fair opportunity to litigate the issue in the prior action. 146 F .3d at 104 (relying on In re Sokol, 113 F .3d 303, 306 (2d Cir. 1997); Ryan v. New York Tel. Co., 467 N.E.2d 487, 490-91 (N.Y. 1984)). As to these two elements -- the identical issue and a full and fair opportunity to litigate -- [t]he party seeking 12 the benefit of collateral estoppel has the bur den of demonstrating the identity of the issues in the pr esent litigation and the prior determination, wher eas the party attempting to defeat its application has the bur den of establishing the absence of a full and fair opportunity to litigate the issue in the prior action. In r e Juan C. v. Cortines, 679 N.E.2d 1061, 1065 (N.Y. 1997) (citing Kaufman v. Lilly & Co., 482 N.E.2d 63, 66 (N.Y . 1985)). In addition to whether the issues are identical and whether a full and fair opportunity to litigate is affor ded, embodied in New York's collateral estoppel rule is the concept of finality of judgments, i.e., that the judgment in the prior proceeding, and on which the claim to collateral estoppel is based, is final. See In re Juan C., 679 N.E.2d at 1063. Each of these principles, beginning with finality, is discussed below. (1) Finality New York law incorporates the threshold concept of finality of judgments into its collateral estoppel standard.14 The previous proceeding must resultin a final and valid judgment in which the party opposing estoppel had a full and fair opportunity to litigate. See In r e Juan C., 679 N.E.2d at 1063. However, contrary to Horsehead's argument, finality does not requir e that all appeals be completed. The finality of a judgment for the purposes of appealability is not the same as its finality for collateral estoppel purposes. State Bank of Albany v. McAuliffe, 485 N.Y.S.2d 139, 141 (App. Div. 1985); see also Matter of Amica Mut. Ins. Co., 445 N.Y.S.2d 820, 822 (App. Div. 1981) (The rule in New York, unlike that in other jurisdictions, is that the mere pendency of an appeal does not pr event the use of the challenged judgment as the basis of collaterally estopping a party to that judgment in a second proceeding.). Accordingly, the possibility that this judgment may be overturned during the pr oper course of _________________________________________________________________ 14. Of course, a prerequisite to finding finality is that the judgment relied upon for collateral estoppel purposes be valid. Restatement (Second) of Judgments S 1 (1982). Neither party disputes the validity of the judgment of the New York Supreme Court, Appellate Division. 13 appellate review does not prohibit r esort to collateral estoppel. The District Court cited Lummus Co. v. Commonwealth Oil Refining Co., 297 F.2d 80 (2d Cir . 1962), cert. denied sub nom. Dawson v. Lummus Co., 368 U.S. 986 (1962), for the distinction between finality for purposes of appeal and finality for purposes of collateral estoppel. Judge Henry J. Friendly in Lummus was interpreting New York law when he stated: Whether a judgment, not final in the sense of 28 U.S.C. S 1291, ought nevertheless be consider ed final in the sense of precluding further litigation of the same issue, turns upon such factors as the natur e of the decision (i.e., that it was not avowedly tentative), the adequacy of the hearing, and the opportunity for review. Finality in the context her e relevant may mean little more than that the litigation of a particular issue has reached such a stage that a court sees no really good reason for permitting it to be litigated again. 297 F.2d at 89 (internal citations omitted); accord, Sherman v. Jacobson, 247 F. Supp. 261, 268 (S.D.N.Y. 1965) ( `final' in the res judicata or collateral estoppel sense is not identical to `final' in the rule governing the jurisdiction of appellate courts). In Sherman, as in this case, the decision on which collateral estoppel rested remained open for appeal. Significantly, as the District Court in our case pointed out, the court in Sherman concluded that a judgment may be final as to some matters, even though the litigation continues as to others, and the decision may have adjudicated liability only, leaving the assessment of damages in abeyance. Sherman, 247 F. Supp. at 268; see also Zdanok v. Glidden Co., Durkee Famous Foods Div. , 327 F.2d 944, 955 (2d Cir. 1964) (The mere fact that the damages of the Zdanok plaintiffs have not yet been assessed should not deprive that ruling of any ef fect as collateral estoppel it would otherwise have.), cert. denied, 377 U.S. 934 (1964). The District Court noted that while the New Y ork approach outlined in Lummus departs fr om the traditional 14 view of finality, it continues to garner support. See Metromedia Co. v. Fugazy, 983 F.2d 350, 366 (2d Cir. 1992) (The mere fact that the damages awar ded to the plaintiff have not been yet calculated, though normally precluding an immediate appeal, . . . does not prevent use of a final ruling on liability as collateral estoppel.); In re Brown, 951 F.2d 564, 569 (3d Cir. 1991) (In this case, the order of the state court granting summary judgment on liability was not final for purposes of appeal, but that does not deny it preclusive effect in the bankruptcy court.); Hennessy v. Cement and Concrete Worker's Union, 963 F. Supp. 334, 339 (S.D.N.Y. 1997) (The fact that Hennessy could have appealed the order but chose to await a decision on the damages on the counterclaim before appealing from the dismissal of his claim does not change the conclusive effect