Opinion
No. 12–P–1133.
2013-07-12
U.S. AUTO LEASING, INC., & others v. BRIGHTON AVENUE ASSOCIATES, LLC.
By the Court (COHEN, SIKORA & SULLIVAN, JJ.).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The issue presented in this consolidated appeal is whether the plaintiffs, U.S. Auto Leasing, Inc. (USAL), and two other corporations owned and operated by Bahig F. Bishay (Bishay), may obtain the benefit of a prior adjudication between Bishay and Brighton Avenue Associates, LLC (BAA), in which a jury returned a verdict in Bishay's favor in the amount of $1,175,000. In the prior action, Bishay claimed that BAA, through its principal Harold Brown, breached an oral agreement entitling Bishay to the limited use of certain commercial premises through the end of August, 2001. In the present case, the plaintiffs (hereinafter, the companies) sued BAA, claiming to be third-party beneficiaries of the oral agreement between Bishay and BAA, which was the subject of the prior suit. The companies filed a motion for partial summary judgment in the Superior Court seeking to preclude relitigation of the existence of the contract on the basis of the offensive use of collateral estoppel. The judge denied the motion, and, after losing their case at trial, the companies appealed. See Bacon v. Federal Kemper Life Assur. Co., 400 dp1Mass. 850, 851 & nn. 3 & 4 (1987) (denial of a motion for summary judgment regarding collateral estoppel is appealable after trial on the merits). We affirm. The offensive use of collateral estoppel “occurs when a plaintiff seeks to prevent a defendant from litigating issues which the defendant has previously litigated unsuccessfully in an action against another party.” Bar Counsel v. Board of Bar Overseers, 420 Mass. 6, 9 (1995). While the practice is well accepted in our courts, a judge is granted wide discretion in determining whether the offensive use of collateral estoppel would be fair to the defendant. Id. at 11. Additionally, the application of the doctrine should comport with “judicial goals of finality, efficiency, consistency, and fairness,” id. at 10–11, with fairness being the “decisive consideration.” Pierce v. Morrison Mahoney LLP, 452 Mass. 718, 730–731 (2008) (citation omitted). The motion judge did not abuse his discretion when he found that the offensive use of collateral estoppel would not be fair to the defendant and would not fulfil the judicial goals enumerated above.
In an unpublished memorandum and order, this court affirmed the ensuing judgment for Bishay. See Bishay v. Brighton Ave. Assocs., LLC, 68 Mass.App.Ct. 1120 (2007).
Two of the plaintiffs, Bishay Isuzu Corp. and Commonwealth Automobile Company, Inc., filed for reorganization under Chapter 11 of the United States Bankruptcy Code in January of 2002. After the case was converted to a Chapter 7 liquidation proceeding, the trustee in bankruptcy sold various assets at auction, of which this suit was one. Bishay's wife, Mary, purchased the suit and prosecutes this appeal on behalf of those two plaintiffs.
The companies have provided us with the motion judge's margin order, which references reasons stated on the record, and the reasons stated in the defendant's brief. No party has provided a copy of the transcript referenced in the margin order, thus frustrating review on appeal. See Shawmut Community Bank, N.A. v. Zagami, 411 Mass. 807, 810–812 (1992) (superseded on other grounds).
Congruence of contract claims. Collateral estoppel applies only if the contract claim tried in the two actions is identical. Tuper v. North Adams Ambulance Serv., Inc., 428 Mass. 132, 134 (1998). Bishay took the position at the first trial that the oral agreement bore no relationship to the corporate entities, stating in his pleadings “one cannot conceive of a legal theory upon which the corporate entities would have standing to assert a cognizable claim against [the][d]efendants for the improper eviction of Bishay.” We are left with a serious and substantial question whether the contract to be litigated in the present action is, in fact, identical to the contract litigated in the prior action, and the record before us is inadequate to resolve the issue.
We lack a complete record of the first trial. The parties provided only selected portions of that record to the motion judge, and it is those materials that have been included in the record appendix. We review the issues presented only in light of the record provided to us. All other arguments based on a broader record are waived. Shawmut Community Bank, N.A. v. Zagami, 411 Mass. 807, 810–812 (1992) (superseded on other grounds).
Regardless, even if we were to assume that the contract claims are identical, the judge acted well within his discretion in denying the motion based on traditional principles applicable to the use of offensive collateral estoppel. In examining the judge's conclusion, we look to the principles enunciated in the Restatement (Second) of Judgments § 29 (1982) to determine whether the application of the offensive use of collateral estoppel is fair. Bar Counsel v. Board of Bar Overseers, 420 Mass. at 11–12. Three provisions have direct application here: § 29(3), the joinder provision; § 29(6), the provision addressing prejudice and complexity; and § 29(8), the catch-all provision.
