Opinion
01 Civ. 5971 (RWS)
January 28, 2002
MICHAEL R. BRESSLER, ESQ., By: LILA AYERS, ESQ., Of Counsel, New York, NY, Attorney for Plaintiffs.
HOEY, KING, TOKER EPSTEIN, By: RHONDA L. EPSTEIN, ESQ., Of Counsel, New York, NY, Attorney for Defendants.
OPINION
Defendants Gerard J. Picaso Inc. and 33 West 67 Corp. ("33 West 67") have moved for an order dismissing the complaint of plaintiffs, Harry Ayala ("Ayala") and Miguel Arias ("Arias") pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure on the ground that a stipulated discontinuance "with prejudice" of a related state court proceeding precludes the present action in federal court. For the reasons stated, the motion is denied.
Prior Proceedings
Ayala and Arias filed an action against 33 West 67 in the Supreme Court of New York, County of Bronx, for violations of their rights under the New York State and New York City Human Rights Law on July 20, 2000. They subsequently considered pursuing a claim for racial discrimination in federal court, and retained a new attorney, Michael Bressler, Esq. ("Bressler").
This action, brought under 42 U.S.C. § 1981 as well as New York State and local law, was filed on July 2, 2001 and served on defendants by mail. At a status conference in Bronx County Supreme Court on August 16, 2001, counsel entered into a stipulation discontinuing the State court action. The stipulation was drafted by Bressler and states:
Plaintiffs hereby withdraw and discontinue this action with prejudice on their claims under New York State Human Rights Laws.
The Clerk of the Court shall mark the action dismissed with prejudice.
The matter was never adjudicated on the merits, either by motion, hearing or trial. Additionally, Bressler contends that he intended to continue the federal court action and that the defendants and their attorney were aware of that intent. The instant motion to dismiss was filed on October 30, 2001 and was marked fully submitted on November 28, 2001, at which time oral argument was heard.
Ayala and Arias May Continue Their Federal Action
This action was commenced in the Southern District on July 2, 2001. A month later, the plaintiffs discontinued their previously filed action in State Supreme Court. Under New York law, parties can stipulate to discontinue one action and proceed with the same action in another judicial forum.
This motion concerns a stipulation of discontinuance made in state court. Under the "Erie Doctrine", codified as the Federal Rules of Decision Act, 28 U.S.C. § 1652, the appropriate authorities to decide the issue at bar are state cases and statutes interpreting stipulations of discontinuance entered in state court.
In the closest analogue to the matter at bar, in Matter of Horton, 51 A.D.2d 856, 379 N.Y.S.2d 569 (2d Dept. 1976), a claimant filed an action for the same indebtedness in both Supreme and Surrogates Court. Claimant's counsel decided that the proper course was "to discontinue the Supreme Court action and petition the Surrogate for judicial settlement." 379 N.Y.S.2d at 570. Thus, claimant's attorney sent a letter to respondent's counsel explaining that claimant's intent was to pursue the claim in Surrogate's Court and further enclosed a stipulation of discontinuance of the Supreme Court action. The stipulation contained the words "discontinued on the merits." Id. at 571. The court held that:
In a matter of this nature Surrogate's Court and Supreme Court have concurrent jurisdiction. Since claimant discontinued prosecution of the claim in the Supreme Court and seeks to litigate it in Surrogate's Court, the latter has jurisdiction . . . Upon this record, it is clear that the stipulation was not strictly on the merits but only intended to terminate pursuit of the claim in the Supreme Court. Upon the argument appellant's counsel acknowledged that he knew that such was the intent of the claimant's counsel. The stipulation was not executed by the parties but only by their attorneys for procedural purposes. Claimant fully retained its right to litigate its claim in Surrogate's Court.
Id. at 571-72 (internal citations omitted).
Similarly, in this case, the State Supreme Court, pursuant to the New York State and City Human Rights Law, and the federal district court, pursuant to 42 U.S.C. § 1981, have concurrent jurisdiction over this matter. Here, plaintiffs allege, and the defendants do not deny, that the defendants were aware that the intent of Ayala and Arias was to dismiss the state court action in order to proceed in federal court. Like the claimant in Horton, the plaintiffs here discontinued their action by stipulation with prejudice (on the merits) in one forum, in order to proceed in a court with concurrent jurisdiction. The lower court denied the respondent's motion to dismiss on the same grounds asserted here and the appellate court upheld the ruling.
33 West 67 attempts to distinguish the case at bar from Horton by pointing out that in that case the parties had a written record of their understanding that the claimant intended to pursue the claim in the surrogate court and there was no such understanding here. As has been noted, however, Bressler has submitted an affidavit in which he makes numerous factual allegations regarding notice given to his adversaries concerning his intent to proceed with his clients' claims in federal court and dismiss the state court action. The defendants mention in their reply memorandum that "counsel did not know the intent of plaintiffs", but no affidavit was submitted and none of Bressler's allegations are refuted as such.
Further, "[i]t is well settled that a stipulation of discontinuance with prejudice does carry res judicata authority with respect to the same cause. However, the language `with prejudice' is narrowly interpreted when the interests of justice, or the particular equities involved, warrant such an approach." Dolitsky's Dry Cleaners v. Y L Jericho, 203 A.D.2d 322, 610 N.Y.S.2d 302, 303 (2d Dep't 1994). In Forte v. Kaneka Corp, 110 A.D.2d 67, 493 N.Y.S.2d 182 (2d Dep't 1985), the court noted that:
[n]either [defendant's] research nor our own has uncovered a reported case in this State where a discontinuance with prejudice has been given res judicata effect in future litigation between the parties. Indeed, research reveals that our courts have deemed it within their discretion to limit or disregard, in the interest of justice, the "on the merits" or "with prejudice" language embodied in the parties' stipulations (see, **183 e.g., Matter of Horton, 51 A.D.2d 856, 379 N.Y.S.2d 569; Stein v. Siegel, 50 A.D.2d 916, 377 N.Y.S.2d 580; Brown v. Bullock, 17 A.D.2d 424, 235 N.Y.S.2d 837; see also, 4 Weinstein — Korn-Miller, N.Y. Civ Prac. par 3217.10)."
In Forte, the court found that the equities did not warrant such an approach because the plaintiff was facing an "inevitable" adverse summary judgment ruling, but in the case at bar no court has evaluated the merits of this dispute and there is little question that Bressler intended to continue his clients' claim in federal court and communicated that to the defendants and counsel.
It would be inequitable to grant 33 West 67's motion and to deny Ayala and Arias their day in court where their intent was to withdraw their state case in order to proceed in federal court. To hold otherwise would elevate form over substance, which is precisely what equitable principles are designed to prevent. See, generally, 55 N.Y. Jur 2d, Equity § 1.
For the reasons stated, Picaso's motion to dismiss the complaint of Ayala and Arias on res judicata grounds is denied.
It is so ordered.