of the final disposition of the claim.). Applying the factors that Judge Friendly consider ed relevant, e.g., the nature of the decision, the adequacy of the hearing, and the opportunity for review, the District Court found that the New York indemnification order was sufficiently final. We agree. Horsehead fully litigated the indemnification agreement before both the New York trial court and the intermediate appellate court. Thus, the hearing and opportunity for review affor ded Horsehead were adequate. The decision rendered by the New York Supreme Court, Appellate Division, is binding on the T rial Division. Although not final for purposes of an appeal to the New York Court of Appeals given that damages r emain to be litigated, the nature of the New York Appellate Division decision as to liability is in no way tentative. Therefore, we conclude that, for purposes of collateral estoppel, the decision is final. (2) Identical Issues Under New York law, the burden r ests on Paramount to demonstrate that the issues litigated in the separate proceedings were identical. See Ryan, 467 N.E.2d at 490. For an issue to be identical, it must be the point actually to be determined in the second action or pr oceeding such that `a different judgment in the second would destroy or impair rights or interests established by thefirst.'  Id. The 15 issue in the New York Supreme Court, Appellate Division, proceeding was whether Paramount was entitled to indemnification for liability for certain envir onmental claims pursuant to its indemnification agreement with Horsehead. The state appellate court made an express finding that the indemnification provision included CERCLA contribution claims. See Paramount, 660 N.Y.S.2d at 723. The threshold issue in the District Court proceeding seeking contribution from Paramount for response costs under CERCLA is whether the scope of the indemnification pr ovision covers CERCLA liability costs. If it does, then the issue in the state contract and federal CERCLA contribution proceedings is, for our purposes, identical. Courts that have considered the issue r ecognize that the questions of CERCLA liability and the interpr etation of any indemnification agreement among the parties liable for the clean-up are inextricably related. GNB Battery Technologies, Inc. v. Gould, Inc., 65 F .3d 615, 621 (7th Cir 1995) (citing Kerr-McGee Chem. Corp. v. Lefton Iron & Metal Co., 14 F.3d 321 (7th Cir. 1994)). Moreover, in the context of asset purchase or transfer agreements, courts (including this Court) have held that CERCLA claims are subsumed within broad contractual indemnification pr ovisions. See, e.g., SmithKline Beecham Corp. v. Rohm and Haas Co., et al., 89 F.3d 154, 160 (3d Cir. 1996) (holding that the language in the Purchase Agreement indemnity provisions is general enough to evidence the parties' intent to include CERCLA response costs, even though not specifically enumerated); GNB Battery Technologies, 65 F.3d at 622 (concluding that the plain language of the assumption agreement was sufficiently broad to encompass any CERCLA liabilities that may arise, even though no specific reference to CERCLA was made); Beazer East, Inc. v. Mead Corp., 34 F.3d 206, 211 (3d Cir. 1994) (we must look to see whether an indemnification provision is either specific enough to include CERCLA liability or general enough to include any and all environmental liability which would, naturally, include subsequent CERCLA claims). Applying New York law to indemnity and release pr ovisions, courts have reached similar conclusions. See Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10, 14 (2d Cir. 1993) (concluding that an agreement transferringall liability 16 transfers responsibility for all CERCLA liability, even if it does not expressly reference CERCLA); see also Purolator Prods. Corp. v. Allied-Signal, Inc., 772 F. Supp. 124, 130 (W.D.N.Y. 1991) (concluding that, under two broad indemnity clauses, the purchaser clearly agr eed to take the assets along with any liabilities, including CERCLA liabilities, that might attach to them). Thus, in a CERCLA contribution action where the parties entered into an indemnification agreement, the proper inquiry is whether the indemnification provision is either specific enough to include CERCLA liability or general enough to include any and all environmental liability which would, naturally, include subsequent CERCLA claims. Beazer East, Inc., 34 F.3d at 211. The interpretation of the scope of the contractual indemnity provision in this case is guided by state law, and the parties agree that New York law applies. See SmithKline Beecham Corp., 89 F.3d at 15859 (We apply state law to determine whether a particular indemnification provision encompasses CERCLA response costs.) (citing Hatco Corp. v. W.R. Grace & Co., 59 F.3d 400, 405 (3d Cir. 1995)); Olin Corp., 5 F.3d at 15 (concluding that federal courts should incorporate state law when interpreting contractual agreements allocating CERCLA liability). The Court in Olin summarized the relevant principles of New York contract law developed by the New Y ork Court of Appeals in Slatt v. Slatt, 477 N.E.2d 1099, 1100 (N.Y. 1985). Under that law, it is our function to`discern the intent of the parties to the extent their intent is evidenced by their written agreement.'  Olin, 5 F.3d at 15 (citing Commander Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49, 51 (2d Cir. 1993) (quoting Int'l Klafter Co. v. Continental Casualty Co., 869 F.2d 96, 99 (2d Cir. 1989) (citing Slatt, 477 N.E.2d at 1100 (N.Y . 