Joinder. “The general rule should be that in cases where a plaintiff could easily have joined in the earlier action ... a trial judge should not allow the use of offensive collateral estoppel.” Parklane Hosiery v. Shore, 439 U.S. 322, 331 (1979). The purpose of the rule is to prevent the “wait and see” plaintiff from splitting claims, thus creating duplicative and burdensome litigation. See id. at 330;Restatement (Second) of Judgments § 29(3) (1982). Contrary to the contentions of USAL, there was nothing to prevent the companies from joining in the litigation. USAL did not file for bankruptcy, and could have joined in the suit at any time. The litigation was pending for five months before the other two corporations filed for Chapter 11 reorganization. The companies have cited no authority in support of their argument that a Chapter 11 debtor in possession may not prosecute litigation that would benefit the estate. See generally 11 U.S.C. §§ 323( b ), 1107 (2006) (giving trustee and debtor in possession the power to sue and be sued); Federal Rules of Bankruptcy Procedure 6009 (2012). “ ‘[A]ll legal or equitable interests of the debtor in property’ as of the commencement of bankruptcy, including causes of action, [became] property of the bankruptcy estate[s].” In re Furlong, 660 F.3d 81, 86 (1st Cir.2011), quoting from 11 U.S.C. § 541( a )(1). The debtors in possession were fully empowered, if not obligated, to bring suit in a timely manner. See DiMaio Family Pizza & Luncheonette, Inc. v. The Charter Oak Fire Ins. Co., 448 F.3d 460, 463–464 (1st Cir.2006) (automatic stay does not apply to debtor in possession, which is not enjoined by operation of the bankruptcy code from pursuing claims through litigation). Once the case was converted to a Chapter 7 liquidation on June 3, 2002, the Chapter 7 trustee acquired the authority to sue, id. at 463, and did so. There was no abuse of discretion where, as here, the “application of offensive collateral estoppel [would] ... reward a ... plaintiff who could have joined in the previous action.” Parklane Hosiery Co. v. Shore, 439 U.S. at 331–332.
Bishay was in personal receivership as of 2001, but there is nothing in the record to suggest that the receiver opposed or blocked the participation of the corporations. The corporations argue that it would have been burdensome for them to join in the litigation, given the dissolution of the businesses. That may be, but convenience is not the determinative factor in the analysis; fairness is.
Complexity and prejudice, and catch-all. “Treating a previously litigated issue as conclusively determined may in some circumstances complicate the trial of the subsequent action ... or hinder a party who has not yet had his day in court.” Restatement (Second) of Judgments § 29 comment h, at 296 (1982). Such is the case here. The fundamental premise of the companies' argument is that the nature and scope of the oral agreement for occupancy is fixed and identical in the two actions, and that the only disputed issue is the status of the corporate entities as third-party beneficiaries of that oral agreement. We do not think the issues can be separated so cleanly. Whether the corporate plaintiffs were third-party beneficiaries of an oral agreement depends in part on what that oral agreement was, and whom it was intended to benefit. USAL conceded as much in its pretrial pleadings in the second action. However, because Bishay expressly disavowed this interrelationship in the first trial, see above, BAA was not put on notice of the nature of the oral agreement now alleged in the second case, and did not have a “full and fair opportunity to litigate the issue in the first action.” Pierce v.. Morrison Mahoney LLP, 452 Mass. at 730 (citation omitted).
“[P]laintiffs note that the purposes and benefits of the underlying agreement are relevant to whether USAL, [Commonwealth Automobile Company, Inc.,] and/or [Bishay Isuzu Corp.] were third-party beneficiaries of the oral agreement between Bishay and BAA....” From this statement USAL would have had the trial judge conclude that the existence of the alleged oral agreement was wholly severable from the delineation of its intended beneficiaries. The trial judge disagreed, and we concur in that assessment.
The issue litigated in the first case was the existence of an oral agreement between Bishay, individually, and BAA. In this case, the plaintiffs allege injury to the companies themselves. However, evidence regarding the formation of the alleged oral agreement was necessary in the second action in order to allow the jury to determine the scope of the agreement, and to determine whether it was intended to benefit the corporate entities. Some degree of relitigation of the existence, nature, purpose, and scope of the oral agreement was inevitable. “Where this is the case, little is gained by way of economy in foreclosing retrial of the issue, because substantial recanvassing of the evidence will in any event be necessary.” Restatement (Second) of Judgments § 29, comment h at 296 (1982). Having maintained at the first trial that the companies had no claims against BAA, it would have been unfair and inequitable to permit the plaintiffs in this case to preclude litigation of that very issue in a second trial.
Bishay's individual damages derived, in pertinent part, from the loss of his wages and personal guarantee of corporate debt which came due as a result of the loss of licenses which were contingent upon continued occupancy. See Bishay v. Brighton Ave. Assocs., LLC, 68 Mass.App.Ct. 1120. Bishay denied the existence of damages to the corporations in the first trial, arguing in that action “[w]hile the eviction resulted in the demise of the corporate entities, the corporations have no claims against the Defendants to waive or abandon. Indeed, one cannot conceive of a legal theory upon which the corporate entities would have standing to assert a cognizable claim against Defendants for the improper eviction of Bishay .... the corporate entities have no claims that could be asserted against Defendants.”
Judgment affirmed.
Order denying motion for new trial, affirmed.