1985)))). Where the intention of the parties is clearly and unambiguously set forth, effect must be given to the intent as indicated by the language used. Slatt, 477 N.E.2d at 1100. However, we note that in New York[,] indemnification agreements are strictly construed; a court cannot find a duty to indemnify absent manifestation of a `clear and unmistakable intent' to indemnify. Commander Oil, 991 F.2d at 51 (citing 17 Heimbach v. Metropolitan Transp. Auth. , 553 N.E.2d 242, 246 (N.Y. 1990)). The District Court's discussion of this issue is unfortunately conclusory: [R]egardless . . . whether the New Y ork action can or cannot be characterized as one seeking CERCLA damages, the thrust of the New York pr oceeding was exclusively an action on a contract to deter mine if Paramount was entitled to indemnity from [Horsehead] under the contract provision dealing with environmental damage claims in Palmerton, Pennsylvania and elsewhere for which Paramount may be liable. Accordingly, there are no factual issues over environmental damages which would preclude summary judgment on the indemnity question. Dist. Ct. Op. at 7. The District Court granted summary judgment in favor of Paramount, concluding that[w]e can find no reason for proceeding with this second case between the parties when in the first case in New York there is a claim which was litigated and may very well moot this action. Id. at 10. The District Court, in reading the Paramount decision of the Appellate Division of the New York Supreme Court, was satisfied that the indemnification provision encompassed all of the environmental claims, including the CERCLA contribution claims befor e it, such that the identical issue was present to pr eclude litigating the CERCLA contribution claim in the District Court. The indemnification provision in this case is considerably broad, holding Horsehead responsible for the costs associated with all environmental liabilities stemming from Seller's Business and the Purchased Assets at the Palmerton site. Specifically, Horsehead must indemnify Paramount for all liabilities, damages, costs, obligations and requirements . . . under any envir onmental, safety and health or reclamation law. The indemnification provision applies to the maintenance or operation of the Purchased Assets or to the conduct of the Seller's Business at any time prior to or after the Transfer Date. This provision shows a clear and unmistakable intent to include all environmental claims, including claims for 18 contribution under CERCLA. The circumstances surrounding the transfer of assets, most notably that Horsehead was formed by officials of Paramount's predecessor for the purpose of transferring the environmental liability associated with the Palmerton site, id. at 719, confirm that intent. W e agree with the New York Supreme Court, Appellate Division, which made a thorough inquiry as to the scope of the indemnification pr ovision, that [t]he language of the broad indemnification clause itself clearly and unambiguously requir es indemnification for all liabilities arising from environmental laws and regulations, without any exclusion of CERCLA liabilities. Id. at 722. However, the indemnification provision was accompanied by contractual limitations on Horsehead's liability. Horsehead argues that these limitations, notably the exceptions enumerated under Subparagraphs I.F(2)[a]-[f] of the APA and Schedule VIII appended to it, defeat the identicality between contractual liability and CERCLA liability. Contractually, Horsehead would not be r esponsible for certain contingent liabilities it expressly declined. See supra, note 9. Yet under CERCLA's statutory liability, Horsehead posits that it may be responsible for those same contingent liabilities. Horsehead contends that the District Court's decision in this case sidesteps CERCLA's contribution mechanism and requires Horsehead to reimburse Paramount for all CERCLA claims, even those expressly excepted in the APA and those associated with the assets not purchased by Horsehead. In other words, Horsehead argues that the universe of CERCLA liabilities may exceed those liabilities for which Horsehead must reimburse Paramount under the indemnification agreement, and thus the requisite identicality of issues is missing. Where an indemnification agreement exists, the threshold inquiry in a CERCLA contribution case is the same as the inquiry the New York Supreme Court, Appellate Division, undertook: whether the scope of the indemnification provision is broad enough to encompass liability for CERCLA response costs. With respect to Horsehead's arguments, we first note that Horsehead is confusing the 19 determination of CERCLA liability with the function of an indemnification agreement, which covers the allocation of cleanup costs among its parties. Similar to an insurance policy, the indemnification agreement transfers the responsibility for who pays the response costs regardless of liability. Moreover, CERCLA recognizes the parties' right to indemnify each other by agreement for r esponse costs, as they have done. See SmithKline Beecham Corp., 89 F.3d at 158 (Thus responsible parties can lawfully allocate CERCLA response costs among themselves while r emaining jointly and severally liable to the government for the entire clean-up.). We have also reviewed the limitations on Horsehead's liability in Subparagraphs I.F(2)[a]-[f] of the APA and Schedule VIII attached thereto, and find nothing that changes the intent of the parties or renders the indemnification provision ambiguous such that it would not include CERCLA response costs. In GNB Battery Technologies, a case with relevant similarities, the Seventh Circuit held that the plain language of the assumption agreement unambiguously transferred all of seller's liabilities, including CERCLA liabilities, despite the fact that specific exemptions from liability wer e enumerated. 65 F.3d at 623. The Court concluded that [t]he enumeration of these exemptions indicates that the parties intended to exempt only the situations that they specifically itemized. Id. Therefore, because CERCLA liabilities specifically were not itemized as exemptions, they were intended to be included by the parties. Moreover, the fact that the exemptions existed did not operate to defeat the inclusion of CERCLA liabilities. In this case, Horsehead argues that the CERCLA liabilities and the exceptions listed in Schedule VIII overlap. Under Subparagraphs I.F(2)[a], [b],[c], and [e] of the APA, Horsehead assumes the full performance and costs associated with specific litigation or consent or ders except where Paramount agrees to reimburse Horsehead for some portion of those costs. In Subparagraph I.F(2)[d], Horsehead expressly declines any contingent liability associated with certain fugitive emissions at the Palmerton site. In Subparagraph I.F(2)[f], Horsehead declines liability from an 20 industrial accident not related to the Palmerton site. These limitations on liability will likely be consider ed in the damages phase of the New York litigation. However, they do not alter our holding here that the plain language of the APA demonstrates the intent that Horsehead indemnify Paramount for all environmental claims, including claims for contribution under CERCLA. Moreover, that these exceptions to Horsehead's liability do not specifically mention CERCLA liability supports the view that the parties intended that CERCLA liability be included within the broad scope of envir onmental claims for which indemnification exists. As the New Y ork appellate court noted, the parties' failure to include CERCLA liability, by name, does not render the agr eement ambiguous where the broad language of the agreement clearly encompasses all environmental liabilities of which CERCLA is one. More significant is the fact that CERCLA liability is not listed in [Subparagraphs] I.F(2)[a]-[f], which delineates certain limitations on the liabilities that were otherwise assumed by Horsehead . . . . Paramount, 660 N.Y.S.2d at 723. Further support for this view comes from the other side of the same coin. That the parties to the AP A knew well of CERCLA, and thus could have dealt with it by name in the APA, is made clear by the memorandum attached to Schedule VIII specifically mentioning CERCLA. While the Trial Division of the New York Supr eme Court found the language in the memorandum mentioning CERCLA, and declaring that [t]he former owner may not use an indemnification agreement to shift liability to any other person, but may obtain insurance against his own liability, to create an ambiguity as to the parties' intent to include CERCLA costs within the broad indemnity pr ovision, the Appellate Division disagreed. [The memorandum] merely makes a correct statement of the applicable law, as set forth in the statute. . . . Thus, this sentence[quoted in this paragraph, above] does not conflict with, or override, the clearly delineated obligations set forth in the indemnification clause, to which Horsehead agr eed. Id. at 722-723. 21 In sum, we are satisfied that the broad indemnification provision here includes CERCLA contribution claims. Therefore, for collateral estoppel purposes the issue litigated in the New York state courts is identical to the issue that was before the District Court. For the District Court to have concluded otherwise would thwart Paramount's right to indemnification for CERCLA costs established in the first action in the New Y ork state courts. (3) Full and Fair Opportunity to Litigate Under New York law, the doctrine of collateral estoppel applies to preclude relitigation of an issue where it is found that the litigant against whom preclusion is sought in the current proceeding had a full and fair opportunity to litigate the issue in the prior proceeding. See Gilberg v. Barbieri, 53 N.Y.2d 285, 291 (1981). The party attempting to defeat the application of collateral estoppel has the bur den of establishing the absence of a full and fair opportunity to litigate the issue in the prior action. In r e Juan C. v. Cortines, 679 N.E.2d 1061, 1065 (N.Y. 1997). As already noted, Horsehead has fully litigated the interpretation of the indemnity clause in the New York trial and appellate courts. Even though this judgment may later be overturned during the proper course of appellate review of damages, New York law does not prohibit the application of collateral estoppel. While we acknowledge that the courts of New York have refused to give pr eclusive effect to an interlocutory order, see, e.g., Morley v. Quinones, 208 A.D.2d 813 (N.Y. App. Div. 1994), this line of decisions did not confront the situation where the or der was reviewed by at least one appellate court. The case befor e us more closely resembles a pending appeal wher e finality can be found than an interlocutory order in which the parties had no opportunity to file an appeal.